Anthony Rozmus - Investor Relations Steve Lockard - President and Chief Executive Officer Bill Siwek - Chief Financial Officer.

Philip Shen - ROTH Capital Partners Paul Coster - JPMorgan Jeff Osborne - Cowen & Company Chip Moore - Canaccord Genuity Pavel Molchanov - Raymond James Joseph Osha - JMP Securities Eric Stine - Craig-Hallum.

Good afternoon and welcome to the TPI Composites’ Fourth Quarter and Full Year 2017 Earnings Conference Call. Today’s call is being recorded and we have allocated an hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Anthony Rozmus, Investor Relations for TPI Composites. Thank you, sir. Please go ahead..

Thank you, operator. I’d like to welcome everyone to TPI Composites’ fourth quarter and full year 2017 earnings call. In addition to our press release, you can also find our Q4 earnings slide presentation on our IR website.

Before we begin, let me remind everyone that during this call TPI Composites’ management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, projections, beliefs, estimates, plans and prospects.

Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are described in our Form 10-K and other periodic reports as filed with the Securities and Exchange Commission.

The company does not undertake any duty to update such forward-looking statements. Additionally, during today’s call, the company will discuss non-GAAP measures which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for the results prepared in accordance with GAAP. The reconciliations of GAAP to non-GAAP information can all be found in our earnings release, which is posted on our website at www.tpicomposites.com and also included in our Form 10-K as filed.

With that, let me turn the call over to Steve Lockard, TPI Composites’ President and CEO..

Good afternoon, everyone and thank you for joining our fourth quarter and full year 2017 earnings call. I am joined today by Bill Siwek, our CFO. I will start with some highlights from the full year, followed by a brief update of the wind market and TPI’s progress on our strategy of strong and diversified global growth.

I will then turn the call over to Bill to review our financial results in more detail. I will then conclude with a review of our full year 2018 outlook before we open up the call for Q&A. Please turn to Slide 5.

We finished our second year as a public company strong and delivered another solid quarter of efficient operational performance and consistent financial growth. In 2017, we achieved record results.

Our net sales and billings both grew 23% to $930.3 million and $$941.6 million respectively slightly below the guidance we provided in November due to volume changes on a new product from one of our customers late in the quarter.

Adjusted EBITDA for the year increased 53.5% to $101.5 million above the November guidance range and our adjusted EBITDA margin increased 210 basis points to 10.9% from 8.8% in full year 2016, a 27% increase in wind blade sets delivered, reductions in manufacturing cycle times, improvements in productivity and shared gain from material cost-out efforts continue to drive our adjusted EBITDA results.

Based on global onshore wind turbine installations in 2017 of roughly 50 gigawatts, we increased our overall market share from 9% in 2016 approximately 13% in 2017. We signed a multiyear supply agreement with Vesatas for two manufacturing lines, with an option for additional lines in a new manufacturing hub in Matamoros, Mexico.

We signed a multiyear supply agreement with Senvion for two manufacturing lines in our Taicang Port, China plant. We signed a multiyear supply agreement with Siemens Gamesa for one manufacturing line plus an option for a second line in our second plant in Izmir, Turkey.

These new supply agreements represent potential contract revenue of up to $850 million over the term of the agreements. We opened an advanced engineering center in Kolding, Denmark to attract additional technical talent and enhance our capabilities to serve our European customer base.

Finally, TPI continues to demonstrate additional commercial capabilities for our advanced composites expertise. We have grown our footprint in the transportation business with our supply agreement with Proterra, a leading supplier of zero emission buses and today we announced that we have entered into an agreement with Navistar Inc.

to design and develop a Class 8 truck comprised of a composite tractor and frame rails, while targeting 30% weight savings compared to current trucks. This collaborative development project is being entered into in connection with Navistar’s recent award under the U.S.

Department of Energy’s Super Truck II investment program, which is designed to promote freight efficiency in commercial vehicles. This brings our development program count in strategic markets to a total of 5, up from 3 last quarter.

We continued to develop our robust wind pipeline, with global opportunities with current and new customers both onshore and offshore blades.

Last quarter, we explained that as blades continue to get longer, utilize more advanced materials and we continue to drive increased output per line, the revenue from new lines will be meaningfully more than that of our earlier expectations.

As a result, the average revenue per year per line is increasing from a range of $20 million to $25 million to in excess of $35 million. Furthermore, as our customers transition to larger wind blades under existing contracts, the revenue per line will increase providing additional revenue growth opportunities from existing facilities.

At the end of last quarter, our prioritized pipeline was 22 lines. As of today, our prioritized pipeline sits at 24. We remain very confident in our ability to convert this pipeline over the next 24 months and in fact we are in active negotiations for a number of lines with the expectation of closing them in the next 1 to 2 months.

As we talked about in November, 2018 will be an investment year for TPI as we have estimated that 14 lines will be in transition and 12 lines will be in startup. Notwithstanding this, we estimate that we will have top line growth of approximately 10% this year.

We expect these new lines as well as transitions and additional startups will position us nicely for strong growth in 2019 and we are still confident in our revenue target of $1.3 billion to $1.5 billion or approximately 35% growth in 2019. Therefore, our 3-year revenue CAGR target still stands at 20% to 25% through 2019. Our strategy remains intact.

We continue to see traction as we diversify our sources of revenue across customers, geographies and non-wind markets. We will continue to execute on the strategy and take advantage of the growth in the global wind market, stability in the U.S. wind market and the ongoing wind blade outsourcing trend.

Turning to Slide 6, as of today, our long-term supply agreements provide potential revenue of up to $4.6 billion through 2023, including the 41 wind blade manufacturing lines and our transportation production lines. This contract value has increased over last quarter notwithstanding our Q4 billings of nearly $243 million.

While the minimum guaranteed volume under contract has grown to approximately $3.1 billion, our contract structure encourages customers to purchase the maximum volume. Please turn to Slide 8, our view of the onshore global market growth remains essentially unchanged.

Annual installed onshore wind growth is expected to increase to 63.3 gigawatts in 2026.

This projected growth will be driven primarily by developing markets, which according to data provided by MAKE will grow at a CAGR of 8.6% during that period, while more mature markets, those with at least 6 gigawatts of installed capacity at the end of 2016 will continue to grow, but at a more modest CAGR of 0.8%.

We believe we remain well-positioned to serve these emerging markets from our facilities in China, Juarez, and Matamoros, Mexico and Turkey. And we expect the growth of these markets will continue to drive the outsourcing trend we have seen over the last 10 years.

We also see strong outlook for wind energy in large more mature markets, such as China, the U.S. and India, areas where there continues to be very low wind penetration rates. We believe we are well-positioned to serve the U.S. and China markets from our existing footprint.

The opportunity for wind in both emerging and large developed economies allows multiple avenues for growth for TPI and the broader industry. With respect to the U.S. onshore market, we are pleased with the outcome of tax reform late last year where threats to alter the PTC phase-down were rejected by key Republican allies.

As you can see on Slide 9, the next few years are expected to be very strong with expected annual installations averaging 10.7 gigawatts. According to AWEA, the U.S. wind industry reported 28.7 gigawatts of wind capacity under construction or in advanced development as of the end of the fourth quarter of 2017, a 34% year-over-year increase.

Approximately, 52% of advanced development capacity is proceeding under direct utility ownership.

Electric utilities contracted for 3.3 gigawatts of capacity during 2017 and announced plans to develop and own an additional 4.2 gigawatts for rate-based wind capacity contributing to a total of 8.8 gigawatts in total direct utility ownership made since the beginning of 2016.

Direct ownership by utilities has historically accounted for only 20% of utility wind procurement. However, since the beginning of 2016, direct ownership has accounted for 60% of total utility procurement.

Corporate and other non-utility customers signed PPAs representing 40% of total project capacity contracted during all of 2017 led by Google Energy, Amazon and Amazon Web Services. Other notable corporate purchasers during the year included Anheuser-Busch, Cummins, Home Depot, JPMorgan Chase and Target.

Corporate and other non-utility customers have now signed more than 7.1 gigawatts of PPAs to-date. We believe we remain very well-positioned in the U.S. with our current customers accounting for 99% of the U.S.

market share in 2017 and they also account for 98% of the projects under construction or in advanced development where developers have reported an OEM. Although we recognized that there is some uncertainty in the marketplace concerning the U.S. wind market beyond 2020, optimism is building due to several factors.

80% PTC orders placed in 2017 will increase installed gigawatts in 2021 and MAKE reported that there was 10 gigawatts of wind safe harbored in 2017, 77% more than in its previous forecast. The pure economics of wind energy are really compelling. Corporate and retail customers want to buy wind.

Utilities are applying it to grow their businesses and to meet aggressive CO2 emission reduction goals and very large institutional investors are requiring change in social responsibility from the energy industry. Turning to Slide 10, beyond 2020, we see a strong market for wind energy both in the U.S.

and globally, the trends of longer blades, taller towers, technology advancements and maturing of the industrial supply chains to drive down LCOE continues. In a recent IRENA report, they stated that turning to renewables for new power generation is not simply an environmentally conscious decision it is now overwhelmingly a smart economic one.

There are now 125 major corporations, up from 111 during our last call that are members of the RE100 and have pledged to use 100% renewable energy over time. In its strategic vision for clean energy future 2018, AEP once among the most carbon heavy U.S.

electric utilities has a target of reducing CO2 emissions from its own generation facilities 60% by 2030 from 2000 levels and 80% by 2050. Nick Akins, AEP’s CEO noted that the energy industry is undergoing a historic transformation moving rapidly toward a clean energy economy.

AEP plans to add up to 5.3 gigawatts of wind by 2030 in its multi-state service territory. MidAmerican, a Berkshire Hathaway energy unit owns more wind capacity than any other U.S. regulated utility. And by the time, its Wind 11 project is built out in 2020 it will generate enough wind power to cover 90% of its loads.

Increased demand for offshore projects in the U.S. and globally will also add to overall demand. MAKE estimates that the offshore wind segment will add 70 gigawatts of new capacity globally through 2026 with upwards of 4 gigawatts in the U.S.

At the end of 2017, investment-enabling policies were in place in three states, Maryland, Massachusetts and New York. Since January 1 of this year, 4 U.S. states have made substantial announcements around offshore wind, including New York, New Jersey, Connecticut and Rhode Island.

According to MAKE, re-powering is estimated to account for 4.8% of new capacity in the top 20 global markets through 2026 and nearly 26 gigawatts globally. Much of the near-term re-powering in the U.S. will be driven by the 80/20 re-powering provisions of the PTC.

The vehicle electrification trend continues as EVs get lighter with increased range and use capabilities, which is driving the need for incremental energy to power this transformation of the vehicle fleet.

We believe the decarbonization of our electric sector and strong economics will provide ongoing growth opportunities for wind energy and for TPI for many years to come. Let me now turn the call over to Bill to review our financials..

Thanks, Steve. Turning to Slide 12 for the fourth quarter 2017, net sales for the quarter increased 33.2% to $247.1 million compared to the same period in 2016, net sales of wind blades increased by 43% to $236.2 million for the fourth quarter of 2017 as compared to the fourth quarter of 2016.

The increase was primarily driven by a 38% increase in the number of wind blades delivered during the fourth quarter compared to the same period in 2016, primarily from our China, Mexico and Turkey plants and an overall increase in the average sales prices of blades during the quarter.

Total billings for the fourth quarter increased by $45.1 million or 22.8% to $242.7 million compared to the same period in 2016. The favorable impact of currency movements on both consolidated net sales and total billings was 2.5% for the quarter.

Gross profit for the quarter totaled $27.3 million, an increase of $8.2 million over the same period of 2016 and our gross profit margin increased 70 basis points to 11%. The increase in gross margin was driven primarily by continued operating efficiencies, the impact of savings and raw material costs and the net benefit of a stronger U.S.

dollar partially offset by an increase in startup and transition costs of $4.9 million compared to the same period a year ago. General and administrative expenses for the quarter were $12 million or 4.9% of net sales as compared to $9.7 million in 2016 or 5.2% of net sales.

The dollar increase quarter-over-quarter was largely driven by costs related to the implementation of ASC 606 which is the new revenue recognition standard. Costs for our work related to Sarbanes-Oxley and increased personnel costs from filling global positions to support our growth and diversification strategy.

Net income for the quarter was $5.9 million as compared to a net loss of $2.3 million in the same period of 2016. This improvement was primarily due to the improved operating results discussed above as well as prepayment penalties in the write-off of debt issuance costs in the fourth quarter of 2016 when we refinanced our long-term credit facility.

Diluted earnings per share, was $0.17 for the quarter compared to a loss per share of $0.07 for the same period in 2016. Adjusted EBITDA increased to $25.1 million compared to $14.3 million during the same period in 2016.

Our adjusted EBITDA margin for the quarter was 10.2%, a 250 basis point improvement from our margin of 7.7% in the fourth quarter of 2016. For the full year 2017, we delivered record results as we continue to grow in line with our strategy. Net sales for the year increased 23.2% to $930.3 million compared to $754.9 million in 2016.

The increase was primarily driven by a 27% increase in the number of wind blades delivered during 2017 as compared to 2016 offset slightly by a 1.5% decrease in average sales price per blade. The result of savings and raw material costs, a portion of which we share with our customers and geographic mix.

Total billings for the year increased to 23.2% to $941.6 million compared to $764.4 million in 2016. For the full year, the percentage of revenue from GE, our largest customer, was 44.4%, down from 50.3% in 2016. We expect the percentage of revenue from GE will continue to decline going forward as we continue to grow with other customers.

Gross profit for the year totaled $112.7 million, an increase of $35.7 million over the same period of 2016 and our gross profit margin increased to 190 basis points to 12.1%.

The increase in gross margin was driven primarily by improved operating efficiencies globally, the impact of savings and raw material costs, and the favorable impact of fluctuations of the U.S.

dollar relative to the local currencies where we operate partially offset by the $22.5 million increase in startup and transition costs in 2017 compared to 2016. General and administrative expenses for the year totaled $40.4 million as compared to $33.9 million in 2016.

As a percentage of net sales, general and administrative expenses slightly decreased to 4.3% from 4.5% in 2016. Net income for the year was $43.7 million as compared to $13.8 million in 2016. Net income attributable to common stockholders increased to $43.7 million during the year from $8.4 million in 2016.

This increase was primarily due to the improved operating results discussed previously. Diluted earnings per share for the year ended December 31, 2017 was $1.25 compared to $0.48 for the year ended December 31, 2016. Adjusted EBITDA increased 53.5% for the year to $101.5 million or a margin of 10.9% an increase of 210 basis points over 2016.

We invoiced 2,736 wind blade sets in 2017 a year-over-year increase of 27% and the estimated megawatts generated by those sets once installed is estimated to be 6,602, a year-over-year increase of 34%.

We currently have 41 manufacturing lines dedicated under long-term supply agreements, with 37 of those installed, 3 lines in startup and 2 lines in transition.

Moving to Slide 14, cash and cash equivalents as of December 31, 2017 were $148.1 million and total indebtedness was $123.6 million resulting in net cash at year end of $24.6 million compared to net debt of $6.4 million at year end 2016.

During the fourth quarter, we amended our existing credit facility to provide us with more operating flexibility, update covenants for 2018 and reduced our interest rate by 50 basis points.

For the quarter, we generated cash from operating activities of $31.1 million, while spending $9.5 million on CapEx resulting in free cash flow for the quarter of $21.6 million. We generated better than anticipated free cash flow in the quarter due to some timing delay related to CapEx.

For 2017, we generated cash from operating activities of $82.7 million, while spending $44.8 million on CapEx resulting in free cash flow for the year of $37.8 million. Our CapEx in the fourth quarter was less than anticipated due to the timing of purchases and certain other work moving into 2018.

And as a result, our CapEx guidance for 2018 will be adjusted accordingly. We continue to be pleased with the strength of our balance sheet in our ability to generate the cash we need to expand our global footprint.

Before I turn the call back to Steve, I would also like to highlight our disclosure in the 10-K regarding the new revenue recognition standard ASC 606 and provide an impact on the update of tax reform on TPI.

With respect to ASC 606, under ASC 606, which we adopted on January 1, 2018, revenue will be recognized over time during the course of the production process akin to percentage completion accounting, whereas through December 31, 2017, revenue was recognized upon delivery to our customers.

As a result, the adoption of ASC 606 will impact the amount of sales, cost of goods sold and income from operations reported in future periods. It is important to note that the total amount of revenue recognized under the company’s long-term supply agreements will not change, only the timing of that revenue changes.

An increased amount of revenue will be recognized at the beginning of the contract and upon contractual amendments as the learning curve associated with starting up production and transitions of manufacturing lines generates revenue, whereas previously these activities would be considered period costs and revenue was recognized only when the product was delivered to the customer.

Since revenue will be recognized over time for the manufacturing contracts, future net sales will include amounts related to products that are in production as of the period end as well as on customer specific raw materials before they are put into production.

Gross margin realized in the period and over the remaining term of the contract will be impacted by the changes related to the timing and amount of revenue recognized for products in the production process.

Although, 606 does not have a cash impact nor an effect on the underlying economics of the company’s customer contracts applying the new revenue recognition accounting to contracts and startup in transition will likely result in higher reported earnings in 2018 then under the previous guidance as revenue was shifted to the initial years of startup and transition activities of a contract.

However, this acceleration of revenue will be offset by the impact of revenue that will be pushed back to prior years to reflect the retrospective adoption of all aspects of topic 606.

The company expects a corresponding acceleration and timing to cost of goods sold, recognition for these contracts upon adoption of topic 606, which will impact gross margins as well.

Based on the progress made to-date on the retrospective application of topic 606 to the years ended December 31, 2017 and 2016, the company’s preliminary estimates for net sales, earnings per diluted share, and adjusted EBITDA when the retrospective application project is completed are as follows.

For 2017, net sales of approximately $956 million compared to as reported net sales of $930.3 million. Earnings per diluted share of approximately $1.12 compared to reported earnings per diluted share of $1.25 and adjusted EBITDA of approximately $99 million compared to as reported adjusted EBITDA of $101.5 million.

For 2016, net sales of approximately $770 million compared to as reported net sales of $754.9 million. Earnings per diluted share of approximately $1.05 compared to as reported earnings per diluted share of $0.48 and adjusted EBITDA of approximately $77 million compared to as reported adjusted EBITDA of $66.2 million.

As we will now begin to provide guidance and targets based on ASC 606, we have included updated guidance for revenue adjusted EBITDA and earnings per share on Page 16 of the presentation. For 2018, we expect net sales will be in the range of $1 billion to $1.05 billion and this is the same as the billings guidance we provided back in November.

Earnings per diluted share of between $0.38 and $0.42 and adjusted EBITDA of between $75 million and $80 million, up from the range of $70 million to $75 million previously provided. With respect to tax reform, we will have no cash taxes in the U.S.

in 2018 or 2019 due to foreign tax credits and NOL utilization and this includes the estimated impact of taxes on approximately $74.3 million of foreign net earnings and profits, it’s the repatriation tax. We expect no direct future impact from the BEAT provisions.

We expect the nominal benefit of immediate expensing of CapEx given relatively small amount of CapEx in the U.S. And after 2019, we expect tax reform to have an overall positive impact to TPI as a result of lower tax rates in the U.S. once our NOLs are fully utilized.

As for our effective rate for 2018, we are adjusting our guidance from 25% to approximately 40% to 42% as a result of the following. Under our operating and tax structure, the majority of our operating results in China and Mexico are taxed in the U.S.

We are structured this way to take advantage of the net operating losses we have generated in the U.S. and as a more efficient way to manage our global cash. However, we are unable to currently recognize the benefit of net operating losses generated in the U.S. due to the valuation allowance recorded against this asset in the U.S. as required under U.S.

GAAP. We will generate U.S. tax losses in 2018 as a result of startups for Vestas in Matamoros, Senvion in China and Proterra in Iowa. The inability to recognize the benefit of the U.S. tax losses in 2018 will result in our reported effective tax rate for 2018 being higher than originally anticipated.

With that, I will now turn the call back over to Steve..

Thanks, Bill. Please turn to Slide 21. Now, I would like to update our key guidance metrics. We expect total billings for 2018 of between $1 billion and $1.05 billion, while revenue under ASC 606 is expected to be within the same range. We expect our adjusted EBITDA for the full year to be between $75 million and $80 million under ASC 606.

We expect to deliver between 2,500 and 2,550 wind blade sets in 2018. Blade average selling price for the year will be in the range of $125,000 to $130,000. Total wind blade manufacturing lines installed at year end will be between 51 and 55. Capital expenditures will be between $85 million and $90 million.

As Bill mentioned, this is an increase from the range of $70 million to $75 million as a result of some of the CapEx we expected in the fourth quarter moving into 2018. Startup and transition costs will be between $58 million and $62 million. Although we will pay no U.S.

income taxes in 2018, our effective tax rate will be between 40% to 42% compared to the previous guidance of 25%, as Bill just explained.

We remain very confident in our global competitive position and the application of our dedicated supplier model to take advantage of the strength in the growing regions of the wind market, the trend towards blade outsourcing and the opportunities for market share gains provided by the current competitive dynamic.

We are very pleased with TPI’s results and milestones reached in 2017 as well as our start to 2018. To summarize, we delivered outstanding results both on the top line and on an adjusted EBITDA basis in 2017. We delivered 6.6 gigawatts of wind blade sets and increased our overall market share from 9% to approximately 13%.

In 2017, we signed multiyear supply agreements for 5 lines plus options with Vestas, Siemens Gamesa and Senvion adding nearly $850 million to our total potential contract value and announced a new manufacturing hub in Matamoros, Mexico.

We added Senvion to our wind customer base and now manufacture wind blades for 5 of the top 6 global wind OEMs on an ex-China basis. We remain very confident in our ability to continue converting our pipeline over the next 24 months and expect to be announcing some of those conversions in the next 1 to 2 months.

We began the further diversification of our revenue base with the Proterra supply agreement and the Navistar joint development agreement. We completed our secondary public offering of 5.1 million shares in May, which has helped to improve liquidity of our shares in the public marketplace and expand our investor base.

We continue to build out our senior management and technical talent on a global basis. We believe these accomplishments position us well for continued growth. I want to thank the TPI associates for their dedicated efforts, our customers for placing their trust in us and our shareholders for your continued support. Thank you again for your time today.

And with that, operator, please open the line for questions..

Thank you. [Operator Instructions] Our first question comes from Philip Shen, ROTH Capital Partners. Please proceed with your question..

Hi, Steve, Bill. Thanks for the questions. First one is on pricing based on some commentary of some of your customers and turbine OEMs in general.

It appears that pricing may have stabilized in Q1 in your view, is that actually happening or are we seeing some extra or some additional or improved stability in pricing going forward? And that said, what kind of pressure are you getting from your customers to share more of the savings with them and how do you deal with customers who get used to the greater savings especially if they may not want to give them back in the future?.

Yes, Phil. Thanks. So, we are not going to comment on pricing of our customer’s product in the market and whether that’s stabilizing or not, we think it’s their place to answer that part of the question. As you know, Phil, we do share gain and share pain for that matter on raw material cost-outs.

Our job is to drive-down cost, build state-of-the-art bigger blades and drive-down cost of the blades we are building. And then in order to help drive LCOE down, our model has been per the agreements to share a large portion typically of those savings with our customer.

Our average selling price goes down, levelized cost of energy goes down, our margin would generally then go up. So, that’s the general trend. That trend continues. The good news about the wind economics being where we are is there is more economic build and more stability if you will to some of the demand profiles around the world driven at economics.

But it also means that the maturation of the supply chain and for companies to work just harder on making sure we are all competing for share and competing for growth opportunities. So, I’d say generally the model is still working.

The way we have discussed before as we consider new growth opportunities with our customers, we will take a look at the cost-out work and cycle time benefits we have gotten and price that’s the product accordingly, but we are actually leaning in.

We are still leaning in kind of in the same way to help drive down LCOE and pass on a good chunk of the savings to our customers..

Great. Thanks, Steve. Staying on the topic, this might be more for Bill, but after backing out non-blade revenue, we get a blade ASP of about 113,000 in the quarter Q4.

How do you expect that blade ASP to trend by quarter in ‘18? I can imagine it’s going higher each quarter in order your guidance of $125,000 to $130,000 for the full year, but I was wondering if you could just give us a little more color for modeling purposes by quarter? Thanks..

Yes, thanks, Phil. We haven’t provided it by quarter and I don’t think we are going to start at this point, but what we have done is given you for the full year that $125,000 to $130,000. So you can anticipate that it’s going to ramp up rather gradually the quarter – through the quarters if you will.

We had a number of – a number of lower-priced blade models and at the end of 2017. So, you will see a jump in Q1 and then you will see a gradual increase to that average..

Great. That’s very helpful. Thank you.

And then one last one from me the Navistar release was great to see, can you give us some color as to possible timing of commercial volumes, what the ramp up might be kind of where you are in the process in general of going from where you are today tells me ramping and having a commercial product that has a long-term contract in place similar to what the wind industry has and does for you?.

Thanks, Phil. So, this is a development agreement where TPI will do the design work first and then the tooling and the fabrication of prototypes will go through. Some iterations with our customer on trying to optimize strength in weight and cost to the right degree.

So, it’s considered to be a development program and we are not in a position yet to provide specific commercial timing or guidance at this stage.

Phil, as you know in general, we are working on the strategic markets in one or two lanes over adjacencies to wind to help continue to be a growth business, primarily targeting kind of years 4 through 10 from now forward. What we see very clear runway in wind for a period of time.

You can see that in the pipeline plus our lines under contract just times the average revenue per year per line can give you a pretty good picture of that as well and the transportation and other potential market work is going to take some time to mature..

Great. Great news, nonetheless, Steve, Bill, thank you. I’ll pass it on..

Thanks, Phil..

Thanks, Phil..

Our next question comes from Paul Coster, JPMorgan. Please proceed with your question..

Yes, thanks for taking my questions. First off, your gross increase in future contracts of revenue was about $400 million and I am just wondering where it came from since the only incremental announcement was Navistar and that seems a bit much.

So, can you just sort of talk us through how that comes about?.

Yes. Paul, I think as we have talked about before as we transitioned blades for customers, generally, they are getting longer. There are more advanced materials in many cases, so the ASPs go up, which therefore drives the revenues up.

So, as we go through transitions and as we add in new lines, we will update that contract value based on the new pricing of those larger blades. So that’s where you are seeing the incremental increase primarily..

Got it. Thank you.

And then your pipeline prospects, it seems like there is going to be some action fairly quickly, is it with existing OEMs or have you gotten new OEMs in that pipeline?.

Yes, Paul, it’s Steve. So, the pipeline includes both existing and new customers. It includes mostly onshore blades, but also some potential offshore opportunities and it will continue to help us diversify geographically around the world as well. So, the answer is all of that..

It’s great.

And this brings me to my last question here which is the offshore markets, have you already got – it sounds like you have got some of it in the pipeline, are you really manufacturing any offshore blades, is the transition in startup associated with that kind of blade longer and more costly?.

We are not manufacturing offshore blades in volume today, Paul, but we do have a couple of offshore production lines in the 2-year pipeline is a way to think about that. The blades are larger as you know, you would want to build the blades at a facility that has immediate or very near water access.

So hopefully, they never touch a truck and kind of go straight to the water. So, the blades are larger, the tooling, the facility, all of that would be bigger, but not necessarily much different beyond that.

So yes, I would probably take a little longer to ramp just because of the size, the physical tonnage and emphasize of what would be done there, but the model should be generally quite similar to what we are doing today just higher revenue per year per line and fewer lines actually to get a number of megawatts that would be significant..

Very good. Thank you very much..

Thanks, Paul..

Thanks, Paul..

Our next question comes from Jeff Osborne of Cowen & Company. Please proceed with your question..

Hey, good afternoon guys. I just want to flesh out the customer that had a transition late in the quarter that led to the revenue shortfall.

One, can you just expand on that, it doesn’t linger into Q1? And then the second part of the same line of questioning is just given the price compression in the industry and auctions and whatnot which appear to be stabilizing the Philip’s point, are you seeing a more of an urge for transitions in 2018?.

Yes. So, the comment about late Q4, Jeff, we are not in a position to talk really in anymore detail about that. I don’t think you should assume there is any longer term impact from that. Our Investor Day was in November as you know. So, it was much time left and it did tweak a little bit in December, but that’s the way to think about that one.

And then in terms of transitions, we have already folded the transitions and startups into our number of 14 and 12. So, those are already underway and they have been underway for a little while. And I don’t really expect additional acceleration of that. It’s already pretty much built into our game plan at this point..

That’s where I was getting at, just relative to November things haven’t gotten worse as it relates to the commentary you gave it back then?.

No not all..

Perfect.

And the maybe either putting your TPI head-on or AWEA head-on just with the steel tariffs, obviously, towers are a big piece of the cost not as big as blades, but as AWEA taken a stand on that, that you have seen?.

Yes. I think the basic industry position and like most manufacturing companies and industries would tend to favor open and free trade and we do as a company I think AWEA would as well. I think it would be unfortunate if this proceeds on the path of some of the commentary thus far.

It seems like there is some legislative angles to try to narrow the impact. I think the way to look at it though broadly is that – and from a TPI standpoint putting that head-on, if you will, we are a composites company.

So, in terms of our cost structure and our P&L we buy very little that would come in the form of steel that the attachment hardware bolts, for example, would be a metallic product, but nothing else for us.

You are right to point out other parts of the machine would have more of an impact, but I think it’s also fair to say the technologies that wind competes with would also be affected in a similar way, so solar and natural gas installations.

So, from our standpoint, it would be more of kind of all costs going up to some degree, which is not the direction we want to be going. And then just from a TPI and supply chain and the supply chain in the wind industry, I think supply chains adapt if they need to, a U.S. policy like this is relatively new and recent.

We haven’t had this conversation in a while. It does come up from time-to-time in other parts of the world be at local incentives, local content requirements things along that line, but supply chains are pretty global and pretty deeply entrenched and if policy stick, then the supply chains adapt and that’s what we do as manufacturing industries..

Make sense. I appreciate the candor there. And then the last question is just can you give us a sense of perspective of the facilities that are ramping up in 2018.

I saw you pushed out some CapEx from ‘17 to ‘18 is there any construction delays that we should think about in terms of modeling the revenue ramp from some of these new lines?.

No, not at all, Jeff. We are right on target with Matamoros. We are vertical on that plant. It’s looking great. The push-out – a piece of the push-out was we acquired some additional land in Taicang to expand our facility there and we expected that to close in Q4 to close in Q1, so that was one piece of it. In fact, it closed yesterday.

But other than that, it was just normal timing and quite frankly, we don’t want to spend a dime before it’s time. And so we push it off as far as we can..

Makes sense. I appreciate it. Thank you..

But no delays, yes..

Proterra, Iowa startup is on schedule as well. So, I think we are on track..

Great to hear..

Our next question comes from Chip Moore, Canaccord Genuity. Please proceed with your question..

Yes, hey, guys..

Hi, Chip..

Maybe talk a bit more on competitive environment mainly against your primary competitor, particularly where that prioritized pipeline, how you are thinking about that? Any change in those dynamics?.

Yes, I don’t think there is any change of significance. Again, we compete in the environment just as we have our opportunity set is more than the 24 lines that the lines we have listed there is prioritized are the ones we have put into our list that we are going to close on.

It’s our belief that our hit rate on that list will be extremely high if something does falloff of that list for some reason, there are other opportunities behind it that we would use the backfill. But generally, the competitive dynamic is pretty similar to what it has been..

Yes, got it. Thanks. And on Proterra, it sounds like the facility everything is on track just remind us how we should think about that ramp more so into next year? Thanks, guys..

Yes, sure Chip. We are – right now our plan is to be manufacturing in that facility by the end of mid to the end of the second quarter and we are on track for that and you will see a gradual ramp there throughout ‘18 and be at full steam by the end of ‘18.

So, things are on track, great cooperation from the local folks there and people are excited about TPI expanding there. So everything is on track..

Alright, great. Thanks, guys..

Thank you..

Our next question comes from Pavel Molchanov, Raymond James. Please proceed with your question..

Hey, guys.

One, on the new composite bus body facility in Iowa that you mentioned just a few movements ago, did I hear you right that you are planning to be at full utilization there by the end of this year?.

Yes, Pavel will be – it’s Bill. Good to talk you. We will be at – again, the building won’t be full, but with what we have got planned for now will be at normal ramp speed on the lines that we will have operating in that facility by the end of the year..

Okay. And I guess given the 5-year agreement with Proterra from last year for several thousand bus bodies, you have made it clear that’s going to be a rather back-end loaded kind of sales ramp.

Does that mean that the physical plant you are building is designed to essentially expand capacity as Proterra ramps, but you have initially started out at a smaller scale, is that the strategy?.

Yes, the facility we are moving into, it’s an old Maytag facility that’s being refurbished and it’s got expansion capability to the extent we need to expand that capacity there..

Okay, understood. Appreciate it..

You bet. Thanks, Pavel..

Thanks Pavel..

Thanks, Pavel..

Our next question comes from Joseph Osha, JMP Securities. Please proceed with your question..

Hi, there..

Hi, Joe..

Hi, Joe..

So couple just I wanted to go back to this issue of revenue per line and just clarify is that a function of ASP going up and throughput improving relative to previous estimates or is it just ASP?.

It’s a combination, Joe. I mean, what we have talked about in the past is an evolution over the last several years and it’s been both blade lengths increasing, the materials in those blades getting more advanced as well as throughput. So, it’s a combination of throughput and blade length..

Is this something this is dynamic as we try and model out through ‘19 and pass them in, does this have legs or is 35 kind of sort of new number that we should think about as being sort of steady state?.

No. I mean if you just – if you just think about blades how they have been increasing over the last several years every 2 to 3 years, we seem to be flipping over a plant correct. So, we are generally not being asked to build smaller blades, they are generally always large blades.

So, I would anticipate that as long as we can continue with the throughputs of the smaller blade when we go to the larger blade, you will continue to see that revenue per line increase..

Okay. And second, this may seem off-the-wall, but I think it’s important to understand your reference to Navistar says composite, what is it composite tractor and frame rails.

Does that mean the frame rails are composite or is it the composite tractor in the frame rails are steel?.

Yes, both the tractor body if you will and chassis and frame rails, which tend to go back under the trailer, will be made out of advanced composite materials..

Well, so you can build the frame rails out of composite and they are strong enough?.

Yes..

Okay, that’s impressive.

And then just the last question on the tax rate, you have got some, I can’t quite tell whether the implications of your comments are that 2019 would now be lower than 25% as a result of “overall positive impact” or how we should treat that once this ‘18 NOL issue is behind this?.

Yes, I think that 20% to 25% range is a good range, Joe, moving forward. ‘18 is a little bit of an anomaly just….

Sure, yes.

I am just trying to judge whether there is – yes, there is some goodness after that’s over whether we should leave it at 25%?.

Yes, certainly, it will be positive going forward and 20% to 25% is a good number..

Okay, alright. Thank you very much..

Thanks, Joe..

Thanks, Joe..

Our next question comes from Eric Stine, Craig-Hallum. Please proceed with your question..

Hi, Steve. Hi, Bill..

Hey, Eric..

Hey, Eric..

Hey, so most questions asked and answered, so maybe I will just go high level, I mean just in terms of outsourcing, if you think about whether it’s your customers or all of the OEMs, I mean do you have an estimate of what you think the percentages of what is outsourced today and where do you think this can go, I mean, it obviously seems you are pretty early in this and it can be a lot higher than it is today.

So, any thoughts there would be helpful?.

Yes, Eric, we are roughly at 50% globally outsourced versus made captively and that includes the GE acquisition of LM kind of after that adjustment where they brought roughly 50% of their volume in-house is a way to think about it.

The trend is still for generally for more outsourcing we are helping to enable that trend and the main reason again is the developing markets are growing at a higher CAGR 8.6% over the next 10 years than some of the more mature markets, which means the new growth opportunities need to be served.

So, if we are going to build new rooftop generally that’s going in places where the growth is which means if it’s a new investment either outsourced or captive for the OEMs to consider a make versus buy strategy, that’s where a lot of the outsourcing growth will continue.

And I don’t think we have an exact estimate for your forecast for you on that percentage except to say that we are continuing to see good growth in our outsourcing profile.

So, if you think about 41 lines plus 24, if you will, in our pipeline over a 2-year period, if we become a 60 mold company, you can get a sense of the scaling of the megawatts and the market share just what TPI would get that will own a few of the others. So it’s continuing as a trend.

It’s not perfectly that way, but it’s a strong supporter wind at our back so to speak in terms of supporting our growth..

Yes, okay. And just sticking with that theme, I mean, obviously China captive are in-sourced the majority of it. I mean the move to larger blades, are moved to increase offshore.

I mean, is that something that potentially changes that in that market or as increased quality is maybe valued more, is that something where you could see that market change or do you kind of view it as it’s in-source market and it stays that way?.

No, we could see that changing. There is a definite recognition of the need for better quality in China as turbines are being installed and valued a bit more on a price per kilowatt hour basis rather than a price per nameplate megawatt capacity is a way to think about it. And we are continuing to drive our costs down and close that gap as well.

So, it’s something we are working on and we will see if we are able to our crack the code there and open that market as well..

Okay thanks..

Thank you, Eric..

Thanks, Eric..

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Steve Lockard for closing remarks..

Thanks very much and thanks again all for your interest in TPIC. We look forward to continuing to update you on our progress toward our strategy of diversified global growth. Thanks, again..

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation..