Q1 2022 Array Technologies Inc Earnings Call

Hello, and welcome to the right technologies first quarter 2022 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 turn the call over to Kurt Mueller Investor Relations. Please go ahead.

Good evening and thank you for joining us on today's conference call to discuss the right technologies first quarter 2022 results slides for today's presentation are available on the Investor Relations section of our website <unk> Dot com.

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. The comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, which can be found on our website a rate 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 you should refer to the information contained in the company's 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 Kevin Hostettler array technologies CEO .

Thanks, Cody and good evening everyone.

Thank you for joining us on today's call.

In addition to Coty I'm also joined by Nipple Patel, our Chief Financial Officer.

I'm excited to join you on my first array technologies earnings call and on day 23, as the CEO of Iraq.

Now there's still a lot of work I need to do and much more time to be spent with employees customers suppliers and investors in order to give my full assessment on the state of the company.

But I did want to provide some early observations about the company and the industry before turning it over to nipple for a more detailed discussion of the quarter and our revised outlook for 2022.

First and I think this is critical context for everything else that is going on my decision to come to a Reg was largely influenced by two fundamental factors one.

The world is transitioning to renewable energy.

Combating climate change is no longer a niche pursued by a few it is now core to the identity of the world's largest governments corporations and asset managers.

And there was simply no feasible way to meet the stated goals of these entities without significant increases in the amount of solar energy produced.

And to <unk>.

Array has positioned incredibly well to be a global leader in the solar energy transition.

Ray has differentiated products that more and more customers are selecting.

It has the bank ability of over 30 years in the industry.

It has an asset like business model that enables quick and nimble scalability.

Now I recognize these are not new statements to many of you, but I start there because despite some of the near term challenges within our industry.

When I think about the long term horizon and companies and industries that are poised to make a lasting change in the world.

At the same time driving shareholder value.

<unk> operates in a unique space.

Yeah.

Since joining I've not only experienced firsthand these differentiated capabilities, but have also been able to deepen my appreciation for the complexity of the problems, we are solving and the employees who are solving them.

As many of you know I've now spent decades, leading engineered product companies and I will tell you experience has taught me. If you can find a great product, serving a growing and necessary market supported by a skilled and dedicated workforce you have the key elements of a formula to drive strong shareholder value.

Hugh.

This being said it's also important to realize we must execute in the near term in order to continue to build the trust of our customers and investors, which we will need for the opportunity to make that lasting change.

Over the last year and extremely volatile cost and logistics landscape, coupled with an uneven and constantly shifting demand profile as made execution a bit more challenging.

Let's be clear over the next few quarters, the landscape is not going to get much easier.

But a D. CVD investigation has placed uncertainty around the timing of some of our projects and is vastly increase the complexity of managing our supply chain and logistics.

Adding to this the conflict in Ukraine has slowed supply change throughout Europe , and we're seeing the direct impact of this on projects in Europe as component supplies a reroute it.

Yeah.

While these issues will reduce our outlook for 2022, they are far from unmanageable.

My experience coupled with the steps the newly reformed senior leadership team have already taken leave me confident we will execute on what is within our control.

This includes managing not only our material and logistics costs.

But also aligning our SG&A spend with changing volume levels.

It also means we will need to have a laser focus on working capital management to ensure we don't incur inefficiencies as project shift left and shift right.

This near term market uncertainty presents an opportunity for us to further differentiate ourselves from our competitors.

Do this and we will focus intently on working with our customers to solve their module challenges by playing an active and flexible role in their rapid system redesign efforts, all while delivering our products on time with an unparalleled customer experience.

Finally.

It is also an opportunity to identify and focus on customers and suppliers, who are truly willing to be partners.

Industry challenges like this requires collaboration and a sharing of risk.

We're certainly ready to do our part and will be evaluating which partners are willing to do the same.

Array has made a lot of progress since becoming a public company a little over a year and a half ago, but we still have room for improvement.

Over the coming months I'll continue my comprehensive review of a raised operating systems and core business processes to further identify areas in which we can drive operational efficiencies.

I look forward to updating you all on the progress of my reviews in our next quarter's call.

With that I'd like to give a heartfelt. Thank you to the employees of array who have been extremely welcoming and turn the call over to Neil.

Thanks, Kevin.

Even for the management team and employees at the rate. We're excited to have you on board.

I want to touch on a few topics today.

First I'll walk through the results for the quarter, which finished better than our expectations. Then I'll provide some color on a D V D and the work we have been doing over the last few weeks in order to quantify the impact to our business.

Lastly in light of the impact we're seeing from the investigation I will provide an updated guidance range for 2022.

With that I'll turn to slide six to discuss the corner.

Revenues for the first quarter increased 21% to $306 million compared to $248 $2 million for the prior year period.

The $301 million revenue reflects $251 million from the legacy array business and $50 million from the Sci business.

Revenue in the first quarter 'twenty 'twenty. One also included approximately $40 million of ITC related orders. So excluding those orders are legacy array business is up 21% year over year.

It also represents the third consecutive quarter of revenue growth and a record for a quarter without any ITC related orders.

Gross profit decreased to $26 $6 million from $46 2 million in the prior year period due to the expected impacts of the lower margin backlog in the legacy array business as well as a low margin STI project in the U S, which had a negative impact.

Gross margin decreased from $18 six to eight 8%.

Gross margin for the legacy array business was eight 5% and represents the second consecutive quarter of margin improvement as it is up 380 basis points from the fourth quarter.

E S. T I business had gross margin of 10, 7% in the quarter, which was negatively impacted by higher labor costs and projects, where it was providing the construction.

This was especially true of a large project in the U S grain has significant construction cost overruns.

Additionally, the war in Ukraine slowed supply chain availability in Europe , which necessitated a change in the location where material was procured raising the logistics costs.

Yeah.

Operating expenses increased to $58 $7 million compared to $30 8 million during the same period in the prior year.

The higher expenses, primarily related to a $16 $7 million increase in amortization expense related to the SDI acquisition.

Excluding that impact the increase is primarily due to the addition of STI Norland. In addition to higher payroll related costs due to an increase in head count as well as higher professional fees associated with the acquisition.

These increases were partially offset by a reduction in contingent consideration expense of $3 $7 million.

Net loss attributable to common shareholders was $33 7 million compared to a net income of $4 6 million. During the same period in the prior year and basic and diluted loss per share were negative <unk> 23, compared to basic and diluted earnings per share of four cents. During the same period in the prior year.

Adjusted EBITDA decreased to 700000 compared to $36 $6 million for the prior year period.

Looking at free cash flow as anticipated, we used cash of $52 5 million in the quarter, primarily due to an increase in unbilled receivables as we had a high concentration of deliveries towards the end of the quarter, which limited our ability to get them built prior to quarter end. This is not a trend we expect going forward.

Overall, we were pleased with the quarter. It changes we instituted in our legacy array business are continuing to drive improvements in our profitability and your operations team has delivered on progressively higher volumes. Despite a lot of project timing movement.

Our recently acquired Sci business did have a few cost challenges this quarter as it went through some growing pains constructing a project in the U S, which were compounded by disruption caused by the war in Ukraine.

These elevated costs will be a short term overhang, but they are certainly addressable as we more fully integrate.

Now if we move to slide seven.

When we had our last earnings call, you'll remember that it was the week after the announcement of the a D. D D D investigation.

At that time, we stated on the call we did not have sufficient information to evaluate any resulting impact.

However, since that time, there's been a lot more work done by the industry to quantify the impact of the investigation.

At this point it is inevitable that it will have an impact to the industry.

FCA recently noted in their April 26th survey of the respondents 83% of projects have had their current module supply either get canceled or delayed and 80% of domestic manufacturers are expecting severe or devastating impacts to their business.

Unfortunately, it's one of the largest domestic providers of utility scale trackers, we are not immune to this market disruption. So we do anticipate a portion of our business will be impacted.

However that is the bad news on a more positive side, we conducted a thorough analysis of our current order book and at this time, we are forecasting between $225 million to $250 million of revenue will be at risk due to module uncertainty well.

Well that number is not trivial it only represents about 15% of our previous outlook at the midpoint of $1 $6 billion.

Further in recent weeks, we have seen the industry rally behind its opposition to this investigation and we have been front and center of it.

Our position is clear we.

We are fully supportive of more robust domestic source of module. However, the supply chain does not exist today.

So in the meantime, we seek a practical and stable solution for our industry.

Eric the Brinker, our Chief commercial officer has spent much of the last few weeks meeting with legislators and administration official outlining that position along with many others in the industry.

While there still is uncertainty as to the ultimate outcome. We are hopeful that these efforts are making a positive impact.

Moving to the next slide.

In light of the current expected impact you'll see our updated guidance range for 2022.

You can see that we are reflecting a reduction of revenue of $200 million that are midpoint, reflecting the E. C V Derisked, which was partially offset by conversion of new orders.

We now expect revenue to be between one three and $1 $5 billion.

Looking at adjusted EBITDA as you might expect the projects with less muscle certainty are those that we have signed more recently and therefore carry higher gross margin, which creates a larger drop through impact.

Further as discussed earlier, we are also seeing some cost challenges in the STI business that will create a short term headwind.

First there are elevated labor costs related to the construction of some of their projects, particularly a large U S based project.

This project was signed prior to our acquisition and is the first large project in the U S where STI is doing the site construction.

We have already made changes to the way the company sources that flavor on future projects, and we'll evaluate and more detailed weather construction as a core competency of the business.

Second the war in Ukraine has created some supply chain disruption in Europe .

This has forced S T I should bring materials from Asia, leading to higher logistics costs.

Forward. These elevated costs will be reflected in price increases however for projects currently under contract it will create some margin compression.

Taking these factors together, we are now expecting adjusted EBITDA to be between $120 million and $140 million for 2022, and adjusted EPS to be between 25, and 35% with the same share count expectations as before.

We also expect the a D. C V D push outs will have a negative impact to our legacy array margins in the second quarter as several large higher margin projects are no longer slated to be delivered.

This coupled with S. T I challenges will create some downward margin pressure for the second quarter.

That said, we still anticipate sequential revenue growth and sequential margin improvement in both the legacy array and STI businesses.

For the quarter, we are expecting sequential revenue growth between 20, and 25% and adjusted EBIT margin to be between six five and seven 5%.

Lastly, the reduction of our outlook, we obviously considered the impact to liquidity and free cash flow.

We still anticipate to produce free cash flow for the year with the expectation still that it will be more back half weighted.

Further the reduced volume eases some of the peaks and troughs in our working capital. So there is little bit smoothing effect. However.

However, the constant shifting of project timing with me, we have to manage our inventory levels very intently.

I'll conclude by stating while there are near term headwinds 2022 will still be a good operational year for us.

With that I'll turn the call over to the operator for questions.

Thank you at this time, we will be conducting a question and answer session.

If he would like to ask a question. Please press star and then one on your telephone keypad.

Confirmation tend to indicate your line is in the question queue.

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For participants using speaker equipment, it might be nice sales pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Okay.

Our first question is from Brian Lee of Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon, thanks for taking the questions.

And you know appreciate some of the color around the guidance update here I guess with respect to that Yeah. First question I would have would just be around you know when you were talking to some of your customers and you've identified these projects that are you know moving out of 'twenty two.

How much if any visibility do you have around you know if these are moving into 'twenty three first half second half or if these are kind of open ended where they may actually slip into even further out years based on you know project development timelines and then I think Paul you mentioned some projects in the legacy <unk>.

Array business.

Actually moved out altogether could you elaborate on that I thought that was a two Q comment, but could you elaborate on that a bit as well.

Yeah, sure Hey, Brian So regarding the discussion so as we mentioned on the prepared remarks, you know we report in front of a project by project analysis on your book.

You spoke with customers and independently also evaluating uncertainty and with that ill now the pushout that we see are moving into 2023, we don't have any further information at this point and the comments I made about the Q2 margin and and the push outs as we have some some of those projects scheduled in Q2 that got pushed some got pushed.

Into Q further into the year and some got pushed into 2023.

Okay Fair enough. That's helpful. And then maybe to just kind of modeling related questions.

If I look at the sort of 200 million or so in revenue that's.

Being pulled out of the guidance for the year at the midpoint and then I know in the press release, you said that the the EBITDA impact is higher because these are you know a richer margin projects. It implies you're getting like a 30% EBITDA.

Margin on.

The 200 million revenue ours, so that's being pulled out of the guide. So I guess one is that correct and then two.

I guess, what what are you seeing on the incremental $200 million of bookings and ordered contracts. You you cited in the quarter or is this kind of the the.

The level of EBITDA margin, you're expecting going forward on new projects to sort of it seems like a very high number just trying to.

Ah I get a sense of how sustainable that 30% level is just given what's implied by the push out in revenues here.

Yeah, Hey, Brian So just a little clarification, so somebody said the push out of the 200 million.

Thank you Steve legacy margins thinking about low twenty's. There's a piece. That's also in there is our S. T. R. O business has you know as we mentioned in the prepared remarks.

Or higher construction costs and logistics costs, yes.

We're going to see that already for a couple of orders. So connecting 2022. So the combination of the two is what brings the midpoint of that range down.

Sorry, let me repeat myself I was looking at you know.

What what you've taken out of the.

The guide I guess, so some of that is just the elevated costs, but it does imply the incremental to.

$200 million of revenue.

You know how did you how did you capture that that was going to come in at a 30% EBITDA margin am I missing something there or is there something unique about that.

That volume projects that is now being assumed at 23 I suppose.

Reaching those levels of profitability because it's just it's the EBITDA.

Delta versus the revenue Delta I'm trying to get at and it implies a pretty healthy margin profile for.

The amount of projects that are pushing out are in the guide here.

So it doesn't it's not implying anything more so I don't I wouldn't I wouldn't keep it too thinking network at the legacy margins below 20%, what's pushing out to 2022 and into 2023.

Okay Fair enough I'll take it off line and then just on the the cash cow.

And the balance sheet, you have $50 million of cash or so.

Exiting Q1 here I think the revolvers untapped, but how should we think about.

Cash flow it sounds like based on your comments and also looking at seasonality Q2 is going to be another cash burn quarter.

<unk> plans to tap the revolver any covenants, we need to be aware of and just your general thoughts around liquidity in the near term until you see better cash flow in the back half of the year.

Yeah no.

So yes, you'll see we aren't we are tapped on the revolver.

$2 million at Q1, you'll see but when you have $50 million of cash.

Cash on the balance sheet, just timing of that we feel good about overall cash flow as you mentioned in the prepared remarks, we will be cash flow positive where it gets to be cash flow positive for the year and backend weighted Q2 is something in a quarter here, where some of these projects that we mentioned previously you have shifted out of Q2 so.

That's kind of that peak has helped a little bit from a cash flow perspective. So we.

We feel you know it'll be.

Back half weighted a little bit you know free.

Free cash flow positive.

Q2, and then half weighted to get to a total free cash flow this year.

Okay.

Okay. Appreciate it thanks, a lot guys.

Yeah.

Our next question is from Mark Strouse with JP Morgan. Please go ahead.

Yeah. Good afternoon. Thank you very much for taking my questions.

I was just hoping you could give a bit more color on kind of demand trends that you're seeing in Europe , either with the STI business or the legacy array business. We're.

We're seeing very strong yes.

The import data are into the European market year to date, obviously with utility scale projects take time, so I'm just kind of curious if there if it's backlog or if its its pipeline are any way to quantify what you've seen in Europe a year to date.

Yeah. So.

With both our U S and European business, we've seen strength in our bookings as we say you know our overall order books going up to $2 billion from the what we had at year end. So we feel strong about that Sci has gone up as well and we've seen that that strength in both STI businesses in both Europe and in Brazil.

But Europe is as strong as it's no.

What you said as well there tomorrow.

Okay, and then I.

If we think about a surge in demand in Europe . In addition to kind of push outs from a D. C V D. In the U S. It's kind of gearing up for arguably a very strong 2023 does that require any kind of a temporary elevated investment in order to prepare your.

Ability to meet that demand are those shipments in 2023.

It was unfortunate thing as you know we have the asset light model and our supply chain is.

Goal is to increase our capacity to handle.

Increases in overall demand we feel right now you know, we're sending that capacity up for the demand that is pushing out into 2023.

Okay, and then just real quick lastly, this could be a yes or no answer but did that kind of getting the sense that.

The the construction costs and everything that you're talking about incremental expenses here.

Do not impact your long term view of gross margin. So if we should still think about the legacy business being high teens low twenty's gross margins is that still accurate.

That is accurate.

Perfect. Okay. Thank you.

Okay.

The next question is from a heat map of credit Suisse. Please go ahead.

Hey, good afternoon, thanks for taking the questions.

So just on the guidance so.

Could you just talk about like how much confidence you have for the balance of.

I think that U S revenues are at the midpoint is up here on the $750 million.

So how much confidence do you have on that in terms of module availability from your customers right.

Yeah, no we meet them based on our discussions as well as independent valuations and feel confident about module availability with the revised guidance.

Got it.

Got it got it but I will say that this is Kevin I just wanted to make sure that we're noting that that's at this point in time.

We've had direct conversations with all of our large customers and this is this is there a direct feedback to us and commitments that have been made to them for Basel IV.

You know dealing with some imperfect information from time to time, but at this point in time, we feel pretty confident about that.

Right, but I presume you have access to like the type of margins, probably using those projects right.

Could you say like if those modules are exempted from these investigation or Oh, there's still a tricycle potentially being reviewed later this year.

Well I mean, I guess global stage events, what Kevin said is you know we did or are described we had discussions with customers that are independent evaluation and at this time. This is this is where we feel we.

We've identified the risks that we know at this time based on that information and that's why we feel comfortable with the guidance range we provided.

Alright, and then just one last one from me I think in the past you kind of talked about shipping trackers as well, sometimes a handoff module deliveries, which generally is a rare occurrence, but I'm trying to understand if that's something which could help kind of Ah Ah Ah.

Bring some upside to the guidance later this year.

We do currently have a couple of customers requesting that us now.

By weighting that you know Fortunately for us with our design and we have a high degree of flexibility.

And N G.

For end customers to potentially switch out similar modules without doing major design changes, but we have customers operating in every bit of that continuing now from doing full design changes to switch out.

Means to asking us to construct.

And then at a later point in time to supply E. Clamping systems for their Moslem choice, which may be in flux. So we're working really hard with our customers direct communication on a regular basis and on a continuum.

Got you and I appreciate the response thanks.

I guess it should be noted that many of our customers. Although the models may be at risk and pushing out of this year that doesn't mean, they're giving up they're still trying to find alternative supply and trying to pull and keep things into their original program dates as well. So we're we're certainly here are willing to support them in all of those endeavors.

Our next question is from Philip Shen of Roth Capital. Please go ahead.

Hey, guys. Thanks for taking my questions I had a follow up on the heaps question there on.

The 22 revenue guide I was wondering if you might be able to share what percentage of that $1 billion.

Is one domestic and two international and then also importantly of the domestic.

Revenue what percentage of that do you think is supported by first solar maxion.

Our projects as well as safe Harbor, just trying to get a feel for you now.

The level of confidence you have in that $1 billion and and if.

There again with no first of all and Maxion and safe harbors mall Harvard modules than.

It seems like you guys are probably not a very good position there with the doing thanks.

Yeah, Hey, Hey, Phil So first to answer the first part of your question on that billion.

Represents E L F.

I see a rate portion.

It's about a 90 10 split as far as domestic international as far as the split where we haven't provided the split of kind of that early in <unk>.

100 million I guess, that's oh, the other particular modules, but again no well go back to the discussions we had but also the independents.

Evaluation, we did.

What nodule certainty there was we feel we feel good about that at this point, where we feel confident enough to put the $1 billion out there as far as the midpoint.

Great. Thank you in April and then coming back to the revolver you mentioned nipple that you guys pulled out in $52 million in the quarter.

Can you talk through how much more you can pull down without tripping any of the covenants.

Yeah sure. So you know we have we have a covenant that we have to be seven one times.

Uh huh.

Average or less and so with with the short term kind of trailing 12 months adjusted EBITDA that we've had and you have to clear a web to stay under $70 million for a net it's a very short term problem in Q2, we feel good about our.

Our cash flow here in Q2, and the options. We have you know scenario planning we've done to get to.

Just past the short term and then after Q2, we see it opening up in.

The polls the poll revolver capacity being available to us.

Okay, great. Thanks, and one more here as it relates to STI can you just help US understand are you were talking about these increased construction costs, but I think of you guys. As you know selling widgets and tracker and product. So it does S. T I have a business, where they actually get involved with D. P C as well and just the.

If you can give us a little bit more color on that and sorry, if I missed it but thank you.

Yeah. So haynesville there are that that isn't their core business, but for certain large customers. They have contracted to do the the construction projects and what drove that.

A portion of what drove the margin up.

The margin lower than our expected amount for Q1 was a project in the U S. We've been involved are they have another project in the U S where they've committed construction and we'd been involved the management teams involved in helping them with their labor are choosing labor for that one so it's not not something that you as a core competency, but they have it on a couple of projects.

Okay I appreciate all the color. Thanks.

Yeah.

Our next question is from Congress show Oppenheimer. Please go ahead.

Thanks, so much because I wanted to dig into the liquidity question, a little bit deeper can you give us a sense of how much liquidity you have right now and you know how much you've been able to collect out of that working capital on a quarter to date.

Yeah sure. So liquidity you know we have we have the revolver up to.

Another $20 million on the revolver plus the cash we have on the balance sheet. As mentioned previously we also have if needed we have a $100 million of preferred preferred shares.

And then of course as yourself, you'll see as our receivables we have $400 million receivables at 331 and about $200 million of pay also that just cash sources and uses we expect those receivables to be collected here in Q2. So we feel that that provides us enough liquidity along with the remaining <unk>.

Oliver as well.

In Egypt.

The preferred shares.

Okay. That's that's helpful. And then can you give us an update on any sort of efforts that you have around engineering.

You know cost out of the solutions and in cost reduction efforts and qualification of those redesigns.

Yeah sure. So you know we continue to to look at value engineering, our product and taking costs out of it nothing very specific at this point as a whole we continue to work with our customers.

Do you think that cost of install of their product. So whenever we can do on that because that's one of the largest cost of course and building a solid firms all continue to to help the customer with that and and reduce and on.

Stalling the trackers as well the foundations and stuff so are we.

So those are the key things, we're working on from an engineering innovation standpoint.

Okay. Thanks, a lot guys.

Our next question is from Kashi Harrison of Piper Sandler. Please go ahead.

Good afternoon, and thank you for taking the questions.

Kevin Ah Congrats on the new role are you you made a comment in your prepared remarks about sharing risks with your customers could you. Please elaborate further on what you were referring to specifically.

Yeah.

Yes. So this is really about maintaining a level of flexibility for customers and what I was referencing there in particular was.

Things such as our warranty on claims that may be changing from the original designs back to where they find themselves needing a different plant respect with.

With a different module choice right.

So we have customers coming to us, saying look could you be a little bit more flexible extended warranty on that that changes designed and wont be there pay additional money for an extended warranty or things like that so I was just asking us for a little bit more flexible solutions.

To get through this time period, and we're certainly willing to do that.

Only after we've done the engineering work internally to make sure that that made sense for us to do so it's really about again staying in close contact with these large customers of ours and having a degree of flexibility in working with them.

But that's that's helpful Oh, I'm, sorry got extended.

So that also extends to the other direction right, where as we have some of these large programs slipping out of ensuring that our suppliers our vendors are being flexible and delays in shipments and what have you and keeping it at their inventory instead of ours to to help us manage working capital a little bit better. So we're looking for that flexibility in both directions.

We're behaving in a very flexible manner, our customers are and thus far our vendors are as well.

Oh, that's that's helpful context, and actually dovetails quite nicely into my next question, which is which is around him working capital I think both you and nipple mentioned, it's going to be a focus here it moving forward.

You're just looking at the days sales outstanding.

In like 2019, 'twenty 'twenty relative to where it is today. It seems like you know day sales outstanding has increased quite a lot over that time period I'm I'm wondering if something has changed in the way you collect cash from your customers today relative to 2020, and if you have the ability to return to those historical.

Levels across the board not just not just receivables payables and inventory days et cetera.

Yeah.

The short term answer is yes, then we feel we have the ability to get back to those cashing that the short term right now with.

The supply chain as it is I'll speak in D. O I's first in inventory you know, we've we've increased our inventory in certain aspects.

In Q4 and into Q1 to ensure that so one wonders.

Costs are higher right of.

Inventory, but so if there's inflation in that but then also.

To buffer any supply chain issues mean, increasing safety stock to make sure we deliver on time. So we don't delay in project Thunder on the Dsos Theres a portion of that where you know and as we were delivering items and you know that's the linearity of any of the deliveries are kind of impacted E unbilled niches.

Items that we shipped and delivered but not have gone into the billing cycle, yet that that's young adult has increased which temporarily yes.

Our shipments are getting caught up here at the end of Q1. So we feel that will burn down here in Q2, and the balance of the year and get back toward our kind of historical Dsos in N D O Y as we Oh burn down the inventory.

That's that's very helpful and if I could sneak maybe just one more in I'm just going back to that question on the legacy array.

Guidance, you know about 1 billion you know comparisons, but what you guys did last year at 850 am I think last year and 97% was U S. This year and 90% is U S. So if you if you adjust for higher a S p's would volumes be relevant in the.

U S to be relatively flat year over year or would they be a down year over year for your legacy your rate U S business and that's it. Thank you.

Yeah, you know listen when you look at it that way, we actually see that the volumes are slightly up in the U S business ex any AR increased due to pricing. So we've actually seen seen it up with the $1 billion.

That's it for me thank you.

My last question is from Jonathan Shaffer of Northland Capital markets. Please go ahead.

Hi, Hi, guys. Thanks for taking the question.

Wanted to follow up asking about kind of the.

As you know self performance, we're doing the EPC work STI enrollments in North America.

One would just be you know I think you mentioned that there was one other project.

If you can give kind of a sense of size you know it could be very rough you know if we're talking you know larger.

Larger than 100 megawatts all of the 900 megawatts.

Something like that I'm just.

And if theres more beyond that.

And also outside the U S.

Strictly a U S phenomenon, where they were doing this outperformance because you know it's harder with wage market, maybe they felt like they had to prove it out.

Execute the labor on their own.

Or is that something that ought to do in Brazil.

In Europe .

Yeah, Hey, Donovan people. So the project is as you know over 100 megawatts.

Megawatts here in the U S. The second project and.

It's there's no others scheduled for.

For the U S and we leave our assisted on that one considerably as far as ensuring the labor as you know.

Is it product costs and stuff. So we've helped them Hum on that one that you have and as mentioned earlier on the call. It's not a core for them, but they have projects, both in Brazil, and in Spain, and they self perform or install themselves, but it's not it's not by any stretch. It a majority of their projects is a small portion of it.

And we're evaluating that.

Okay and then for.

The depreciation expense that was added with yesterday I Norland acquisition can you give us a sense of kind of what underlies that you know is not for you know capital equipment to produce them.

Tracker components mm.

Is that you know the legacy amortization do you guys have hired was with research and development.

We're no longer doing that practice of amortizing. It. So is this something where you know there'll be it reflects capex that is likely to be happening in continuing or is this something that's just going to kind of run off but what kind of underlying depreciation.

Yeah, Hey, Jonathan is that what you see there and what was in the prepared remarks. It is isn't that depreciation and amortization related to the acquisition and that's and that's Emerson that's amortization.

<unk> related to primarily to backlog and customer list. That's what makes up that $16 7 million predominantly my apology more then last question just.

In the interest of just sort of for my own sake looking back you know I know things have changed I'm looking back into.

The Q2 into Q3 docks in 'twenty. One you know you guys gave some helpful information around gross margins and how that would.

Would kind of be reversing and then of course there was this accounting change that led to the delay in Q4.

And that had some impact on gross margin. So I'm just curious if you could share for the first quarter you know in pretty rough terms.

What kind of gross margin would have been under the old methodology is that something where you pick up another 1%, 2% I'm just trying to kind of recall that and use it.

Based on what you say to kind of look back and how that compares with what you guys are saying and again I know things have changed.

The environment has changed but.

Can you give me any indication of that.

Yeah, Hey, Jonathan we wouldn't stop.

Margins would've changed in 2022 based on that of that accounting change. So the eight well we stayed in for the legacy of writing business at eight 5% is kind of where where the margins are so we feel good about that sequential growth as we are stating we feel you know where.

We also feel that Q2 will continue that sequential margin growth. So we're staying on that trajectory on the array business recovery and based on the processes, we put in place.

And so.

If I'm hearing this right you're saying they would have also been eight 5% that would have also been the gross margin under the old methodology.

Oh, yeah yeah.

Oh, Okay. All right. Thank you that's it for me. Thank you.

And at worst.

Ladies and gentlemen, we have reached the end of the question and answer session. This concludes today's conference. Thank you for joining US you may now disconnect your lines.

Hum.

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Yeah.

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Yeah.