Good afternoon. And welcome to TPI Composites First Quarter 2019 Earnings Conference Call. Today’s call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I’d like to turn the conference over to Christian Edin, Investor Relations for TPI Composites. Thank you. You may begin..

Thank you, Operator. I’d like to welcome everyone to TPI Composites’ first quarter 2019 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 website 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 historic non-GAAP measures to the closest GAAP financial measure. With that, let me turn the call over to Steve Lockard, TPI Composites’ CEO..

Thanks, Christian, and good afternoon, everyone. Thank you for joining our call. In addition to Christian, I am joined today by Bill Siwek.

On this call, we will provide a summary of the quarter, additional color on our updated guidance for the year and outlook for 2020, as well as a brief update of the growing wind market and our strategy for profitable growth. Bill will then review our financial results in detail before we open up the call for Q&A.

But first, I’d like to share our enthusiasm regarding a few changes we have made to strengthen the TPI leadership team. I am very pleased to announce that Bill Siwek has been promoted to the position of President of TPI Composites.

In this newly created role, Bill will be responsible for global operations, supply chain, finance, human resources legal and Information Technology. Bill joined TPI as our CFO in 2013, since that time TPI has seen a five-fold increase in annual revenue of more than 4x increase in global market share.

We have diversified our customer base, more than tripled our global workforce over 11,000 associates, completed seven new factories start-ups, executed a successful IPO, maintain a conservative balance sheet and created over $6 billion invisible revenue. Bill’s contributions to TPI’s success span across every area of the company.

He’s a critical member of the executive team that developed TPI’s long-term strategy and drives the organization to perform to our highest potential. Bill is the champion of our ESG initiative and has us on a path to achieve an ESG gold standard. I am grateful for his contributions and to have him as a partner at TPI. Congratulations Bill.

Second, Ramesh Gopalakrishnan has been promoted to Chief Operating Officer for wind. In this role reporting to Bill Siwek, Ramesh will be responsible for our wind operations globally, as well as supply chain safety, quality and technology.

Ramesh joined TPI in September of 2016 and most recently served as our Senior VP of technology, quality and LatAm operations. Since joining TPI, he has been deeply involved with setting up our Greenfield operations in Mexico, China and India, and has also developed our long-term technology strategy.

He has significantly increased our patent portfolio, set up our engineering office in Kolding, Denmark and strengthened our technical capability, as well as building out our global technical program management team.

Ramesh is more than 25 years of international operations, manufacturing, supply chain, technology, strategy and general management experience. He has lived and worked in the Americas, Europe and Asia. He’s been responsible for global wind blade and mold manufacturing in a cell assembly and technology development for both Senvion and Suzlon.

He started in wind with GE, where he ran their Blade Centre of Excellence and earned his Six Sigma Master Black Belt. Ramesh also ran supply chain and strategy for five years at Halliburton. Ramesh is uniquely qualified to serve as TPI’s win COO and we are thrilled to have him in this role.

And third, we are very pleased to announce that Bryan Schumaker is joining TPI next week as our new Chief Financial Officer reporting to Bill Siwek. In his role, Bryan will be responsible for leading and directing TPI finance, accounting and Investor Relations, while contributing to the overall strategic direction of TPI.

In addition, Brian will be the day-to-day leader of our internal audit function, which reports directly to the Audit Committee Chairman. Bryan joins us from First Solar, where he spent 11 years in the finance and accounting group, most recently serving as the Chief Accounting Officer.

Brian joined First Solar when revenue was $500 million and rose through the ranks as the company’s revenue grew to over $3.6 billion.

Bryan also served as the CFO for 8.3 Energy Partners, which was a publicly-traded $1 billion growth-oriented limited partnership formed by First Solar and SunPower to own operate and acquire solar energy generation projects.

Prior to First Solar, Bryan spent five years with Swift Transportation, a publicly-traded trucking company based in Phoenix, where he held multiple positions including VP, Corporate Controller. He also worked in the assurance practice of KPMG early in his career.

In my role as CEO, I will continue to provide strategic leadership with the company for the foreseeable future and will continue to drive overall results. I will continue to work with industry leaders and policymakers to grow the global wind markets along with continuing to enhance and develop our customer relationships.

I look forward to focusing even more energy on growing our diversified markets business. Please turn to slide five. The first quarter had its share of challenges, including the impact of the strike and restart of our operations in Madam Morris, as well as the impact of the financial and operational distress that Senvion is experiencing.

With plans to grow our topline by as much as 50% in 2019, these two challenges have just reinforced our need to continue to focus on execution. Except for these two situations our operations are performing at or above expectations in 2019.

We have also taken this opportunity to consolidate and restructure certain operations for long-term cost and efficiency reasons. Therefore, we have revised our 2019 guidance to reflect this unique set of circumstances. Our targets for 2020 of approximately $1.8 billion in revenue and 10% adjusted EBITDA remain unchanged.

Our target to double our revenue to $2 billion over the next few years, with target adjusted EBITDA margins of 12% or better, remains unchanged.

Our long-term strategy involves investing heavily to reduce LCOE and creating approximately 18 gigawatts of global wind blade capacity, which at 80% utilization will produce about 15 gigawatts of wind blades annually and based on these assumptions, we estimate TPI achieving 20% to 25% global market share at that time.

As wind energy LCOE crosses through the marginal price of coal, we expect product transitions will moderate and turbine crisis will stabilize and a more robust margin should be achieved. We remain focused on delivering profitable growth, significant free cash flow and compelling returns on invested capital.

Let me now get into a little more detail on the events impacting Q1 results and our guidance for the balance of 2019. In the first quarter of 2019, we continued our investment in both start-ups and transitions, with 13 lines in start-up and five lines in transition during the quarter.

The start-up of our new facility in Yangzhou, China is going very well, with production starting at the end of the first quarter and start-up for Enercon in Turkey is also on track. Our transitions are also going well and we are on plan with each of them.

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 transitions.

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

While both 2018 and 2019 will be heavy investment years as it relates to transitions, we do see the pace of transitions slowing slightly in 2020 and we believe longer term, transitions will become less time intensive and costly for us and our customers, as modular blades become more mainstream.

As we announced last week, and during our fourth quarter 2018 call, many of our unionized workers in Matamoros, Mexico went on strike in mid-February of 2019. The strike lasted for approximately two weeks, but production had slowed down meaningfully before the strike.

This disruption, along with the loss of nearly 50% of the workforce because of actions taken during the strike and a slower than planned start-up in 2018 had a significant impact on production during the first quarter of 2019, the pace of hiring new associates was slower than anticipated after the strike, but has recently accelerated to be in line with expectations.

Nevertheless, a material amount of production was lost during the first quarter and will likely carry on into the second and third quarters, as the new associates are trained and additional lines are ramping up. Given the heavy demand for blades in the U.S. market in 2019, TPI’s liquidated damages provisions with its customers are quite stringent.

As a result, in addition to the impact of lost production, we took a charge to reduce the total consideration expected to be received under a customer contract for the liquidated damages incurred in the first quarter.

We believe these production delays will also likely impact second quarter and third quarter volumes and may result in significant liquidated damages charges during the balance of 2019, as we expect to only deliver approximately 60% of the sets original planned in our prior guidance from Matamoros during 2019.

We expect Matamoros to be at full volume in 2020. The combined impact of lost contribution margin dollars and liquidated damages on adjusted EBITDA for the full year related to the challenges with the Matamoros start-up and ramp, as described is estimated to be approximately $25 million.

We remain committed to Matamoros as a strategic manufacturing hub for North, Central and South America, and we are working with the government of Mexico and the State of Tamaulipas on certain incentives and programs to ensure a strong workforce for the future.

In a related matter, given the proposed reforms of the AMLO administration, as well as the labor activism along the U.S.-Mexico border, we are proactively addressing the labor situation in our Juarez plants and developing a long-term labor strategy for this location.

As a first step, we increased wages at the end of the first quarter for virtually all of our direct labor associates in Juarez by approximately 15% or $2.7 million for the balance of 2019. We are progressing well and localizing raw materials in the region, which will positively impact our competitiveness for Mexico.

On April 9, 2019, Senvion filed a petition with the local court in Hamburg, Germany to start preliminary self administration proceedings under German insolvency legislation after talks with its lenders failed. On April 17, 2019, Senvion announced that it had secured €100 million loan to enable it to continue its self administration process.

Notwithstanding the ongoing discussions with Senvion, as well as the potential opportunity to sell some or all of the blades that we have produced for Senvion directly to the wind farm owners pursuant to their step-in rights, we determined certain assets were impaired and adjusted the revenue recognized by the amount not probable of collection at this time, which adversely impacted adjusted EBITDA by approximately $11 million during the quarter and full year adjusted EBITDA is expected to be impacted by approximately $16 million.

Senvion currently represents approximately 4% of our total blade production capacity globally, we expect any potential future production for Senvion would be from another facility and likely under a restructured or amended agreement.

We also announced plans last week to take a restructuring charge in the second quarter of approximately $12 million related to consolidation of certain of our manufacturing facilities, including our plan to shut down the two blade lines operating at our Taicang Port facility and moving our tooling operation from Taicang City to the larger Taicang Port facility.

Thereby expanding our tooling capacity for larger blades and reducing overall cost. We expect these consolidations will enable TPI to more effectively and efficiently support our customers globally, while reducing cost by approximately $11 million on an annualized basis.

Finally, several of the upside opportunities we mentioned in the fourth quarter call related to additional volume from certain locations will likely not materialize this year, primarily due to constraints on availability of certain key raw materials, driven by significant year-over-year demand in the wind industry globally.

We are actively working with our customers and suppliers to localize certain key inputs in Mexico and Turkey, as well as to assist our customers in better planning and coordination of supply chains for raw materials for which they are responsible for securing to meet their blade requirements.

Furthermore, delays at U.S.-Mexican border crossings have resulted in challenges in both delivering blades from our Mexico facilities to the U.S. and in receiving raw materials from the U.S.

Although, this has a tad -- a material impact on our operations to date, if these conditions persist, it could have an impact on both production and delivery in the future. We are actively working on alternative delivery options, including rail directly from Mexico to the U.S. to minimize the potential impacts. Finally, the U.S.

and China are continuing their new trade deal negotiations. While we expect a generally positive outcome over time, we will continue to closely monitor these negotiations.

Turning to slide six, last quarter we announced a multiyear supply agreement with Vestas Wind Systems to provide blades from four manufacturing lines, with an option to add more lines for India and export markets.

These blades will be produced at a new Indian facility near Chennai, Tamil Nadu, which we plan to open for production in the first half of 2020. This new state-of-the-art manufacturing hub will enable us to reliably and cost effectively serve the India and global wind markets for multiple customers.

We also plan to localize a substantial portion of our required raw materials in-country for supply to our India blade plant, as well as for export to other TPI global plants to add raw material supply capacity and to continue to drive down our raw material cost.

Our move into India highlights the continued execution of our diversified growth strategy. The construction of this plant is on schedule and we have already added several key senior leaders to the India team. We are off to a very good start.

During the first quarter of 2019, TPI executed a joint development agreement with GE to cooperatively develop advanced blade technology for future wind turbines, underscoring GE’s plans to continue to partner with TPI.

Two weeks ago, we celebrated the opening of our second manufacturing facility in Newton, Iowa with Governor Kim Reynolds, where we are building our composite bus bodies for Proterra.

Executives from Proterra and General Electric were on hand to highlight this example of 100% clean transportation solutions, where Proterra battery electric buses purchased by DART, the Des Moines Area Regional Transit Authority, will run through the streets of Des Moines after being charged by cost effective wind energy from local utilities.

TPI has also focused additional senior talent and are accelerating some expenditures related to our diversification efforts to capitalize on the opportunities we have been working on over the last two years.

We have made significant progress on several fronts and believe that the time is ripe for us to begin devoting more resources to their strategic initiative.

As in other example, last week, we received a purchase order to develop and produce a chassis and cab structure for a purpose built electric delivery vehicle, prototypes are expected to be completed in early 2020.

Since the beginning of 2018, we have added a net 12 new wind blade lines under contract around the world to bring our total dedicated lines under long-term contracts as of today to 54, including two lines for Senvion.

These transactions, as well as amendments to existing supply agreements represented additions to potential contract revenue of up to $3.4 billion over the terms of these agreements.

With the current Senvion situation, although we still have two lines under contract with them or approximately 4% of our total capacity, we have reduced our potential contract values related to those lines for purposes of this metric. Considering this, we now have a total potential contract value of up to approximately $6.3 billion through 2023.

We continue to develop our robust wind pipeline of global opportunities with current and new customers with both onshore and offshore blades. Today, we have 19 lines that we prioritized to close on by the end of 2020.

We are confident in our ability to convert this pipeline and continue to be in active negotiations with existing and potential new customers. At the beginning of 2018, our potential revenue under our supply agreements was approximately $4.6 billion.

We have increased that amount by approximately $1.7 billion, net of the impact of approximately $1.3 billion of billings, since that time and the removal of the amounts related to Senvion.

In other words, contract value added since the beginning of 2018 through new deals, amendments and blade transitions prior to considering what we have realized in total billings over the last year is over $3 billion.

The minimum guaranteed volume under our supply agreements has grown to approximately $3.6 billion, up from $3 billion at the beginning of 2018. Turning to the global wind market.

We are pleased to see the continued growth of wind energy as a cost effective and reliable source of clean electricity as we and the industry continue to drive down levelized cost of energy, while consumers and corporate customers demand renewable energy.

We see the future of global electricity growth as a strong combination of cost effective and reliable wind, solar, storage and transmission. Global annual wind power capacity additions are expected to average 72 gigawatts between 2019 and 2028 according to Wood Mackenzie.

This forecast also estimates that the top 20 global markets will grow at a CAGR of 7% between 2019 and 2028, while the top 20 emerging markets will grow at a CAGR of 24% between 2019 and 2028.

Our strategy is to continue to leverage our global 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, India, Mexico and Turkey, and we expect this global growth to continue to drive the outsourcing trend we have seen over the last 10 years.

According to Wood Mackenzie, more than 50 gigawatts of wind power was installed in 2018 worldwide. 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.

8 gigawatts were installed in the U.S. in 2018, which was 23% more than 2017 and 2019 is forecasted to grow another 45% over 2018.

According to Wood Mackenzie, 6.6 gigawatts of wind was safe harbored in 2018 for installation by 2022 and 10 gigawatts in 2017 for installation by 2021 and energy companies like NextEra Energy are safe harboring wind turbines for 2021 and beyond.

According to AWEA, a record 39 gigawatts are under construction or in advanced development at the end of the first quarter of 2019, a 17% increase over Q1 of 2018. Offshore is gaining traction as well through cost reductions and state-level mandates.

According to Wood Mackenzie, starting in 2023, an average of almost 2 gigawatts of offshore wind will be installed every year through 2028.

We like many participants in the wind and utility industries, believe that the economics of wind along with demand for 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.

According to BNEF, over 66 gigawatts of coal has been retired since 2012 or 20% of the fleet, and there are another 35 gigawatts of announced coal retirements. According to Vibrant Clean Energy and Energy Innovation, about three quarters of the U.S.

coal fleet could be replaced with wind and solar with immediate savings to consumers as the levelized cost of energy for wind and solar is less than the marginal cost of energy for coal in those locations.

In 2019, we remain extremely focused on execution with strong global wind market growth year-over-year and TPI’s planned top line growth of up to 50% calm many challenges. We are localizing raw materials to serve our various manufacturing hubs in a manner that helps us continue to drive cost down.

We are doubling our global tooling capacity with additions in Mexico and China in order to keep pace with our new line start-ups and transitions. We are adding top talent on a global scale. Q1 was an extraordinary and disappointing quarter due to a couple of unique events.

However, we remain confident and committed to our overall business model, strategy and our plan to double the company’s revenue over a three-year period. The fundamentals of our business remain strong.

Wind markets around the world continue to grow at an attractive pace, the trend that wind blade outsourcing is continuing and our customers and potential customers are demanding increasing quantities of blades to serve a very strong U.S. market, as well as the many fast growing emerging markets.

Along with our customers, we continue to invest heavily into new line start-ups and existing line transitions. Our mature operations are performing at or above our expectations, which gives us confidence in our ability to navigate these challenging times and return to the profit levels we expect. With that, let me turn the call over to Bill..

Thanks, Steve. Please refer to slides eight and nine. For the first quarter of 2019, net sales for the quarter increased by $45.8 million or 18% to $299.8 million, compared to $254 million in the same period of 2018. Net sales of wind blades were $277 million for the quarter, as compared to $234.2 million in the same period of 2018.

The increase was primarily driven by a 15% increase in the number of wind blades produced and a higher average sales price due to the mix of wind blade models produced year-over-year.

These increases were partially offset by incremental adjustments recorded in the three months ended March 31, 2019, as compared to the same period of 2018 under ASC 606 based upon changes in estimates of future revenue, cost of sales and operating income, as well as reductions of revenue based upon the insolvency of Senvion and foreign currency fluctuations.

Total billings increased by $55.8 million or 24.9% to $279.5 million for the quarter, compared to $223.7 million in the same period of 2018. The impact of the fluctuating U.S.

dollar against the euro in our Turkey operations and the Chinese renminbi in our China operations on consolidated net sales and total billings for the three months ended March 31, 2019, was a decrease of 3.3% and 3.5%, respectively, as compared to the same period of 2018.

Total cost of goods sold for the quarter ended March 31, 2019, was $301.2 million and included $16.1 million related to 13 lines in start-up and $2.1 million of transition costs related to five lines in transition during the quarter.

This compares to total cost of goods sold for the quarter ended March 31, 2018 of $225.7 million, which included $14 million -- $14.7 million related to start-up costs. There were no transitions during the first quarter of 2018.

Cost of goods sold as a percentage of net sales increased by approximately 12 percentage points during the first quarter of 2019 as compared to the first quarter of 2018, driven primarily by a significant increase in underutilized labor in Matamoros, Mexico, which contributed to higher start-up cost in plant, a charge for the liquidated damages that we are required to pay for lost or delayed production in Matamoros and an overall $3.4 million increase in start-up and transition costs.

Furthermore, the extended start-up of our Newton, Iowa transportation facility and the accelerated depreciation on property, plant and equipment, which was used to fulfill the Senvion contract, contributed to the overall increase. These increases were partially offset by the impact of savings in raw material costs.

Finally, the impact of the fluctuating U.S. dollar against the euro, Turkish lira, Chinese renminbi and Mexican peso decreased consolidated cost of goods sold by 6.4% during the first quarter of 2019 as compared to the first quarter of 2018.

Our corporate overhead costs included within general and administrative expenses for the quarter were $8 million or 2.7% of net sales, as compared to $11.2 million in the same period of 2018 or 4.4% of net sales.

Before share-based compensation, corporate overhead costs as a percentage of net sales were 2.4% and 3.6% in Q1 of 2019 and 2018, respectively.

The remaining G&A cost of $2.2 million in Q1 2019, primarily related to the loss on the sale of certain receivables on a non-recourse basis to financial institutions pursuant to supply chain financing arrangements with certain of our customers that commenced in late 2018.

The net loss for the quarter was $12.1 million, as compared to net income of $8.6 million in the same period of 2018. The decrease was primarily due to the Senvion related reductions to revenue and the related accelerated depreciation charges, the impact of the Matamoros labor strike and the increase in start-up and transition costs.

The loss per share was $0.35 for the quarter, compared to diluted earnings per share of $0.24 for the quarter ended March 31, 2018. Our effective tax rate for the quarter was primarily driven by U.S. taxation of global intangible low tax income generated by our foreign operations, which essentially results in the recognition of U.S.

tax expense related to profitable operations and non-U. S. jurisdictions, but where we also pay local taxes. Further, the company recorded discrete tax expense amounts in the first quarter related to the uncertain realizability of a deferred tax asset in Taicang, China.

For the full year, we expect to be at or near breakeven on a consolidated basis, so the full year tax rate is expected to be impacted significantly by these items. Adjusted EBITDA decreased to $2.9 million, compared to $27.4 million during the same period of 2018.

Our adjusted EBITDA margin for the quarter was 1%, down from 10.8% in the first quarter of 2018. The decline was primarily driven by the Matamoros and Senvion matters discussed above, as well as by increased start-up and transition activity.

Before start-up and transition costs in both periods, our adjusted EBITDA margins were 7% and 16% in Q1 of 2019 and 2018, respectively.

Excluding the impact of strike related costs and liquidated damages in Matamoros, the impairment charges for Senvion, as well as start-up and transition costs, our adjusted EBITDA margin for the quarter was approximately 13%.

Moving on to slide 10, we ended the quarter with $78.3 million of cash and cash equivalents, total debt of $160.2 million and net debt of $81.9 million, compared to net debt of $53.2 million at December 31, 2018.

The decrease in our cash position during the quarter was primarily driven by the increased level of start-up and transition costs and the related CapEx.

For the quarter, we had a net use of cash from operating activities of $12.1 million, while spending approximately $18.7 million on CapEx, resulting in negative free cash flow for the quarter of $30.8 million.

For the year, we expect to be able to take full advantage of supply chain financing agreements with most of our customers, while aggressively managing the rest of our working capital to more than offset the impact of the reduction in adjusted EBITDA. We expect to be at or near breakeven in free cash flow for 2019.

Our balance sheet remained strong with nearly $80 million of cash and we had an aggregate of $73 million of availability under our various credit facilities. Please turn to slides 12 through 14.

Before I touch on our updated guidance, I’d first like to refer you to slide 12, which is an adjusted EBITDA bridge for 2019 to better illustrate the impact of the unique circumstances we are dealing with in 2019 and to demonstrate the underlying operational performance of TPI.

If you consider the direct impact related to Matamoros, Senvion and our planned restructuring, adjusted EBITDA for 2019 would have been at or above our original guidance range, demonstrating that our mature operations are performing at or above our expectations for 2019. With that as a backdrop, our updated 2019 guidance is as follows.

We expect net sales and total billings of between $1.45 billion and $1.5 billion in 2019, adjusted EBITDA of between $80 million and $85 million for the full year and between $8.5 million and $9.5 million for the second quarter.

Loss per share for the year of between $0.03 and $0.09, sets invoiced of between 3,200 and 3,300, average sales price per blade of between $135,000 and $140,000, estimated megawatts of sets delivered of between approximately 9,400 and 9,700, dedicated manufacturing lines at year-end to be between 60 and 63.

Manufacturing lines installed at year-end to be between 48 to 50, manufacturing lines in start-up during the year to be approximately 14, manufacturing lines in transition during the year are expected to be approximately 10.

Line utilization based on 50 lines in Q1 and Q2 and 48 lines in Q3 and Q4 will be approximately 80%, start-up costs of between $43 million and $45 million and this includes additional start-up costs related to Matamoros and our transportation operations, transition costs of between $22 million and $24 million.

Capital expenditures to be between $95 million and $100 million, approximately 85% growth related, interest expense of between $8.5 million and $9.5 million.

This increased slightly due to an increase in the estimated outstanding balances for the year, as well as an expected rate increase due to slightly elevated total net leverage ratios pursuant to our senior credit facility, share-based compensation expense of between $7 million and $8 million.

And with that, I will turn it back over to Steve to wrap up and then we will take your questions.

Steve?.

Thanks, Bill. I want to thank all of our dedicated TPI associates who are doing the heavy lifting every day and tackling our growth related challenges.

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 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 2018 wind revenue to more than $2 billion in 2021. We are laser-focused on execution during the remainder of 2019 and are looking forward to exciting and profitable growth in 2019 and beyond. Thank you again for your time today. And with that, Operator, please open the line for questions..

[Operator Instructions] Our first question comes from the line of Paul Coster with J.P. Morgan. Please proceed with your question..

Yeah. Good afternoon. This is Mark Strouse on for Paul. Thanks for taking my questions. So if I could, I just want to start with Senvion.

Steve, I think you touched on this a bit, but just to be clear, can you talk about what is happening with those lines that are dedicated to Senvion currently as they go through your process, and I mean, are you contractually obligated to kind of wait that out or are you able to kind of proactively try and backfill that business with another OEM?.

Yeah. Mark, thanks. So the Taicang Port operation is where those two lines exist and we are actually converting that to a tooling facility. So Taicang City is in downtown Taicang. Taicang Port is a different location. The Taicang Port building is larger. We can build larger molds and more molds at the same time.

So part of our global doubling of tooling capacity and part of the restructuring charge that we have described is we are actually going to take those two lines out of Taicang Port and convert Taicang Port to a tooling shop. We do have additional capacity in China.

So as we mentioned, depending on how Senvion fares to their restructuring and if we can reach an agreement to do something more with them that makes sense for both parties, then if we restart, we would restart in a different location..

Okay.

And then, Bill, the blades that have already been produced, the ability to sell them directly to the utility or the end user, I guess, what are the assumptions behind that, that are baked into guidance this year?.

Yeah. So we have completed the production of all the blades pursuant to our agreement, especially for that particular wind farm as we mentioned in our preannouncement. And so what’s baked into our assumptions for the balance of the year is that, we will get paid for the blades that we have in our custody in China that we still hold title to.

Anything -- any receivables related to blades that have already been shipped have been impaired, and that was part of our charge in the first quarter. But what we have remaining is just really cash collection on production, that’s our retaining, yes..

Okay.

And then if you don’t mind, if I can just sneak in one more, so you mentioned you are proactively addressing the labor situation, whereas Mexico, I guess, how should we think about the rest of your global operations and any risk that is something similar to Mexico could spread globally?.

Yeah. So we are -- we have unions in Matamoros. We are not unionized today in Juarez, but as we mentioned, we are proactively addressing that situation there and we feel very confident in our position there.

The only other place we are unionized today is in Turkey and we recently went through a renegotiation or a negotiation of the normal expiration date of that contract. We completed that in early -- late last year, early this year and that went without a hitch. No labor stoppage or what have you, it was just normal negotiation.

So other than that our employee relations are strong around the globe, and we don’t see any other issues on the horizon..

And Mark, it’s Steve, just to confirm that as well. The root cause of the issue at Matamoros for us and the kind of preemptive action we are taking at Juarez, the root cause of it was driven by the AMLO administration and labor reform that’s driven from that for Mexico City.

With respect to Mexico, so as Bill said, we don’t expect that elsewhere, we are not seeing signs or concerns of it elsewhere..

Okay. That’s helpful. Thank you very much..

Thanks, Mark..

Thanks, Mark..

Our next question comes from the line of Ethan Ellison with Morgan Stanley. Please proceed with your question..

Hey. Thanks for the question..

Hi, Ethan..

And Bill, Ramesh, Bryan, congrats on the new roles..

Thank you..

So, I guess, first off, given that the 2020 EBITDA guide was unchanged at $170 million to $190 million and it’s sort of implying that the Senvion lines are coming out.

I guess, what is baked into the reaffirmed 2020 guidance in terms of conversion from the prioritized pipeline and if the guidance does imply some pipeline conversion, how should we think about the ramp time in terms of having an offsetting positive impact on 2020?.

Yeah. Ethan, I think, what we have said is that we have 19 additional lines in our prioritized pipeline, and we would expect to close over the next two years and we would draw from those if needed. The fact that it’s two lines for Senvion out of 54 under contract. It’s a relatively small percentage, 4% or so of the total volume.

So we have a number of lines that are continuing to ramp. We have more lines that we will book. We are not writing off the Senvion situation. We just want to be smart for them and for ourselves going forward as to what makes the most sense. We will have excess space in the Yangzhou facility that we can move into quickly.

So we just don’t see an impact on 2020. There is a range of outcomes of new molds being added. There’s a lot of volume being ramped still as we go through the rest of ‘19 and into ‘20 and so that -- there’s adequate room in that capacity and that plan to absorb either outcome, the two lines related to Senvion. That’s why the guidance has not changed..

Perfect. Thank you. And then just one quick one, in the new 2019 guidance, it looks like non-blade billings is down about….

Yeah..

…$15 million at the midpoint, could you just talk about what’s driving this?.

Yeah. It’s -- a little bit of that relates to tooling in the back half of the year. Tooling was pretty heavy at the beginning of the year, that’s dropped off a bit and then our actions -- and then some of our transportation volume is a little bit lighter than originally anticipated. So those are the two primary reasons..

Perfect. Thank so much guys..

Thank you..

Our next question comes from the line of Joseph Osha with JMP Securities. Please proceed with your question..

Hi. This is actually Hilary on for Joe and I just wanted to touch real fast on Matamoros. You mentioned in addition to wage increases that there are a couple of other initiatives that you guys have put in place there to help kind of smooth things down. I was wondering if you could just kind of provide a little more detail on what those might be..

Hey, Hilary. This is Bill. You cut out just a little bit, couldn’t quite understand your question..

Let me try and pick up my headset..

Yes. You can..

On Matamoros, you mentioned that you guys had those wage increases in place, as well as some other incentives and I was just wondering if you could provide a little more detail on what those might be?.

Yeah. You might be a little bit confused, but we had -- when we settled the strike there was a wage increase, as well as a onetime bonus. So those costs were baked in, obviously, to the Q1 numbers and then the bonus gets paid out over time, so that’s baked into the balance of the 2019 guidance.

In Juarez, we have taken some steps to increase wages there, but there were no other incentives that have been provided other than just what is mentioned..

And Hilary, what might have been confusing is, what we did comment that we are working with the State of Tamaulipas with the state government, just in general to say how do we work together on training grants or other support mechanisms to make sure that that area remains a real strong supply of trained workers.

So that was the incentive comment that was in our prepared remarks. It might have been confusing. But that’s what we were referring to there..

Okay. Great. Thanks for the clarification. And then on the transportation side, I know you just said that in back half of this year, you expect to be a little light there, but I was wondering if you could kind of give some guidance for how we might see that ramp with some of these more recent announcements in the coming year or so..

So on the transportation stuff, nothing has really changed for us big picture there. I think in terms of the opportunity set that we see. We are pleased with various development programs that we have going on. But this has always been and continues to be a bit of a multiyear development, strategic development area for us.

A year ago or so, we started to talk about years four through 10. So, I guess, now we can talk about years three through nine. But that’s a way for you to think about this is.

The work we are doing is developing new products, demonstrating the technology, doing a bunch of reliability testing with our customers and then production will follow a bit later. As Bill said, the non-blade revenue is also today is fairly heavily weighted with tooling, with bolts for wind.

So it’s not -- those numbers are not all transportation related. It’s wind blade tooling and transportation products in general and blade services, which we do some more for as well. So we don’t really guide on that bucket as efficiently, because it’s a combination of several of those items.

What I would just reinforce on the transportation side, we are pleased with the traction on the development programs. As we mentioned in our prepared remarks, we are seeing good traction there and we are planning and are emphasizing that work in terms of our resources internally, a couple of our senior folks adding more and more effort on that area.

But you still ought to think about it as a few year development effort to build, our goal is $0.5 billion revenue in a few years, and that goal remains unchanged..

Okay. Great. Thanks so much..

Thank you..

Thanks, Hillary..

Our next question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question..

Hi, Steve and Bill..

Hey, Eric. How are you..

Hi, Eric..

I am all right.

How are you?.

Good. Thanks..

Good. So I just wanted to clarify an answer to a previous question and maybe I misunderstood. But is Senvion, the blades that you have in your possession, which you are hoping to deliver and collect on, is that included in your guidance and I may have missed it.

Is that a number that you can quantify, just trying to get a sense of, if that’s not the case, what the potential negative impact would be?.

Yeah. So it -- so essentially all the revenue has already been recognized under ASC 606. The blades that we had in finished goods at the end of the year that had not yet been invoiced, but as I said, those would be recognized as revenue. So there’s really no additional revenue impact beyond….

Yeah..

But there is approximately $13 million on the balance sheet related to receivables and the related contract asset related to those finished goods that are sitting on our balance sheet..

Okay. But just, I mean, to be clear, you feel you are in a pretty good spot and have a lot of leverage, right? Because that wind farm has moved forward, they need those blades, you have got the blades. So, I mean, obviously, you think the chances are quite high that that works out in your favor..

Yeah. Hey, Eric. Just let me correct myself, it’s $10 million that we have..

$10 million..

Yeah..

Okay..

$7 million and $3 million, I gave you a wrong number..

Okay..

But and the answer is yes. I mean, we wouldn’t have left that on our balance sheet, if we didn’t feel that it was more likely than not that we would be able to realize those assets and the receivables on the contract asset, just....

Yeah..

Based on the current expense of it..

Got it. Okay. And maybe last one from me, I will take the rest offline. But just curious if you can give a little more detail on the joint agreement with GE, maybe scope, timing, that sort of thing, and I am also curious, I mean, I would think that, that bodes well in terms of the extension you are targeting in Iowa..

Yeah. Eric, we can’t really comment in more detail than what we have already said. We are pleased to be developing advanced technology with GE for future turbines, but it’s not our place to comment on the details of what might affect their product or the exact timing of it.

And we have got capacity out of both Mexico and Iowa, all the operations have to be competitive over time. So I think just take it at face value. What we said is what we mentioned, that’s probably all we can say at this point..

Okay. Got it. I will turn it over. Thanks..

Thank you..

Thanks, Eric..

Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question..

Thanks for taking the question. I suppose the silver lining of the Senvion situation is that you have referenced the very high level of industry demand right now. So you should be able to find alternative sources of for those lines.

Just thinking more broadly, is this, 2019, maybe 2020, do you see these as peak years for global wind new builds, does it feel that way, is that the message you are hearing from your customer base?.

Pavel, I don’t think so globally. I think the U.S. market is certainly overcharged a bit for the next couple of years, this year and next and then we look for, call it, that 8-gigawatt a year kind of run rate beyond that. But again, if you look at the 10-year CAGRs, the developing economy is growing 24%, 20% plus anyway for the developing markets.

That’s where a lot of the more aggressive growth is and those markets are maturing, coming up in volume, running their options, getting their infrastructure in place. So the global numbers over a 10-year period will continue to grow, as we have indicated and we are mapping largely on to that global growth.

As you know, most of our more recent growth has been in places like China and India and Mexico, serving much more than just the U.S. market. So, no, I don’t think we have peaked.

There will continue to be individual markets that are up or down a bit, but we are mapping our global footprint on to the global market and going where the growth is, we are not peaking in ‘20 and -- ‘19 and ‘20 for sure..

Okay. And then another kind of big picture question, I think at the time of your IPO three years ago, the number you indicated was that one-third of the world’s turbine blades are being outsourced. And you guys have obviously grown since then, I am sure LM Wind has had some expansion as well.

What’s your kind of best guess on the overall degree of outsourcing in the industry? And how much more running room is there for that percentage to go up?.

Yeah. Pavel, the timing or the number a few years ago was probably around -- was in the 40% to 50% range. It was growing. Took a step back a bit with the GE acquisition of LM of 10 points or something like that at the time and has continued to move back up. So we are probably around 60% global outsourcing today and there’s room for more outsourcing.

So there’s room for the total pie to grow. That’s the total gigawatts per year and there’s room for our pie to grow, our addressable market pie to grow through some additional outsourcing. So it’s about 60% today and still growing..

All right. Very helpful. Appreciate it..

Thank you..

Thanks, Pavel..

Our next question comes from the line of Jeff Osborne with Cowen and Company. Please proceed with your question..

Hey. Good afternoon, guys. Most have been answered but a couple on my end. Mexico, Steve, I was wondering, can you just touch on, I think, you mentioned, 50% of staff left.

Can you talk about how much has been replaced and sort of what that ramp is and is there any risk to the second quarter and third quarter being impacted, maybe that duration is longer, maybe it’s faster, I wasn’t sure, maybe you can put into context how many people departed and how many of those spots have been filled..

Yeah. Jeff, we are pretty much back now to the level at the time of the strike and so as we said in our prepared remarks, it’s taken a little longer to fill -- refill some of those positions. But the last four weeks or five weeks, our hiring rates have been very good and continues to be strong.

So we are roughly back about now at the level prior to or at the time of the strike, let’s say, and a lot of this was our choice as well, I mean, the key go-forward commitment from TPI’s perspective, we need a workforce that is going to work with us over time.

So I wouldn’t say folks just left, but we chose to make changes the way that we did to build a large capacity here and a capacity that we can count on, a factory that we can count on over time. So there will continue to be some impact throughout the rest of this year. The impact will lessen later in the year.

But as you can imagine, bringing on hundreds and hundreds of folks and teaching them how to lay up and infuse fiberglass, there is a training learning curve associated with what we do. So we started a little slow, dropped at 50%, refilled it back, yet we continue to ramp through the next couple of quarters.

So as we said in the prepared remarks, there will be some impact through the rest of this year. There would be no impact next year. So if you think about what we are trying to do globally here, we are basically building up 18 gigawatts of global capacity. Matamoros is one piece of that.

If we end up selling 80% utilization on the order of 15 gigawatts of global capacity, we have started up 7 wind blade plants over the last number of years. Matamoros is one of them.

We are building this global capacity to be 20% to 25% global market share player and what’s important for us here is that we get Matamoros right, just like every other operation.

This one has taken us longer and costing more money than we like, but the big picture is it’s going to cost some time and money and we are going to be, by first of next year, where we intended to be all along..

Got it. That’s helpful. I appreciate the detailed response..

Yeah..

You mentioned on the raw material side at the Analyst Day, some time ago, you went through great lengths of all of the different procurement mechanisms in your global sourcing strategy and that seems to have hit some challenges.

So can you just touch on, A, specifically what are the raw materials that the wind market is consuming that are in tight supply that you are having a hard time getting, and then B, what are you doing about it?.

Yeah. Jeff, it’s primarily core material. It’s specifically PET core. It’s a recyclable material that’s used in the core that we put into the blade. There has been a -- there was a fairly rapid shift by most of the industry to go to the PET. The challenge was that the demand as a result outstripped the supply of PET.

So it’s not that there aren’t alternative materials that we can use and so that’s part of what the strategy is, is either quickly re-qualifying or switching back to some of the original core materials that we were using. As you know, we are building our customers’ blades and they mandate what the materials are.

So it’s a process of going back to our customers and their engineers to make those changes. So it generally can’t happen overnight. The good news is, is that the capacity for PET is being put in place now, it should be in place by the end of the year, so we don’t see similar issues going into 2020..

That’s helpful. I think the last one I will be very quick, the dedicated lines went down by 155 to 54.

Is that just Iowa going from six to five with the GE transition or something else?.

Yeah. That’s exactly right, Jeff..

Thank you..

Yeah. Thank you. Thanks, Jeff..

And Jeff, just back on the raw materials for a minute, so the capacity is something, as Bill said, that we got to continue to grow globally and think about what we are doing globally. In Mexico, we are localizing raw materials to both add capacity and reduce cost for our Mexico exports.

In India, we are setting up new supply chain to both add global capacity and reduce cost, both for our India blade plants, as well as we will export raw materials from India to other plants around the world.

So we have got to continue to stay ahead of this material constraint, kind of to your point and we are stressing it right now related to the convergence that Bill talked about on PET. But in general, we are growing our raw material supply across the Board to keep up with our aggressive growth and it’s generally going well.

The PET was a bit of an example, where we got caught by this conversion to the recycled material and growth kind of at the same time. So it’s a pinch point that hurt us here in the short-term, but a lot of work going on to make sure we stay ahead of it in the broader sense..

That’s good. I appreciate it. I just want to make sure it wasn’t polymers, resins, any of the other materials that you are using that might be....

Yeah. A bit narrow, a bit of a unique situation that way, but again, we have got to continue to make sure we are not constrained by raw materials..

Perfect. Thank you..

Thank you, Jeff..

Our next question comes from the line of Philip Shen with ROTH. Please proceed with your question..

Hey. Thanks for questions. I was bouncing in a couple of calls there, so apologies if some of this has been addressed. In terms of Mexico, the impact was $25 million.

Can you breakout the mix of that between labor and then the liquidated damages or another source of impact of the other? And then also talk to how much in terms of liquidated damages we could see from a quantifiable perspective for Q2 and Q3? Thanks..

Hey, Phil. It’s Bill. It’s about 50-50 split between liquidated damages and then lost contribution margin on lost or delayed or lost volume if you will for the year and the labor proponent will be baked into that contribution margin number.

And it’s -- as the liquidated damages are factored into our updated guidance, so would not get any more specific than that but that’s about what it is..

Okay. Got it. And Steve, I know you are just addressing this, the material issue with Jeff’s question earlier. But last quarter, clearly, you didn’t see that issue, you talked about how your global supply or footprint actually is an asset and can be used to run -- be run on overdrive to offset the challenges in part in Matamoros.

Can you speak just a bit more broadly to do those benefits of the global supply chain and global footprint still remain and then in turn, perhaps, speak more broadly beyond just material supply constraints and what we can -- what you guys are doing to ensure that on a go-forward basis next year or 2020, for example, that this extraordinary circumstance either doesn’t happen or if it does then you guys still have the capability to sidestep what those challenges might be? Thanks..

Yeah. Thanks, Phil. So, as Bill said a few minutes ago, there are certain materials that the allocation globally are affected a bit by what our customers decide. And then in this situation, kind of unique situation with the PET fall, the recycled material where our customers and us hit a constraint that affected us in the immediate term.

So it’s a little bit of a unique situation that way.

I think the global capacity, the comment we made still holds, I mean, reality is if we had unlimited material availability, the ability to work additional overtime or throttle forward a bit from some of our other operations to make up some of the volume, that was true and it would be true again in the future, but constrained in this case by raw materials.

So in terms of what we are doing, if you get out ahead of it, I think, we mentioned a minute ago, you may not have heard it, Phil, but we are expanding our raw material capacity in Mexico. We are localizing and expanding raw material capacity in Turkey. We are localizing and expanding raw material capacity in India.

We are qualifying additional sources in China and we are going to double our wind revenue over a three-year period or so. So there’s a lot of work going on to just try to keep that global supply chain out ahead of our volume growth and the industry volume growth and make sure we don’t get caught. So we did get constrained here.

But there’s an awful lot of good work going on to try to avoid that type of constraint in the future..

Great. Thanks, Steve, for the color..

Thank you..

As it relates to Proterra, I know you addressed that a bit earlier. I believe anyway in your prepared remarks, as well as on a question.

But want to kind of dig in there a different way, by our account, just based on some press releases and so forth, it seems like Proterra and we may have missed some things, but it seems like over the past 12 months, they have announced 110 plus bus commitments and I believe your agreement with them is for what could be on average 670 buses per year for over a five-year period, starting I believe in ‘17 and clearly that would ramp over time.

So the near-term years would not have as many buses. To what degree can you comment on any risk that there might be for 2020 guidance if Proterra doesn’t come through and things get delayed or do you feel like there is the opportunity to meet expectations as you guys have -- the two of you have sit-outs in the recent past? Thanks..

Yeah. Thanks, Phil. So we are not in the position to talk about Proterra specific volumes and get out ahead of their own business plans or to comment on the specifics of their volumes.

But I think big picture suffice it to say that they are building a business in the electric, the battery electric bus transit market and they have got some good traction as they speak to the unit orders they have got from quite a number of transit authorities.

But a lot of those volumes are smaller volumes per order today, whereas then what’s key for them, and they speak to this too, is incubating the market and then turning the volume up and that’s something they will do over a period of time. So that’s pretty logical that you would expect to see that happen. I think they are pleased with their traction.

We are pleased with the traction in general. But this will ramp over a period of time. Our confidence around our target for next year is a range of things that will happen and a range of outcomes regardless of which will allow us to achieve the goals that we set.

So we are not going to predict perfectly any one -- each one of these, but we have got a range of outcomes and that’s also why we can absorb the loss if we end up losing two lines ultimately for Senvion, we can absorb the loss of two lines and still achieve the outcomes.

If one customer misses volume by a small amount, we can still achieve the outcome. So I don’t think you should tie too directly the unit volume you might read about Proterra to our ability to meet or not meet our guidance. We have got more conservatism and range of outcomes there than that might imply..

Great. Thanks, Steve. One last a very quick question.

In terms of prioritized pipeline, in the remaining ‘19, is there a new geography there at all, and if so, perhaps, could you highlight, perhaps, either the region or where it might be?.

Yeah. I think what we said before and we will just repeat again on this one, Phil, is that we are expecting to continue to grow out the footprint that we have announced. We are just getting started in India. We expect to do more there. We mentioned that we -- even our first building in Yangzhou will have additional space. It’s not yet sold.

We could well expand further in Mexico. We will see how that goes. So let’s just say a new geography would not be required in order for us to continue to do what we are doing, and we have not made any comments or announcements about an additional geography.

And as you would know too, it’s certainly easier for us to expand incrementally on hubs that we have already built out than it is to go to a brand new country. India is a very important step for us and we mentioned that, that start-up is on track. We expect it to continue to go well.

So at this point, I would assume that we will continue to build out the areas that we have announced..

Great. Thanks, Steve. Congrats, Bill, as well -- to Ramesh as well. I will pass it on..

Thanks very much, Phil.

Thanks, Phil..

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, CEO, for closing remarks..

Thanks all for your interest again in TPIC and we look forward to continuing to update you on our progress. Thanks everyone..

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