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

Phil Shen - ROTH Capital Partners Hilary Cauley - JMP Securities Eric Stine - Craig-Hallum Paul Coster - JPMorgan Pavel Molchanov - Raymond James Chip Moore - Canaccord Jeff Osborne - Cowen and Company.

Good afternoon, and welcome to TPI Composites' Third Quarter 2018 Earnings Conference Call. Today's call is being recorded, and we have allocated 1-hour for prepared remarks and questions and answers. At this time, I'd like to turn the conference over to Anthony Rozmus, Investor Relations for TPI Composites. Thank you. You may begin..

Thank you, operator. I'd like to welcome everyone to TPI Composites' third quarter 2018 earnings call. We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our Web site www.tpicomposites.com.

We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures.

You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. 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 third quarter 2018 earnings call. I'm joined today by Bill Siwek, our CFO. I'll begin with some highlights from the quarter followed by a brief update of the wind market.

I'll then turn the call over to Bill to review our financial results, our full year 2018 outlook, introduce 2019 guidance and provide preliminary 2020 financial targets before we open up the call for Q&A. Please turn to Slide 5.

In Q3, we continued the investment we discussed in the second quarter in new start-ups as well as transitioning lines to new larger blades. We believe this investment will provide a foundation for our continued growth in 2019 and beyond.

We are tracking to plan, notwithstanding the significant amount of effort and complexity involved in the start-up and transition process, and our results are on pace to be in line with our 2018 guidance. Our net sales for Q3 were $255 million and adjusted EBITDA was $17.6 million.

Due to a large number of transitions in process, which reduced our blade volumes, our sales were relatively flat.

The impact of both start-ups and transitions resulted in our adjusted EBITDA decline in quarter-over-quarter, specifically due to the loss contribution margin dollars from lower blade volume during the transitions coupled with high cost of start-ups.

However, gross margins and adjusted EBITDA margins before the impact of start-up and transition costs both remained north of 15% as a result of continued reductions in manufacturing cycle times, improvements in productivity, material cost-out efforts and the strength of the U.S. dollar.

Our customers continue to invest with TPI in adding new outsourced blade capacity ahead of the new line guidance we provided for 2018. In addition, they are tooling up new larger blade models more quickly than initially planned in order to aggressively drive down LCOE in response to economically driven global auction and tender processes.

On the transportation side of our business. Today, we are announcing an investment of approximately $11.5 million in 2019 to develop a highly automated pilot manufacturing line for the electric vehicle market.

This pilot line will be located adjacent to our recently opened plant in Newton, Iowa, where we began manufacturing bus bodies for Proterra at the end of the second quarter.

This investment will enable us to further develop our technology, create defensible product and process IP and demonstrate our capability to manufacture composite components cost effectively at automotive volume rates.

This pilot line will also help our current and potential customers to derisk the decision-making process to commit to TPI for high-volume manufacturing programs in the future. Turning back to our wind blade business.

Since the beginning of 2018, we have added a net of 9 new lines to bring our total dedicated lines under long-term contracts as of today to 51. The net of these transactions as well as a few amendments to existing supply agreements represent potential contract revenue of up to $2.6 billion over the terms of these agreements.

Furthermore, we have now closed on 12 new lines so far in 2018, 10 of which were in our prioritized pipeline at the start of the year, putting us at the midpoint of our guidance range for new lines in 2018 of between 10 and 14. We now have a total potential contract value of up to $6.3 billion extending through 2023.

We continue to develop our robust wind pipeline of global opportunities with current and new customers in both onshore and offshore blades. At the beginning of the year, our prioritized pipeline was 24 lines, 10 of which we have closed on so far this year. We have now updated our pipeline to include lines we intend to close by the end of 2020.

This updated prioritized pipeline now includes a total of 23 lines or an incremental 9 lines to be converted between today and the end of 2020. We are confident in our ability to convert this pipeline and continue to be in active negotiations with the expectation of closing additional lines prior to the end of 2018. Please turn to Slide 6.

As we've talked about previously, 2018 is an investment year for TPI. And we have held our estimate of lines in start-up during the year at 17 and updated the lines in transition during the year to 15, down 2 lines from Q2 as those moved into 2019 to accommodate a timing change by one of our customers.

We discussed the impact of the increased volume of start-ups and transitions on near-term profitability last quarter and our adjusted EBITDA guidance for 2018 remains unchanged.

What we may have not clearly articulated is the incremental future potential revenue as a result of these costs and the anticipated corresponding earnings that follow that revenue.

As we think about the start-up costs that we expect to incur this year and in 2019 for lines under contract today, the potential revenue opportunity under those contracts is approximately $3.8 billion from 2019 through 2023.

With respect to the transition costs that we expect to incur this year and in 2019 for lines under contract today, the incremental potential revenue opportunity under those contracts is approximately $500 million from 2019 through 2022.

Given our historical returns on invested capital from start-ups and our rigorous investment policy, start-up costs translate to growth and future potential profitability and we believe the same is true with most transitions.

Notwithstanding the fact that done the right way transitions help to fuel future growth not only for TPI but for the wind industry as a whole. TPI and our customers would prefer the transition slow to a more normalized pace.

We have and we'll continue to evaluate every transition request from our customers to ensure that it's in the best interest of TPI, our stakeholders and of course, our customers.

While we've had some execution challenges and delays relating to both start-ups and transitions this year, we're getting better with our customer support at both start-ups and transitions making them happen faster and therefore, less costly. In the near future, we anticipate more families of blade models designed for rapid changes.

For example, tip changes instead of full-mold changes as well as modular or split blades. We also expect blade transitions to reduce over time as LCOE drops below competitive technologies, blade lengths reach practical limits for ground transportation and the incremental cost of new blade models outweigh the incremental LCOE impact.

Our growth strategy remains intact. And we continue to see traction as we diversify our sources of revenue across customers, geographies and non-wind markets. We plan to execute on this 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 7 and 8. As of today, our long-term supply agreements provide potential revenue of up to $6.3 billion through 2023. At this time last year, our potential revenue under our supply agreements was approximately $4.4 billion.

We have increased that amount by approximately $1.9 billion net of the impact of approximately $945 million of billings since that time. In other words, contract value added since last year at this time through new deals, amendments and blade transitions prior to considering what we've realized in total billings over the last year is over $3 billion.

The minimum guaranteed volume under our supply agreements has grown to approximately $4.3 billion, up from $2.7 billion at this time last year. Turning to the wind market. Global annual wind power capacity additions are expected to average nearly 67 gigawatts between 2017 and 2027 or a 10-year CAGR of 8.2% according to MAKE Consulting.

This forecast also estimates that the top-20 emerging markets will grow at a CAGR of 26.5% between 2017 and 2027. Our strategy is to continue to diversify our manufacturing footprint to take advantage of growth in both emerging and mature markets and leverage our low-cost hubs to not be too dependent on any one market.

We believe we remain well positioned to execute this strategy and serve global demand from our facilities in the U.S., China, Mexico and Turkey. We also expect to enter a new geography during 2019 to accommodate customer demand and to diversify our global footprint and supply chain even further.

We expect this global growth to continue to drive the outsourcing trend we've seen over the last 10 years. The U.S. market outlook over the next several years is strengthening with expected annual installations averaging 11.1 gigawatts through 2021 and then averaging just over 8 gigawatts from 2022 through 2025 according to UBS.

We like many participants in the wind and utilities industries believe that the economics of wind along with demand from both retail and industrial customers, the electrification of the vehicle fleet and decarbonization initiatives by utilities, will continue to drive wind penetration long after the current PTC sunsets in 2023.

Before I turn the call over to Bill, I'll touch briefly on the recent tariffs levied by the U.S. government on goods including wind blades and other turbine components imported from China.

Wind blades as well as other components used in wind turbines are some of the many products included in the list of those to be covered initially by 10% tariff, which then increases to 25% on January 1, 2019. A number of turbine OEMs import blades and components to the U.S. from China when the U.S.

market demand is strong, including blades manufactured by TPI. Although we don't know how long these tariffs may be in place, initial estimates by others suggest the overall impact on the levelized cost of wind energy in the U.S. could be 5% to 10%, including the tariffs on steel.

While today, less than 15% of the blades we produce globally are imported by our customers into the U.S. from China, we recognize that the added cost of the tariff may result in our customers shifting which TPI or other factory they source the U.S. blades from.

The benefit of our global manufacturing footprint is that it can allow our customers to shift volumes to best meet their cost and delivery requirements. We still have strong demand on our China facilities in 2019 even though many of the blades will be shipped to other locations.

This is further demonstration by having world-class manufacturing hubs to serve large geographies cost effectively is important for our customers and provides us with an advantage over most other blade manufacturers. With that, let me turn the call over to Bill..

net sales and total billings of between $1.7 billion and $1.9 billion. This represents over 15% top-line growth from the midpoint of 2019 to the midpoint of this range and represents a utilization rate of approximately 80% for this 62 to 65 dedicated lines we expect to have under contract by the end of 2019.

Adjusted EBITDA of approximately 10% or between $170 million and $190 million. This assumes a more normalized level of transitions in 2020, given the heavy transitions we have had in 2018 and will have in 2019 as well as the push in the U.S. market to meet the installation and commissioning deadlines by the end of 2020 for the 100% PTC.

It also assumes lines in start-up in the low double digits. TPI is on track to more than double our net sales by 2021 from approximately $1 billion in 2018 and continue to move towards our target of 12% adjusted EBITDA over time. With that, I turn it back over to Steve to wrap up, and then we'll take your questions.

Steve?.

Thanks, Bill. We're pleased with TPI's third quarter and year-to-date results as well as the successful delivery of many of our aggressive start-up and transition programs.

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 toward blade outsourcing and the opportunities for market share gains provided by the current competitive dynamic.

We have clear line of sight to doubling our current wind revenue to more than $2 billion in 2021. In addition, we are pleased with the traction we are seeing in our transportation development programs. We are focused on finishing the year strong and are looking forward to an exciting and rewarding growth years in 2019 and 2020.

Thank you, again, for your time today. And with that, operator, please open the line for questions..

Great. Thank you. [Operator Instructions] Our first question is from Phil Shen from ROTH Capital Partners. Please go ahead..

Hey, guys. Thanks for all the detail through 2020. It's really helpful. As we calculate the implied EBITDA margin for '19 and '20 now, I think we're at 8% and 10% respectively. How conservative do you think you guys are being on this? In the past, we've talked about kind of a target 12% EBITDA margin.

So are we accounting for the start-ups and transitions here? And then in turn, what is the risk of higher than expected transitions that you have not factored in for '19 and '20? Are all the lines accounted for effectively by the time we get through this process? Maybe there's nothing left or there's still some potential lines that could transition.

So I know there's a lot there, but I want to put it out on the table. Thanks..

Thanks, Phil, you put a lot in one question. That's pretty good. Yes. I think, clearly, there's some conservatism in these numbers. But as we learned this year, sometimes the transitions can be unexpected. But we think we've got a pretty good beat on 2019 on what our customers are asking for at this point from both a transition and a start-up standpoint.

For 2020, it's a little harder to tell. But for the reasons we talked about in the prepared remarks, given the heavy level of transition, both this year and what we're expecting in 2019, the vast majority of our lines will either be at a very market-specific blade size or there will be a brand-new blade from a start-up.

So we think for that reason as well as the push for installation and commissioning in the U.S. market in 2020, we think the level will be less than we've seen in the last couple of years..

Okay, great. And then, you guys had mentioned that you will likely add a geography sometime in '19.

Can you talk about -- give us a little more color on this? Has it actually been decided and now it's just a matter of when both parties feel comfortable with the announcements? What characteristics might you be able to share about that geography? And how many potential lines could be in that geography?.

Yes. Phil, it's Steve. We're not going to be specific about a particular location at this point. Consistent with what we've been saying for some time though, as we think about further diversification geographically around the world, you can be certain that our next move would be another low-cost hub to serve multiple markets in a cost-effective way.

We're able to blanket the world pretty well today from the footprint that we have. But we do like the idea of some additional expansion and some additional diversification through that.

Most all the campuses that we would expect to start, we would start with probably a minimum of 4 lines, anticipate 8 and then make sure -- roughly, let's say 8 and then make sure that the geography, the land site is capable of doing even more. So that's probably the best way for us to scope it for you today.

And then we'll announce more as we are ready..

Great. That provides nice color. Thanks Steve. Thanks Phil. I will pass it on..

Thanks Phil..

Our next question is from Joseph Osha from JMP Securities. Please go ahead..

This is actually Hilary on for Joe. I just want to ask a quick follow-up to the new geography and if you could just kind of give some thoughts on how you prioritize and/or balance the different growth avenues, either it be expanding with new customers, the existing customers or to continue these -- the geographic expansion..

Yes, Hilary. We look at a balance of each of those. The pipeline that we will convert on now that we've expanded through 2020 is a combination of current customers expanding more lines as well as some new customer opportunities. It includes, as we've said, a new -- at least one new geography through that time frame.

It includes mostly onshore and potential of some offshore lines. And so it's just a balanced view of exactly that. We're very keen to continue to grow with the major players in the wind space. We want to make sure that we're matching up with strong customers in the regions that they're going to serve.

We have a prioritized pipeline that on purpose, we set a cut-line and we rank order them the way we think it's best for us and them and then decide what we're going to do, what makes the cut, so to speak. So that's the rationale we applied. We've consistently applied that, really, for the last few years..

Okay, great. And then just also thinking about growth, if you could kind of provide a little more color on how you think about either taking more share or looking to capitalize on that outsourcing trend that we've been seeing..

Yes. So I think the main driver for our growth has been and continues to be outsourcing.

But it ends up in our global share, actually, right? So if folks are outsourcing from an in-house facility to a low-cost hub that TPI could have multiple customers, spread overhead, drive cost, help our customers tap new markets that is the main driver that's providing such a strong growth backdrop for our business. So that is the main driver.

The result of that ends up being the ultimate market share. And we're continuing to drive additional gigawatts each year through that mechanism..

Okay, great. Thank you..

Thank you..

Our next question is from Eric Stine from Craig-Hallum. Please go ahead..

Hi, Steve. Hi, Bill..

Hey, Eric..

Yes. So just interested in your commentary about the industry moving to families of blades.

Just curious, as part of that transition, do you think about that as there's a blade length where people start to transition in that way or is this really just an OEM decision and when they decide that they're going to make that sort of a change because that's a pretty big change, I would think..

Yes. It's actually an evolution, Eric, from ideas that have been implemented a little bit over the last few years to just sharpen the focus on it.

And the reason is, to be able to add length to a blade through a more rapid tip extension rather than pulling out the full investment of the molds, which, for us, takes more time, more downtime, more EBITDA burn during the major transition, if you will. So it's not really a brand-new idea. But it is being implemented in a more orchestrated way.

And if you think about the good news about our market being so much driven now by economics and customer choice, that's really good news to where we're not talking as much about feed-in tariffs or government regulations over time more about economics. The trade of that is it's a battle for economics.

And so our customers are all driving really hard for new product introductions to drive LCOE. So if you think about it, if you were running their business, to run their business and return invested capital to shareholders, you'd want to reduce the new product introduction costs.

And so for them to orchestrate a little smarter on families of blades where it's easier to capitalize on various wind conditions and cheaper and faster to add length, then that's just a smart move. So it's a smart through for them, and it will be helpful for us in terms of the speed and cost of transitions..

Got it. That's helpful. And then maybe just on the new investment, just want to make sure I understand it correctly.

So is it right to think about that, that's not necessarily an investment for a specific program, but it's more of a demonstration or a development facility that you would then incorporate in future programs?.

Yes. That's right. As we said, it's a pilot line. It's not an ultimate production facility. We expect to have some revenue capacity from it when we're done. But the purpose of it initially is to develop some technology for automotive type products, which means smaller physical parts, Eric, but it also means much shorter cycle times.

I mean, these are parts that will be made in minutes not hours. Wind blades weigh 15 to 20 tons, and it takes us 24-plus hours to make them. These will be parts that will be fabricated in a few minutes. So we need to demonstrate the technology.

We're using it to create both product intellectual property and process, materials and process know-how IP, if you will. And then it's also making sure that we can demonstrate at-rate production to the point that our new customers would say, we're ready to scale.

So it's very important for us to demonstrate it fully, be ready to ramp and then get production decisions made with our customers in a way that feeds our revenue growth at the right time. So that's the objective at this stage..

Okay.

So I mean, fair to say, that is, at least in part, targeted at some current programs that you have?.

Yes. We have a handful of development programs as we've reported on before, primarily EV related. There is also, as we mentioned before, our Navistar truck program and a couple of other initiatives that may not be just EV driven. But this is largely to penetrate the EV market opportunity for TPI.

And in the EV space, that's where high-strength and lightweight, we believe offers even more value, or weight savings equates to added range. And so there are multiple customer programs that could be supported from this pilot line. We're working on them already. We've described those in the past.

So yes, think of it as generic process equipment and technology that could support multiple programs..

Okay. Thanks a lot..

You bet..

Our next question is from Paul Coster from JPMorgan. Please go head..

Yes. Thanks for taking my questions. Couple of quick ones. In terms of your 23 lines in your pipeline, are these likely to include new logos or is it the existing customer base? And in 2 years from now, should we expect your revenues to be more diversified than they are today? Just within the wind context..

Yes, Paul. Our pipeline, the 23 molds, is made up of existing customers and a couple of new customers. So yes, we would expect to add 1 or 2 logos over time. We also expect to grow with some of our current customers. So it's a combination of both of those.

As we go forward, new geographies, and then, I think we said a combination of mostly onshore but a little bit of offshore. And all of those are against this goal of kind of really solid growth but diversified as well.

So yes, we would expect further geographic diversity, a little more customer diversity and a bit of both onshore and offshore diversity as well..

So I imagine it's more than wishful thinking that you've got a couple of new logos lined up.

Can you characterize the nature of the relationship with those potential customers as things currently stand, and then my one other question is, as we roll from '18 to '19 given the fact that you'll be adding a new geography, the CapEx just didn't look like it was bumping up in the manner I would have expected.

Perhaps you can just comment on that as well..

Yes, I'll take that. I don't think we'll speak specifically about the nature of the relationships with the potential new logos. But on the CapEx side, Paul, some of the -- it actually bumps up a bit.

A lot of the -- if you think about a new geography, the first year of it, if we think about 2019, a fair portion of that will be a real estate project that doesn't sit on our books but sits on the developer partners' books. So we'll have some CapEx towards the end of that as we begin to put CapEx into that building itself.

But this CapEx for 2019 has some carryover from '18 related to our new plant in Yangzhou as well as in Matamoros, Mexico as well as some additional CapEx that we'll be doing in some expansion in our existing Mexico facilities as well. But yes. That's it..

Yes. And Paul, I think you can imagine, in a brand-new location, the first year or so is mostly a real estate project. And then a lot of our CapEx spending follows as well, so not all of the CapEx for that new location would be in calendar '19, actually, or not necessarily so.

And to Bill's point, in terms of the relationships with new customers, what I guess I'd say generally is there are a limited number of targets for us in terms of customers that are really important targets for TPI.

And you can imagine, we all know one another, and the relationships are developed to the point that we've all been discussing ideas about what to do or not to do for some time.

So the key really is not so much to develop a relationship from scratch, but it's to close, right? If we close on deals where we announce -- where a customer says, let's go and we say, we're ready, then we convert a customer on the pipeline to a new logo in our decks. So it's more about converting, I would say, than introductions, if you will..

All right. Thank you..

You bet. Thanks Paul..

Our next question is from Pavel Molchanov from Raymond James. Please go ahead.

Thanks for taking the question. As I think about your non-blade sales, they've been running at around $20 million per quarter or so for the last 3 quarters.

Given that your overall revenue guides for next year is up 50%, should we assume that non-blade revenue increases at a faster than average rate or should it be more in line with the overall 50%?.

Yes. So our guidance for next year is $115 million to $120 million of non-blade, if you will, right? So it's -- I mean, it's a pretty good increase over this year. We looked at about $85 million this year, $80 million to $85 million this year, Pavel..

Right.

I'm curious why it wouldn't grow faster than wind, particularly given that the Newton, Iowa facility only opened in the middle of 2018, right?.

Yes. Pavel, it's Steve. I think one thing we might just try remind you of in terms of how we're developing this business. The mission is to build $0.5 billion transportation related revenue over the next handful of years. We're thinking about making sure that we're a growth company in years four and beyond, if you will.

So the development of the transportation segment, as we've shared is going to take some time. And that's okay. We've got plenty of wind related short-term growth. So I just don't think we're -- it's going to be one win at a time. It's going to take some time for that to develop.

So it's probably not, in our case, not so much just scaling as to whether the growth rate is equal to, greater than, less than wind. It's really more one of, if you think about the pilot line we just spoke about, we're going to make an investment. It's going to take time for that to come up. We'll develop technology.

We'll work to convert customers, but all that in this transportation automotive space, it takes some time. And I think you could probably expect that it will take us some time..

Okay.

Can I just get a quick comment on epoxy resin pricing and what's the latest on that source of input inflation?.

Yes. So we have just recently been through our latest round of pricing for 2019. And on a per kilogram basis our price is down year-over-year as it was in '18 compared to '17 and '17 compared to '16. So based on our relationships and our supplier arrangements, we're not seeing any impact on resin for 2019 moving forward, notwithstanding spot prices.

And the spot prices have stabilized a bit over the year, so..

Okay. Very helpful. Thank you guys..

Yes. Thanks Pavel..

[Operator Instructions] And our next question here is from Chip Moore from Canaccord. Please go ahead..

Good evening. Hey, guys..

Hey, Chip.

How are you?.

I'm good. On the start-up and transition costs for '18, just wondering if you can talk about a slight tick-up versus the prior view with 2Q you're aligned in transition. I think you talked about a customer being delayed a little bit. But just if you could just provide a little more color on that..

Yes. Sure. It did tick up a little bit. And the way we think about start-ups and/or transitions is we leave them in the start-up phase or the transition phase until we get up to a line rate of at least a 90% of capacity.

And so as a result of a few of the delays we've had during a couple of the start-ups and transitions that, that's the reason for the tick up. So the start-up cost will tick up if we have a little bit of a push in the time. So that's the primary reason for it..

Got it.

And was any of it related to the tooling when you talked about the new facility in Juárez?.

No, not really. That -- I think we've already started building tooling out of Juárez. We're going to move it into a new facility here in the first half of 2019. That was done. We talked about the highly skilled labor force in Juárez and we have a great team down there. That was done very seamlessly.

So there was no traditional start-up cost, if you will, in there. We just picked it up and went pretty quickly..

Okay. And just one last one for me. You talked about tariffs and the potential for modest impact.

Are you contemplating any shifting of blades at all in the outlook?.

Yes. So I think, Chip, the comment that we made there is, that's really a question for our customers in that we build the blades and put them outside, they pick them up and they deal with logistics and decide where in the world the various blades are going to be shipped to.

So the point we've made is, even though there could be a cost up tick for blades coming to China if this tariff were to stay in place, the demand on our China operations is still strong. But our customer may just choose the blades to another location, 10% is a big number, 25% is even a bigger number.

So I doubt, at 25%, that a lot of blades come from China to the U.S. or other components unless they have to. And so our point there is, the global footprint is a strength and provides flexibility in that perhaps more blades get pulled from Mexico, for example, and more for the U.S. market. And more of the blades made in China might go elsewhere.

So in 2019, the demand profile is very strong on China even though there is likely to be a 25% tariff for some period of time. So we're just moving past it a bit. Supply chains adapt when you're global as we are. We're able to adapt along with that. It would be a shame from our perspective. We support free trade. We think that tariffs are a bad idea.

It would be a shame if the cost reduction that we've been able to materialize in the U.S., 67% over the last 8 years, if that were to go up by 5% or 10%, that'd be going in the wrong direction from what would be desired. I think reality is, you'll see some shifting of the supply chain and mitigation of the cost increases over time..

Perfect. Appreciate it. Thanks guys..

Thank you, Chip..

Our next question is from Jeff Osborne from Cowen and Company..

Thank you. Good afternoon, guys. Maybe just a follow-up on the China question.

Can you talk about where the blades are going outside, it sounded like 20% of blades produced in China are going to the U.S., but where is the other 80% going?.

Yes, Jeff, in a given period, the blades will go to various countries that our customers choose. And we've had examples where blades go to India. They go to Australia. They'll even go to pockets within Europe or South Africa, various markets.

So once the blades are on the water, they can be moved quite some distance without much additional transportation cost. So I think the point for us is, we don't make those decisions. Our customers do.

The question is, is the demand on our factory still strong? Meaning, is their volume around the world strong enough to where they would pull from China and perhaps shift the blades to another location? That is what's happening. So its different countries, depending on where our customers win projects, what their other footprint options might be.

They make the moves based on what's most cost-effective for them. What we care about is to make sure the demand pull on each of our operations remains really strong. And that's the case. Even with the tariffs, that's still the case..

Makes sense. I appreciate the detail there. A few more from my end, if you don't mind. On the transition timing, can you just give us a sense of perspective across the 4 geographies you have, is that a two-quarter process, three-quarter process? It sounded like it was going a little bit slower than anticipated.

I assume, just with the massive growth you've had that maybe that's a challenge or maybe customer molds versus your own molds, I'm not sure what the exact issue is.

But what -- how should we think about handicapping the EBITDA as it relates to specific transitions that you've called out?.

We really haven't called out any specific ones. But in general, Jeff, they'll take....

Sorry to interrupt, but I think you did call out GE, actually, in 2019..

Yes. That's right..

So how long do you think it will take Iowa and Mexico to transition.

Is that a 6-month process or no?.

Generally, it takes a quarter to 1.5 quarter to fully transition -- and these are minor transitions, tip transitions, if you will. So it generally takes a quarter to 1.5 quarters from the time we stop production until we get back to full capacity on each mold. So that's the general time. Yes..

That's helpful. And then, I guess, I was surprised you alluded to the Iowa transition on the last call, which is certainly an endorsement of the competitiveness of wind in the Midwest in an ex-PTC world.

But I guess, I was expecting now that you've included the GE transition in Iowa in your guidance, I was anticipating that given you'll be down for a quarter to 1.5 quarters, it sounds like and you only have 4 or 5 quarters left on the -- I guess, 6 or 7, sorry, on the contract.

How do you just think about the return on investment of that downtime versus changing the blades, I was anticipating some type of press release today of GE extended a contract for a year or two.

Is that something that still could be had or should we think about the Newton facility with the six lines going to five closing still at the end of 2020?.

Yes, Jeff. It's Steve. I don't think we're at a place where we could comment on one specific customer kind of as specifically as you're asking. But I think, in general, it's true that if our customer invests in transitioning to a new blade model, they're making investment in that as are we in terms of an EBITDA dilution during that transition period.

So our customer and ourselves, you can imagine, we would both have to see kind of reasonable runway to make the return on invested capital makes sense. So your question's right. That point is correct. Individual decisions will be based on an individual customer, an individual factory location for TPI.

So I don't think we can be more specific about that one location except to say that is the right the way we think about it..

Got it. And the last one I had is just -- it was unclear to me on either on a rule-of-thumb basis, or for 2020 in particular. How many lines are you calling out for transition in that period? You mentioned that the PTC is expiring and there'll likely be a surge in demand, which I agree with. But you're a global company.

And so I just wasn't sure with the other facilities if there's a sense of we should be modeling if you have 60 to 65 lines in operation, 10% to 15% every year in transition or any back-of-the-envelope math or if there is any specific commentary about the 2020 methodology you have, that would be helpful..

Yes. So we talked about the fact that of those 60 to 62 to 65 lines, we thought we'd be at about 80% utilization of those lines during 2020. So that can give you a little feel that there will be some -- we think there'll be -- there could be some in transition. But again, in 2020, we think that number is pretty low for the reasons we stated.

And we also talked about low double digits of lines in start-up during the year, so that's about as specific as we can get at this point..

And Jeff, as Bill said, that 80% utilization number is maybe a little simpler way for you guys to be thinking about how to model some of this rather than getting every transition or every start-up perfect in terms of timing and overall impact. Those things move around a little bit, right, as we've shown.

So the 80% utilization is probably the right way to think about it..

Got you. And maybe the last one. And I don't know if you can as specific as I'm hoping for. But you've got 51 lines in operation.

Is there any perspective you can offer, stripping out GE, which is about to be in transition, how many of the blade designs that you're producing are over 2-years old? Is there a way to look at the lifetime or the life cycle of a blade, obviously, you've had some new customers. You've had some existing customers. You've got a lot of changes.

But, it would be helpful if just given the dynamic nature of the market moving to auctions if there's a way to look at the average life of a blade because that seems to be getting shorter and shorter over time.

And that's certainly an investor fear that we fear or investor fear that we hear from folks about just that these tip changes and blade changes will be in perpetuity and not just onetime items. I don't know if there's any data that you can provide that would ease that concern..

Yes. Jeff, I don't think we can get more specific on the exact number of lines that are over two years, for example, today.

What we have tried to say and I think it's a direction that will prove to be true, it's going to be a sense for a bunch of reasons, is that the transitions will slow over time and they kind of need to for a combination of reasons. The other truth is, we are getting faster at the transitions.

And our customers as we said a few minutes ago, are doing more in terms of families of blades to make more of the transitions be tip and minor related than major related, so all that's kind of moving in the right direction to help mitigate the impact.

But the other thing is, when blades get to a particular length and it's no longer going to cost effective to truck the next remodel, that's a reason to not go to that next big remodel or if it's, say, split blades, some of the new modular blade ideas, that will make sense perhaps to move at that point to a modular blade, which by the way, we could build in the same factories as we build the larger blades.

In fact, they'll be smaller pieces and easier, in a sense and quicker to transition the small-part molds. So all this is in a direction to make it faster, cheaper to transition and then we'll see some inertia on the transition. So that's a general answer, not as specific as you might like. But that's the direction that we see..

Great. I appreciate it. That's all I have..

Thanks Jeff..

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments..

Thanks, operator, and thanks all of you again for your interest in TPI Composites. We look forward to continuing to update you on our progress. Thanks, again..

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