Good afternoon, and welcome to the TPI Composites Second 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 Mr. Christian Edin, Investor Relations for TPI Composites. Thank you. You may begin..

Thank you, Operator. I'd like to welcome everyone to TPI Composites' second 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 preparation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measures. 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'm joined today by Bill Siwek, our President; and Bryan Schumaker, our CFO.

On this call, Bill and I will provide an update on progress against our goals, summary of the quarter, a brief update on the growing wind market and our strategy for profitable growth. Bryan will then review our financial results in detail before we open up the call for Q&A. Please turn to Slide 5.

We delivered solid results in the second quarter, with adjusted EBITDA of $19.5 million on net sales of nearly $331 million, a 43.4% increase over Q2 of 2018. During the second quarter, we worked through the impact of the strike in Matamoros and continued to ramp-up six lines in that facility.

We are slightly ahead of our revised production plan and expect to be fully through the start-up during the fourth quarter. We've completed our negotiations and signed an agreement to sell the remaining Senvion blades at our inventory directly to Senvion's customer to enable them to complete a project in Australia.

The result was better than what we had included in our revised guidance last quarter, the impact of which will be seen in the third quarter. As part of those negotiations, we mutually agreed with Senvion to terminate our two-line supply agreement.

Early in July, we announced that we acquired certain intellectual property and hired a team of engineering resources from the EUROS group based in Berlin, Germany. EUROS had been owned by Senvion since 2016. This team of approximately 20 technical experts focuses on blade design, tooling, materials and process technology development.

This transaction will strengthen our technical capabilities in support of our global operations and growth, and the experience and skills of this engineering team will enable us to offer complete blade solutions where valuable.

Last week, we reached agreement with Nordex to transition multiple existing lines in Turkey to longer blades and at the same time, extended the contract by two years through 2022. These changes will result in an increase to our potential revenue under contract of approximately $180 million over the new term of the deal.

As it relates to the consolidation and restructuring we announced last quarter, we expect to complete the transition of our blade facility in Taicang Port, China, to a tooling facility before the end of the third quarter, and we expect to complete that consolidation for less than originally expected.

We also entered into an agreement to sell a small non-strategic operation in Fall River, Massachusetts, which we expect to close in the third quarter. We are, however, maintaining our technical development center and limited production capacity in Warren, Rhode Island.

We've pivoted our planned investment of $11.5 million in an automated high-volume pilot production line for transportation applications to our Rhode Island facility to leverage our existing technical team and the proximity to additional technical talent in the greater Boston area and expect that to be operational by Q3 of 2020.

We are continuing to invest in our relationship with Proterra, while focusing additional senior talent and accelerating some expenditures related to our diversification efforts in the transportation space to capitalize on our work with Proterra as well as both existing and new development programs with other customers.

As we've said before, these development programs will take time to convert to production wins but we are pleased with our progress.

With 52 wind blade lines currently under contract and more expected to follow as the tariff and trade picture clears up, a growing average megawatts per year per line of about 300 megawatts and ramping of 18 new lines globally, we're progressing well toward our goal of establishing 18 gigawatts of global wind blade capacity over the next few years.

Even with ongoing blade model transitions at that time, running at about 80% utilization, we expect to produce about 15 gigawatts of blades per year and achieve our target to double our wind-related revenue to $2 billion per year.

With an estimated 70 gigawatts of global combined onshore and offshore wind market, we expect to have 20% to 25% global market share. Our pipeline remains strong, with potential to add both onshore and offshore lines.

However, we and our customers have delayed some of those commitments due to uncertainty related to global trade policies and in order to focus on delivering on the 52 lines already under contract. We expect to participate in the offshore wind-blade market as the volumes reach levels to provide critical mass for efficient outsourcing.

The global wind market, both on and offshore, is expanding, as the levelized cost of energy of wind continues to trend down and decarbonization goals and initiatives grow.

Our customers have recently accelerated R&D investments in next-generation turbine platforms to further reduce LCOE, even as the unsubsidized cost of new wind installations passes through the marginal price of coal. Estimates by Wood Mackenzie suggest that the top 10 OEMs will invest as much as $2.5 billion in R&D through 2023.

Wood Mackenzie also estimates that 90-plus new onshore and offshore turbine models will be launched in the next five years by the top 10 OEMs.

We plan to invest alongside our customers during this time in our blade manufacturing capacity and capabilities and transitions to longer and, in some cases, modular blades to keep pace and grow our position in the market. This investment, over the next several years, will likely create some volatility in our quarterly and annual results.

But it does not change our confidence in the underlying long-term economics of our business or the wind industry. And we believe it will enable us to remain in position for profitable growth, significant free cash flow and compelling return on invested capital as the industry matures. Let me now turn the call over to Bill..

Thanks Steve. Let me now get into more detail on the events impacting Q2 results as well as some updated thoughts on future transitions. In the second quarter of 2019, we continued our investment in both start-ups and transitions with 13 lines in start-up and seven lines in transition during the quarter.

Start-up and transition costs for the quarter totaled approximately $23 million, slightly lower than our guidance for the quarter. However, we expect the full year costs to be slightly higher than our prior year full guidance. The start-up of our new facility in the Yangzhou, China, has been more challenging than expected.

Our new government-provided facility was completed behind schedule and the recovery plans we had in place were not adequate to fully catch up. As a result, we are behind our expected ramp and expect to fall short of forecasted volumes for the year, which will result in more investment in the start-up than planned.

The start-up for Enercon in Turkey is on plan. Our new facility near Chennai, India, is under construction and is on schedule and budget. We have hired most of our senior leadership team for India and they are actively working on the start-up and getting fully integrated into TPI.

We are very pleased with the experience and quality of our new hires in India and are on track to begin production in this facility in the first quarter of 2020.

Finally, as it relates to start-ups, we have worked through our challenges in Matamoros by stabilizing our workforce and operations and are now on track to meet or exceed our revised plan for 2019. As for transitions, they are also going well, and we are generally on track with each of them.

Consistent with Steve's earlier comments around the accelerated investment in R&D by our customers, the number of new product introductions and our need to keep pace with their platform changes, our expectations for transitions in 2020 and a few years beyond that have changed.

We now expect as many as 16 transitions next year based on our most recent discussions with our customers, many of which we expect will lead to contract extensions and increases in overall contract value but nonetheless will impact our operating margins and overall adjusted EBITDA levels.

We will continue to work with our customers to minimize the impact of these transitions through cost sharing and collaborative teamwork, reducing the time it takes for us to change out moulds as well as moving modular blades into production.

But we won't be able to fully offset the lost contribution margin from lost sets or the full amount of under-absolved overhead.

Given the expected changes in transitions in 2020 and the resulting impact on contribution margin in transition costs, we are revising our 2020 net sales and adjusted EBITDA target levels to reflect our new outlook around the ultimate number and type of transitions.

Our net sales target is adjusted to $1.6 billion to $1.8 billion from $1.7 billion to $1.9 billion previously, and our adjusted EBITDA target is revised to $140 million to $160 million from $170 million to $190 million.

Last quarter, we discussed some raw material and competent supply constraints facing the industry, driven by significant year-over-year demand growth in the wind industry globally. We continue to work actively with our customers and suppliers to minimize the impact to production for the balance of the year.

As a longer-term solution, we are also working with some of our key suppliers to localize certain critical inputs in Mexico and Turkey to not only expand global capacity to match up with our planned 18 gigawatts of capacity build-out, but to reduce overall cost and lock in a guaranteed supply of critical materials.

Finally, with the US and China continuing their trade negotiations, there remains uncertainty as to what the ultimate outcome will be and when that may materialize. And although the recent US and Mexico trade tensions have eased, there remains some uncertainty with what may happen long-term if the USMCA is not signed into law.

This uncertainty as well as some noise around tariffs with India is causing some of our customers to slow down certain expansion and/or sourcing decisions, while some of the trade talks play out. With that as a backdrop, let's turn to Slide 6.

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 52, excluding the two lines for Senvion that were recently terminated.

These transactions as well as amendments to existing supply agreements, including the extension of the Nordex agreement discussed earlier, represented additions to potential contract revenue of up to $3.7 billion over the terms of these agreements. We now have a total potential contract value of up to approximately $6.2 billion through 2023.

At the beginning of 2018, our potential revenue under our supply agreements was approximately $4.6 billion. We have increased that amount by approximately $1.6 billion net of the impact of approximately $1.6 billion of billings since that time and the removal of 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 18 months is over $3.2 billion.

The minimum guaranteed volume under our supply agreements has grown to approximately $3.5 billion, up from $3 billion at the beginning of 2018. The pace of our pipeline conversion has slowed since the end of last year.

While we have purposely slowed down our expansion pace in order to focus on the 52 lines we have under contract today, plus the fact that we estimate that we only need to have 60 lines under contract to achieve our targeted global capacity of 18 gigawatts, the general capacity addition slowdown has been a result of a number of factors, including trade uncertainty, the increased pace of transitions of existing lines to larger blades and, therefore, increased megawatts per set to meet megawatt demand from fewer sets; and increased blade production throughput, in other words improved cycle times, which enables more output from the same number or fewer lines, therefore, additional lines are not required.

Therefore, we expect that the conversion of new lines for the balance of the year will be lower than expected and, therefore, dedicated lines under contract will be between 52 and 55 at year-end. We have begun to introduce the concept of discussing future growth in terms of megawatt capacity versus production lines.

The primary reason for this is with ever-increasing blade lengths and our ability to manufacture larger blades at the same rate or faster, the megawatts per set and, therefore, per line is increasing significantly.

Therefore, we will not need the same number of lines as we did just a few short years ago to produce the same or a greater amount of total megawatts. For example, that 300 megawatts per line per year, 60 lines running at approximately 80% utilization will be all that is needed to produce 15 gigawatts per year.

We will continue to discuss lines for the balance of the year but we'll be recalibrating our pipeline and future dialogue to megawatts of capacity and capacity utilization during our Investor Day in November.

Turning to the global wind market, we continue to be pleased with the continued growth of the wind energy as a cost effective and reliable source of clean electricity as we, in the industry, continue to drive down LCOE, 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 73 gigawatts between 2019 and 2028 according to Wood Mackenzie, compared to just over 50 gigawatts in 2018.

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 23% 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 US, China, India, Mexico and Turkey, and we expect this global growth to continue to drive the outsourcing trend we've seen over the last 10 years. The US market outlook over the next several years continues to strengthen.

In Wood Mackenzie's Q2 global wind power market outlook update, their 2019 to 2021 forecast increased by 12% from their Q1 forecast to 33 - 37 gigawatts, excuse me, or an average of 12 gigawatts per year. And for the 10-year period ending 2028, their forecast increased 16%.

Gigawatts installed per year from 2022 through 2028 is now 6 gigawatts, up from 4 gigawatts at this time last year. U.S. offshore forecast continued to increase as well with three gigawatts or 23% increase compared to Q1 forecast and a total estimate of 15.9 gigawatts to be installed through 2028.

We, like many participants in the wind and utility 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 2019.

According to Bloomberg New Energy Finance, renewables are now the cheapest form of electricity generation across more than two-thirds of the world as compared to 1% just five years ago. Costs are expected to continue to fall by 50% on a US dollar per megawatt hour basis by 2050.

And by the early 2030s, batteries colocated with wind will be cost competitive with new gas for dispatchable generation. More than $5 trillion is expected to be invested in wind through 2050, globally. 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 over 40% come many challenges. We are localizing raw materials to serve our various manufacturing hubs in a manner that helps us to generate capacity and to continue to drive down cost.

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. We performed and recovered well in Q2 from the challenges we encountered in Q1. We remain confident and committed to our overall business model and strategy.

The fundamentals of our business remain strong. Wind markets around the globe continue to grow at an attractive pace. The trend of wind blade outsourcing is continuing, and our customers and potential customers are demanding increasing quantities of blades to serve a very strong US market as well as the many fast-growing emerging markets.

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

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 $27 million and $30 million in Q3; loss per share of between $0.18 and $0.23; sets invoiced of between 3,180 and 3,220; average sales price per blade of between $135,000 and $140,000; estimated megawatts of sets delivered of between 9,300 and 9,400; dedicated manufacturing lines at year-end to be between 52 and 55; manufacturing lines installed at year-end to be 48; 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 in Q3 and Q4 of approximately 80%; start-up costs of between $47 million and $49 million; transition costs between $19 million and $21 million; capital expenditures to be between $95 million and $100 million, approximately 85% is growth related; interest expense of between $8 million and $8.5 million; share-based compensation expense of between $7 million and $8 million.

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

Steve?.

Thanks Bryan. I'd like 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 toward achieving our target of doubling our 2018 wind revenue to more than $2 billion in 2021. We are focused on execution during the remainder of 2019 and are looking forward to exciting and profitable growth in 2020 and beyond.

As a reminder, TPI is hosting an Investor Day in New York City on November 15 at the Maxwell New York City. If you're interested in attending, please send us an email to investors at tpicomposites.com. Thank you again for your time today and with that, operator, please open the line for questions..

[Operator Instructions] Your first question comes from Joseph Osha from JMP Securities. Please go ahead..

This is actually Hilary on for Joe. Thanks for taking our questions. I just wanted to first touch on your efforts to localize your raw materials, and particularly, as it relates to the competitive dynamic in Mexico, any color you could provide there would be great..

Sure, Hilary. Thanks for the question. Yeah, we are working hard with a number of our critical suppliers to localize production in Mexico. We're down the path with a number of them. And it's critical because it not only will increase capacity globally but it will guarantee us capacity for our needs in Mexico as well as North America.

So we're continuing down that path aggressively..

And then, a few quarters ago, we had kind of talked about transitioning toward more of the family of blades.

And I was wondering if you could give a little context, are we already getting there? Is that a further out as the market transitions to those longer blades?.

Hilary, it's Steve. We're not going to get out ahead of our individual customers in terms of commenting on their product plans and timing that way. Some customers have already made announcements in terms of what they're doing in that manner. But as we've stated, we need to accelerate product transitions.

We need to be smarter as an industry in terms of planning the product, the new products that are being introduced. As you've heard in our prepared remarks, the transitions are coming more and faster than I think any of us anticipated a while back, and that's continuing.

So, the steady-state going forward needs to be faster transitions, more modularity to the product platforms, which also then means some amount of modular blades that are designed and built to make extensions and transitions faster.

And also, our model shifting a little bit as the business to charge more for those transitions so that we can maintain our profit going forward in an environment where the product transitions appear as if they'll continue..

Your next question comes from Eric Stine with Craig-Hallum. Please go ahead..

I would just love to get your thoughts on why you think things have changed in terms of pace of transitions? And I know you gave the data about the level of investment from OEMs. But when you talk about LCOE crossing a cost level that's necessary, a number of other things that would kind of speak to the opposite.

And I know for some time you've expected those to slow down.

So I mean any thoughts that you have as to why that is changed? And why it's changing, is it going to sustain for, it sounds like you expect, through 2022?.

Eric, it's a - look, it's a fair question. I think passing through the marginal price of coal is a pretty amazing accomplishment, I think, for the industry, a decade ago, I'm not sure what any of us would have expected, we'd be able to do that. So, on one hand, the environment that we're operating in is getting better in many ways.

Coal is being retired, as you know. Coal is going away. It's a question of time, kind of thing, certainly in the US and even in other places in the world. However - so our competition for wind is shifting from coal.

They are still cheap, relatively low-cost natural gas, we're cheaper today than new nat gas installations, where the hardware and the fuel are included in the price. We're not here equal to the marginal price of gas. So you could imagine that would be another worthy goal. And solar is continuing to get cheaper too.

And so the good news about all this is, the race is narrowing down a bit to being really wind and solar and some natural gas. But I think rather than just resting on that, what we're seeing and our customers are communicating is, rather than slowing that down, that they expect a lot of new models to continue to come to the market.

So it is a bit of a shift for us. We're responding to that shift. We'll be recalibrating, as Bill described, our overall lines. And the lines, the number of lines we need to hit the goals.

But we've got to be able to operate in - I think I'd say it this way, we need to be able to operate in an environment where the transitions continue and still achieve the profit goals in the overall model that we've contemplated within the scope of our business. So we're preparing for this to take longer, is a way to say.

We're not in complete control of it, it's our customers' product plans. We need to match with that.

But we're choosing to build scale, build global infrastructure, maintain a really strong gain in our market share position, and then focus on getting faster on transitions so that we can meet both goals, right? Continue to drive down LCOE and meet the overall margin profiles that we contemplated to build value over time..

And I guess that would - that's for the previous question, just about moving the family of blades. All right. Maybe last one from me. Just turn to the transportation side. I know that Proterra, they've been making a little noise about supplying electric drive trains for heavy-duty trucking.

Just any thoughts on how that may expand your market opportunity with them and how that kind of matches up with your Navistar agreement?.

Yes, I don't think it'd be right for us to comment about Proterra's business in the truck space, what they may choose to do or not in terms of selling those platforms. We do have - we publicly announced we have a development programs with Navistar. That work is progressing.

Like most of these development programs, they're fairly lengthy R&D initiatives, a year to multiple years perhaps. So we're progressing well, but we don't have anything new to announce in terms of production activity at this point..

Your next question comes from Paul Coster with JPMorgan. Please go ahead..

I'm wondering if you could just contextualize the commentary on market share. Does it represent an increase in share? So where does it come from? What do you think is happening with outsourcing over that time line as well? Is it increasing, decreasing? That's my first question..

Yes, Paul, So, thanks. So our market share last year on the gigawatt scale was about 14%. We are growing our overall gigawatts of output, last year, 6.6; this year targeting 9.3 to 9.4. And then, as we've said, we're building additional capacity, our expectation of about 18 gigawatts of global capacity, selling about 15.

And as the market continues to expand as well, the overall global market growing from, let's say, 60 gigawatts a year or so. Onshore is growing. Offshore is growing. Some of the estimates are for that to be at the 70 gigawatts to 73 gigawatts-or-so per year.

So as the pie gets bigger, we want to continue to grow our piece of that pie and grow with the overall market. So it's a combination of those two things. We do see the outsourcing - the fundamental outsourcing trend generally continuing the way we've said.

So we don't really see a change in the percentage of outsource - or the trend, let's say, of outsourcing changing. There are a few unique examples that are exceptions to that.

But the broader trend is generally building new factories to attack the growth pieces of the market, which right now are developing economies, developing countries as well as some of the offshore growth. So it's a combination, right, to continue to outsource, grow our share and grow the overall volume to maintain a strong market share position.

The net of all that, we expect to be in this 20% to 25% range and continue to be one of the major players in the space as the market continues to mature..

You also mentioned that you see offshore blades growing and sort of changes the business at some point in the future or toward that effect? When I think of offshore, of course, I think of North sea and geographically not very well positioned for that.

So I assume there's other markets where you're going to need new locations or is it possible to serve the whole offshore market from any port located to TPI facility?.

Yes, it's a good question, Paul. We do expect to be able to serve a good chunk of the market from - potentially from Yangzhou, China, potentially from our India locations near Chennai. But we're also considering additional locations. And we've talked in the past about our newer Mexico operations, being closer to the Gulf of Mexico.

There's also, as you know, I think, growth in the US market. What we said in our prepared remarks here is we'd like to see the offshore business get to a little more critical massWe don't build a 10-year factory for one project per se, in the wind business.

But we're pleased with the progress of the products, of the projects that are coming along with offshore. The overall volumes are increasing, not only in the North sea, but in places like the northeastern US, in Asia and various other markets as well.

And so it is a smaller part of the market, but it's growth rate is higher and, therefore, additions to capacity for larger blades, immediate water access, all that is in process right now.

We've said in the past and still true today, Paul, that we had some offshore lines in our pipeline, and we do expect to be in the offshore business here as the - let's say, as the volume reaches critical mass..

And Paul, I would just add, and Steve touched on it. But North Sea is where it's traditionally been around the UK. But if you look at where the big offshore growth markets are, it's Asia and northeastern US.

And if you think about historically the biggest players in offshore and where their blade factories are, it's all - it's really all in Northern Europe to serve that market. So that also opens up the opportunity to outsource once you get to that critical mass, if you will, or the volumes to support an outsourcing decision..

Your next question comes from Pavel Molchanov with Raymond James. Please go ahead..

Yes, thanks for taking the question. I appreciate that you don't want to get into your electric bus customer in detail. But in general terms, the bus body fab in Iowa, can you just give us an update on capacity ramp or utilization ramp, how operations are going, status of the labor force? Because obviously, it's a new operating asset for you..

Yes. I think from a labor force standpoint, we benefit by having the blade plant there. There are some comparable skills between the bus and the blades, so we're able to attract additional labor through our reputation there from the blade plant. So from a labor force standpoint, I think we're in pretty good shape.

It's a - we're doing a couple of - we're going through some transitions there as well, model transitions. And that has impacted the ramp a bit. We'll be going through a couple of more transitions there yet this year. So I would say we're making significant progress along those lines.

But we're certainly not to where we would be in a normal serial production stage because of the transitions we've gone through this year as our customer has changed models a couple of times during the year..

And Pavel, it's Steve. We're building bus bodies out of our Rhode Island operation as well. And we say broadly, we're investing in our relationship with Proterra, and that's true. We're building technology. We're scaling volume capacity for them.

And we're also learning quite a bit frankly about what's it going to take to be a higher-volume transportation composite provider. Some of these parts are large, not as big as a wind blade but still large pieces that are made using a vacuum infusion kind of conventional technology for us.

And some of them are smaller, more automated technology choices as well. So we're on a technology roadmap journey here in the transportation space. And we're starting with Proterra, and we're going to be doing - we're planning to be doing a lot more.

So I'd say generally on that path, it's going well, but we are investing a bit in our relationship with Proterra and in the technology space more broadly..

And in that context, you hired, I think, you said, 20 people from the division of Senvion. That seems like a very large R&D team for - obviously, given kind of what were your existing capabilities.

So what incremental skill set or know-how will those 20 folks bring to the table that you did not already have in-house?.

Just for context, Pavel, we've got about 300 engineers globally within the company so adding 20 is good. We are - normally, one of our constraints is technical talent. And so anytime we can add five or 10 or 20 seasoned people, we would be very keen to do so. And so we're pleased to have the EUROS team as part of TPI.

The unique skills that they bring that we don't practice generally today is basic blade design, the product design itself, the airfoil, the pure structural part. This is typically by our customers. Beyond that, a lot of the capability is very similar to what we have today, tooling and materials and process.

Those engineering skills, it's just adding athletes to that team. But the direct answer to your question, the uniqueness is around the ability to design wind blade product and/or other structural products.

We have a strong structural design team already within the company that's doing the transportation structures, but this adds to our toolbox for sure..

Your next question comes from Jeff Osborne with Cowen and Company. Please go ahead..

I had one clarification and two questions. I'll try to be brief. But Steve, for you, how in a labor-intensive business can you get people to move faster on transitions particularly? Is it modular that you have to go? I'm just trying to understand, you said the target is to make transitions happen smoother and faster, I don't know.

Is there like top two ideas on how that happens?.

Yes, Jeff, it's a good question. So what - and you're on the right track. To think about it, what we need to do is take a line that's running at full speed, let's say, a 24-hour cycle time, shut it down, put in whatever new tooling is needed and then get that skilled workforce back up to a full sprint again.

I mean, that is the right way to think about it.

One thing we can do is to transition molds faster, right? So when we take molds out, putting molds in, having those molds ready to go in a little bit more of a standardized platform, for example, will save days or weeks, perhaps in that cycle that every week is going to be valuable to us, if you think about it that way.

Also then this - there is a part of this that's the modular product planning. So you've heard us talk before about when we do a tip extension rather than a full mold change.

So if we're planning the product evolution with our customers smarter and they are and we are, to the extent their tip changes - the tip changes happen much faster than full mold changes. So it's really going to be attacking all of those things. And frankly, we've been working on this. I think the emphasis on it is increasing.

It needs to increase in order for us to keep pace here and hit our numbers. And so that's where the focus is. It's speed of tooling, more modularity and smarter product planning on the transitions and then, frankly, charging more for the transitions as well.

But when we lose sets, we can't generally make up all the lost contribution margin on the lost set. So you're on the right point there. It's about kind of speed of getting the full line - the line back to full speed as quickly as we can..

And two other quick ones here. So I think when you went public, as far as I can remember, you talked about sort of the target EBITDA margin of the company at sort of 10-ish percent on a per facility basis, a 12% for corporate overhead, if I'm right.

Now with this sort of a permanent state of greater transitions at least over the next few years, is there a target sort of business model that we should think about over the next years? Obviously, you've given 2020 guidance but I didn't know as you talked about all these transition initiatives, as those take a few years to implement, if we should handicap those prior targets by 100 bps or 150 bps..

Jeff, it's a fair question. I think for us right now, over the next year or so, we've got to really focus on the speed part of this. So we can transition, run at 80%, and not fall off kind of a model EBITDA, if you will. In getting to our $2 billion revenue level, we do expect in the $2 billion range to be in the double-digit EBITDA level.

That may come a year later than we might have said a year ago, for example. But look, the environment we're operating in is changing, and it's changing in many ways for the better. In some ways, it's more challenging. The ways it's getting better is the maturation of the wind industry. The volumes are there.

The US market is strengthening even in a post-PTC world. All that's true. It's about economics. That's good. And on the other hand, it's about economics, right? So it means that we're all - our customers and we are pedaling faster to really be able to hit the margin numbers that we bargained for.

And so I think I would just say it that way that our overall target has not changed, but I think how we get there is going to need to change a bit. And that's what you're hearing us trying to articulate is how we're going to achieve that double-digit. And frankly, right now, I'd say it may come a year or so later..

And the last just clarification, I probably misheard this or I'm not comparing apples to apples. But your guidance for 2020 goes down, if I'm reading it right, at the midpoint, down by about $30 million in EBITDA.

I think you mentioned that with the two lines in Turkey that Nordex is transitioning and the two-year contract extension you added $180 million.

So I'm just trying to reconcile if that $180 million is worth 10% EBITDA, call it, $18 million, you're taking a $30 million hit, if I'm doing the math right, or am I not looking at that right?.

It's the $180 million is correct, but we'll be transitioning those lines early next year. And so we'll be pulling molds out, bringing them in. So again it's about the speed of the transition but these are much larger blades. We've got some building construction to do around them. So we won't get that full capacity, if you will, in a single year.

And that $180 million is over a - over the extended term of the contract, that's not in a single year, right? So there are other puts and takes there. A big part of that drop, Jeff, quite frankly is the increase in the number of transitions we expect next year.

So it's not just - so those are two of them but there are - there's - right now, there's 14 other ones that we have line of sight to right now that will impact 2020 as well..

And what was that number?.

Yes, it's really - Jeff, it's really the broader number. As Bill just said, it's the broader number of transitions that's causing the $30 million move at the midpoint, not the Nordex fees..

[Operator Instructions] Your next question comes from Philip Shen with Roth Capital Partners. Please go ahead..

Thanks for the questions. Just a follow-up on that line of questioning from Jeff. This is a more specific question.

But if you look at the number of lines that you have today, what percentage of your lines today do you think have the capability of tip exchanges instead of doing a full mold change? Just trying to figure out how far we are away from that more idealized world where in a transition, it's a more - it's a faster transition.

So are we at 10% or are we closer to 90%?.

All right. I think we're closer to 90% than we are to 10%, certainly. I can't tell you exactly because again - that's part - partly depends on what our customer ultimately decides to do. At times, we've jumped, if you will, from - we thought we were going to one and then they go to another one, which gets to the blade family model concept faster.

So it really depends on what their product planning cycle is and what blades they would like us to build in the factories we build for them. But I would say it's certainly closer to 90% than it is to 10%..

Yes. And Phil, it's a fair question, in terms of thinking about the modeling side of this a little bit. But to Bill's point, I mean if you just follow the product announcements that our customers have made in the last 12 months, the leap - the size of the turbines, the rotor diameter, the leapfrogging of one to the next has accelerated quite a bit.

And it's not just adding two meters to the rotor diameter but they're pretty significant changes. So without speaking about any one individually, to Bill's point, if there's a relatively small increase in rotor diameter, that could be a tip change. If it's a massive platform change, then it's harder.

So even if the molds are designed to do it, Bill's point is our customer may choose to make a larger platform change, let's call it. And that's something that's really kind of in their product planning decision. Now you'll remember, I think, in our contract structure, our customers are allowed to change the blade models.

That's part of the deal that we both bargained for. But we get to quote the impact of the change. And so there lies the negotiation, if you will. So we're quoting more for the change, but we also need to compete, and we need to keep driving LCOE down together.

So that's we're focusing on us getting faster on our own and then working with them on product plans. If there's inertia, right, if it costs them money to change it, then they'll consider that. If it's worth it, then they'll pay a price to change it.

And we just need to find the right balance there while we continue to chase LCOE for solar, if you think about it big picture that way. The good news is that's the hunt, that's the new hunt, if you will, but that's the work we also need to match up with..

Next question is kind of related in terms of product, I guess, families. To what degree are segmented blades becoming more on the forefront of discussion? I know one of your peers and customers, GE, is actively using segmented blades now.

Do you anticipate that becoming a part of the 2020 product road map or does some of the trans - reasons for the transitions is actually the switch to a segmented platform for any of your customers?.

Yes. And again, we'll speak kind of generally about that, Phil, not specific to any one customer to get ahead of any of their announcements. But I think when we talk modular, the modularity could come from a split blade design or it could come from the modular mold and being smart about the product planning.

There will be more modular molds and more modular blades, if you will, more split blades in the future than there've been in the past for sure. The timing of that is really up to our customers..

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Lockard for closing comments..

Yes, thanks, operator. And thanks everyone for your interest in TPI Composites. We continue to look forward to updating you on our progress. Thanks very much..