TPI Composites Inc (TPIC) 2017 Q3 法說會逐字稿

Good afternoon, and welcome to TPI Composites' Third Quarter 2017 Earnings Conference call. Today's call is being recorded, and we have allocated an hour for prepared remarks and Q&A.

At this time, I'd like to turn the conference over to Anthony Rozmus, Investor Relations for TPI Composites. Thank you. You may begin.

Thank you, operator. I'd like to welcome everyone to TPI Composites' Third Quarter 2017 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 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-K 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 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 press 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 third quarter 2017 earnings call. I'm joined today by Bill Siwek, our CFO. I will start with some highlights from the third quarter, followed by a brief update of the wind market and TPI's progress on our strategy of strong and diversified global growth. I will then turn the call over to Bill to review our financial results in more detail. I will then conclude with a review of our full-year 2017 outlook before we open up the call for Q&A.

Please turn to Slide 5. TPI delivered another strong quarter. Our net sales experienced healthy year-over-year growth, increasing 22.3% to $243.4 million, while total billings increased 30.8%, to $256.4 million. Adjusted EBITDA for the quarter increased 53.4%, to $30.1 million, and adjusted EBITDA margins expanded 250 basis points, to 12.4%. The strength in adjusted EBITDA was primarily driven by a 21% increase in blades delivered, reductions in manufacturing cycle times, improvements in productivity, and shared gain from our material cost-out efforts.

Our financial performance is a result of the dedication of the entire TPI team and continuing the execution of our deeply collaborative business model and working to continue to drive down the cost of wind energy globally in an increasingly challenging marketplace. With the signing in Q3 of a new supply agreement with Senvion and including 2 lines signed earlier with Nordex Acciona for Turkey, we have successfully backfilled the contracted revenue that was affected by GE's decision to not renew lines in Turkey and China.

In fact, due to the growing blade size and the increase in revenue per year per line, the annual revenue opportunity from these 4 new contracted lines will replace that of the 7 older and smaller GE blade models, while also leaving some factory space available for 2 to 3 additional lines. This multiyear supply agreement with Senvion covers blades from 2 manufacturing lines for wind markets including Asia, Australia and South America.

The blades will be produced at our facility in Taicang Port, China, with production planned to commence in Q2 2018. We are pleased to add Senvion as a key customer and that they have chosen TPI as their wind blade outsource partner. Adding Senvion means TPI now has 5 of the top 10 global wind turbine manufacturers as customers or 5 of the top 6 on an ex-China basis.

We also announced today the signing of a 5-year supply agreement with Proterra for TPI to become the provider of composite bus bodies for Proterra's Catalyst zero-emission electric transit buses. To serve Proterra's growing volume, TPI will open a second facility in Newton, Iowa, during 2018 to manufacture these high-strength, light-weight composite products. TPI is committed to supply up to 3,350 bus bodies over the 5-year term of the agreement. We are very pleased to be expanding and extending our relationship with Proterra.

Last week we announced the appointment of Joe Kerkhove as Senior Vice President, Strategic Markets. Joe will lead TPI's business development initiatives to expand the application of TPI's advanced composite technologies to adjacent strategic markets such as transportation and aerospace. Joe brings a wealth of knowledge and experience to TPI, having held various executive, commercial and business development positions over a 20-year-plus period at Arconic and Alcoa, and we are excited to have him onboard.

We continue to develop and work our robust pipeline, with global opportunities with current and new customers and both onshore and offshore blades. We remain confident in our ability to continue converting these opportunities into multiyear agreements.

Last quarter we explained that 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 be meaningfully more than that of our earlier expectations. As a result, the average revenue per year per line is increasing from a range of $20 million to $25 million to an excess of $35 million. Therefore, it will take fewer overall new lines to enable us to meet our growth targets.

Furthermore, as our customers transition to larger blades under existing contracts, the revenue per line will increase, providing additional revenue growth opportunities and additional built plant capacity for new growth. For these reasons, we have recalibrated our prioritized pipeline from 28 lines as of the end of the second quarter to 22 as of today.

Notwithstanding the reduced number of prioritized lines, the increase in revenue per line will provide us with essentially the same or even greater revenue opportunity from those 22 lines as was originally anticipated from last quarter's 28-line pipeline. We currently have approximately $4.4 billion in contract value through 2023, including 48 wind blade manufacturing lines and our transportation production lines.

As we discussed last quarter, there are some industry headwinds that will meaningfully lower our year-over-year growth in 2018 and will have a residual impact on our growth through 2019, including the trend in some non-U. S. markets of transitioning to auction-based systems and the U.S. market demand shift driven by the current PTC cycle, both of which are impacting the pace of decisionmaking by some of our current and potential customers as it relates to new long-term commitments.

For example, Siemens Gamesa Renewable Energy requesting to extend their option for 1 quarter on 1 line in Turkey, even though they won the 1-gigawatt Yeka tender, as well as increased competition from solar in many regions of the world. However, the most significant driver of our slower growth in 2018 will be the unusually high number of lines in transition, expected to be 14, along with the ramp-up of the backfill lines in Turkey and China and lines currently under contract that won't be installed until the second half of 2018.

In addition to driving down LCOE in 2019 and 2020, we expect these transitions and startups will position us nicely for strong growth in 2019 and beyond. Notwithstanding, we are revising our revenue CAGR target to a range of 20% to 25% through 2019.

Our strategy remains intact, and we continue to see traction, as we have diversified 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.

Turning to Slide 6, as of today our long-term supply agreements provide revenue visibility of approximately $4.4 billion through 2023, including 48 wind blade manufacturing lines and our transportation production lines. While the minimum guaranteed volume under contract is approximately $2.7 billion, our contract structure encourages customers to purchase the maximum volume, as their blade price increases if the volume drops below the maximum.

As shown on Slide 8, our view of the onshore global market growth remains essentially unchanged. Annual installed onshore wind growth is expected to increase from 50.1 gigawatts in 2016 to 63.7 gigawatts in 2026. This growth will be driven primarily by developing markets, which, according to data provided by MAKE, will grow at a CAGR of 8.8% during that period, while more mature markets, those of which that have at least 6 gigawatts of installed capacity at the end of 2016, will continue to grow, but at a more modest CAGR of 0.8%.

During that same period MAKE forecasts that the annual share of overall installed capacity from developing markets will increase from 15.2% in 2016 to nearly 28% in 2026. TPI remains 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 10 years.

In conjunction, we also see a strong outlook for wind energy in large markets such as China, the U.S. and India, areas where there continues to be very low 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. onshore market, as you can see on Slide 9, the next few years are expected to be relatively stable, with expected annual installations average 9.7 gigawatts, pending the final outcome of the proposed tax reform announced last week. According to AWEA, the U.S. wind industry reported 29.6 gigawatts of wind capacity under construction or in advanced development as of the end of the third quarter 2017, a 27% year-over-year increase.

Utilities announced new plans to develop and own 3 gigawatts of wind capacity during the third quarter, contributing to a total of 8.8 gigawatts in utility announcements made since the beginning of 2016. Direct ownership by utilities has historically accounted for only 20% of utility wind procurement. However, since the beginning of 2016 direct ownership has accounted for 60% of total utility procurement.

Project developers signed PPAs of 1.4 gigawatts in the quarter, contributing to a total of 4.7 gigawatts of PPAs signed this year. PPA volume year-to-date is outpacing each of the last 3 years.

Corporate customers represented 62% of total project capacity contracted during the third quarter, and Anheuser Busch, Cummins, JPMorgan Chase and Kimberly-Clark all signed U.S. wind PPAs for the first time. This compares to 37% of total projected capacity contracted by corporate customers just a quarter ago. With Dominion's announcement to partner with Orsted, formerly DONG Energy, to develop and own the 12-megawatt Coastal Virginia Offshore Wind Project, Virginia will become the 42nd state with utility-scale wind capacity.

We believe we are very well positioned in the U.S., with our current customers accounting for 99.8% of the U.S. market share in 2016 and an expectation that these customers will continue to garner a significant amount of U.S. market share in the future. In 2015 the wind industry supported the bipartisan 5-year phaseout of the PTC, in effect tax-reforming itself. The PTC is a tool Congress provided for the wind industry to access capital. We believe this successful policy, which has driven domestic infrastructure investment, manufacturing growth, U.S. job growth and lower electricity costs should be allowed to phase out on the terms agreed to in the PATH Act of 2015.

As you're all aware, proposed House Bill HR 1, the Tax Cuts and Jobs Act released last week, could have a significant impact on the U.S. wind industry if passed in its current form. It's too early to have a clear picture of how this will eventually play out except to say that key members of the Senate Finance Committee have been very clear that they will not support changes to the wind PTC phaseout and will stand up for a deal being a deal.

Although we recognize that there is some uncertainty in the marketplace concerning the U.S. wind market, we believe there is optimism building. We'd like to reiterate our and other industry participants' view that the wind market can remain strong in the U.S. in the next few years and in a post-PTC world. There are a number of compelling drivers that underscore the case for the continued growth of the U.S. and global wind markets since wind power has been established as a reliable, cost-effective source of electricity.

Turning to Slide 10, beyond 2020 we see a strong market for wind energy both in the U.S. and globally, driven by a number of factors, including a robust group of demand drivers, translating to a solid base of support and future growth opportunities, including economics. Wind is competitive unsubsidized. With the industry's focus on continuing the trend of longer blades and taller towers to drive down LCOE, it will continue to be one of the most cost-effective forms of new energy generation well beyond 2020.

Corporate and industrial buyers. There are now 111 major corporations that are members of the RE100 and have pledged to use 100% renewable energy over time. MAKE estimates that 25% of the 60 gigawatts of wind to be installed in the U.S. over the next 10 years will come from CNI buyers.

Utilities pursuing rate-based wind capacity to enable growth, lower rates for their customers, provide long-term rate stability and drive economic growth in the communities hosting the wind farms and the manufacturing facilities. Large-scale renewable projects driven by utilities will be a key growth area. And then rapid growth is spurring new investments in transmission, other grid technologies, and cost-effective energy storage that will ease the integration.

Increased demand for offshore projects in the U.S. and globally will also add to the overall demand. MAKE estimates that the offshore wind segment will add 67 gigawatts of new capacity globally through 2026. New technologies, including floating platforms, have the potential to open up deepwater areas in the future and continue to drive down overall LCOE for offshore wind.

Repowering. According to MAKE, repowering is estimated to account for 4.8% of new capacity in the top 20 global markets through 2026 and nearly 26 gigawatts globally. Much of the near-term repowering in the U.S. will be driven by the 80/20 repowering provisions of the PTC.

Decarbonization. The reduction of greenhouse gas emissions from the electricity sector as a response to climate change is driving decarbonization globally. The vehicle electrification trend continues as EVs get lighter, with increased range and use capabilities, which is driving the need for incremental energy to power this transformation of the vehicle fleet.

Finally, as many as 1.2 billion people remain without access to electricity, severely handicapping their economic and social development. Much of the population in emerging countries with access to electricity still suffers from frequent unpredictable outages. Providing affordable, reliable energy to this population is widely recognize to be amongst the most formidable and most important development challenges today.

Let me now turn the call over to Bill to discuss our financials in more detail.

Thanks, Steve. If you turn to Slide 12, for the third quarter of 2017 net sales for the quarter increased to 22.3%, to $243.4 million, compared to the same period in 2016. Net sales of wind blades increased by 20.3%, to $233.5 million, for the third quarter of 2017 as compared to the third quarter of 2016.

The increase was primarily driven by a 21% increase in the number of wind blades delivered during the third quarter compared to the same period in 2016, primarily from our China, Mexico and Turkey plants, as well as foreign currency fluctuations in Turkey, partially offset by a decline in the average sales price of the same blade models delivered in both periods as a result of geographic mix and savings in raw material costs, a portion of which we share with our customers.

Total billings for the third quarter increased by $60.3 million, or 30.8%, to $256.4 million compared to the same period in 2016. The favorable impact of currency movements on consolidated net sales and total billings were 1% and 0.9%, respectively, for the quarter.

Gross profit for the quarter totaled $32.9 million, an increase of $10.7 million over the same period of 2016, and our gross profit margin increased by 230 basis points to 13.5%, notwithstanding the fact that we had 10 manufacturing lines in startup during Q3 of '17 compared to just 2 lines in Q3 of '16. The increase in gross margin was driven primarily by continued operating efficiencies, the impact of savings in raw material costs and the benefit of a stronger U.S. dollar.

Startup and transition costs in the third quarter were $12.4 million as compared to $5.1 million during the same period a year ago. The increase in costs for Q3 2017 are related to our new plants in Mexico and Turkey and the startup of new wind blade models for certain customers in Turkey and Dafeng, China. Before the impact of startup and transition costs and currency fluctuations, our gross profit margin in the quarter was 17.6%, compared to 13.7% in the third quarter of 2016.

General and administrative expenses for the quarter decreased to 3.8% of net sales, or $9.3 million, as compared to 7.1%, or $14.1 million, in 2016, primarily driven by a $6.1 million decrease in share-based compensations recorded in the 2017 period as compared to the 2016 period, partially offset by additional costs incurred in 2017 to continue the enhancement of our corporate functions to support our growth and public company governance.

Net income attributable to common shareholders was $20.4 million, or $0.58 per diluted share, compared to $2.2 million, or $0.08 per share on a fully diluted basis in the same period a year ago.

Adjusted EBITDA was $30.1 million, compared to $19.6 million in Q3 of 2016. Our adjusted EBITDA margin for this quarter was 12.4%, a 250-basis-point improvement from our margin of 9.9% in the third quarter of 2016, again notwithstanding $7.3 million more of startup and transition costs in Q3 '17 compared to Q3 of '16.

At the end of the quarter we had 48 wind blade manufacturing lines dedicated under long-term supply agreements, with 38 lines installed, of which 28 were in full operation and the remaining 10 lines were in various stages of startup.

Moving to Slide 14, cash and cash equivalents as of September 30, 2017 were $139.1 million, and total indebtedness was $133.6 million, resulting in net cash at September 30 of $3.6 million compared to net debt of $6.4 million at year end. For the quarter we generated cash from operating activities of $17.6 million, while spending $8.6 million on CapEx, resulting in free cash flow for the quarter of $9 million.

We continue to be pleased with the strength of our balance sheet and our ability to generate the cash we need to expand our global footprint, and we believe we are in a solid financial position to enable us to continue to effectively execute our stated strategy.

I will now turn the call back over to Steve.

Thanks, Bill. Please turn to Slide 16. Now I'd like to talk about our guidance for the balance of 2017.

We are narrowing our guidance for total billings for 2017 to between $945 million and $950 million. We expect our adjusted EBITDA for the full year to be between $95 million and $100 million. With respect to sets, we expect to deliver between 693 and 703 sets in Q4. ASP for the year will be within the previous guidance range, but at or near the top of that range during Q4.

Total wind blade manufacturing lines installed at year end will be 41, versus our previous guidance of 37. The additional lines are due to the acceleration of the installation of 3 lines in Turkey and 1 line in Mexico.

Capital expenditures will be less than planned, primarily due to the timing of actual expenditures and the elimination of certain noncritical items. Startup and transition costs will be at the high end of the range of our previous guidance.

Our effective tax rate and income tax expense will be at the low end of our previous guidance.

Depreciation and amortization will be slightly lower than expected, due primarily to delay in capital expenditures.

Interest expense will be slightly above our prior guidance as a result of the increase in interest rates on our variable-rate debt.

Share-based compensation will be slightly higher as a result of the equity grants that were made in early Q4.

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 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.

I'm very pleased with TPI's third quarter results and our progress year-to-date. To summarize, we've delivered outstanding results both in the top line and on an adjusted EBITDA basis. We signed a multiyear agreement with a new customer, Senvion, and backfilled our revenue in China.

We signed a multiyear supply agreement with Proterra, under which we've committed to provide up to 3,350 composite bus bodies for their zero emission electric buses over the 5-year term, and we've added Joe Kerkhove to the senior management team to drive our business development initiatives to expand the application of TPI's advanced composite technologies to adjacent strategic markets.

We remain very optimistic about TPI's prospects, and I want to thank the TPI employees for their hard work and our shareholders for their continued support.

As a reminder, we'll be hosting our first Investor Day on Friday, November 17, at the Roosevelt Hotel in New York City. If you have any questions or are interested in attending, please reach out to our IR team directly at investors@tpicomposites.com.

Thank you again for your time today. And with that, operator, please open the line for questions.

Thank you.

(Operator Instructions)

And our first question comes from Paul Coster, from JPMorgan.

You have changed the number of lines in pipeline, but it doesn't look like you've changed the contracted revenue outlook. So can you just talk us through that a little bit? And can you elaborate on this concept of prioritized lines?

Yes, thanks, Paul. It's Steve. So one way to think about the pipeline and the prioritized pipeline, as we've described, I think, a bit before, this is not the universe of all the production lines that might be out there for us to secure, but it's more the list we've prioritized from a larger list that we're working to close within a 24-month period. So that's the same convention. Our contract value is dollars under current contracts, different than the pipeline. The pipeline is in addition to what's currently under contract. And you're right, we're recalibrating the number of lines in the pipeline, but it's not really changing the opportunity. And in fact from a revenue standpoint our revenue opportunity is a bit higher. And just a simple way to think about that, Paul, is 22 lines times $35 million in revenue per year is more than 28 lines, the old number, at, say, $25 million in revenue per line. So the revenue opportunity is actually a bit higher, equal to or more. What we do want to make sure as blades get larger not only is the revenue per line per year going up, but the megawatts per line per year are going up, and we are calibrating with our customers a bit wanting to make sure that we meet the supply-demand requirements in a region in the right manner. We don't want to overshoot. We want to have adequate capacity. So we think of it more as a recalibration in that sense.

Okay. And my follow-up is 2018 was always going to be a transition year, anyway, and is the thing that will weigh most on the revenue growth next year. So that's not really changed. But you've taken down, potentially, the revenue growth range by at midpoint from 25% to 22.5%. And that's all because of auction-based activity and the PTC (inaudible). But (inaudible) kind of constants during this time. What's changed, Steve?

Yes, Paul, what you mentioned is a factor. I think the residual of the '18 impact rolling into '19 is a bit of it. The fact that these larger auctions are going on, and then also our industry is going, and some of our customers are going through some pretty significant changes, as you're aware, some M&A activity, the integration of companies combining. So we are seeing a little bit of a slower decisionmaking process, and that's impacting '19 a bit, as well. So we thought it was appropriate to just provide a 20% to 25% range. 20% growth on the size of this company is still a lot of growth, and we would be executing well to deliver on something north of 20%. But with the combination of those factors we thought it appropriate to guide on 20% to 25% as a range.

Okay, one quick question of Bill. Proterra, how is that going to be presented in results and guidance moving forward, since obviously it shouldn't be factored into revenue per set calculations, etc.?

Yes, I think the way we've done it in the past, Paul, is we've broken out in the MD&A discussion blade revenue and then other revenue. So that'll be in the other revenue category until it's of a size that it makes sense to separately disclose it on the face of the financial statements.

Got it. Thank you.

Our next question is from Philip Shen, from Roth Capital Partners.

Congrats on the Proterra win. That's exciting. I was wondering if you could share if you have any sense of -- can you give us any sense of volumes for 2018 or '19? And then can you quantify all the CapEx that might be required for the new facility in Newton? And then I've asked this in the past, maybe about a year and half ago, and it might be tough for you guys to answer, but insofar as you can help us understand the amount of TPI content that might be on the average Proterra bus that would be helpful, as well. Thanks.

Thanks, Phil. So, we're not going to provide more details about our customer's volume. In this case it's one contract with one customer, and it's just not our place to get out ahead of talking about their volumes any more than the 3,350 being the contract scope, if you will, the capacity that we're committing to over the 5-year period. You can imagine '18 would be a bit of an earlier year in that process. We are building bus bodies out of our Rhode Island operation and would continue to do that and then open a new facility in Newton. So you can imagine it starting a bit slower, but we're not going to provide more detail. And then we're not in a position also, Phil, to provide the content information, as you said. Bill, do you want to speak to the CapEx at all?

Yes, the CapEx will be relatively modest. It'll be in a new leased facility in Newton. So it's less than $5 million next year to kind of get it kicked off.

Okay. Great. Earlier, Steve, you talked about the tax reform bill that's out there now, and can you -- I know this might be early, as well, but can you talk about the -- if you've seen any changes at all as a result of what the House put out there? I understand that the Senate will likely serve as a firewall, but are you seeing any changes at all with your customers or their customers in terms of a celebration of construction starts in Q4 or early Q1 or anybody delaying projects, any changes at all to the downstream customer behavior?

Yes, being in the supply chain where we are, Phil, we're not seeing any immediate impact on our business and really wouldn't expect to. As you said, we think the Senate firewall is pretty strong here, and we're pleased to see Senators Grassley and Thune and Heller come out with some pretty clear language around their view of this. We're also pleased to see today 14 House Republicans sign onto a letter with Representative David Young from Iowa on the House side. So there's clearly some strength there, although the House process through Ways and Means did provide language, initial language, that would be detrimental to wind if it were to pass in its current form. So, first, we think it's unlikely that it will pass in that form. We've not seen any immediate impact. I think the biggest impact just timing-wise here might be there's been momentum building for 2021, with 80% PTC contracts that could be safe-harbored between now and the end of the year, the end of this calendar year. Our hope is that those would continue. With the uncertainty around this, I think until it closes out it's possible that some of the safe-harbor, 80% safe-harbor volume may not be put under contract in the same manner that it would've otherwise. We don't see that impacting the next couple of years. It may pull back a little bit of the optimism around 2021. But what we like really most about the trend in the business, Phil, is the fundamentals of what's going on with wind. The economics are strong. Decarbonization is happening. And so we're really eager to see the 2021 and beyond time frame, just how big and stable wind can be standing on its own in a post-PTC world, and think that there's an opportunity for more volume in that time frame based on the fundamentals of our business.

Great. And one last one, if I may. As it relates to the Siemens-Gamesa merger, I think last week they announced a large turbine order of 780 megawatts in the U.S. Can you update us on how discussions are going with them post-merger and whether you expect to supply some of the blades for that order?

So we supply, today, Phil, the Gamesa blade models out of our Mexico operations. We have not been supplying the Siemens, the earlier Siemens turbine model blades yet. We'll see how their model integration continues to evolve. As they've said publicly, they're still going through the integration of the Siemens versus Gamesa wind turbine models as that goes forward. We don't tend to be -- to react or be affected by any one contract. Our contracts are longer term. They're for overall volume. So, while we're pleased to see Siemens-Gamesa winning big chunks of business like that, that's good for fundamental demand pull, the individual contracts don't affect us quite as much in that way. I think beyond that suffice to say any companies that go through the type of overall merger process that they're going through that you can imagine some decisions taking a little bit longer. We did mention that they've asked us to delay the option that they have for an additional line in Turkey by one quarter. So decisionmaking, as you can imagine in any company like that going through what they're going through, might be delayed a bit.

Okay. Thanks, Steve. I'll pass it on.

Our next question is from Pavel Molchanov, from Raymond James.

On your wind contracts historically you have given kind of a baseline that the customer is obligated to take and then an expanded number that they are incentivized to take. And if I'm reading the Proterra press release correctly you're only giving the maximum possible amount. Is there a certain minimum volume commitment that you're getting from Proterra over the 5 years?

Yes, thanks, Pavel. So the 3,350 is the capacity that TPI is obligated to make available to Proterra. I wouldn't say it's the maximum possible. And even in our wind contracts when we describe contract value that's not the maximum of what's doable with overtime or additional improvements in efficiency. But it is kind of the volume that we both bargained for is the way to think about it. You're right, though. There are minimums in all of our contracts, and we're not in a position to give the detail around that for Proterra except to say that our agreements in general, wind and non-wind, are multiyear, typically 5 years. There is a volume but that both parties bargained for, if you will, is this dedicated capacity. And then there are minimums, as well.

Okay. And then just a small process question, not to kind of steal your thunder for the Analyst Day, but should we be expecting some more granular guidance for 2018 on top line and otherwise next week?

Yes, Pavel, our plan is to give full 2018 guidance next week, as we're finalizing -- we'll be finalizing that up between now and then, as well as give some targets for 2019, as well.

Great. Looking forward to it. Thanks, guys.

(Operator Instructions)

Our next question is from John Quealy, from Canaccord Genuity.

First question, given the dynamics going on around the world in wind, and, Steve, you touched on many of them, can you just refresh us on the GE-LM combination that did potentially offer a window into potential new customers? Does this sort of cadence by each customer help those discussions? Or how do you think, or can you give us a status of how you think that transition's going? I imagine it's going to take several years, but if you could just give us your thoughts there. And I have a follow-up.

Yes, thanks, John. So it will take some time for all of this to play out. We competed on the Senvion business with all of the global wind blade competitors, including LM you can imagine was in that mix. And we were pleased to win that business. Our pipeline includes new customers and existing customers. It includes LM customers as well as customers that are not doing business with LM today. So that's still kind of a target-rich environment for us and something we would be focused on gaining some additional share there.

Okay, great. And then just, again, big picture, not putting the cart before the horse on Proterra, but I imagine, is the initial volumes a little bit more standardized from a technical perspective, so the traditional transitions that we have in the core TPI business, will that likely not be a factor, that initial tranche in the thousands and perhaps a bit more visibility on the margin for each of those? Thanks, guys.

Yes, John, I would imagine the pace of change will probably be a bit slower with Proterra than it would be with some of our blade customers today, especially given the drive for LCOE on the wind side. So to answer your question directly, I think margin visibility will probably be a little bit clearer as a result of less transition, if you will, with the Proterra contract.

Great. Thanks. See you next week.

Our next question is from Joseph Osha, from JMP Securities.

So, going back to -- I have a Proterra question like everyone else, but before that, going back to your 41 lines at year-end, I'm just doing a little math here trying to get that to break down by Iowa, your Mexico sites, Turkey and China. I'm wondering if you could perhaps give me a nudge there in terms of how those numbers are going to add up to the 40, 41.

Sure. You've got 6 lines in Iowa. You've got 14 lines in Mexico. You've got 5 lines in -- let me see, 5 -- 8 lines in Turkey.

Okay, so 8 lines in Turkey. All right. You're going to be at 8 by year end? Okay.

Yes. And then we will have -- what did I miss -- China we have 13 in China.

Okay. And that 13 falls a bit more in '18 and then maybe comes back up again. Is that correct?

No, the 41 will be there. It's just we're going to have a significant number of those under transition in 2018, 14 of them.

Okay. All right. Thank you. And then on Proterra, you all had a press release out a while ago actually talking about the relationship. So that was public. Is what's new here the fact that there's a volume number that you can talk about?

Yes, Joe, 2 things that are new. One is the volume, but the other is we're opening a new facility in Newton, Iowa, dedicated to Proterra. So it's also a very significant growth in the business. In the past we've been building bus bodies out of our Rhode Island operation at a smaller scale. And so Proterra's needs are growing, and we're growing with them. But this is yet another new facility, and it's a long-term -- it's a 5-year supply agreement, which is new, with dedicated volumes, which is new.

Okay. And just, I'm pretty sure you're not going to comment, but I'm going to ask anyway, based on the Proterra work I've done that number you're citing is pretty much their whole business. Any comment there? Are you the sole supplier?

Basically yes. There's a period of exclusivity, and, as we mentioned in our comments, we will be the provider of composite bus bodies to Proterra.

Okay. Sorry I missed that.

No, no. No problem at all.

Okay. Thanks so much. I'll jump back in queue.

(Operator Instructions)

And if no further questions I'd like to turn the floor back over to management for any closing comments.

Thanks, operator, and thank you again for your interest in TPIC. We look forward to continuing to update you on our progress toward our stated strategy of global growth, customer diversification and expanded profitability. We look forward to seeing many of you at our Investor Day in New York City on Friday, November 17. Thank you.

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