Greetings and welcome to the Array Technologies Fourth Quarter and Full Year 2024 Earnings Call. At this time, all participants are in a listen-only. 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, Gina Gunning, Array's Chief Legal Officer and Corporate Secretary. Please go ahead.

Thank you. I would like to welcome everyone to Array Technologies fourth quarter and year-end 2024 earnings conference call. I'm Gina Gunning, Array's new Chief Legal Officer and Corporate Secretary and I am temporarily covering for Sarah Sheppard, Senior Director of Investor Relations, who is currently out of the office on a highly anticipated family leave of absence. I am thrilled to be here at Array Technologies and I am joined on this call by Kevin Hostetler, our CEO; Keith Jennings, our CFO; Neil Manning, our President and COO; and James Zhu, 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 and the presentation detailing our quarterly and full year results have 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 arraytechinc.com for the most current information on our company. As a reminder, the matters we are discussing today include forward-looking 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 from statements made on this call. We refer you to the documents we file with the SEC, including our most recent Form 10-K 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, except as required by law. I will now turn the call over to Kevin.

Thank you, Gina and I'll take a moment to publicly welcome both you and Keith to Team Array. I speak for the entire executive team in saying we are excited to have both of you as our partners. Good afternoon, everyone and thank you for joining us today. I'll begin with a brief business and market update, then Neil Manning, our President and Chief Operating Officer, will provide some product and commercial updates for the quarter. Keith Jennings, our Chief Financial Officer, will provide the fourth quarter and full year 2024 financial highlights and full year 2025 financial guidance. Then we'll open the line for your questions. Starting on Slide 3, I'll begin with a summary and key highlights of the quarter as well as full year 2024 results, followed by a discussion on the latest near-term market dynamics and industry environment. We had a strong fourth quarter driven by robust project execution. This, in turn, translated into better-than-expected financial results for the quarter and strong results for 2024. We achieved $275 million of revenue in the fourth quarter and $916 million of revenue for full year 2024 which was above the midpoint of our previously communicated guidance range. Fourth quarter adjusted gross margin came in at 29.8%, an improvement of 410 basis points year-on-year and full year adjusted gross margin of 34.1% represents an improvement of 680 basis points compared to full year 2023. We also delivered adjusted EBITDA of $45.2 million in the fourth quarter and $173.6 million for full year 2024. For the full year, we generated $135 million of free cash flow, ending the year with a strong cash balance of $364 million. As depicted on Slide 4, several achievements highlighted our 2024. We broke ground on our new state-of-the-art manufacturing facility in Albuquerque, New Mexico…

Thanks, Kevin. Turning to Slide 7. I'd like to share with you a recap on our innovation progress in 2024. We're driving results both from within Array and with our ecosystem partners. I'm happy to report that Array attained 22 new patents in 2024, bringing our total to 329 granted worldwide. We are quite pleased that our ideation programs are yielding meaningful differentiating capabilities for our customers in hardware, software and installation efficiency. On the right side of this slide is an overview of several innovations Array brought to market in 2024 with a keen focus on ease and speed of installation, along with mitigating damage from extreme weather events for our customers. We're very pleased with the initial market response for our SkyLink platform and the enhancements to our SmartTrack software solutions for extreme hail and snow events. It's important to note that Array's automated hail snow capability is truly automated and does not require human intervention to activate. This is quite relevant with the significant storm damage the competing tracking solutions experienced in 2024, where these competing solutions dependent on human intervention to stow effectively. I'm happy to report that we now have over 5 gigawatts of SmartTrack software solutions in operation and an additional 5 gigawatts being deployed in the near term for backtracking and diffuse capabilities. We are now offering site-specific productivity gain evaluations to our customers to further their understanding of the financial benefit of Array SmartTrack functionality. Customers are indicating significant interest in our high-angle hail stow tracker which will lead the industry with a stow angle of at least 77 degrees. This solution, combined with the automated stow capability of hail alert response will further enhance our customers' ability to protect their assets during extreme weather events. This is notable as nearly 40%…

Thank you, Neil. Good afternoon, everyone. I appreciate the privilege of speaking with you today. Since joining the company on January 6, I have been impressed by the quality of the organization and the strength of what Array offers its customers and employees. I'm incredibly excited about the future with Array. I see tremendous opportunities ahead for our company as a leading provider of high-quality solar tracking solutions. My financial commentary begins on Slide 11. I would like to start off by providing some additional details around the fourth quarter and the full year 2024 results. As Kevin shared, in the fourth quarter and for the full year of 2024, we delivered strong financial results driven by exceeding the midpoint of our revenue guidance. Revenue in the fourth quarter was $275.2 million, down 19% from the prior year, largely due to commodity correlated ASP declines and the project pushouts we began experiencing back in mid-2024. When compared to the prior quarter, revenue was up 19%. Sequentially, revenue and cash flow had positive momentum that was counter to historical seasonal fourth quarter trends. It's important to note, delivered volume measured in megawatts of generation capacity for the quarter were up 2% over the prior year and up 35% over the prior quarter. Across 2024, we experienced moderate ASP declines year-over-year in the U.S. and slightly higher ASP declines internationally in the U.S. This was primarily the result of price compression from falling commodity prices. Sales in North America represented approximately 73% and 70% of our revenue in the quarter and full year, respectively. In the fourth quarter, adjusted gross margin improved by 410 basis points year-over-year, reaching 29.8%. Sequentially, adjusted gross margin declined by 560 basis points as guided, primarily due to a large order shipping in Q4 of 2024, with…

Thank you, Keith. As I reflect on the opportunities ahead for our business, I feel optimistic and grateful for our mission-driven employees who have devoted their time and energy to position the company for ongoing success. With this strong foundation in place, we are well positioned to capture new opportunities and we remain very optimistic about the value proposition and demand within the utility scale solar industry. Looking ahead, we will stay focused on what we can control, prioritizing business growth, customer relationships, product innovation and operational efficiency. With that, we will now open the call up for questions. Operator?

[Operator Instructions] The first question we have is from Mark Strouse of JPMorgan.

Keith, can I start with you? First of all, congrats on the new role. I look forward to working with you. Just looking at the 1Q guide, though, so I appreciate that revenue is first half weighted. Can you just talk about what's weighing on EBITDA margin in 1Q though, compared to the rest of the year? Then I have a follow-up.

Great. Thank you, Mark. Thank you for the kind wishes. The first quarter EBITDA margins are forecasted to be lower because we still have the second half of the large shipment that we started to push through from Q4 of 2024. And we also have the roll-off of some 45X amortization that we just won't see in the quarter. And so those are primarily the 2 reasons for the [indiscernible].

And then just a quick follow-up. Were there any -- sorry, safe harbor orders that you received in 4Q or thus far into 1Q?

I think when we look at our order book, we have less than 10% or so of Safe order -- sorry, of safe harbor orders in the order book. They have not been a focus for us. Kevin?

No, that would be -- the 10% that's in the order book are some of the legacy safe harbor programs that we have. In terms of Mark, I think you're probably reflecting on are we seeing an onset of new safe harbor orders. And if that's kind of the question, we're certainly in dialogue now. We don't have any in our order book from the newness and companies trying but we're certainly in dialogue with customers that are evaluating that now. Nothing in the existing order book but likely some in Q1.

The next question we have is from Jordan Levy of Truist.

It's Mo [ph] on for Jordan. First question, it's great to hear the pipeline is growing 60% year-over-year. But could you please comment on why new orders backlog sort of lagged behind? And what kind of initiatives you guys are taking to win incremental business to grow the backlog? I have a follow-up.

Yes. Sure, Mo. This is Kevin. Let me take that. So we think we're pretty pleased with the win rate of new orders. It's continuing to tick up as it has for over a year. And year-on-year, the percentage of win rate is up substantially. So we're very pleased with that. One of the things that we experienced in Q4 that we experienced in Q3 has been the view of the net orders coming into the order book. One thing we noted in the prepared commentary is that our U.S. order book, for example, our book-to-bill ratio was 1.5. So very strong momentum in the North American business, offset by some debooking of orders in Brazil. You'll recall, we've said it for a couple of quarters now that we're still sticking to our same rules and guidelines here that if we don't have a defined start date on a program, we pull it out of the order book. So we had some debookings in Brazil that we pulled out of the order book, masking some of the strength we had in the North American order book. And I think we're towards the end of the debookings in Brazil. And I also want to be clear that we haven't had any of those orders in Brazil canceled. So they're sitting on the sidelines waiting for new dates and new PPA negotiations at this point before they roll back into the order book.

Got you. And maybe following on your comment on declining ASPs, what kind of pricing dynamics are you seeing into 2025?

So look, we're seeing pricing actually fairly disciplined. I think what you have to think about is the fact that steel, aluminum and logistics make 70% of our bill of material. We've talked about that historically. And steel alone has come down over 30% in the previous 2 years and that's what's really weighed down the ASP. So it's truly the ASP declines have been a function of commodity, not a function of giving up price in the market. I think our competitors have stayed fairly disciplined. We're not seeing large price wars. What we are seeing is, look, as expected, there is some trickling in of some of the 45X benefits into some pricing as we're competitive on large orders or bundles of projects. That was as we expected for well over a year. We're all responding accordingly. But I would say, certainly, in North America, it's been a very, very still quite disciplined market. I would say it's less disciplined as you go around the world. Certainly, it's getting less disciplined in Brazil with the issues that the marketplace is having. I would say Europe is a little bit better than Brazil, not quite as disciplined as the U.S. and that's a function of a lot of smaller competitors in the European business. So U.S., we feel really good about the discipline. And when you think about the fact that, as Keith talked about in his prepared remarks, it shouldn't be lost on the market that in Q4, we're actually up in volume year-over-year. That's a significant swing, right? That's significant when you think about the recovery of the business on a volume basis, finally returning to year-over-year growth in volume but that decline in ASP due to steel. Now why that's so important and why I want to mention it is that you now have hyper growth of steel creeping back into the market in the last few weeks. You have the threat of tariffs that are threatening on the import of steel which is allowing the domestic steel producers to raise their steel price. That's a good dynamic for us to get back into the '22, '23 steel pricing is a really, really strong dynamic for Array. So we look forward to that. We're mindful of that with our customers, both in terms of trying to help our customers lock in some steel savings. But at the same time, elevated steel prices creeping in, getting more normalized back to the '22, '23, we welcome that in the industry.

The next question we have is from Vikram Bagri of Citi.

Kevin, you mentioned the tripling of 45X to customers. But if I exclude the first quarter metrics, the last 9 months indicate margins will be about 19% which is squarely in line with what you reported in fiscal '24. Does that mean there has been no change in pricing, the 45X sharing is not happening. You don't expect to happen in 2025 either? Or you're anticipating sharing of 45X. So this margin is sort of like could come down if the sharing is higher than anticipated?

So, thank you for the question. First, let me say this. So we have no explicit arrangements with our customers to share 45X. When you look at the guidance for the full year for gross profit margin, we are guiding very comfortably towards the 29% to 30% range. We also believe that the shape of the year and the mix -- we're reasonably comfortable with the pricing that we have seen out there, as Kevin said. We are reasonably comfortable with the fact that the current rise in steel prices should offer us some expansion of margins. And so we have not done anything was different in our pricing. We have not offered 45X up in contracts. We do believe that there is some bit of leakage and sharing in the profit pool but we have no explicit arrangements to share that with our customers.

Yes. And just adding on, again, to be really clear, the only difference in gross margin year-over-year that you're seeing is the roll-off of the prior year 45X amortized benefits that were the residual for '23 that contractually and through our accounting team working with our outside accountants. We had to amortize throughout the year of 2024. That's the biggest deviation year-over-year. You solve for that and it's solid continued margin performance here.

The next question we have is from Brian Lee of Goldman Sachs.

Welcome to the team, Keith. Looking forward to working with you. I had a handful of numbers-related questions. So maybe I'll just throw them all out there. It seems like we're getting down to one question per analyst. So on the gross margins, I guess, if I back into the view you have for Q1 and the balance of the year. It seems like you're doing maybe low 20s gross margin in Q1 and then it's low 30s for the balance of the year. I mean, I guess, is that right? And is that low 30s really kind of the more representative margin level that you're structurally targeting and seeing on new bookings? Because it seems like the Q1 number is sort of an anomaly. And then just 2 housekeeping ones. What was the gross bookings number? Because I think you said there were some debookings, Kevin. And then how much go-get business did you have in '24? It seems like for the '25 guidance based on 50% backlog shipping for '25, you're assuming about $100 million go get but just wanted to kind of compare and contrast.

Yes. Let me take a couple of those. I'll probably take them in reverse order. That's the way I can remember them, right? So the go-get is very minimal. When we entered 2024, we had what would have been a typical amount of go-get somewhere in that 20%, 25% range would have been normal for us in our forecast. We've taken a more conservative approach in 2025 and the go-get is certainly at this point, sub-10% and I would say, nicely sub-10%. So we feel that the go-get that's in our plan now is certainly more than compensated with our book and ship business that's DG, that's software and that's services more than we'll compensate for any go-get. So we've added a little bit of cushion there in our conservative forecast. In terms of the gross margin for Q1, I think your low 20s is probably a bit off. It's probably mid-20s. And then it's stabilizes at a higher level throughout the following 3 quarters. And again, the biggest driver in that is when we talked in the past about the low-margin VCA, we're talking a very, very low margin fixed price VCA that was signed back in 2021 and we still have another year after this to deal with a couple of projects. As we ship that through, that is the only thing weighing down on the margin in Q1 that's material.

Just quickly on the gross bookings versus net?

We've not provided the gross versus net historically. We'll just continue to focus on the net bookings number. But suffice to say, it was certainly greater than $50 million of debookings in Brazil in the quarter.

The next question we have is from Joe Osha of Guggenheim Partners.

First question, I'm wondering if you can comment on whether there's been any change in the competitive environment following Soltec going away in Europe? And then I've got one quick follow-up.

Yes. So not in Europe. There's been a change in competitive -- so remember, Soltec competed with us in 2 of our larger markets and that's primarily Spain and Central Europe and then Brazil. There's certainly been a change in Brazil as Soltec has gone away and we've been able to pick up several projects. However, the bankruptcy laws in Spain don't allow interloping at this point yet. So there's a period of time where we have to stay away from those projects despite those customers looking for an alternative because their projects are kind of in progress but highly at risk at this point. So that's one of the challenges. So outside of the additional sort of market share gain that you would normally get where people say, well, now there's only -- there's one fewer player in Europe in the near term. We're certainly seeing some of that. But if you're asking, are we able to run in and pick up a bunch of their half-done projects, the laws in Spain don't allow that yet. There's a time factor that we have to deal with.

And just to add some color for South America. We were opportunistic in one large project and we believe there'll be follow-ons from there. So where appropriate, where we can pick up projects, we're absolutely doing so.

We have many customers. And to be clear, in Brazil, customers came to us and asked us to very quickly refresh our bids to go back and take on some projects and we're certainly doing that.

That's great. And then just one very quick follow-up. I'm wondering if you all have contemplated selling off any 45X credits. I know you take a haircut but it's money now versus money later. Just wondering if that might be part of the plan.

Not in the near term because most of our 45X is filed by our vendors and we have with every vendor, a different agreement in how those manifest itself to us in terms of either a rebate or a reduction in COGS or what have you. So we have varying agreements with our vendors. The 45X portion of credits that we have will specifically be for some of the components that we manufacture in our existing Albuquerque facility. And then as we expand the Albuquerque facility, we'll have an ability to go after more 45x credits on a direct basis. And at that point, if we have excess credits, then we would evaluate selling them at a discount. But again, you'd want us to be in an excess credit standpoint for that but we're still a cash taxpayer. So likely to sell.

The next question we have is from Maheep Mandloi of Mizuho Securities.

Just 2 quick ones. First, on the guidance, I just want to understand if there's any book and bill opportunity on top of the guidance you kind of laid out over here for this year? And secondly, on the tariffs, I know most of top deals are probably made in the U.S. for you guys. But I'm thinking for the other components, the rotors and other things, are those impacted by these incremental tariffs on steel and aluminum imports for you?

So, I'll take the book and bill and then you can take the tariffs. Look, the guidance that we have given we feel very comfortable with given where we have already things in the backlog. There are opportunities to take some bookings into the year early, given our lead times an average of 14 weeks and still deliver -- and maybe deliver some upside. But we have to see that. And at the moment, as you know, given the uncertainty in the marketplace out there, everyone is just almost in a wait-and-see mode, even though we still have orders, we still are delivering what we have. But at this point in time, we are holding to our guidance on revenues and wait to see what happens with the administration and clarity.

It's Neil. I'll weigh in on the tariff front. So overall, we feel well positioned on tariffs in this climate. I'll kind of remind everyone that we are the original high domestic content provider of trackers domestically in the U.S. We've been really forthcoming about having the ability to be a 100% domestic content tracker here in the first half. regardless. And so we feel really well positioned. As you mentioned, Tortue [ph] which is the highest runner of bill of materials, sourced from U.S. tube mills with steel coil that comes from domestic mills that are melted and poured here in the U.S., unlike other providers who may be importing that coil who may be subject to tariffs. So in general, we feel really well positioned on tariffs and we'll be 100% content here in the U.S. the first half. So we feel well positioned overall.

If I could just add on to that. Let me just add one more comment to what Neil said. While our bill of material is secure from tariffs, there's a secondary impact of tariffs and that's the raising of domestic steel prices because U.S. steel prices feel they can. And it shouldn't be lost on anyone on this call that since the beginning of the year, U.S. steel prices are up 30%. That is very, very significant. That's a significant increase and it's a response to U.S. steel producers feeling that they have air cover now to begin raising prices domestically. So for us, that's about ensuring that we're pricing effectively that we're monitoring steel prices. And the benefit we have in our contracting system is that we don't lock steel in and commit to a steel price until we fully contract that order, right? So for us, it creates upside opportunity in terms of ASP but no downside risk in terms of margin, the way we price. So I think we feel we're pretty positioned but I want everyone to recognize that just because you have domestic steel doesn't mean you're not going to have a price impact in the marketplace. I think we will just of what you've seen. 30% increase since January 1. The bulk of that 30% over 20% coming since the announcement of what we like to call here the Super Bowl tariffs, right?

The next question we have is from Colin Rusch of Oppenheimer.

Can you talk a little bit about key areas that you're focused on in the R&D effort to make incremental improvements on the existing portfolio of products?

Yes. So we've been really upfront. This is Neil. I'll take that one. So as we talked about in the prepared remarks, we feel really good about the investment we've made in SkyLink, bringing wireless capability, also kind of customizing what we had as a legacy 32-link row into an 8-link row architecture that allows us to be more adaptable to smaller parcels that we're seeing more and more of in the space. As we talked about also around a lot of focus now on robotics and automated assisted panel installation. So what you're seeing our R&D teams really focused on is helping our EPC and developer customers have a more optimized deployment experience, helping cut their costs down from a field standpoint. So whether it's with SkyLink, reducing trenching, wireless capability or with investments in alternative options for easier installation when it comes to modules. So that's where a lot of our focus and attention is going, making things easier for our customers to lower their overall costs as part of an overall utility scale solar deployment.

The next question we have is from Philip Shen of ROTH Capital Partners.

You talked about the solid margin performance after accounting for the 45X amortization. That said, one of your peers has margins that could be a couple of hundred basis points higher. How should we think about the differences in your structural gross margin percentage versus your closest public peer? Is it just conservatism in your outlook? Or is there some price action that could be driving that? So I know you've said maybe not but just want to kind of explore that a little bit more for the 2025 gross margin outlook.

Sure. So I don't know which peer you're referring to, Philip. But when we think about…

Just to be clear, Nextracker.

Fair enough. Thank you for the clarity. we are 2 different scale organizations and we have to think about 45X in its context. 45X is a U.S. market tool. It operates only in the U.S. And so our mix of products and markets are different than theirs. Our model of how we operate is different than theirs. And so for us, we've always said that ex 45X in the U.S., our business should operate at a 20-plus percent gross margin over time. And we think we are getting there across 2025. As Kevin said, look, there's a profit pool that 45X has broadened in the U.S. for suppliers, customers and us as technology providers. And I think that there is going to be some leakage across the system. We have no explicit agreements to share 45X with any customers. So we're not explicitly giving it away but is there a leak to be competitive? I would guess so. So we are focused on what we can control. We are focused on the suppliers that we are partnered with to deliver our goods. We are focused on making sure our margins are structurally sound so that if 45X goes away, we still have a profitable and cash-generative business. Kevin?

Just one clarity I'll make, Keith, is it's mid-20s margins. We've been at those margins consistently now for many, many quarters. as we committed to bringing those structural, what we call legacy core array margins, when you correct for different sourcing strategies to maximize 45x that is, we've certainly maintained those mid-20s margins for many quarters. And when I say that caveat of correcting for things, there's an interesting game we play here and that's about the mix of foreign steel versus U.S. steel and the more U.S. steel we use, the more 45X credits we get. So paying more for steel on one side lends itself to more credits and you're solving for that, right? If we -- and solving for customers that want different levels of domestic content. Some customers that don't care about domestic content that want price, price, price, we are still able to supply that and bring in foreign steel but we forgo 45X credits, right? And we have to think about that as we price our products to our customers and what they want because there are cases, for example, where it would still be more advantageous for us to buy U.S. steel because we may be at a particular inflection point on our credit schedule, for example, that the utilization of U.S. steel creates a higher rebate to us from that steel supplier. So there's a lot to go in that. But relative to us, we think without 45X, our margins are very, very sound at this point and we will continue to get better with our cost-out initiatives as we continue to pursue a handful of really strong cost-out initiatives going throughout the year.

One quick follow-up here. What is the plan to accelerate bookings? Nextracker has been booking business that is multiples of your bookings.

Phil, I'm not going to compare us to Nextracker's bookings because, frankly, when we look at our order book and win rate on stuff that we're up against, we're really pleased with our win rate. So I don't have an answer for you on how they do bookings, how they measure them, what they're doing. We only know that when we look at the universe of projects and our win rate on projects, we're really pleased with our win rate on those projects, right? That's the only thing I'll focus on.

Well, Phil, what I would add to the mix is bookings and the order books are not GAAP numbers and everyone has a little different shade on it. But in the GAAP numbers in your 10-Ks and 10-Qs, we all have to report remaining performance obligations. And I would ask you to look at the difference between their order book and their remaining performance obligations. Our remaining performance obligations at the end of 2024 were roughly $594 million. As you see, we're guiding our revenue towards between $1.05 billion and $1.15 billion. So we have a strong way of covering what we're projecting in revenues. So I would say that's a very important metric to look at.

Ladies and gentlemen, that is all the time we have today. And with that, it concludes today's conference. Thank you for joining us. You may now disconnect your lines.