Array Technologies, Inc.

Greetings, ladies and gentlemen, and welcome to Array Technologies' third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance on the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Cody Mueller. Thank you. You may begin.

Good evening, and thank you for joining us on today's conference call to discuss Array Technologies' third 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, the comments made during this conference call, or in our latest reports and filings with the Securities and Exchange Commission, 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 third quarter press release for definitional information and reconciliations of historical non-GAAP measures to 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 third quarter earnings call. In addition to Cody, I'm joined by Nipal Patel, our Chief Financial Officer, and Brad Forth, our Board Chairman. I'll start off today by providing an update on our business. Then I'll turn it over to Nipo to cover our third quarter financials, and then Brad will discuss our acquisition of STI. Turning to page five of the slides, today there are a couple of major themes at work in our business. The first, the supply chain issues that have been impacting everyone in the solar business are continuing. Panels are still hard to get, and both ocean and overland freight is incredibly constrained. The result is project delays and higher shipping costs for suppliers like us. The good news is that we are seeing both suppliers and customers adapt to this new environment. Prices are starting to stabilize, albeit at higher levels. Our suppliers are charging us more, but we are charging our customers more. Everyone is recognizing that longer lead times are required for everything. We are not sure how long it will take for our business to return to what it was like, but we do feel the situation is stabilizing. We are optimistic that we are getting to a place where there will be fewer and fewer supply chain-related surprises. Now importantly, despite the supply chain challenges and higher prices, demand for solar has only grown stronger. We have not had a single customer cancel an order and all of them are reporting rapidly growing project pipelines in every geography. U.S. demand remains extraordinarily strong and we think there is additional upside if President Biden's plans for renewables pass Congress. We continue to monitor this very closely. both the direct pay option for the ITC and the 10% ITC adder for domestic content. The former could be a massive accelerant for the solar industry, as it was when the original cash grant program was implemented. The latter could be an accelerant for array, specifically because we are able to source up to 90% of our bill of materials domestically, something we do not believe our major competitors are able to do. The strength of the market as well as our continued share gains are reflected in our order book, which was over $1 billion U.S. for the first time in the company's history at the end of the third quarter. That achievement is important because it comes on the heels of redesigning our quoting and procurement processes during the second quarter. Our new process, which was a change for both our customers and suppliers, has de-risked our margins without impacting demand for our products. Most importantly, the orders we have been booking are at and sometimes above the gross margins that we have achieved historically. That plus the fact that we are rapidly burning off the legacy orders that we booked at lower prices gives me the confidence to say that we have turned the corner on margins and are on a path to get our profitability back to where it was in 2020. And finally, we told you when we partnered with Blackstone a few months ago that their capital was part of our plan to go on the offensive during this period of disruption. You can see we have been doing that organically, as evidenced by our order book, and now also through M&A with our acquisition of STI. We will talk a lot more about the deal later in our presentation, but I'll say now that I could not be more excited about the transaction. Making STI part of Array is a game changer for our international expansion strategy that is going to pay dividends for us next year. Together we see north of $200 million EBITDA next year, and that's before any synergies. Now I'll turn to page six and talk a little bit more about our growth in the third quarter and our order growth. Revenues for the third quarter of 2021 were $192 million, up 38% relative to last year. That was slightly below our internal forecast, as we had a few shipments to customers that were delayed as a result of logistics issues. Demand during the quarter was extraordinarily strong, with the third quarter representing our third consecutive quarter with more than 300 million in new bookings. As of September 30th, we had over a billion in executed contracts and awarded orders, up 35% versus the same time last year, and a new record for the company. The year-over-year growth is even more significant when you take into account the changes in composition of the order book from last year to this year. Last year, 120 million of the 744 million were orders that customers placed to qualify for the ITC before it stepped down. In other words, we got some orders earlier last year than we would have in a normal year, which increased our backlog. This year, there are no ITC-related orders in our backlog. The takeaway here is the growth in our order book is even more significant than the 35%, because we have no ITC orders this year. Every order we have represents near-term projects. That says the organic demand we are seeing is tremendous. Couple that with what STI has in their order book, and we are entering the fourth quarter with $1.4 billion in orders. To put that in context, that is 60% more than what we have generated in revenues for all of 2020. Moving on to page seven, we put together a picture of what our gross margin should look like in the fourth quarter and next year based on the orders we have in hand and when we expect to ship them. Because our new quoting and procurement process closely matches the prices we agree with our customers to the prices we agree with our suppliers, we have a very good sense of what our gross margin will be on each order we ship. The blue bars in the graph show you how our gross margin evolved throughout this year. we saw our margins decline steadily as we worked off legacy orders where we had agreed price with customers prior to the run-up in commodities. The gold bar shows you where gross margins are trending based on the order book and current delivery schedules. Our gross margins go up after the third quarter because in each subsequent quarter, the percentage of legacy orders with lower prices becomes a smaller and smaller percentage of our total shipments. And correspondingly, the orders we booked under the new system become a larger and larger percentage of our shipments. Punchline is that we expect to be back to our historical high teens to 20s margins by the second half of next year, with incremental improvement beginning in the fourth quarter and continuing throughout next year. Now, importantly, there is still some risk to that, mostly related to any delays in shipping our legacy backlog. Those orders dilute our margins, so the faster we burn them off, the better our margins will be, and vice versa. and also further increases in freight costs. But I feel very good about our ability to deliver these numbers. With that, over to you, Nipal. Thanks, Jim.