Q2 2020 TPI Composites Inc Earnings Call
Good afternoon, and welcome to <unk> composite second quarter 2020, <unk> earnings Conference call. Today's call is being recorded and we have allocated one hour for prepared remarks acuity.
This time I'd like to turn the conference over to Christian eat in Investor Relations for T.I. comp composites. Thank you you may begin.
Thank you operator, I'd like to welcome everyone to T. I composite 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 can.
At least some are forward looking statements if any of our key assumptions are incorrect because of other factors discussed in todays earnings press release in 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 dot P.T.I. composites dotcom, we do not undertake any duty.
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 Definitionally information and reconciliations on historical non-GAAP measures the comparable GAAP financial measures with that let me turn the call over to Bill. So I went to keep that composites president.
Yes.
[laughter], Thanks, Christian and good afternoon, everyone. Thank you for joining our call. In addition to Christian I'm joined today by Brian Shoemaker our CFO.
I will briefly review our second quarter results in business development activity provide an update on the impact in response TP ice taking to the cobot 19 pandemic.
Including an overview of the current operational status of our manufacturing facilities.
Skus the status of our supply chain and finish up with a brief update on the wind energy market. Brian will then review our financial results in detail and then we will open up the call for today.
To start to health and safety of our associates and their families as well as the communities in which they live remains our top priority and we believe the safety protocols and practices, we put in place and all of our facilities around the world in early March have enabled us to effectively manage the impact of the global pandemic on our operations and associates.
Please turn to slide five.
And the second quarter, we delivered net sales of 373.8 million a 13% increase over Q2 of 2019 and adjusted EBITDA of 3.3 million. The estimated impact of Cobot 19 on revenue and adjusted EBITDA during the quarter was 96 million and 36 million respectively.
Which primarily related to win blade sets that we had forecasted to produce in the second quarter under our supply agreements that were unable to do so.
The when side of our business, we announced today that we extended to supply agreements with GE, one in new and I went through 2021 with an option to extend through 2022 and one in Juarez, Mexico through 2022, we also announced that we will be adding an additional production line in Mexico to provide blades for GE is wind turbines.
Allergies in North America.
We also announced today that we signed a multiyear agreement with Nordics for two manufacturing lines in our Chennai, India facility with the plant start data production and the first quarter of 2021 [laughter] with these new manufacturing lines and contract extensions, we added approximately 800 million of potential contract value.
Finally with respect to win 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 workforce during the quarter and expect to ramp our production throughout the remainder of 2022 enabler.
To me Workforces volume requirements for 2021 and beyond.
We began 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 Hilger, Hafez, Chief commercial officer responsible for all commercial activities at Ti.
Jim has a diverse background, both as a pea and Alan commercial leader within multiple GE platforms. Most recently held the role of Chief Commercial Officer, North America Division for Wabtec Corporation.
<unk> Corporation merged with GE transportation in February of 2019, creating a fortune 500 company with $8 billion up revenue Jim was responsible for the commercial integration associated with the merger Jim brings over 30 years of commercial leadership experience at GE [laughter] finally, we appointed a darn good.
Our as Chief Accounting Officer, Dan brings over 20 years of accounting and finance leadership experience to TPH.
Dod most recently served as Chief Accounting Officer, a brief technology and prior to that Don served us corporate controller for NASDAQ listed Veritiv Corporation.
Please turn to slide six.
We remain committed to operating our business safety, while working to mitigate the impact of cobot 19.
Partnering with our customers and suppliers to make up as much of the loss volume as possible and 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 cost and improve our operations globally and are making very good progress on does imperatives notwithstanding.
Things the challenges created by cope with 90.
Finally, we remain focused on our liquidity to secure business continuity and ensure the long term viability of TPS as we navigate these dynamic and unpredictable times as it as of quarter end, our liquidity stood at 138.4 million, we continue to manage it by deferring nonessential Capex controlling Andrew.
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 cobot 19 pandemic and to support our planned capital expenditures and growth initiatives for 2020 and 2021 [noise].
Turning to slide seven on I will take us around the world and give you a quick update of our operations. During the second quarter, we continued with normal operations and all of our China facilities. We continue to expect to deliver more volumes in our original 2020 plan in part the result of a customer pushing out a planned transition.
We are in the startup phase in our Chennai, India manufacturing facility and we operated for most of the months of April and May with reduced workforce due to the government of India has imposed curfew when I back to normal operations moving full speed ahead on the startup 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 covert 19, which resulted in demands from our union in Turkey to temporarily reduce production.
Yes, as well as a shortage of core related to one blade model caused the second quarter play production to be slightly impacted since mid April. However, we have been running our production at normal levels.
We operated our Matta Morris Mexico facility at reduced capacity during April and May and we shut down for a couple of weeks in June and the middle of June. We restarted production then 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 next.
It really impacted we expect to be after reading at or near capacity for the remainder of the year with no plan transitions due to the sanitary emergency created by Tobin 19, three of our four factories in Juarez were shut down for approximately three weeks at the end of April in 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.
Well as we did not get back to 100% of our production capacity until the end of July.
On April 20, Threerd 2020, we voluntarily paas production at our Newton, Iowa manufacturing facility due to an increase in cobot 19 levels in surrounding counties. We restarted production on May six after working closely with the Governor's office and Iowa health officials officials to reopen the plan.
Q2 volume was negatively impacted due to the duration of our production pause, but we have been back to normal production level 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 cobot 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 on uninterrupted supply of.
Key raw materials. We also took steps in early stages as a pandemic to secure additional safety stocks of most key raw materials to reduce the risk or impact of any short term supply disruptions [laughter]. These proactive steps are reflected in a buildup of working capital, which will Brian will discuss later, we saw tightness in supply.
Okay and core materials balsa in particular due to covert 19 related challenges in Ecuador, and overall market demand in 2020 as well as P. T phone qualification delays also caused by cobot 19. Today. This has not had a material impact on our production. The raw material market is now essentially back to pre covered level.
And we don't expect any further supply issues at this time barring any disruptions from another significant wave of Cobot 19, we're also working on reducing the buildup of inventory to more normal levels.
As it relates to the wind market as of today demand remains strong from our customers for 20, and 21 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 I'll call.
But 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 commissioning challenges exacerbated by cobot 19.
Wood Mackenzie subsequently updated its U.S. forecast by 1.5, Gigawatts for 2020, and 2021 and are now forecast installations and 21.
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 loss during those transitions as a result, we currently estimate the number of transitions in 2020 will be.
These 70% less than we previously planned at the beginning of the year. However, we expect transition cost to only be 40% less as a result of delays caused by cobot 19.
Turning to slide eight we now have a total potential contract value.
Of up to approximately 5.4 billion through 2024, and a 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 to potential in minimum contract values do not include the two lines in China that we are operating under short term contract. This.
Here, 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 can it continued.
To apply our scale to expand material capacity ensure continuity of supply drive operating cost down and focus on the integration of our key SG initiatives to drive profitable growth and long term shareholder value with that let me turn the call over to Brian.
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.
The second quarter of 2020, ending June Thirtyth 2020, net sales increased by 43 million or 13% to 373.8 million.
Net sales of when blade increased by 15.3% to 348.1 million. The increase was primarily driven by 10% increase in the number of wind blades produced year over year, largely as a result of increased production at our China facilities and Mad at Morris Mexico facility.
Net sales were adversely impacted by approximately 96 million based upon when blade sets, which we had forecasted to produced in the period under our account noncancelable purchase orders associated with our long term contracts, but were unable to do so as a result of covert 19 Pam didnt.
We believe we can make up approximately 98% or the volume loss during the first half of 2020 in Q3 in Q4.
2020, unless our plants are further impacted by the covert 19 pandemic.
Startup and transition costs for the quarter decreased by 12 million to 10.9 million, however, startup and transitions are being impacted by covert 19 due to temporary suspension of production at our India, Mexico in Turkey facilities, our general and administrative expenses for the quarter decreased by 2.3 million.
And to 6.9 million DNA 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 costs during the quarter.
Before share based compensation DNA 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 compare to point 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 Thirtyth 2020 in comparison to the forecast at March 30, Onest 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 covert 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 decreased 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're 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 noncancelable purchase orders due to the reduction.
Reduce 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 and nonproductive labor associated with covert 19.
Net loss per share was $1.87 for the quarter compared to net income of five cents per share for the same period in 2019.
Net loss in the quarter was also impacted by 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've 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've 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 loss due to the temporary suspension of production in our Mexico, Iowa, Turkey, and India facilities.
Additional warranty provision and other cost related to covert 19 that impacted all of our production facilities.
We are forecasting that we will incur approximately 5 million of cold weather related expense 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 covert 19. In addition, we're expecting to incur higher direct labor costs associated with meeting our customer demands in Q3.
In 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 covert 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 a 25 million in the quarter as we built up our inventory to manage covert 19 risks as well as the impact of coated 19 related costs. The inventory build is a part of our inventory and contract assets balances on the balance sheet.
Basically working to reduce our inventory balances throughout Q3 and into Q4, while we closely monitoring any potential risk of cobot 19 on our production facilities.
We continue to deferred 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 went through our 2020 guidance on April 20, Threerd 2020, due to the rapidly evolving nature magnitude and duration of the cobot 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, Mexico in India are operating in regions with high levels of reported covert 19 pause.
Live cases, as such we may be required to reinstate temporary production suspension or volume reductions at these manufacturing facilities or out our other manufacturing facilities to the extent there is a resurgence of cobot 19 cases in the regions, where we operate or there is an outbreak of positive koby 19 cases.
In any of our manufacturing facilities due to the fluid nature of code 90, and the potential impact on our business will not be providing 2020 guidance at this time.
With that I will turn it back over to build a wrap up and then we will take your questions Bill.
Thanks, Brian turning to slide 14, the health and safety of our associates and their families as well as the communities in which they live remains our number one priority as we reiterated today, we are taking the necessary as well as proactive steps on the cobot 19 front to ensure the safety of our associates and safe working conditions in our first.
Deliveries, we continue to work our when pipeline in earnest and notwithstanding the challenging environment. We are pleased that we were able to add more capacity for nordics Angie while also extending to existing agreements with GE. The impact of these additions and extensions was to increase our potential contract value by approximately 800 million we.
Also very encouraged by the progress we've made and this service space and a relatively short period of time. This will continue to be a focus for us moving forward. The progress we have and continue to make and the transportation space is also very exciting. We believe we are well positioned to capitalize on the increase interest investment and activity in the electric.
I'll close space that we've seen accelerate recently, we have now last focus on our operating imperatives, while mitigating the negative impacts of covert 19 on operations. During this time and we are focused on managing our liquidity to provide financial security and to emerge stronger as we drive through this current environment.
Our overall mission remains unchanged, establishing 18 gigawatts of global blade capacity to drive $2 billion of annual wind revenue reached 500 million of annual transportation revenue overtime and achieved double digit adjusted EBITDA levels. We plan to continue to drive for more speed during startups and transitions.
Leverage our global scale for operating and buying efficiencies to continue to drive down costs, all while maintaining strong balance sheet I want to thank all of our dedicated 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.
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 we will now begin the question answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset for pricing any keys.
To withdraw your question. Please press Star then too.
Well, we'll pause for a moment as collars join the queue.
Our first question comes from Phillip Shen with Roth Capital Partners. Please go ahead.
Hi, guys. This is Don and then on for Phil.
The first question.
As well so.
Theres largely congratulation on the GE lines, the nor that line item that was something we were really kind of your good about and so that you guys have.
I had advances there.
But could you tell us how many lines are covered by the two GE extension may lines in Iowa, and how many in Mexico.
But.
Presenters your line is our lives.
Hello can you hear me.
Oh I'm very sorry can you hear me now okay.
Yes, I can hear yeah, sorry, Oh, sorry about that Dod and thanks for up 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 startups I'm you know that's a really big part of the kind of figuring out where your 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 I mean for 2021, and maybe Q1 will there be.
Is that going I mean, a build up of transition.
Q1, or how should we think about that.
No I think clearly for the ones where.
The product was was not it's not moving forward or canceled that won't impact it.
There are cases, it just depends on how far are some of those trends transitions were moved out.
All of those on finalized yet for from 21 and fits or for 22.
But looking provide you with more information on that as we get closer to the end of year.
The.
That's correct in thinking of it is the transition being sort of.
Maybe like postponed but without a specific data in mind.
They've gotten there are some that have been completely canceled others that I've 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 its little hard to give you. The information for 2021 at this point as we're still working through it with our customers.
<unk>.
Okay, and then just one last one would be.
If there's any update on the.
You view tooling pilot in Rhode Island. It sounded like you said, you're expecting to get into more serial production on that does that mean either.
You signed a serial production agreement.
Yeah, what what our prepared remarks commented on was that we have begun production off of those off of those production tooling. The tooling that we've talked about last quarter.
We anticipate ramping that volume this year or so that we can meet the needs of that particular customer I'm 2021.
[noise] baskets and that's.
I'll jump all day.
Thanks, Don Thanks.
Our next question comes from Eric Stine with Craig Hallum. Please go ahead.
Yes, Hi, this is there and for how long for Eric Thanks for taking the questions.
Oh here, maybe first on.
Hi, maybe first on gross margin.
You know it sounds like good to hear that you're making up that last that loss volume in the back half of the year, but you know between coded and warranty and criminals labor cost that you talked about can you just maybe give a little bit more color on how margins.
My trend here in the near term.
Yes, when looking at the back half the year adjusted EBITDA margin, we're looking at probably around 60% more stronger towards the second half for the year.
Just putting in perspective based on what we've seen in fact of covert on us that we foresee in Q3 in Q4.
[noise] Alright, and then.
You know 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 but by 50% that you're going to talk about them.
Yeah, we again pretty Covance, 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 cobot.
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 cobot challenges that where we are on track to get to that you know that 50% level. It may take us a little bit longer as a result, though 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 Kobe and we can continue on that on that path to that significant reduction in time and effort.
Alright sounds good thanks for taking my question.
Yes, Thanks Aaron.
Our next question comes from Greg Lewis with BTG. 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 you know clearly there's a lot of moving parts out there I mean, there's a lot of uncertainty still around coded and you mentioned throughout the call about potential restarts and potential areas, where you're facing issues I'm just kind of curious like what gives you. The comfort that we should think about maybe starting to work there.
On that or I mean, or as opposed to just kind of paying you know leaving it.
But a higher level of inventories and until we kind of get through that.
Yeah, I think now that it's it's a great question, though we talk about in quite quite a bit I mean, we are going to strategically work. It down I'm. You know, we did build up enough enough capacity in certain types of materials, where we can where we can slow the order order a bit.
So, it's partially that but no clearly with the uncertainty around co bid 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.
What were we feel pretty confident where we're at today that we can reduce that level of debt, but we will cautiously will will be very cautious about it. So that we don't get a get stuck short somewhere.
Okay, great. Thank you very much real time.
Yes. Thank you.
[laughter].
[noise]. Our next question comes from Mike Webber with Weber Research. Please go ahead.
Hey, 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 more Texan g. a bit earlier, just curious that 800 million pairs of contract value given that a breakout outlets.
Similar number of lines in play but.
Sure sure 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 anybody behavioral shifts from your customer base in terms, maybe shifting more and option periods just given some of it.
Yeah, what we were not going to tell you had said again it was a little bit hard to understand your entire question, but its two lines you know for Norte acts in India.
And then you know we did the extension of the GE contracts, which are already in place in Iowa, and Mexico, along with an additional line and in Mexico. So that's what that's what makes it up as far as you know our customers, where we're not we're in a competitive marketplace the windows.
The competitive industry.
We're all working to continue to drive cost down drive Levelized cost of energy down our pricing has as our pricing structure is still intact.
And we continue to work collaboratively with our customers to drive cost down to drive their ASP down, but also retain our to attain or improve our margin. 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 where we're going to always you know it wasn't always continue to work hard to drive cost, but these contract you know the new contracts or the extensions are not a deviation or have not deviate significantly from what our contract structures event in the past.
Gotcha, Okay. That's helpful.
In terms of [noise].
Maybe in terms of thinking about how kind of Cove. It is it's going to roll through your your manufacturing network. It's like you to never set some Q2 was higher than Q1.
So we interpret from that that.
Because of it impact in China in Q1.
With similar or maybe even more severe than say kind of non China in Q2 or would be more accurate to say, maybe just the Chinese filling these kind of started working overtime in Q2 to make up for that Delta just trying to think about how that's kind of ripple through as we think about the impact of for further shutdowns.
Yeah. So if you look at what we said in Q1 is about $38 million revenue impact due to covert with the China facilities being down and then Q2 was the 96 million, we said related to Mexico being down for quite Awhile, 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 in purchases due to 6.6 and other things. We did have some revenue recognized off of that 20 million to do to how that works mechanically just to give you an idea for Q3 and going forward.
Gotcha that's helpful.
And then just maybe maybe one more on.
On Mexico and that facility.
You know memory serves actually here is when winter that actually come back on line. If memory serves I think you're shooting for mid may slip to the end of May.
So when that actually come back online and then in terms of what you're seeing there. It's obviously in high risk area or.
Would you classify the risk there being mostly governmental at this point are you still seeing any any three if that's true.
So I think you're referring to the matter Morris facilities. So yeah. We were you know we went down fairly early there to a two 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 a again where.
Were you know, we're at 100% capacity as of today.
In that plant. So I think I think the risk for that plant and the risk quite frankly for Mexico, just remains a co that and how the government reacts to spikes or or changes in and what the level of testing and or positive tests. Maybe we've worked very closely with the you know the.
The local as well as state governments, you know of Chihuahua, Tom a leap us as well as the federal government.
I think we're in very good.
A position with them. We've 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 a government challenges. There I think we've got a pretty good handle on that it's just more if there there's a wider spread outbreak and one of the in one of the locations.
Gotcha, Okay, great. Thanks, that's I guess.
Yes. Thank you.
[noise] our next.
Pardon me.
Once again, if you have a question. Please press Star then one.
Our next question comes from pods Alamo channels with Raymond James. Please go ahead.
[noise] [laughter] question guys. You mentioned that you are reluctant to give revenue guidance and because of the possibility of of lockdown being resumed.
In Mexico in India.
Is there any precedent.
This summer to your knowledge.
Oh.
Advanced manufacturing operations I'll have any company.
Being disrupted do too.
Regulatory measures and in either of those countries and I ask because my understanding is we've seen restaurants, maybe retail.
Factored in some cases like manufacturing has not been Todd.
And at least kind of April may timeframe.
Yeah, well thanks for the question I'm I'm not aware of any specifically, but those are two two countries that have you know have some pretty significant cobot challenges, it's not as much I guess, it's potentially about the government, but if we had a signal.
If they can outbreak in AIDS in an individual plans.
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 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 plan I'm. The question is what are they doing.
I'm under outside the plant and again, it's you know we would 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 that's that's the concern is that if we do have a significant <unk> outbreak in a particular plant could that be could we be required to shut that four.
For a period of time.
A question about the electric vehicle.
Business as you know one of your R&D partner Workhorse I just.
I find it deal or I guess, a follow on deal what from what Laurent down, which which is going public I'm curious if.
You're anticipating any advancement on your relationship in terms of getting.
No more kind of meaningful revenue uplift off.
Yeah, we continue to work very closely with work horse in their team as I mentioned, where we're continuing to build.
But the C 1000 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 we would as we do with all of our customers, we would hope to deliver for them and execute with the opportunity then to expand the relationship beyond what we're doing today.
Our next question comes from Ken Herbert with Canaccord Genuity. Please go ahead.
Hi, good afternoon billing Brian.
Hi, Ken Nice talking about.
Good to talk to you called out some good growth in the services business and I'm. Just curious if you can give a little more [noise].
Oh, just a little bit more color on sort of how impactful you think services could be in the next couple of years and and to what extent that business could be accretive to our EBITDA margins.
Yeah, I mean I did the service businesses is a very large a large market, obviously and and we're very well situated whether we're working for our OEM customers well working for ultimate asset owners, you know who better to to work.
Gone Blades, then then T I, a global footprint helps us with that because we've got you know assets all around the globe that can can work on this stuff. So again, it's one of our you know it's one of our initiatives to to actively grow that business. We brought on very experienced a person last year Lance marantette to do.
Drive that for us he's done a great job, thus far so it number one it can be very accretive and number two we think it can be a a much larger part of our overall business over time.
And are you.
It was obviously very small so far but are you are you.
It's a tracking to plan is doing better than you expected or I'm, just curious for the effort you're putting in sort of what you're how the responses from your customers.
Yeah, I I wouldn't say, we're probably ahead of where we thought we would be at this time you know, we're adding some additional talent to the team.
To continue to grow it.
And so yeah, I would say, we're probably a bit ahead of where we expected to be at this time.
So yeah, we're 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.
These are the blade part of their team. That's 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 that's a pretty exciting part. We're also recycling is a 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 overtime as well.
Okay. That's helpful and if I could just one final question I think you highlighted that.
Tightness, maybe in some of your raw materials also maybe maybe qualified foam or few other areas.
Have you seen as we sit here sort of early August any maybe recent increase cause for concern or do you do you view this as maybe a little tightness, but nothing that should be disruptive into the back half a year.
Yes, no I think we've got it was good for the year can we saw quite a bit of tightness early especially when coded first hit.
There was already tightness in supply with balsa as a result of you know market demand quite frankly and.
As a lot of expectation that a lot of the P. E. P. T phone that was coming capacity that was coming online would get qualified earlier in the year.
Covert delayed that as well so it was a combination of all those things, but you know we worked pretty hard to secure alternative sources and I think we're in pretty good pretty good position now for the balance of the year with all of our raw materials.
Great well congratulations on the contracts. Thank you very much.
Thanks, guys appreciate it.
[noise]. This concludes the question and answer session I would like to turn the conference back over to build sideways for any closing remark.
Thank you and again, thank you all for your interest and T. I, a b say can 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.
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[noise] Oh.
[noise] [noise] Uh huh.