Array Technologies, Inc.

Hello, and welcome to the Ray Technologies third quarter 2022 earnings call. This time, all participants are in listen-only mode. Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now, my pleasure to turn the call over to Cody Hiller, Ambassador of Ray Technologies. Please go ahead, sir.

Good evening. Good evening. And thank you for joining us on today's conference call to discuss Array Technologies' third quarter 2022 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 We identify the principal risks and uncertainties that may affect our performance in our reports and filings with the Securities and Exchange Commission, which can also be found on our investor relations website. 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 the comparable GAAP financial measures. Earlier today, the company filed an 8 and an amended form 10 for the quarter ended June 30, 2022. The restatement was due to an accounting error caused by a clerical error in the sales order entry process for a contract value which overstated revenue and gross profit, as well as a consolidation error that understated the reclassification of personnel costs from general and administrative to cost of revenue. The total income statement of impact of these two errors for the three and six months ended June 30, 2022, was a reduction of revenue and adjusted EBITDA of $5.1 million, a reduction of gross profit of $7.4 million, a reduction of G&A expense of $2.4 million, and a reduction of net income of $2.4 million. These errors had no impact on the company's previously reported cash flow from operations and does not cause noncompliance with any financial covenants as of June 30th. Any reference to the quarter or six months ended June 30th, 2022 in today's conference call and on our accompanying presentation reflects the restated values. For more information regarding these errors, please refer to the appendix of our accompanying presentation as well as the Form 8K and the explanatory note in our Form 10QA. With that, let me turn the call over to Kevin Hostetler, Array Technologies' Chief Executive Officer.

Thanks, Cody, and good evening, everyone. Thank you for joining us on today's call. In addition to Cody, I am also joined by Nipal Patel, our Chief Financial Officer. Let's begin with Slide 4, where I'll provide some highlights for our third quarter. I'm incredibly proud of our performance this quarter as we again delivered results above expectations across the board. Revenue of $515 million this quarter represents our single largest quarter as a company and year-over-year growth of 173% or 112% on an organic basis. The continued organic growth is a particular bright spot for us considering the industry-wide challenges this year due to both ADCVD and the UFLPA. Our order book on September 30th was $1.8 billion, reflecting an increase year-over-year of 77% inclusive of FTI and 36% when considering only our legacy array business. Sequentially, Our order book is down approximately $100 million, which is reflective of the strength of our deliveries as new orders totaled almost $400 million in the third quarter, which was an increase sequentially from the second quarter. I will talk more about it in a minute, but I do want to note that with only three months since the passage of the Inflation Reduction Act, or IRA, we are still too early in the project development process to expect any new bookings into our order book. As a reminder, our order book only considers named projects which have been awarded to us. Gross margin for the quarter was 15.6%, representing our fourth consecutive quarter of growth as we continue the margin improvement path we've previously laid out. Adjusted EBITDA in the third quarter of $55 million represents a year-over-year improvement of $59 million and a sequential improvement of approximately $35 million from the second quarter after giving effect to a $5 million downward adjustment in the second quarter from the restatement referred to earlier. Looking at our ending cash flow and liquidity position for the quarter, I'm extremely pleased with our execution. NEPA will walk through this in more detail a bit later, but we delivered $102 million of free cash flow in the quarter, which has significantly strengthened our balance sheet as we prepare for the next phase of our growth. To that end, we currently have $329 million of liquidity, inclusive of the Blackstone preferred shares, and $166 million in availability on our revolver. This is up significantly from $153 million of total liquidity in the prior quarter. Turning to our next slide. As I did last quarter, I'll take some time to provide an update on the domestic market as we continue to operate in a dynamic landscape. First, an update on the IRA and where we currently stand. In the months since the act passed, we have seen an incredible amount of enthusiasm in the industry around the undeniable impact that the IRA will have on solar deployments over the next 10 years. However, it is important for us to remind everyone that this act, one that is certainly not small and easy to implement, is only three months old. There is still a lot of work that needs to be done by the various governmental agencies tasked with rolling it out to define and clarify critical aspects of the bill before the industry can wholesale shift to the new paradigm. During this critical rollout period, we are actively engaged with key trade association groups, governmental agencies, and legislators to ensure that when completed, the application of this act benefits the solar industry in general, but also array specifically. In parallel, we are also continuing to push forward internally with what we do know. There are three key areas I will point out. we are having daily conversations with customers around building out the framework for pricing agreements under the IRA. These have progressed as far as discussing reserved capacity agreements and revisiting pricing for certain orders under varying levels of domestic content. Second, we have engaged with our suppliers on the domestic manufacturing credits to begin to craft the parameters under which these will be shared in the value chain. I can appreciate that everyone would like us to provide our view of those splits, but it is too early to give that definitive of an answer, and we will also avoid having these negotiations in public. Lastly, we are evaluating our own manufacturing footprint along with our key supplier relationships to ensure that we are maximizing the benefit to array while ensuring we continue to maintain our key strategic relationships. Overall, with such a large and meaningful piece of legislation, I am thrilled with the progress that has been made to date and look forward to updating everyone on our continued progress as key aspects of the IRA are further defined. Moving to the next area, the UFLPA. We have been consistent in calling this out as a risk to project timelines and that we did not expect meaningful resolution by the end of this year. Unfortunately, that is still the case. Documentation requirements from the Customs and Border Patrol have not seemed to get any further clarity since we last discussed this. This has led to more Tier 1 suppliers becoming more risk averse and a fear that sooner than later it will start to impact Tier 2 suppliers as well. While we have not been informed of any of our projects with module detainments to date, our position on this remains cautious. We continue to expect that the delays are caused by the lack of clarity surrounding the enforcement of this Act will provide a headwind on deliveries in the fourth quarter and will carry through to the first quarter of 2023. It is important to note that this is not a change in our outlook, rather a status quo assessment for where we have been all year. In fact, as Nipal will discuss more later, despite this expected slowdown, we are raising our full-year revenue outlook at the midpoint by $150 million. Finally, FEMA currently has a proposal to increase the structural risk category of large-scale utility projects. We recently had an expert from Array testify in the public hearing on this matter where we imposed the increase to the risk category. We fully support ensuring that solar arrays are designed to work in even the most difficult weather conditions. In fact, this is a critical component of array-specific value proposition. Every tracker we design is built to withstand the most severe weather conditions a site may encounter. To highlight that point, in recent years, our trackers have withstood both the extreme snowstorm in Texas and, more recently, Hurricane Ian in Florida. So we believe there is a balance to achieve with ensuring the structural integrity of the solar array while also ensuring that costs are not unnecessarily increased. If there is a new classification, we are very confident in our ability to support this for our customers. Shifting the focus to our internal operations, I will now move to slide six. I'll provide an update on the progress we have made in five key areas I outlined last quarter. While many of these areas will take more than three months to fully address, I am incredibly pleased with our progress in this brief period. I won't go point by point on these, but there are a couple of key things I will point out. First, and maybe most impactful in the quarter, is the improvement we have seen in our working capital efficiency, which we measure through cash conversion cycles. This quarter, we improved this metric by 12 days from the second quarter and almost 50 days from the first quarter. Our teams drove significant improvements in both our receivables and our inventory, which we previously highlighted as key focus areas. The net impact of this was seen in our free cash flow performance this quarter. Excluding the impact of the significant legal settlement previously noted, we generated $60 million of cash this quarter. This obviously is incredibly important in strengthening our balance sheet and allowed us to fully pay off our revolving facility, as well as paying $12 million in interest on our preferred shares, which had previously been paid in kind. The other area I will note is the evolution of the FTI business. First, on the construction side. Early in my tenure, we noted the need to reduce our focus on the construction activities within our FTI business with a particular focus on construction in Brazil and the U.S. When compared to Q1 quarter ending headcount, we have now reduced our construction headcount by approximately 20% in Spain, where we have been more selective in where we offer this service. In Brazil, we have reduced our construction headcount by approximately 70% since the first quarter, and we currently have no active construction projects slated for 2023. Next, on the integration side, we recently concluded a 14-week spread on the integration, which delivered several important steps forward for us as a combined company. First, we solidified and formally rolled out our combined organization. We will drive functional activities from a one-array standpoint while enabling our regional leadership to execute the day-to-day activities and to quickly make decisions at a point which is closest to our customers. Next, we've recently announced that the STI H250 will become fully available in the U.S. market in the coming months. This is an important development as the deployment of solar projects becomes more geographically diverse. I wanted to close with something not listed on the slide here. We have also had a lot of positive momentum in our innovation and development activities, highlighted by the recent announcement of Omnitracks. We have also been granted 15 new patents over the past three years, taking us from six active patents protecting our portfolio at the end of 2019 to 21 active patents surrounding our products currently. The largest portion of these patents have been received over the last 12 months. I look forward to more announcements in the future displaying some of these more recent developments. With this, I will turn the call over to Nipal for a deeper review of our third quarter financial performance and an update on our full year outlook. Thanks, Kevin. I'm glad to speak with you all today.