TPI Composites Inc (TPIC) 2016 Q3 法說會逐字稿

Good evening, and welcome to TPI Composites' third-quarter 2016 earnings conference call.

Today's call is being recorded, and we've allocated an hour for prepared remarks and Q&A.

At this time, I would like to turn the conference over to Jeff Grossman, Investor Relations for TPI Composites. Thank you. Please go ahead, sir.

Thank you, operator. I'd like to welcome everyone to TPI Composites' third-quarter earnings call. In addition to our press release, you can also find our Q3 earnings slide presentation on our IR website.

Before we begin, let 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, anticipation, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risk, 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 set forth in the Company's earnings release posted on the website, provided in our final prospectus and Form 10-Q, 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 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 the results prepared in accordance with GAAP.

The reconciliations of total billings to net sales, EBITDA and adjusted EBITDA to net income or loss, net debt to total debt, net of debt issuance costs, and discounts and free cash flow to net cash from operating activities calculated in accordance with GAAP, can 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 now turn the call over to Steve Lockard, TPI Composites' President and CEO.

Good afternoon, everyone, and thank you for joining TPI Composites' third-quarter 2016 earnings call. I'm joined today by Bill Siwek, our Chief Financial Officer.

I would like to start with some highlights from the third quarter, followed by an update on the broader wind market. I will then address certain competitive and unique developments that took place during the quarter. And we will then turn the call over to Bill to review our quarterly financial performance in more detail. I will then conclude with an update of our 2016 outlook before we open up the call for Q&A.

Turning to slide 5, we are pleased with our performance in Q3, as we continued the momentum from our strong first-half results. Our results were driven by increased production and operational efficiencies across all four of our geographic segments, as we reported year-over-year increases in net sales, total billings, net income and adjusted EBITDA.

Net sales were up 23.1%, while total billings were up 28%. Net income rose to $2.8 million, a $4.9 million increase over Q3 of 2015. And adjusted EBITDA was $19.6 million or 9.9% of net sales, a 520 basis point increase over the same period last year. This was accomplished on 30 molds in full operation. Two additional molds were not installed until late in the quarter, and won't be in production until late Q4.

We announced in October that we've extended supply agreements with GE in both Iowa and Mexico through 2020, and also entered into a new long-term supply agreement with GE through 2020, for our third manufacturing facility under construction in Juarez, Mexico. These agreements confirm our continued relationship with GE, our ongoing productivity gains, and our commitment to continue to work with our customers to drive down the levelized cost of wind energy. We will comment further on our relationship with GE later in this call.

Furthermore, today we announced that we have signed a long-term supply agreement with Nordex for two additional molds in our new Turkey facility. The intent to sign this long-term agreement was previously disclosed as part of our agreement with Nordex, which also calls for two more molds to be under long-term contract during the fourth quarter.

If you turn to the next slide, as of today, we have 44 molds under long-term supply agreements, and expect to end the year at or above the high side of the 38- to 46-mold range we provided as guidance for 2016 during our second-quarter earnings call. Our current contract provides long-term revenue visibility of $4.2 billion in contract value, including extensions and new contracts signed since the end of the quarter across the 44 molds through 2023, up from $3.1 billion last quarter, based on 38 molds under contract through 2021. We currently have a strong pipeline of 25 additional molds in various stages of negotiation that we have prioritized to close within the next 24 months.

This pipeline strongly supports meeting our unchanged target of 25% annual top-line growth over the next few years. While the minimum guaranteed volume under contract is $2.7 billion, our contract structure encourages customers to purchase the maximum volume, as their price increases if their volume drops below the maximum. We continue to capitalize on strong wind industry growth, and outsourcing trends from our core customer base. We will continue to execute on our strategy of global growth, customer diversification and profitability, with long-term supply agreements generating significant revenue visibility and driving capital efficiency for the industry-leading OEMs in the wind energy market.

Turning to slide 7, I'd like to provide an update on the wind industry, which continues to exhibit areas of strong growth. On a global basis, policy stability in many regions provides runway for renewables growth, especially in emerging markets. According to MAKE Consulting, global onshore grid-connected demand is estimated to be over 55 gigawatts per year from 2016 through 2025, 33 gigawatts on an ex-China basis.

And while onshore demand in mature markets will be relatively flat after 2016, emerging market growth will continue as the global demand driver. With Asia-Pacific, excluding China, leading the way, and expected to add an average of 5.8 gigawatts of grid-connected capacity per year from 2016 through 2025. Followed by Latin America at 5.1 gigawatts, Middle East and Africa at 3.3 gigawatts, and Eastern Europe at 1.6 gigawatts. Europe maintains its commitment to reforming energy markets to promote renewable development. Climate change, pollution and the improving economics of renewables, including wind, will help drive the global power shift.

According to the American Wind Energy Association, at the end of Q3 2016, there was over 20 gigawatts of wind either under construction or in advanced stages of development in the US. Given the beneficial regulatory backdrop, we expect to see strong demand for wind in the future, as does MAKE, which has estimated onshore annual grid-connected demand through 2025 of 7.2 gigawatts in the US market.

Wind plays a large and growing role in many states' energy plans. For example, according to the US Energy Information Administration, in 2015, 11 states generated at least 10% of their electricity from wind, which compares to only three states generating the same amount in 2010. Within that broader growth environment, we are seeing examples of strong growth and utilization in the US. In particular, in Iowa. According to AWEA and Governor Branstad, the State of Iowa's fleet of wind farms accounted for 35.8% of in-state power generation on a 12-month rolling average through August of 2016.

With several additional huge win developments underway in the state, including Mid-American Energy's 2-gigawatts Wind XI project, and Alliant Energy's 500-megawatt Whispering Willows expansion. Governor Branstad has commented that Iowa is, quote, well on track to blow past the 40% mark by the end of the decade, end quote.

Many US utilities are implementing their plans to de-carbonize the electric sector in order to meet the Clean Power Plan or other forms of carbon pricing that they expect over time. The commercial and industrial segment is also driving significant demand in the US. The segment accounted for over 25% of PPAs in 2016, and is expected to drive nearly 5 gigawatts of new wind contracts through 2020, and over 20% of demand over the next 10 years.

Re-powering is also expected to increase over the next several years and provide substantial additional wind demand in key mature markets. For example, MAKE expects asset owners in Europe to replace 7.7 gigawatts of old projects with 11 gigawatts of new capacity from 2016 through 2025. And in the US, it is expected that there will also be a meaningful amount of re-powering activity as the average age of the US fleet continues to grow, and as a result of the IRS's clarification of the 80/20 Rule under the PTC.

This provides testimony that wind energy continues to gain traction on a global scale as a safe, clean and cost-effective way to generate energy. And TPI remains well-positioned to capitalize on this ongoing trend, as evidenced by our strong performance in Q3.

Now I'd like to spend some time addressing recent developments in our industry specific to the competitive landscape. Please turn to slide 8. First, GE announced in October their attention to acquire LM Wind Power, TPI's largest competitor. We view this as a unique circumstance in the industry, and frankly, was a surprise to us and most industry participants. The deal has been described by GE's Chairman as helping them to develop new blade technology, recapture margin, and add capacity and flexibility to their blade supply chain.

The morning of the LM announcement, GE also extended contracts with TPI in both Iowa and Mexico through 2020, as well as added a new formal agreement through 2020 for our third plant in Mexico. Which was the new plant under lease, as discussed during our last earnings call. GE has committed to honoring its current contracts with TPI, and we are in discussions regarding extending both the China and Turkey agreements in the normal course of our business. Furthermore, GE and TPI are embarking on multiple epoxy-based technology development programs to improve performance and reduce the cost of energy.

At a minimum, the GE news highlights the strong growth in the wind industry, and the fact that GE is looking for incremental capacity to meet their growth plans shows the tight supply in the market, coupled with a strong demand environment. As such, we expect TPI will remain an important strategic supplier to GE if and when the LM acquisition closes. While GE had solely been outsourcing blades in the past, their acquisition of LM will put them on the same playing field as the other OEMs who utilize both in-house and outsourced blades. We expect GE's future blade-sourcing decisions are likely to be made in a GE MAKE-versus-buy context, much like our other customers.

We do not expect this announcement to change the trend of other large OEMs who continue to outsource more of their blades. As an example, Siemens, who has largely been an in-source provider of blades, announced their intention on September 28 of this year to outsource blades for a new turbine to LM Wind Power. In addition, since the end of the second quarter alone, we grew our number of molds under long-term supply agreements from 38 to 44 through further outsourcing deals.

TPI's stated strategy has been and continues to be one of growth and diversification, both geographically and across our customers. GE was over 90% of our revenues in the past. Over the last few years, we have been purposefully expanding more quickly with other customers, and have diversified down to just under 50% of our revenues with GE in the third quarter. We're on track for this trend to continue.

The new wrinkle in the competitive landscape has not changed our growth play book. And in fact, we view it as a net opportunity for TPI as we will continue to execute our strategy of diversified growth. Our strong pipeline of demand for new molds will support our 25% annual revenue growth target for the next few years, even if GE or TPI choose not to renew one or more of the current agreements.

In addition, the new competitive landscape may drive other LM customers to give TPI even stronger consideration for expansion decisions, given the fact that LM would become a division of one of their key competitors. Which may cause hesitation by their customers to share important intellectual property and critical product model plans years in advance of public announcement. Blade capacity remains constrained, especially in high-growth regions of the world. And at the end of the day, we're operating in a very specialized industry, and there are very few firms that have the expertise, the experience and the reach to compete with TPI around the globe.

We demonstrated our ability to continue the execution of our growth strategy with today's announcement that we've signed a long-term agreement with Nordex for two additional molds from our new Turkey facility. And the intent to have two more molds under long-term contract during the fourth quarter.

Switching gears, there was some recent volatility in our space after a Vestus press release related to two blades failing at a wind farm in Michigan. While we understand the concern that news like this can bring to investors, we wanted to address the topic directly, to clear the air and make sure everyone understands how these situations come to light and play out.

First of all, blade failures do happen from time to time in the wind sector, and occur for a variety of reasons. They are usually related to extreme weather conditions, but can also be due to design-, installation-, or manufacturing-related causes. TPI's track record for reliable blades has been very strong, with over 28,000 blades produced with an excellent field performance record.

To help you understand our protocols, in the event of a TPI-manufactured blade field failure, TPI is generally notified almost immediately by our customer. As that is the first step of a cooperative root cause corrective-action process that would be conducted with our customer in order to rule out items that are not of concern, and quickly get to the root cause of the failure. TPI is obligated to keep our customers' affairs confidential, and we will only comment on blade failures or notification of blade failures publicly going forward if they are likely to have a material impact on our operations or financial condition.

There have been two situations in the past where we have disclosed information on blade failures. First, the Nordex settlement agreement, which was a unique situation where, in the context of a major commitment to growth with TPI by Nordex, we agreed to invest with them in the solution, even though TPI built the blades in question to the Nordex specification. The other situation was in connection with a blade failure in India. And the reason we disclose this was that we were within days of pricing our IPO, and did not have enough information at that time to be certain it would not affect TPI.

Since then, we have confirmed that the India blade failure was not attributed to TPI materials or workmanship and, therefore, had no impact on us operationally or financially. At this time, there are no additional field failures that we are aware of that would materially impact our operations or financial performance. Let me now turn the call over to Bill to discuss our financials in more detail.

Thanks, Steve. Moving on to slide 10 and our key financial results, we delivered another quarter of strong results. Including net sales of $198.9 million, total billings of $196.1 million, net income attributable to common shareholders of $2.2 million, or $0.08 per share on a fully diluted basis. On a pro forma basis, net income was $2.8 million or $0.08 per fully diluted share. Adjusted EBITDA of $19.6 million or a margin of 9.9%, a 520 basis point improvement from Q3 of 2015.

Year to date, we have delivered free cash flow of $9.1 million, ended the quarter with unrestricted cash of $106.8 million, and net debt of $7.1 million. We invoiced 581 wind blade sets, an increase of 34% year over year. And finally, the estimated megawatts generated by those sets once installed is estimated to be 1,321, a year-over-year increase of nearly 34% as well.

We currently have 44 manufacturing lines dedicated under executed long-term supply agreements, with 32 of those currently installed, 30 that we're operating at full capacity during the quarter, and two molds that just entered the start-up phase in September. The remaining 12 lines will be installed over the next four quarters. We did not have any lines in transition during the quarter.

Turning to slide 11, the results demonstrated in the third quarter are a continuation of strong results we've delivered over the past three years, as well as in recent quarters, with net sales, total billings, adjusted EBITDA and sets delivered all exhibiting strong year-over-year growth, year over year, with net sales up 23.1% and total billings up 28% on year-over-year volume increase of 34%. While year-over-year adjusted EBITDA is up 158%.

I will now touch on a few more details regarding our operating performance in Q3 on slide 12. Net sales for the quarter increased by $37.3 million or 23.1% to $198.9 million, compared to $161.6 million in the same period of 2015. This was primarily driven by a 30.2% increase in the number of wind blades delivered in the quarter compared to the same period in 2015. Net sales of wind blades were $194.2 million for the quarter, as compared to $140.7 million in the same period of 2015. The increase in volume was somewhat offset by a slight decline in average sales price per blade as a result of geographic mix, blade mix, demonstrated savings and raw material costs, a portion of which we share with our customers, and the impact of foreign currency fluctuations in Turkey and China.

Net sales from the manufacturing of precision molding and assembling systems during the quarter decreased to $3.3 million from $19.6 million in the same period of 2015. This decrease was primarily the result of customers requiring fewer molds from both our Rhode Island and Taicang, China facilities during the quarter. Total billings, which represent the total amount we have invoiced our customers for products and services for which we are entitled to payment under the terms of our long-term supply agreements or other contractual arrangements, increased by $43 million or 28% to $196.1 million. Compared to $153.1 million in the same period of 2015.

Gross profit for the quarter totaled $22.2 million, an increase of $14.4 million over the same period of 2015. And our gross profit margin increased by 640 basis points to 11.2%. The increase in gross margin was driven by improved operating efficiency, increased wind blade volumes, reductions in raw material and other operating costs, and the favorable impact of fluctuations of the US dollar relative to the Chinese RMB, Turkish lira, Mexican peso and the euro. The increase in margins was somewhat offset by share-based compensation of approximately $1.2 million, of which $900,000 related to the period from grant date to June 30, 2016.

Start-up and transition costs in Q3 were $5.1 million, as compared to $3 million in Q3 of 2015. The Q3 2016 costs reflect the start-up activities underway in our two new Juarez, Mexico plants, as well as in our new facility in Izmir, Turkey. Compared to the cost of transition of wind blades in our US, Mexico and Taicang, China plants and start-up costs in our Dafeng, China plant in the same period of 2015.

General and administrative expenses for the three months ended September 30, 2016 totalled $14.1 million, as compared to $3.4 million for the same period in 2015. As a percentage of net sales, general and administrative expenses were 7.1% for the quarter, up from 2.1 % in the same period of 2015. This increase was primarily driven by share-based compensation of $6.9 million, of which approximately $5.4 million related to the service period from the date of grant through June 30, 2016. As well as additional costs incurred to enhance our corporate support functions during this period of growth, and public Company governance.

To expand a bit on the share-based compensation, each award granted prior to the consummation of our IPO included a performance condition that required the completion of an initial public offering. And a required vesting period of one to four years, commencing upon achievement of the performance condition. Since the IPO was consummated in July of 2016, we began recording compensation expense in July 2016 for the requisite service period from the grant date through the IPO date, at which time the vesting period started. So the balance of the share-based compensation will be expensed over the remaining vesting period.

Total share-based compensation expense recognized during the three months ended September 30, 2016 was $8.1 million, of which approximately $6.3 million related to the service period from the grant date through June 30, 2016, and the balance are $1.8 million related to the third quarter. Our income tax provision was $0.3 million, an effective rate of 9.9% for the three months ended September 30, 2016, compared to $1.6 million for the same period in 2015. The decrease was primarily due to the mix of income generated by geographic segment.

Net income for the quarter was $2.8 million, compared to a net loss of $2.1 million in the same period of 2015. Adjusted EBITDA for the three months ended September 30, 2016 increased to $19.6 million or 9.9% of sales, a $12 million increase and 520 basis point improvement, compared to adjusted EBITDA of $7.6 million or 4.7% of net sales during the same period in 2016.

Moving to slide 13, we ended the quarter with $106.8 million of unrestricted cash and net debt of $7 million, after converting $10 million of convertible subordinated debt to equity in connection with our IPO. We're pleased with the strength of our balance sheet, and believe we are in good position to continue to capitalize on the growth opportunities before us. For the quarter, we generated cash from operating activities of $17.8 million, while spending a proximally $4.7 million on CapEx, resulting in free cash flow for the quarter of $13.1 million.

As we explained last quarter, our CapEx will pick up in the last quarter of 2016 as we ramp up our two new facilities in Mexico and our new facility in Turkey. Consistent with our past practices, we will continue to finance a relatively modest portion of CapEx for our new facilities, and the balance will be funded with cash flow from operations. I will now turn the call back over to Steve to discuss our outlook for 2016.

Thanks, Bill. Before I provide an update on our 2016 outlook, I wanted to address the results of last night's election and how a Trump presidency, coupled with a Republican Senate and House, affects our outlook. In the near term, there are policies and regulations that will remain unchanged. For example, the benefit of the PTC is in place through 2020, and is unlikely to be changed. We expect to continue to have the strongest policy support environment that we have ever had for wind in the US through 2020.

In addition, wind energy development, as a part of the overall energy policy, enjoys both Republican and Democratic support. According to recent Pew polls, 77% of Trump voters favor expanding wind. According to a Lazard poll, 91% of likely voters favored expanding wind power. That included 81% of conservatives. The wind industry also has significant support from key Republican champions, like Iowa Senator Chuck Grassley and Iowa Governor Branstad, for wind energy policies.

In order to enact favorable longer term policies, we will need to work as an industry with our Republican champions to educate the Administration regarding voter desires. As a longer term challenge, we would expect the Clean Power Plan or other similar administration-supported directives to be eliminated.

Yet without the CPP, the longer term question may hinge on if utility planners continue their push for more renewables to both de-carbonize the electric sector, and to create new generation and transmission offerings to drive future growth. We know that wind is cost effective, and levelized cost of energy will be driven down even further over the next few years to support further demand for wind. So we would expect utility planners to continue to view wind as a strong investment.

Mr. Trump has also called for the re-negotiation of NAFTA. We believe there are many strong forces that will oppose significant changes to NAFTA, including the automotive industry, that we believe would make large-scale changes challenging and unlikely. TPI will continue to work with our customers to plan where we should expand next in order to help them gain market share. We have the option to prioritize our expansion plans beyond the current 44 molds under contract to other emerging markets, including perhaps Asia, Latin America and certain regions of EMEA. And finally, our operations are able to cost-effectively serve many markets around the world, which we believe leaves us well positioned.

The election results do not change our view on our near-term outlook. We're pleased with the results we delivered in the third quarter, and we believe we are well positioned to take advantage of the current market environment and the outsourcing trends our core customers desire and that our business model enables.

For 2016, we expect total billings between $750 million and $760 million, sets delivered of between 2,147 and 2,162, estimated megawatts of sets delivered to be between 4,915 and 4,955. Dedicated manufacturing lines under long-term agreements at year end to be at or above the high side of our previous range of 38 to 46. Manufacturing lines installed, between 33 and 36.

We had three lines in transition in the first nine months of 2016, and do not expect to have any in transition for the remainder of the year. We will have three to six lines in start-up during the fourth quarter. Finally, we expect our capital expenditures to be between $50 million and $55 million.

We remain very confident in our global competitive position and the application of our dedicated supplier model to take full advantage of the strength in growing regions of the wind market, the trend toward blade outsourcing, and the opportunities for market share gains provided by the current competitive dynamic.

Thank you again for your time today, and we look forward to updating you on our progress in the future. With that, operator, please open the line for questions.

(Operator Instructions)

Paul Coster, JPMorgan.

Well, thanks. That was such (technical difficulty). So that was very helpful, thank you. I've just got one question, really, which is, if you look slightly over the horizon at North America, it looks like it's going to be a shift in wind deployments from the traditional Texas-Oklahoma-Iowa corridor, more towards [PJM] territory. Do you agree? And if that does happen, can you service that region from your Iowa plant? I've got one follow-up as well.

Yes, thank, Paul, good evening. I think the answer is, yes. We are shifting both from our Iowa plant and our Mexico plants by rail, as well as by truck. I think the central corridor is likely to continue to drive a fair amount of demand for quite some time, as is evidenced by the Iowa example that we gave. But to the extent that other regions of the US become stronger growth markets, each of our plants that serve the US market do so in a pretty cost-effective way, again, combining both rail and truck delivery to those spots.

Okay. My second question, if you don't mind, is that you've talked about your future revenue visibility from the expanded contracts. But you have also mentioned that there is a minimum volume as well. Although the customers are not motivated to take the minimum volume, this hypothesis that LM Wind had some spare capacity, so GE may do so. Were it to do so, what is the downside scenario with the new contracts that you have in hand? What is the downside from the $4.1 billion, I think it is?

The number under contract, Paul, is currently $4.2 billion over the range of this two-to-five-plus-year period of time. As you know, that's across all of our contracts. So it's a broad number in that way.

I think that in each of our contracts, as you know, we have minimum volumes. We have volume-based pricing, and our customers also generally invest in the tooling in a way that there is a joint investment there. It motivates all of us to work hard to try to keep the plants full, operate on the high side of that range and generally, we do.

We generally operate on the high side of the range. What we are not going to do generally is to get into specific discussions about minimums for one customer at one plant, that level of detail. But I think generally, what we can continue to say is, $4.2 billion is the top line, the headline. We're motivated that our customers operate at the high side, and our experience is generally been that that's generally where we operate.

Okay, got it, thank you.

You bet. Thanks, Paul.

Jeff Osborne, Cowen and Company.

Good evening, and thanks for all the details on the call. I just had two quick questions. Bill, I was wondering if you could just touch on the debt position? And now that you are a public Company and demonstrated cash flow, where are we in possibly renegotiating that lower interest expense?

Yes, you bet, thanks. We are in the process right now of doing that. Our plan is to try and complete that before the end of the year. Might slip into the first quarter, but we're definitely working on that as we speak.

Got it. And then, Steve, you put on the slides, as it related to LM, which was helpful, around Turkey and China. And my understanding is, those two facilities, the contract expires at the end of next year. Correct me if I'm wrong there. But how do we think about, I guess, how much leeway, if you will, that you will give them on that?

So if we went in the time machine and it's now the summer or fall of 2017, at what point do you just break away from them and move on to try and allocate that capacity to someone else? And assuming that scenario played out, I guess, how quickly could you pivot and move away from GE come January 1, 2018, to a secondary customer?

Yes, thanks, Jeff. So you do have the dates right. The China and Turkey agreements currently expire at the end of 2017. Normally what we would try to do is to make sure those agreements are extended with no less than 12 months of runway, which would mean by the first of next year. In this case, given the new information, and working together with GE, it may take a little bit longer in this case, to get the agreements extended. It is in our best interest to do so.

However, we do have a strong demand across all the sites around the world, basically additional demand for those parking spaces. So if it doesn't make sense for GE to extend, or if it doesn't make sense for some reason perhaps for TPI not to extend, then we would backfill. And we would do so, frankly, to have enough time such that molds would come out of an operation, and molds would be going in generally at the same time.

So it takes us some number of months, perhaps six to nine months on average, to get tools ready for an operation, unless they are sitting and available somewhere else. So you can imagine -- you can kind of do the math on what we just gave you, and think about the timing.

That's helpful. I appreciate it. See I thought that was it, I just wanted to double check. Thank you.

Yes, you've got it right. Thanks, Jeff.

John Quealey, Canaccord.

Good evening, Steve and Bill. So back to Jeff's question for a minute on the cadence on filling some factories. So assuming LM closes, when should we expect to hear about potential poaching some of their OEM customers' guys? So is it around that 2017, 2018 timeframe? Or what is a -- I know, no guidance given, or no expectations. But generally, the cadence; when should we think about hearing from you guys any potential wins out of existing LM customers?

Yes, John, thanks. I don't think we can give you a specific timeframe on that. The reality is, our strategy, as we stated a number of times, is to expand around the world with our existing customers and with a handful of new customers. Some of those new customers are existing LM customers. But I think it's going to be as normal for us, taking time to negotiate really good, solid long-term contracts, and sometimes that happens a little more quickly, sometimes it takes more time.

But I don't think we can give you a more specific answer to that, except to just reiterate what was in our talking points earlier, that you can imagine there would be some interest along those lines. And you might imagine in this small community that most all of us know one another, and have ongoing dialogue.

Okay, great. And then as a follow up, in terms of that $2.7 billion of contracted minimums, as we look at that tenor chart on page 6, is that ratable? Or how should we think about it from a weighted perspective? Is it more front-end loaded? Or how do we think about that from a back-stop visibility? Thanks, guys.

Yes, thanks, John. It's not ratable. As you know, we enter into and extend contracts at different periods of time. And as we've stated before, generally the early years of a contract we're at 100%, which is our contracted capacity. And then at the minimums, we will start after that point in time. So you really can't look at it ratably. It just really depends contract by contract, depending on where we are at. So it's hard to look at it that way.

And John, just to add, the slide that you referred to, the timeframes that are shown there, as noted in the footnote, this is the longest of the contract per site, just as another point of note.

(Operator Instructions)

Pavel Molchanov, Raymond James.

Thanks for taking the question, guys. To kind of get into a little more granularity on the post-election stuff you talked about, one of the things we've seen is US utilities signing contracts in anticipation of the Clean Power Plan being implemented. And since that's obviously off the table now, is there a potential for a soft patch in new bookings over some kind of near-term timeframe?

Yes, thanks for the question, Pavel. So I think we've also seen and heard a number of utilities at NARUC meetings, and others, speak to the fact that they are planning on the decarbonization of the electric sector, and making moves in that direction, whether the Clean Power Plan is successful or not. And this was certainly prior to the election.

I think folks would be much more negative about the Clean Power Plan itself remaining as an EPA administrative directive, if you will. But I think the general view in the utility sector, as we heard it from a number of the major players, is that they expect that fundamental trend to be in place with or without any single policy, or with or without any single person sitting in the White House. So that's point number one.

For us, too, and please recall, we are a global Company. We are operating around the world, not just serving the US market. Many of our plants serve many markets around the world. We're going to continue to make sure that every factory is serving as large of a cost-effective addressable market as we can. And so even as individual markets are up or down, we have worked pretty hard to insulate ourselves from those effects.

And then the third point I'd make, kind of back on the US market itself, is just that the continued reduction in levelized cost of energy. So the cost of wind has come down 61% over the last six years. We see continued opportunities for longer blades and taller towers and cost-outs, and things along that line, to help continue that path. So we see wind just being more and more competitive.

And the utilities do too. If you look at what MidAmerican and Berkshire Hathaway, others, have done in Iowa and elsewhere, they are signing agreements with utilities and/or the C&I segment based, and what their words have been, based in large part on cost. And some of that is supported by the PTC, some in less need of the PTC benefit as time goes on.

So I think we're pretty bullish about just the fundamentals of that being okay. That doesn't mean there won't be softness over time. I think we would tend to think the softness may come in 2021, not between now and then. And that's a US market comment, again, just supported by our strong push to make sure we are more diverse every year between now and then.

Yes, that's helpful. And maybe along those lines, obviously the whole value chain has been pushing for lower and lower costs. The fact that there is not going to be a Clean Power Plan, is that likely to spur additional acceleration in these cost-reduction efforts? Or is the industry already pushing about as hard as possible?

I think the industry is already pushing extremely hard, and in the right way. If you think about the phase down of the production tax credit as it was negotiated with Congress not long ago, it already showed a step down. And the benefit of the PTC, as you know, Pavel, was the IRS guidance earlier this year, it helped to get full value, 100% value for a longer period of time.

But there is a very aggressive cost-out initiative looking at -- you can look at the other public wind companies and their own stated goals and targets that they have set for themselves, and expect that that's translated across the industry. And it's something that we embrace. As you will remember, when we drive down raw material costs, we tend to share a portion of the gain with our customer. We do that in a very proactive way. Blade price actually comes down a little bit with that. But yet -- which means levelized cost of energy can come down.

At the same time, our margin dollars and margin percent expand. So we view that as a win-win. We work it pretty aggressively, not waiting around for a customer to ask for cost-outs, but we tend to push it pretty hard with them. So the shorter answer is, yes, it's pretty aggressive across the board.

Okay, appreciate it, guys.

Thanks.

(Operator Instructions)

Jeff Osborne, Cowen and Company.

Thanks for letting me get back in. Just a quick follow-up question. There wasn't a lot of discussion of Mexico II and III and Turkey II. Can you just talk about the anticipated ramp up of those, just especially given that they are both sites that you have an experienced labor force? Any expectations on how many quarters it will take to get to full utilization?

You bet, Jeff. Both Mexico II and Turkey II are about on the same timelines, and they are both going a bit ahead of plan at this point, from a cost standpoint. We will have two lines in place in Turkey by the end of the year, and we will have probably two lines in place in Mexico II by the end of the year. The balance of those lines will get put in, in the first two quarters of next year.

So we will be, I would say, we will probably be the equivalent of 40% to 50% utilization next year, on an equivalent basis, in those two plants. But they are going, as planned, a bit ahead of schedule, as I noted, from a cost standpoint. And it has certainly helped having experienced workforces in both of those locations as we've started up.

With respect to Mexico III, the building is well-under construction now. We expect to begin putting molds in, in January of next year, and be up and running fairly rapidly by the beginning of the third quarter. And full production by the end of the year there as well.

Excellent. Thanks, Bill. Appreciate it.

You bet.

We are showing no further questions at this time. I'd like to turn the floor back to Steve Lockard for closing comments.

Thanks, operator, and thanks all of you again for your time today. Again, we look forward to continuing to provide updates on our progress in the future. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.