Q1 2024 TPI Composites Inc Earnings Call

Participants

Jason Wegmann; IR; TPI Composites Inc

William Siwek; President, Chief Executive Officer, Director; TPI Composites Inc

Ryan Miller; Chief Financial Officer; TPI Composites Inc

Mark Strouse; Analyst; JPMorgan

Pavel Molchanov; Analyst; Raymond James & Associates, Inc.

Eric Stine; Analyst; Craig-Hallum Capital Group LLC

Tom Curran; Analyst; Seaport Research

William Griffin; Analyst; UBS

Patrick Goulet; Analyst; Stifel

Presentation

Operator

Good afternoon, and welcome to the TPI Composites first quarter 2024 earnings conference call.
At this time, I'd like to turn the conference over to Jason Wegmann, Investor Relations for TPI Composites. Thank you. You may begin.

Jason Wegmann

Thank you, operator. I would like to welcome everyone to TPI Composites' first quarter 2024 earnings call. We will be making forward-looking statements during this call that are subject to risks and uncertainties which could cause actual results to differ materially for a detailed discussion of applicable risks is included in our latest reports and filings with the Securities and Exchange Commission, which can be found on our website tpicomposites.com.
Today's presentation will include references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.
With that, let me turn the call over to Bill Silec, TPI Composites' President and CEO.

William Siwek

Thanks, Jason, and good afternoon, everyone, and thanks for joining our call. In addition to Jason, I'm here with Ryan Miller, our CFO. Please turn to slide 5, I'm pleased to announce the publication of our 2023 sustainability report in March of this year. We remain committed to our publicly stated goals of fostering the Zero Harm culture and achieving carbon neutrality by 2030 through 100% renewable energy procurement wind blades produced by us in 2023 are estimated to prevent approximately [346 million] metric tons of CO2 emissions over the 20-year lifespan.
We're advancing towards our 2030 goal of carbon neutrality, achieving an 18% reduction in overall market base Scope one and two CO2 emissions. In Turkey, we invested in two wind turbines and additional solar panels further to enhance on-site renewable energy use. We signed a power purchase agreement in India, we reduced total annual waste generated by 12%.
Our behavior-based safety program continued to yield safety results, outperforming industry standards in our internal goals, and we have fully embraced our IVEA. program and were recognized with numerous awards for our commitment to inclusion and diversity around the globe. In the U.S., our lead program and program was recognized with a great award for best affinity group in Mexico, we were recognized as a top employer in India. We were recognized as one of the 100 Best Companies for Women and in Turkey, we were awarded the Silver Stevie great employers award for achievement in diversity and inclusion. Advancing our sustainability goals remains a priority in 2024.
We're actively negotiating a purchase power agreement in Mexico to ensure 100% renewable energy for our facilities there. Additionally, we're working to expand on our recent PPA in India. These investments go beyond environmental benefits. They also make strong economic sense contributing directly to the improvement of our financial performance.
Please turn to Slide 7. Consistent with the guidance we provided during our 2023 fourth quarter earnings call. Sales and adjusted EBITDA in the first quarter of 2024 were lower than in the prior year due to the timing of production line startups and transitions across several of our facilities. However, they were slightly ahead of our plan, so we are still on track for the full year.
Let me remind you that we expect to go back to positive EBITDA margins and positive free cash flow in the second half of the year after we get through the process of ramping up to 10 lines that are in start-up transition in the first half of the year. I'm confident in our ability to achieve mid single digit adjusted EBITDA margins in the second half of the year, given the excellent operational execution we are seeing today in most of our plants.
The $23 million adjusted EBITDA loss in the first quarter included $22 million related to start-up and transition costs, $9 million of unanticipated losses from the Nordics, Matamoros plant due to temperature and humidity issues as well as decreased volume requirements. And we recorded an $8 million charge to account for the inflationary impact of completing pre-existing warranty warranty claims. Without these items, our adjusted EBITDA margin would have been over 5%, and that's at a 67% factory utilization level.
I'm not expecting these items to impact us in the second half of the year, which is why we will return to solid margin performance in the third and fourth quarters when our utilization climbs well above 80% activities to transition. The Matamoros plant back to Neurodex are in full swing, and we are on track to return the facility by June 30th as planned, our use of cash in the quarter was primarily to fund our start-ups and transitions and was aligned with our expectations.
We believe our quarter-end cash balance of $117 million, along with access to existing credit facilities and the significant impact of the strategic refinancing with Oaktree provides us ample liquidity to navigate current market conditions and ultimately expand to meet our customers' growing needs as we target a return to positive cash flow in the second half of the year.
Please turn to Slide 8. Turning to our wind business performance. Our blade facilities in India and Turkey continued to be profitable, delivering 241 blade sets, representing 1.4 gigawatts of capacity during the quarter, most of our Mexico operations performed well, even while going through numerous transitions, startups and volume adjustment.
Overall, our operating performance is benefiting from our renewed focus on lean embracing lean practices and ensuring they are part of our day-to-day culture will enable us to deliver greater value to our customers while optimizing our cost structure, maximizing productivity and manufacturing the highest quality blades in the industry.
Moving on to our field service business. As anticipated, our global service revenue declined year over year. This reflects a temporary reduction in technicians assigned to revenue-generating projects due to the warranty campaign announced last year. We expect our technicians to return to normal levels of revenue-generating work by midyear, despite continued progress building the Automotive segment's order pipeline and operational execution and notwithstanding growth in non Proterra revenue, Q1 revenue fell year over year due to the Proterra bankruptcy.
The growth in non-Pro revenue was largely due to the launch of a new product line for our largest passenger EV customer. While we've made significant investments in expanding our automotive business over the past years and continue to see strong growth potential for composite products and electric vehicles. We're prioritizing capital allocation towards the wind business to ensure our automotive segment has the resources and support to execute its growth strategies. We've been exploring strategic alternatives expect to finalize the transaction by the end of the second quarter.
Our supply chain execution and cost performance remain very stable. Raw material costs have decreased compared to this time in 2023, with further savings expected due to excess manufacturing capacity in China. Logistics around the Red Sea situation remain well-managed with no operational or significant cost impacts today now with respect to the wind market, we are seeing the beginnings of an onshore wind rebound driven by ambitious government actions, including the inflation Reduction Act in the US and the EU Green Deal and REpower EU policies in response to the need for greater energy energy, independence and security to address climate change and to meet the increasing global electricity demand fueled by factors like generative, artificial intelligence and data centers, EVs and the electrification of buildings, excluding China, expectations are for global onshore installations to hold steady in 2024 with a growth inflection point in 2025, followed by continued expansion throughout the decade. In the USBNEF. is projecting onshore wind installations in 2024 of 8.4 gigawatts to be nearly 20 gigawatts per year by the end of the decade. While favorable long-term policies like those in the US and the EU provide optimism and have helped to accelerate orders for our customers.
We still don't anticipate increased wind installations in our primary markets to fully materialize until 2025. The industry still awaits some critical details on implementing key components of the inflation Reduction Act, such as the domestic content adder, prevailing wage and apprenticeship clarifications, 45 C. and the transition from PTC. and ITC. to the new tech neutral version, also elevated interest rates, inflation. The cost and availability of capital permitting hurdles and transmission bottlenecks are also contributing to near term delays.
There are, however, encouraging signs that the US and EU are addressing permitting and transmission bottlenecks as a win recently announced that permits for projects in Germany soared to a record high in the first quarter of 2024 nearly 40% higher than the same period last year. This progress is largely attributed to new laws and regulations that streamline the permitting process, including granting renewable energy projects, overriding public interest status in the US, the Department of Energy released a transmission interconnection road map to it to tackle challenges and connecting renewable energy to the grid. This road map aims to streamline the process by 2030, focusing on faster approvals and more consistent costs while maintaining grid stability.
Additionally, the White House Council on Environmental Quality has finalized a rule to reform, simplify and modernize the federal environmental review process. Under the National Environmental Policy Act, the new rule we'll build on more than $1 billion from President Biden's inflation Reduction Act to expedite federal agency permitting technical advances are also being made. Recent research shows RE conductor in existing transmission lines with advanced conductors can double capacity on existing rights of way and just 18 to 36 months.
Now before I turn it over to Ryan, our financial outlook hasn't changed over the past couple of quarters as we still expect 2024 to be a year of transition. We're currently running 36 production lines, including those for Nordex in Matamoros, which are on track to transition back to them by the end of the second quarter.
We are progressing nicely on the started some transitions, all of which will impact production volume and utilization in the first half of the year, but significant improvement is expected in the second half as these lines achieved serial production despite lower utilization in 2024 compared to 2023, we still expect a strong improvement in profitability as we have addressed the operational challenge faced in 2023.
As such, we are reconfirming our 2024 revenue guidance of $1.3 billion to $1.4 billion with an EBITDA margin between 1% and 3% in 2025. We continue to expect a significant step up in profitability with EBITDA exceeding $100 million, putting us back on track to achieve our high single digit EBITDA margin target in 2026 and beyond.
With that, I'll turn the call over to Ryan to review our financial results.

Ryan Miller

Thanks, Bill. Please turn to Slide 10. In the first quarter of 2024, net sales were $299.1 million compared to $404.1 million in the same period in 2023, a decrease of 26% net sales of wind blades, tooling and other wind-related sales, which hereafter I'll refer to as just wind sales decreased by $98.7 million in the first quarter of 2024 or 25.5% compared to the same period in 2023.
Late sales this quarter were negatively affected by start-up and transition activities at our Mexico and Turkey facilities expected volume declines based on market activity level and a decrease in average sales prices due to changes in the mix of wind blade models produced. This decrease was partially offset by favorable foreign currency fluctuation and an increase in tooling sales and preparation for manufacturing line startups and transitions.
Field service revenue declined by $1.1 million in the first quarter of 2024 compared to the same period in 2023. Our first quarter is typically the low point for service revenue due to seasonality, weather, seasonal weather patterns and the nature of the work performed and this year was also impacted by the warrants campaign announced last year.
We expect a full transition back to revenue generating activity by the second half of this year. Automotive sales decreased by $5.3 million in the first quarter 2024 compared to the same period in 2023. This decrease was primarily due to a reduction in bus body deliveries due to Proterra bankruptcy, partially offset by increased sales of other automotive programs and the launch of a new product line for our largest passenger EV customer.
Adjusted EBITDA for the first quarter of 2024 was a loss of $23 million compared to adjusted EBITDA of $8.4 million during the same period in 2023. The decrease in adjusted EBITDA for the first quarter of 2024 as compared to same period in 2023 was primarily driven by lower sales, higher startup and transition costs and changes in estimate for pre-existing warranty claims, partially offset by favorable foreign currency fluctuations.
Moving to Slide 11. We ended the quarter with $170 million of unrestricted cash and cash equivalents and $510 million of net debt. As planned, we had negative free cash flow of $47.3 million in the first quarter of 2024 compared to negative free cash flow of $87.1 million in the same period in 2023. Year over year improvement was primarily driven by the absence of payments tied to the closure of our operations in China and the growth of contract assets in the first quarter of last year.
The net use of cash in the first quarter of 2024 was primarily due to our EBITDA loss, capital expenditures and interest and tax payments. As previously communicated, we expect the second quarter to be the low watermark for cash. So we've had much success improving the efficiency of our balance sheet over the past couple of quarters. And we will remain focused on preserving cash and optimizing working capital to ensure we have the resources to execute key initiatives and restart idle capacity moving forward.
A summary of our financial guidance for 2024 can be found on Slide 12. There are no changes to our original financial guidance provided earlier in the year. And I want to reiterate that the results from the first quarter for sales, adjusted EBITDA and cash flow were in line with our plans. We continue to anticipate sales from continuing operations in the range of $1.3 billion to $1.4 billion for the year. We also continue to lead 2024 will be detailed to have in the first half, we will be ramping up 10 lines that are either in start-up for transition.
We expect the first half volumes to be a fair amount lower than the second half in the first quarter will be lower than the second quarter as we work through these transitions and startups we are generating modest losses and consuming cash in the first half of the year, we are still expecting our adjusted EBITDA margin to be a mid-single digit loss.
The first quarter was likely our low point for profitability this year, and we should improve somewhat in the second quarter as volumes ramp serial production, our adjusted EBITDA margin improves to mid-single digits in the second half of the year, and we expect to be generating positive cash flow for the full year. We anticipate capital expenditures of $25 million to $30 million. These investments are driven by our continued focus on achieving our long-term growth target and restarting our idled lines.
We continue to be confident in our liquidity position, which has improved significantly since we refinanced the Oaktree preferred shares into a term loan. We believe our balance sheet, along with the improvement in our liquidity and operating results will enable us to navigate another transition year and will also allow us to invest to achieve our mid and long-term growth, profitability and cash flow targets.
With that, I'll turn the call back over to Bill.

William Siwek

Thanks, Ryan, and please turn to Slide 14. The numerous government policy initiatives aimed at expanding the use of renewable energy, the need for energy independence and security and growing OEM backlogs give us confidence in the wind industry short and long-term growth. We are an integral part of the onshore wind growth story, and we remain focused on managing our business with an acute focus on reinforcing lean principles to enhance our operational and financial performance.
We are committed to partnering with our customers by aligning our factories to support their next-generation turbine models while also actively evaluating new geographies and sites to meet their expected needs in the future. Process of start-ups and transitions is progressing well, and we remain confident in our full year financial expectations as we are planning a return to mid-single digit adjusted EBITDA margins and positive free cash flow in the second half of 2024 the long-term prospects for TPI. remains strong and we are ready to get back to adjusted EBITDA north of $100 million in 2025.
Finally, I want to thank all of our TPI associates for their continued commitment, dedication and loyalty to TPI. I'll now turn it back to the operator to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Mark Strouse, JPMorgan.

Mark Strouse

Yes. So good afternoon, thank you very much for taking our questions. Yes, congrats on the progress. Sounds like we're getting closer and closer here. I did want to ask something on the on the guidance outlook. I think before you said the utilization percentage was on 36 lines now on 34. I'm sorry if I missed that, but what drove that difference in two lines.

Ryan Miller

Yes, we so we have a marketing, glad to hear from you what we have on a couple of lines that we're kind of working through the contract on that through the through the first quarter and on their two lines in our India location where demand has come down and they're no longer under contract. So still working through us filling that up but it's two lines in our India site to Tom that became known for it, didn't it didn't impact our guidance. Our sales or anything are all of our sales volume in everything still remains the same for '24.

Mark Strouse

Okay, got it. And then just following up on the on the last call, you mentioned some some damages that you were seeking from the bad supply that you got. Is there any update on that timing or magnitude?

Ryan Miller

Earmarked what again, and I gave you the magnitude, but that claim has been filed and it's in process right now, I would I would expect that we would have it resolved before the end of the second quarter and it'll be positive.

Mark Strouse

Okay. And then lastly, for me, on the the GE., whereas ramp, I believe you said that that's still on track, but my understanding is that the ramps in 2Q, is that still correct?

William Siwek

Yes. So we were? Yes. So the Mexico two facility is ramping as we speak. So that will be ramping through Q2 and into Q3? Yes, yes.
Okay.

Ryan Miller

I'll take it was going to clarify we in there. Just to clarify, we have two lines up and running today. And then the other two lines that two more lines will come up in Q2 will be in steel production in the second half of the year and in that plant.

Mark Strouse

Okay, insurance.

Ryan Miller

Thanks, Bart.

Operator

Pavel Molchanov, Raymond James.

Pavel Molchanov

Thanks for taking the question. Let me start with on kind of a housekeeping question. Interest expense in Q1 $21 million seemed rather how high is that going to be the run rate going forward?

William Siwek

It was also so because we took the we had a fair value. The debt that we had with Oaktree far in the fourth quarter last year, and refinance that if you recall, we had $118 million discount. And so there's really two components of interest provides. It's at that elevated level.
One is just the interest that we're picking. And so that for this year, at that point, we'll probably be in the neighborhood of $46 million or so for this for the full year and then the discount amortization will be around $31 million. And so you will see an elevated level of interest because we need to accrete that discount up. So full year, I'd expect that our interest expense and Oaktree, including that discount is going to be in the neighborhood of $77 million.

Pavel Molchanov

Okay. Okay. That's very helpful. On the EV business, you mentioned you're still kind of contemplating its future. Have anything changed from the last time we spoke three months ago in that regard.

William Siwek

No, not really. We're in advanced discussions and our plan is to have a transaction completed by the end of the second quarter.

Pavel Molchanov

Okay, a lot, and we will look forward to that. And last question, we've seen a lot of input costs in all across the CleanCap value chains subsiding, certainly including steel and others, carbon fiber that are relevant from your perspective, what kind of role is that playing in the margin uplift that you're envisioning for the second half of the year?

William Siwek

Yes. I mean, add that up, we are seeing we have seen decreases in overall raw material costs year over year from last year to this year for sure. Clearly a portion of that we benefit from. So that's a small portion, I would say of the of the uplift the bigger portion is just getting getting the lines out of transition and start-up into serial production and driving our utilization up north. It's 80%, 85%. That's the biggest driver, but there is some uplift from the commodity cost decline for sure. If you'll remember that we share a bunch of that with our customers. So we get a piece of it. Our customer gets a piece of it, but it is helpful for sure and understood.

Pavel Molchanov

All right. Thanks very much.

William Siwek

Thank you.

Operator

Eric Stine, Craig-Hallum.

Eric Stine

I will I run a Erik, are you saying doing little things on? So maybe just starting on the start-up and transitions, given your commentary obviously going to be heavy again in the second quarter, is it a kind of a similar number in terms of start-up and transition costs in Q2 and then I would think that as part of your guidance that meaningfully subsides in the second half?

Ryan Miller

That's correct. Okay.

Eric Stine

So the $22.2 million, I mean, I think did you complete it curious either four or six or so? I mean, again, that's a representative number to think about.

Ryan Miller

Yes, I'd say that we had six lines that we had started up by the end of the quarter and you the $22 million relates to those on. We have four more lines to startup. I think the first quarter is from our internal forecast for probably the heaviest quarter of startup and transition costs. And so I don't expect it to be above that number that we saw in the first quarter. But in the second quarter.

Eric Stine

Okay. That was helpful. And then just on Nordex, good to hear that that's on track to during the handover at the end of June, you called out, I believe $9 million in kind of one-time expenses. And I know that's a big part of your confidence in what the second half looks like. Can you just remind us, though, I mean, is there a number I mean, what are the expenses above and beyond what maybe you would call one-time that hit you in the first quarter?

William Siwek

Yes, I'm not sure I would characterize them as one-time what they really what they actually were was underutilization of the plant as a result of us having to halt production for a period of time due to temperature and humidity issues in the facility as well as their reduced demand, reduced volume needs from the customer. And as a result, you know, this is a pretty fixed cost business. So that's what's created the challenge in the first quarter, we see that there's not yet.

Eric Stine

Got it. Sorry. Yes, just going to say so it's not its name, it's not $9 million plus, you know a number. It's more about just kind of a good number to use that will not be there when you get into the second half?

William Siwek

That's correct. That's correct. Okay.

Eric Stine

All right. And then last one for me, just on the VEG. business, so strategic alternatives and you're talking about targeting a transaction, I mean that implies at least to me that that might no longer be part of your business going forward? Or is that trend same transaction kind of a catch-all could mean an investment, it could mean partnering that includes an investment which which is the better way to think about it.

William Siwek

It could be any one of those, Eric.

Eric Stine

Okay. Well, yes.

William Siwek

We'll know by the end of year, you'll have at the end of the quarter.

Eric Stine

Right.
Thank you.

William Siwek

Yes. Thank you.

Operator

Jeffrey Osborne, TD Cowen.

Good afternoon, Bill, just a couple of questions on my end on the Iowa facility. As part of the CapEx guidance, can you just remind us what you'll be producing for GE. there? Is that a repowering product or one of their newer beliefs? And then what would be the timing of when that revenue would start?

William Siwek

Yes. So I'm not sure yet Jeff, that's still still to be determined. And timing is, I would say most likely as first as early 2025 would be my best guess at this point in time.
And but I don't don't have a final I don't have a final blade type, but nor a final start date yet that's still in discussion.

But it's in the CapEx guidance just to be clear?

William Siwek

No, that's not in the CapEx guidance. It quite frankly, Jeff, it will depend on the blade, right? If it's if it's the same way we've been building the CapEx is pretty light. If it's a new blade, depending on the size of the blade, then that will be a different CapEx number. So until we understand what blade type it's it's hard to predict that.

So is there a way to go if box put bookends on that, like what the upside number to CapEx would be just given strained balance sheet with a low water point here because that extra $10 million, I don't know.

William Siwek

But yes, it's probably no more than $10 million would be my guess again. And it will depend on the blade type ultimately and how many lines quite.

Got to the building is what suitable for Visit five, six times.

William Siwek

Right now. It's Scott. We the last blade we built was a 62 meter blade and we had six lines in there.

Got it. And then move super fast. When you add the three items around the EBITDA trends, translation So $9 million was the Nordics that we talked about just before that $8 million was the inflation on the pre-existing warranty claims. What was the $22 million for?

William Siwek

Phil establishes the startup and transition costs that we incurred in the quarter.

Got it. Perfect. That's all I had it right, cool. Thanks, Jeff.

Operator

Tom Curran, Seaport Research Partners.

Tom Curran

I guess to sum it up, casting my view out a bit bit longer term here and allowing us to dream a bit. Are you seeing any green shoots of potential interest that could lead you to reactivating the two other lines in Turkey. And you know, if you are what might be the earliest we could see you do that.

William Siwek

We really don't have idle lines in Turkey right now if we have two lines in India. And the answer is yes, I mean, we're starting to see order order books, fill our backlog build. A lot of that backlog, as you probably know, is for the bad 25 and 26 and beyond. But I think as things begin to open up a little bit more in Europe as well as the U.S. You could see you could see those lines.
So now there is a lot of activity around those lines Tom, and we are actively working or in discussions with multiple parties for those lines. So it's not that there's not activity. So we are optimistic that we feel not only those two lines that got idled, but there's two more lines there as well that we can we can activate. So we've got a total of four potentially to activate in India as we move forward through the year.

Tom Curran

And those are on tonight, Phil?

William Siwek

Yes, in Chennai, correct, yes.

Tom Curran

And sorry, if I misspoke, when I said targeted media and could could we if all went well, would we expect to see the CapEx and production contribution from those most likely in '25?

William Siwek

And given given where we're at in the year, probably feel it most likely that it would be 2025. You start to see revenue and '25 as well as contribution on CapEx, again, depending on blade size, number of blades et cetera. The CapEx will vary there. I mean, that's a that's already in a line facility where we've built that out pretty nicely. So there's there shouldn't be a ton of CapEx as we activate those four lines, maybe like like $2 million to $4 million range.
Again, it'll depend on blade size, quite frankly, I hate to keep saying that, but that's because that's pretty important is the blade size. So I mean, we sized it for, you know, 80 plus meter blades for eight lines, depending on who the customer is it some of them take more room than others, depending on how the blade is constructed.

Tom Curran

And but it should be relatively minor amount of CapEx if we fill all these lines data and sticking with fleet size and how important it is, you know, shifting back to new Iowa and how seriously GE seems to be deliberating whether to stick with the one 27 versus shifting to the new workforce model in part from my understanding because of its popularity for repowering on, especially given the share gains you seem to have made in the US market as you look to the next upcycle in the U.S. and do you expect repowering to play a bigger role in this next upcycle than I did in the prior one.

William Siwek

Yes, certainly than it did in the prior when I do the numbers I've seen are pretty fairly significant and in the US between now and kind of 2030 timeframe, so yes. I mean, the bulk of it will still be new install, but there is a fair amount of repowering that that we're seeing that we're seeing in the marketplace. So I do think that he will play a much bigger role this time around than I did last time for sure, data.

Tom Curran

Thanks for taking my questions, and thanks, Dan.

Operator

William Griffin, UBS.

William Griffin

Hey, good evening. Thanks for the time. Just one for me here. Really curious if you have any comments around what you're seeing in terms of offshore wind discussions with your customers, just given the pullback in a lot of US projects and perhaps is that and maybe shift away from offshore creating some opportunities for some of your onshore production.

William Siwek

And so for the first part of the question, not having a lot of active discussions today and in the offshore space at some point and I'm not sure that that really has an impact on what we're doing from an on shore perspective. I will tell you, as we look at where onshore growth may be on we're always keeping in mind the offshore side of it as well. And where we might think about different geographies, we would certainly keep in mind an offshore play at some point in time, but today that certainly on the back burner.

William Griffin

Got it. Thanks very much.

William Siwek

Yes, thanks.

Operator

[Patrick Goulet], Stifel.

Patrick Goulet

It's Pat on for Stephen Jaeger. Thanks for taking the question. So just a quick one on the SP side. Pricing down from last year. Is the expectation still here that you get a rebound in AST. from the better mix of any of those lines coming on from a transition or a pickup in activity from any of the lines that came on recently on the expected increase in AC look like a step-up and flatline? Or should we be anticipating somewhat of a gradual increase into 2025?

Ryan Miller

Patrick, I think this quarter it was a little bit of an anomaly. I think we had material costs come down a little bit. So that also impacts on ASPs for us. But it was really just a mix a mix issue with the mix of the plays, we had a pretty low volume quarter. So that mix issue can be exasperated when that occurs. The new blades that we're bringing online. They're all bigger longer heavier, more expensive blades are all refreshed fleets from the OEMs that we expect to be in production for many years to come.
So because of that there's they're bigger longer, they'll be higher ASPs, which drove our guidance. It when you said originally set, our fees are expected to be up about [$8,000] of late or so. So I would expect that you'll see that gap close here in the second quarter in the second half, we really see a differential there are and serial production and all the newer blades.

Patrick Goulet

All right. Thanks a lot. That's all for me.

Operator

This concludes the question and answer session. I would now like to turn the conference back over to Bill Simon for any closing remarks.

William Siwek

Yes. Thank you, and thanks again for your time today and continued interest and support of TPI. Look forward to talking to you again soon. And thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.