TPI Composites, Inc. (TPICQ) Earnings Call Transcript & Summary

Good morning, everybody. I appreciate everyone still taking the time with us. So we're going to continue with our renewable symposium today, and this morning, with Bill Siwek of TPI, who's joining us to talk about TPIC Composites, in the context of where they fit into the wind manufacturing space. I mean so frequently, I think a lot of us are fixated on individual plays within wind, geography, development-wise, et cetera. And I think it's a great opportunity to chat with Bill, because TPI has such an interesting global perspective on truly the global wind play, if you will, as well as other, should we say, ancillary opportunities with their technology as well. So Bill, first off, thank you for taking the time with us this morning. Why don't you lay out a little bit of how TPI works and what your product is and the business model?

Perfect. First of all, thanks, Julien. Appreciate it, and thanks to all of you for joining us. But TPI, we are the largest and the only, quite frankly, independent blade manufacturing firm with a global footprint, which is important when you think about the size and scale of these blades today. So we operate -- we're really focused on 2 major macros. It's the decarbonization of the electric sector as well as the electrification of the vehicle fleet. As you know, wind is, in many cases, if not all, the most cost-effective new form of energy generation out there today. The industry has done a fantastic job of driving levelized cost at wind energy down. We are now cheaper, in many cases, than the marginal cost of operating coal plants, and in some cases, nat gas plants. So our part of that is we build the blades. And generally, to drive [ LCM ], the most cost-effective way to do that is taller towers and longer blades. And so we play in the blade space. So we serve 5 -- or the top 5 turbine OEMs on a global basis, 5 of the top 8, if you include the Chinese OEMS. It's kind of 2 disparate markets. So our biggest customers are Vestas, GE, SGRE, Nordex and Enercon. We serve them out of 10 different blade plants around the globe. We have blade plants in the U.S., Mexico, Turkey, China, and India, which just opened this year. We have over 15,000 associates, 6 million square feet under roof. We also, as Julien mentioned, we do have a transportation play here, which is the electrification of the vehicle fleet. We're basically applying our advanced composites technology that we've developed since our founding back in 1968, and are now building large composite structures for the transportation industry, including some rail. That's a small part of it, but we're also doing electric buses for Proterra. We've got some development opportunities that we're working on Class 8 vehicles with Navistar that we've talked about, building commercial vehicles for Workhorse. And also, we're working on some structural components for some passenger EV applications as well. So pretty excited as we think about decarbonization and electrification, and that's kind of where we play. Since our IPO, we've more than doubled our top line. We'll do about $1.65 billion this year. We funded over $300 million in growth CapEx, $200 million in start-ups, primarily from cash flow from operations. We have a very conservative balance sheet, very low leverage. This business can generate significant amount of cash flow, if done right. And I think we're doing a pretty good job of that as we demonstrated in the third quarter. So with that, Julien, I'll turn it back to you for some Q&A.

Excellent. So all right. Where do we start here? Let's frame -- let's start here. So you just talked about all these various counterparties that you deal with already for the wind industry. Can you talk about the growth in that industry at large across all the different end markets? And how are you seeing it manifest itself? I mean, I think there's been a lot of -- probably been disproportionate amount of attention on solar, dare I say. But obviously equally in the green space, especially with the good green hydrogen angle, et cetera, I mean there's a huge opportunity still for wind. What are you seeing in terms of leading indications from your largest counterparties to ramp their manufacturing cycle to accommodate whatever the future might hold? Acknowledging that maybe, at least in the U.S. context, PTCs and otherwise might be seeing some gyrations here as well. So would love to hear how you would characterize that.

Yes. We see significant upside in wind. I mean we've always talked about wind being cost competitive. And customers are demanding that -- commercial companies, industrials are demanding it. Utilities have a bunch of decarbonization goals and objectives, the Paris Accord. That's all real. And as you think about it, we've always seen onshore growth and offshore growth. Offshore will grow faster than onshore just because it started from a much smaller base. But we've always talked about onshore growth, kind of in that 8%, 9% CAGR, 10 years, 15 years out. We're seeing a significant flip in that, more recently, quite frankly, with the coronavirus and what's -- and kind of the impetus for a number of governments around the world to kind of use this -- the switch of the decarbonization of the electric sector using stimulus as a result of the coronavirus to generate jobs, economic activity, recovery, and just this now push in realization globally of the seriousness of climate change, the projections we're seeing. And what we're talking about with our end customers, the wind market potential, including the green hydrogen angle down the road a bit, is significantly greater than we thought maybe 24 months ago, at least the acceleration of that. So we're preparing with our customers. We used to look 1 or 2 years out, 3 years out. We're talking with our customers about 24 to 20 -- or 2024 to 2020 now. So we're looking at much longer planning cycles, looking at where the demand is going to be, what the footprints are going to be. As blades continue to get larger, how do we serve that footprint, or how do we serve their needs more cost effectively? Because at the end of the day, it's about total delivered cost to the wind farm. And that's another reason why our global footprint is so important, is that if we can manufacture in these various hubs that we have and then cost effectively get it delivered to the wind farm, that helps our customers win in those markets, and grow that market quicker, continue to drive LCOE down and make us more competitive, especially against solar, which is probably the most competitive technology with us right now.

But just to quantify that, I mean how are you seeing the cadence of this trajectory? I mean you talked about 2020 to '24, right, thinking that 5-year runway. What does that trajectory look like? And what are the product cycles? Because you guys deal with these products, these discrete product cycles, right? That's sort of interesting. And how do you have a 5-year view? And are you kind of pro -- are you preemptively saying, "We're going to do this for a couple of years?" And then we know that you're coming with another product. We're going to do this in 24 months? I mean, talk a little bit about that, if you don't mind.

If you just think about the market, the U.S. market is going to be record market probably this year. We believe next year is going to be another very strong market. And quite frankly, with the PTC kind of tailing off through 2024 effectively for installs, we see the foreseeable future in the U.S. to be very strong. But I would say, when we talk to our customers, and more importantly, in many cases, our customers' customers, I think their view of the market is much different in many cases than some of the forecasting firms that are out there. So we see a very bullish U.S. market for a very long time. We see more -- we see the offshore kicking in probably in the '24, '25 time frame in significant volume. And then globally, if you look at the global charts, you'll see a dip in '23 and '24, and that's -- and to some extent, in '22. And that's primarily because the feed-in tariff in China, which is a big part of the overall wind market, expires at the end of this year. PTC, technically, from a qualification standpoint ends at the end of this year. And so if you look at some of those forecasts, you'll see some dips, but then it kind of takes back. Now if you look at some of the BNEF new energy projections, they've got an energy transition scenario and then a climate change scenario. And the volume of installs under the climate change scenario is significantly greater than any forecast that we see out of -- that we've seen over the last 12 to 18 months. So we see it. In terms of gigawatts, Julien, in the U.S. markets, probably between 13 and 15, if not better next year. We see that probably averaging out, depending, between 8 to 10, just onshore over the next several years. Then the offshore will kick in. And again, part of it depends on what happens with the new administration in the U.S. How effectively will they -- how effective will they be in affecting what's happening from a climate standpoint, whether it's executive order or legislative. So I think the U.S. market depends a little bit on that, but the most important part of the U.S. market is it's driven by economics. And if you look at the economics of when it [ today ], it makes sense regardless of whether you're concerned about climate or not, the economics will drive the shift to renewables, including wind and solar.

Let me push you a step further. I mean when you think about that product development cycle right now with wind and how it works for you guys, I mean, obviously, you see this interesting slowing. This dip in that sort of '22, '23, '24, probably more '23, '24 because of that 60% PTC. How does that impact your planning horizon with these manufacturers? I mean are they going to hold -- are they going to try to accelerate the new turbines right now? And then -- because, obviously, the other side of this pitch, I should just articulate this is, in order to drive persistent volumes beyond the PTCs, let's provide the market with a more cost-effective wind solution, which manufacture bigger turbines, which is where you step in. How are you seeing that product deployment cadence stepping in to support the wind market in those later years and support your own sales prospects as well?

So you've asked me that twice now, and I promised I wasn't trying to dodge it. So ...

No, no. Because I'm curious at the technology this time.

No. Rather than just the cadence. Yes, yes. No. Exactly right. No. Again, that said, advanced planning with our customers is understanding where they're going at with their new product introduction. Now a couple of our big customers have talked pretty publicly about modularization of the turbine platforms, making it more efficient for them. Where you can put multiple blade lengths or types on the same platform. You can upsize, downsize the nameplate rating on a turbine. So that's happening in earnest right now. And we are looking -- we are trying to plan product transitions with our customers such that if they have significant demand where they need the volume, we're not transitioning. If they know they're going to have a little bit of capacity but they know they need to get to the next gen, then we'll plan the transition during that period. So we take advantage of a period where there might be some underutilization to do a transition, and then we kick back up to that full utilization. So we're seeing a bunch. Depending on the customer, right, we're working on split blades. You might want to talk about that a little bit. And that's really about the logistics of moving blades as they're getting larger and larger. So that's some of the technology coming forward. In the modularization, it's not just in the nacelle itself, but from a blade perspective. If you think about having a blade family where you can reuse significant parts of the tooling for the molds that we build the blades in, those are not cheap to build. So those are -- those can be $3 million to $4 million a piece for a single mold for a line. So if you can reuse kind of the root section or the major portion of that, and then just do these tip extensions, that enables you to continue to increase blade length, have less downtime while you're going through a transition and also much less CapEx upfront as you're making that transition. Does that finally answer your question?

Sure. You did. No. It was just a different iteration of it. And maybe the third piece of it, again, to come back to it, is what's the time line for seeing -- like how are they thinking about retooling right now? And you talked about, listen, let's make this more seamless. I hear that from you. Are they basically trying to get as much products out the door that retool after this '21 boom? Does that make sense? I'm curious what that product cycle looks like.

I think that part of it is that, so there's been a big push. Obviously, with the COVID-19 this year and the slowdown that everybody had in the second quarter, we've been going better than 100% capacity in our plants, third quarter, fourth quarter, to try to catch up with some of that lost volume that we had. But -- so yes, part of it -- it depends on market, Julien, right? So some markets -- and that's another value of us being global and having that global footprint is pulling from multiple plants to serve markets. And so part of it depends on the market. So some of it's market specific because there are different wind regimes, and therefore, different blades and turbines that a customer will use in one market versus another. And so it's a little bit market-dependent, but it -- they do try to time it for when they have less demand, if you will, in a period. Let's get the transition done then so that we can ramp back up for the new product model, clearly.

Absolutely. I mean, listen, Bill, why don't we pivot at this point to talk more specifically about your financials, right? Like -- so this is great. Everything is great, great, great. Don't be wrong. How does this impact your financial trajectory? And I -- listen, I also understand, you guys have a forward year guidance, but let me push you a little bit. What about this trajectory and acceleration? Can you say in terms of translating back to adjusted EBITDA and FCF benefits for your company, right? And especially net of the fact that perhaps the retooling and some of these dynamics allow you to have higher uptime, I mean that has benefits for you and your partners, presumably. So treats all of that off of your current guidance base as much as you can, right? I get that.

Yes. I mean, I think we've talked for a long time about our kind of our longer-term targets to get to $2 billion of wind and a 12% adjusted EBITDA margin, free cash flow in that 7% to 9% range, strong ROICs. And we're still on that trajectory. We've been derailed a bit over the last couple of years for a number of kind of unique situations, including this year with COVID-19, but we've recovered really nicely in the third quarter, if you saw. I mean it's all really driven by utilization. And so if we can keep our plants utilized at a very high percentage and minimize the distraction or the interruption from a transition, then we get there. We are at north of 10% adjusted EBITDA for the third quarter of this year. So -- and when you look at an individual plant, the individual plant economics, there are plants where we're generating high teens, low 20s from an adjusted EBITDA standpoint at the plant level. So we know that, that model works. It's just about proper utilization of our assets and our resources and utilization of plant capacity. So again, significant free cash flow, as I mentioned in the intro, between CapEx, growth CapEx, primarily in start-up costs over the -- since 2016 when we went public, over $0.5 billion invested, virtually all of that funded from cash flow from operations. So as our growth moderates, if we choose to moderate it, which I'm not sure we will given what the future looks like, or we won't, we may not be growing at 40% or 50% a year like we were a couple of years ago just because of our size now. But as that growth moderates a little bit, we get better at transition timing, better planning with our customers. And quite frankly, if -- with the footprint we've built out, when you go into a new geography like we did this year with India, it's very costly to get there and get it started up and get it ramped and going. But with our existing footprint, if we add to that footprint on those campuses, the start-up costs are a fraction of what they would be in a greenfield. So although we will have some greenfields in the future, if we can expand our existing footprints, because we believe we're in great places to export from and to serve local markets, the impact on EBITDA of a start-up or of a transition is much less in a mature plant or a mature campus than it would be in a brand new start-up. So again, significant free cash flow potential going forward. We see the cash flow that we can generate given what we financed from operations through the IPO. And so that's why we're confident in that long-term model. As our business continues to scale, the transitions and the start-ups will have less of an impact. And we'll get to that low double-digit EBITDA -- adjusted EBITDA number that we've been talking about. And [indiscernible] third quarter.

Incredible stuff. I mean let me put it this way. I've got so many questions for you off of what you're doing with the business. So -- and I'm going to say this only because we're starting to run up against time talking about. But let me ask you this. So talk about -- well, twofold. One, you talked about targets, $2 billion number. I think your guidance is like $1.6 billion on revenue this year. So not that far off. 10% EBITDA guidance range versus a 12% margin guidance down the line. Are we within striking range with this run-up in the PTCs with '21 being very good? I mean, can we get there in the next couple of years? Do we need to wait for the next U.S. cycle? Or alternatively, maybe talk about your global footprint and the fact that you're not as dependent on this PTC cycle anymore?

Yes. I think there's a couple of things on that, and all good questions. I think from a -- can we get to the -- we got to that low double-digit adjusted EBITDA in Q3. Q3 was a really good solid level quarter for us. We're operating very well. A lot of it depends really on timing of transitions, as we've talked about in the past. And we see a pretty modest number next year, so that's good news. And then start-ups. I mean if -- as we look at continuing to grow our India footprint, the start-ups will impact that a bit. But if you kind of back out what the start-up impact is, and I know that's not -- that's part of our business, so you really -- you can't back it out without the context there. But we're there, right? But over time, yes, it's the next couple of years, I think, we get through. We see what happens in the U.S. market, whether there truly is a dip -- a big dip or not. But I think the U.S. market will impact that a little bit. But we'll continue to look at where we're at. From a global standpoint, the emerging markets are very strong and continuing to grow with the major players. And with the operating processes that we put in place, the operating imperatives that we have that we're driving towards, we're seeing significant operating efficiencies now that we've kind of stabilized our growth, we're seeing significant operating efficiencies that are driving drop straight to the bottom line. So that's a long answer to your question, but the answer is yes. Over the next couple of years, we're very confident we get there.

I mean let's talk about that composition of the business, right? And maybe this is -- let me just start with open up another big one, offshore wind. What's the strategy there? Because just as much as PTC rolls off in '24, guess what? Offshore wind obviously starts to really move up in '24, '25, '26. I mean what's the strategy there and the diversification?

Yes. So the one thing to put in context is that, first of all, I'll be clear. We're very -- we're working very hard to get into the offshore space. So we're in active discussions right now with a number of opportunities, both for U.S.-based as well as in APAC. So that is part of our future planning. It's a long cycle. And if you think about the U.S., it's really capacity for maybe late '23 or '24. So it's still a couple of years out, but we've got to close those deals now so we can get facilities built, planned, et cetera, et cetera. So -- but with that said, onshore is going to continue to dominate the overall wind space, if you think about it. It's a very small part of the market today. It gets a lot more press, in many cases, than onshore because it is a bit new, especially here in the U.S., but it will continue to be a relatively small part of the overall piece of pie. But with that said, it's a slice that we need to be in and that we're working really hard to get in. But to your point, Julien, in the U.S., as opposed to other parts of the world, onshore -- or offshore will become a much more -- it will become a much larger piece of the overall pie in the U.S. when we start to think about 2025 and beyond. When you think about what's planned for the East Coast, eventually in the Gulf, eventually to the West Coast, we think the opportunity there is pretty significant, and we're working very hard to get into that part of the business.

Got it. Okay. Interesting. Now let's talk about diversification though, right? I mean how about -- I mean you talked about getting into new countries. I mean what about reducing -- maybe this is not the right way to say it, but reducing the dependency on U.S. PTC oscillation, in just in terms of going abroad, right? Forget the -- because offshore strategy, that's one of multiple ways to win. If you can talk about the Chinese angle, the Indian angle, European angle, et cetera.

No. Absolutely. So we're in some pretty interesting local markets. So obviously India is the last -- the latest market we entered, which, if you look at what their plans are and what their goals are from a renewable standpoint, from a decarb standpoint, that is a great local market, but it's also a great export market. So yes, the U.S., again, there's a lot of variables around the U.S. Economics are going to drive a lot of wind install, right? So we think about wind, solar, storage and transition. And that's not just in the U.S., but that's globally. And if you look at just the levelized cost of wind energy today, regardless of what the PTC may or may not be, it's going to drive significant installs in the U.S. over time. And so -- again, we are probably between 50% and 55% of our volume comes to the U.S., whether it's manufactured in the U.S. or it's coming from our other factories. But that has come down over time. Now this year, it will be a little bit higher than it has been in the past just because of the push and potentially next year. But we've consistently reduced our dependence on the U.S. market. But based on where our footprint is, we can flood the U.S. or we can pull back and ship it elsewhere, right? Like with China, for instance. China pre-tariff, most of what we produced in China came to the U.S. Our customers shifted because of the tariffs. So we're still full in China this year, but that volume is going somewhere else to serve other parts of the world. So having low-cost and a very efficient and effective, cost-effective manufacturing hubs that can serve not only local markets but other regional or global markets is critically important, to be able to manage kind of some of the ups and downs of demand on a market-by-market basis. And then if -- you talked about China. China is a big part of the overall wind market. Our customers today are all the western OEMs. They have a very small share of the Chinese market. The Chinese OEMs dominate the China market, but they have a very small share of the market outside of China. Now we have continuous discussions with the larger Chinese OEMs. If you look at what their -- they've talked about decarbonization goals through 2060, the wind energy -- or the wind OEMs came out a few weeks ago or a month ago and said, we're going to get to 50 gigawatts of wind between now and 2025 and then 60 gigawatts of wind per year thereafter. It's a huge market, right? So with their goals for decarbonization, what the wind OEMs have talked about, we think our ability now to kind of relook at our China for China strategy, if you will, is -- it's in process. So we're in the process of now reevaluating what are -- what -- how we may play in China with the Chinese OEMs based on our footprint in China. So although it's not -- that's not factored into our longer-term today revenue goals, that's something we're working on behind the scenes, is that China for China strategy, and how do we either work for the Chinese OEMs to capitalize on that increased capacity they need, or even will our customers rethink their China strategy and get more aggressive in the China market, and can we help them win there as well.

Can you talk -- so I just want to dig in a little bit further because that sounds pretty -- listen, maybe I'm barking up the wrong tree here, but that sounds pretty interesting. The bankability issues have been consistently problematic for the -- let's call them, the emerging market manufacturers. Do you think that with your help, they can get over those issues and can start entering OECD-type markets with their products? Is that -- and don't be wrong, is that the thought process that you're going with? I'm sorry if I'm going in the wrong direction with this.

No. That's okay. Our -- we're thinking about China, our China manufacturing footprint for China, right? So it would be in China. I think the quality challenges that in the past for the Chinese, their quality level has come up quite a bit over the last several years. I know it's still -- they are still challenged to get projects funded outside of China for that reason. But I think they've made significant progress in that arena. But our strategy is more about China for China versus support -- now it's not that we wouldn't, but it's not necessarily focused on supporting the emerging country OEMs outside of their country. It's more about, can we serve the Chinese OEMs inside of China.

Yes. Got it. Okay. Excellent. And when you think about your composition over the next years is evolving, how do you think about that $2 billion number, for instance, the U.S. versus international portion, versus when you think you can get an offshore strategy going, right? I know we've been talking about this for a bit with you, guys, or at least we've been paying attention to you, guys, developing that strategy for a bit here. Aspirationally, what is that composition to you?

Again, today, we're 50-plus-percent U.S. is where. That's where it's -- it's not where it's manufactured necessarily. We have one facility in the U.S., but a lot of what we manufacture, in Mexico, some of what will manufacture, in India, some of what's in China comes to the U.S. So I would imagine we'll still -- because the U.S. is the second largest wind market in the world behind China. And we believe it will continue to be a very significant market long-term from an onshore and then offshore later in the decade. And so we still think the U.S. market will always be an important market for us, and we'll continue to serve it. Obviously to the extent we can with our customers who dominate the U.S. market, but I think -- I don't see it changing radically the shift. I think it will probably come down to the 50% or below where we were kind of a couple of years ago as we were expanding more globally. And part of it will just depend on how the other parts of the world, how -- what the pace of their growth is from a renewable standpoint, from a wind standpoint, specifically. But I see it probably in that 50% range. Probably a little higher than that next year just given the push for PTC, but then see it shifting back to 50% or less in the U.S. And then it's really fairly -- I mean it's spread pretty broad after that. I mean we have -- some of our stuff stays in Turkey that we manufacture there. A lot of what we manufacture goes to Europe. So that's an -- those -- all of those markets are important for us. Australia, we move a lot of product to Australia. We -- some still does stay in China for our customers. So it's really spread pretty geographically around the globe other than what we have here in the U.S., which is 50% plus of our business today.

Got it. I'm getting a variety of different questions in here. So lightning round here perhaps. There's been some issues with Vestas, for instance, of late, that have come up around some of their blades staying the course, should we say, especially through thunderstorms [indiscernible]. Can you elaborate a little bit on what that means for you all? And -- yes, I'll leave it open-ended.

Yes. I mean I think they've talked publicly about some lightning protection challenges they've had with their blades. Again, we're responsible for materials and workmanship. If it's a design issue with a component of the blade, that's not an issue for us. So that's about as much as I can say. It's probably better to have the discussion with Vestas, but that's publicly what they've talked about, and that's how it would impact us.

Got it. Okay. All right. Fair enough. Just to be clear about offshore here. I mean, look, you guys -- you've been working on a strategy for a bit, and I suppose it's still early days. What's the time line we can expect on this? I just want to -- I know I'm asking this again, and I'm being asked it again, to be clear, but by doing it. But what is the time line? What's the time line for a plan? And when can you practically, at least you see it today, bring something to market to align with that longer-dated development?

So we're working -- we have a plan. We're not really working on it. We have a plan. Now it's a matter -- and we're in discussions with a number of parties for blade production for primarily the U.S. market and then for APAC. We have a facility today in APAC that can support offshore. So that might -- you might actually see revenue from APAC sooner. But right now, the time line we're working on is to get something solidified over the next 3 to 6 months or 9 months with a customer or customers before we would be able to announce anything. And then the plan would be -- and this is part of the discussion we're having is, where do we put a facility, and how do we deal with the U.S. market challenges from an offshore standpoint, and then what we need to get to. So we're right in the middle of executing that plan, if you will. And now it's a matter of finalizing discussions or continuing the discussions and getting to final strategy or agreement with customers as to what their best plan is. And I had a discussion with one of them yesterday. And the bottom line is we have to figure out how we can best help them win. And that's what we're focused on. So it is something that's front and center. We're working on it literally every day with multiple parties. And so, again, it's not that we don't have a strategy because we clearly do and we have a plan. We are executing that plan. It's just -- some of these are long -- it take a long time to finalize and negotiate, especially with all the moving parts for an offshore business in the U.S. where there are many moving parts, right? So time lines getting shifted, different states coming out with different policies, incentive packages. So there are a lot of moving parts to work through to figure out what the best solution is for our customers to win in the market.

Got it. Excellent. Okay. All right. Let me tag in a couple of more of these questions here from -- so do you -- this made turbine OEMs will look to increasingly outsource their blade production, right? Let's come back to the fundamentals, right? So in-sourcing, outsourcing. That's always been one of the big balances. Where are we right now in that tip?

I would say today, as of the end of '19, I think it was just over 60% of blades were outsourced. And I would tell you, based on the product planning we're doing with our customers, the inbound inquiries we get, I would say that, that trend is going to continue. So whereas a few years ago, some thought it might slow down. Now again, it will vary a little bit by OEM. Some OEMs are much more focused now on the outsourced versus continuing to be vertically integrated. But we're not seeing any slowdown in the trend of increasing the percentage of outsourcing. And again, on the offshore side, again, we've talked about this in the past, is that it's been such a low volume business that it really hasn't been attractive for us or for the customer. As the volumes start to get where they're going to get to, whether it be in the U.K. or Europe, APAC, the U.S., now those volumes start to make sense for us and for the customer to think about outsourcing. Again, most of the big blade manufacturing facilities for offshore were in Europe. And so as it moves to APAC, as it moves to the U.S., [indiscernible] long distances may not be as cost effective, especially when you think about labor conditions in Europe and the U.K. So from a cost standpoint, having those blades manufactured closer to the wind farms makes sense. So we see it continuing on onshore and starting in offshore.

Let me come back to another question that was sent in here real quickly. What about the development cycle for new turbines? We talked about this a little bit before. So someone's following up on what we talked about. This heavily influences the ability for TPI to literally generate cash flow. So I think that's what they're coming back to is where we started with this conversation a little bit. Is the development cycle getting a little bit longer? Is it now more of a 24 to 36-month cycle or 18 months? Maybe that's the more precise question here.

Yes. I would say it's getting longer again, right? When we -- early in our -- in the wind business, it was a pretty long cycle. I would say -- and then it shortened really quickly when we went to auctions and feed-in tariffs in a way and subsidies were going away and we had this push for LC. And we -- if you listened to our customers' earnings calls, I mean, their pricing has stabilized over the last 18 to 24 months, which is a good thing. And so I -- and I know Vestas talked publicly a couple of quarters ago about reducing the R&D side and kind of simplifying their new product introduction. That's the modularization discussion that they had at Wind Europe this week, in fact. And so I think it's not only lengthening a bit, but it's also maybe a little bit better thought out for the long-term, so that we can plan better with our customer, and we can take advantage of this modularity concept, whether it be for them and then the seller for us on the blade itself. So I do see it stretch out. If you look at -- transitions this year were impacted by COVID, clearly. For next year though, we have a relatively small number of transitions planned. And again, I think that's the start -- we're starting to see this product cycle getting a little bit longer. Part of it is depending on what we're tooled for and what location, and there's different blade models depending on market. And I think if we can run a blade longer, we make better margins, better cash flow, our customers do as well, right? Because part of our job is to drive down the cost of a blade. And if we're doing our job, if we build a blade for 4 years, the cost of that blade to our customer will come down every year, year-over-year. As we get more efficient, our throughput goes up, we drive costs out of the bill of material. So their incented to run it longer. They have better margins. If they can run it longer, they have less new product introduction cost. And it's beneficial for us as well from a profitability standpoint, so.

Excellent. Bill, we got to call out there. We are totally out of time. All right. Thank you so very much. I know we tried to rush through everything here, but really appreciated it. That was fantastic. Again, thanks for all the questions. We write back with everyone. We got hand in Armstrong up on deck. All the best, Bill. Enjoy the holiday season, and look forward to hearing the next update. All right?

Thanks, Julien. Appreciate it. Take care, everybody. Be safe. Be healthy. Yes. Thank you.

Bye.