Array Technologies(ARRY) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated $153 million in revenue for Q1 2024, slightly above the high end of the guidance range provided in February [7] - Adjusted gross margins were reported at 38.3%, including a one-time$ 4 million benefit from a supplier quality issue; excluding this, the adjusted gross margin was 35.7%, up 10 percentage points sequentially and nearly 9 percentage points year-over-year [7][27] - Adjusted EBITDA was $26.2 million, representing 17.1% of revenue, which included the$ 4 million benefit; this compares to adjusted EBITDA of $67 million in Q1 2023 [8][29] - Free cash flow for the quarter was$ 45.1 million, compared to $41.9 million in the same period last year [29] Business Line Data and Key Metrics Changes - The company booked approximately$ 400 million in new business during Q1, resulting in a book-to-bill ratio greater than 2.5 times, ending the quarter with an order book of $2.1 billion [9] - Approximately 80% of Q1 activity came from Tier 1 customers, indicating strong demand across various market segments [9][10] - The core adjusted gross margin, excluding benefits from 45X, was in the mid-20s range, consistent with long-term targets [8] Market Data and Key Metrics Changes - Sales in North America accounted for 70% of revenue, with the remainder from international markets [25] - The company noted broad demand across all market segments, including EPCs, developers, independent power producers, and utilities [9] - The pipeline of high-quality opportunities continues to grow, aligning with expectations of robust industry-wide growth for utility-scale solar [11] Company Strategy and Development Direction - The company is focused on operational improvements and product portfolio enhancements, including the launch of new features for severe weather mitigation [33] - A new state-of-the-art manufacturing facility is being established in Albuquerque, expected to come online in early 2026, aimed at strengthening the domestic supply chain [18] - The company is actively engaging with customers to ensure alignment with market needs and to showcase technological advancements [15][68] Management's Comments on Operating Environment and Future Outlook - Management indicated a softer first half of 2024, with expectations of growth in the second half, consistent with prior communications [12] - Ongoing issues include permitting, interconnection, and supply chain delays, but some customers are progressing normally [13] - The company is monitoring developments related to AD/CVD petitions, expressing concerns that new duties could lead to project delays [13][31] Other Important Information - The company successfully launched the Hail Alert Response system, which protects solar assets from hail damage, demonstrating its effectiveness during a recent hailstorm [19][20] - The company highlighted its competitive advantage in Brazil, where its tracking technology has been shown to enhance energy production compared to competitors [16][17] Q&A Session Summary Question: Pricing strategy and margin guidance for 2025 - Management reiterated that pricing reductions are not sacrificing margins but are a result of structural cost reductions, maintaining confidence in achieving mid-20s margins over time [36][37] Question: Impact of AD/CVD on market share - Management noted that they benefited from AD/CVD in 2022, gaining market share due to their flexible product design; however, the impact of the current AD/CVD filing remains uncertain [39] Question: Gross margin trends and future expectations - Management indicated that the$ 4 million one-time benefit significantly impacted Q1 margins, and they expect gross margins to trend towards the low 30s for the remainder of the year [42][44] Question: Customer reaction to pricing changes - Management reported that the DuraTrack is winning in the U.S. market due to its value proposition, while the H250 is gaining traction internationally [58][60] Question: Update on clamp and 45X qualification - Management stated that it is too early to determine the outcome of the clamp qualification under the 45X program, but they continue to lobby for its inclusion [52][53] Question: Customer engagement and market share - Management emphasized the importance of analytical approaches and personal engagement with customers to drive market share growth, without entering a pricing war [66][68]