Array Technologies, Inc.

Hello, and welcome to Array Technologies' second quarter 2021 earnings call and webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Cody Mueller, Investor Relations.

Please go ahead. Good evening. And thank you for joining us on today's conference call to discuss Array Technologies' second quarter 2021 results. Slides for today's presentation are available on the investor relations section of our website, arraytechinc.com. 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 second 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 second quarter earnings call. In addition to Cody, I'm joined by Nipal Patel, our Chief Financial Officer, Brad Forth, our Board Chairman, and Jeff Kranz, our Chief Commercial Officer. I want to open my remarks today by thanking our employees. Solar is a very dynamic industry that demands hard work, execution, and tremendous dedication to be successful. Our employees have met every challenge that has been thrown at them over the past several months, and they continue to deliver. We have a fantastic team, and I'm incredibly proud to be a part of it. But with that said, we have a full agenda for today's call. I will provide an update on our business, then turn it over to NIPL to provide a detailed walkthrough of our second quarter results, and then our chairman, Brad Forth, will provide an overview of the transaction with Blackstone that we announced earlier today. Turning to slide four, there are really three key themes at work in our business right now. The first is that demand for our products continues to grow. Our order book at the end of the second quarter was the highest it has ever been in our history, and that momentum has continued going into the third quarter. In July alone, we won 18 new projects totaling more than $135 million. The commodity price increases and the logistics cost challenges that have been plaguing the industry over the past several months are not cutting into demand. The world wants more solar. The strength of that demand is reflected in our second quarter results. We saw a 76% increase in revenues year over year. But despite that top line growth, we only grew EBITDA by 23% year over year. which brings us to the second theme that's at work in our business, cost inflation. Like most manufacturers, we have seen tremendous increases in input and freight costs over the past several months, driven by the reopening of the global economy following the pandemic lockdowns. The magnitude of the increases and particularly the unprecedented speed with which they have occurred have put significant pressure on our margins. Our gross margin in the second quarter was down 610 basis points. Our response to that inflation is part of the third theme in our business, which is the actions we have taken to strengthen our business and accelerate our growth. First, we have changed our business processes to reduce our exposure to future increases in commodity input costs. We have locked 85 percent of our input costs for the remainder of the year, including nearly all of our steel requirements. And the orders we have booked since changing our business processes are that gross margins are in line with, and in some cases, even above our historical average. The second action we have taken is to strengthen our board and management team. In the last two months, we have added three new independent directors, Gerard Schmidt, Paolo Amarante, and Bilal Khan, and three new executives, including Erica Brinker as our new chief marketing officer, who will also lead our ESG and commercial excellence groups, Ken Stokarski as our new senior vice president of operations, who will lead procurement, supply agreements, and manufacturing operations, and Tyson Hottinger as our new chief legal officer who will oversee our legal, compliance, and governance functions. Their combined expertise and experience will help us as we continue to grow the company. It's important to keep in mind that we have more than tripled the size of Array by nearly every measure over the past two years, such as revenues, customers, and country we sell in. We are adding additional talent to an already great team to help us manage the much larger, increasingly global company that we are becoming. The third action we have taken is to partner with Blackstone to give us the capital to accelerate both our internal and external growth plans. Brad will speak more about the specifics of the transaction, but we believe this is significant for us as it further positions Array as a leader in our space. And finally, policy tailwinds at work within our business. We have talked a lot in the past about how solar has become the most common competitive source of generation here in the U.S., with or without incentives. Solar really isn't alternative energy anymore. It has become a primary source of new generation capacity. The government recognizes this. However, they want it to grow even faster, which is why we are seeing additional policy support being added. The extension of the ITC by two years that occurred in December, coupled with the expansion of the safe harbor, to 2025 that occurred in June are all major accelerants for the industry and their impact really hasn't been fully felt yet. If we flip now to slide five, I'll provide some more detail on our results for the quarter. Revenues for the second quarter of 2021 were $203 million as we had strong delivery execution to close out the quarter. Adjusted EBITDA was $16.2 million on higher volume coupled with a more favorable mix of projects than we had anticipated. Moving to our order book, I mentioned on last quarter's call that we are seeing record levels of quoting activity. During the second quarter, we saw many of those quotes convert to orders, with the result being a record $882 million at the end of June, which represents 45% year-over-year increase. That number includes project wins of over $300 million in the second quarter alone. As I mentioned earlier, that momentum has continued into the third quarter. In July, we were awarded 18 new projects, totaling approximately 135 million. Most importantly, these new wins have gross margins in line with, and in some cases, above what we have achieved historically. If we go to the next slide, I'll dive a little deeper on the cost environment and how it impacted the quarter. The key takeaway from this slide, which will come to no surprise, is that we are in an unprecedented inflationary cost environment. Compared to the second quarter of last year, hot-rolled coil has tripled. Ocean freight has doubled, and aluminum is up 60%. Against that backdrop, our actual purchase material cost is up 14% year-over-year, and our gross margin is down 610 basis points. Turning to the next slide, I'll spend some time talking about the changes we have made to our business processes to limit our exposure to future increases in input costs. Historically, we would agree to a price with our customers when they would award us a project. Once the project was awarded, we would start the process of final design and engineering, the result of which was a detailed bill of materials. Once we had that bill of materials, we would place orders from suppliers. The process of finalizing the design and generating the bill of materials could take up to 90 days. The result was that if input costs moved down during that period, our expected gross margin on the order would increase, and if they moved up, it would decrease. Historically, prices from our suppliers didn't really move much during the 90-day window, and in most cases, they actually went down. At the same time, by ordering later and only after the full bill of materials was complete, we minimized our working capital investment and the chance that we would order too much or too few of a particular component. That changed in early April when prices for nearly every one of our inputs moved up dramatically in a very short period of time. That 90-day window, which had historically benefited us by reducing our working capital investment and giving us time to negotiate the best price from our suppliers, became a gap that could allow price and cost to become mismatched. During the second quarter, we took action to close that gap by changing our business process. Today, if a customer wants a fixed price, we offer two options. Either we offer a price that is good for 30 days with collars around the movement of commodity pricing. If commodity prices move outside those collars, the price is no longer valid, and we will re-quote the project using updated costs. Or we offer a price that is good for seven days only. Under both options, we now require our customers to sign an LOI and make a deposit, which enables us to procure the materials and components that are not impacted by the final design. Buying those components when the customer signs an LOI helps us to lock in our margin on the order because both price and material costs become largely fixed from the outset of the ordering process. The early results of this new process have been great. We are winning projects and locking margins on them at levels that are at or above what we have historically achieved. I am confident we are on the path to getting margins back in line with our historical performance and targets. However, if you turn to slide eight, it's important to keep in mind that this is a business with long lead times, and we still have a lot of orders to fulfill that have preinflation pricing that was agreed to under the previous process. Those preinflation projects create a hangover effect as they are recognized out of our backlog. This chart shows you the percentage of our revenues that we expect to come from preinflation orders over the next several quarters. The key takeaway is that our margins are going to recover gradually as those old projects burn off and more of our revenue comes from projects booked under the new process. Now I will turn it over to Nibel for review of our second quarter results.

Thanks, Jim. Revenues for the second quarter increased 76% to $202.8 million compared to $114.9 million for the prior year period. As Jim mentioned, this increase is driven by continued demand for our product, but is also reflective of a favorable comparison to the second quarter of last year, which had lower shipments as a result of the pull forward of orders into the first quarter of 2020 related to the ITC step down. Gross profit increased 21% to $26.8 million compared to $22.2 million in the prior year period, driven primarily by higher volume in the quarter. Gross margin decreased from 19.3% to 13.2%, driven by higher commodity and shipping costs, as discussed by Jim earlier, but were partially offset by better absorption of fixed costs on higher revenue. Operating expenses increased to $21.1 million compared to $21 million during the same period in the prior year. The increase continues to reflect higher costs associated with being a public company, as well as increase in headcount to support our product development and international growth initiatives. These increases were partially offset by lower contingent consideration expense of $3.4 million in the quarter. Net loss was $17,000 compared to net income of $2.4 million during the same period in the prior year, and basic and diluted income per share were zero compared to basic and diluted earnings per share of two cents during the same period in the prior year. It is important to note here that our net income in the second quarter of 2020 is reflective of a $6.6 million income tax benefit related to the CARES Act for which we had no comparable benefit this year. Adjusted EBITDA increased 23% to $16.2 million compared to $13.1 million for the prior year period. Adjusted net income increased 19% to $8.5 million compared to $7.1 million during the same period in the prior year, and adjusted basic and diluted adjusted net income per share was 7 cents compared to 6 cents during the same period in the prior year. Finally, our free cash flow for the period was negative $92.6 million, which was $45.2 million lower than the same period in the prior year. The increase in the use of cash is primarily driven by a higher burn-off of deferred revenue of $32 million and the net impact from the change in accounts receivable, inventory, and AP of about $6 million due to the timing of our shipments. Turning to our outlook on slide 11. As Jim mentioned earlier, we have secured a significant portion of our cost input and have largely completed our open contracts review. At this point, we feel confident in providing an updated outlook for 2021. We expect revenues to be between $850 million and $940 million. This range reflects shifting of some projects out of 2021 and into 2022 due to customer requests as well as increased lead times due to logistical challenges. We expect adjusted EBITDA to be between $55 million and $75 million. This range reflects the previously mentioned volume shifts into 2022, as well as the higher commodity and logistics costs on the pre-inflation contracts. We expect adjusted diluted EPS to be between 15 cents and 25 cents. This range reflects the impact of dividends on the Blackstone preferred investment, as well as the paydown of the revolver and the term loan that will occur in connection with the transaction. Now, I will turn it over to Brad to discuss our recent transaction with Blackstone.

Thanks, Nipal. I'll take a few minutes to provide an overview of the Blackstone investment, our rationale for it, and what it achieves for the company and our shareholders. As you know, the transition to renewable energy is a megatrend that will last for decades. The awesome scale of the investment required to make that transition creates enormous business opportunities across multiple product categories and in every geography. While expansion into new geographies and complementary product categories have always been a core to our growth strategy, we believe the current macro environment has created an ideal situation for consolidation. Inflation, logistical challenges, and other supply chain disruptions underscore the need for skilled players that have product and geographic diversity. At the same time, it also reinforces the need for continuous innovation, not only in products, but also in business processes. Like in all industries, accelerating consolidation and innovation requires capital. Our board and management team wanted to identify a capital partner that understood the tremendous opportunity ahead of us and would appropriately value what we have already built. We found that partner in Blackstone. They have a longstanding commitment to invest in companies that are leading the energy transition and have a keen appreciation for our technology leadership. The full details of the Blackstone transaction are in the documents we filed on Form 8K, but I would like to walk through some of the key features of the deal. The transaction we are entering into is unique in several ways. First, it is large. Under the terms of the agreement, Blackstone has agreed to purchase up to $500 million of perpetual preferred stock from us. That gives us an extraordinary amount of firepower. Second, it's flexible. We plan to draw $350 million initially, and we have the ability to draw all or a portion of the remaining $150 million at any time until June of 2023. That gives us the flexibility to draw capital exactly when we need it and not before. Third, its financial terms are very attractive, which we think reflects the strength of our company and the tremendous growth opportunity that Blackstone sees for Array. The preferred is perpetual. It does not have a maturity date. We have the flexibility to call the preferred in the future if we choose to, but we are never obligated to. It is truly an equity security. The dividend rate is only 5.75%, which is inside of where we could raise bond financing today. And the upside we have provided in our shares is very modest when you compare the amount of capital we are raising to our current market capitalization. The ownership dilution on the initial draw is only 5.8%. Now turning to page 14, I'll talk about why we think this transaction is so compelling for our company and our shareholders. First, It's an accelerant for the internal and external growth strategies we were already pursuing and comes at a time when we see an opportunity to take significant market share both organically and inorganically. Following the completion of the transaction, we will be undrawn on our $200 million revolver, hold more than $136 million in cash, and have another $150 million available to draw under the Blackstone commitment. That puts us in an extraordinarily strong position to make investments that accelerate our growth. Second, it gives us a pristine balance sheet. Like most companies in our industry, our EBITDA and cash flow have been hit hard by the extraordinary supply chain disruption that is occurring. This transaction brings our leverage down to two times and results in nearly $325 million of available liquidity for working capital and growth initiatives. Third, we know the last several months have been disappointing for our shareholders. We believe an investment by one of the most respected asset managers in the world is a strong endorsement for our technology and capabilities and that the work that Blackstone did to make this investment validates our tremendous growth potential. Fourth, we believe partnering with Blackstone brings a ray more than just capital. Blackstone is a significant investor in both companies and projects in the solar sector, and we see opportunities to grow our sales, particularly internationally, by leveraging their relationships. We also see opportunities to reduce our costs by taking advantage of the expertise and purchasing power of Blackstone. Blackstone has a long track record of working with the companies it invests in to leverage suppliers across their entire portfolio of investments. Their partner companies have seen savings in everything from health insurance to steel, and we plan to work closely with Blackstone to identify areas where Array can achieve similar cost reductions. We also plan to leverage their global M&A resources and expertise. Lastly, we believe we have achieved all of this at a very modest cost. The shares that Blackstone will receive in the transaction represent only 5.8% of our basic shares outstanding on a pro forma basis. We think that is a very small amount of dilution to our existing shareholders for the benefits that this transaction brings. I'll now turn it back over to Nipal to provide a quick overview of what our balance sheet will look like pro forma for the transaction. Nipal?

Thanks, Brad. This next page gives you a sense of what our balance sheet looks like after giving effect to the Blackstone transaction and the application of the proceeds. We will be using the $350 million from the initial tranche to repay $100 million of outstandings under our term loan, sweep our revolver down to zero, and put about $136 million of cash on our balance sheet. The result of this is the dramatic decrease in our leverage and increase in our available liquidity that Brad spoke about. For modeling purposes, we will be giving 7.875 million shares to Blackstone in connection with the transaction, so our total share count will increase to about 135 million. Now, I'll turn it back to Jim for some closing remarks.

Thanks, Nipal. I'll conclude by saying while there is no doubt that the cost environment this year has had an impact on a lot of businesses, ours very much included, I cannot stress enough how optimistic I am about the solar industry and our place within it. I believe we have taken a difficult situation and used it to make ourselves better. We have strengthened our relationship with customers through a laser focus on execution and transparency. We have built better relationships with suppliers and created more flexibility and diversity than we have ever had. We have adapted our business processes and strengthened leadership that positions us well for the next stage of growth. And finally, with the Blackstone Partnership, we have taken important steps to ensure that we will be a global leader in renewable energy. And with that, operator, please open the lines for questions.

Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Brian Lee from Goldman Sachs. Your line is now live.

Hey, guys. Good afternoon. Thanks for taking the questions, and congrats on the Blackstone investment here. I guess first off, I'm curious on the order book. You mentioned several times throughout the presentation that gross margins are in line with last year's levels. Can you maybe quantify that a bit? I know gross margins were in the 19% range pretty consistently in Q2 through Q4 of 2020, 23% for the full year because of some safe harbor volumes at the beginning of the year. So just wondering, are we to think that the 19% level is where we're tracking on the new orders, or is it even higher than that? Maybe that's the first question. And then the timing of delivery on the new orders, is this all for mid to late 2022?

Hey, Brian. It's Napal. How are you? Yeah, so to answer your first question, the new orders that were signed, they're in the low 20s as a gross margin percentage as part of our historical. and the timing is into 2022, throughout 2022.

Okay, that's great. Very helpful. And then second question here, just on the guidance for 2021, good to see you guys reinstating that. There's still a pretty wide range on EBITDA and profit outlook ranges for 21. Can you kind of speak to what the biggest swing factors are? It sounds like input costs and especially steel are locked in, so... Wondering why there's still a wide range, what the puts and takes around how you would fall at the lower end or the higher end. And you didn't really mention pricing too much. Maybe that's the swing factor. Can you give us a sense of what you've been able to do on the pricing side of things, on the existing sort of awarded orders that you went back through over the past quarter, and then kind of what you're seeing on new orders? Thanks, guys.

Yeah, sure. Hey, I'll take that one too. So yeah, we completed our dead and out, so the contracted orders that we had, open orders that we had, and that's where we came with our guidance. And the guidance range really reflects the macro environment, Brian. It's pretty dynamic still, so We still have some uncertainty around some further project delays, hence the guidance range on revenue, and also maybe potentially a little bit of logistics costs. So we built that in the overall guidance, but feel good that, you know, confident enough in those numbers to put that guidance out.

All right. Fair enough. Thanks, guys. I'll pass it on.

Thank you. Next question is coming from Mark Strauss from J.P. Morgan. Your line is now live.

Yeah, good afternoon. Thank you very much for taking our questions. Just to the extent that you're talking about locking in your costs with suppliers, are you able to talk about the duration of those fixes and what kind of maybe wiggle room you've left yourself looking out longer term to the extent that prices decline?

Yeah, Mark, it's Jim. So we certainly have the ability to flex our supply chain to meet any opportunity to reduce our cost and increase the margin. When you look at the duration, certainly everything that we have within our backlog that we're reporting, that is pretty much locked and loaded. So you can think of that over the next 12 months. And beyond that, we continue to work with our suppliers and customers accordingly.

Okay, that's helpful. Thanks, Jim. And then on the last call, you talked about kind of your view that you could potentially gain some market share, just given your size, given your ability to procure materials that some of your smaller competitors might not be able to. I understand it might be early still, but just based on your order activity, do you get the sense that that is coming to fruition?

Yeah, absolutely. When you look at our order book being up 45% year on year and just I know it's a snapshot in time, and you can consolidate the complete year, but if you use that as a proxy for the overall industry, we certainly feel like we're outpacing the industry growth here, and we remain very optimistic there. The feedback we're getting from our customers would indicate that we continue to take shared demand, so we're very excited about that going forward, and your comment about the flexibility of the supply chain is spot on. We continue to build that out, and we're real excited about Ken Stacharski and others that are taking a point on that for us on the supply chain side.

Okay. I'll take the rest offline. Thank you.

Thank you. Next question is coming from Philip Shen from Wealth Capital Partners. Your line is now live.

Hi, everyone. Thank you for taking my questions. The first one is on working capital. Was wondering if you could comment on how you expect your working capital needs to trend in the coming quarters. So I think we see or saw that your DSOs and inventory days increase meaningfully in the quarter. So do you expect that to remain elevated in the coming quarters, or do you think that peaks out in Q2 and improves as we go ahead?

Yeah, so we see that it'll be slightly elevated for the balance of the year. We look at cash conversion cycle, and we have that around the high 70s for the end of the year. And then we are, you know, converging down as we go into next year, looking to get that back down to 70 days, which is our target.

Got it. And then over the past few months, Naples, Did you guys trip any covenants with the current creditors, or were you guys at risk at all for tripping covenants? And just trying to understand what kind of – what was the context for the Blackstone deal?

Yeah, so regarding your question, no, we had not tripped any covenants as of Q2. The Blackstone deal really is – we look at it from a macro level. The deal provides strength to our balance sheet, of course, but it's also – it's a determining factor. one of the determining factors in doing the deal. It's really that the partnership with Blackstone and the advantage of growing in the market is why we decided to go with that.

Great. Thanks for taking the questions. Congrats on the deal as well.

Thank you. Next question today is coming from Colin Rush from Oppenheimer. Your line is now live.

Thanks so much, guys. You know, I wanted to check on any sort of payments around these fixed contracts. Are there any prepayments, deposits that you needed to put down? And then with, you know, paying back some of this term loan, are there any prepayment expenses that you have to account for here in the third quarter?

Colin, are you speaking in reference to prepayments to suppliers?

Yeah, deposits on some of those contracts for materials.

Yeah, every one of these projects pretty much has its own DNA, and we pretty much cover our, how shall I say it, prepayment through what we get through our customers by way of their deposits. So we try to work that timing to really cover that going forward. So I'll look to NAPL to make sure that we're accurate here. But it's fairly neutral when you look at it from a cash flow perspective.

Yeah, that's true. And then also related to the term loan, As discussed in the Blackstone deal, we've agreed to pay down at least $100 million on our term loan.

Okay. I've got a clarifying question there, but I'll take that offline. And then just in terms of some of the technology investments that you guys are making, can you speak to the acceleration on any of that, the competitive landscape, and the need to continue to evolve the offering as you guys go forward and work on gaining share?

Yeah, with respect to the investment in technology, it's two-pronged. It's internal. And what we don't have within our four walls, we obviously continue to look outside. But we're making significant progress and gains on our SmartTrack. We'll be soon deploying our second revision of that, our SmartTrack 2.0, which we feel has a much superior solution in addressing severe weather conditions such as hail. We can get into the details on that. We're real excited about that. And as we look at some of the more innovative technologies that are supporting what we're doing on our Duratrac product today, again, everything we're doing there is addressing the ease of installation to address labor. That's our investment in the technology that we spoke of in the prior call and back in Q1. And then where we see opportunities when it comes to accelerating technologies that may not be within our four walls. We want to deploy a little quicker. Well, that's exactly what we're partnering with Blackstone to go do. So we're real excited about our technology development and the MPI.

Great. Thanks so much, guys.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question today is coming from Joseph Osha from Guggenheim. Your line is now live. Hello, everybody.

Hello. Hi, Joseph.

Hi. Two questions for you. First, we've seen in some other businesses, not necessarily solar, but in sustainability, some vendors manage to push the price risk all the way through to the end customer. I'm wondering if you've had any discussions with customers about simply passing through price increases, or is that not viable? And then I do have a follow-up.

Yeah, we have those conversations frequently, especially in this current environment. But I would say, Joseph, the way we approach that is purely commercial. We want to make sure we have a win-win because we know that we're dealing with a specific project today in what would really amount to a portfolio of projects that we're managing. So to the extent we can price to win today and be competitive and at the same time take further share That's our objective, you know, balance between the short-term and long-term objectives. So those conversations are happening quite frequently.

Okay. Yeah, no doubt. And then the second question, you know, look, obviously in any given year, there's some projects that don't get done, but, you know, certainly in the current environment, there are a lot of projects that developers, you know, sign deals that, you know, basically don't want to build the project profitably. I'm just wondering, you As you survey the landscape, do you see the percentage of projects not getting built or being pushed out increasing at all?

Hey, Joseph. This is Jeff Krantz here. So I would say from a macro perspective, not really, right? So for sure there are some pushes and probably a bit more than what we see typically seasonally. But overall, we're not seeing this massive change in the amount of projects that are slipping.

Okay. Thanks a lot, guys. Thank you. Next question is coming from Mahip Mandoli from Credit Suisse. Your line is now live.

Hey, thanks for the questions. I'm sorry if I missed this. I was jumping between calls here, but could you just talk about the margin guidance for the first half of 2022? Do we expect a return back to that 18% target we talked about in the past or somewhat similar to 2019 or 2020 levels?

So, yeah, hey, Maheep, this is Nipal. We haven't provided that guidance for 2022, but what we can say is the projects we're signing in our order book of late since May and especially in July have been at our historical margins, which have been in the low 20% range.

Got it. And just to follow up on some of the questions around the Blackstone transaction, was there any – covenants for the term loan or the revolvers which required the capital in the second half or just trying to understand the timing of the transaction here?

So the timing of the transaction was based on just Blackstone and us evaluating when would be the best time. As far as before you got on the call, we talked about it. Really, the business conditions change through the year. And the deal with Blackstone does provide us strength in our balance sheet, but that wasn't the determining factor for the deal. You know, we found a partner that we could take advantage of the growing market, and that's why we did the deal with Blackstone.

Got it. All right. I'll take the rest offline. Thank you. Thank you.

Next question is coming from Moses Sutton from Barclays. Your line is now live.

Hi, thanks for taking my questions. So the new contracts in 2022 capturing low 20s margin is quite impressive. Want to confirm that assumes, you know, current steel price or the hedge steel prices under the newer tighter procurement process and any assumptions there on freight moderating or that low 20s would be realized even if the macro is sort of held constant from here?

Yes. Hey, Moses, it's Niple.

Yes, that low 20s margin is based on current cost conditions, which include freight.

Great, great. And is it fair to say that a majority or all of those new recent 2022 bookings have that margin profile, or is it a minority portion of new bookings?

We would say it's a mix of the projects, but the overall average is over our 20% margin target.

Excellent. And one more for me. I'll jump to the queue. I may have missed it. Did you provide the callable terms on the professional-preferred Is it at PAR or any provisions there around if you wanted to call it at some point?

We didn't provide those details. It's in the 8K, but we can call the preferred at our discretion.

Excellent. Thank you. Thank you. Our next question is coming from Jeff Osborne from Cowan & Company.

Your line is now live.

Good afternoon. I think on the last earnings call, you had talked about over 100 open-ended contracts and obviously giving guidance. You've come to a resolution on those. I was wondering if you could just sort of articulate what happened with those in terms of your ability to raise price. Did any churn away and go to competitors? It doesn't sound like any projects were canceled, but any sense on churn would be helpful. Yeah, to address it,