Good afternoon, and welcome to TPI Composites First Quarter twenty eighteen Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q and A. At this time, I'd like to turn the conference over to Anthony Rosmas, Investor Relations for TPI Composites. Thank you. You may begin.
Thank you, operator. I'd like to welcome everyone to TPI Composites' first quarter twenty eighteen earnings call. In addition to our press release, you can also find our Q1 earnings slide presentation on our IR website. Before we begin, let me remind everyone that during this call, TPI Composites' management may make certain statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, projections, beliefs, estimates, plans and prospects.
Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are described in our Form 10 ks and other periodic reports as filed with the Securities and Exchange Commission. The company does not undertake any duty to update such forward looking statements. Additionally, during today's call, the company will discuss certain non GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
The reconciliations of GAAP to non GAAP information can all be found in our earnings release, which is posted on our website at www.tpicomposites.com and is also included in our Form 10 Q as filed. With that, let me turn the call over to Steve Lockard, TPI Composites' President and CEO.
Good afternoon, everyone, and thank you for joining our first quarter twenty eighteen earnings call. I'm joined today by Bill Siwic, our CFO. I'll start with some highlights from the quarter, followed by a brief update of the wind market and TPI's progress on our strategy of strong and diversified global growth. I'll then turn the call over to Bill to review our financial results in more detail. I'll then conclude with a review of our full year 2018 outlook before we open up the call for Q and A.
Please turn to Slide five. We delivered another solid quarter of operational and financial performance. Our net sales grew 21.7% to $254,000,000 Adjusted EBITDA for the quarter increased 55.6% to $27,400,000 and our adjusted EBITDA margin increased two forty basis points to 10.8% from 8.4% in the 2017. Reductions in manufacturing cycle times, improvements in productivity and shared gain from material cost out efforts continue to drive our adjusted EBITDA results. We signed a multiyear supply agreement with Vestas for four manufacturing lines with an option for additional lines in a new manufacturing hub in Yangzhou, China.
We added a third manufacturing line to our existing supply agreement with Vestas in Turkey. Since the beginning of 2018, we've signed supply agreements for a total of five lines, representing potential contract revenue of up to $1,200,000,000 over the term of the agreements, and we're tracking well against our planned range for the year of closing on 10 to 14 lines. We've entered into an agreement with Navistar Inc. To design and develop a Class eight truck comprised of a composite tractor and frame rails while targeting 30% weight savings compared to current trucks. This brings our development program count in strategic markets to a total
of
five. Shortly after quarter end, we refinanced our senior debt facility with a new $150,000,000 revolving facility, giving us an additional $50,000,000 of capacity and reducing our stated interest rate by three seventy five basis points. Additionally, we executed an interest rate swap to fix our rate at 4.19% on 75,000,000 the total amount outstanding when we closed the transaction. The JEC Group announced that TPI Composites and Proterra have won a Future of Composites and Transportation 2018 Innovation Award in Public Transportation category with the following title: design and fabrication of an integrated monocoque composite 40 foot plug in electric transit bus. This underscores the deep collaborative relationships and cooperative innovation with our customers.
Sandia National Laboratories, teaming with TPI and Oak Ridge National Laboratory, a leader in the field of large scale three d printing, has won the Federal Laboratory Consortium for Technology Transfers, FLC, National 2018 Technology Focus Award for demonstrating a three d printed mold for a wind blade directly from a digital design. While the demonstration focused on a relatively small 13 meter blade, if applied at larger scales in industry, designers could take more risks with experimental designs and accelerate prototyping and innovation in wind technologies. We continue to develop our robust wind pipeline of global opportunities with current and new customers, both onshore and offshore blades. As blades continue to get longer, utilize more advanced materials and we continue to drive increased output per line, the revenue from new lines will grow meaningfully. Furthermore, as our customers transition to larger wind blades under existing contracts, the revenue per line will increase, providing additional revenue growth opportunities from existing facilities.
At the end of last quarter, our prioritized pipeline was 24 lines. As of today, our prioritized pipeline of lines we expect to close by the 2019 sits at 19 due to the five lines that we closed since year end. We remain very confident in our ability to convert this pipeline by the 2019. And in fact, we're in active negotiations for a number of lines with the expectation of closing them in the next one to two months. As we talked about previously, 2018 will be an investment year for TPI as we have estimated that 14 lines will be in transition and 12 lines will be in start up.
Notwithstanding this, we estimate that we will have top line growth of approximately 10% this year. We expect these new lines as well as the transitions and additional start ups will position us nicely for strong growth in 2019, and we are still confident in our revenue target of 1,300,000,000.0 to $1,500,000,000 or approximately 35% growth in 2019. Therefore, our three year revenue CAGR target still stands at 20% to 25% through 2019. Our strategy remains intact, and we continue to see traction as we diversify our sources of revenue across customers, geographies and non wind markets. We will continue to execute on this strategy and take advantage of the growth in the global wind market, stability in The U.
S. Wind market and the ongoing wind blade outsourcing trend. We believe that the combination of our current lines under contract, combined with our prioritized pipeline, provide a clear path to more than $2,000,000,000 in wind related annual revenue over the next few years, plus opportunities in other strategic markets. Turning to Slide six. As of today, our long term supply agreements provide potential revenue of up to $5,400,000,000 through 2023, including the 46 wind blade manufacturing lines and our transportation production lines.
Our potential revenue under our supply agreements has increased by over $800,000,000 over last quarter with the addition of the new Vestas lines, notwithstanding our Q1 billings of $223,700,000 At this time last year, our potential revenue under our supply agreements was approximately $4,200,000,000 We have increased that amount by approximately $1,200,000,000 net of the impact of approximately $950,000,000 of billings since that time. The minimum guaranteed volume under our supply agreements has grown to approximately $3,600,000,000 up from $2,700,000,000 at this time last year. Please turn to Slide eight. Our view of the onshore global market growth remains essentially unchanged. Annual installed onshore wind growth is expected to increase to 63.3 gigawatts in 2027 according to MAKE.
This projected growth will be driven primarily by developing markets, which according to data provided by MAKE, will grow at a CAGR of 13.3% during that period, while more mature markets, those with at least six gigawatts of installed capacity at the 2016, will continue to grow but at a more modest CAGR of 1.6%. We believe we remain well positioned to serve these emerging markets from our facilities in China, Juarez and Matamoros, Mexico and Turkey, and we expect the growth of these markets will continue to drive the outsourcing trend we've seen over the last ten years. We also see a strong outlook for wind energy in large mature markets such as China, The U. S. And India, areas where there continues to be very low wind penetration rates.
The opportunity for wind in both emerging and large developed economies allows multiple avenues for growth for TPI and the broader industry. With respect to The U. S. Market, we are pleased with the outcome of tax reform late last year, where threats to alter the PTC phase down were rejected by key Republican allies. As you can see on Slide nine, the next few years are expected to be strong, with expected annual installations averaging 10.7 gigawatts.
We believe we remain very well positioned in The U. S. With our current customers accounting for 99% of The U. S. Market share in 2017, and they also account for 98% of the projects under construction or in advanced development where developers have reported an OEM.
Although we recognize that there's still some uncertainty in the marketplace concerning The U. S. Wind market beyond 2020, optimism is building due to several factors. 80% PTC orders placed in 2017 will increase installed gigawatts in 2021. MAKE reported that there was 10 gigawatts of wind safe harbored in 2017, 77% more than in its previous forecast.
In the same manner, 60% PTC orders placed this year should provide for more volume in 2022. The pure economics of wind energy are very compelling. Corporate and retail customers want to buy wind. Utilities are using it to grow their businesses and to meet aggressive CO2 emission reduction goals. And many large institutional investors are requiring change in environmental and in social responsibility from the energy industry.
The fundamental drivers of our industry are getting really good based on economics and customer choices. Before I turn the call over to Bill, I'll touch on a few topics that have been getting some airtime over the last couple of months, primarily trade, OEM margin pressure and the liquid epoxy resin market. We are continuing to monitor trade talks closely, particularly with respect to the recent tariffs proposed on steel, Chinese products as well as the continued negotiations around NAFTA modernization. With respect to NAFTA, we haven't seen any proposed changes that would impact our operations in Mexico or our ability to continue to cost effectively serve our customers in multiple markets out of our Mexico locations. The office of the U.
Trade Representative has determined that the acts, policies and practices of the government of China related to technology transfer, intellectual property and innovation are unreasonable or discriminatory and burden or restrict U. S. Commerce and will hold a public hearing regarding a proposed determination on appropriate action in response to these acts, policies and practices. The trade representative has also proposed an additional duty of 25% on a list of products from China. The list of products set forth in the annex to the notice did not include any of the raw materials or equipment that we use in our operations that we currently or may in the future import from China nor did it include wind blades.
We will continue to monitor this closely. With respect to the tariffs placed on steel in late twenty seventeen, the only steel in our blades are the bolts that secure the blade to the hub of the turbine, so it's a very small portion of the overall cost of the blade and will not have any impact on our costs. As for the balance of The U. S. Wind industry, MEG has estimated that under a worst case scenario, wind LCOEs could be impacted by between 23%.
Many of our customers have been publicly discussing some of the margin pressures that they're experiencing as a result of the transition to more auction based tenders in many regions of the world, the competition from solar in certain regions and continued low natural gas prices. As we've outlined in our public documents and discussed with many of you, we have always taken an open book approach with our customers in order to collaboratively drive down the cost of the bills of material and reduce our manufacturing costs. Our supply agreements provide a shared gain mechanism, whereby as we work to drive costs out of the blades and manufacturing process, we share a portion of that with our customers. This has the effect of reducing the sales price of the blade while enabling us to maintain or expand margins. We will continue to collaborate with our customers in this manner, and we'll continue to use our contract structure to help drive down the LCOE of wind energy while building value for TPI.
Finally, many of you have been asking about the impact of the recent spike in spot prices for some of the feedstocks used in liquid epoxy resins or LER and how this may impact TPI's results. The spike in spot prices was primarily driven by a reduction in supply after the Chinese Ministry of Environmental Protection implemented new pollution measures late last year and many plants manufacturing the key components of LER were shut down until environmental improvements could be put in place. This supply shortage has enabled many non Chinese suppliers the opportunity to raise prices in the short term. We identified this issue early and have implemented a comprehensive mitigation strategy that we're executing in order to minimize the impact of this short term price increase. I'll now turn the call over to Bill to go through our financial results and to walk you through our LER strategy and explain why this will not impact our ability to still hit the financial guidance we set forth back in November 2017, which we reaffirmed in March 2018 and will reaffirm today.
Bill?
Thanks, Steve. In addition to our epoxy strategy and before I hit the financials in detail, I'll also touch on our ASC six zero six restatement and implementation at a high level to put the more detailed discussion into context. First, let's discuss epoxy pricing. We disclosed in our December 3137 10 ks that the impact of a 10% increase or decrease in epoxy resin pricing would have had an impact of approximately $13,000,000 on our 2017 income from operations. That was a very conservative number as it was based on the total amount of resin we purchased during the year and didn't take into account the shared pain gain structure of our contracts.
Also, it's important to note that approximately 35% of the epoxy resin we use is purchased under contracts controlled by our customers and therefore 100% of all price changes are borne by those customers. And for the customers where we control the epoxy resin contracts, we have the ability to generally pass on up to 70% of the net increase in our BOMs, which would include epoxy resins. You will see in our Form 10 Q filed earlier today, we have updated our commodity risk disclosure to take into consideration only the impact of the resin costs under our control. With that as a backdrop, our global supply chain strategy is to have multiple suppliers for all key raw materials to ensure not only an adequate and uninterrupted supply, but to also maintain a competitive pricing environment. Furthermore, for key inputs like epoxy resin, having suppliers that are backwards integrated, in other words, they manufacture their own feedstocks is also critical.
We have multiple suppliers of epoxy resin and also suppliers that manufacture their own feedstocks. So this is an advantage for us. Additionally, for the same reason we all like the visibility we have with our long term supply agreements with our customers, our suppliers also like the visibility we provide them as a result. This enables us to develop long term mutually beneficial relationships and helps to deter them from trying to take advantage of short term pricing swings in order to protect a long term growth opportunity with us. Bottom line, our mitigation strategy, which includes in some circumstances changing suppliers and in other situations changing other key components such as hardeners and paste is enabling us to mitigate most, if not all of the epoxy pricing exposure that was identified early in 2018.
Finally, we are continuously working on driving the cost out of the bills and materials, our manufacturing process and overhead. So an increase in one commodity, although important and significant, doesn't have to result in an increase in our overall costs or negatively impact our margins. Therefore, we have not revised nor do we anticipate revising our guidance for 2018. Now for a quick recap on the impact of the adoption of ASC six zero six. As we've discussed the last few quarters, the adoption of ASC six zero six has had the effect revenue as we now are required to recognize revenue on a percentage of completion basis and also recognize revenue on raw materials when purchased if they are customer specific.
During the 2018, we accelerated the production of certain blade models for some of our customers in order to meet their aggressive delivery schedules and to complete certain volumes in order to facilitate some of the blade transitions we expect to have during 2018. As a result, the number of blades in production at quarter end was unusually high in two of our geographies. As I will discuss in more detail, this has resulted in significantly higher revenue compared to billings in the first quarter and has also favorably impacted net income, earnings per diluted share and adjusted EBITDA. Notwithstanding, we are affirming our full year guidance for revenue billings, earnings per share and adjusted EBITDA, and we plan to provide more specific quarterly guidance for these items later in the quarter once we have finalized the full update of our models under ASC six zero six. All comparisons in the MD and A section of our Form 10 Q and in the discussion to follow will compare Q1 twenty eighteen under ASC six zero six to Q1 twenty seventeen as restated for ASC six zero six.
Please refer to Slides twelve and thirteen. For the 2018, net sales for the quarter increased 21.7% to $254,000,000 compared to the same period in 2017. Net sales of wind blades increased by 19.7% to $234,200,000 for the 2018 as compared to the 2017. The increase was driven by an overall increase in the average sales prices of blades during the quarter, notwithstanding a 10.5% decrease in the number of wind blades delivered during the first quarter compared to the same period in 2017 as a result of transitions and the loss of volume related to our contracts with GE in China and Turkey. Total billings for the first quarter increased by $12,300,000 or 5.8% to $223,700,000 compared to the same period in 2017.
The favorable impact of currency movements on net consolidated sales was 3.4% for the quarter compared to a negative impact of 1.4% in the 2017. Gross profit for the quarter totaled $28,300,000 an increase of $8,300,000 over the same period of 2017 and our gross profit margin increased by 160 basis points to 11.1%. The increase in gross margin was driven primarily by continued operating efficiencies, the impact of net savings and raw material costs, offset by the negative impact of currency movements and an increase in start up and transition costs of $8,600,000 compared to the same period a year ago. General and administrative expenses for the quarter were 11,200,000.0 or 4.4% of net sales as compared to $8,300,000 in 2017 or 4% of net sales. The dollar increase quarter over quarter was largely driven by costs related to the implementation of ASC six zero six, costs related to Sarbanes Oxley and increased personnel costs from filling key global positions to support our growth and diversification strategy.
Net income for the quarter was $8,600,000 as compared to $5,200,000 in the same period of 2017. This increase was primarily due to the improved operating results discussed above. Diluted earnings per share was $0.24 for the quarter compared to $0.15 for the same period in 2017. Adjusted EBITDA increased to $27,400,000 compared to $17,600,000 in the same period of 2017. Our adjusted EBITDA margin for the quarter was 10.8%, a two forty basis point improvement from our margin of 8.4% in the 1837, excuse me.
Moving on to Slide 14. We ended the quarter with $138,800,000 of cash and cash equivalents and total debt of 125,700,000.0 or total net cash of $11,100,000 compared to net cash of $24,600,000 at December 3137. For the quarter, we had net cash used in operating activities of $3,000,000 while spending $11,700,000 on CapEx, resulting in negative free cash flow for the quarter of $14,700,000 Net cash used in operating activities was primarily driven by the increase in contract assets, in other words, under ASC six zero six, as we have accelerated production in certain sites to accommodate customer delivery schedules and transitions later in the year. In April, we completed the restructuring of our existing senior credit facility with 150,000,000 revolving line of credit with a syndicate of banks led by JPMorgan Chase, Wells Fargo and Capital One. Shortly thereafter, we entered into an interest rate swap to fix our rate on $75,000,000 of the outstanding borrowings for a five year period at 4.19%.
This represents a rate reduction of three seventy five basis points from our prior facility and provides us with interest rate certainty and what we expect to be an environment of an increasing rates over the next several years. We expect the net impact of these transactions to reduce our cash expense for 2018 by $1,700,000 and will result in overall cash savings of $4,500,000 in 2018 since we will avoid $2,800,000 of principal payments that were due in 2018 under our prior facility. Furthermore, the additional capacity under the new revolver gives us added flexibility as it relates to some of our outstanding foreign debt as well as additional optionality related to funding our continued growth. We continue to be pleased with the strength of our balance sheet, our ability to generate the cash we need to expand our global footprint and the additional flexibility and certainty our new credit facility and swap provide. With that, I'll turn it back to Steve.
Thanks, Bill. Please turn to Slide 16. Now I'd like to update our key guidance metrics. We expect total billings for 2018 of between 1,000,000,000 and $1,050,000,000 while revenue under ASC six zero six is expected to be within the same range. We expect our adjusted EBITDA for the full year to be between 75,000,000 and $80,000,000 We expect to deliver between two thousand five hundred and two thousand five hundred and twenty five Windblade sets in 2018.
Blade average selling price for the year will be in the range of 125,000 to $130,000 Total dedicated lines at year end will be between 51,055 Capital expenditures will be between 85,000,000 and $90,000,000 Start up and transition costs will be between 58,000,000 and $61,000,000 Net interest expense will be between 11,500,000.0 and $12,500,000 We remain very confident in our global competitive position and the application of our dedicated supplier model to take advantage of the strength in the growing regions of the wind market, the trend toward blade outsourcing and the opportunities for market share gains provided by the current competitive dynamic. We're very pleased with TPI's first quarter results. To summarize, we delivered outstanding results both on the top line and on an adjusted EBITDA basis. We signed multiyear supply agreements for five lines plus options with Vestas, adding nearly $1,200,000,000 to our total potential revenue under our supply agreements. We expanded the potential diversification of our revenue base with the Navistar joint development agreement.
We remain very confident in our ability to continue converting our prioritized pipeline by the 2019 and expect to be announcing some of those conversions before the end of the quarter. I want to thank the TPI associates for their dedicated effort, our customers for placing their trust in us and our shareholders for your continued support. Thank you again for your time today. And with that, operator, please open the line for questions.
Thank you. At this time, we will be conducting a question and answer session. Our first question is from Stephen Byrd from Morgan Stanley. Please go ahead.
Hey guys, congratulations.
Thank you, Stephen.
Thanks, Stephen.
I just wanted to touch base on a couple of things as I think about the longer term. 2019 is obviously going to be a very big year of growth. And I'm thinking about the sort of the pace of transitions with your customers, rate of change. Obviously, we've seen, I guess, think of it as almost an arms race in terms of the increase in wind blade length and characteristics, that's also the better for you. But also at the same time, I'm thinking about sort of the pace of transition to ever larger and sort of upgraded blade technology.
I know you're not giving guidance on 2020, but just at a high level when you think about transition and the pace of transitions post 2019, is there any sort of thoughts you can give us in terms of that sort of rate of change of transitioning production lines?
Yes. Stephen, I think that's a good question. There has been a lot of rapid change in product transitions at this period of time and kind of chasing each other, leapfrogging to some degree on rotor size. And you'll remember the big driver for LCOE reduction is taller towers and longer blades. So just by going bigger in the blades, LCOE comes down.
Some of the tenders that have been bid into in the competitive pricing have been on the basis of the next generation larger rotor size. And that's what guys are looking out the cost curve a couple of years, bidding on more aggressive pricing on that basis. We would expect, things normalize a bit, as the PTC glide path is achieved in The U. S. And then as other markets are really selling wind turbines on a fundamentally economic basis, where that becomes a bit more the norm, then the question is, are we cheaper as an industry and technology than marginal cost of coal, for example, or burning gas in existing gas plants?
And it's one thing to be cheaper than the new installed hardware on nat gas, for example. It's another if we're cheaper than the fuel. And so our sense is once we the industry achieves those numbers, then I think the turbine companies will be focusing a bit more on their return on their invested capital and probably slow things down a bit. I mean, that's our sense of it, as a general direction, I would say. It's not something we're in control of, of course, but just to give you a sense of the macro dynamics.
That's very helpful. On offshore wind, I've been just thinking about the nature of that business. And for example, in North America, there's a lot of activity in the Northeast United States. And sort of, I guess, as I think about a lot of local infrastructure that's likely to be built, I believe, in New England. Just are there differences in terms of the offshore wind business in terms of whether it be manufacturing location or other characteristics of production that just are notable that we should be thinking about?
I guess I'm always thinking about the very large factories that you all have globally that are highly efficient relative to perhaps I guess I've been thinking perhaps somewhat smaller local sort of offshore capabilities, not only because the infrastructure is local, also the volumes seem to be a bit smaller in certain locations. But are there certain differences in the offshore market as you think about tackling that that we should be keeping in mind?
Yes. The main difference with the offshore blades, as you know, is really the physical size, Steve, right? The blades today are in the, call it, 85 meter to 90 meter range per blade for offshore and growing. And so it's even more important with a single piece blade at that size that the blade never touch a truck or only be trucked or moved by rail a very short distance and then really moved by water, by barge or by ship. I think your point's right that it doesn't really make sense to us, for example, to think about opening small plants in high labor cost regions with immediate water access to serve a New England offshore market, for example.
But instead, what probably does make more sense is to leverage the big efficient factories that you talked about with one offshore line, for example, along with a bunch of onshore blade lines so that we leverage the material cost, we leverage the workforce. They are very efficient, big scale operations, but we can still efficiently move that big blade by water to where the offshore sites are going to be. That also helps us then to not only efficiently price into the lumpy the smaller project, but they're a bit lumpier in nature as well. So rather than building a plant that's dedicated to a market that may be up for a year and then down for a year, it really spreads our bets much more in a much smoother manner. So we think that's a better way to go.
You can imagine our Matamoros site serving that type of opportunity. You can imagine the Yangshuo, China facility, which has immediate water access to the Yangtze River, being able to do that very efficiently as well. And I think you may remember, we have said in our now twenty nineteen mold pipeline, there are a couple of offshore blades in that as well. That's the way we would plan to attack it.
That makes perfect sense. Lastly, if I could, very quickly. Just on the vehicular market, you continue to make really nice progress and get recognized for your technical achievements there. At a high level though, in terms of just thinking about when this is going to become a very meaningful part of the business, I just wanted to do a quick temp check. Is there anything fundamentally different?
Or is it sort of more lockstep progress, but not sort of step change differences in terms of how you're tackling that?
Yes. For us, it's the same strategy that we've discussed before. And as we think about it, the addition of 19 lines in wind, if we end up with, call it, 65 production lines in wind, even if you haircut that back to just say 60,000,000 for sake of discussion times $35,000,000 per year per line, that's $2,000,000,000 of revenue for our company in wind alone. And we're not guiding on a particular date for that. But as we said in our prepared remarks, we're seeing a pretty clear picture, if you will, to roughly $2,000,000,000 annually in wind only related revenues.
So I think then the transportation or non wind strategic markets work, Stephen, for us is thinking about, call it, years four through 10, more in that time frame, that we want to make sure we continue to have good revenue growth opportunities for our company in that time frame. And we're seeing this market area, the adjacency applying our composites technology to
kind of
the one lane over market opportunity as a smart way to do that. So these development programs are very important to us strategically. They're not necessarily going to add significant revenue in the immediate term, but we're building a business for a few years out.
Thanks so much. Really appreciate it.
Thanks, Stephen.
Thanks, Stephen.
Our next question is from Phil Shen from ROTH Capital Partners. Please go ahead.
Congrats on the nice results for Q1. We heard you reiterate guidance for 2018. I wanted to make sure that you're doing the same for 2019 as well. And let's say, you know, to Bill and Steve, thanks for the the detail on the resin situation. Let's say the condition persists and the resin levels remain elevated.
Is there a potential impact on your 2019 outlook? Or do you expect to have enough tools and avenues to be able to continue to mitigate it beyond 2018?
Yes. So we didn't specific I think Steve did mention 2019. We haven't moved off the target. We haven't provided formal guidance yet, but we haven't moved off the targets that we talked about at the end of the year or in November. So we're still there.
From the epoxy standpoint, we're already seeing prices start to stabilize and in some cases go down. If you look at LER in Europe, Asia and then China outside of you look at all of Asia, including China, LER prices came down in April from March. The U. S. Is still a little bit elevated.
But we don't anticipate that to continue. And as we talked about before, we're epoxy resins are a 20% give or take depending on the blade type of our overall raw material bomb. So that gives us 80% of other stuff to continue to drive cost out and to drive operational efficiency. So long answer to a short question, but the answer is at this point, we don't see it impacting what we're talking about thus far for 2019.
And Phil, it's Steve. To be clear, we are reaffirming our confidence in our revenue target of a range of 1,300,000,000.0 to $1,500,000,000 in 2019. And I think your question to Bill's answer relates then to we would expect the EBITDA target on that revenue to remain the same as well.
Great. Thanks for the color. That's really helpful. Shifting to kind of more of a macro question. In terms of the activity with unsubsidized development, I think there was a recent announcement that developers are proceeding with a 300 megawatt unsubsidized wind project in Spain.
This appears to be the first or one of the first on the scale to move forward. Although there is some doubt that after this has been awarded that it might be carried out, it certainly highlights the direction where the industry is going and we're moving toward unsubsidized demand. Can you I know you spoke to it a little bit in your prepared remarks, but can you talk about how quickly you expect the industry to move to unsubsidized demand? I know we have and perhaps you could talk to the activity here in The U. S.
As well as globally.
Yes, Phil, I think we're starting to see examples of that already. The Mexico tenders, the Turkey Yucca tender of one gigawatt, the Spain example. And then and they're already kind of two years out or so as they think about bidding some of these tenders. In The U. S, orders placed last year on the 80% of the PTC deal basically have through the 2021 to install those turbines.
We mentioned the 10 gigawatts that was safe harbored. Not all of that 10 gigawatts may get built, but a very large percentage of it should. And if you think about it, we're kind of constrained between now and then in The U. S. Market, the forecast being eight to 10 to 12 gigawatts or so roughly over the next few years.
You can imagine a good chunk of that 10 gigawatts perhaps being installed in 2021. Then the question is what happens on 60% orders this year? And with utilities doing more of the work themselves, there's probably some more efficient uses of the tax, the monetization of the tax equity and use of tax equity and monetization of the credit, really, that would allow 60% and perhaps even 40% to continue. So that is still subsidized, to speak, for a bit. But yet, the glide path is there.
And so the really good news, I think we're starting to hear some of the industry leaders talk about pricing in the $02 to $0.25 or $03 unsubsidized in the early 2020s or perhaps by mid-twenty twenty of the 2020 time frame. But that all we like that glide path. It really hangs together, as you think about it. Our work is not done to continue to drive down the cost of wind. You can imagine our customers and TPI are still working to do so over that period of time.
So long answer there again, but you could consider it certainly in the early to mid-2020s that most all the work being done is likely to be on an unsubsidized basis that way.
Great. Thanks, Steve. One more, if I may. I'd like to kind of put a finer point on Steve's question earlier about the potential transition costs in 2020. 2018 is an investment year.
2019, we should get to a more normalized startup and transition cost. Just to kind of again put a finer point on it, should 2020 look more like 2019 or what degree of risk is there that it could be an investment year again in 2020 if product transitions are two years? Or do you really have a high degree of confidence that it will look much more like 2019?
Yes, Phil, this is Bill. I would suggest it will probably look more like 2019, which would be more start ups than transitions as we convert the balance of our prioritized pipeline. Some of that will closed in 2019 obviously, and then we'll have those start ups likely in 2020. So you'll see a similar level of startup, but I think the transition, as Steve mentioned in his response to Steven's earlier question, I think we should see a much more modest level of transition than certainly in 2018.
Great. Bill, Steve, thanks very much. I'll pass it on.
Thanks, Bill.
Thanks, Bill.
Our next question is from Jeff Osborne from Cowen and Company. Please go ahead.
Hey, good afternoon, I might have missed this, But Bill, I was wondering, did you disclose what the $6.00 $6 impact specifically was for Q1 for revenue and EBITDA results?
Yes. It's a little it's in the footnote to in the 10 Q, so you can get some sense of it, but it's a little hard to get the exact impact. There were impacts related to, obviously recognizing revenue on the work in process. There's a true up concept, whereas if estimates change for cost to complete or for total contract revenue, that has an impact as well.
But we didn't
Call out what the difference
I guess I was just in particular looking at the EBITDA. Was there any like one time true ups that inflated Q1 as it relates to looking at the Q1 as a percentage of the total EBITDA for the year?
Yes. Was actually a negative impact for a true up as it relates to it. But net net, it was a pickup because of the increase in the contract asset. And I'll use that term because that's what ASC six zero six calls it. But basically, for us old guys, that's the buildup of WIP and the raw materials.
So we're recognizing revenue on the buildup of it. So it's
Okay. That's fine. I'll go through the queue and revert back. Just two other real quick ones. On the Vestas Izmir, is that if I'm doing the math right, is that the old Gomesa option that was not exercised?
Or is there a new mystery line that you added capacity to in Izmir?
No. We had the plant we built had capacity for Vestas for additional lines there. And so they took that capacity or at least one of the slots of additional capacity, but it doesn't impact the Gimesa plus one.
So the Gimesa slot still is empty at the moment?
That's correct.
Got it. And then I don't know if you can answer this or not, but you highlighted a couple of items as it related to the gross margin cycle time and shared pain gain. I was just curious on the cycle time. I know China in the past had been at around a twenty four hour cycle time. Are any of the other facilities at that level?
And then the follow-up question on margin side, which was impressive, is just the shared pain gain. Just hypothetically, if you had $100 of savings, are you passing on $100 of that to your customers today to help them lower the levelized cost of energy? Or are you keeping any portion of that? Is there any way to kind of aggregate what that savings is or gain that you're capturing as a part of your cycle time improvement and reduction in bill of materials?
Yes. On the first one, cycle time, we're at 24 in all locations, not for all blades all the time. Obviously, for some of the blades, we're in transition on our startup, the cycle time starts higher. But for virtually all of the blade models where we are in serial production, we're at or near twenty four hours and in some cases lower than that. As it relates to the shared paying as we've talked about in the past, generally, it's a seventy-thirty split with our customers.
In some cases, it's fifty-fifty. So if it's 100 they would get $70 we would get 30 We don't quantify specifically what the total shared paying gain is on an aggregate basis or customer that we disclose. But we do have the option if we choose to, to share more than we're contractually obligated to. And we've talked about that.
Yes. I guess that's what that was sort of the theme of the Analyst Day on negative side. So I was just trying to get a sense of is that better or worse than you were anticipating sharing more as it relates to your commentary in November?
Yes. Just to clarify the commentary in November, I think the commentary was we could choose to do so. We could choose to do more than we were contractually obligated. So I just want to make sure that's clear. We didn't say we would do all of it, but we could choose to.
But I think as we work through some of the challenges with our customers, as we're looking at transitioning some of the blades, we may choose to and in some cases, when we transition to a blade, we may not keep 100% of the gain we had on the prior blade, right? So if we shared it seventythirty and our margin went up on that blade, when we go through a transition and we reprice the new blade, we may get back some of that gain margin, if you will, from before initially, and then we'll get it back as we improve from a productivity standpoint. So there's puts and takes. So it's not just in all cases, we're giving up that we would give up more than we have to. So there's puts and takes.
And that's why we said, we don't anticipate an issue with our margin and the margin that we've guided to, as a result of balancing the puts and takes as it relates to that.
Appreciate all the detail. That's very helpful. Thank you.
Thanks, Jeff.
Our next question is from Pavel Molchanov from Raymond James. Please go ahead.
Thanks for taking the question, guys. Can you give an update on the Busbody fab in Newton, Iowa? Kind of what's the startup timetable and when you're expecting to reach steady state operations there after startup?
Yes, Pavel, it's as we disclosed, I think in the fourth quarter as well as in the Q, we plan to start up in second quarter. So we're pretty much in the second quarter. So we're on track with that start up. So we'll be producing buses out of Iowa by the end of the second quarter and expect to be at a full production rate probably by the end of the third or early fourth quarter there.
Okay. And when I look at your non wind revenue in Q1, I think it was just under $20,000,000 If we just annualize that, we would get the high end of your 75,000,000 to $80,000,000 target for the year and that's without the Newton fab. So does that imply that you're gonna be shifting some sales that you're currently fulfilling elsewhere into the Newton fab? Because, otherwise, you you easily get above 80.
Yeah. That that number included, what was what's happening in in Iowa. So it it didn't exclude that. So that's in the nonblade it's in the nonblade number.
Okay. So but you got to $20,000,000 without any sales from that new fab, correct?
Yes. We have tooling in there, and we also have service revenue in there as well.
Yes. Pavel, remember, there's wind related tooling in that number also. So that's not just a transportation number.
And we're producing buses in Rhode Island as well.
That's right.
Got it. Okay. Clear enough. Thank you.
Yes. Our
next question is from Eric Stine from Craig Hallum. Please go ahead.
Hi, Steve. Hi, Bill.
It's Aaron Spahala on for Eric. Thanks for taking the question.
Hey, how's it going?
Not too bad. Thank you. First on the transitions and start ups, obviously, since that's key for the 2019 ramp, can you just provide an update on how things are progressing with those? Have you seen any unplanned issues or delays or anything outside of the ordinary? Or is it just kind of status quo?
You did mention more blades in production at quarter end to kind of facilitate some of those, I think, right?
Yes. There are a number of startup and transition programs all going on, and there are several that are a bit ahead. And from time to time, we may have one or two that are a little bit behind. But we're not going to be reporting out on detail of every line around the world of transition or start up. But suffice to say, we've confirmed our guidance and are generally on track.
Okay. Sounds good. And then second on just high level on the overall lines. Looking at what you have in house today and with the transitions and start ups going as planned, I mean, it seems like most of your twenty eighteen targets are in hand today. Maybe you just need a few more lines to close.
Is that right? Or is there anything that we're missing?
Yes. I think that's right on the first part. And then on the lines, we've closed five lines on a nominal of 12. The range was 10% to 14%. So we're tracking pretty well against the range of 10% to 14%, but have some more work to do there between now and the end of the year.
Right. Okay. And then last question maybe just on repowering. Seeing much more of that in the market seems like a real nice opportunity for you guys. I mean is there a way to quantify what percentage of the business that might be today?
And how you think it can become going forward?
The repowering percentage of the total market or the ability for that to add to the market of new machines, it's starting to grow, but it's still not a very large percentage in total of the new installs on an annual basis. It's getting a fair amount of press in The U. S. Because of the PTC benefit that some of the repowering projects could take. So that is going on in The U.
S. Market on that basis. But the bigger macro over time would be can we will the industry increase the overall market on an annual basis based on starting to replace old machines that might have been in the ground for twenty years or so? That's starting to contribute, but it's not a major number. And for us, we're largely building new blades, state of the art machines, new blades.
So unless that repowering project is taking out the old machine entirely and putting in a brand new machine, that's we may not be participating in the business. And if it's that way, then it looks like just new orders to us for the most part. So a little tougher to call that out exactly. Good news is it's starting to contribute to the overall demand, but truthfully, a huge percentage yet.
Our
next question is from Joseph Osha from JMP Securities. Back
to Pavel's question, I'm looking at the queue here. And as you point out, only about what $4,000,000 of that $20,000,000 in non blade sales were actually transportation, and the implication is that that's going to grow. But in your guidance, you say that the number that you referred to is all non void billings, which I would assume includes the molding and equipment sales and whatnot. So it kinda gets me back to the question Pavel asked. I would think if the transportation business is going to ramp, that 75,000,000 to 80,000,000 still looks low.
Can you help me understand that?
Our guidance is 75,000,000 to 80,000,000 Joe, and that's where we're at right now. So I mean, that includes our transportation, it includes tooling, and it includes some other small service or some other small transportation work that we do as well.
All right. Cool.
And then I think this is just a timing question. If you go back and look at what you guys said in Q1, you were expecting six lines to be in start up and seven in transition and things came out a little different where you had 10 I think in start up and four in transition. Is that just timing or is there something else going on there we should know about?
It's just timing. I think when we talked about it originally, some of these can move a week or two, which could flop a quarter. So again, that was just trying to give you more of a general idea of the cadence of what's specific necessarily because it does move a little bit. So it's just Okay.
One other very quick one. You've given us Q1 'seventeen now for comps for ASC six zero six. Maybe I've missed it. Did Q2, Q3 and Q4 ever show up? Or are those going to roll out as you report 2018 and put the queues out?
Yes. As the queues come out, we'll show you restated not only for that quarter but for the year to date.
Okay. Thank you very much. This concludes the question and answer session. I'd like to turn the floor back over to management for any closing comments.
Yes. Thanks again, everyone, for your interest in TPIC, and we look forward to continuing to update you on our progress. Thank you.
This concludes today's teleconference.
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