Array Technologies, Inc. Q3 FY2024 earnings call

Business and Market Update

• Solid financial performance and execution in the third quarter. Revenue was within the guidance range, and adjusted gross margin improved significantly year-over-year. Order book remained at $2 billion, though orders and projects awarded were muted due to election uncertainty and market factors. Domestic pipeline of opportunities was over 3 times larger than Q3 2023.

Product and Commercial Updates

• Introduced the 77-degree tracker with steep stow angle for hail protection, built on proven DuraTrack and OmniTrack designs and enhanced by SmarTrack Hail Alert Response Software. Launched SkyLink architecture, an eight-row string powered solution with DC motors and ZigBee wireless communications, rated to operate down to -40°C. Also, automated snow response to be launched before year-end.

Third Quarter Financial Highlights

• Revenue of $231 million, down 34% year-over-year due to project pushouts. Adjusted gross margin was 35.4%, operating expenses increased due to a $162 million goodwill impairment charge related to the 2022 STI acquisition. Adjusted EBITDA was $46.7 million, and free cash flow was $43.9 million.

In the third quarter, Array Technologies achieved revenue of $231 million, which was within the upper half of the guidance range. Adjusted gross margin stood at 35.4%, with an adjusted EBITDA of $46.7 million, representing 20.2% of revenue. Free cash flow for the quarter was $43.9 million, and the order book remained at $2 billion. Sales in North America accounted for approximately 70% of the quarter's revenue, while the remaining 30% came from international locations. The adjusted gross margin showed a year-over-year improvement of 940 basis points.

• Lowered adjusted EBITDA and adjusted net income per share ranges slightly due to project mix changes and increased strategic investments. Anticipate record annual adjusted gross margin of approximately 34% for 2024 due to torque tube and structural fastener 45X benefits. Adjusted G&A expense expected to be between $138 million to $140 million. Effective tax rate projected to be 20% to 21% excluding goodwill impairment. Raised free cash flow guidance to $100 million to $115 million from prior range of $60 million to $100 million.

• Uncertainties in market demand and supply. Risks related to permitting and interconnection delays, shortages of high-voltage circuit breakers and transformers, and EPC labor constraints. Currency fluctuations, such as the accelerated devaluation of the Brazilian real impacting STI projections. Uncertainty around the implementation of interconnection queue regulation and permitting reform.

Q: Julien Dumoulin-Smith asked about the cadence of realizing the $2 billion backlog.

A: Kevin Hostetler responded that the backlog realization is at a normalized cadence, with most of the backlog set to convert between end of Q2 and 2025, and the team is still booking orders for 2025.

Q: Mark Strouse inquired about the STI write-down.

A: James Zhu explained that the accelerated devaluation of the Brazilian real triggered a reevaluation of long-term projections for STI operations, leading to the goodwill impairment charge.

Q: Brian Lee asked about the 2025 outlook and pricing.

A: Kevin Hostetler stated that the 2025 growth is based on backlog already in the order book, with strong visibility and no reliance on price increases from steel, as orders in the backlog were booked in the last three to four quarters.