Q1 2021 Array Technologies Inc Earnings Call
Good evening and welcome to array technologies first quarter 2021 earnings conference call.
Today's call is being recorded and we've allocated one hour for prepared remarks and Q&A.
At this time I'd like to turn the conference over to Cody Mueller Investor Relations for array technologies. Thank you you may begin.
Good evening and thank you for joining us on today's conference call to discuss the right technologies first quarter 2020. One results. 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 because of other factors discussed in today's earnings press release and the comments made during this conference call for and our latest reports and filings with the Securities and Exchange Commission each of which can be found on our website array checking dot.
Com, we do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures.
Should refer to the information contained and the Companys first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures with that let me turn the call over to Jim a few sorrow array technologies CEO.
Thanks, Cody and good evening, everyone. Thank you for joining our earnings call and addition to Coty I'm joined today by Neil Patel, Our Chief Financial Officer, and Jeff <unk>, Our Chief commercial officer.
Going to focus my remarks today on three areas first how our first quarter results compared to our expectations and second how we see demand evolving for our products and third the current commodity and shipping cost environment, how it impacts array and the actions we are taking the response.
And then I'll turn it over to <unk> for a detailed review of our first quarter results.
Revenues for the first quarter of 2021 were $246 million, which was in line with our expectations.
Adjusted EBITDA was $34 5 million, which was slightly below expectations, primarily as a result of higher logistics costs, resulting from unexpected increases and inbound freight costs.
Demand for our products remains strong with quoting activity at the highest levels, we have seen and our history. We believe the superior value that our tracker system delivers is being recognized by a growing number of epc's developers and asset owners globally and is underscored by the up to four giga.
And what award that we recently received from Prime Morris one of the largest solar EPC and the U S. As well as the 350 megawatts of awards, we received from nine international customers during the first quarter.
Increasing panel efficiency falling storage costs and growing regulatory support our expanding the lead that solar has over other conventional generation and other renewables more than ever before solar energy is becoming the first choice for new generation.
Unfortunately at the same time as we are seeing record demand for solar and our industry is contending with increases in steel and shipping costs that are unprecedented both in their magnitude and rate of change.
From the first quarter of 2020 to the first quarter of 2021, the spot price of hot rolled coil steel the primary raw material used in our products is more than doubled.
Industry analysts and market participants expected the dramatic increase and the price of steel to be temporary which was reflected in futures markets that had indicated lower steel prices for the second half of the year throughout most of the first quarter.
Based on those expectations, we felt confident and our ability to manage our input costs and maintain our margins.
However, steel prices have continued to increase with spot prices of hot rolled coil up more than 10% since April one and futures now indicate higher rather than lower steel prices for the remainder of the year.
Steel represents almost half of our cost of goods sold and we do not hold large amounts of steel and inventory. So a significant increase and the price of steel over a short period of time can negatively impact our results.
Coinciding with the increase and steel prices has been substantial increases and the cost of both ocean and truck freight the average cost to ship a container from Asia to the West Coast has increased by more than 145% from April 2020 to April 2021.
There also remains significant disruption across several U S ports, resulting from the April Suez Canal accident, and the February Texas Storm, which has resulted in higher storage and expediting cost that we would not otherwise have had and a normal environment.
The cost of truck freight has also increased significantly with the average cost per mile and the first quarter of 2021 up more than 30% versus last year and costs have continued to increase and the second quarter.
The continued increases in both steel and freight costs will impact our margins in Q2 and potentially in subsequent quarters if prices do not normalize.
In response, we are taking several actions to mitigate the impact on the balance of the year.
First we are increasing prices for open contracts that we have not yet shipped product against and we're currently evaluating how much of a commodity and shipping cost increases to pass onto our customers. We will make those determinations based on the specifics of each customer and situation.
Given that steel prices continued to increase and the large number of open contracts that we have it will take time for us to evaluate each contract and determine the best course of action.
The exercise is complicated because we have to balance the possibility that customers will delay orders if we pass through too much of the increase and steel prices on the basis that they may believe prices will be lower if they wait and take their order later in the year.
The two year extension of the ITC is giving customers more flexibility on when they start their projects and they had and the past.
Second we are entering into long term supply agreements with steel suppliers at fixed prices for.
For example, we recently entered into an agreement with Nucor to supply us with steel components at a fixed price.
Third we are further.
Diversifying our steel supply base. For example, we recently entered into a supply agreement with a new international steel supplier at what we believe is an attractive price given the current environment.
Fourth we are entering into long term contracts with tier one freight providers to give us greater certainty on logistics cost and delivery performance.
And fifth we are extending the standard order lead times that we quote to customers to give us more time to procure raw material at the best price.
However, given the continuing increases we are seeing and steel and freight cost as well as our ongoing review of open contracts to assess what costs. We will pass on to customers. We are not able to affirm our previously provided guidance for the full year.
We expect to update our guidance once we have completed the review of all of our open purchase orders and commodity and shipping prices remained stable for a long enough period of time to give us confidence and using them to develop a forecast for the remainder of the year.
Importantly, we believe our competitors are being impacted by the same cost increases that we're experiencing and in certain cases much more significantly because they are smaller size gives them and less buying power with suppliers.
We believe the near term pressure that is being created by the current environment may enable us to accelerate our market share gains because some of our competitors may not be able to deliver on customer commitments given their inability to procure raw materials at a competitive price or at all.
We are in an environment, where scale and deep supply chain relationships are significant competitive advantages and we have both now.
Now I'll turn it over to nipple for a review of our first quarter results.
Thanks, Jim before I talk about our first quarter results. It is important to keep in mind that our 2020 results were heavily first half weighted as a result of our customers seeking to lock in the 30%.
Prior to its stepped down at the end of 2019.
This caused our customers to place the bulk of their orders and the back half of 2019, and then take deliveries and the fourth quarter of 2019 and first two quarters in 2020.
As a result, comparing a single quarter and 2021 to the same quarter in 2020 is not indicative of the trajectory of our business since the ITC step down skewed revenues in 2020 to Q1 and Q2.
I will now review our first quarter results.
Revenues for the first quarter decreased 44% to $245 9 million compared to $437 7 million for the prior year period, primarily driven by a reduction in the amount of ITC safe Harbor related shipments that I discussed earlier.
Gross profit decreased 63% to $43 9 million compared to $118 4 million and the prior year period, driven primarily by lower volume in the quarter.
Gross margin decreased from 27% to 18% driven by less revenue to absorb fixed costs somewhat lower asps.
<unk> to the 2020 safe harbor shipments higher input costs due to primarily to higher steel prices and higher freight costs, resulting in part from disruptions caused by the winter storm in Texas as well as West coast Port closures and congestion.
Operating expenses increased to $30 8 million compared to $17 1 million during the same period in the prior year, primarily as a result of a $6 $2 million increase and equity based compensation due to the transition to being a public company $2 4 million of onetime.
Costs related to our common stock follow on offerings.
Costs associated with being a public company and an increase in head count to support our product development and international growth initiatives.
Net income was $2 9 million compared to $73 7 million during the same period in the prior year and basic and diluted income per share were <unk>.
<unk> compared to basic and diluted earnings per share up 61 during the same period in the prior year.
Adjusted EBITDA decreased 69% to $34 5 million compared to $110 7 million from the prior year period adjusted net.
Net income decreased 71% to $23 7 million compared to $82 3 million during the same period and the prior year and adjusted basic and diluted adjusted net income per share was <unk> 19, compared to 69 during the same period and the prior year.
Total executed contracts and awarded orders at March 31, 2021 was $777 1 million, representing a 10% increase from the amount at December 31 2020.
Turning to our outlook.
As Jim mentioned earlier, given the continuing increases we are seeing and steel and freight costs as well as our ongoing review of open contracts to assess what costs, we will pass and to our customers. We are not able to affirm our previously provided guidance for the full year.
Looking ahead to the second quarter, we expect commodity price increases.
Delay some projects starts which will result in lower revenues and adjusted EBITDA versus the first quarter.
Now I'll turn it back over to Jim for some closing remarks.
Thanks Nicole.
I'll conclude by saying despite the short term headwinds, we face from commodity and shipping cost increases, we remain well positioned and a rapidly growing industry the hour.
Look for solar remains a very strong businesses and consumers continued to accelerate their efforts to decarbonize energy.
The regulatory environment is extremely constructive and solar with trackers has demonstrated is the lowest cost and most environmentally friendly form of new generation.
We have built strong relationships with our customers and suppliers and we will continue to work daily with them to ensure that we can continue to support the growth and the solar industry, while striving to deliver strong returns for our shareholders.
We believe that what we are seeing and steel prices and shipping costs is temporary and does not suggest to us a permanent change and our cost structure or margins. We believe there is more than sufficient steel production and shipping capacity globally to meet the world's needs and we expect prices will normalize once the re.
Start of the global economy is complete following dependent ex shutdowns as inventories rebuilt and supply chains refilled.
We are confident we will see more rational pricing ahead.
And the meantime, we will aggressively work our mitigation efforts and look for opportunities to use the current environment to play offense by leveraging our size and scale.
We believe we will emerge stronger competitively when conditions normalize and then when we entered into the current environment and with that operator open the line for questions.
Thank you well now be conducting a question and answer session and if so.
And I have to ask a question. Please press star one on your telephone keypad and and confirmation tone will indicate your line is and the question queue.
You May press Star two if you would like to move your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you.
Our first question is from the line of Brian Lee with Goldman Sachs. Please proceed with your questions.
Hey, guys. Good afternoon, thanks for taking the questions.
Yes, maybe first one just.
Mike.
A lot of people are going to have this question, but on the open contract construct can you walk us through that a little bit more detail I was under the impression that you know once you accept the PEO you go straight into the market or quickly thereafter and order the required materials. So that you have a bit of a natural hedge against input cost increases.
Imagine you.
You would have.
Factored and logistics costs at the same time that you're pricing these contracts so could.
Could you maybe just refresh us how does the timeline of us setting a price with the customer and then when you order from your supply chain and kind of what the mismatches here.
Yes, hi, Brian So the typical cycle time is when you go into a customer negotiation the contract negotiation typically can take anywhere from four to six weeks, depending on the size and complexity of the project how much engineering work is done upfront and then you kind of settle on.
And bill of materials, that's when we would kind of do it the outreach to our supply chain to get indicative quotes and order to support.
And the quoting activity, which ultimately we get to the customer.
So and normal conditions. When you have stable commodities, we would be giving indicative quotes that were obviously relatively stable to what the futures were looking like and so we could pretty much nailed that down and obviously there was triggers per contract per customer and.
Prior or existing cost escalations that one might see with commodities, but given the rate of increase that we've seen so for example since April one.
<unk>.
Commodity hot rolled coil was up 10% and still continues to rise actually it wasn't the case early on if you go back to maybe like early April. So we were giving prices and futures are actually pointing down. So we felt confident and our ability to give a price. They would go back they factor that and by the time you get to a contract where you are.
And the signing.
We saw that in some cases prices went up and still looked like futures were going down and you give them a price increase and then low and behold you would execute to the PEO and by the time you would solidify our suppliers that would be subsequent increases so it's that lag or shall I say that lead time between when you agreed upon a price <unk> subsequent price increase as to when you actually.
Close and then we negotiate with our suppliers that you were seeing a rapid increase in the commodity impacted obviously, our cogs. So that's kind of and mechanics and a brief timeline overview of how it is working with us.
Okay. That's super helpful. And then maybe just as we think about the rest of the year here Youre, saying that there is definitely an impact on Q2 it.
It sounds like on margins and then as you contemplate how to do some of the mitigation factors, including price it sounds like Youre worried that some volume might slip into later periods outside the 'twenty, one hence why the guidance isn't being.
And reiterated here.
I guess, what what's the sort of volume level that you still have which you would consider.
And that open contract phase, where you are sort of that risk of either.
And not being able to secure the volume.
Or you're going to potentially have to take a margin.
It relative to what you initially where were thinking when you first quoted the contracts just trying to get a sense of how much of the backlog awarded orders volume might actually be at play here.
And then I have one last one and Brian.
Thanks, Brian and I'll put it in a different context.
Roughly about 100 or so open contracts that we're currently assessing so where theres a lot of analytics that we have to run through so we've got price, which you mentioned long term supply agreements, which we obviously announced recently here with Nucor and we continue to diversify the supply chain, which when you do that right you build and an element.
And of logistics, what does that cost.
And then the freight agreements that were executing too because and as much as we want to lock down.
Our suppliers on the commodity element, we want to do the same thing with freight and then extending lead times for our customers. So when you factor in price and lead times and commercial team has to work with our customer to see what appetite they have where that stands with relative to the project within their time horizon does it move to the right how far to the right.
So that's something that we're actually assessing and I really can't give you an exact answer on where it is and Thats why we have to really sit down and go through these analytics to understand how much we can control within our own four walls and and the impact to our customer.
Okay.
Alright fair enough and then maybe just one last housekeeping, one and I'll pass it on there was a.
And $10 million low.
Line item called investment and equity securities on the cash flow statement as Perry could you.
Elaborate on what that was just haven't seen that before.
Yeah, and Hey, Brian It's in April how are you. So this is what we had talked about and our Q4 call, we did take and investments and eight and a company and that's what that represents.
Okay. Thank you I appreciate it guys.
Our next question is coming from the line of Michael Weinstein with Credit Suisse. Please proceed with your question.
Hi, guys.
Thanks for the questions.
And then I guess, what's your decision making process for not hedging steel using let's say financial hedges going forward.
And now you're talking about like locking in a fixed price contract with new core at this point, but you know.
And why not why not hedge and what do you think the volume will be for the next year.
Yes.
Yeah, Hey, Michael This is in April so in the past that has not been our strategy, we had been working with our suppliers too.
And let them take that risk on and when commodities were within a certain band that was okay to do we are open and we will be looking at other methods in the future and.
Securing supply for a longer term.
And why not give revenue guidance now is the supply chain tightness impacting project construction schedules to an extent that you cant give revenue guidance.
Yes, Michael I would just go back to what we are saying there is price that we're going to be extending to the customer's new pricing. They have to digest that our lead times are going to extend with them. They don't have to factor that and as well.
So really those are the two elements that are really going to we're going to work and collaborate with our customer and to see what will stick won't work.
It is far too early for us to really give any type of and.
And volume commitment here our guidance.
Okay and just one last question do you have any recourse built into your contracts for existing deliveries like is there anything is there any wiggle room and your and your current contracts that allow you to pass along these costs or.
Is it fixed.
Every contract is different so there.
And there are some customers that will work with us on lead times relative to what buffered. They put in their contracts. So everyone is different there is typically a little bit of headroom to work with everyone gives themselves a little bit of white space. If you will on delivery, but given where our logistics are today and the current environment.
And it becomes quite challenging.
Thanks.
The next question is coming from the line of Paul Coster with Jpmorgan. Please proceed with your question.
Yes. Good afternoon. This is mark Strauss on for Paul Thanks for taking our questions.
Jim I appreciate your comments about the futures market and the second half of this year just curious what youre hearing from your actual suppliers, though.
Or are.
Are they looking to add any incremental capacity or anything like that that might.
It might lead to a different outcome.
They all have a different investment thesis and their demand profiles very you've got some out there that are supplying the automotive industry others for more infrastructure focused structural if you would.
Demand remains relatively high across the board at least this is what are telling US you have to do your own deep dive on what theyre, saying and their earnings releases, but for.
For the balance of the year at least with futures or indicate indicating that they continue to rise.
So that's indicative of the demand to the extent theyre going to add capacity and Thats really how theyre going to really deploy their capital whether theyre going to bring those furnaces and mills back up or not.
Okay, and part of and I thought.
Mark is I think this is mark correct Mark.
And that's part of our analytics, when we deal with our suppliers and these.
Long term supply agreements, we're obviously looking for the commitment to support the capacity because one of the things that I want to press upon us as when we go into the supply agreements, we want to make sure that we're locking down the assurance of supply and that's resonating with a number of our customers here.
Okay.
And then as far as the the.
The balancing act between.
Near term financial impact and longer term, keeping your customers happening happy and and potentially gaining share.
And just looking at approximately or approaching 50% of your bill of materials that steel and those prices doubling.
I mean are you willing to accept very near term at least kind of close to breakeven or even negative gross margins in order to.
Yeah.
And to gain some share just any kind of color.
You can provide as far as near term pain versus long term gain would be helpful.
Yes, I would preface it mark by saying first of all the industry is still very healthy with respect to the growth and what solar does overall for new new electricity generation. So the train has left the station there, but again this is part of the analytics that we're driving here.
To really balance between these short term projects I E. Those hundred contracts or so that were flushing through versus the overall portfolio and where that lands, but I wish I could give you more color, but we just got to put pen to paper here and sit down with the customers and really flesh this out.
Yes, yes makes sense, okay. Thanks, Jim.
Okay.
Our next question is from the line of Stephen Byrd with Morgan Stanley. Please proceed with your question.
Hey, thanks, so much for taking my questions.
I guess thinking about the nature of the contracts you've given us a lot of color to think through.
At a high level I guess stepping back is there a chance that this kind of <unk>.
Commodity shock could result in sort of different structured contracts and the future sort of fundamental changes and how contracts are structured I know it's early days, but just curious do you think this is something where you and your customers can sort of look at this and and think through a different approach and the future in terms of how to mitigate these risks.
That's exactly what we're doing some degrees and the conversations we're having with the customer I think April alluded to earlier.
We have a very strong supply chain very diversified so we never really had to give that volume commit so when you're at times, where commodities were somewhat normalized that worked well I think I even mentioned on the last earnings release that we certainly want to be working with our supply chain and firming it down and I'm not a strong proponent of gift.
<unk> volume commits, but certainly in these times, that's kind of where we are heading now how that changes the contractual language and what that means.
For the customer and how.
And that contract really comes forward that customer by customer and that's exactly what we're doing here throughout the balance of the year.
Understood and you know and some other parts of clean Tech, we've seen sort of ideas around shared pain and gain.
And I'm guessing that could be at least one option that you could consider here as well.
Potentially.
Okay understood and then lastly, you had described in your prepared remarks, a bit about sort of you know obviously this is impacting you it's impacting competitors as well would you mind, maybe just expand a little bit on sort of how you assess your your relative position compared to the competition and I know that's not always easy to fully know exactly where your competitors are but.
Given your you know what you've seen would you mind, just adding a little bit more to that.
Yes.
Emphasizes our belief and is predicated on our size and scale and what we've shipped and certainly when we sit down with the likes of a new core and others.
And I understand and recognize the value that we bring and they are obviously willing to put pen to paper with respect to our performance. So.
Our supply chain and how they are responding relative to our growth and this industry remains very positive and certainly our size and scale and.
And what we can deliver what we have delivered is being reflected by our customers such as with Prime Morris on the recent press release.
They are willing and part of the one of the attributes there and the strength that we have there is our ability to supply is our ability to lock down some of these long term supply agreements. So that's where our focus is and we believe this is a strength for us going forward.
Understood and so that could lead to potentially a shakeout, where smaller players really are to your point. They may not be able to provide the volume might actually exited the business is there a feeling enough pain I guess, we'll have to stay tuned to see.
Yes, I wouldnt speculate on that I would just kind of point you back to where our strengths are demonstrated results yeah very good. Thank you very much.
Yeah.
Our next question is coming from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks, so much guys.
Can you speak to the geographic concentration on the products that are being pushed out to the right is that primarily in North America are you starting to do that and Europe as well.
I would say.
First of all I have.
To get back to you with respect to the vs.
And the geographic impact, but certainly as we go through these contracts I don't have that readily available right now and thats going to be in and output.
The analysis that we do run.
And I would say that we are we are seeing that globally, especially in western Europe as well.
Okay. That's super helpful. And then just in terms of kind of a normalized seasonality.
You guys have a really good view on construction.
Construction schedules and and kind of how these timeframes work and obviously there is some.
Some some inefficiencies here that you're speaking to you, but just in terms of kind of overall demand and and normal seasonality ex some of the base and supply chain issues have you seen.
Incremental growth this year and.
And the ways that you had anticipated or is it something that's a little bit more systemic here that that may last a little bit longer around some of the channel.
Thanks.
No.
I would go back to what I said earlier, the overall industry remains healthy and strong we're not seeing like any.
Serious dislocation long term like I said this is something that we see is rather short term and obviously, we're going to assess that with our customer base, but not on a longer term basis.
Answering that question.
Okay. Thanks, a lot guys.
Yeah.
Thank you.
Our next question comes from the line of Philip Shen with Roth Capital. Please proceed with your question.
Yes.
Hey, guys. Thanks for taking my questions.
First one is on the nuclear contracts could you give us a little more detail.
Sorry, if I missed it but perhaps the length of the contract and are you are you matching.
The nuclear contract with a customer contract for example, and and any other structures you might have there, including you know to what degree and when you walk and price are you.
Locked in at a discount to spot at a premium to spot.
That kind of detail would be fantastic. Thanks.
Yes, Unfortunately can't give too much specifics surrounding that agreement because of our size and scale and our ability to get these contracts as a competitive advantage.
But I will tell you that it certainly is a discount to spot.
Great. Okay. That's all.
And then can you.
From a length standpoint is that a year long or is it matched with the customer contracts at all.
Is that something you feel comfortable sharing Jim thanks.
No not at this juncture right now.
We obviously have obligations confidentiality with with Nucor, So I just want to respect that.
Okay I appreciate that and then I know you've touched on this and.
And a number of ways, but when you look at Q.
Q4, when you guys reported and that was just two months ago and.
And you talked about how much steel and freight have gone up and just one month and well I guess since April and the beginning of April over the past month. So.
And what else what other factors do you think true view too.
We removed that.
The guidance for now is it.
Was it just those two factors or were there other factors and if so any color on that would be great.
Yes, I would just go back to what we said here I mean really it was the rate of increase again like if you look from.
Since April one.
Hot rolled coil was up 10% and it's still rising.
And then if you look where it was.
Same period last year.
The first quarter of 'twenty to the first quarter of 'twenty. One it's up two times. It was really that rate of increase and then the compound that obviously you look at what's happened with free as of April 20 to April 'twenty, one freight is up 145% and Thats all since really the beginning of April. So a lot has really changed and then.
I would add on if you look.
Pretty much towards the beginning of April futures were actually putting down for steel and the second half so that was a gain.
Give us a little bit of optimism and then in short order they have increased substantially and so a lot has changed since April 1st and.
And that has really caused us to really revisit go back to price go back to those long term supply agreements supplier diversity getting long term agreements now with freight carriers and extending those lead times. So that's really kind of those.
The three pillars. If you will has really changed since the last time, we spoke.
Okay got it and then.
From a seasonality standpoint last quarter, you talked about Q1 being $20 to 25% and Q2 being 25 to 30.
Q3, being the same and in Q4 being 20 to 25.
I know Q2 is looking to be down now and he can you give any sense for what Q3 and four might look like or is it is it actually just not possible because you've got a review those hundred contracts.
Yes. Unfortunately, it's just the latter what you said there it's really we have to go back to the customer with these prices and again I'll remind you that we've already gone through shall we say the phase one and price increases and we have to sit down and what does it extended lead time really mean.
And what are these continued increases and our cost and price me. So we've got a set that with with our customers.
Okay. Thanks for taking all my questions I'll pass it on.
The next question is coming from the line of Martin Malloy with Johnson Rice. Please proceed with your question.
Good afternoon. The first question I had on the international markets, where you've continued to add customers are these markets were they previously were not using trackers or are you gaining market share from.
Customers that were previously using trackers.
Yeah, Hi, Martin, it's Jeff <unk>.
The answer to your question.
It's more of the latter we're actually taking some share from some European tracker companies in markets that have already been established with trackers.
Okay, and then on the last call.
And with the last earnings release, you talked about the R&D investments that you are going to be you are going to be making.
Ongoing here and anything to update us there in terms of timing of when we might see some.
New product introductions.
No our investment continues on the R&D nothing materially has changed from.
What we plan to roll out and I would love to invite John to come to our research centers. So you can see what we have planned.
That'd be great.
So those are my question and thank you.
Next question is coming from the line of Kashi Harrison with Simmons Energy. Please proceed with your questions.
Hi, good afternoon. Thank you for taking the questions.
So first one Jim just you know.
Maybe just a really really simple question.
What's your base case on how long, it's going to take for the business to normalize or you are you thinking we're back to normal 2020. Two are you thinking and we're back to normal 2020 three.
Oh I wish I had the crystal ball on the futures for steel and no one seems to have gotten that one right, but we.
We're certainly going to work this as hard as possible to really understand what the impacts are at least to ensure we can continue to execute here, but really if.
I am not a savant and when it comes to steel futures and what with 22 looks like but.
What we have pen to paper and right now is really making sure that we put the right agreements in place both with our suppliers and freight forwarders, and we can ensure and lead time and the right price for our customers really to work through this hyperbolic increase and commodities as we're saying.
Okay.
I appreciate the honesty, there and then.
And.
In terms of you know I know.
And a few questions asked about these long term agreements that youre thinking about entering into a event or you've entered into.
Are there any concerns that you know what.
When we do eventually emerge and the other side of that is that these.
These contracts could actually make it difficult to you know to hit your long term EBITDA margin target that you've outlined previously.
No great question and the key there is making sure that you have key strategic suppliers and many of them. So that you at least have some flexibility and ability to move should they go in either direction I, even commodity and then obviously, we worked with our suppliers for the proper and appropriate off ramps to manage accordingly.
Okay.
And then final one from me if I, if I could sneak one for from sneak one and this was from April.
Working capital represented.
A pretty meaningful use of cash during Q1.
How are you thinking about it.
Over the course of the rest of the year should we expand expect.
Working capital to represent a source of cash or do you think it's going to continue to be a use of cash and Q2 through Q4. Thank you.
Yeah, Hey, cash so Q1 and the reason it wasn't source was the was related to the linearity and the ITC order placements and the prepayments in Q4, so we externally expected that as we ramp up for the build seasons here and Q2 and Q3.
A little bit of use but then full.
Full year, and we expect it to be and total source of cash.
Okay full year total source got it okay. Thank you.
Yeah.
Our next question is from the line of Jeff Osborne with Cowen. Please proceed with your question.
Hey, good afternoon, guys. Most of them have been asked but a couple I might have missed this but you were referencing the open contracts and in response to Brian's question are 100% of the contracts outstanding open or is there a portion that are close to just due to the terms and conditions.
There is a portion that are at or close Jeff.
I assume it's not that meaningful though relative to the open.
Given the nature of the conversation.
That's a fair assessment, okay and.
And then.
A couple from <unk> I was wondering if you can.
Comment on what the comparison was safe harbored revenue from Q1 of last year, just as you flagged that the year over year tough comps is there a way you can quantify that.
Yeah sure. So Q1 of 2020, we had about $300 million.
Safe Harbor shipments and and Q1 'twenty, one and this current quarter it was about $100 million.
Okay.
Got it and then.
How should we think about the opex trajectory from here it came in a little bit higher than I was modeling at least.
Is this a good run rate for the rest of the year as Youre still building out the team internationally and the new Phoenix Center should that continue to rise.
We expect it to be in the range of this of this quarter as.
As we continue invest and it'll be a slight rise, but it'll be in this range of the current quarter.
Perfect and then just two quick two quick ones on the steel side is there any.
Perspective, you can give in terms of lower steel usage in terms of pounds or kilograms per unit over time is there and ability to take steel out of the unit. That's question. One and then question two on the steel front is there inflation on the galvanized <unk> of the steel. So I think the 50% comment was the raw steel but.
Sure in terms of your suppliers that are then galvanizing. The steel for you is there cost inflation there as well.
Yes, Jeff the galvanized <unk> inclusive to the.
A metric that we gave you surround and cost and on to your former question surrounding alternative materials lighter, yes, that's part of our DNA when it comes to value engineer and we're always looking for opportunities to improve our bill of materials, making it more cost effective.
Perfect that's all and thank you.
Thank you.
At this time of each and have a question and answer session and I'll turn the flow back to management for closing remarks.
Thank you and thank you everyone I'll just go back to the prepared remark for the concluding statement here and that is the headwinds we face from these commodity and shipping costs and increases we definitely feel we are well prepared and positioned and are executing to the.
And the plans that we have outlined.
And solar remains to be very strong.
We continue to build relationships with our customers and supplier and we're going to continue to work with them on a daily basis.
So with that we are fully committed we certainly appreciate your time and with that I'll turn it back to the operator to close.
Thank you. This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.
Okay.