Good afternoon, and welcome to TPI Composites Second Quarter 2020 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 Second Quarter 2020 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 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 historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Bill Siwek, TPI Composites’ President and CEO..

one in Newton, Iowa through 2021 with an option to extend through 2022; and one in Juàrez, Mexico through 2022. We also announced that we will be adding an additional production line in Mexico to provide blades for GE’s wind turbine technologies in North America.

We also announced today that we signed a multiyear agreement with Nordex for two manufacturing lines in our Chennai, India facility with a planned start date of production in the first quarter of 2021. With these new manufacturing lines and contract extensions, we added approximately $800 million of potential contract value.

Finally, with respect to Wind. So far this year, we’ve also signed new global service agreements totaling approximately $15 million.

As it relates to the transportation side of our business, we continue to produce commercial delivery vehicles for Workhorse during the quarter and expect to ramp our production throughout the remainder of 2020 to enable us to meet Workhorse’s volume requirements for 2021 and beyond.

We’ve begun producing parts from the production tooling we talked about last quarter and expect to ramp our volume by the end of the year to meet volume needs of that new passenger electric vehicle platform in 2021. And we continue to make progress on several new and existing transportation opportunities and programs.

We appointed Jim Hilderhoff as Chief Commercial Officer, responsible for all commercial activities at TPI. Jim has a diverse background both as a P&L and commercial leader within multiple GE platforms. Most recently, he held the role of Chief Commercial Officer North America division for Wabtec Corporation.

The Wabtec Corporation merged with GE Transportation in February of 2019, creating a Fortune 500 company with $8 billion of revenue. Jim was responsible for the commercial integration associated with the merger. Jim brings over 30 years of commercial leadership experience at GE. Finally, we appointed Adan Gossar as Chief Accounting Officer.

Adan brings over 20 years of accounting and finance leadership experience to TPI. Adan most recently served as Chief Accounting Officer of Reef Technology. And prior to that, Adan served as Corporate Controller for NASDAQ-listed Veritiv Corporation. Please turn to Slide 6.

We remain committed to operating our business safely while working to mitigate the impacts of COVID-19 by partnering with our customers and suppliers to make up as much of the lost volume as possible in each of our locations as our customer demand remains very strong.

We also continue to drive the operational imperatives we outlined at the beginning of the year to reduce costs and improve our operations globally and are making very good progress on those imperatives, notwithstanding the challenges created by COVID-19.

Finally, we remain focused on our liquidity to secure business continuity and ensure the long-term viability of TPI as we navigate these dynamic and unpredictable times. As of quarter end, our liquidity stood at $138.4 million.

And we continue to manage it by deferring nonessential CapEx, controlling and reducing other costs and focusing on our cash conversion cycle.

To that end, during the quarter, we amended our credit agreement to provide additional flexibility during the COVID-19 pandemic and to support our planned capital expenditures and growth initiatives for 2020 and 2021. Turning to Slide 7. I’ll now take us around the world and give you a quick update of our operations.

During the second quarter, we continued with normal operations in all of our China facilities. We continue to expect to deliver more volume than our original 2020 plan, in part, the result of a customer pushing out a planned transition.

We are in the start-up phase in our Chennai, India manufacturing facility, and we operated for most of the months of April and May with a reduced workforce due to the government of India’s imposed curfew. We are now back to normal operations, moving full speed ahead on the start-up of that facility.

We operated our Izmir, Turkey manufacturing facilities at approximately 50% capacity during the first half of April, primarily due to government-mandated stay-at-home orders in response to COVID-19, which resulted in demands from our union in Turkey to temporarily reduce production.

This, as well as a shortage of core related to one blade model, caused the second quarter blade production to be slightly impacted. Since mid-April, however, we have been running our production at normal levels. We operated our Matamoros, Mexico facility at reduced capacity during April and May, and we shut down for a couple of weeks in June.

In the middle of June, we restarted production and were ramped back up to 100% of production capacity by the end of July. Because we operated at reduced levels during all of Q2, our second quarter blade production was negatively impacted. We expect to be operating at or near capacity for the remainder of the year with no planned transitions.

Due to the sanitary emergency created by COVID-19, three of our four factories in Juàrez were shut down for approximately three weeks at the end of April and early May, while the fourth factory was shut down for approximately six weeks.

Our Q2 volumes were negatively impacted, and our third quarter volumes will be slightly negatively impacted as well as we did not get back to 100% of our production capacity until the end of July.

On April 23, 2020, we voluntarily paused production at our Newton, Iowa manufacturing facility due to an increase in COVID-19 levels in surrounding counties. We restarted production on May six after working closely with the governor’s office and Iowa health officials to reopen the plant.

Q2 volume was negatively impacted due to the duration of our production pause, but we have been back to normal production levels since late May. Finally, our operations in Rhode Island have not been materially impacted during the pandemic. Now an update on supply chain.

As one would expect, our raw material suppliers have been impacted by COVID-19 as well.

Our global supply team continues to do an excellent job of ensuring that our factories continue to operate during the pandemic by securing critical raw materials through alternative suppliers and/or locations as needed and executing our strategy of regional localization and long-term supply agreements to ensure a consistent, uninterrupted supply of key raw materials.

We also took steps in the early stages of the pandemic to secure additional safety stocks of most key raw materials to reduce the risk or impact of any short-term supply disruptions. These proactive steps are reflected in a buildup of working capital, which will – Bryan will discuss later.

We saw tightness in supply and core materials, balsa in particular, due to COVID-19-related challenges in Ecuador and overall market demand in 2020 as well as PET foam qualification delays also caused by COVID-19. To date, this has not had a material impact on our production.

The raw material market is now essentially back to pre-COVID levels, and we don’t expect any further supply issues at this time, barring any disruption from another significant wave of COVID-19. We are also working on reducing the build-up of inventory to more normal levels.

As it relates to the wind market, as of today, demand remained strong from our customers for 2020 and 2021, with 2022 strengthening. According to Wood Mackenzie, while the pandemic continues to impact the global markets in the near term, nearly all capacity impacted in 2020 is pushed into subsequent years.

So while COVID-19 is creating some difficulty in project execution in 2020, we expect the coming years to continue to be strong. In the U.S.

in late May, in response to potential project commission delays in the U.S., the government issued a one-year PTC extension for projects that were to be completed at the end of 2020 and 2021, which will help to alleviate some of the installation and commission challenges exacerbated by COVID-19. Wood Mackenzie subsequently updated its U.S.

forecast by 1.5 gigawatts for 2020 and 2021 and in that forecast, installations in 2021 to be at or near 2020 levels.

Finally, as mentioned during the last quarterly call, several of our customers have indicated their desire to either cancel certain transitions due to strategic product decisions or to push them out to enable us to maximize production and reduce the amount of volume lost during those transitions.

As a result, we currently estimate the number of transitions in 2020 will be approximately 70% less than we previously planned at the beginning of the year. However, we expect transition costs to only be 40% less as a result of delays caused by COVID-19. Turning to Slide 8.

We now have a total potential contract value of up to approximately $5.4 billion through 2024, and the minimum guaranteed volume under our supply agreements is $2.9 billion.

This is a net increase from $5 billion and $2.5 billion, respectively, from last quarter as a result of signing new contracts and extending existing contracts, which added approximately $800 million, offset by second quarter sales.

The potential and minimum contract values do not include the two lines in China that we are operating under short-term contract this year, nor does it include the impact from some of the anticipated new larger blade models that we will produce after 2020 and 2021 transitions or additional contract extensions.

While the health and safety of our associates remains our primary objective, we remain focused on our operating imperatives and continue to apply our scale to expand material capacity, ensure continuity of supply, drive operating costs down and focus on the integration of our key ESG initiatives to drive profitable growth and long-term shareholder value.

With that, let me turn the call over to Bryan..

Thanks, Bill. Please refer to Slides 10 through 12. All comparisons made today will be on a year-over-year basis compared to the same period in 2019. For the second quarter of 2020 ending June 30, 2020, net sales increased by $43 million or 13% to $373.8 million. Net sales of wind blades increased by 15.3% to $348.1 million.

The increase was primarily driven by a 10% increase in the number of wind blades produced year-over-year largely as a result of increased production at our China facilities and Matamoros, Mexico facility.

Net sales were adversely impacted by approximately $96 million based upon wind blade sets, which we had forecasted to produced in the period under our non-cancelable purchase orders associated with our long-term contracts but were unable to do so as a result of COVID-19 pandemic.

We believe we can make up approximately 98% of the volume lost during the first half of 2020 in Q3 and Q4 of 2020 unless our plants are further impacted by the COVID-19 pandemic. Start-up and transition costs for the quarter decreased by $12 million to $10.9 million.

However, start-up and transitions are being impacted by COVID-19 due to the temporary suspension of production at our India, Mexico and Turkey facilities. Our general and administrative expenses for the quarter decreased by $2.3 million to $6.9 million. G&A as a percentage of net sales decreased 100 basis points to 1.8% of net sales.

This decrease was primarily related to a decrease in travel and training cost during the quarter. Before share-based compensation, G&A as a percentage of net sales was 1.3% and 2.2% in Q2 of 2020 and 2019, respectively. Our income tax expense for the quarter was $49.3 million as compared to $0.5 million for the same period in 2019.

The increase was primarily due to a change in the forecasted annual effective tax rate as of June 30, 2020, in comparison to the forecast at March 31, 2020, and the earnings mix by jurisdiction period-over-period.

More specifically, income tax for Q2 2020 was the result of applying a revised forecasted annual effective tax rate to a quarter that was significantly impacted by losses in several jurisdictions due to COVID-19. 2020 is also impacted by losses from an entity that is located in a tax-free zone.

For the year, we are expecting tax expense to decrease 25% to 50% from the year-to-date tax expense amount as the jurisdictional mix of income changes over the back half of the year. We are forecasting our cash taxes to be approximately $15 million to $17 million for the year.

Net loss for the quarter was $66.1 million as compared to net income of $1.8 million in the same period in 2019. The decrease was primarily due to the reasons noted above.

In addition, the net loss was adversely impacted by approximately $55 million associated with the production volume lost under non-cancelable purchase orders due to the reduction – reduced production and temporary suspension of production in our facilities in Mexico, Iowa, Turkey and India, along with other costs incurred primarily related to the health and safety of our associates in non-productive labor associated with COVID-19.

Net loss per share was $1.87 for the quarter compared to net income of $0.05 per share for the same period in 2019. Net loss in the quarter was also impacted by a $6 million change in estimate of our warranty accrual.

This is primarily associated with a warranty remediation campaign related to production prior to February 2020 with a specific customer and a specific blade model. With our varying customer blade types and locations, warranty issues are typically isolated to customer-specific blade models.

Notwithstanding, we have put additional quality measures in place since early 2020 to prevent these types of quality issues from occurring in the future. We have adjusted our estimated reserve for this campaign based on our forecasted remediation costs and our contractual limit of liability.

We are working closely with all of our customers to ensure that we do not have any additional material warranty exposure.

Year-to-date, we have incurred approximately $8.5 million of warranty remediation efforts, and we are forecasting that we will incur an additional $16 million associated with warranty remediation efforts for the balance of the year. Adjusted EBITDA decreased to $3.3 million as compared to $23.4 million in the same period in 2019.

Adjusted EBITDA was negatively impacted by approximately $36 million associated with the production volume lost due to the temporary suspension of production in our Mexico, Iowa, Turkey and India facilities. The additional warranty provision and other costs related to COVID-19 that impacted all of our production facilities.

We are forecasting that we will incur approximately $5 million of COVID-related costs on a quarterly basis associated with the health and safety of our associates until there are better treatment options and/or effective vaccine for COVID-19.

In addition, we are expecting to incur higher direct labor costs associated with meeting our customer demands in Q3 and Q4 of 2020. Moving on to Slide 11.

In June 2020, we amended our credit agreement to provide us with more flexibility to continue to manage our liquidity during the COVID-19 pandemic and to support our planned capital expenditures and growth initiatives for 2020 and 2021.

The amendment made certain adjustments to increase the permitted total net leverage ratio covenants through the end of March 2021. Our total net leverage ratio for Q2, as calculated under our covenants was 3.1%, which is well below our permitted total net leverage ratio of 4.25% under the amendment.

We expect our total net leverage ratio to peak in Q3 before we see a decrease in Q4. Our long-term goal is to drive our total net leverage ratio back down to our desired level of 2%. Turning to Slide 12.

We ended the quarter with $96.7 million of cash and cash equivalents, total principal amount of debt outstanding of $239.2 million and net debt of $142.5 million compared to net debt of $97.5 million as of the end of Q1 2020. For the quarter, we used $29.6 million of cash in operating activities.

Cash provided by operating activities was negatively impacted by an inventory build of $25 million in the quarter as we built up our inventory to manage COVID-19 risk as well as the impact of COVID-19-related costs. The inventory build is a part of our inventory and contract assets balances on the balance sheet.

We are strategically working to reduce our inventory balances throughout Q3 and into Q4 while we’re closely monitoring any potential risk of COVID-19 on our production facilities.

We continue to defer CapEx and focus on essential capital expenditures that are critical to the health and safety of our associates, critical to our operations and required to meet customer commitments. As a reminder, we withdrew our 2020 guidance on April 23, 2020, due to the rapidly evolving nature, magnitude and duration of the COVID-19 pandemic.

The variety of measures implemented by governments around the world to address its effect and the impact on our manufacturing operations.

Although our plants are currently operating at or above plant capacity, several of our manufacturing facilities, in particular, in Mexico and India, are operating in regions with high levels of reported COVID-19-positive cases.

As such, we may be required to reinstate temporary production suspensions or volume reductions at these manufacturing facilities or at our other manufacturing facilities, to the extent there is a resurgence of COVID-19 cases in the regions where we operate or there is an outbreak of positive COVID-19 cases in any of our manufacturing facilities.

Due to the fluid nature of COVID-19 and the potential impact on our business, we will not be providing 2020 guidance at this time. With that, I will turn it back over to Bill to wrap up, and then we will take your questions.

Bill?.

establishing 18 gigawatts of global blade capacity to drive $2 billion of annual Wind revenue; reach $500 million of annual transportation revenue over time; and achieve double-digit adjusted EBITDA levels.

We plan to continue to drive for more speed during start-ups and transitions, leverage our global scale for operating and buying efficiencies to continue to drive down cost, all while maintaining a strong balance sheet.

I want to thank all of our dedicated TPI associates for their commitment to our mission to decarbonize and electrify, especially during these challenging times. We are confident we will emerge stronger from the current environment, and we remain very confident in our multiyear game plan. Thank you again for your time today.

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

Certainly. [Operator Instructions] Our first question comes from Philip Shen with ROTH Capital Partners. Please go ahead..

Hi guys, this is Donovan on for Phil. The first question I have is with – first of all, actually, congratulations on the GE line and the Nordex line. That was something we were really kind of eager to hear about. And so that’s great that you guys have had advances there.

But could you tell us how many lines are covered by the 2G extensions? How many lines in Iowa and how many in Mexico? Hello?.

Presenters, yours lines are live..

Hello, can you hear me?.

Oh, there we go. Sorry.

Can you hear me now?.

Okay. Yes, I can hear you..

Yes. Sorry I got – sorry about that, Donovan. Thanks for the question. It’s five lines in Iowa, four lines in Mexico, plus we’re adding an additional line in Mexico..

Okay. Great. Fantastic. And then my second question is in terms of transitions and start-ups, that’s a really big part of kind of figuring out where your margins could end up.

And it’s fantastic that you’ve had so many customers willing to kind of cancel or delay, but what will that mean for 2021 and maybe Q1? Will there be a – is that going to mean a build-up of transitions that will hit in Q1? Or how should we think about that cadence?.

No. I think, clearly, for ones where the product was not – is not moving forward or canceled, that won’t impact it. In other cases, it just depends on how far some of those trends – transitions were moved out.

All of those aren’t finalized yet for 2021 and for – or for 2022, but we can provide you with more information on that as we get closer to the end of the year..

So is it – am I correct in thinking of it as the transition is being sort of maybe like postponed but without a specific date in mind?.

They’ve – there are some that have been completely canceled, others that have just been pushed to the right. Some of those have been solidified now from a timing standpoint but not all of them. So that’s why it’s a little hard to give you the information for 2021 at this point as we’re still working through it with our customers..

Okay. And then just one last one would be, if there’s any update on the EV tooling pilot in Rhode Island. It sounded like you said you’re expecting to get into more serial production on that.

Does that mean you’ve signed a serial production agreement?.

Yes. What our prepared remarks commented on was that we have begun production off of those production tooling, the two of them that we talked about last quarter. And we anticipate ramping that volume this year so that we can meet the needs of that particular customer in 2021..

Okay. Fantastic. I’ll jump off..

Thanks, Donovan..

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

Yes, hi. This is Aaron Spychalla on for Eric. Thanks for taking the questions..

Hi, Aaron..

Hi. Maybe first on gross margins. It sounds like good to hear that you’re making up that last – that lost volume in the back half of the year.

But between COVID and warranty and some of those labor costs that you talked about, can you just maybe give a little bit more color on how margins might trend here in the near term?.

Yes. As we’re looking at the back half of the year, adjusted EBITDA margin, we’re looking at probably around 6% to 8% with stronger towards the second half of the year, just putting in perspective based on what we’ve seen impact of COVID on us that we foresee in Q3 and Q4..

All right. And then on transitions, I understand those being pushed out.

Can you just maybe give an update on your kind of initiative to reduce the timing on those by 50% that you kind of had talked about in the past?.

Yes. We – again, pre-COVID, we had some – a couple of transitions early in the year. And we were – we made significant progress from a time standpoint there until we got stuck a little bit with COVID. It’s created problems for, as you guys all know, for travel and the like.

So we are very – we’re very confident that as we work through the rest of the COVID challenges that we are on track to get to that 50% level. It may take us a little bit longer as a result of the delay. We have a few transitions here in the back half of the year.

We’re hoping that we don’t have the same types of limitations that we had with respect to COVID. And we can continue on that path to the significant reduction in time and effort..

All right. Sounds good. Thanks for taking the questions..

Yes. Thanks, Aaron..

Our next question comes from Greg Lewis with BTIG. Please go ahead..

Yes. Thank you, and good afternoon. I was hoping you could talk a little bit more about your comments around working – lowering your working capital. Clearly, it’s – there’s a lot of moving parts out there. I mean there’s a lot of uncertainty still around COVID.

And you mentioned throughout the call about potential restarts in potential areas where you’re facing issues.

I’m just kind of curious, like what gives you the comfort that, that we should think about maybe starting to work down that or I mean – or as opposed to just kind of paying, leaving it up at a higher level of inventories until we kind of get through this?.

Yes. No, it’s a great question, and we talked about it quite a bit. I mean we are going to strategically work it down. We did build up enough capacity in certain types of materials where we can slow the order a bit. So it’s partially that.

But clearly, with the uncertainty around COVID and when it may or may not come back again, we will cautiously bring it down. But we won’t be reckless as we do that. Again, we want to ensure that we can continue to operate, should there be any short-term disruptions.

But given where we’re at with our suppliers and the supply chain today, we’re – we feel pretty confident where we’re at today that we can reduce that level a bit. But we will cautiously – we’ll be very cautious about it so that we don’t get stuck short somewhere..

Okay, great. Thank you very much for the time..

Yes. Thank you..

Our next question comes from Mike Webber with Webber Research. Please go ahead..

Hi, good afternoon guys.

How are you?.

Hey, good.

How are you?.

Good. I wanted to start off with some of the new business. And I know you touched on Nordex and GE a bit earlier. Just curious, that $800 million in potential contract value, can you give a bit of a breakout of how that’s spread between Nordex and GE? I think a similar number of lines in play, but curious on how that would be spread out.

And then curious what the pricing structure would look like for the option periods and whether you’re seeing any of your customers getting a little bit more – any behavioral shifts from your customer base in terms of maybe shifting more into option periods just given COVID?.

Yes. Well, we’re not going to tell you that. And again, it was a little bit hard to understand your entire question. But it’s two lines for Nordex in India. And then we did the extension of the GE contracts, which are already in place in Iowa and Mexico along with an additional line in Mexico. So that’s what makes it up.

As far as our customers, we’re in a competitive marketplace. The wind is a competitive industry. We’re all working to continue to drive costs down, drive levelized cost of energy down. Our pricing has – our pricing structure is still intact.

And we continue to work collaboratively with our customers to drive costs down, to drive their ASP down but also retain our – to retain or improve our margins. So, I think pricing-wise, we’re in a similar position. As you’ve seen from an industry standpoint, pricing has stabilized a bit from our customer standpoint.

So we’re going to always continue to work hard to drive cost. But these contract – the new contracts with the extensions are not a deviation or have not deviated significantly from what our contract structures have been in the past..

Got you. All right. That’s helpful. In terms of – maybe in terms of thinking about how kind of COVID is kind of rolled through your manufacturing network, it’s like Q2 – the number of sets in Q2 was higher than Q1.

Should we interpret from that, that the COVID impact in China in Q1 was similar or maybe even more severe than, say, kind of non-China in Q2? Or would it be more accurate to say maybe just the Chinese facilities kind of started working overtime in Q2 to make up for that delta? Just trying to think about how that’s going to ripple through as we think about the impact of further shutdowns..

Yes. So if you look at what we said in Q1, it was about $38 million of revenue in impact due to COVID with the China facilities being down. And then Q2 was the $96 million that we said related to Mexico being down for quite a while, Iowa, Turkey and then India’s impact. You’re right. China did run pretty hard in Q2 and made up some of that volume.

And then because of the additional inventory and purchases due to 606 and other things, we did have some revenue recognized off of that $20 million, too, due to how that works mechanically, just to give you an idea for Q3 and going forward..

Got you. That’s helpful. And then just maybe one more on Mexico and that facility. If memory serves – actually curious, when did that actually come back online? If memory serves, I think you’re shooting for mid-May. It may have slipped at the end of May.

So when did that actually come back online? And then in terms of what you’re seeing there, it’s obviously in a high-risk area.

Or would you classify the risk there being mostly governmental at this point? Or are you still seeing any degree of absenteeism [ph]?.

So, yes. I think you’re referring to the Matamoros facility. So yes, we were – we went down fairly early there to a reduced production level and had a full stop for a few weeks up until about June 15. And since June 15, we’ve been ramping again. We’re at 100% capacity as of today in that plant.

So I think the risk for that plant and the risk, quite frankly, for Mexico, just remains COVID and how the government reacts to spikes or changes and what the level of testing and/or positive test may be. We’ve worked very closely with the local as well as state governments of Chihuahua and Tamaulipas as well as the federal government.

I think we’re in very good position with them. We’ve executed. We’ve done what we told them we would do. So, I’m not as concerned about our individual plants as it relates to government challenges there. I think we’ve got a pretty good handle on that. It’s just more of the – if there’s a wider-spread outbreak in one of the locations..

Gotcha. Okay. Great. Thanks for the time guys..

Yes. Thank you..

[Operator Instructions] Our next question comes from Pavel Molchanov with Raymond James. Please go ahead..

Thanks for taking my question, guys. You mentioned that your reluctance to give revenue guidance is because of the possibility of lockdowns being resumed in Mexico and India.

Is there any precedent this summer, to your knowledge, of advanced manufacturing operations of any company being disrupted due to regulatory measures in either of those countries? And I ask because my understanding is we’ve seen restaurants, maybe retail, affected in some cases.

But manufacturing has not been touched since at least kind of April, May time frame..

Yes. Pavel, thanks for the question. I’m not aware of any specifically, but those are two countries that have some pretty significant COVID challenges. It’s not as much – I guess it’s potentially about the government.

But if we had a significant outbreak in an individual plant, then that could create a problem for us, right? So that might not be because of a government regulation that the entire industry shuts, but it might be specific if we had an outbreak.

And again, we feel very confident with the policies and procedures we’ve put in place to keep our associates safe while they’re in the plant. The question is, what are they doing when they’re outside the plant? And again, it’s – we do all the proper screening to come in, but it can spread quickly. So we’re not suggesting that, that’s the only reason.

But that’s the concern is that if we do have a significant outbreak in a particular plant, could that be – could we be required to shut that for a period of time?.

A question about the electric vehicle business. As you know, one of your R&D partners, Workhorse, just signed a deal or, I guess, a follow-on deal with Lordstown, which is going public. I’m curious if you’re anticipating any advancement on your relationship in terms of getting more kind of meaningful revenue uplift of....

Yes. We continue to work very closely with Workhorse and their team. As I mentioned, we’re continuing to build the C1000 bodies for them, and we are ramping our production to meet their production needs for the back half of this year and into 2021 and beyond.

And we would – as we do with all of our customers, we would hope to deliver for them and execute with the opportunity with them to expand the relationship beyond what we’re doing today..

Our next question comes from Ken Herbert with Canaccord Genuity. Please go ahead..

Yes. Hi, good afternoon, Bill and Bryan..

Hey, Ken, nice to talk to you..

Good to talk to you. You called out some good growth in the services business.

And I’m just curious if you can give a little more – just a little bit more color on sort of how impactful you think services could be in the next couple of years and to what extent that business could be accretive to EBITDA margins?.

Yes. I mean, I – the service business is a very large market, obviously, and we’re very well situated. Whether we’re working for our OEM customers or working for ultimate asset owners, who better to work on blades than TPI? Our global footprint helps us with that because we’ve got assets all around the globe that can work on this stuff.

So again, it’s one of our initiatives to actively grow that business. We brought on a very experienced person last year, Lance Marram, to drive that for us. He’s done a great job thus far. So number one, it can be very accretive. And number two, we think it can be a much larger part of our overall business over time..

And are you – it was – I know it’s obviously very small so far, but are you – is it tracking to plan? Is it doing better than you expected? Or I’m just curious for the effort you’re putting in sort of what your – how the response is from your customers..

Yes. I would say we’re probably ahead of where we thought we would be at this time. We’re adding some additional talent to the team to continue to grow it. And so yes, I would say we’re probably a bit ahead of where we expect it to be at this time. So yes, we’re pretty excited about where we’re going. I think it’s been well received.

And again, we’re working closely with our OEM customers. Obviously, they have lots of service agreements with a lot of asset owners. And if we can be the blade part of their team, that’s a good opportunity for us. And then for asset owners that have decided they might want to self-perform, we have the opportunity to work with them as well.

So it’s a pretty exciting part. And we’re also – recycling is a big part of a challenge for the industry is what do you do with blades at the end of life. We’ve also dedicated some resources to that in partnership with some of our customers as well as some stuff we’re doing on our own.

We also think that, that can be an interesting part of the service offering over time as well..

Okay. That’s helpful. And if I could, just one final question. I think you highlighted that a little tightness maybe in some of your raw materials, balsa and maybe qualified foam or a few other areas.

Have you seen – as we sit here sort of early August, any maybe recent increased cause for concern? Or do you view this as maybe a little tightness, but nothing that should be disruptive into the back half of the year?.

No. I think we’ve got it. We’re good for the year, Ken. We saw quite a bit of tightness early, especially when COVID first hit. There was already tightness in supply with balsa as a result of market demand, quite frankly.

And there was a lot of expectation that a lot of the PTE – PET foam that was coming – capacity that was coming online would get qualified earlier in the year. COVID delayed that as well. So it was a combination of all those things. But we’ve worked pretty hard to secure alternative sources.

And I think we’re in pretty good position now for the balance of the year with all of our raw materials..

Great. Well, congratulations on the contracts..

Thanks, Ken. Appreciate it..

This concludes the question-and-answer session. I would like to turn the conference back over to Bill Siwek for any closing remarks..

Thank you. And again, thank you all for your interest in TPI. Be safe and be well. Until next quarter. Thank you..

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day..