Q3 2020 TPI Composites Inc Earnings Call
Thank you Sir.
So.
[music].
Good afternoon.
Welcome to PPI composition third quarter Twentytwenty earnings Conference call.
The two operating our business safely while working to mitigate the impacts of COVID-19, and ensuring that we are prepared to deal with the resurgence of the virus. We are seeing in many countries around the world. We have and will continue to adapt our operating procedures to enable our associates to work safely and continue to meet the strong demand we see around the globe.
Damage production was temporarily shutdown, while we had structural inspections completed and we then resumed operations on Saturday afternoon. There has also been a resurgence of COVID-19 cases in the Izmir area. So we are watching that closely to ensure it does not disrupt our operations.
As I mentioned earlier in Mexico, we are operating all plants at or above normal capacity, while continuing to closely monitor our plants in war as given the resurgence of coated in that community. We've also expanded the production of electric vehicle components in Mexico to increase our capacity and drive down costs in the US production has continued.
Uninterrupted.
In Green deal is strengthening and just last month, the European Parliament voted to cut emissions beyond the original target in the European Green deal to 60% by 2030 compared to 1990 levels. The European Council is expected to make a final decision in December and September China announced a commitment to reach carbon neutrality by two.
Utility scale wind LCR, we has been reduced by 71% since 2009, according to Lazard and we in the industry are working hard to continue to drive Lcs, we down and keep windows. The most cost effective source of new energy generation.
We believe the future for wind energy will continue to strengthen given some of the recent initiatives and goals to promote the acceleration of an energy transition that I. Just noted however, our current long term goals that we have discussed publicly including 18 gigawatts of capacity, 20% market share in 2 billion of wind revenue are based on older and more conservative.
Hundred $93 million or 23, 5% to $474 1 million net.
Net sales are wind blades increased by 27, 8% to $450 $1 million.
The increase was primarily driven by a 20% increase in the number of wind blades produced year over year, largely as a result of increased production at our China, Mexico, Iowa in India facilities.
We estimate that our net sales were adversely impacted by approximately 8 million based upon wind blades sets, which we had forecasted to produce in the period under non cancel purchase orders associated with our long term contracts, but were unable to do so as a result of COVID-19.
And transition costs for the quarter decreased by $13 six.
Year.
Any of measures implemented by governments around the world to address its effect and the impact on our manufacturing operations.
Cities, we continue to work our win pipeline and we are pleased that we were able to add more capacity for nordson GE extend to existing agreements with GE as well as extending our contract with best us in Turkey. The impact of these additions and extensions was to increase our potential contract value by approximately $950 million.
We are also very encouraged by the progress we continue to make in the service space and look forward to this being an increasingly important part of our overall strategy and wind we are continuing to build on our momentum and the transportation space and we'll continue to refine our long term strategy to capitalize on the increased interest investment and activity.
Yeah.
I know the chances of a blue sleep or or a smaller than moment, but in the event that vitamin wins, the presidency and and his screen energy plan moves forward could you discussing vacation and stuff are made in America requirement I know, it's very early to tell how's that would look like but I'm wondering if you could comment on moving pieces in the room.
<unk>, how quick T P I would be able to accommodate that.
Yeah. Thanks for the question, Laura I think that's a little bit difficult to answer at this point in time cause there's not a lot of detail behind the play on so you know he's got the made an American in off shoring of tax as well. So we've looked at what's out there. It is it's a little bit early yet to describe what the impact might be but again, we have you know mandy.
Factoring capacity here in the U S and depending on what that means it could mean additional capacity overtime, depending on demand and and what those all but those provisions.
Provisions might ultimate ultimately be if they come into up they come into fruition, but it's a little early to tell right now what the impact may or may not be.
Yeah is it fair to say that in that's given the higher volumes you would expect things on and things can I assist clean energy agenda that can be positive like Ikea.
Yeah, I think you know his aspirations are are are are.
Pretty significant in.
Production as we spoke about some of the transitions, we're getting pushed out too and not just because of covid for other reasons and that's how we're looking at on a total revenue number making up lost production or the total revenue amount we forecast in our original guidance.
As far as quantifying the made up we had some impact this quarter a lot of that had to do delays and shutdowns in queue to associated with India and just the slowing of the ramp and the delay of that and now that's getting back on track throughout Q3 and in the queue for.
Okay. Thanks, and then on the field services business can you talk about how.
How ya building that there with the pipelines looking like and how big that can become over the next couple of years and any investment that might be good there.
Yeah. So we've made a lot of really nice progress so far on securing.
Arrangements with some of the Oems that we build blades for as well as some third parties.
We're not gonna give specific dollars on it right now we may give some a little bit more specificity. When we give 2021 guidance, but suffice it to say that we look at this business is fairly high growth opportunity.
Higher margin.
Business than our traditional blade business.
So we expect it to become a fairly significant part of the overall the overall picture over time.
We will try to give you a little bit more specificity when we talk in 2021, but at this point just suffice it to say that we're really pleased with the progress we've made and what we've got from a backlog standpoint and pipeline moving into 2021.
Understood. Okay. Thanks for the Colorado up I can Q.
Great. Thanks.
Our next question you guys haven't online quake.
P B T I T. Please proceed.
Yes. Thank you. Thank you and good afternoon good evening.
I I guess I wanted to.
He kind of mentioned a little bit on the transportation side that the decision to kind of go into Mexico. You know just flipping through the queue real quick uhm. It looks like you you generate a little bit of revenue in Mexico could you just talk I guess at this point about the decision realizing that it's still early days and your guy.
It's pulling out transportation you know that's the thoughts around their decisions to move into Mexico.
Yeah. So this we had we move some of the man it's not all of the manufacturing is just some of the components that we're we're manufacturing new Mexico. So it's still gets assembled in the U S.
But it it makes sense because what we do is is still pretty labor intensive and to the extent, we can reduce labor costs. That's that's a plus for our customer and for our customers customer much like in the wind business.
So it's not the whole operation hasn't moved there we still have a pretty sizable operation in Rhode Island that is that is deal and quite frankly with most of our transportation transportation business today, but there are components of it that we moved to Mexico for efficiency and cost reasons.
Okay. So okay. So it wasn't it wasn't really about just seeing an acceleration of growth that was more just okay. Okay. And then and then just need you to come in and say Hey.
Hey, Hey, Greg it's a combination so let's cost and capacity right. So it's cool.
Perfect Yeah.
And then just and then just one other one for me I mean <unk> you touched on it in your prepared remarks about you know China's new plan and Indians New plan.
One of the things that work started hearing and maybe maybe it's some hope make maybe it's it's.
It's fear around potential supply.
Supply shortages, just if you get the China is is able to really push through this they're they're kind of ramp and wind and I'm just kind of curious you know maybe it's only been like a month now so it's kind of hard for you guys to think about what needs to happen now, but just you know bigger picture.
Do you think that's a fair statement that that kind of the industry as a whole and if a country like China or India really besides turn it on could that create some real strain on the supply of anything from wind blades or whatever else needs to go into windmills.
It's been sort of the the evil that popped up in the past obviously this you're not as many and you're seeing the fruits of that.
With the EBITDA and the cash flow, but you know as you look out to next year I know, you're not giving guidance at this point, but do you have any visibility into plant transitions or not not at this point.
Yes, certain certainly we do we don't have perfect visibility yet we're still working with our customers on what their ultimate product plans are really more towards the end of next year and then into 2022. So that's still being worked with our customers, but and we're in the process of some transitions right now that really began in the fourth quarter that.
We'll move into into the early first quarter. So we have reasonable visibility it's probably.
Anywhere from mid to mid single digits to maybe low double digits is kind of what were thinking right now.
But we'll firm that up when we give guidance in.
With our fourth quarter call, but in that neighborhood.
Got it thats good to hear.
And then two other quick ones one you highlighted at the top of the call. The two new folks on the board with Aerospace experience can you talk about what the pipeline is for TPS aerospace there's been a lot of focus on easy but.
But.
Now if the board additions I assume you're seeing something.
No not necessarily I mean, we we talked a couple of years ago about transportation Arrow and when we haven't.
We haven't spent a lot of time on the Aero side at this point, but really what.
The avant and lend to bring to US is you don't lend has got great global manufacturing experience in global ops in Bonn has obviously been with Boeing has not only the aerospace but great kind.
Kind of the financial expertise from a global standpoint, and risk management. So it wasn't specifically for the arrow, but it was the the overall operations and other experiences that they bring to the board.
Got it and then the last question I had was just on the offshore side is there any activity or thoughts about that space given everything going on in the east coast of the U.S. and your potential role there.
Yes, that's still obviously something that we're very we're very interested in and in discussions with multiple parties on that so.
Yes, that's that's certainly in our and our longer term plans as we've talked about before.
Revenue from those from those deals are probably not till 23 24 timeframe. When you look at kind of what the planning cycle is for for a lot of those offshore deals could come a little quicker than that and APAC.
Yes, we're actively engaged in discussions around offshore and that certainly in our long term plans.
Got it that's all I had thank you.
Great. Thanks, Jeff good talking to you.
Our next question comes from.
Joe Osha wed Jane and Pete. Please proceed with your question.
Hey, this is actually Hilary on say, Jonathan Thanks for taking my questions Tonight.
I had Q4, yet that's kind of on the transportation side of the business and first I was hoping you could kind of speak to building up to that $500 million revenue target. You guys have said just kind of what opportunities you see out there in kind of the most interesting and timing for that revenue ramp and then second.
We as you continue to ramp the volume for the TV production.
Just kind of wondering if you could speak to the margin you expect to realize on that piece of the business. As you continue to work to drive down costs and that's all I have thank you.
Thanks, Hilary on the overall transportation I mean, there are a lot of segments that are very interesting.
And there was a lot of compelling value propositions for composites in those segments.
Last last mile delivery clearly is a very interesting segment for us and we think.
Good afternoon, guys how are you.
Hi, Mike how are you.
Good good I'm going to follow up on a I guess a couple of topics very came up.
I guess first around transitions and and maybe just within the context of you know having moved to more of a kind of a.
Ah I guess in the long term utilization guide I'm. Just curious can you maybe you put a range or maybe a tighter range around.
How that utilization like that long term guide is it of around 80%, how should that trend or what kind of realistic range should we expect for that over the next couple of quarters kind of giving a given kind of the and.
Kind of the movement in some of the those transitions just I know you're not going to and you can't get into too. Many details I'm just looking for to turn to tighten up the modeling on it a little bit in terms of how to think about what's a realistic floor and ceiling for them in a couple of quarters.
Yeah. So if you look at Q4, I mean, we're estimating utilization of around 90% on that quarter, and then going out.
Early next year I mean, we'll give you more information when we give guidance, but I think that 80% still hold of kind of what we're thinking when you look at kind of the total transitions of the startup and what we're looking at there as we see it right now and what Weve contracted so I think that model that we gave still holds I mean, we will suit against higher utilization here or as we finish.
Throughout the year and then from there more to come as we give guidance in early February Yeah, and I think if you think about Q1.
We'll be starting two new lines will be in transition and if you then when you start up a line that kind of really impacts the utilization because we look at that.
In the in the denominator in the yeah that denominator, if you will as a full year of production so you'll see that impact Q1.
But probably I was right in that neighborhood.
Yeah, that's the spread definitely got our attention just trying to tighten up on all fronts and appreciate that in terms of just the loop back on transportation any interesting to talk to the path to 500 million I'm. Just curious has the timeframe changed at all from from when you guys first started talking about that today in terms of maybe picking up pace and it begins.
They're a bit quicker than you would have originally thought just given that the acceleration in energy transition.
No I I don't think that pace I mean, there are a lot of opportunities. We're looking at and there's a lot of activity in the market I think to build to that to that revenue level takes time. When you think about how long. It takes the development programs for automotive platforms. It takes a while so I don't think aren't timeframe looking out three to five years.
Here's how it has changed.
But there are a lot of opportunities out there right now that that we're obviously looking at it's just a matter like a set of closing and getting into production, but that does take time.
In terms of the mix of potential customers to get to that level, if you're kind of I think your rep four or five now in terms of I guess the scale of the potential customers out there has that changed I guess it would that feature mix would look like has that changed at all.
Oh, not significantly I mean, I think in the past we've talked about five to 10 customers a $50 million to $100 million a year type run rates and I think that's still a reasonable rate.
A reasonable benchmark.
Got you okay.
Just one more in and forgive me I'm, probably going to be backing into a number you probably spelled out somewhere and I just missed it but if I just look at the backlog I know you guys referenced on slide eight now it looks like there was and just compare year over year lets say about ballpark 300 million that ran off which is actually in thought well inside of the revenue you guys mechanism.
And I was in the quarter is there did you were you guys able to add a handful of long term contracts in that mix and if so can you kind of get to give a bit of detail around that.
Sure. So we the the revenue related to the G.E. contract extension as well as an additional line as well as the two new Nortechs lines that we talked about at the in our second quarter call. The revenue related to those was already it. We we had put that in the contract value. When we were had always got word recall.
All right, but so the only the incremental is related to the extent.
Mentioned that we did with best in Turkey Gotcha, Okay, I got it all right. Thank you guys I appreciate the time.
You bet. Thank you.
As I've done my older to register for a question. Please press the one followed by the following your telephone.
Our next question comes from the line fill that hole Roth. Please proceed with your question.
Hi, guys. This is Bob schieffer onto Phillips and congratulations great quarter, how are you guys, though.
Doing great. Thanks.
Okay. Good so.
First question is around the Q4 guide and utilization. So you know it's going to be down sequentially and I'm wondering is that mostly just driven by the lower utilization and then kind of within that is the lower utilization something where you kind of hedging for you know well there could be some.
Kroger disruption.
You know and if everything goes smoothly you could you could be up higher at 93 to 95 or is that really kind of topped by the transitions you mentioned.
Yeah, I think so for Q4, you have transitions to your point. So that's gonna that certainly will impact utilization and then in Q4.
You do have some shutdowns towards the end of the quarter as a result of the holidays. So if you think about you know Mexico. The U.S. some of our other sites. So you generally have a little bit lower utilization in the back half of the first of the fourth quarter. So that's what's driving it.
Okay, Great. That's Super helpful. And then on the transportation or just a non blood cells side.
I kind of just quickly did not figure out what that non glade rather than it is I think last quarter at 25 million and then this quarter it looks like it's down to 16 million.
You know and you say you did well in the service side. So is.
Is that mostly coming from transportation, they do kind of a mistake on the math there could you just talk about that non blood revenue for the quarter.
Yeah for the quarter the non blade revenue when you look at it I mean, its comply comprised of the field services the transportation and some other smaller amounts of other revenue in there some of the mold type revenue. So the decrease quarter over quarter. If that's what you're referring to the Q2 time frame is that what you're looking at.
Yeah that from Q2 to this quarter, yeah, the quarter over quarter decrease so there was a decrease in transportation, but it wasn't necessarily tied to the actual production. It was more of the six so six and some of the items that go through there. So on a looking at the true work, we've done that hasn't really changed quarter over quarter.
Okay ER.
That's fair and then.
The on the you mentioned is that part of the margin improvement.
This quarter was from a decrease in the press release, it says decrease some direct material and savings and raw material costs.
Is that just a reduction in general raw material cost or are you actually kind of providing.
What's the content in the blood.
From second quarter to third quarter can you comment specifically on any sort of changes you'd identify and sort of the market opportunity with some of your big customers and I'm, specifically getting at just Ingram.
Incremental decisions for maybe more outsourced production at the vests and a few other suppliers and I'm wondering if there was anything you'd call out that you you maybe hidden inflection in the quarter or recently or how your maybe more broadly speaking you know the nature of conversations with customers around the expansion of the market opportunity.
No I think discussion slowed down a little bit at the beginning of the <unk> you know at the end of the first quarter, beginning just just because of covid, but those discussions have ramped up and I think the the the amount of discussions and the quality of discussions continues to improve.
So we're looking at multiple opportunities work in continuing to work our pipeline and multiple geography, so I I have not seen.
If anything and I think this is what you're hinting that has there been an acceleration of it I I wouldn't necessarily call. It a significant acceleration, but there is a lot of activity.
And a lot of interest on additional additional.
<unk>, if you will and additional lines for our existing customers.
Okay. That's helpful and if I could just back to the to the off shore discussion I know you highlighted this earlier and it's it's obviously down the road opportunity, but can you just need to be remind us a couple of the sort of a key parameters are benchmarks and that marked it you're gonna be looking for us to win it might become incrementally more interested.
<unk> for you and your customers in terms of of capacity and more commitments to it.
Yeah, it's really around volume can I mean, there's gotta be enough volume for the marketplace and it's got to be we would rather have it be a fairly steady.
Production process, if you will to build a big facility and run for a year and shut down for a year and run for a year doesn't make sense for us Norwood. It makes sense for our customers from a cost standpoint, so it's really about the size of the market so as as more deals get closer.
On the East coast.
Again, once you get to a critical mass of blades.
Blades that need to be built where you can have a productive and efficient facility that makes sense for us and it would also makes sense for customers.
But it's really about volume.
And I'm guessing just on that it's both here, obviously on the east coast, the United States and and in Northern Europe, where where this market you know where where it seems that have the most potential.
Not sure I mean, I think initial initially some of the the early offshore wind farms will likely be supplied from from the from northern Europe, but I think over time, given the size that everybody expects the U S offshore market.
B as well as the desire for jobs and economic activity on the East Coast I think there's gonna be a fair amount of of of incentive both economic and otherwise to actually have those facilities be in the U S or near the near the U S. So.
So I think again and that's a volume issue so with lower volume it makes sense to bring him from an existing plant in northern Europe, Leinster volumes get to where we believe that market goes and it makes sense to localize that manufacturing capacity.
Great. Thank you very much.
Thanks again.
I'm gonna be Mad at you and I just that's all the questions.
Oh please.
Followed by this for.
Oh yeah.
That question at this time I turn the call back up again.
Thank you very much and thank you all for your interest in TPI and look forward to our next discussion. Thank you.
And that does conclude the conflict conflict and we thank you for your participation.
Okay.
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Good afternoon, and welcome to PPI composites third quarter Twentytwenty earnings Conference call.
Today's call is being recorded and we've allocated one hour for prepared remarks and couponing.
At this time I'd like to turn the conference over to Christian even Investor Relations for T.I. conferences. Thank you you may begin.
Thank you operator, I'd like to welcome everyone to TPS composites, <unk> third 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 dot TPS.
Posits dotcom.
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 Cyvek TPS composite president.
And CEO.
Thanks, Christian and good afternoon, everyone. Thank you for joining our call. In addition to Krish and I am joined today by Bryan Schumaker, our CFO Bob.
I'll briefly review, our third quarter results and activities discuss the current operational status of our manufacturing facilities, including our supply chain give a quick update on our global service and transportation business and then touch on the wind energy market [laughter], Brian will then review our financial results in detail and then we will open up the call for today. Please.
Turning to slide five.
We had a very strong third quarter in which we delivered net sales of just over $474 million at 23.5% increase over Q3 of 2019, and adjusted EBITDA of $49.1 million or 10.4% of net sales notwithstanding the estimated impact of COVID-19 on adjusted EBITDA during the quarter.
Year of approximately $8 million during the quarter, we announced that we extended two supply agreements with GE one in Newton, Iowa 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.
His wind turbine technologies in North America.
We also announced that we signed a multiyear agreement with Nord ex for two manufacturing lines in our Chennai, India facility with the plant started production in the first quarter of 2021.
Additionally, we extended our best disagreement in Turkey during the quarter finally, we announced that Linda Hudson and Beavan Holloway were appointed to our board of directors lenders, the former president and CEO of be systems prior to be a she held various executive positions with general dynamics, Lockheed Martin Martin Marietta and.
Forward Aerospace Linda also sits on the board of Directors of Bank of America, and training technologies and brings a wealth of global operating experience to our book to our board.
Ivano as the former Vice President of audit at the Boeing company prior to Boeing to work for KPMG as a partner and another roles, primarily serving investment services broker dealer and financial clients Avant brings broad global finance.
An additional audit and risk management experience to our board. We're all very excited that Linda in the avant agreed to join the TCPA Board. Please turn to slide six we remain committed to operating our business safely while working to mitigate the impacts of COVID-19, and ensuring that we are prepared to deal with the resurgence of the virus, we are seeing and.
Many countries around the world, we have and will continue to adapt our operating procedures to enable our associates to work safely and continue to meet the strong demand we see around the globe.
We also continue to drive the operational imperatives, we outlined at the beginning beginning of the year to reduce costs and improve our operations globally and are making very good progress on these imperatives notwithstanding the challenges created by COVID-19.
Turning to slide seven I will now give you a quick update of our global operations as well as a market update before turning it over to Brian for a financial update.
During the third quarter, we operated at or above capacity and all of our facilities for most of the quarter as you may recall, our plants in Mexico, we're still ramping to full capacity at the end of the second quarter and since the end of July have been operating near or above our normal capacity in China, we still expect to deliver more volume than our original.
2020 plan as production continues uninterrupted in India, We're moving full speed ahead with the ramp of the facility and we are preparing to start up two lines for Nord acts in early 2021.
In Turkey production is that a full pace with the exception of the transition of lines for investors to their state of the art. The 162 blade as part of the extension of that contract as most of you are probably aware. There was also a 7.0 magnitude earthquake off the coast of Izmir last Friday, all of our associates and Turkey are safe.
And neither of our plants in Izmir suffered any structural damage production was temporarily shut down while we had structural inspections completed and we then resumed operations on Saturday afternoon. There has also been a resurgence of COVID-19 cases in the Izmir area. So we are watching that closely to ensure it does not disrupt our operations.
As I mentioned earlier in Mexico, we are operating all plants at or above normal capacity, while continuing to closely monitor our plants and war as given the resurgence of coated in that community. We've also expanded the production of electric vehicle components in Mexico to increase our capacity and drive down costs in the US production has continued.
Uninterrupted.
On the service side of the business, we have made very nice progress over the last couple of quarters, securing new deals with Oems as well as with asset owners and are working hard to build out our global service team to execute our growth strategy.
On the clean transportation side of the business. We continued with the production of Proterra buses were of course delivery vehicles and production parts for an automotive platform, while continuing to work on a number of confidential development agreements.
Our focus remains on refining and executing our strategy to build this into a meaningful business overtime.
With respect to our supply chain as we mentioned during our last call. The raw material market is now essentially back to pre COVID-19 levels and we don't expect any further supply issues at this time, including balsa core barring any disruptions from another significant wave of COVID-19, as we've discussed in the past we will continue to evaluate our.
Supply chain and diversified geographically to reduce risk provide for security of key materials and ultimately drive down cost.
As it relates to the wind market, we expect the long term trend for wind energy to continue to strengthen based on the current cost of wind energy continued efforts to drive down costs and strengthening of political will around the world to affect climate change in the us while the production tax credit is set to expire at the end of 2020.
Utilities are planning for expanded renewables due to the unsubsidized cost competitiveness of wind.
Commercial and industrial demand and more state renewable portfolio targets for example, New York with targets of 70% by 2030, and 100% by 2040 in California, 60% by 2030 and 100% by 2045.
In Europe, the support for the European Green deal is strengthening and just last month, the European Parliament voted to cut emissions beyond the original target in the European Green deal to 60% by 2030 compared to 1990 levels. The European Council is expected to make a final decision in December and September China announced the committee.
And to reach carbon neutrality by 2060 and at the Beijing When show in October the wind industry pledged to provide more than 50 gigawatts of wind per year in China through 2025, and 60 Gigawatts per year thereafter in India Prime Minister Modi has committed to increase its renewable energy capacity to 450 gigawatts by.
2030, and has committed to 40% non fossil fuel energy by 2030 as part of the Paris agreement. These are a few examples of the accelerating energy transition we are seeing on a global basis. According to Bloomberg any EPS 2020, new energy outlook climate scenario to meet a well below two degree emissions.
The area, which is the key aim of the Paris agreement over 11, Terawatts of onshore and one terawatt of offshore wind would need to be installed by 2015. This represents about three times more than the economic transition scenario or their base case under the climate scenario, one would represent 45% of global electricity into.
50.
Back to the economics of wind. According to Lazard is levelized cost of energy analysis version 14.0, the unsubsidized Levelized cost of energy of the most competitive new wind projects is equal to or lower than the marginal cost of operating existing combined cycle natural gas nuclear and coal plants. Furthermore.
These scale wind LCL, we remains at or below that of utility scale solar on an unsubsidized basis, and the best location significantly cheaper on a subsidized basis utility scale wind LCL, we has been reduced by 71% since 2009, According to Lazard and we in the industry are working hard to continue to drive.
We'll see OE down and keep windows, the most cost effective source of new energy generation.
We believe the future for wind energy will continue to strengthen given some of the recent initiatives and goals to promote the acceleration of an energy transition that I. Just noted however, our current long term goals that we have discussed publicly including 18 gigawatts of capacity, 20% market share in $2 billion of wind revenue are based on older and more conservative.
Industry forecasts that do not factor in these new initiatives and goals stay tuned as we will review and update our long term goals in light of these new initiatives, including the optimization of our global footprint.
Turning to slide eight we now have a total potential contract value of up to approximately 5.1 billion through 2024, and the minimum guaranteed volume under our supply agreements is 2.9 billion. This is a net decrease from 5.4 billion and no net change from $2.9 billion from last quarter as a.
Relative extending existing contracts offset by third quarter sales.
Potential and minimum contract values do not include the two lines in China that we are operating under a short term contract. This year, nor does it nor does it include the impact from some of the anticipated new larger blade models that we expect to produce after the anticipated 2021 transitions or additional contract extensions.
All the health and safety of our associates remains our primary objective we remain focused on our operating imperatives, including the integration of our key SG activities to drive profitable growth and long term shareholder value with that let me turn the call over to Brian.
Thanks, Bill Please turn to slide 10.
All comparisons made today will be on a year over year basis compared to the same period in 2019.
For the third quarter, ending September Thirtyth, 2020, net sales increased by $90.3 million or 23.5% to $474.1 million.
Net sales of wind blades increased by 27.8% to 450.1 million.
The increase was primarily driven by a 20% increase in the number of wind blades produced year over year, largely as a result of increased production at our China, Mexico, Iowa in India facilities.
We estimate that our net sales were adversely impacted by approximately 8 million based upon when blade sets, which we had forecasted to produce in the period under noncancelable purchase orders associated with our long term contracts, but were unable to do so as a result of code 90 store.
Startup and transition costs for the quarter decreased by $13.6 million to $8.6 million.
Our general and administrative expenses for the quarter decreased by 1.3 million to $9.3 million.
DNA as a percentage of net sales decreased 80 basis points to 2% 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 1.5% and 2.3% in Q3 of 2020 and 2019, respectively.
During the quarter, we were impacted by a realized loss on foreign currency remeasurement of $17.1 million, primarily due to net euro liability exposure against the Turkish lira.
On a cash flow basis. This exposure is naturally hedged due to our euro denominated revenue contracts approximately 15% of our revenue in Q3 was denominated in euros.
Our income tax benefit for the quarter was 32.3 million as compared to an income tax provision of $18.8 million for the same period in 2019.
The Q3 benefit was in line with our expectations the.
The Q3 benefit offset some of the impact we saw in Q2 as a result of applying a forecasted annual effective tax rate to a quarter that was significantly impacted by losses in several jurisdictions due to COVID-19.
We are forecasting our cash taxes to be approximately $20 million for the year.
Net income for the quarter was $42.4 million as compared to net loss of 4.6 million in the same period in 2019. This.
This increase was primarily due to the reasons described above in addition, we estimate that net income was adversely impacted by approximately $6 million associated with the production volume loss under noncancelable purchase orders due to the reduced production along with other cost primarily related to the health and safety of our associates and non productive way.
Labour associated with Cobot 90.
Net income per diluted share was $1.13 for the quarter compared to a net loss of 13 cents per share for the same period in 2019.
We estimate that adjusted EBITDA was negatively impacted by approximately $8 million associated with the production volume loss along with other costs related to COVID-19 that impacted our production facilities. However, even with the impact of COVID-19 on our facilities, we were able to achieve a 93% utilization rate the strong utilization.
In addition in Q3 led us to an adjusted EBITDA of 49.1 million and adjusted EBITDA margin of 10.4%.
This compares to an adjusted EBITDA of $27.5 million and an adjusted EBITDA margin of 7.2% in the same period in 2019.
Moving to slide 11.
We ended the quarter with 149.4 million of cash and cash equivalents total principal amount of debt outstanding of 238.7 million and net debt of $89.3 million compared to net debt of $142.5 million as of the end of Q2 2020.
For the quarter, we provided $60.9 million of cash from operating activities and free cash flow of 49.5 million.
With our strong performance during the quarter and continued focus on our cash conversion cycle, we were able to drive our total net leverage ratio down from 3.1 times in Q2 to 2.2 times in Q3 as calculated under our CE senior revolving facility. This.
This created significant cushion on our debt covenants.
Turning to slide 12.
Guidance for Q4 2020.
We are guiding to revenue of between 200 435 million to $455 million utilization of approximately 90% and adjusted EBITDA of between $36 million and 46 million.
These numbers could be impacted by COVID-19, due to the rapid evolving nature magnitude and duration of the Cobi 19 pandemic.
A variety of measures implemented by governments around the world to address its effect and the impact on our manufacturing operations although.
Although our plans are currently operating at or above planned capacity. Many of our manufacturing facilities are operating in regions with continued high levels of reported COVID-19 positive cases.
As such we may be required to reinstate temporary production suspension or volume reductions at our manufacturing facilities to the extent there is a resurgence of COVID-19 cases in the region, where we operate or there may is an outbreak of positive COVID-19 cases in any of our manufacturing facilities.
To ensure that health and safety of our associates, we will continue to incur approximately $5 million of COVID-19 related costs on a quarterly basis until there is better treatments options or.
An effective vaccine for Cobi 90.
We plan to provide formal 2021 guidance during our Q4 2020 call in February 21.
With that I will turn it back over to Bill to 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 remain our number one priority we continue to take the necessary as well as proactive steps on the COVID-19 front to ensure the.
The safety of our associates and safe working conditions in our facilities. We continue to work our wind pipeline and we are pleased that we were able to add more capacity for nordson GE extend to existing agreements with GE as well as extending our contract with best Us and Turkey.
Impact of these additions and extensions was to increase our potential contract value by approximately $950 million.
We are also very encouraged by the progress we continue to make in the service space and look forward to this being an increasingly important part of our overall strategy and wind we are continuing to build on our momentum in the transportation space and we'll continue to refine our long term strategy to capitalize on the increased interest investment and activity in the.
Electric vehicle space, we continue to remain focused on managing our liquidity to provide financial security and to emerge stronger as we drive through the current environment.
Our overall mission remains unchanged as of today, establishing 18 gigawatts of global wind, but capacity to drive $2 billion of Angelo wind revenue reached $500 million of annual transportation revenue overtime and achieved double digit adjusted EBITDA levels, we will continue to optimize our global footprint, while using the leverage our glow.
Able scale provides for operating and supply chain efficiencies to continue to drive down costs, all while maintaining a strong balance sheet as I mentioned earlier. These goals are based on older and more conservative industry forecasts that do not factor in the acceleration of the energy transition, we will continue to evaluate the global demand and update our.
Long term targets accordingly to better reflect the opportunity we expect to see in wind long term under this accelerated energy transition movement I.
I want to thank all of our dedicated team associates for their commitment to our mission to de Carbonize, an electrified we're confident we will emerge stronger from the current environment and we remain energized with our multiyear game plan. Thank you again for your time today and with that operator. Please open the line for questions.
Thank you.
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One moment please for our first question.
And our first question comes from the line of Laura Sanchez with Morgan Stanley. Please proceed.
Hi, Don Brian can you hear me okay.
Hi area, just fine thanks, Laura you're doing from thanks, Hi, Congrats on the strong quarter.
So.
I know that chances of a blood sleep Rx modern woman ready in the event that biden wins, the presidency and he's clean energy plan moving forward can you discuss the implications of the made in America requirement I know, it's very early to tell how that would look like but wondering if you could comment on moving pieces.
In regards to how quick PPI would be able to accommodate that.
Yes. Thanks for the question, Laura I think thats, a little bit difficult to answer at this point in time, because there's not a lot of detail behind the plan. So he's got the made in America in an offshore and.
Tax as well so we.
We've looked at what's out there and it's a little bit early yet to describe what the impact might be but again, we have manufacturing capacity here in the us and depending on what that means it could mean additional capacity over time, depending on demand and and what those all but those.
Provisions might ultimate ultimately be if they come into the come into fruition, but it's a little early to tell right now what the impact may or may not be.
Yes, that's fair to say that in next given the higher volumes, we would expect both lender placed in us with clean energy agenda to be positive for today.
Yes. Thank you know has aspirations are are pretty significant and.
De carbonization goals and transmission infrastructure investment et cetera.
But clearly be would be very favorable for renewables over the long term without a doubt.
Okay, Alright, and then maybe one last question.
Looking at your margin targets.
Hi to 12% EBITDA margin or double digit EBIT.
The margin so we reach that level while.
In construction of the new facility or is a 12% dependent on on the further on the current geographical rational.
Our footprint.
Yes.
Yes, no I mean, we'll continue to drive it down if you look at the performance of some of our plan says I mean, we see that margin at or above that in several of our plants and we're going to continue to drive that across the board. So it doesnt necessarily mean all of them have to be and you can have any startup as we continue to drive down cost and look at other things speeding up transitions and just cutting costs.
Status startups, that's where we see us achieving a 12% margin that we put out there is a long term target and if you'll recall one when we put that target now we talked about an 80% utilization. So that does anticipate transitions and startups, while still generating double digit double digit EBITDA and as Brian has said we have we have gone through.
Transitions in our more mature plants and demonstrated EBITDA levels at the plant level well above that that's why we're confident in that number.
Understood. Thank you so much and congrats again.
Thank you thanks for your questions.
Our next question comes from the line of Eric Sockol with Craig Hallum. Please proceed.
Hi, Brian Aaron Spychalla on for Eric Stine, Thanks for taking the questions.
Hey, Aaron.
Hi.
Maybe first on the loss production last quarter.
Can you just kind of quantify what was made up in the third quarter and what remains to be made out there I think you kind of called out and then 8 million dollar impact as well in the third quarter. So can you just kind of ask where those up roughly.
Yes, we're looking at I mean, we're looking at the total revenue that's going to be made up not necessarily the lost production as we spoke about some of the transitions we are getting pushed out too and not just because a covert for other reasons and that's how we're looking at on a total revenue number making up for lost production or the total revenue amount, we forecasted in our original guidance.
As far as quantifying the Meda, we had some impact this quarter lot of that had to do to delays and shutdowns in Q2 associated with India in just the slowing of the ramp and the delay of that and now thats getting back on track throughout Q3 and into Q4.
Okay. Thanks, and then on the field services business.
Can you kind of talk about how.
How you are building out there with the pipeline looking like and how big that can become over the next couple of years and any investment that might be there.
Yes, so we've made a lot of really nice progress so far on.
Securing.
Arrangements with some of the Oems that we build blades for as well as some third parties.
We're not going to give specific dollars on it right now we may give some a little bit more specificity. When we give 2021 guidance, but suffice it to say that we look at this business as fairly high growth opportunity.
Higher margin.
Business than than our traditional blade business.
So we expect it to become fairly significant part of the overall the overall picture overtime.
We will try to give you a little bit more specificity. When we talk in 2021, but at this point to suffice to say that we're really pleased with the progress we've made and what we've got from a backlog standpoint and pipeline moving into 2021.
Understood. Okay. Thanks for the color I'll hop back in queue.
Great. Thanks Aaron.
Our next question comes from the line of Greg Lewis with Pete lead PLP. Please proceed.
Yes. Thank you. Thank you and good afternoon good evening.
I guess I want it to.
You kind of mentioned on them a little bit on the transportation side, but the decision to kind of go into Mexico.
Just looking through the Q real quick it looks like you generate the little bit of revenue and Mexico could you just talk about I guess at this point about the decision.
Realizing that it's still early days and.
And you guys building out transportation.
The thoughts around their decisions to move into Mexico.
Yes. So this we had we moved some of the man it's not all of the manufacturing is just some of the components that were manufacturing in Mexico. So it's still gets assembled in the us.
But it makes sense because what we do is still pretty labor intensive and to the extent, we can reduce labor cost that does that's a plus for our customer and for our customers customer much like in the wind business.
So it's not the whole operation hasn't moved there we still have a pretty sizable operation in Rhode Island that is that is the feeling quite frankly with most of our transportation transportation business today, but there are components of it that we move to Mexico for efficiency and cost reasons.
Okay. So okay. So it wasn't it wasn't really about just seeing an acceleration in growth. It was more just okay. Okay.
And then and then just the comment Nick Hey, Hey, Greg It's a combination so its cost and capacity right. So.
So its going.
Perfect Yeah.
And then just and then just one other one for me I mean, you touched on it in your prepared remarks about you know China's new plan at India's New plan, yes.
One of the things that work started hearing and maybe maybe it's some hope may maybe it's it's fear around.
Around potential supply with just supply shortages, just if China is able to really push through this.
Yes, they are kind of ramp in wind and I'm just kind of curious maybe it's only been like a month now so it's kind of hard for you guys to think about what needs to happen now, but just bigger picture do you think that's a fair statement that that kind of the industry as a whole and if a country.
We like China, and or India, or really provides current and on could that create some real strain on the supply of anything from a wind blades or whatever else and that go into when mills.
Yes, I think if it happened overnight certainly.
It'll it'll take a little time to ramp those levels. So that gives our suppliers the opportunity to ramp their capacities as well.
We've talked in the past about diversifying our supply chain.
Localizing in many respects.
And really de risking it to any one geography, so I think our plan to do that which we started a number of years ago, and we will continue to do well help to alleviate what could be some some capacity constraints, maybe in China, if they get to those levels, but again there are some there will be time for for suppliers to ramp.
But again, if you look at not just China, but the whole. The if you look at where wind could go over time when you look at some of these new.
New models with the energy transition our supply chain as well as we are going to have to ramp to be able to to meet that demand. So.
Could there be some bottlenecks in the short term one that happened certainly, but it will all work to make sure we get through those and we hit and make sure that we have adequate suppliers around the globe to meet our demand.
Okay perfect. Thank you very much.
Yep. Thanks, Rick.
Our next question comes from the line of Jeff Osborne with Cowen.
Well. Please proceed.
Yes, thanks for taking the questions a couple on my end, if you don't mind Bill.
One I was wondering what level of visibility you have into next year as it relates to transitions that's been sort of the the evil that popped up in the past obviously this year not as many of you are seeing the fruits of that.
With with the EBITDA and the cash flow, but as you look out to next year I know, you're not giving guidance at this point, but do you have any visibility into plant transitions or not not at this point.
Yes, Sir certainly we do we don't have perfect visibility yet we're still working with our customers on what their ultimate product plans are really more towards the end of next year and then into 2022, So thats still being worked with our customers, but and we're in the process of some transitions right now that really began in the fourth quarter.
We'll move into into the early first quarter. So we have reasonable visibility it's probably.
Anywhere from mid to mid single digits to maybe low double digits is kind of what were thinking right now.
But we'll firm that up when we give guidance in that.
With our fourth quarter call, but in that neighborhood.
Got it thats good to hear.
And then two other quick ones one you highlighted at the top of the call. The two new folks on the board with Aerospace experience can you talk about what the pipeline is for TPS Aerospace has been a lot of focus on TV, but.
But now with the board additions I assume you're seeing something.
No not necessarily I mean, we we talked a couple of years ago about transportation Arrow and when we havent.
We haven't spent a lot of time on the Aero side at this point, but really what what the avant and lend to bring to US is lenders got great global manufacturing experience in global ops in Bonn has obviously being with Boeing has not only the aerospace, but great kind of the financial expertise from a global.
Standpoint in risk management, so it wasn't specifically for the arrow, but it was the the overall operations and other experiences that they bring to the board.
Got it and then the last question I had was just on the offshore side is there any activity or thoughts about that space given everything going on in the east coast to the U.S. and your potential role there.
Yes, Thats still obviously something that we're very we're very interested in and in discussions with multiple parties on that so.
Yes, that's that's certainly in our in our longer term plans as we've talked about before.
Revenue from those from those deals are probably not till 23 24 time frame. When you look at kind of what the planning cycle is for for a lot of those offshore deals could come a little quicker than that and APAC, but yes, we're actively engaged in discussions around offshore and that certainly in our long term plans.
Got it that's all I had thank you.
Great. Thanks, Jeff good talking to you.
Our next question comes from the line of Joe Osha jail and Pete. Please proceed with your question.
This is actually Hilary on say again, thanks for taking my questions Tonight.
I had two thats kind of on the transportation side of the business and first I was hoping you could kind of speak to building up to that $500 million revenue target. You guys have said just kind of what opportunities you see out there in kind most interesting and timing for that revenue ramp and then second.
Lee I think.
Continue to ramp the volume for that the production just kind of wondering if you could speak to the margin you expect to realize on that piece of the business. As you continue to write checks driving down cost and that's all I have thank you.
Thanks, Hilary on the overall transportation I mean, there are a lot of segments that are very interesting.
And there is a lot of compelling value propositions for composites in those segments.
Last last mile delivery clearly is a very interesting segment for us and we think.
With a lot of the work we've already done and that we're continuing to do we can drive some pretty pretty unique value propositions. There from both an economic standpoint, and a lot and a total cost of ownership so upfront economics as well as total cost of ownership I should say the class eight spaces interesting you've seen a lot of activity there.
We've we've been working on a development agreement with.
With Navistar and that's gone very well.
So there are many other opportunities in that space that we're exploring and then of course, you look at the automotive space with with the you know.
The production work that we're doing right now again the margins on that to be determined depending on volumes, but I would expect the margins to be double digits on those at least initially.
But again, it's a little early and building up to kind of the ultimate level.
Level of revenue on that there's just a lot of opportunities that we are working on right. Now. So that's why we're still confident long term that.
Revenue is there it's just a matter of executing on a couple of the deals we're working on and then and then getting them into production.
Great. Thank you.
Thanks Taylor thanks.
Our next question comes from the line of Michael Webber with Webber Rad. Please proceed with your question.
Hey, good afternoon, guys how are you.
Hey, Mike how are you.
Good good I'm going to follow up on I guess.
A couple of topics very came up.
I guess first around.
Transitions.
And maybe just within the context of having moved to more of a kind of.
I guess, the long term utilization guide.
I'm just curious can you maybe can you put a range or maybe a tighter range around.
How that utilization, but long term guide is that of around 80%, how should that trend or what kind of realistic range should we expect for that.
Over the next couple of quarters kind of giving given kind of the.
You kind of the movement in some of those transitions just I know you are not going to and I know you can't get into too. Many details just looking for to turn to tighten up the modeling on a little bit in terms of how to think about what's a realistic floor and ceiling for them in a couple of quarters.
Yes. So if you look at Q4, I mean, we're estimating utilization of around 90% on that quarter, and then going out early.
Early next year I mean, we'll give you more information when we give guidance, but I think that 80% still holds of kind of what we're thinking when you look at kind of the total transitions and startup and what we're looking at there as we see it right now and what Weve contracted so I think that model that we gave still holds I mean, we will see against higher utilization hearing, whereas we finished.
Up the year and then from there more to come as we give guidance in early February yes, I think if you think about Q1.
We will be starting to enter the lines will be in transition and if you then when you start up a line that kind of really impacts the utilization because we look at that.
In the in the denominator in the yeah that denominator, if you will as a full year of production so you'll see that impact Q1.
But Brian is right in that neighborhood.
Yeah, that's the spread definitely got our attention just trying to tighten it up on our incentive to appreciate that.
In terms of just to look back on transportation any just seem to talk to the path to 500 million Im just curious has the timeframe changed at all from from when you guys first started talking about that today in terms of maybe picking up pace, maybe getting there a bit quicker than you would have originally thought just given the acceleration and as you transition.
No I don't think the pace I mean, there are a lot of opportunities. We're looking at and there's a lot of activity in the market I think to build to that to that revenue level takes time. When you think about how long. It takes the development programs for automotive platforms takes a while so I don't think aren't timeframe looking out three to five years.
Here's how it has changed.
But there are a lot of opportunities out there right now that that we're obviously looking at it's just a matter like a set of closing and getting into production, but that does take time.
In terms of the mix of potential customers to get to that level of your kind of I think your rep four or five now in terms of I guess the scale of the potential customers out there that James I guess it would feature mix would look like if that changed at all.
Not significantly I mean, I think in the past we've talked about five to 10 customers a $50 million to $100 million a year type run.
Run rates and I think thats still a reasonable.
A reasonable benchmark.
Got you okay.
Just one more and forgive me I am probably going to be backing into a number you probably spelled out somewhere and I just missed it but if I just look at the backlog you guys referenced on slide eight now it looks like there was and just compare year over year, let's say it's about.
Ballpark 300 million that ran off which is actually in so well inside of the revenue you guys mechanism recognizing the quarter is there did you were you able to add a handful of long term contracts in that mix and if so can you kind of get to give a bit of detail around that.
Sure. So we see that the revenue related to the GE contract extension as well as an additional line as well as the two new Nortechs lines that we talked about at the in our second quarter call. The revenue related to those was already we have put that in the contract value. When we were had quarter call.
Alright, so the only the incremental as related to the.
Extension that we did with best Us in Turkey Gotcha, Okay, I got it all right. Thank you guys I appreciate the time.
You bet. Thank you.
As I want to thank her to register for a question can you tell us the one followed by the four on your telephone.
Next question comes from the line fill all Roth. Please proceed with your question.
Hi, guys. This is Bob schieffer on fulfilled.
Congratulations great quarter have you guys done.
Doing great. Thanks, thanks, Okay. So.
My first question is around the Q4 guide and the utilization of the so you know it's going to be down sequentially and Im wondering is that mostly just driven by the lower utilization and then kind of within that is the lower utilization something where you're kind of hedging for well there.
Could be some cobra disruption.
If everything goes smoothly you could you could be up higher at 93, or 95 or is that really kind of have to buy the transitions you mentioned.
Yes, I think so for Q4, you have transitions to your point, so thats going to that certainly will impact utilization and then in Q4.
You do have some shutdowns towards the end of the quarter as a result of the holidays. So if you think about Mexico. The us some of our other sites. So you generally have a little bit lower utilization in the back half of the first of the fourth quarter, So thats whats driving it.
Okay, Great that's super helpful.
And then on the transportation are just non blade sales side.
I kind of just quickly did not figure out what that non blade revenue is I think last quarter at $25 million in this quarter. It looks like it's down to $16 million.
Yeah, but you.
You say that while the service side so.
Is that mostly coming from transportation, they do kind of a mistake on the math there.
Can you just talk about that non blood revenue for the quarter.
Yes for the quarter the non blade revenue when you look at it I mean, its comply comprised of the field services the transportation and some other smaller amounts of other revenue in there some of the mold type revenue. So the decrease quarter over quarter, if that's what you're referring to the Q2 timeframe is that what you're looking at.
Yeah. The from Q2 to this quarter you had the quarter over quarter decrease so there was a decrease in transportation, but it wasn't necessarily tied to the actual production. It was more of the six so six and some of the items that go through there. So on a looking at the true work, we've done that hasn't really changed quarter over quarter.
Okay.
That's the end then.
The on the you mentioned is that part of the margin improvement.
This quarter, but from a decrease in the press release, it says decrease some direct material and savings in raw material costs.
Is that just a reduction in general raw material costs or are you actually kind of providing.
What's the content in the blood.
No the content of a blade doesn't change unless were more efficient with what we use and have less way. So it's a combination of less waste and their production process and.
And and just again, leveraging our scale to drive commodity.
Commodity prices down.
So that that's a big part of it but that's a big part of what we're doing with our with our global scale is driving try the raw material costs as much as we can so thats what it is.
So when you say like a decrease in direct material is that you're getting more production out of the same amount of material the purchase.
Left with input to it.
It could be less waste or it could just be driving the unit cost of the same amount of material right.
Okay, 'cause it forgetting that we're getting a better price from our supplier.
Okay. That's fair that's a that's it from me I'll go back in the queue.
Cool Thanks, gentlemen.
Our next question comes from the line of Ken Herbert Please go.
And with Canaccord. Please proceed with your question.
Hey, good afternoon, a billing Brian.
I wanted to ask.
Yeah, Hey, I just wanted to ask about.
From second quarter to third quarter can you comment specifically on any sort of changes you'd identify in sort of the market opportunity with some of your big customers and I'm, specifically getting at just incur.
Incremental decisions for maybe more outsourced production at the fastest and a few other suppliers and I'm wondering if there was anything you'd call out that you maybe hit an inflection in the quarter were recently or how you're maybe more broadly speaking the nature of conversations with customers around the expansion of the market opportunity.
No I think discussions slowed down a little bit at the beginning of the quarter.
End of the first quarter, beginning just just because of cove it but.
Those discussions have ramped up and I think the the the amount of discussions and the quality of discussions continues to improve.
So we're looking at multiple opportunities, we're continuing to work our pipeline in multiple geographies. So I have not seen.
If anything I think this is what you're hinting that has there been an acceleration of it I wouldn't necessarily call. It a significant acceleration, but there is a lot of activity.
And a lot of interest on additional additional.
Geographies, if you will and additional lines for our existing customers.
Okay. That's helpful and if I could I'm just back to the to the offshore discussion I know you highlighted this earlier and it's it's obviously down the road opportunity, but can you just maybe remind us a couple of the.
Sort of the key parameters or benchmarks in that market, you're going to be looking for as to when it might become incrementally more interesting for for you when your customers in terms of capacity and more commitments to it.
Yes, it's really around volume can I mean, there's got to be enough volume.
For the marketplace and it's got to be we would rather have it be a fairly steady.
Production process, if you will to build a big facility and run for a year and shutdown for a year end run for a year doesn't make sense for us nor would it make sense for our customers from a cost standpoint. So it's really about the size of the market. So as you know as more deals get closer.
On the East coast.
Again, once you get to a critical mass of blades that need to be built where you can have a productive and efficient facility that make sense for us than it would also make sense for customers, but it's really about volume.
And I'm guessing just on that it's both here, obviously on the East coast, United States and in Northern Europe, where where this market where it seems it has the most potential.
Not sure I mean, I think initial initially some of the the early offshore wind farms will likely be supplied from from the from northern Europe, but I think overtime given the size that everybody expects the U.S. offshore market to be.
As well as the desire for jobs and economic activity on the East Coast, I think theres going to be a fair amount of incentive both economic and otherwise to actually have those facilities be in the us or near the near the U.S.
So I think again and Thats a volume issue so with lower volume it makes sense to bring them from an existing plant in northern Europe. Once the volumes get to where we believe that market goes and it makes sense to localize that manufacturing capacity.
Great. Thank you very much.
Thanks, Ken.
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Thank you very much and thank you all for your interest in TPS and look forward to our next discussion. Thank you.
And that does conclude the conference call for today, we thank you for your participation.
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