Good afternoon and welcome to TPI Composites Second Quarter 2022 Earnings Conference Call. Today's call is being recorded. We have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Anthony Rozmus [ph], Investor Relations for TPI Composites. Thank you. You may begin..

Thank you, operator. I would like to welcome everyone to TPI Composites Second Quarter 2022 Earnings Call. We will be making forward-looking statements during this call that are subject to risks and uncertainties which could cause actual results to differ materially.

A detailed discussion of applicable risk is included in our latest reports and filings with the Securities and Exchange Commission which can be found on our website, tpicomposites.com. Today’s presentation will include 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 Chief Executive Officer..

Thanks, Anthony. And good afternoon, everyone. Thank you for joining our call. I am here with Ryan Miller, our new CFO. Ryan brings with him a wealth of experience, spending considerable time in FP&A operations, Investor Relations and most recently as the CFO of a large division of a multinational aerospace and defense company.

I want to welcome Ryan to the TPI team and I look forward to introducing Ryan to all of you in the coming days and weeks. Now onto our second quarter results, where I will discuss our global operations, including our service and transportation businesses then cover our supply chain and the wind energy market more broadly.

Ryan will then review our financial results and then we will open the call for Q&A. Please turn to Slide 5. We delivered sales of $452.4 million during the quarter which was down slightly from the prior year. Sequentially, sales increased 18% over the first quarter as we completed a number of transitions and start-ups.

Adjusted EBITDA was $10.3 million, including unanticipated nonrecurring shutdown costs in Iowa and Mexico. And we generated free cash flow of $19.4 million as a result of tight cost controls, solid execution, including multiple transitions and start-ups.

As you can see on Slide 6, we have approximately $2.7 billion of potential wind blade revenue through 2024.

You should expect to see our potential wind blade revenue under contract growing again as we close the negotiations to extend production on up to 14 production lines currently under contract through the end of 2022 as well as approximately 20 lines that are under contract through 2023. Turning to Slide 7.

I'll now give you a quick update of our global operations supply chain as well as the wind market. During the second quarter, we did not experience any significant production issues from COVID, including in China, where COVID cases have moderated since the beginning of June. Domestic logistics in China have been impacted.

But thanks to the efforts of our supply chain team, we met our Q2 production targets and continued to deliver blades on time from Yangzhou as well as export raw materials on a timely basis that we still source in China. During the quarter, we continued to make excellent progress on the speed of our startups and transitions.

We completed five transitions and start-ups across China, Mexico and India, all ahead or on schedule. Our plants in China, India and Turkey all performed well ahead of plan in Q2. And with the exception of our Nordex facility in Matamoros, our Mexico operations are performing at or above plan as well.

Our focus on safety, quality, execution, cost savings and the optimization of our manufacturing footprint during these challenging times will enable us to continue to maintain a strong balance sheet and put us in a position for growth once global demand returns.

In our service business, we have further expanded our footprint in Europe with the addition of a branch in France while continuing to increase operations in the U.S. We're on track for 40% to 50% top line growth this year.

We expect transportation revenue to grow by approximately 40% in 2022 based on awarded supply agreements and development programs, notwithstanding the supply chain issues plaguing the automotive industry.

The transportation business unit continues to deliver strong improvements in operational efficiencies and customer engagement despite certain programs experienced reduced volumes in Q2 due to the aforementioned customer supply chain constraints.

The development programs continue to validate the potential weight reduction, investment efficiency, reduce time to market and performance benefits of composite solutions. We anticipate these programs will result in incremental OEM supply agreement starting in 2023.

Through collaborative development with our commercial vehicle and EV passenger segment customers, we are delivering innovative solutions to enable the electrification of their fleets. Moving on to our supply chain. The situation continues to be challenging. We continue to see higher energy prices as well as higher prices on petroleum-based feedstocks.

During the past year, there were both significant price increases and supply constraints with respect to epoxy resin and carbon fiber as well as increases in inbound logistics costs. We expect carbon fiber and related product supply to remain constrained as demand for carbon continues to outpace capacity additions.

Production of carbon products is also very energy-intensive and rising energy costs are adversely impacting the cost of carbon materials after already seeing price increases of up to 50% for certain carbon feedstocks during 2021.

Epoxy resin prices continue to see pressure with constrained and high-priced petroleum-based feedstocks and high energy costs driving some producers in Europe to curtail production. High resin prices in Europe and North America continue to be supported by bullish demand from industries like automotive, infrastructure and construction.

As of today, we have secured adequate raw materials for all plant production in 2022, including the raw materials that is controlled by our customers.

Although we expect that the price of carbon fiber and resin will remain at elevated levels in 2022, approximately 60% of the resin and resin systems and approximately 90% of carbon fiber we use is purchased under contracts either controlled or borne by our customers and therefore these customers receive or bear 100% of any decrease or increase in price.

We are continuing to diversify and derisk our supply chain by qualifying sources in the regions in which we manufacture products to reduce the impact of high logistics costs, provide security of supply and build long-term strategic partnerships with key suppliers to ensure the best pricing and availability in the short, medium and long term.

Other than our production in China which primarily relies on Chinese suppliers, we have reduced our exposure to China for TPI-controlled spend under 6%, down from over 20% in 2019. Onto the wind market.

As we explained on our last earnings call, the war in Ukraine has brought to the forefront the need for energy security and independence not only in Europe but across the globe.

We applaud the European Commission's swift action by announcing the Repower EU plan in May which is aimed to transform Europe's energy system by handing the EUs dependence on Russian fossil fuels and further addressing the climate crisis.

In July, the EU announced that they are investing over EUR 1.8 billion and 17 large-scale innovative clean tech projects with an option for 20 additional projects that could be announced later this year. While we won't start to see the benefit immediately, we are encouraged by the long-term prospects of the European wind market.

In the U.S., we are certainly encouraged by the recently proposed Inflation Reduction Act of 2022. The stability of the act would provide in the U.S. market and the impact this could have to accelerate demand should it ultimately get signed into law.

In the meantime, we continue to listen and work with our customers to optimize our footprint to better serve their needs today and be best positioned to serve their needs once demand recovers.

While we recognize the challenges the wind industry faces, we still believe demand for wind energy will strengthen over the long term given the focus on energy security and independence globally and the necessity to decarbonize and electrified to meet the aggressive goal set to combat climate change.

TPI remains in a unique position with our global footprint in key strategic geographies, along with collaborative relationships with our suppliers and our customers to grow as the demand for wind begins to accelerate again.

Execution, cost control and liquidity are at the forefront of our priorities while continuing to move forward on multiple strategic initiatives to enable TPI to capitalize on the expected long-term growth in the wind market, including expanding our global service offerings and leveraging our expertise in blade design while also expanding our capabilities around logistics and recycling.

With that, let me turn the call over to Ryan to review our financial results..

Thanks, Bill. Please turn to Slide 9. All comparisons made today will be on a year-over-year basis compared to the same period in 2021. For the second quarter ended June 30, 2022, net sales were $452.4 million compared to $458.8 million in the same period in the prior year.

Net sales of wind blades were $414 million, down slightly compared to $418.7 million in the prior year.

The decrease in wind blade sales was primarily driven by a 7% decrease in the number of wind blades produced due to a reduction in manufacturing lines, transitions of existing lines and currency fluctuations which were partially offset by a higher average sales price due to the mix of wind blade models produced.

Note that estimated megawatts generated from our blade production increased about 3% over the prior year due to over 3,400 megawatts, notwithstanding the reduction in lines in blade volume.

Net loss before preferred stock dividends and accretion improved from a loss of $39.8 million in the second quarter of 2021 to a loss of $5.5 million in the second quarter of 2022.

Including $14.6 million of preferred stock dividends and accretion, net loss attributed to common stockholders for the quarter was $20.1 million compared to a net loss of $39.8 million in the same period in 2021.

This improvement was due primarily to a $22.1 million decrease in income tax expense and $16.4 million in favorable foreign currency changes, partially offset by the increase in preferred stock dividends and accretion as well as approximately $8 million in non-restructuring related operating costs that were associated with certain manufacturing facilities in Newton, Iowa; Dafeng, China; and Juarez, Mexico, where production has stopped.

Our adjusted EBITDA in Q2 was $10.3 million or 2.3% of sales compared to $17.4 million or 3.8% of sales in the same period in 2021. The decrease was primarily due to the non-restructuring related operating costs associated with the three manufacturing facilities where production has stopped. Now moving on to Slide 10.

We ended the quarter with $155 million of unrestricted cash and cash equivalents and $62.3 million of debt. While our free cash flow for the six months ended June 30, 2022, was a net use of cash of $67.1 million, we had a good second quarter and generated $19.4 million of free cash flow.

During the quarter, we continued our focus on tight cost controls, managing working capital and constraining capital expenditures. The current environment continues to be challenging across the wind market as we balance certain customers trying to stretch payment turns while at the same time ensuring we have a healthy supply chain.

As we move forward, we are acutely focused on our cash position. and ensuring we are able to not only efficiently sustain operations but also capitalize on the recovery of the wind market when the time comes. Back to you, Bill..

Thanks, Ryan. Turning to Slide 11. As we look forward to the rest of the year, we expect Q3 sales and adjusted EBITDA on a billings basis to be higher than Q2 as we anticipate higher volume will drive improved utilization. We have updated our formal guidance for CapEx for 2022 to $15 million to $20 million, down from $25 million to $30 million.

Other than that, our guidance has not changed. We are still not providing GAAP revenue or adjusted EBITDA guidance given current market volatility, potential impacts under ASC 606 related to future contract modifications or extensions and corresponding changes to our long-term volume which cannot be forecast with certainty at this time.

Please turn to Slide 13. To close, we remain focused on managing our business through near-term challenges in the industry and our efforts to position TPI as the preferred global solution provider to our customers and their customers to enable profitable execution and growth in the future.

I want to thank all of our TPI associates once again for their commitment, dedication and loyalty to TPI and our mission to decarbonize and electrify. I'll now turn it back to the operator to open the call for questions..

[Operator Instructions] Our first question comes from the line of Justin Clare with ROTH Capital Partners..

So I guess, first off, you mentioned that you expect your potential revenue under contract to grow here as you close on some negotiations. Just wondering if you could maybe provide a little bit more color on the timing of the contract extensions. And then you mentioned contracts that are coming to an end at – in 2022 and 2023.

Could you be extending those contracts for both years in the near term here? So just a bit more detail there would be helpful..

You bet, Justin, yes. So you're right, we have about 14 that are ending at the end of this year, another 20 or so next year. We're right in the middle of discussions with all of our customers as we speak on extensions and that would relate to both those for '22 and for '23.

So I would expect to -- for you to be seeing some announcements here over the next quarter or so with both lines that are expiring in '22 as well as '23 being extended beyond those terms..

Okay. Great. And then given the potential here within the Inflation Reduction Act for credits for an extension of the PTC. I was wondering if you could talk through how you’re thinking about your Newton, Iowa facility.

How long could that facility take to be restarted if you did see improving visibility for demand? And then how many lines could that facility support? Is there room for expansion if demand supported it?.

Yes. So it's a good question. As far as the number of lines, obviously, that depends on the size blade. We've produced -- we've had as many as six lines in that facility in the past. With larger lines or with larger blades, it might be a little bit less than that. There is some -- there is limited room for expansion there.

And as far as the ramp-up, again, I anticipate that we would be able to get a number of the associates back that had been long-term associates of TPI. We treated them very well on the way out and they were very loyal to us. But again, it takes time to rebuild that workforce.

So it's probably a six to nine month period to ramp up from start to -- depending on whether we change the molds out that are in there today that haven't been removed yet or whether we're building the same blade. So it's probably a six to nine month time period to fully ramp..

Okay. Got it. That's helpful. And then also one more on the Inflation Reduction Act. There is this 10% bonus for the PTC if domestic content requirements are met. So just wondering if that legislation were to pass, do you think developers would need to source blades in the U.S.

to meet those domestic content requirements? And if so, could you get -- potentially get a premium price for U.S.-manufactured blades?.

Yes. It – again, it will vary depending on the OEM, a significant portion by weight of a turbine is steel, clearly. And I think under the new act, it’s a 100% sourced steel. So I think in many cases, you would have – obviously, sourcing blades would help. I don’t think it’s a necessity in all cases depending on the OEM.

Getting a premium price with – if we’re producing in a U.S. facility, there is the advanced manufacturing credit which would certainly make U.S. blade production more competitive with manufacturing outside of the U.S.

So whether it’s a premium or it’s just more normalized margins than we’ve been able to realize in that location in the past remains to be seen..

Our next question comes from the line of Julien Dumoulin-Smith with Bank of America..

Excellent. Appreciate it. If I can, just a follow-up on Justin’s last line of questioning there. Can we talk in brief about perhaps the DPA angle that’s sort of lingering out there? I know some of the headlines have been of late focused on the wind sector as potentially an angle that the administration wants to look at use of DPA.

How could that play itself out? And also, to what extent could that complement what are still seemingly your plans with respect to offshore here? Any updates on that front? Notably absent in some regards here but would love to hear..

Can you turn that down a little? Julien, I had a -- you were really loud, so I had a hard time understanding exactly what your question was.

Can you repeat it again?.

Sorry. Some call me enthusiastic at a time. Yes, sorry. So what I was saying is Defense Production Act, DPA. There’s been some headlines about that being applied for the wind industry.

What are your thoughts there and especially as it might pertain to offshore opportunities for you all?.

To be totally frank, I haven't focused significantly on the DPA at this point. So I don't -- I'd have to get back to you on a specific point of view on that, Julien..

Got it. Excellent. All right. Fair enough. We’ll leave that.

If I may, just in pivoting here to the European opportunity that you described at length in your prepared remarks, can you describe perhaps some of the opportunity that might exist with respect to your Turkish operations? I know at times you remarked that some of the latitudes [ph] that could exist there.

How swiftly could you move there? What are the conversations and tons of customers? And ultimately, to the extent to which that does materialize, how would that impact liquidity use on the balance sheet for that or offer or what have you as you think about the capital needs through the back half of the year into next year to position yourself?.

Yes. I think from a -- just from a Turkey in general, our operations there performed very well, probably some of our best-performing operations. It is clearly a great location to serve the EU from. Very cost-effective, especially with logistics costs today but just a very productive workforce and a cost-effective workforce.

So our customers are interested in additional capacity in Turkey. We are running -- we're kind of an overdrive there right now, likely to be an overdrive there next year as well and that is a location that we would look to expand under the right circumstances. So to ramp that up, it would take some time.

We’ve obviously looked at sites there, so that’s something we’re looking at pretty closely. And if European demand continues to be as strong as we think it will be into the future, that’s obviously a good location for us to think about expanding in the near term. From a CapEx standpoint, just think of it as $5 million to $6 million per line of CapEx.

So if it’s four to six lines, you’re talking $25 million to $30 million of CapEx and that probably wouldn’t be until sometime in ‘23 if it moves forward with some speed..

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

So I know, obviously, the regulatory overhang here in the U.S. has been kind of the big issue for OEMs and I know that they are dealing with things and that uncertainty on a global basis.

But if this legislation were to pass and I know that’s a big if, I mean do you have kind of a thought process of how long it might take for you to see that pickup in demand, again balancing that, that’s U.S.

versus what OEMs are dealing with globally?.

Yes. Again, if it was just a pure PTC extension through extenders, it's a little simpler with the new bill getting kind of interpretation and rulings from Treasury on how each of the individual components will be actually applied. Takes a little bit longer.

I would expect we should begin to see some pickup in '23, probably quicker than we thought, obviously, before the legislation was proposed. But I could see back half of '23 beginning to see some pickup but probably more of an impact in '24..

Got it. All right. That’s helpful. And then just on the transportation side, you gave a growth expectation for the year. I apologize I missed that. So maybe if you could just clarify that. But you also mentioned that you’re working towards a number of OEM supply agreements.

Is there any way to potentially size that or maybe talk about how many you’re working towards and what type of hit rate you’re assuming? Just any details along those lines would be very helpful..

Yes. So the growth, we expect 40-plus percent top line growth this year, year-over-year. We brought that down a little bit from what we talked about in the first quarter, primarily because of some of the challenges that our customers are having with their supply chains, where their volumes have come down a little bit.

We do expect to make that volume up in 2023, so 2023 should be a strong year from that perspective. And as far as the deals we're working on, we're actively working six to eight development projects right now, where we're delivering prototype parts, qualifying parts, et cetera.

Our hit rate has been -- as we've refocused with our new leadership in that organization, our hit rate has been very high, so I would expect the hit rate to be pretty high on those six to 8..

Got it. And what does the pipeline look like in that regard? I mean, obviously, six to eight. I think in the past, you’ve cited, gosh, I think, six. At one time, it was six OEM body program, six OEM EV part programs.

Maybe just what the pipeline looks like there?.

Yes. The pipeline looks very good. What I told you is what we're actively working on right now as far as extra building prototypes. There's a much longer pipeline. Again, we're being selective in what we choose, making sure that we can do it profitably and that we can scale and that we can meet the needs of the OEMs or the Tier 1s.

So the pipeline is robust. I think we've been able to demonstrate our ability to not only take out weight but the efficiency of the upfront tooling, as well as speed to market has been pretty remarkable. So again, we're optimistic in where this is going and the pipeline is robust..

Our next question comes from the line of Jeff Osborne with Cowen & Company..

A couple of questions on my end. Going back to the 14 lines, Bill, for 2022, two part question on that. One is, how many of those lines are going into the U.S. today? If there’s any view on that.

And then are any of the discussions you’re having contingent on the IRA bill passing or not?.

Not really. So of those lines, we've got nine in Mexico and those for the most part are all coming into the U.S. We've got -- and then we've got a handful in Turkey as well so -- and those are mostly to the European market if they don't stay in Turkey. So it's just the lines in Mexico that are coming up that are coming into the U.S. at this point.

And the answer is -- the answer on those is no. It's not contingent on IRA. But certainly, we've got a plant sitting in Mexico right now that's idle and the IRA depending on how it comes out if it does certainly could accelerate the interest in that plant as well..

A, for M&A; and B, what the pipeline looks like there?.

Yes. I think we still have an appetite for it, obviously, given where the overall wind market is and that being our core business. We're really laser-focused on execution there before we get into an M&A transaction.

But we do have a pipeline that we're continuing to evaluate but I would say that's been slowed down just a bit to make sure that we're focused on the core business and keeping a strong balance sheet and making sure that we're prepared for new wind demand when that materializes..

[Operator Instructions] Our next question comes from the line of Stephen Gengaro with Stifel..

So as we think about the gross margin line over the next four to six quarters, what should we be really focused on from an improvement perspective? So what drives the improvement? I mean, obviously, volumes do.

But how should we think about the progression and really the key the key drivers of that improvement as we go forward here for the next several quarters?.

Yes. Stephen, again, I think you mentioned volume. I mean utilization of our facilities -- and we're a pretty fixed cost business. So utilization is key to driving that gross margin line. So it's utilization.

It's continued focus on cost, whether that be driving costs to the extent we can out of the bill of material, improving process, reducing process waste, being more efficient from a headcount standpoint. So it's all of the above but I would say the biggest mover of the needle is and has been utilization.

So as you see, utilization climb in the third quarter. Over the second quarter, you should see gross margins improve. We had a couple of unique things Ryan mentioned in this -- in our prepared remarks around some non-restructuring costs with some of our plants that shut down. Those ran through the cost of sales line.

So you get rid of a few of those and you'll start to see that gross margin number on a normalized basis, start to increase with utilization..

And then, just as a follow-up.

When we think about the offshore side and we’re hearing more and more on the East Coast on the offshore wind front, are you – where – can you just give us an update kind of on where that stands and kind of how you see this playing out over the next year or 2?.

Yes. So we're -- not a huge update from last quarter. We're still actively working a couple of opportunities on the East Coast. We're optimistic that those will result in a long-term agreement here before the end of 2022.

I think from a wind standpoint, the Inflation Reduction Act can have a huge benefit on the offshore side just given the advanced manufacturing credits that will be available to build the supply chain that today doesn't exist for offshore in the U.S. So we would hope to be able to announce something here in the back half of the year.

And again, if IRA 2022 ultimately gets signed into law, that could have a nice benefit for offshore in general both on the East Coast, West Coast and in the Gulf, of course..

Our next question comes from the line of Joseph Osha with Guggenheim..

A couple of questions. First, just looking at your contracts and what you’re able to pass through and what you’re not. We’ve seen some other people in comparable businesses, including one large firm in Arizona. Really kind of changed the approach to passing freight cost, passing through metal costs, stuff like this.

I’m wondering, as you have new contract conversations with customers, if you’re thinking about trying to – what approach you can take to roll more of this input volatility off to your customers?.

Yes. So today, as I mentioned, virtually all of the carbon that we buy is under contracts controlled by our customers. So 100% of that gets passed through. Resin systems, 60-plus percent of those -- of the resin we buy is under -- is purchased under contracts controlled by our customers. So that 100% of that gets passed on.

Other than that, Joe, we have a shared pain/gain. And generally, it's a 70-30 split. So 70% gets passed on to our customer. We have to absorb 30%. We are having discussions, as I mentioned earlier, with all of our customers not only about extending contracts but also what these commercial agreements might look like in the future.

And some of those may have some different terms where we might trade utilization percentages for -- and price, quite frankly, for reducing or offloading some of the risk. Those discussions are all in process. Clearly, our customers would like to not see that.

So it's a balance that we have to work on with our customer on price, on utilization, share of wallet and then how we deal with the risk of commodity costs..

Right. And that’s kind of what I was getting at. We – you talked in the past about resin carbon fiber and that’s fine. But you’ve been in the situation where a lot of the utilization and logistics and other factors, that risk seems to rest disproportionately with you.

So I’m just wondering if there’s any opportunity for you to – as you’ve indicated, there might be more sort of fundamentally remake the economic relationship with your customers because that might be one way to address the volatility we’ve seen in gross margins perhaps..

Yes. And that's exactly right and that's exactly what we're working on with our customers today how do we better balance the risk. Correct. Go ahead. Right..

Exactly. Second question, just following a bit on what Julien was asking about Turkey. And I’m sorry, if I missed – if you answered this already.

How does the tanking lira affect your business? Is it good? Is it bad? Does it not matter?.

It's generally -- if you think about most of -- all of our revenues in euro, most of our BOM cost is in euro. But direct labor and some of the local stuff is obviously all in Turkish lira. So it actually benefits us from a financial standpoint. It does make it more challenging for some of our suppliers that are in Turkey with the lira deval.

We're working through that with our customers. In general, though, it does help us from a financial standpoint. And we have -- we did have some benefit from that this quarter as well..

Yes, for sure. And then my final question. When you go through the Inflation Reduction Act, one of the things that becomes apparent is that everything, the manufacturing tax credits, the PTC, the property credit, everything is tied to prevailing wage and apprenticeship requirements.

How might that affect your business if that’s signed into law?.

Well, from a -- again, I can't speak for our customer or our customers' customers, quite frankly. But from a TPI standpoint, we're not manufacturing in the U.S. today. However, when we were, we were paying prevailing wage.

We had a union initiative in Iowa that was defeated and it's because we were paying fair pay to our associates with better benefits than the union was offering. So I wouldn't see that as an inhibitor to us re-entering the U.S. manufacturing market if that makes sense for us and our customers..

But it would be fair to assume that you’re either going to be union or paying union level wages if you do – you end up restarting in the U.S.?.

We would be paying at least prevailing wage, correct..

Our next question comes from the line of Mark Strouse with JPMorgan..

It's Drew on for Mark. First one just on Europe.

And really just kind of broader, what are you seeing there from your customers? What are you hearing? Are they -- and really as it pertains to repower EU, are they waiting for some more formal legislation? Or how are they thinking about orders and new contracts and from a timing standpoint? Just really, any color would be helpful..

Yes. I think they're all clearly looking from a long-term perspective. Obviously, they see the repower EU as a positive and as a way to accelerate demand. Again, it will take some time just like any legislation here. Well, it's a little complicated in the EU with the way that works.

It's got to go through three different layers and I think the final one doesn't really happen until early 2023. So I think there's a little bit of wait and see as to how it ultimately will be rolled out what the -- how it will actually work but there's general optimism from a longer-term perspective.

We're -- Turkey is -- we talked a little bit about Turkey and how attractive that is to serve the European market, so there's clearly in anticipation of that market accelerating. There's a lot of interest in Turkey from our customers for us to expand, so I see the medium to long term being very favorable.

But short term, we haven't seen an immediate spike in demand because repower EU came out, right? It's going to take some time to sort it through and implement. But when it is sorted through and implemented, we do see that as a positive..

Got it. And just one follow-up if I may. ASPs looked like they were up again in the second quarter or comparable to the first quarter. And it sounded like in the first quarter, there was some transition issues – or transition timing, things there that drove the ASPs higher.

So just kind of curious if there’s a little bit more of a longer-term outlook here on ASPs.

Do we think of them in the range that they were in 2Q? And especially as you talk about the new contract negotiations, are they going to be higher than some of the historic legacy contracts?.

Yes. I think as we talked about in the first quarter, we -- they were a little bit -- they were artificially high in the first quarter because of some transitions. I think we're -- the way we calculate it, we were like 182, 183 , something like that, 1,000 a blade. We expect to wind up for the year in that 183 to 185.

As we extend contracts or renew contracts depending on the blade type, I would expect to continue to see a bit of an increase in ASP. If we're building a bigger blade, the ASP is obviously going to be higher. And clearly, the inflationary environment has driven ASP higher as well.

Just as we see commodity costs up, it's going to raise the price of the blade. So it's a combination of those things. But over time, I think you continue to see ASPs go up as blade size continues to increase..

And our next question comes from the line of Tom Curran with Seaport..

Heading into 2022, your known start-ups and transitions were very front half loaded. In 1Q, you realized a positive surprise relative to internal expectations on the five you executed, finishing all of them ahead of schedule and enabling the delivery of additional volumes for those customers over 2022.

How did performance compare in 2Q? And what’s the transitions outlook for the second half?.

Yes. So we pretty much wrapped up all of our transitions by the end of Q2. And at this point, we have no transitions slated for the back half of the year. That's why you'll see our utilization should climb up into the low 90s in Q3. The lines we transitioned in a couple of start-ups will be running at full capacity in Q3.

So nothing planned for the back half of this year. But -- and so certainly, you should see utilization improve in Q3..

Got it.

And then for field inspection and repair services, Bill, can you give us a sense of how you did at the top of in 2Q and just how demand there has been evolving relative to wind blade set demand? Is it outpacing? Is the aftermarket holding up better? And what’s the outlook heading into the second half?.

Yes. I would -- again, I would say we're obviously growing the wind or the field service business quicker today than the blade business. The blade business, as we've seen, has been relatively flat just given the challenges with policy in the U.S. and the EU. But yes, we see significant opportunity for growth in field service.

It's really about having -- it's really about techs being able to obtain and train and retain, if you will, the techs. That's how you grow the business. So we are aggressively recruiting in that area. We've grown our workforce significantly in the U.S. and we're continuing to grow it outside the U.S. So we see significant opportunity there.

Especially with our global footprint, it gives us a bit of an advantage where we have a critical mass in these geographies, where there are a lot of installs and that need blade service and/or repair. So having that global footprint is not only a benefit from a manufacturing standpoint but also in deployment of the field service operation..

Got it. And when it comes to that workforce of techs, do you have any targets you could share for us for the second half in terms of where you look to take headcount? And then I know you’ve more recently been investing and expanding in Europe for field services. Maybe an update there..

Yes. So, I would – we don’t give out headcount numbers specifically but we’re going to – we’ve got significant demand in the U.S. That’s really where we started the business. So we’ve got a critical mass here and we’ll continue to grow that. But the European market is a huge opportunity for us. We’ve been strong in Turkey for a while.

But we’ve just, over the last year or so, begun expanding outside of Turkey. So we’re in Spain. We’re in France. We’re in the U.K. And the opportunity for just blade repair and service as well as repowering is pretty significant in the EU. So we see that as a pretty significant growth opportunity for us as well..

And our next question comes from the line of Greg Wasikowski with Webber Research..

Just one for me, two parter.

Can you recap your guidance for dedicated lines versus lines installed for the rest of the year and then mainly into 2023? And then how many lines are there that are similar to what you described in Iowa where you could ramp up without significant CapEx and an actual real estate expansion? Maybe asking another way, what's the theoretical maximum dedicated lines that you guys could have by the end of 2023?.

So we have 43 dedicated lines today. We have capacity if you – excluding Iowa for the time being. But if you look at our footprint between China, Mexico, Turkey and India, we could go to 50 lines without expansion of a facility.

Now there would be some CapEx to enable us to get to $50 million [ph] but it’s probably $25 million of CapEx to get those six to seven lines up and operating. And if you throw in Iowa, that could be another four to six lines. And again, very little CapEx there since the CapEx is sitting there already..

And we have reached the end of the question-and-answer session and I'll now turn the call back over to Bill Siwek for closing remarks..

Yes. Thanks, everybody, for participating on the call. And to the analysts, thanks for your questions and look forward to speaking with you again next quarter. Thank you..

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation..