Q2 2022 TPI Composites Inc Earnings Call
Good afternoon, and welcome to TPI composites second quarter 2022 earnings conference call.
Today's call is being recorded.
<unk> allocated one hour for prepared remarks and Q&A at.
At this time I'd like to turn the conference over to Anthony <unk> Investor Relations for TPI composites. Thank you you may begin.
Thank you operator, I would like to welcome everyone to TPI composites second quarter 2022 earnings call, we will be making forward looking statements. During this call that are subject to risks and uncertainties, which could cause actual results to differ materially a detailed discussion of applicable risk is.
<unk> in our latest reports and filings with the Securities and Exchange Commission, which can be found on our website TPI composites dot com.
Today's presentation will include references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definitions information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures with that let me turn the call over to Bill soured CPI.
Composites, President and CEO .
Thanks, Anthony and good afternoon, everyone and thank you for joining our call I'm here with Ryan Miller, our new CFO , Ryan brings with him a wealth of experience spending considerable time in S. P. N a operations Investor Relations and most recently as the CFO of a large division of a multinational aerospace and defense company.
Welcome Brian to the TPI team and I look forward to introducing Ryan to all of you in the coming days and weeks now on to our second quarter results, where I will discuss our global operations, including our service and transportation businesses, then cover our supply chain in the wind energy market more broadly Ryan will then review our financial results and then we will open the call for.
Q&A, please turn to slide five.
We delivered sales of $452 $4 million during the quarter, which was down slightly from the prior year sequentially sales increased 18% over the first quarter as we completed a number of transitions and startups adjusted EBITDA was $10 $3 million, including unanticipated nonrecurring shutdown costs in Iowa and Mexico.
And we generated free cash flow of $19 4 million as a result of tight cost controls and solid execution, including multiple transitions and startups.
As you can see on slide six we have approximately $2 $7 billion of potential wind blade revenue through 2024, you should expect to see our potential wind blade revenue under contract growing again as we close the negotiations to extend production on up to 14 production lines currently under contract through the end of 2022 as well as approximately <unk> <unk>.
20th lines that are under contract through 2023.
Turning to slide seven I'll now give you a quick update of our global operations supply chain as well as the wind market.
During the second quarter, we did not experience any significant production issues from COVID-19, including in China, where Covid cases have moderated since the beginning of June domestic logistics in China had been impacted but thanks to the efforts of our supply chain team. We met our Q2 production targets and continue to deliver blades on time from young Joe as well.
Export raw materials on a timely basis that we still source in China. During the quarter. We continued to make excellent progress on the speed of our startups and transitions, we completed five transitions and startups across China, Mexico, and India, All ahead or on schedule, our plants in China, India, and Turkey, All performed well ahead of plan in Q.
Two and with the exception of our Nordics facility in Matamoros, Mexico operations are performing at or above plan as well our focus on safety quality execution cost savings and the optimization of our manufacturing footprint. During these challenging times, we will enable us to continue to maintain a strong balance sheet and put us in a position for growth.
Once global demand returns.
And our service business, we have further expanded our footprint in Europe with the addition of a branch in France, while continuing to increase operations in the U S. We're on track for 40% to 50% top line growth this year.
We expect transportation revenue to grow by approximately 40% in 2022 based on awarded supply agreements in development programs notwithstanding the supply chain issues plaguing the automotive industry. The transportation business unit continues to deliver strong improvements in operational efficiencies and customer engagement despite certain programs.
Variance reduced volumes in Q2 due to the aforementioned customer supply chain constraints. The development programs continue to validate the potential weight reduction investment efficiency reduce time to market and performance benefits of composite solutions. We anticipate these programs will result in incremental OEM supply agreement.
Starting in 2023 through collaborative development with our commercial vehicle and EV passenger segment customers, we are delivering innovative solutions to enable the electrification of their fleets moving.
Moving onto our supply chain. The situation continues to be challenging we continue to see higher energy prices as well as higher prices on petroleum based feedstocks. During the past year. There were both significant price increases and supply constraints with respect to our policy of resident carbon fiber as well as increases in inbound logistics costs.
We expect carbon fiber and related products supply to remain constrained as demand for carbon continues to outpace capacity additions.
And of carbon products is also very energy intensive and rising energy costs are adversely impacting the cost of carbon materials after already seeing price increases of up to 50% for certain carbon feedstocks during 2021.
Hoxie resin prices continue to see pressure with constrained and high priced petroleum based feedstocks and high energy costs driving some producers in Europe to curtail production high resin prices in Europe , and North America continue to be supported by bullish demand from industries like automotive infrastructure and construction as of today we.
We have secured adequate raw materials for all plant production in 2022, including the raw materials that is controlled by our customers.
Although we expect that the price of carbon fiber and resin will remain at elevated levels in 2022, approximately 60% of the resin resin systems and approximately 90% of carbon fiber. We use is purchased under contracts either controlled are borne by our customers and therefore, these customers receive or bear 100% of any decrease or increase.
Some price.
We are continuing to diversify and derisk our supply chain by qualifying sources in the regions in which we manufacture products to reduce the impact of pilot just fixed costs provide security of supply and build long term strategic partnerships with key suppliers to ensure the best pricing and availability in the short medium and long term other than.
Our production in China, which primarily relies on Chinese suppliers, we have reduced our exposure to China.
For TPI controlled spend to under 6% down from over 20% in 2019.
On to the wind market as we explained on our last earnings call. The war in Ukraine has brought to the forefront the need for energy security and independence, not only in Europe , but across the globe. We applaud the European Commission Swift action by announcing the Repower EU plan in May which is aimed at transform Europe's energy system by adding the ease dependents.
Russian fossil fuels and further addressing the climate crisis and July the EU announced that they are investing over $1 8 billion euros and 17 large scale innovative clean tech projects with an option for 20 additional projects that could be announced later this year, while we won't start to see the benefit immediately we are encouraged by the long.
Term prospects of the European wind market.
In the U S. We are certainly encouraged by the recently proposed inflation reduction act of 2022.
Stability of the act would provide in the U S market and the impact this could have to accelerate demand should it ultimately get signed into law in the meantime, we continue to listen and work with our customers to optimize our footprint to better serve their needs today and be best positioned to serve their needs once demand recovers.
While we recognize the challenges the wind industry faces, we still believe demand for wind energy will strengthen over the long term given the focus on energy security and independence globally, and the necessity to decarbonize and electrify to meet the aggressive goals set to combat climate change.
<unk> remains in a unique position with our global footprint in key strategic geographies, along with collaborative relationships with our suppliers and our customers to grow as the demand for wind begins to accelerate again execution cost control and liquidity are at the forefront of our priorities, while continuing to move forward on multi.
<unk> strategic initiatives to enable TPI to capitalize on the expected long term growth in the wind market, including expanding our global service offerings and leveraging our expertise in blade design, while also expanding our capabilities around logistics and recycling.
With that let me turn the call over to Ryan to review our financial results. Thanks, Bill Please turn to slide nine.
All comparisons made today will be on a year over year basis compared to the same period in 2021 for.
For the second quarter ended June 32022, net sales were $452 4 million compared to $458 8 million in the same period in the prior year net sales of wind blades were $414 million down slightly compared to $418 7 million in the prior year. The decrease in wind blade sales was primarily driven by a 7% decrease in the number of wind.
<unk> produced due to a reduction in manufacturing lines transitions of existing lines and currency fluctuations, which were partially offset by a higher average sales price due to the mix of wind blade models produced.
Nope that estimated megawatts generated from our blade production increased about 3% over the prior year due to over 3400 megawatts notwithstanding the reduction in lines and blade volume.
Net loss for preferred stock dividends in accretion improved from a loss of $39 8 million in the second quarter of 2021 to a loss of $5 5 million in the second quarter of 2022.
$14 6 million of preferred stock dividends in accretion net loss attributed to common stockholders for the quarter was $20 1 million compared to a net loss of $39 8 million in the same period in 2021.
This improvement was due primarily to a $22 $1 million decrease in income tax expense and $16 4 million of favorable foreign currency changes, partially offset by the increase in preferred stock dividends and accretion as well as approximately 8 million of non restructuring related operating costs that were associated with certain manufacturing facilities in Newton, Iowa on China, and where it's at.
Mexico, where production stopped.
Our adjusted EBITDA in Q2 was $10 3 million or two 3% of sales compared to $17 4 million or three 8% of sales in the same period in 2021. The decrease was primarily due to the non restructuring related operating costs associated with the three manufacturing facilities where production to stop.
Now moving on to Slide 10, we ended the quarter with $155 million of unrestricted cash and cash equivalents of $62 $3 million of debt.
While our free cash flow for the six months ended June 32022 was a net use of cash of $67 1 million, we had a good second quarter and generated $19 4 million of free cash flow.
During the quarter, we continued our focus on tight cost controls managing working capital and constraining capital expenditures.
Current environment continues to be challenging across the wind market as we balanced certain customers trying to stretch payment terms, while at the same time, ensuring we have a healthy supply chain as we move forward. We are acutely focused on our cash position and ensuring we're able to not only efficiently sustained operations, but also capitalize on their coverage of the wind market. When the time comes back to you Bill.
Thanks, Brian turning to slide 11, as we look forward to the rest of the year, we expect Q3 sales and adjusted EBITDA on a billings basis to be higher than Q2, as we anticipate higher volume will drive improved utilization.
We have updated our formal guidance for Capex for 2022 to $15 million to $20 million down from $25 million to $30 million other than that our guidance has not changed we are still not providing GAAP revenue or adjusted EBITDA guidance, given current market volatility potential impacts under ASC 606 related to future contract modifications or.
Actions and corresponding changes to our long term volume, which cannot be forecast with certainty at this time. Please.
Please turn to slide 13 to.
To close we remain focused on managing our business through near term challenges in the industry and our efforts to position <unk> as the preferred global solution provider to our customers and their customers to enable profitable execution and growth in the future I want to thank all of our TPI associates once again for their commitment dedication and loyalty to TPI.
And our mission to Decarbonize and electrify I'll now turn it back to the operator to open the call for questions.
Thank you and at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment.
It would be it may be necessary to pick up your handset before pressing the star keys one.
One moment, please while we poll for questions.
Our first question comes from the line of Justin Clare with Roth Capital Partners. Please proceed with your question.
Hey, guys. Thanks for taking our questions here.
Yeah.
So I guess first off you mentioned that you expect your potential revenue under contract to grow here as you are close on some negotiations.
Wondering if you could maybe provide a little bit more color on the timing of the contract extensions and then you mentioned contracts that are coming to an end at the in 2022 and 'twenty 'twenty three could you be extending those contracts for for both years in the near term here, So just a bit more deep.
So there would be helpful.
You bet Justin Yeah. So.
You're right. We have about 14 that are ending at the end of this year, another 20 or so next year.
We're in the right in the middle of discussions with all of our customers as we speak on extensions and that would relate to both those for 'twenty two and for twenty-three.
So I would I would expect to for you to be seeing some announcements here over the next quarter or so with Paul lines that are extend our expiring in 'twenty two as well as 23 being extended beyond those terms.
Okay, Great and then you know given the the potential here within the inflation reduction act for four credits.
And an extension of the P. T C. O I was wondering if you could talk through how you're thinking about your Newton, Iowa facility, you know how long could that facility take to be restarted. If you did see you know improving visibility for demand.
And then you know how many lines could that facilities support is is there room for expansion if demand supported it.
Yeah. So it's it's a good question.
As far as the number of lines, obviously that depends on the size blade. We've produced as we've had as many as six lines in that facility in the past.
With larger lines are with larger blades, it might be a little bit a little bit less than that there is some there is limited room for expansion there.
And as far as the ramp up again.
Again, I I anticipate that we would be able to get a number of the associates back that had been long term associates of TPI.
We treated them very well on the way out and they were very loyal to us, but again it takes time to rebuild that workforce. So its probably a six to nine month period to ramp up you know from start to depending on whether we change the molds out that are in there today that haven't been removed yet or whether we are building the same blade. So it's probably a.
Six month time period, two to fully ramp.
Okay got it that's helpful. And then also you know one more on the inflation reduction Act. There is this you know 10% bonus.
For the P. T C. If domestic content requirements are met.
I'm just wondering if if that legislation were to pass do you think developers would need to source blades in the U S to meet those domestic content requirements and if so you know could you get a you potentially get a premium price for U S manufactured blades.
Yeah. It is again it will vary depending on the OEM.
[laughter] portion by way of a of a.
Turbine as steel clearly and I think under the under the New Act, it's 100% sourced steel. So I think you know and in many cases you would have to.
Obviously sourcing blades would help I don't think it's a necessity at all cases, depending on the man on the OEM.
Getting a premium price with if were producing in our U S facility. There is the advanced manufacturing credit.
Which would certainly make U S blade production more competitive with with.
Manufacturing outside of the U S. So whether its a premium or it's just more normalized margins and we've been able to realize in that location in the past remains to be seen.
Okay, Great I appreciate it I'll pass it on.
Thanks, Justin.
Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Excellent Hey, good afternoon, Thanks, Tim I appreciate it.
I can just a follow up on Justin's last line of questioning there, but can we talk in brief about perhaps the D. P. A angles that that's sort of lingering out there I know some of the headlines have been of late focused on the wind sector as potentially an angle that the administration wants to look at use of DPA.
How could that play itself out and also to what extent could that complement what are still seemingly your plans are with respect to offshore here any updates on that Friday, you know, notably absent in some regards here, but would love to hear.
Can you try that Dow Hey, Julien I had you were really loud. So I had a hard time understanding exactly what your question.
You did against that.
[laughter] sorry, so some call me enthusiastic at times, Yes, alright, so what I was saying is it defense production Act DPA, there's been some headlines about that being applied for the wind industry. What are your thoughts there and especially as it might pertain to offshore opportunities for you all.
Hum to be totally Frank I, Havent I havent focused significantly on the D. P. A at this point so I don't I'd have to get back to you on a specific point of view on that Julien.
Got it excellent alright fair enough well, we'll leave that to them if.
If I may just in in pivoting here to the European opportunity that you described at length in your prepared remarks a.
Can you describe perhaps some of the opportunity that might exist with respect to your Turkish operations I know times, you've remarked at some of the latitude that could exist there.
How swiftly could you move there or what are the conversations and tons of customers and ultimately to the extent to which that doesn't materialize, how would that impact liquidity to use on the balance sheet for that or offer or what have you. Just do you think about the the capital needs through the back half of the year into next year, it's a positioning yourself.
Yeah, I think from a just from a Turkey in general our operations there performed very well.
Some of our best performing operations. It is clearly a great location to serve the EU from very cost effective, especially with logistics cost today, but just a very productive workforce in a cost effective workforce. So our customers are interested in additional capacity in Turkey. We are.
Our running you know.
We're kind of in overdrive, there right now likely to be an overdrive. There next year as well and that that is a location that we would look to expand under the right circumstances. So.
To ramp that up.
It would take some time.
We've we've obviously looked at sites there.
So that is that's something we're looking at pretty closely and if European demand continues to be strong as we think it will be into the future. That's that's obviously a good location for us to think about expanding in the near term.
From a capex standpoint, just think of it as five.
$5 million to $6 million per line of Capex. So if it's four to six lines, you're talking $25 million to $30 million of Capex.
That probably wouldn't be until sometime in 'twenty three if if if it moves forward with some speed.
Alright excellent. Thank you I appreciate it.
Thanks Julien.
Our next question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.
Hi, Bill Hi, Ryan.
Hey, How're you doing.
Hey doing well.
So you know I know, obviously, the regulatory overhang here in the U S has been kind of a big issue for all Oems and I know that they are dealing with things and that uncertainty on a global basis, but.
If this legislation were to pass and I know that's a big if I mean do you have kind of a thought process of how long it might take for you to see that pick up in demand.
You know again balancing that that's U S versus what Oems are dealing with a globally.
Yeah again.
You know if it was just a pure PTC extension through extenders, that's a little simpler with with the new Bill getting you know kind of interpretation and rulings from treasury on how each of the individual components will be actually applied it.
It takes a little bit longer.
I would expect we should begin to see some pickup in twenty-three probably.
Quicker than we than we thought you know obviously before the legislation was was proposed but I could see back half of 'twenty three beginning to see some pick up but probably more of an impact in 'twenty four.
Got it.
Alright, that's helpful. And then just on the transportation side, you gave a growth expectation for the year I apologize I missed that so maybe if you could just clarify that but.
You also mentioned that you're working towards a number of OEM supply agreements is there any way to potentially size that or maybe talk about how many you're working towards and what type of hit rate, you're assuming I'm. Just just any details along those lines it would be very helpful.
Yeah. So the growth, we expect 40 plus percent topline growth this year year over year.
We brought that down a little bit from what we talked about in the first quarter, primarily because of some of the challenges.
That our customers are having with their supply chains.
Their volumes have come down a little bit and we do expect to make that volume up in 'twenty 'twenty. Three so 2023 should be a strong year from from that perspective and as far as the you know the deals. We're working on now we're actively working six to eight development projects right now, where we're delivering a prototype parts qualifying.
Parts et cetera.
Our hit rate has been.
As we've refocused with our new leadership in that organization. Our hit rate has been very high. So I would expect the hit rate to be pretty high on those six to eight.
Okay.
Got it and what does the pipeline look like in that regard I mean, obviously six to eight I think in the past.
You've cited gosh I think six you know at one time it was six OEM body.
Programs six O OEM EV part programs.
You know, maybe just what the pipeline looks like there.
Yes, the pipeline looks very good.
What I told you is what we're actively.
Working on right now as far as you know.
Building prototypes says, there's a much longer pipeline.
Again, we're being selective in what we choose.
Making sure that we can do it profitably and that we can scale and that we can meet the needs of the Oems or the tier ones.
So the pipeline is robust I think we've been able to demonstrate our ability to not only take out weight, but the efficiency of the upfront tooling as well as speed. The market has been pretty remarkable. So again, we're optimistic on where this has gone and the pipeline is robust.
Okay. Thank you.
Thanks, Eric.
Our next question comes from the line of Jeff Osborne with Cowen <unk> Company. Please proceed with your question.
Yes. Good afternoon, a couple of questions on my end going back to the 14 mines Bill for.
For 2022, two part question on that one is how many of those lines are going into the U S.
Today, if there's any view on that and then are any of the discussions you are having contingent on the IR ABL passing or not.
I'm not really so those lines, we've got nine in Mexico and those for the most part are all coming into the U S.
We've got a we've got a handful in Turkey.
As well so and those are mostly to the European market, if they don't stay in Turkey.
It's just the lines in Mexico that are coming up that are coming into the U S. At this point.
And the answer is yes.
The answer on those is no it's not contingent on you know I R. A.
But certainly we've got a plant sitting in Mexico right now that's that's idle.
And the IRR, depending on how it comes out if it does certainly could accelerate.
The interest in that plant as well.
Got it.
On prior calls you talked about possible M&A opportunities to expand your service portfolio, you mentioned expanding into France, I think organically, but can you just touch on now that you are turning free cash flow positive and it seems like utilization rates are improving can you touch on what your appetite is for M&A and B, what the pipeline looks like there.
Yeah, I think we still have an appetite for obviously.
Given where the overall wind market is in that being our core business, where we're really laser focused on execution there before before we get into an M&A transaction, but.
We do have a pipeline that we're continuing to evaluate but I would say.
That's been slowed down just a bit to make sure that we're focused on the core business.
And keeping a strong balance sheet and making sure that we're prepared for a new win demand when that materializes.
Makes sense, that's all I had I appreciate it.
Okay. Thanks, Jeff.
Okay.
And as a reminder, if anyone has any questions that you May press star one on your telephone keypad to join the question and here I think Q.
Our next question comes from the line of Steven.
Garo with Stifel. Please proceed with your question.
Oh, Thanks, and good afternoon gentlemen.
Okay.
So as we think about the gross margin line over the next four to six quarters.
What should we be really focused on from a from an improvement perspective, so what drives the improvement on and obviously volumes do but how should we think about the the progression and really the key the key drivers of that improvement as we go forward here for the next.
Several quarters.
Yes, Steve and I again, I think you've mentioned volume I mean utilization of our facilities and you know, we're a pretty fixed cost business.
So utilization is key to driving that gross margin line. So its utilization its continued focus on cost.
Whether that be you know driving driving cost to the extent, we can out of the bill of material improving process reducing process waste.
Being more efficient from a head count standpoint.
So it's all of the above but I would say the biggest mover of the needle is is and has been utilization. So as you see utilization climb.
In the third quarter over the second quarter, you should see gross margins improve.
Had a couple of unique things Ryan mentioned in this in our prepared remarks around.
Some non restructuring costs with some of our plants that shut down.
Those ran through the cost of sales line. So you know you get rid of a few of those and you'll start to see that gross margin number on a normalized basis start to start to increase with utilization.
Thank you and then just as a follow up when we think about the offshore side and now we're hearing more and more in east coast on the offshore wind front are you where do you can you just give us an update kind of on where where that stands and kind of how you see this playing out over the next year or two.
Yeah.
Yeah. So we're we're not not a huge update from last quarter. We're still actively working a couple of opportunities on the east coast, where we're optimistic that those well.
Well will result in a in a long term agreement here.
Before the end of 2022.
I think you know from a from a win standpoint, the inflation reduction Act.
Have a huge benefit on the offshore side just given the.
The advanced manufacturing credits that will be available.
To build the supply chain that today doesn't exist for offshore in the U S.
So we.
We would hope to be able to announce something here in the back half of the year.
And again, if if higher at 2020 to ultimately get signed into law that took that could have a nice benefit for for offshore in general both on the East Coast West Coast and in the golf of course.
Great. Thank you.
Thanks, David.
Our next question comes from the line of Joseph Osha with Guggenheim. Please proceed with your question.
Hi, guys.
A couple of questions first.
Looking at your contracts and what you're able to pass through and what Youre, what Youre not you know we've seen some.
Some other people in comparable businesses, including you know one large firm.
No not really.
It really kind of changed the approach you are passing through great cost passing through metal cost up like this I'm I'm wondering.
As you have new contract.
Stations with customers.
If you're thinking about trying to.
What approach you can take to roll more of this input volatility off to your to your customers.
Yeah, so today as I mentioned.
Virtually all of the carbon that we buy is under contracts controlled by our customers. So 100% of that gets pass through resin system 60, plus percent of those of the resin we buy is under.
<unk> purchased under contracts controlled by our customers so that 100% of that gets passed on.
Other than that Joe we have a shared pain gain.
And generally it's a 70 30 split so 70 gets passed on to our customer we have to absorb 30.
We are having discussions as I mentioned earlier with all of our customers not only about extending contracts, but also what these commercial agreements might look like in the future.
And some of those May may may have some different terms, where we might trade utilization.
Percentages for.
And price quite frankly for eliminating or reducing our offloading. Some of the risk. So those discussions are all in process clearly our customers would like to to not see that so.
So it's a balance that we have to we have to work on with our customer on price on utilization share of wallet and then how we deal with the risk of commodity costs.
Right.
Kind of what I was getting at we you talked in past about your resin carbon fiber and that's fine but.
You've been in the situation, where a lot of utilization.
Logistics and other factors you know that risk seems to rest disproportionate weight with you. So I'm just wondering if there's any opportunity for you to.
You indicate there might be more sort of fundamentally remake the economic relationship with your customers because that that might be one way to address the volatility we've seen in gross margins perhaps.
Yes, that's it that's exactly right and that's exactly what we're working on with our customers today.
Okay.
Second quarter, we met or how do we better balanced the risk correct go ahead Brian .
Exactly.
A second question just following you been on on what Julian was asking about Turkey, and I'm sorry, if I missed if you answered. This already you know how does the the tanking where affect your business either good or bad does it not matter.
You know it it it's generally if you think about most of you know all of our revenues in Euro most of our Bom cost is in euro.
But you know direct labor.
And some of the local stuff is obviously all in Turkish lira, so it actually benefits us.
From a financial standpoint, it does make it more challenging for you know.
For some of our suppliers that are in Turkey.
With with the layer of D. Var. We you know we're working through that with our customers in general, though it does help us from a financial standpoint.
And we have.
We did have some benefit from that this quarter as well.
Yeah for sure and then my final question you know when you go through.
Inflation reduction act one of the things that becomes apparent.
The manufacturing tax credits the P. P. C that you know the property credit everything is tied to.
To prevailing wage in our furniture requirements, how how might back.
Affect your business if that signed into law.
Well from a again I can't speak for our customer or our customers or our customers' customers quite frankly, but from a from a tpa standpoint.
We're not manufacturing in the U S. Today. However, when we were we were paying prevailing wage we had we had a union initiative in Iowa that was defeated and it's because we were paying fair pay too to our associates with better benefits and the union was offering so I wouldn't see that.
As an inhibitor to US you know reentering the U S manufacturing market if that makes if that makes sense for us and our customers.
But it would be fair to assume that.
You read are gonna be union or paying paying union level wages. If you do you end up restarting in the rock.
Will it be will it be paying at least prevailing wage correct.
Okay, Alright, Thank you bill.
Yes, Thanks, Joe.
Our next question comes from the line of Mark Strouse with Jpmorgan. Please proceed with your question.
Hi, there its drew on for Mark. Thank you for taking our questions my.
First one just on Europe , and really just kind of broad or what are you seeing there from your customers. What are you hearing are they and really as it pertains to repower a year or are they waiting for some more formal legislation or how are they thinking about orders and new contracts and from a timing standpoint.
Just really any color would be helpful.
Yeah, I think I think they're all clearly looking from a long term perspective, obviously, they see the Repower U S. As a positive and as a as a way to accelerate demand again. It will take some time just like any legislation here well its a little complicated in the EU with the way that works.
It's got to go through three different layers and the final one doesn't really happen until early as early 2023, So I think theres, a little bit of wait and see as to how it ultimately will be rolled out what the how it will actually work, but there is general optimism from them from a longer term perspective.
We're <unk>.
Turkey as you know, we talked a little bit about Turkey, Oh, how attractive that is to serve the European market. So theres clearly.
In anticipation of that market accelerating a theres a lot of interest in Turkey from from our customers and for us to expand so I see the medium to long term being very favorable.
Short term we haven't seen.
An immediate spike in demand because repower EU came out right, it's going to take some time to sort through and implement but what about when it is sorted through and implemented we do see that as a positive.
Got it and just one follow up if I may.
ASP for picking favorite up again in the second quarter or comparable to the first quarter and it sounds like in the first quarter. There was some transition issue or transition timing things that drove the ASP is higher so just kind of curious is a little bit more of a longer term outlook here on an issue is do we think of them as in the range that they were.
Two Q and especially as you talk about the new contract negotiations are there going to be.
Would be higher than some of the historic legacy contracts.
Yeah, I think Oh, as we talked about it in the first quarter. They were a little bit there are artificially high in the first quarter because of some transitions.
The way we calculate it we were like 180 to 183, something like that thousands of blade.
We expect to wind up for the year in that 180 to 185.
As we as we extend contracts or renew contracts depending.
Depending on the blade type you know I would expect us to continue to see a bit of an increase in ISP.
Building a bigger play of the S. P is obviously going to be higher and clearly the inflationary environment has driven a S. P hire as well just as we see commodity costs up it's going to it's going to raise the price of the blade. So it's a combination of those things, but over time I think you'll continue to see Asp's go up as blade size continues to increase.
<unk>.
Got it thank you.
Yep. Thank you drew.
And our next question comes from the line of Tom Curran with Seaport. Please proceed with your question.
Hi, Thanks for taking my questions.
Heading into 2022, you're known startups and transitions were very front half loaded and <unk> you realize the positive surprise relative to internal expectations on the five you executed, finishing all of them ahead of schedule and enabling the delivery of additional volumes.
For those customers over 2022, how did performance comparing to Q and what's the transition to outlook for the second half.
Yeah. So we are pretty much wrapped up all of our transition by the end of Q2 and at this point, we have no transitions slated for the back half of the year.
That's why you'll see our utilization should climb up into the into the low ninety's in Q3.
The lines, we transitioned in a couple of startups will be will be running at full capacity in Q3, So nothing planned for the back half of this year.
And so certainly you should see utilization improve in Q3.
Got it and then.
For for field inspection and repair services. So can you give us a sense of.
How you did at the top line in Q2, and just how demand there has been evolving relative to <unk>.
Wind blade set demand is it outpacing as the aftermarket holding up better and what's the outlook heading into the second half.
Yeah I would.
Again, I would say, we're we're obviously growing.
Wind.
Field service business quicker today than the blade business to play a business as we've seen it has been relatively flat.
Just given the challenges with the policy in the U S and the EU, but yeah, we see significant opportunity for growth and field service. It's really about having you know its really about tax being able to to to obtain and train and retain if you will the tax.
That's how you grow the business, so where we are aggressively recruiting in that area, we've grown our R.
Sure.
Our our workforce significantly in the U S and we're continuing to grow it outside of the U S. So we see significant opportunity there.
Especially with our global footprint it gives us a bit of an advantage, where we have a critical mass in these in these geographies, where there are a lot of installs.
And does that need blade service and repair so having that global footprint is not only a benefit from a manufacturing standpoint, but also in deployment of the field service operation.
Got it.
When it comes to that workforce of tax.
Do you have any targets you could share for us.
For the second half in terms of.
Where are you going to take head count and then I know you've more recently, you've been investing and expanding.
In Europe .
For field services, maybe an update there.
Yeah. So I would we don't give out head count numbers, specifically, but you know we're gonna.
Got significant demand in the U S.
That's really where we started the business. So we've got a critical mass here and we will continue to grow that.
The European market is a huge opportunity for us we've we've been strong in Turkey for a while but we've just you know over the last year or so began begun expanding outside of Turkey solar in Spain or in France, where in the U K and the opportunity for just you know blade repair and service as well as Repowering.
It's pretty significant and in the EU. So we see that as a pretty significant growth opportunity for us as well.
Got it I appreciate the color.
You bet. Thank you Tom.
And our next question comes from the line of Greg Koski with Weber Research. Please proceed with your question.
Yeah, Hey, guys. Thanks, just one for me a two parter.
Can you recap your guidance for dedicated lines versus lines installed for the rest of the year and then mainly into 2023 and then how many lines are there that are similar to what you described in Iowa, where you could ramp up without significant capex in an actual real estate expanse.
King.
Maybe asking it another way what's the theoretical maximum dedicated lines that you guys could have by the end of 2023.
So we have 43 dedicated lines today.
We have capacity, if you're excluding Iowa for the time being but if you look at our footprint between China, Mexico, Turkey, and India, We could go to 50 lines.
Without.
Expansion of our facility now there'd be some capex.
Two.
To enable us to get to 50, but its probably $25 million of capex to get those six to seven lines up and operating.
And if you throw in Iowa that could be another four to six lines and again very little Capex there since the Capex is sitting there already.
Perfect very helpful. Thanks, guys.
And we have reached the end of the question and answer session I will now turn the call back over to Bill for closing remarks.
Yeah, Thanks, everybody for participating on the call and to the analyst. Thanks for your questions and look forward to speaking with you again next quarter. Thank you.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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