Array Technologies, Inc.

Greetings and welcome to Array Technologies' second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Shepard, Investor Relations at Array. Please go ahead.

Thank you, and welcome to Array Technologies' second quarter 2024 financial conference call. On the call with me today are Kevin Hofstadler, our CEO, Neil Manning, our president and COO, and James Chu, our chief accounting officer. Today's call is being webcast from our investor relations site at ir.arraytechinc.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website. Today's discussion of financial results includes non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found on our website. We encourage you to visit our website at arraytankinc.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending. As a reminder, the matters we are discussing today include four of the key statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially for statements made today. We refer you to the documents we filed with the SEC, including our most recent Form 10-Q, for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. I'll now turn the call over to Kevin.

Thank you, Sarah. Good afternoon, everyone. Today's format will be a bit different from the prior quarters. I'll start off with some key industry highlights, and Neil Manning, our President and Chief Operating Officer, will provide some operating highlights for the quarter. I'll then return and cover the second quarter financial highlights. and full-year financial guidance and provide a brief update on the progress on our CFO search. Then we'll open the lineup for your questions. We are pleased with our performance and execution in the second quarter, along with the continued demand we're seeing in the market. Starting on slide three, I'll begin with a summary of our second quarter and then discuss the latest industry environment and near-term market dynamics. We achieved $256 million of revenue, slightly above the high end of the range we provided on our last earnings call. Adjusted gross margin came in at 35%, which included incremental 45x benefits through June 30, 2024, but were not previously factored into our guidance. Excluding these incremental benefits, our adjusted gross margin result was within the low 30s guidance range previously provided for the full year. Compared to the prior year, our adjusted gross margin performance reflected a 540 basis point improvement. As we move through the remainder of the year, we will continue reporting gross margins inclusive of both pork tube and structural fastener benefits derived from 45X, and there is still more work being done around the maximization of those credits. We are actively pursuing multiple initiatives to obtain further clarity regarding the eligibility of additional parts that might qualify under 45X in conjunction with negotiating the split of the 45X benefits with suppliers for parts we do not manufacture internally. However, as always, we also remain focused on achieving strong core gross margins through disciplined pricing, effective cost takeout initiatives, and continued design innovations. Finally, we delivered $55.4 million of adjusted EBITDA, representing 21.7% of revenue, and we generated $1.8 million of free cash flow to end the quarter with a strong cash balance of $282 million. One additional update I'm thrilled to report on for the quarter is the remediation of our material weakness related to a lack of qualified personnel to perform control activities for financial state of preparation. With the hiring of additional talented individuals in accounting and finance and the realignment of our accounting functions to strengthen internal controls, we were able to effectively close out this material weakness. I'm incredibly encouraged by the improved strength of our team moving forward. Additionally, with the implementation of an ERP system in Brazil in May, we are well on track to remediate our last remaining material weakness related to control activities within the STI business. This is truly a testament to our commitment to operational excellence, and I couldn't be more proud of the focused investments we've made in people, processes, and systems. Moving to slide four, I want to briefly reinforce the positive long-term momentum we're seeing within the solar industry and the bright outlook for the next few years. According to data from the Federal Energy Regulatory Commission, solar represented over 80% of U.S. electric capacity additions through April to kick off the year. Looking over the next three years, FERC continues to expect solar to dominate new capacity additions by a large amount. and we're optimistic about the incremental demand likely to be spurred by AI data center growth in the coming years. Our high-probability pipeline remains robust, and we're encouraged by our customers' interest in our portfolio of products and services and the tailwind supporting utility-scale solar as one of the lowest-cost options to satisfy growing energy needs in the coming years. Speaking of tailwinds, You may have seen that I recently testified before Congress on the Inflation Reduction Act's positive impacts on solar manufacturing and American job growth. Specifically for Ray, the 45X tax credits are helping us increase our domestic production and onshore critical components and good-paying jobs through the groundbreaking of our new Albuquerque manufacturing facility. We are also encouraged that the legislation has sweeping bipartisan impacts. So far, over 75% of the benefits from the IRA are impacting Republican-controlled districts. Overall, the IRA is expected to facilitate nearly triple the current U.S. solar capacity by 2028, and we're incredibly excited about IRA's role in helping develop a sustainable future for renewable energy in America. Regarding the latest IRA domestic content guidance that was issued in May, we are encouraged by the new elected safe harbor table that was introduced and believe it is a positive step forward for our customers pursuing the domestic content matter. Although the table is not yet final, we remain committed to supporting our customers and their domestic content needs. A domestically produced tracker is critical to achieve the 40% domestic content. and it will become increasingly important as this percentage threshold is increased in the coming years for the stipulations in the IRA. Moving on to the latest 2024 market dynamics, we achieved strong new bookings of $429 million within the second quarter. We did have some other adjustments to our total order book from commodity price updates, project scope changes, and FX impacts. However, although project cancellations were minimal. There were only four small international project cancellations representing less than 1% of our order book in total, and we've had no domestic project cancellations. We are pleased with the continued momentum we're achieving as evidenced by our overall rate of new orders, as well as our project win rate. We are also pleased to see new bookings for our OmniTrack product continue to grow and we are very optimistic for increased opportunities for terrain following trackers moving forward. However, despite all the positive long-term momentum we're seeing for utilities sales solar, the industry is still struggling with short-term challenges that are continuing to cause issues with our customers' near-term project timing, resulting in a reduction of our 2024 guidance. As we've discussed before, we continue to see a dynamic of elongated timelines between project awards and expected project start dates. However, during our standard recurring check-ins with our customers, we also witnessed a sharp uptick in anticipated project push-outs beginning at the end of the second quarter. A number of our customers' domestic projects are still reporting volatility in timing due to a variety of factors we've outlined in previous quarters. There are also a few newer near-term headwinds presenting tiny challenges, which I'll outline. The first new dynamic we've witnessed is related to the recent ADCBD petitions. As we mentioned on our last earnings call, there was still a lot of uncertainty around potential tariffs, and the situation remains fluid. Within the last couple of months, we've had some customers who opted to preemptively change panel selection, thereby delaying a project, or are planning on delays in projects in consideration of a potential panel selection change. Fortunately, a lot of these delays stem from the uncertainty around the magnitude of potential tariffs. Once the impact of the tariffs is determined, customers can better understand the consequences on panel costs and make relevant decisions for specific projects to move forward. As we've mentioned before, our patented clamping solutions are flexible, and we feel very well positioned to accommodate late design changes for module selection as our clamps don't require pre-drilling of the torque tube. Another new dynamic has been related to the domestic content elected safe harbor table. As I previously mentioned, this new clarity is certainly a positive overall for our customers and the industry. However, the guidance is still being vetted and not yet final. As such, certain customers are taking additional time and delaying projects to navigate this new table and ensure they achieve the necessary amount of domestic content to qualify for the credit. One bright spot in light of these push-outs is that some customers who were not previously considering pursuing the domestic content adder are now reconsidering, given the ease of use provided by the prospective tables. we remain committed to providing a high level of domestic content to meet our customers' needs, and nearly 15% of our domestic order book is either specifying or evaluating domestic content. We also have a lot of interest in domestic content within our high-probability pipeline. Finally, outside of the U.S., there has also been some unexpected macroeconomic delays in Brazil. Within the last couple of months, there's been a rapid devaluation of the Brazilian real in conjunction with existing pricing pressures on energy in the Brazilian market. Due to these dynamics, the economic cases for the Power Purchase Agreements, or PPAs, for many solar projects have become less attractive. Developers of these projects are now signaling delays as they renegotiate the pricing of these PPAs. We still feel very strongly about our position in the Brazilian market and the optimal performance of our products in region. However, this short-term challenge will need to be resolved before we see a return to a more normalized Project 8. While we are disappointed at the level of customer push-outs being reported in the near term and its impact on our 2024 guidance, we recognize that there are many industry factors outside of our control. We remain focused on engaging with our customers increasing our operational rigor and managing everything we can within our purview. As we look to the future, a significant portion, about 80% of our order book is currently scheduled for delivery between now and year end 2025. And to be very clear, we still expect to be receiving orders for 2025 deliveries or several more quarters. We will continue to set ourselves up for success to support the future growth in 2025 and beyond and navigate near-term challenges to the best of our ability. Now, I'll turn the call over to Neil to speak about some exciting product and business updates. Thanks, Kevin.