Array Technologies, Inc.

Good evening and welcome to Array Technologies' first quarter 2021 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Cody Mueller, Investor Relations for Array Technologies. Thank you. You may begin.

Good evening and thank you for joining us on today's conference call to discuss Array Technologies' first quarter 2021 results. During this conference call, Management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's earnings press release and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, arraytechinc.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release 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 Jim Fusaro, Array Technologies CEO.

Thanks, Cody, and good evening, everyone. Thank you for joining our earnings call. In addition to Cody, I'm joined today by Nipal Patel, our Chief Financial Officer, and Jeff Krantz, our Chief Commercial Officer. I'm going to focus my remarks today on three areas. First, how our first quarter results compared to our expectations. Second, how we see demand evolving for our products. And third, the current commodity and shipping cost environment, how it impacts array, and the actions we are taking in response. Then I'll turn it over to NEPL for a detailed review of our first quarter results. Revenues for the first quarter of 2021 were $246 million, which was in line with our expectations. Adjusted EBITDA was $34.5 million, which was slightly below expectations, primarily as a result of higher logistics costs resulting from unexpected increases in inbound freight costs. Demand for our products remains strong, with quoting activity at the highest levels we have seen in our history. We believe the superior value that our tracker system delivers is being recognized by a growing number of EPCs, developers, and asset owners globally, and is underscored by the up to four gigawatt award that we recently received from Primorus, one of the largest solar EPCs in the U.S., as well as the 350 megawatts of awards we received from nine international customers during the first quarter. Increasing panel efficiency, falling storage costs, and growing regulatory support are expanding the lead that solar has over other conventional generation and other renewables, more than ever before solar energy is becoming the first choice for new generation. Unfortunately, at the same time, As we are seeing record demand for solar, our industry is contending with increases in steel and shipping costs that are unprecedented both in their magnitude and rate of change. From the first quarter of 2020 to the first quarter of 2021, the spot price of hot rolled coil steel, the primary raw material used in our products, has more than doubled. Many industry analysts and market participants expected the dramatic increase in the price of steel to be temporary, which was reflected in futures markets that had indicated lower steel prices for the second half of the year throughout most of the first quarter. Based on those expectations, we felt confident in our ability to manage our input costs and maintain our margins. However, steel prices have continued to increase with spot prices of hot-rolled coil up more than 10% since April 1st. and futures now indicate higher rather than lower steel prices for the remainder of the year. Steel represents almost half of our cost of goods sold, and we do not hold large amounts of steel in inventory. So a significant increase in the price of steel over a short period of time can negatively impact our results. Coinciding with the increase in steel prices has been substantial increases in the cost of both ocean and truck freight. The average cost to ship a container from Asia to the West Coast has increased by more than 145% from April 2020 to April 2021. There also remains significant disruption across several U.S. ports, resulting from the April Suez Canal accident and the February Texas storm, which has resulted in higher storage and expediting costs that we would not otherwise have had in a normal environment. The cost of truck freight has also increased significantly with the average cost per mile in the first quarter of 2021 up more than 30 percent versus last year, and costs have continued to increase in the second quarter. The continued increases in both steel and freight costs will impact our margins in Q2 and potentially in subsequent quarters if prices do not normalize. In response, we are taking several actions to mitigate the impact on the balance of the year. First, we are increasing prices. For open contracts that we have not yet shipped product against, we are currently evaluating how much of the commodity and shipping cost increases to pass on to our customers. We will make those determinations based on the specifics of each customer and situation. Given that seal prices continue to increase and the large number of open contracts that we have, it will take time for us to evaluate each contract and determine the best course of action. The exercise is complicated because we have to balance the possibility that customers will delay orders if we pass through too much of the increase in steel prices on the basis that they may believe prices will be lower if they wait and take their order later in the year. The two-year extension of the ITC has given customers more flexibility on when they start their projects than they had in the past. Second, we are entering into long-term supply agreements with steel suppliers at fixed prices. For example, we recently entered into an agreement with Nucor to supply us with steel components at a fixed price. Third, we are further diversifying our steel supply base. For example, we recently entered into a supply agreement with a new international steel supplier at what we believe is an attractive price given the current environment. Fourth, We are entering into long-term contracts with Tier 1 freight providers to give us greater certainty on logistics costs and delivery performance. And fifth, we are extending the standard order lead times that we quote to customers to give us more time to procure raw material at the best price. However, given the continuing increases we are seeing in steel and freight costs, as well as our ongoing review of open contracts to assess what costs we will pass on to customers, we are not able to affirm our previously provided guidance for the full year. We expect to update our guidance once we have completed the review of all of our open purchase orders and commodity and shipping prices remain stable for a long enough period of time to give us confidence in using them to develop a forecast for the remainder of the year. Importantly, we believe our competitors are being impacted by the same cost increases that we are experiencing, and in certain cases, much more significantly because their smaller size gives them less buying power with suppliers. We believe the near-term pressure that is being created by the current environment may enable us to accelerate our market share gains because some of our competitors may not be able to deliver on customer commitments given their inability to to procure raw materials at a competitive price or at all. We're in an environment where scale and deep supply chain relationships are significant competitive advantages, and we have both. Now I will turn it over to Nipal for review of our first quarter results.