Q2 2024 Array Technologies Inc Earnings Call
Operator: Greetings and welcome to Array Technology's second quarter 2024 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 introduce your host, Sarah Sheppard, Investor Relations at Array. Please go ahead.
Greetings and welcome to array technologies second quarter 'twenty 'twenty four earnings call at.
At this time.
Speaker Change: We are in a listen only mode.
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 Sara she put it.
Sara: Its relations at <unk>. Please go ahead.
Sarah Sheppard: Thank you, and welcome to Array Technology's second quarter 2024 financial conference call. On the call with me today are Kevin Hostetler, our CEO; Neil Manning, our President and COO; and James Chu, our Chief Accounting Officer.
Sara: Thank you and welcome to array technologies second quarter Quiet 24 financial conference call.
Speaker Change: On the call with me today are Kevin Hopped up Blair, our CEO, you'll Manning, our president and C O L. James Xu our Chief Accounting Officer.
Sarah Sheppard: Today's call is being webcast from our Investor Relations site at ir.arraytechinc.com, including audio and slides. In addition, the press release detailing our quarterly results has 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 throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending.
Speaker Change: This call is being webcast smart Investor relations site at IR, Dot, Rachel and dot com, including audio and slides.
Speaker Change: Vishay in the press release detailing our quarterly results had been posted on the website.
Speaker Change: 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.
Speaker Change: We encourage you to visit our website at a rate hike a dot com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending.
Sarah Sheppard: As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other facts. These forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those made today. We refer you to the documents we filed with the SEC, including our most recent Form 10-Q, for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the Warren-Cooking Statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievement. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. I'll now turn the call over to...
Speaker Change: As a reminder, the matters discussed today include forward looking statements regarding market demand and supply.
Speaker Change: Printed adults and other matters.
Speaker Change: These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Speaker Change: We refer you to the documents, we filed with the F D C, including our most recent Form 10-Q.
Speaker Change: Discussion of risks and the impact our future results.
Speaker Change: Although we believe that the expectations reflected in the fourth looking statements are reasonable we cannot guarantee future results.
Speaker Change: Activity performance or achievements.
Speaker Change: We are under no duty to update any of the forward looking statements to confirm these statements to actual results.
Speaker Change: I'll now turn the call over to Kevin.
Operator: Good afternoon everyone. Today's format will be a bit different from the prior quarter. I'll start off with some key industry highlights, and Neil Manning, our President and Chief Operating Officer, will provide some operating highlights for the quarter. In return, they will cover the second quarter financial highlights and full year financial guidance and provide a brief update on the progress on our CFOs. Then we'll open the line up for your questions.
Kevin: Thank you Sir.
Kevin: Good afternoon, everyone.
Kevin: Today's format will be a bit different from the prior quarters.
Kevin: I'll start off with some key industry highlights and you don't need it.
Speaker Change: Our president and Chief operating Officer will provide some operating highlights for the quarter.
Kevin: I'll, then return and cover the second quarter financial highlights and full year financial guidance and provide a brief update on the progress on our CFO search.
Kevin: Then we'll open the lineup for your questions.
Operator: We are pleased with our performance and execution in the second quarter, along with the continued demand we're seeing in the market. Starting on slide 3, I'll begin with a summary of our second quarter and then discuss the latest industry environment and near-term market dynamics. We achieved $256 million in revenue, slightly above the high end of the range we provided on our last earnings call.
Speaker Change: We are pleased with our performance and execution in the second quarter, along with the continued demand we're seeing in the market.
Speaker Change: Starting on slide three I'll begin with a summary of our second quarter, and then discuss the latest industry environment and near term market dynamics.
Kevin: We achieved $256 million of revenue.
Speaker Change: Lately about Oh, you ended the range, we provided on our last earnings call.
Operator: Adjusted Gross Margin came in at 35%, which included incremental 45x benefits through June 30, 2024, but were not previously factored into our guidelines. Excluding these incremental benefits, our adjusted gross margin result was within the low 30s guidance range previously provided for the full year. Compared to the prior year, our adjusted gross margin performance reflected a 540 basis point improvement. As we move through the remainder of the year, we will continue reporting gross margins inclusive of both per tube and structural fastener benefits derived from 45X, and there is still more work being done around the maximization of those credits.
Kevin: Adjusted gross margin came in at 35%, which included incremental 45 next benefits through June 32020, but were not previously factored into our guidance.
Kevin: Excluding these incremental benefits our adjusted gross margin result was within the lungs, 13th guidance range previously provided for the full year.
Kevin: Compared to the prior year, our adjusted gross margin performance reflected a 540 basis point improvement.
Kevin: As we move through the remainder of the year, we will continue reporting gross margins inclusive of both CT tube and structural fastener benefits derived from 45 bags and there is still more work being done around the maximization of those credits.
Operator: We are actively pursuing multiple initiatives to obtain further clarity regarding the eligibility of additional parts that might qualify under 45X. In conjunction with negotiating the split of the 45X benefits with suppliers for parts, we do not manufacture internally. However, as always, we also remain focused on achieving strong core gross margins through disciplined pricing and continue to innovate. Finally, we delivered $55.4 million of adjusted EBITDA, representing 21.7% of revenue, and we generated $1.8 million of free cash flow to end the quarter with a strong cash balance of $282 million.
Kevin: We are actively pursuing multiple initiatives to obtain further clarity regarding the eligibility of additional parts that might qualify under 45 bags and.
Kevin: In conjunction with negotiating the split of the 45 X benefits when suppliers for parts, we do not manufacture internally.
Kevin: However, as always we also remain focused on achieving strong core gross margins through disciplined pricing effective cost take out initiatives and continued Dubai innovations.
Speaker Change: Finally, we delivered $55 $4 million of adjusted EBITDA, representing 21, 7% and we generated $1.8 million of free cash flow to end the quarter with a strong cash balance of $282 million.
Operator: What additional update I'm thrilled to report on for the quarter is the remediation of our material weakness related to a lack of qualified personnel to perform control activities for financial statement preparation. With the hiring of additional talented individuals in accounting and finance and the realignment of our accounting functions to straighten internal controls, we were able to effectively close out this material. I'm incredibly encouraged by the improved strength of our team moving forward.
Speaker Change: What additional uptake I'm thrilled to report on for the quarter is the remediation of our material weakness related to a lack of qualified personnel Super 40 control activities for financial statement.
Kevin: <unk>.
Kevin: With the hiring of additional talented individuals' in accounting and finance.
Kevin: And the realignment of our accounting functions to strengthen internal controls.
Kevin: We weren't able to effectively close out this material weakness.
Kevin: I'm incredibly encouraged by the improved strength of our team moving forward.
Operator: Additionally, with the implementation of an ERP system in Brazil in May, we are well on track to remediate our last remaining material weakness related to control activities within the FTI business. This is truly a testament to our commitment to operational excellence, and I couldn't be more proud of the focused investments we've made in people, processes, and systems. Moving to slide four, I want to briefly reinforce the positive long-term momentum we're seeing within the solar industry and the bright outlook for the next few years. According to data from the Federal Energy Regulatory Commission, solar represented over 80% of U.S. electric capacity additions through April to kick off the year.
Kevin: Additionally, with the implementation of an ERP system in Brazil in May we are well on track to remediate our last remaining material weakness related to control activity within the F. T I did.
Kevin: This is truly a testament to our commitment to operational excellence and I couldn't be more proud of the focused investments we've made in people processes and systems.
Operator: Looking over the next three years, FERC continues to expect solar to dominate new capacity additions by a large amount, and we're optimistic about the incremental demand likely to be spurred by AI data center growth in the coming years. Our high-probability pipeline remains robust, and we're encouraged by our customers' interest in our portfolio of products and services and the Tailwind support for utility-scale solar as one of the lowest cost options to satisfy growing energy needs in the coming years.
Kevin: Moving to slide four I want to briefly reinforced the positive long term momentum, we're seeing within the solar industry and the bright outlook for the next few years.
Kevin: According to data from the Federal Energy Regulatory Commission solar represented over 80% of U S electric capacity additions through April to kick off the year.
Kevin: Looking over the next three years <unk> continues to expect solar to dominate your capacity additions by a large amount.
Kevin: We're optimistic about the incremental demand likely to be spurred by AI data center growth in the coming years.
Speaker Change: Our high probability pipeline remains robust and we're encouraged by our customers' interest in a portfolio of products and services and the tailwind supporting utility scale solar is one of the lowest cost options.
Kevin: That is by growing energy needs in the coming years.
Operator: Speaking of tailwinds, you may have seen that I recently testified before Congress on the Inflation Reduction Act's positive impacts on solar manufacturing and American job growth. Specifically, for Array, the 45x tax credits are helping us increase our domestic production and onshore critical components and good-paying jobs through the groundbreaking of our new Albuquerque manufacturing facility. We are also encouraged that the legislation has a sweeping bipartisan impact. So far, over 75% of the benefits from the IRA are impacting Republican-controlled districts.
Kevin: Picking a tailwind you may have seen that I recently testified before Congress on the inflation reduction act positive impacts on solar manufacturing and American jobs right.
Speaker Change: But typically for rate before.
Kevin: 45 ex tax credits are helping us increase our domestic production in onshore critical components and good paying jobs and the groundbreaking of our new Albuquerque manufacturing facility.
Kevin: We are also encouraged that the legislation has sweeping bipartisan impacts so far over 75% of the benefits from the irate are impacting Republican controlled districts.
Operator: Overall, the IRA is expected to facilitate nearly triple the current U.S. solar capacity by 2028, and we're incredibly excited about Array's role in helping develop a sustainable future for renewable energy in America. Regarding the latest IRA domestic content guidance that was issued in May, we are encouraged by the new elected safe harbor table that was introduced and believe it is a positive step forward for our customers pursuing the domestic content matter.
Kevin: Overall, I or is expected to facilitate derby triple the current U S solar capacity at 2028, and we're incredibly excited about our rates rules and helping develop a sustainable future for renewable energy in America.
Kevin: Yes.
Speaker Change: Regarding the latest Irene domestic content guidance that was issued in May we are encouraged by the new electric Safe Harbor table that was introduced and believe it is a positive step forward for our customers pursuing their domestic content adder.
Operator: Although the table is not yet finalized, we remain committed to supporting our customers and their domestic content. A domestically produced tracker is critical to achieve the 40% domestic cost, and it will become increasingly important as this percentage threshold is increased in the coming years for the stipulations in the IRA.
Kevin: Although the table is not yet final we remain committed to supporting our customers and the domestic content needs.
Kevin: Domestically produced tracker is critical to achieve the 40% domestic cockpit and it will become increasingly important as this percentage threshold has increased in the coming years for the stipulations in the Iraq.
Operator: Moving on to the latest 2024 market dynamics, we achieved strong new bookings of $429 million in the second quarter. We did have some other adjustments to our total order book from commodity price updates, project scope changes, and FX. However, although project cancellations were minimal, there were only four small international project cancellations representing less than 1% of our order book in total.
Kevin: Moving onto the latest 2024 market dynamics, we achieved strong new bookings of $429 million within the second quarter.
Kevin: We did have some other adjustments to our total order book from commodity price updates ontic scope changes and FX impacts.
Speaker Change: However, Oh no project cancellations, we're giving them all now.
Kevin: There were all these poor small international project cancellations, representing less than 1% of our order book in total and.
Operator: And we've had no domestic project cancellations. We are pleased with the continued momentum we're achieving, as evidenced by our overall rate of new orders, as well as our project win rate. We are also pleased to see new bookings for our OmniTrack product continue to grow, and we are very optimistic about increased opportunities for terrain following trackers moving forward. However, despite all the positive long-term momentum we're seeing for utility-scale solar,
Kevin: And we've had no domestic project cancellations.
Kevin: We are pleased with the continued momentum we're achieving as evidenced by our overall rate of new orders as well as our project win rates.
Speaker Change: We're also pleased to see duplicate for our omni track product continue to grow and we are very optimistic for increased opportunities for terrain following trackers moving forward.
Speaker Change: However, despite all the positive long term momentum, we're seeing for utility scale solar.
Operator: The industry is still struggling with short-term challenges that are continuing to cause issues with our customers' near-term project timing, resulting in a reduction in our 2024 guidance. As we've discussed before, we continue to see a dynamic of elongated timelines between project awards and expected project start dates. However, during our standard recurring check-ins with our customers... We also witnessed a sharp uptick in anticipated project pushouts beginning at the end of the second quarter.
Kevin: The industry is still struggling with short term challenges and are continuing to cause issues with our customers' near term project timing, resulting in a reduction of our 'twenty 'twenty four guidance.
Kevin: As we've discussed before we continue to see a dynamic of elongated timelines between project Awards and expected project start dates.
Kevin: However.
Kevin: Our standard recurring check ins with our customers. We also witnessed a sharp uptick in anticipated project push outs beginning at the end of the second quarter.
Operator: A number of our customers' domestic products are still reporting volatility in timing due to a variety of factors we've outlined in previous quarters. There are also a few newer, near-term headwinds presenting tiny challenges, which I'll outline. The first new dynamic we've witnessed is related to the recent A.B.C.B.D. petition.
Kevin: A number of our customers domestic projects are still reporting volatility and timing due to a variety of factors we've outlined in previous quarters.
Kevin: There are also a few newer near term headwinds presenting tiny challenges, which I'll outline.
Kevin: Our first new dynamic we witnessed is related to the recent a b C D petitions as.
Operator: As we mentioned on our last hearings call, there is still a lot of uncertainty around potential terrorists, and the situation remains fluid. Within the last couple of months, we've had some customers who opted to preemptively change panel selection, thereby delaying the process, or are planning on delays in projects in consideration of a potential panel selection change. Fortunately, a lot of these delays stem from the uncertainty around the magnitude of potential terrorism.
Kevin: As we mentioned on our last earnings call. There was still a lot of uncertainty around potential tariffs and the situation remains fluid.
Kevin: Within the last couple of months, we've had some customers who opt in to preemptively change panel selection, thereby delaying the project or are planning on delays in projects in consideration of a potential catalyst selection change.
Kevin: Fortunately a lot of these delays stemmed from the uncertainty around the magnitude of potential terrorists.
Operator: Once the impact of the tariffs is determined, customers can better understand the consequences on panel costs and make relevant decisions for specific projects to move forward. As we've mentioned before, our patented clamping solutions are flexible, and we feel very well-positioned to accommodate late design changes for model selection, and our clamps don't require pre-drilling of the torque tube.
Speaker Change: What's the impact of the tariffs determined customers can better understand the consequences on panel costs and make relevant decisions or specific projects to move forward.
Kevin: As we've mentioned before.
Speaker Change: Our patented pumping solutions are flexible and we feel very well positioned to accommodate late design changes for module selection and don't require pre drilling up to talk to.
Operator: Another new dynamic has been related to the domestic content elected state harbor table. As I previously mentioned, this new clarity is certainly positive overall for our customers and the industry. However, the guidance is still being vetted and not yet finalized.
Speaker Change: Another new dynamic have been related to the domestic content I liked it safe Harbor table.
Speaker Change: As I previously mentioned this new clarity is certainly a positive overall for our customers and the industry.
Speaker Change: However, as our guidance is still being vetted and not yet final.
Operator: As such, certain customers are taking additional time and delaying projects to navigate this new table and ensure they achieve the necessary amount of domestic content to qualify for the credit. One bright spot in light of these pushouts is that some customers who were not previously considering pursuing the domestic content adder are now reconsidering, given the ease of use provided by the proposed table. We remain committed to providing a high level of domestic content to meet our customers' needs, and nearly 15% of our domestic order book is either specifying or evaluating domestic content. We also have a lot of interest in domestic content within our high probability pipeline. Finally, outside of the U.S., there have also been some unexpected macroeconomic delays in Brazil in the last couple of months.
Speaker Change: As such certain customers are taking additional time and delaying projects to navigate this new table and ensure they achieved the necessary amount of domestic content to qualify for the credit.
Speaker Change: One bright spot in light of these push outs and then some customers who were not previously considering pursuing the domestic content adder are now reconsidering given the ease of use provided by the prospective table.
Speaker Change: We remain committed to providing a high level of domestic content to be our customer's needs and nearly 15% of our domestic order book is not going to specify them.
Speaker Change: We're evaluating domestic content.
Speaker Change: We also have a lot of interest in domestic content with it are high probability pipeline.
Speaker Change: Finally outside of the U S. There has also been some unexpected macroeconomic delays in Brazil.
Speaker Change: In the last couple of months, there's been a rapid devaluation of the Brazilian real in conjunction with existing pricing pressures on energy in the Brazilian market.
Operator: There has been a rapid devaluation of the Brazilian real in conjunction with existing pricing pressures on energy in the Brazilian market. Due to these dynamics, the economic cases for the Power Purchase Agreements, or PPAs, for many solar projects have become less attractive. Developers of these projects are now signaling delay as they renegotiate the pricing of these PPAs. We still feel very strongly about our position in the Brazilian market and the optimal performance of our products in regions. However, this short-term challenge will need to be resolved before we see a return to a more normalized Project 8.
Speaker Change: Due to these dynamics the economic cases for the power purchase agreements or Ppas for many solar projects have become less attractive.
Speaker Change: Developers of these projects are now signaling delays as they renegotiate the pricing of these ppas.
Speaker Change: We still feel very strongly about our position in the Brazilian market and the optimal performance of our products in the region.
Speaker Change: However, this short term challenge will need to be resolved before we see a return to a more normalized project.
Operator: While we are disappointed at the level of customer pushouts being reported in the near term and its impact on our 2024 guidance, we recognize that there are many industry factors outside of our control. We remain focused on engaging with our customers, increasing our operational rigor, and managing everything we can within our purview. As we look to the future, a significant portion, about 80% of our quarterbook, is currently scheduled for delivery between now and year-end 2025.
Speaker Change: While we are disappointed at the level of customer push outs being reported in the near term and its impact on our 'twenty 'twenty four guidance. We recognized that there are many industry factors outside of our control.
Speaker Change: We remain focused on engaging with our customers increasing our operational rigor in managing everything we can but that are perfect.
Speaker Change: As we look to the future.
Speaker Change: Difficult portion about 80% of our order book is currently scheduled for delivery between now and year end 2025.
Operator: And to be very clear, we do expect to be receiving orders for 2025 deliveries for several more quarters. We will continue to set ourselves up for success to support future growth in 2025 and beyond and navigate near-term challenges to the best of our ability. Now, I'll turn the call over to Neil to speak about some exciting product and business updates. Thanks, Kevin.
Speaker Change: To be very clear, we still expect to be receiving orders for 2025 deliveries for several more quarters.
Speaker Change: You will continue to set ourselves up for success to support the future growth in 2025, and beyond and navigate near term challenges to the best of our ability.
Neil Manning: Moving to slide five, I'm pleased to share with you more about our latest product launch that we just announced this week. Skylink is a groundbreaking new tracker system built upon the capabilities of our Dirt Track and OmniTrack platform. Skylake, which is now designed to have an eight-linked room configuration, significantly increasing the flexibility of site layouts where regular boundaries are key. TV Power Control System, Tracker Stove Capability to Record Power Outages, which is particularly relevant in areas with heavy snow load and extreme weather potential. In addition, DC-powered wireless communication simplifies cable management without the need for trenching, making installation easier and more efficient for our customers.
Speaker Change: Now I'll turn the call over to Neil to speak about some exciting product in the south.
Speaker Change: Thanks.
Neil: Thanks, Kevin.
Neil Manning: Together, the combination of these new capabilities allows our customers to realize lower product costs and increase flexibility for more challenging site layouts, which are becoming more the norm in the industry. We have many customers already interested in Skylink, and it received a great response to our customer forum just last week. I encourage you to learn more about Sky Lakes Valley at Array.com. Move it to slide six.
Neil: Moving to slide five I'm pleased to share with you more about our latest product launch that we just announced this week.
Neil: Skylake is a groundbreaking new tracker system builds upon the capabilities or George Ross I'll be tracked platforms.
Neil: Skylake, but you know designed to an H linked room configuration.
Speaker Change: Secondly, increasing the flexibility of site layouts, where regular batteries aren't sure.
Speaker Change: T V power control system tourist tracker stope capability to a grid power outages.
Speaker Change: Which is particularly relevant there is heavy snow a little extreme but their potential.
Neil: Are there do you see powered wireless communication simplified cable match, but without the need for trenching.
Felicia: Felicia easier and more efficient for our customers.
Neil: Taken together the combination of these new capabilities allows our customers realize lower project costs and increased flexibility more challenging site layoffs would.
Neil: Would you be looking more than norm in the industry.
Speaker Change: We have many customers already interested in Skylake and has received a great response to our customer Forum just last week.
Sally U: I encourage you to learn more about Skylake, Sally U and a radar Cup.
Neil: Moving to slide six.
Neil Manning: Another update that I'm excited to share relates to the insurance forum we hosted in July. We believe that this forum with the solar industry insurance companies was the first of its kind within the tractor industry. We received a lot of engagement and valuable feedback. Around 35 insurance industry participants left the forum with new knowledge and understanding of Array's technology, its design to withstand extreme weather, and how it differs in real-world performance from our competition. The importance of educating insurers on our tracking technology's ability to mitigate severe weather risk is paramount.
Neil: Another update that I'm excited to share relates to the insurance Forum hosted it in July.
Neil: We believe that this for the solar industry insurance companies. It was the first of its kind, but did the tracker industry will receive a lot of engagement and valuable feedback.
Neil: Well 35 insurance industry participants about the form of new knowledge and understanding of array technology.
Speaker Change: It's designed to withstand extreme weather.
Speaker Change: We're differentiated in real world performance from our competition.
Speaker Change: The importance of educating insurers and are tracking technologies ability to mitigate severe weather risk is paramount.
Neil Manning: As is ensuring developers always get value if differentiated tracker performance is reflected in their overall project cost. We're very pleased with the insights received from our inaugural events and are planning our next engagement with this audience for the fourth quarter of this year. Following the insurance forum, we hosted another customer experience event last week, similar in format to the first quarter event we discussed on our last earnings call. With 40 customers in attendance, we spent a large portion of time discussing the features and benefits of the innovative new Skylight product.
Neil: As this ensuring developers always did a value differentiator chocolate performance reflected in their overall project costs.
Speaker Change: We were very pleased with the insights received priority dog or beds or plenty of index. It gives you, but this audience for the fourth quarter of this year.
Speaker Change: Oh in the insurance form we posted another customer experience about last week somewhere in formats and a first quarter event, we discussed on our last earnings call.
Speaker Change: What are the 40 customers were in attendance. We spent a large portion of time discussing the features and benefits you get abated due skylake products.
Neil Manning: We've continued our dialogue on the benefits of passive versus active stow solutions, along with updates to our industry-leading levelized cost of energy performance. We concluded the event with discussions on our operational improvements and gained candid feedback from attendees on additional business improvements that we can make. As I mentioned earlier, we are already seeing many customer inbound inquiries on Skylake as part of this event and our official launch, and we're quite optimistic about its anticipated growth and positioning within the market. I move you to slide seven.
Neil: We continued our dialog on the benefits of our passive versus active Stowe solution, what would the updates to our industry leading level is cost of energy performance.
Neil: We concluded that the discussions on our operational improvements.
Neil: And the feedback from attendees and additional business improvements that we can make.
Speaker Change: As I mentioned earlier, we already see many customer inbound inquiries on skylake as part of this event.
Speaker Change: Our official launch and we're quite optimistic and anticipate growth and positioning within the market.
Speaker Change: Moving to slide seven.
Neil Manning: I'd like to spend a few moments reminding everyone about Array's robust supply chain capability. On a global basis, we have secured in excess of 50 gigawatts of capacity from our suppliers, with over 30 gigawatts here in the United States. This access brings with it tremendous optionality to respond to unforeseen events and shocks that may occur around the world. And that's where I'm going to start.
Neil: I want to spend a few moments reminding everyone about a raise robust supply chain capabilities.
Neil: On a global basis, we have security in excess of 50 gigawatts of capacity from our suppliers with over 30 Gigawatts here in United States.
Neil: This access brings with it tremendous optionality respond to unforeseen events and shocks it may occur around the world.
Neil Manning: I'm immensely proud of our longstanding U.S.-focused presence with 31 domestic factories, including our facility in Albuquerque, New Mexico. The majority of our domestic suppliers have been part of our supply network for over three years, giving customers a great deal of confidence in Array's ability to deliver, as evidenced by our top-tier lead times and on-time delivery with performance in excess of 95% in the recent quarter. Operational programs supporting our core margin improvement over the past eight quarters include inventory optimization, along with focused commodity and cost out of different, and we continue to have programs in flight that we'll discuss in future periods.
Neil: That framework I'm immensely proud of our longstanding U S focused presence with 31 domestic factories, including our facility in Albuquerque, New Mexico.
Neil: The majority of our domestic suppliers been part of our supply network for over three years, giving customers a great deal of confidence in our res ability to deliver that's.
Neil: As evidenced by our top tier lead times on time delivery performance in excess of 95% in recent quarters.
Neil: Operational programs supporting our core margin improvement over the past eight quarters, including inventory optimization, along with focused commodity cost out initiatives.
Neil: And we continue to have programs in flight that will discuss in future periods.
Neil Manning: And final point on supply chain, I'm excited to report that we'll be able to support our customers' domestic content needs with a 100% domestic array tracker in the first half of 2025. UDSG, I'm proud that Array has continued to make great progress towards its environmental, social, and governance goals, as highlighted in our recently published 2023 disclosures, notably. We have increased our renewable source electricity and operations to 29%, and 25% in 2022. Additionally, we have made significant strides in employee safety, business reductions, and diversity and inclusion within our workforce.
Neil: A final point on supply chain I'm excited to report that we'll be able to support our customers the best of content needs, the 100% domestic retract or the first half of 'twenty 'twenty, but.
Speaker Change: Who would be S G.
Speaker Change: Proud to raise continues to make great progress towards its environmental social and governance goals as highlighted in our recently published 2023 disclosures.
Neil: Notably.
Neil: We've increased our renewable source of electricity and operations to 29%, 25% in 'twenty to 'twenty two.
Neil: Additionally, we have made significant strides in employee safety, mistras reductions and diversity and inclusion within our workforce, especially pleased with our supply chain teams engagement their suppliers to accurately track our full greenhouse gas inventory and provide data to further reduce emissions and improve the environmental sustainability of our.
Neil Manning: We are especially pleased with our supply chain team's engagement with their suppliers to accurately track our full-grain husk gas inventory and provide data to further reduce emissions and improve the environmental sustainability of our business. With that, I'll turn it back over to Kevin to give a more detailed update on second quarter financials and full year guidance. Thanks, Neil.
Neil: Business.
Neil: With that I'll turn it back over to Kevin to give a more detailed update on our second quarter financials and full year guidance.
Neil: Yes.
Operator: Moving to slide nine, I'll start off by providing some additional details around the second quarter results. As I previously mentioned, revenue came in slightly above the high end of our guidance range at $255.8 million, which was down 60% from the second quarter of 2023 and up 67% sequentially from the first quarter of 2024. As expected, and communicated on prior calls, you experience declining volume and ASP year over year. Sales in North America represented over 70% of our revenue per quarter, with the remainder of our revenue coming from international locations.
Kevin: Thanks, Neil moving to slide nine I'll start off by providing some additional details around the second quarter results.
Kevin: As I previously mentioned revenue came in slightly above the high end of our guidance range at 250 $548 million, which was down 50% from the second quarter of 2023 and up 67% sequentially from the first quarter 2024.
Kevin: As expected and communicated on prior calls.
Kevin: We experienced declining volumes and asps year over year.
Kevin: Sales in North American represented over 70% of our revenue for the quarter with the remainder of our revenue coming from international locations.
Operator: We achieved a second quarter adjusted gross margin of 35%, an improvement of over 500 basis points year over year, as mentioned earlier. Additionally, we were able to recognize some incremental 45x benefits through June 2024 in the second quarter. The team has worked diligently in our assessment of qualifying components and is very pleased with the maximization of these benefits through our recent vendor negotiations. While some elements of 45X are still being clarified, the team will continue to work to validate additional components that may qualify.
Kevin: We achieved second quarter adjusted gross margin of 35% an improvement of over 500 basis points year over year.
Kevin: As mentioned earlier.
Kevin: We were able to recognize some incremental 45 X benefits through June 2024 in the second quarter.
Kevin: The team has worked diligently and our assessment of qualifying components and are very pleased with the maximization of these benefits recent vendor negotiations.
Kevin: Some elements of 45 eggs are still being clarified the team will continue to work to validate additional components that may qualify.
Operator: Operating expenses of $46.4 million were down approximately 8% from $50.2 million during the same period of the previous year. This decline was driven by year-over-year improvement in headcount-related expenses, which more than offset the incremental costs incurred through severance and recruiting. Adjusted EBITDA with $55.4 million compared to adjusted EBITDA of $115.6 million during the second quarter of 2023. Gap net income attributable to common shareholders was $12 million compared to gap net income of $52.4 million during the same period in the prior year.
Kevin: Operating expenses of $46 $4 million were down approximately 8% from $52 million during the same period the previous year.
Kevin: This decline was driven by year over year improvement in head count related expenses, which more than offset the incremental costs to incur through severance and recruiting fees.
Kevin: Adjusted EBITDA was $55 $4 million compared to adjusted EBITDA of $115 6 million during the second quarter of 2023.
Kevin: GAAP net income attributable to common shareholders was $12 million compared to GAAP net income of $52 4 million during the same period in the prior year.
Operator: And basic and diluted income per share was $0.08 compared to basic and diluted income per share of $0.34 during the same period in the prior year. Adjusted net income was $30.6 million compared to adjusted net income of $74.3 million during the second quarter of 2023. And adjusted basic and diluted net income per share was $0.20 compared to adjusted basic and diluted net income per share of $0.49 during the prior year period. Finally, our free cash flow for the period was $1.8 million versus $15 million for the same period in the prior year.
Operator: Greetings and welcome to Array Technologies' second quarter 2024 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.
Kevin: Basic and diluted income per share was eight cents compared.
Kevin: Compared to basic and diluted income per share up 34 cents during the same period in the prior year.
Kevin: Adjusted net income was $36 million compared to adjusted net income of $74 $3 million during the second quarter of 2023, and adjusted basic and diluted net income per share was 20.
Sarah Sheppard: It is now my pleasure to introduce your host, Sarah Sheppard, investor relations at Array. Please go ahead. Thank you.
Operator: And welcome to Array Technologies' second quarter 2020.
Kevin: Compared to adjusted basic and diluted net income per share of 49 during the prior year period.
Operator: On the calls we today are Kevin Hock-Dutler, our CEO, EO Manning, our President and CEO, and James Chu, our Chief Accounting Officer. Today's call is being broadcast from our Investor Relations site at ir.arraytechaink.com, including audio and slides. In addition, the press relief detailing our quarterly results have been posted on the website. Today's discussion of financial results includes non-GAAT measures. The recognition of financial results includes non-GAAT measures. The recognition of GAAT to non-GAAT financial measures can be found on our website.
Kevin: Finally, our free cash flow for the period was $1 $8 million versus $15 million for the same period in the prior year.
Operator: Now I'd like to go to slide 10 and provide a more detailed update to our full year 2024 guide. Given the push-out dynamics that we discussed towards the start of the call, we now expect revenue for the year to be in the range of $900 million to $1 billion. Again, this reduction from our previous guidance is a reflection of customers' continued project timing challenges across issues such as interconnection and permitting, securing long-lead time equipment like high-voltage circuit breakers and transformers, finance, Labor Resource Constraints, and more.
Kevin: I'd like to go to slide 10, and providing more detailed update to our full year 2020 for guidance.
Kevin: Given the push out dynamics that we discussed towards the start of the call. We now expect revenue for the year to be in the range of 900 million to $1 billion.
Kevin: Again this reduction from our previous guidance is a reflection of customers continued project timing challenges across issues, such as interconnection and permitting securing long lead time equipment like high voltage circuit breakers and Transformers.
Operator: We encourage you to visit our website at ir.arraytechaink.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending. As a reminder, the matters we are discussing today include four of the few statements regarding market demand and supply, our expected results, and other matters. These four looking statements are subject to risks and uncertainties that may cause actual results. We would bring to the documents we filed with the SEC, including our most recent form 10Q for a discussion of risks that may affect our future results.
Nancy Labor: Nancy Labor.
Nancy Labor: Labor resource constraints and more.
Kevin: In addition.
Operator: ADCVD, New Domestic Content Guidance, and the dynamics we discussed in Brazil, our other new near-term Edwin's Impacting Customers, and our Guidance. But to be clear, all of these issues are only causing project pushouts, not project cancellations, and we remain committed to supporting our customers in any way we can while they work through these dynamics. Moving on to adjusted EBITDA, we now expect our full-year range to be between $185 to $210 million, attributable to the top line reduction for the customer project pushout.
Kevin: A D C D new domestic content guidance and the dynamics, we discussed in Brazil, or other new near term headwinds impacting customers and our guidance.
Kevin: But to be clear.
Kevin: All of these issues are only causing project push outs not project cancellations and we remain committed to supporting our customers in any way we can while they work through these dynamics.
Operator: Although we believe that the expectations reflected in the forms of statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. We are under no duty to update any of the forms of new statements to perform these statements to actual results.
Kevin: Moving on to adjusted EBITDA, We now expect our full year range to be between $185 million to $210 million attributable to the topline reduction from customer project push outs.
Operator: I'll now turn the call over to Kevin. Thank you, Sarah.
Operator: However, we have been able to mitigate some of the resulting adjusted EBITDA impact through an increase in our adjusted gross margin guidance from the anticipated recognition of additional 45x benefits. For adjusted EPS, we now expect between $0.64 and $0.74 for the year, again due to the top line reduction. Given our latest anticipated revenue mix, we are now expecting our effective tax rate to decrease to 24 to 26 percent from previous guidance of 26 to 28 percent.
Kevin: However, we have been able to mitigate some of the resulting adjusted EBIT impact through an increase in our adjusted gross margin guidance of any anticipated recognition of additional 45 X benefits.
Operator: Good afternoon, everyone. Today's format will be a bit different from the prior quarters.
Operator: I'll start off with some key industry highlights, and Neil Manning, our President and Chief Operating Officer, provides some operating highlights for the quarter. I'll then return and cover the second quarter financial highlights in full year financial guidance and provide a brief update on the progress on our CFO search.
Kevin: For adjusted EPS, We now expect between 64 and 74 cents for the year again due to the topline reduction.
Kevin: Even though our latest anticipated revenue mix, we are now expecting our effective tax rate decreased to 24% to 26% I'm on a previous guidance of 26% to 28%.
Operator: Then we'll open the light up for your questions. We are pleased with our performance and execution in the second quarter, along with the continued demand we're seeing in the market. Starting on slide three, I'll begin with the summary of our second quarter, and then discuss the latest industry environment and near-term market dynamics. We achieved $256 million of revenue slightly above the end of the range we provided on our last earnings call.
Operator: On pre-cash funds, we now expect a range of $60 million to $100 million for the year. This reduction is largely reflective of the changes to our top line and the anticipated impact on our working capital to end the year. We expect our capital expenditures to be approximately $25 million for the year, which is primarily driven by spending related to our new Albuquerque manufacturing facility.
Kevin: On free cash flow, we now expect a range of 60 million to $100 million for the year.
Kevin: This reduction is largely reflective of the changes to our top line and the anticipated impact on our working capital to end the year.
Kevin: We expect our capital expenditures to be approximately $25 million for the year, which is primarily driven by spend related to argue Albuquerque manufacturing facility.
Operator: By the way, looking ahead to the third quarter specifically, we expect revenue to be in the range of $220 to $235 million. Before opening the line for questions, I want to provide a brief update on our CFO search process. In June, we engaged a globally recognized CFO search firm. Two weeks ago, we received our first slate of candidates for our review, and we initiated our preliminary interview shortly thereafter. In addition to the candidates identified initially by our search button, we've received numerous inbound indications of interest from industry colleagues as well.
Operator: Adjusted gross margin came in at 35%, which included incremental 45X benefits through June 30, 2024, but we're not previously factored into our guidance. Excluding these incremental benefits, our adjusted gross margin result was within the low 30's guidance range previously provided for the full year. Convert to the prior year are adjusted gross margin performance, reflect at a 540 basis point in improvement. As we move through the remainder of the year, we will continue reporting gross margins, inclusive, of both up to and structural faster benefits derived from 45X, and there is still more work being done around the maximization of those credits.
Kevin: Looking ahead to the third quarter, specifically, we expect revenue to be in the range of $220 million to $235 million.
Operator: These have been passed along to our search partner for their additional screening and potential inclusion in our process. We will continue our initial screening interviews to pare down our list of candidates over the next several weeks. It's my expectation that this process will take between three and six months to fully vet our final candidates and move to the offer stage. To quickly wrap up, we have a lot of exciting innovation, customer, and industry initiatives going on at Array.
Kevin: Before opening the line for questions I want to provide a brief update on our CFO search process.
Kevin: In June we engaged a globally recognized CFO search for two.
Kevin: Two weeks ago, we received our first slate of candidates for our review and we initiated a preliminary interviews shortly thereafter.
Kevin: In addition to the candidates identified initially by our search partner.
Kevin: We've received numerous inbound indications of interest for our industry colleagues as well these have been passed along to our search partner, but there are additional screen.
Kevin: Potential inclusion in our process.
Kevin: We will continue our initial screening interviews to pare down our list of candidates over the next several weeks. It's my expectation that this process will take between three and six months to fully vet, our final candidates and moved to the Alpha stage.
Operator: We are actively pursuing multiple initiatives to obtain further clarity regarding the eligibility of additional parts that might qualify under 45X. In conjunction with negotiating the split of the 45X benefits with suppliers for parts, we do not manufacture internally. However, as always, we also remain focused on achieving strong core gross margins through discipline pricing, effective cost takeout initiatives, and continue designing innovations. Finally, we delivered $55.4 million of adjusted EBITO, representing 21.7% of revenue, and we generated $1.8 million of free cash flow to end the quarter with a strong cash balance of $282 million.
Kevin: So quickly wrap up we have a lot of exciting innovation customer and industry initiatives going on at array.
Operator: I'm proud of our execution within the border, and I'm confident in the resilience of our team and business as we navigate through near-term customer project delays and look to the bright long-term outlook for utility-scale solar. With that, we will now open the call to questions. Operator.
Speaker Change: I am proud of our execution within the quarter and I'm confident in the resilience of our team and business as we navigate through near term customer project delays and look to the bright long term outlook for utility scale solar.
Speaker Change: With that we will now open the call up for questions operator.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press the star key and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Thank you.
Speaker Change: We will now be conducting a question and answer session if.
Speaker Change: If you would like to ask a question. Please press star and then one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Operator: What additional update I'm thrilled to report on to the quarter is the remediation of our material weakness related to a lack of qualified personnel to perform control activities per financial state of preparation. With a hiring of additional talented individuals in accounting and finance, and the realignment of our accounting functions to strengthen internal controls, we were able to effectively close out this material weakness. I'm incredibly encouraged by the improved strength of our team moving forward. Additionally, with the implementation of an ERP system in Brazil in May, we are well on track to remediate our last remaining material weakness related to control activities within the STI business.
Speaker Change: You May press Star and then two he would like to remove your question from the Q4.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Please note that due to time constraint there will only be time for one question per person.
Operator: Please note that due to time constraints, there will only be time for one question per person. The first question we have is from Mark Strouse of J.P. Morgan. Please go ahead.
Speaker Change: The first question, we have is from Mark Strouse of Jpmorgan. Please go ahead.
Speaker Change: Yeah.
Mark Strouse: Yeah, it's great. Thank you very much for taking our questions. My one question, I wanted to talk about the fasteners that are now in the 45x guide, now include, uh And I mean, just kind of what gave you the confidence to do that? The IRS. And then, Kevin, you've talked about kind of a wide range of expectations for what that Fassner credit could be, and where in that range you are landing with your guidance here. Thank you.
Mark Strouse: Yeah, that's great. Thank you very much for taking our questions. My my one question.
Mark Strouse: Wanted to talk about the fasteners that are now in the 45 X guide.
Speaker Change: Now include.
Speaker Change:
Speaker Change: And I mean, just kind of what gave you the confidence to do that you do have some kind of.
Speaker Change:
Operator: This is truly a testament to our commitment to operational excellence, and I couldn't be more proud of the focused investments we've made in people, processes, and systems. Moving to slide 4, I want to briefly reinforce the positive long-term momentum we're seeing within the solar industry and the bright outlook for the next few years. According to data from the Federal Energy Regulatory Commission, solar represented over 80% of U.S, electric capacity additions through April to kick off the year.
Speaker Change: Okay.
Speaker Change: I R. S and then Kevin you've talked about kind of a wide range of expectations for what that that fastener credit could be I'm just yeah.
Speaker Change: Okay.
Speaker Change: Where in that range you were Atlanta with your guidance here. Thank you.
Operator: Thanks, Mark. I'm sorry you came through a little bit broken up on our end, but I think the crux of your question was around the new addition of some of the structural fastener elements into the quarter, and then I think I heard the second part in terms of where we land on expectations. Was it about clamps? That's important.
Speaker Change: Yeah, Thanks, Mark I'm, sorry, U K mature a little bit broken up on our end, but I think the crux of your question was.
Speaker Change: Around the New addition of some of the structural fasteners elements into the quarter and then I think I heard the second part in terms of where we land on expectations wasn't of claims.
Operator: Looking over the next three years, ERP continues to expect solar to dominate youth capacity additions by a large amount, and we're optimistic about the incremental demand likely to be spurred by AI and data center growth in the coming years. Our high probability pipeline remains robust, and we're encouraged by our customers' interest in a portfolio of products and services, and the tailwind supporting utility scale solar as one of the lowest cost options to satisfy growing energy needs in the coming years.
Speaker Change: Support.
Mark Strouse: Yes, exactly. Yeah. Thank you. Sorry for the line. That's okay.
Mark Strouse: Yeah, it's exactly yeah. Thank you sorry for the line here.
Operator: That's okay. So, as we've discussed all along, we have several components that we believe qualify under the structural fasteners as currently defined. And what we've done, much like we've done for other elements under 45X, is we've gone through a pretty extensive process, having a third-party company come in and interview and validate how we define something, the engineering parameters of it, how it overlays with the definition provided under the existing definition of structural fasteners.
Speaker Change: But that's okay. So as we've discussed all along with several components that we believe qualify under the structural fasteners as currently defined and what we've done much like we've done for other elements under 45 axis. We go through a pretty extensive process, having a third party company come in an interview and valley.
Speaker Change: Date, how we define something the engineering parameters about how it overlays with the definition provided under the existing definition of structural fasteners. We didn't have that reviewed by a third party accounting firms as well.
Operator: Speaking of tailwinds, you may have seen that I recently testified before Congress on the inflation reduction acts positive impacts on solar manufacturing and American jobs. Specifically for Ray, the 45X tax grants are helping us increase our domestic production and ensure critical components and good paying jobs through the groundbreaking of our new Albuquerque Manufacturing Facility. We are also encouraged that the legislation has sweeping bike partisan impacts. So far, over 75% of the benefits from the IRA are impacting Republican control districts.
Operator: We then have that reviewed by a third-party accounting firm as well, and we then form an opinion that that would qualify. Our sourcing team then immediately engages those particular vendors in the negotiation of those contracts. And what you're seeing now is the beginning, the washing in of some of those components that we know qualify, that we have now a definitive negotiated agreement and sharing agreement of those benefits. That's going to continue.
Speaker Change: And we then form an opinion that that wouldn't qualify our sourcing team then immediately.
Speaker Change: Engage at that those particular vendors in the negotiation of those contracts and what you're seeing now is just.
Speaker Change: Beginning with the washing in of some of those components that we know qualify that we have no definitive negotiated agreement and sharing agreement at those benefits with that's going to continue on.
Operator: There'll be additional components added as we go throughout the year and as we negotiate those contracts with subvendors. And the reason we're not as clear as giving a definitive dollar amount is we don't really think that's going to be helpful in any given quarter because there's this constant wash in and catch up. So, for example, some of what you'll see in Q2 is a catch-up for Q1 and Q2 on certain components.
Speaker Change: There'll be additional components added as we go throughout the year and as we negotiate those contracts with some vendors.
Operator: Overall, the IRA is expected to facilitate nearly triple the current U.S, solar capacity by 2028, and we're incredibly excited about a raise role in helping develop a sustainable future for renewable energy in America. Regarding the latest IRA domestic content guidance that was issued in May, we are encouraged by the new elected state Harvard table that was introduced and believe it is a positive step forward for our customers pursuing the domestic content adder.
Operator: And I think the way we've approached it has been to very consistently say, look. We're running a much better business than we did two years ago, for example, with or without 45F. So what we say is look, we're really pleased with our core margin performance being in the mid-20s with no IRA benefits. We're very comfortably there now, and we're gonna communicate that routinely to the market. The second level of communication to the market was that we felt that we would be in the low 30s gross margins with the initial benefits we were receiving from TOR2.
Speaker Change: And the reason were not as clear as giving a definitive dollar amount because we don't really think that's going to be helpful. In any given quarter because there's this constant Washington and catch up. So for example, some of what you'll see in Q2 with a catch up for Q1 and Q2 on certain components and I think that's the way we've approached it.
Speaker Change: It's been very consistently say look.
Speaker Change: We're running a much better business that we have two years ago for example, with or without 40 feedbacks.
Speaker Change: What we say, we're really pleased with our core margin performance being at the mid Twenty's with no I already benefits, we're very comfortably there now and we're going to communicate that routinely until the market second level of communication to the market was we felt that we would be in the low thirties gross margins with the additional benefits we were receiving from torture where community.
Operator: Although the table is not yet final, we remain committed to supporting our customers and their domestic content needs. An domestically produced tracker is critical to achieve the 40% domestic concept, and it will become increasingly important as this percentage threshold is increased in the coming years for the stipulations in the IRA. Moving on to the latest 2024 market dynamics, we achieved strong new bookings of $429 million within the second quarter. We did have some other adjustments for our total order book from commodity price updates, under-scope changes and FF impacts.
Operator: We're communicating to the market that it's playing out as expected as well. Now, the new conversation is that we expect to be in the low to mid 30s with structural fasteners included as your goal. So that's kind of the approach we're taking. Specifically, on plants, as we've talked about earlier, we, while, Under the definition of a longitudinal perlin, our clamps classify under that, as evidenced by both third-party accounting review and third-party engineering review.
Speaker Change: Came into the market, that's playing out as expected as well and now that the new conversation is that we expect to be in the low to mid thirties with structural fasteners included as well. So that's kind of the approach we're taking.
Speaker Change: Specifically on class as we've talked about earlier, we well.
Speaker Change: I know the definition of a longitudinal perlin.
Speaker Change: Our clamps classified under that as evidenced by both our third party accounting Rubin review and third party engineering or do so currently we're taking that 87 cents per kilogram on those clients and what you'll see is the rolling in of that as we negotiate that savings split of that that credit rather with.
Operator: However, although project cancellations were minimal, there were only four small international project cancellations representing less than 1% of our order book in total, and we had no domestic project cancellations. We are pleased with the continued momentum we're achieving as evidenced by our overall rate of new orders, as well as our project wineries. We are also pleased to see new bookings for our unattractive product continue to grow, and we are very optimistic for increased opportunities for terrain following trackers moving forward.
Operator: So currently, we're taking that 87 cents per kilogram on those clamps, and what you'll see is the rolling in of that as we negotiate that savings, the split of that credit, rather, with other vendors and also begin taking it for those that we manufacture in our own facility. All that to be said is we really feel good about the margins with and without 45X. We've been holding true to the margin performance without structural fasteners. And now, we're guiding to a higher margin level of performance, inclusive of structural fasteners.
Speaker Change: Other vendors and also begin to take me up for those that we manufactured in our own facility. So all of that to be said is we really feel good about the margins with and without forty-five X. We've been holding true to the margin performance without structural fasteners and now we're guiding to a higher margin level of performance inclusive of structural fasteners.
Operator: However, despite all the positive long-term momentum we're seeing for utility skills hold, the industry is still struggling with short-term challenges that are continuing to cause issues with our customers year-term project timing, resulting in a reduction of our 2024 guidance. As we've discussed before, we continue to see a dynamic of elongated timelines between project awards and expected project start dates. However, during our standards recurring check-ins with our customers, we also witnessed a sharp uptick in anticipated project pushouts beginning at the end of the second quarter.
Operator: The next question we have is from Christine Cho of Park Lease. Please go ahead.
Speaker Change: The next question, we have is from Christine Cho of Barclays. Please go ahead.
Christine Cho: Hello. Thank you for taking my question.
Christine Cho: Hello, Thank you for taking my question.
Christine Cho: I wanted to.
Christine Cho: Asked on your backlog you know it looks like it was reduced by 300 million give or take on from that commodity price updates the project scope changes and FX impacts.
Christine Cho: I wanted to ask you about your backlog, you know. It looks like it was reduced by $300 million, give or take, from the commodity price updates, the project scope changes, and the FX impact. I thought you locked in most of your raw materials and your ASP at the time of booking. So can you just remind us why ASPs would, you know, be moving around tied to commodity prices, and then was any of it related to 45x credits? And can you give us a general sense of how much of your backlog?
Speaker Change: I thought you have locked in most of your raw materials Hanger S. T. At the time of fucking. So can you just remind us why a S piece would be moving around are tied to commodity prices and then was any of that related to 45 X credits and can you give us a general.
Operator: A number of our customers' domestic projects are still reporting volatility and timing due to a variety of factors we've outlined in previous quarters. There are also a few newer near-term headwinds presenting timing challenges which I'll outline. The first new dynamic we've witnessed is related to the recent ADCVNEEP. As we mentioned on our last earnings call, there was still a lot of uncertainty around potential tariffs and the situation remains fluid. Within the last couple of months, we've had some customers who opted to preemptively change panel selection, thereby delaying a project, or are planning on delays in projects in consideration of a potential panel selection change.
Christine Cho: Sense of how much of your backlog is Brazil.
Operator: We'll start with the last. We don't really break out backlog by regions, but let me give you some color on the change in backlog. So first of all, to be clear, every quarter, we experience ins and outs in the order book. Due to pricing changes, and scope changes, these are just normal events within a large-scale project business. And in most quarters, the puts and takes largely offset each other, and we don't, on these calls, have to get into any explanation of that.
Speaker Change: Well.
Speaker Change: Let's start with the last we don't really break out backlog by regions typically, but let me give you some color on the change in backlog so be it.
Speaker Change: So first of all to be clear every quarter, we experienced ins and outs in the order book due to pricing changes scope changes. These are just normal events within a large scale project business and in most quarters. The puts and takes largely offset each other and we don't on these calls have to get into any explanation of those simply put in some quarters and certainly this one it's one for the.
Operator: But simply put, in some quarters, and certainly this one is one, where the magnitude is greater than in other quarters. Given that our order book is elongated, and what you saw here is really three factors. The first, well, I should say four.
Speaker Change: Magnitude is greater than in other quarters.
Operator: Fortunately, a lot of these delays stand from the uncertainty around the fact that there's a multitude of potential tariffs. Once the impact of the tariffs is determined, customers can better understand the consequences on panel costs and make relevant decisions for specific projects to move forward. And we've mentioned before, our patented piping solutions are flexible, and we feel very well positioned to accommodate late design changes for model selection, and our clients don't require pre-drilling of the torque too.
Speaker Change: Given that our order book and the elongated than what you saw here, it's really three factors that cause the first.
Speaker Change: Well I should say for the first is rounding right and it's really about $200 million, you're solving for not 300 and about 44 of that is simply surrounding between the $2 one and a two point out so what you're really looking at here is three factors below the rounding in the first is obviously repricing of certain orders and the order book.
Operator: The first is rounding, right? And it's really about $200 million you're solving for, not $300. And about $ 44 of that is simply some rounding between the 2.1 and the 2.0. So what you're really looking at here is three factors below the rounding. And the first is obviously the repricing of certain orders in the order book due to commodity changes. And this isn't broad-based.
Speaker Change: Due to commodity changes and this is it broad based this is largely related to a large customer one of our largest customers who placed their orders well in advance, meaning we're looking at six quarters worth of orders with that individual customer.
Operator: This is largely related to a large customer, one of our largest customers, who places their orders well in advance, meaning we're looking at six quarters' worth of orders with that individual customer. And with that customer, we put those orders on the book, and they're priced given that current pricing, not six quarters forward. And I'll remind you that from Q1 and Q2 of last year to Q3 and Q4 of this year, steel is down about 35%.
Operator: Another new dynamic has been related to the domestic content, elected State Harbor Table. As I previously mentioned, this new clarity is certainly a positive overall for customers and the industry. However, the guidance is still being vetted and not yet final. As such, certain customers are taking additional time in the lane projects to navigate this new table and ensure they achieve the necessary amount of domestic content to qualify for the credit. One bright spot in light of these push outs is that some customers who were not previously considering pursuing the domestic content adder are now reconsidering, given the ease of use provided by the prospective table.
Speaker Change: And with that customer we put those orders on the books and they're priced given that current pricing not six quarters forward and I'll remind you that from Q1 and Q2 of last year to Q3 and Q4. This year steel is down about 35%. So that's the magnitude that we're having to correct steel component price again those.
Operator: So that's the magnitude that we're having to correct the steel component price to get those orders with this launch customer. Now, what we've done with this customer in particular is said, look, we don't expect steel to come back anytime soon. So we've proactively gone forward with those orders and repriced those as well. So that's why you see that particular magnitude. The second contributing factor is really project scope changes. They happen all the time here.
Speaker Change: Orders with this large customer now what we've done with this customer in particular said well, we don't expect steel to come back anytime soon so we can proactively gone forward into those orders and and reprice those as well. So that's why you see that particular magnitude.
Operator: We remain committed to providing a high level of domestic content to be our customers' needs, and nearly 15% of our domestic order book is either specifying or evaluating domestic content. We also have a lot of interest in domestic content within our high probability pipeline.
Speaker Change: The second.
Speaker Change: Contributing factors really about project scope changes they happen all the time here, we had to I would say significant project scope changes, one where a large customer decided to change the configuration of our projects. So that they could utilize safe harbor inventory, which reduced our portion of the project and it will all be a right project, but a.
Operator: We had two, I would say, significant project scope changes. One was where a large customer decided to change the configuration of a project so that they could utilize safe harbor inventory, which reduced our portion of the project. It'll all be an array project, but a lot of it will be satisfied with safe harbor inventory we're holding for that customer. The second was, again, a very large project where the customer had initially asked us to provide foundations.
Operator: Finally, outside of the U.S., there has also been some unexpected macroeconomic delays in Brazil. Within the last couple of months, there has been a rapid devaluation of the Brazilian Real in conjunction with existing pricing pressures on energy in the Brazilian market. In these dynamics, the economic cases for the power purchase agreements or PPEs for many solar projects have become less attractive. Developers of these projects are now signaling delays if they renegotiate the pricing of these PPEs.
Speaker Change: A lot of it will be satisfied with safe Harbor inventory, we're holding for that customer.
Speaker Change: The second is once again, a very large project, where the customer had initially asked us to provide foundations I think many of you know, we don't particularly love to provide foundations, because it's a firewall product and we've not been able to work them up it's dilutive to us.
Operator: I think many of you know we don't particularly love to provide foundations because it's a buyout product and we're not able to mark them up; it's diluted for us. And the customer has since decided to go ahead and source those directly. And in that case, we're actually not upset because our margins increase when we don't provide foundations. The last and smaller of the three components was really related to the FX impact of the Brazilian backlog.
Speaker Change: It has since decided to go ahead and source those directly.
Speaker Change: And in that case, we're actually not upset because our margins increase while we don't provide foundations.
Operator: We still feel very strongly about our position in the Brazilian market and the optimal performance of our products in region. However, this short-term challenge will need to be resolved before we see a return to a more normalized project case.
Speaker Change: The last and smaller of the three components was really related to the FX impact of the Brazilian backlog.
Operator: And I think one of the things I'll note to be clear, on a megawatt of trackers basis, the order book did not decline, and is, in fact, incredible. So, again, what you're seeing there is that it's surely related to some of the repricing and de-scoping of non-core elements.
Speaker Change: One of the things I'll note to be clear on a megawatt of trackers basis. The order book did not decline.
Operator: While we are disappointed at the level of customer pushouts being reported in the near turn, and its impact on our 2024 guidance, we recognize that there are many industry factors outside of our control. We were named focused on engaging with our customers, increasing our operational rigor, and managing everything we can within our purview. As we look to the future, a significant portion, about 80% of our quarterly look, is currently scheduled for delivery between now and year end 2025.
Speaker Change: And in fact increased so again, what youre seeing there is it is.
Speaker Change: Surely related so some of the repricing in deep scoping of noncore elements that make sense.
Operator: The next question we have is from Jordan Levy of True Securities. Please go ahead. Afternoon all, and thanks for taking my question. Just taking a look at the
Operator: The next question we have is from Jordan Levy of True Securities. Please go ahead. Afternoon, all, and thanks for taking my question.
Speaker Change: The next question, we have is from Jordan Levy of <unk> Securities. Please go ahead.
Jordan Levy: Afternoon, all and thanks for taking my question just taking a look at the EBITDA Guide I think Kevin you mentioned offsetting some of the impact of the topline reduction through through better gross margins, but I'm just looking at the numbers I think the new guide implies around a 200 basis point decrease in EBITDA margin. So I don't know if I'm thinking about that the right.
Operator: And to be very clear, we don't expect to be receiving orders for 2025 deliveries or several more courses. You will continue to set ourselves on for success to support the future growth in 2025 and beyond and navigate near-term challenges to the best of our ability.
Jordan Levy: Way or if theres, some offset from operating leverage or something like that but maybe just help me walk through that.
Jordan Levy: Yeah, that's exactly what you're seeing, the offset on the operating leverage with the volume decline. Absolutely. That's it. Got it. Thanks.
Kevin: Yeah, that's exactly what you're seeing the offset on the operating leverage with the volume decline.
Neil Manning: Now, I'll turn the call over to Neil to speak about some exciting product and business updates. Thanks, Dylan. Thanks for your time, and I'll be back in on the track platforms. Skylake, we can now design to an eight-linked road configuration, significantly increasing the flexibility of site layouts where regular batteries are key to certain. The KV-powered decoyle system, which are its counter-stoke capability during group power outages, which is particularly relevant in areas that heavy snow load and extreme weather potential.
Speaker Change: Absolutely that's it.
Speaker Change: Got it thank you.
Operator: The next question we have is from Brian Lee of Goldman Sachs; please go ahead. Hey, guys. This is Tom.
Jordan Levy: The next question we have is from Brian Lee of Goldman Sachs. Please go ahead.
Jordan Levy: Hey, guys. This is Tyler bisset on for Brian. Thank you for taking our questions.
Tyler bisset: You guys have over 50 gigawatts of capacity globally, but are installing a much lower quantity.
Speaker Change: So how are you guys managing utilization rates and are you thinking of rationalizing your manufacturing base at all.
Operator: So what you imagine is, because you don't know in future years the geographic mix of where, not only domestically where you're going to need to build, but also internationally, you need to have far more megawatts of capacity than you plan to ship that given year. So, for example, knowing that logistics is about 10% of our bill of materials, having 30 gigawatts domestically allows you to supply any region that may have an increase in work with localized content.
Speaker Change: What where do you imagine it because you don't know in future years, the geographic mix of where not only domestically, where you're going to need to build but also internationally you need to have far more megawatts of capacity that you plan to ship that given year. So for example, knowing that logistics is about 10% of our bill of.
Neil Manning: Further, DC-powered wireless communication simplifies cable management, without the need for trenching, making installation easier and more efficient for our customers. Together, the combination of these new capabilities allows our customers to realize lower-product costs and increase flexibility for challenging site layouts, which will become more than dorm in the industry.
Jordan Levy: <unk>.
Speaker Change: Having 30 Gigawatts domestically allows you to supply any region that may have an increase in work with localized content. So that should help you understand why we need to always overdrive on the overall megawatts of capacity we have.
Operator: So that should help you understand why we need to always overdrive on the overall megawatts of capacity we have versus the annual delivery. It's really about being able to satisfy your customers geographically with local steel, which again is the lowest landed cost, so that's the critical part of that.
Neil Manning: If any customers are already interested in Skylake and has received a great response to her customer form just last week, I encourage you to learn more about Skylake's value at Array.com. We will be to slide six.
Jordan Levy: This is the annual delivery, it's really about being able to satisfy your customers' geographically with local steel.
Jordan Levy: Which again is the lowest landed cost so that's the critical part of that.
Neil Manning: Another update that I'm excited to share relates to the insurance form we hosted in July. We believe that this form, with the solar industry insurance companies, was the first of its kind within the track industry, where you receive a lot of engagement and valuable feedback. Around 35 insurance industry participants left a form with new knowledge and understanding of Array's technology. It's designed to withstand extreme weather and how it differentiated its real-world performance from our competition. The importance of educating insurers on our tracking technology's ability to mitigate severe weather risk is paramount. As does ensuring developers always hit a value that differentiated track performance reflected in their overall prior costs.
Operator: The next question we have is from Philip Shen of Ross Capital Partners. Please go ahead.
Jordan Levy: The next question, we have is from Philip Shen of Roth Capital Partners. Please go ahead.
Philip Shen: Hey guys, thanks for taking my questions. I'd like to see if you can give us a little bit more color on the margins on the current backlog. So the guidance implies about 540 million in revenues in the back half of this year at low to mid-30s gross margins, and so that 540 million consumes about a quarter of your backlog. Is it reasonable to model consistent gross margins on the remaining three-quarters of the backlog, or should we assume some kind of margin headwind, sorry, some kind of ASP headwind as you've been reducing price a touch? Thanks.
Philip Shen: Hey, guys. Thanks for taking my questions I'd like to see if you can give us a little more color on the margins on the current backlog. So the guidance implies about $540 million of revenues in the back half of this year at the low to mid thirties gross margins and so that 540 million consumes about it.
Speaker Change: Quarter of your backlog is it reasonable to model consistent gross margins on the remaining three quarters of the backlog or should we assume some kind of oh.
Speaker Change: Oh, sorry, some kind of ASP headwind as you've.
Neil Manning: We are very pleased with the insights received by our inaugural events that are planning our next engagement with this audience for the fourth quarter of this year. Following the insurance form, we posted another customer experience event last week, similar informants in a first quarter event we discussed on our last meeting call. With 40 customers in attendance, we spent a large portion of time discussing the features and benefits we get evaded due to Skylake products.
Speaker Change: Reducing price attached thanks.
Operator: I guess the quick answer is yes, it's fair. What we're signaling is those low to mid-30s margins continuing, and that's indicative of what's currently happening.
Speaker Change: Right, Yeah, I guess the quick answer is yes, it's fair what we're signaling at those low to mid thirties margins.
Jordan Levy: And that's indicative of what's currently in our backlog.
Speaker Change: Great. Thanks, guys.
Operator: Again, I will say, you will have quarter-to-quarter variance as you have some larger orders that you may have taken at a lower SAP, so it won't be a flatline number, but I think we're pretty comfortable in our commentary of low to mid-30s margins as we go forward. The next question we have is from John Windham of UBS. Please go ahead. All right, great. Hey, thanks for taking the questions. I just want to, I'd just love to get your thoughts.
Speaker Change: Again, I will say you will have quarter to quarter variance.
Speaker Change: As you have some you know.
Jordan Levy: Larger orders that you may have taken at lower S. A piece so it won't be a.
Neil Manning: We continued our dialogue on the benefits for our passive versus active stove solution, what was updates to our industry-leading, levelized, cost of energy performance. We concluded the event with discussions on our operational improvements in the intended feedback from attendees on additional business improvements that we can make. As I mentioned earlier, we already see many customer-inbound increase in Skylake as part of this event and our official launch and were quite optimistic on its anticipate growth and positioning within the market.
Jordan Levy: A flatline number but you know I think we're pretty comfortable in our commentary of low to mid thirties margins as we go forward.
Operator: The next question we have is from John Windham of UBS. Please go ahead. All right, great. Hey.
Jordan Levy: The next question, we have is from Jon Windham of UBS. Please go ahead.
Jon Windham: Hi, great. Thanks for taking the questions I was wondering if I'd just love to get your thoughts a little bit about what you're doing sort of internally to manage.
Jon Windham: Process of a scaling back in volume shipped I was just in terms of scaling back work hours.
Neil Manning: Moving to slide 7. I would like to spend a few moments reminding everyone about our raised robust supply chain capability. On a global basis, we have secured an excess of 50 gigawatts of capacity for our suppliers with over 30 gigawatts here in the United States. This access brings with a tremendous optionality to respond to unforeseen events and shocks that may occur around the world. For over three years, it becomes a great deal of confidence to raise the ability to deliver as evidenced by our top tier lead times on time delivery with performance in excess of 95% in recent quarters. Our regional programs supporting our core larger improvement over the past eight quarters include inventory optimization along with focused commodity cost additives.
Speaker Change: Keeping production up in store going in inventory just talk to me a little bit how like don't do the management at the end of the internally is going on with dealing with delays. Thanks, so much for the questions.
John Windham: Yeah, I think that's a great question. First, I'll remind you that 80% of what arrives at our customers we don't touch. A lot of our internal processes relative to engineering, design, quoting, and what have you, again, as we continue to have strong incoming order rates, strong win rates, we don't really need to flex down at all. That's really positive, and our overall pipeline continues to remain very strong and robust. So what we're really focused on is ensuring that two things: the first is that we reduce the cycle time.
Speaker Change: Yeah, I think that's a great question now first I'll remind you that 80% of what arrived at our customers we don't touch.
Speaker Change: A lot of our internal processes relative to engineering design quoting and what have you again as we continue to have strong incoming order rates strong win rates that we don't really need to flex down at all that's really positive in our our overall pipeline continues to make.
Speaker Change: We remain very strong and robust so what we're really focused on is ensuring that two things. The first is doesn't reduce the cycle time, what we've talked about on these calls many quarters as our as our in depth process at the end of every quarter looking at every quarter and our order book and working on that with our customers. So what we saw this quarter in particular, when we did that exercise.
John Windham: What we've talked about on these calls many quarters is our in-depth process at the end of every order, looking at every order in our order book, and working on that with our customers. And what we saw this quarter, in particular, when we did that exercise beginning, kind of, the middle of June and forward, over that coming four weeks, we saw a lot of customers changing and pushing out. And that, for us, we were mindful of, okay, in uncertain times, you have to increase the amount of times you're looking at the dials, right? Which means we're moving that process to monthly until we get through this period of uncertainty among customers and pushing out. So we're just going to shrink that.
Speaker Change: Beginning in the middle of June and forward only that coming four weeks, we saw a lot of customers changing and pushing out and that for US we were mindful of okay.
Neil Manning: And we continue to have programs in flight that will discuss a future periods.
Neil Manning: The final point of supply chain, I'm excited to report that we'll be able to support our customers' domestic content needs with a 100% domestic rate tracker the first half of 2025.
Speaker Change: In uncertain times, you have to increase.
Jordan Levy: The amount of times Youre looking at the dials right, which means we're moving that process. The monthly until we get through this period of uncertainty and customers and pushing out. So we're just kind of shrink that the second thing. We're ensuring we do is we have a very robust process here internally that we're looking between sales and operations.
Neil Manning: Who is the ESG? A proud that Array has continued to make great progress towards its environmental, social and governance goals as highlighted now recently published 2023 as voters. Notably, we have increased our renewable source electricity in operations to 29% in 25% in 2022. Additionally, we have made significant strides in employee safety, mission reductions, and diversity included within our workforce. Especially please, with our supply chain tease engagement, their suppliers to accurately track our full greenhouse gas inventory and provide data to further reduce emissions and improve the environmental sustainability of our business.
Operator: The second thing we're ensuring we do is we have a very robust process here internally that we look at between sales and operations almost on a weekly, every other week basis. We're ensuring that those communications are happening and that the changes in demand week to week are being passed straight through to operations so that we don't negatively impact working capital and inventory. And what you continue to see on our balance sheet is really, really strong management of inventory.
Jordan Levy: Almost on a weekly every other week basis, we're ensuring that those communications are happening and that the changes in demand week to week or being passed straight through the operations. So that we ensure that we don't negatively impact working capital and inventory and what you would continue to see in our our balance sheet is really really strong management of inventory.
Operator: We're minimizing, and when we typically go out and work with our vendors on those capacity commitments and what we would call take or pay agreements, we minimize those, and we've done that for a couple of years, such that our vendors are offering much more flexibility and volumes with us without penalties. So all that's coming into play in a time like this, and I think this is all kudos to Neil and the operation team who have put these things in place over the last two years to really have a much better performance even in a difficult time.
Speaker Change: Minimizing and when we typically go out and work with our vendors on those capacity commitments and what we would call take or pay agreements, we minimize those and we've done that for a couple of years such that our vendors are offering much more flexibility in volumes with us without penalties. So all of that is coming to play in a time like this and I think this is all.
Operator: With that, I'll turn it back over to Kevin to give a more detailed update on second quarter financials and full year guidance. Thanks, Neil. For me to slide nine, I'll start off by providing some additional details around the second quarter results. As I previously mentioned, revenue came in slightly about the high end of our guidance range at $200 and $55.8 million, which was down 50% from the second quarter of 2023, and up 67% sequentially from the first quarter of 2024.
nil: Kudos to nil in the operation team, we have put these things in place over the last two years to really a much better performance even in a difficult time.
Operator: The next question we have is from Kasia Harrison of Piper Sandler. Please go ahead.
Jordan Levy: The next question, we have is from Kashi Harrison of Piper Sandler. Please go ahead.
Operator: As expected, and communicated on prior calls, we experienced declining volume and ASPs year-over-year. Sales in North American represented over 70% of our revenue for the quarter with the remainder of our revenue coming from international locations. We achieved second quarter adjusted gross margin of 35% in improvement of over 500 basis points of year-over-year. As mentioned earlier, we were able to recognize some incremental 45X benefits through June 2024 in the second quarter. The team has worked diligently in our assessment of qualifying components and are very pleased with the maximization of these benefits through our recent vendor negotiations.
Kasia Harrison: Good evening, and thank you for taking my question. So, Kevin, in your prepared remarks, you said 80% of the backlog is expected to come online prior to year-end 25. Have you taken a look at what proportion of that backlog you would say is fully due risk from a bottleneck perspective, i.e., not waiting on interconnects or financing or high-voltage equipment, et cetera, and then, you know, part and parcel with that, given the longer cycle times that you're currently seeing in the market today, can you just give us a rule of thumb on the lag between bookings For example, if you booked in 3Q of this, like, next quarter, when would you expect that to ship? Thank you.
Kashi Harrison: Good evening and thank you for taking my question. So so Kevin in the prepared remarks, you said, 80% of the backlog is expected to come online prior to year end 'twenty five.
Kashi Harrison: Yeah have you taken a look at what proportion of that backlog you would say is you know fully derisked from a bottleneck perspective, I E not waiting on interconnects or financing or high voltage equipment et cetera, and then part and parcel with that just.
Speaker Change: Given the longer cycle times that you're currently seeing in the market market. Today can you just give us a rule of thumb on the lag between.
Speaker Change: Bookings and shipments are for example, if you booked in Q3.
Operator: As some elements of 45X are still being clarified, the team will continue to work to validate additional components that may qualify. Cooperating expenses of $46.4 million were down approximately 8% from $50.2 million during the same period of the previous year. This decline was driven by a year-over-year improvement in headcount-related expenses, which more than offset the incremental cost it incurred through severance and recruiting fees. Adjusted divida was $55.4 million compared to adjusted divida of $115.6 million during the second quarter of 2023.
Speaker Change: <unk> bye.
Speaker Change: Like next quarter when when would you expect that to ship. Thank you.
Operator: I think I'll come at that answer a couple of different ways, Kashi. So first, when we think about the lag and the average delays, I was doing some research yesterday on industry databases and looking at the average delays that we're seeing within those databases. And if I think about the top 50 projects that are active in the U.S., utility-scale solar projects, they're right now delayed from their original start date on average.
Kashi Harrison: Oh, I think I'll come at that answer a couple of different ways Kashi. So first.
Operator: So I think it was, bear with me as I reflect on the numbers I looked at yesterday. So 19% of the projects were saying, look, we're still on track as of now to hit our original date. I'm sorry, 19 out of the top 50.
Speaker Change: Let me think about the lag and the average delays.
Speaker Change: I was doing some research yesterday on the industry databases and looking at the average delays that we're seeing within those databases and if I think about the top 50 projects that are active in the U S utility scale solar projects Theyre right now delayed from their original start date on average. So I think it was bear with me as I reflect on the numbers I looked at yesterday.
Kashi Harrison: 19% of the projects, we're saying look we're still on track as of now they hit our original date.
Operator: That net income attributable to common shareholders was $12 million compared to gap net income of $52.4 million during the same period in the prior year. And basic and diluted income per share was 8 cents compared to basic and diluted income per share of 34 cents during the same period in the prior year. Adjusted net income was $30.6 million compared to adjusted net income of $74.3 million during the second quarter of 2023.
Kashi Harrison: Oh, I'm, sorry, 19 out of the top 50, the rest were delayed on average five to seven months.
Operator: The rest were delayed on average by five to seven months. And that gives you a sense of the type of delays we're seeing. When we do sit there and do our review of all the projects, we ask customers a series of questions that include, "Are you confident that you'll have your long-lead time electrical equipment done? Do you have your financing locked up?" If it is at risk, when do you expect to have it locked up?
Kashi Harrison: And that gives you a sense of the type of delays were saying when we do sit there and do our review of all the projects. We are asking customers. A series of questions that includes are you confident that you'll have your long lead time electrical equipment.
Kashi Harrison: Do you have your financing locked up.
Kashi Harrison: If it is at risk when do you expect to have it locked up so there's a series of these questions that we're doing to put it into our schedule. So if a customer says hey look I'm ready to go in Q1, but it's no no no no that was the those questions. We won't project that to go into Q1 to be clear right. We're going to we're going to doubt that that's really going to happen all the time and not projected into our Q.
Operator: So there's a series of these questions that we ask to put it into our schedule. So if a customer says, hey, look, I'm ready to go in Q1, but it's no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, We're going to doubt that that's really going to happen on time and not project it into our Q1. So that is a process that we go through, and those additional questions we've been doing for several quarters now, and in our minds, getting smarter.
Operator: And adjusted basic and diluted net income per share was 20 cents compared to adjusted basic and diluted net income per share of 49 cents during the prior year period. Finally, our free cash flow for the period was $1.8 million versus $15 million for the same period in the prior year.
Kashi Harrison: So that is a process that we go through and those additional questions. We've been doing for several quarters now and in our mind getting smarter and I think that's part of what we're able to get in terms of the deeper dive on these projects at this time, we're saying look.
Operator: I think that's part of what we were able to get in terms of the deeper dive on these projects this time. We're saying, look. Some of these customers are not realistic with start dates, and we need to push them out. And that's part of what we witnessed here in this quarter. The next question we have is from Joe Osha of Guggenheim.
Operator: Now I'd like to go to slide 10 and provide a more detailed update to our full year of 2024 guides. Given the pushout dynamics that we discussed towards the start of the call, we now expect revenue for the year to be in the range of $900 million to $1 billion. Again, this reduction from our previous guidance is a reflection of customers' continued project timing challenges across issues such as interconnection and permitting, securing long lease on equipment like high voltage circuit breakers and transformers, financing, labor resource constraints, and more.
Kashi Harrison: Some of these customers are not realistic with start dates and we need to push it out and that's that's part of what we were this year.
Operator: In addition, ADCVD, new domestic content guidance, and the dynamics we discussed in Brazil are other new near-term Edwin's in-backing customers and our guidance. But to be clear, all of these issues are only causing project pushouts, not project cancellations, and we remain committed to supporting our customers in any way we can while they work through these dynamics. Moving on to adjusted EBITDA, we now expect our full year range to be between $185 to $210 million, attributable to the top-line reduction from customer project pushouts.
Kashi Harrison: In this quarter.
Operator: The next question we have is from Joe Osha of Guggenheim Partners. Please go ahead. Thank you.
China Russia: The next question, we have from China, Russia of Guggenheim Partners. Please go ahead.
Speaker Change: Hi, Thank you just thinking about the outlook into next year I'm not going to ask for guidance, but what would it be fair to assume that youre going to run the business to try and recapture some of this operating leverage that you're you're giving up in the back half of this year. Thank you.
Joe Osha: Yeah, I mean, clearly, we're at a size of business that we don't need to scale up internally a whole lot, as evidenced by if you just go back a couple years. And what we've changed in the business relative to headcount is scaling down the construction side, mostly in our international locations. So the headcount we are remaining with, and I think at the end of the quarter, it was maybe just a titch over 1,000 employees.
Speaker Change: Yeah, I mean, clearly, we're rather size of business that we don't need to scale up internally a whole lot as evidenced by if you just go back a couple of years and.
Speaker Change: What we've changed in that business relative to head count to scaling down the construction side, both mostly in our international locations.
Kashi Harrison: So the head count we are remaining with and I think at the end of the quarter was.
Operator: However, we have been able to mitigate some of the resulting adjusted EBITDA impacts through a increase in our adjusted gross marking guidance from the anticipated recognition of additional 45 expenses. For adjusted EPS, we now expect between $64 and $74 cents for the year, again, due to the top-line reduction. Given our latest anticipated revenue mix, we are now expecting our effective tax rate to decrease to 24 to 26%, among previous guidance of $26 to $28.
Kashi Harrison: Maybe just a touch over 1000 employees.
Joe Osha: Again, you're talking about internal processes that we've been spending a lot of money automating so that we will have great operational gearing as we move forward and add additional volume. So we feel really good about that without having to scale up a whole lot of headcount to achieve that. So I feel really good about the operational gearing in the business. The next question we have is from Colin Rusch of Oppenheimer. Please go ahead.
Kashi Harrison: Again, you're talking about internal processes that we've been spending a lot of money automating such that we will have great operational gearing as we move forward and add additional volume. So we feel really good about that without having to scale up a whole lot of head count to achieve that goal.
Kashi Harrison: Feel really good about the operational gearing of the business.
Operator: The next question we have is from Colin Rusch of Oppenheimer. Please go ahead, out there.
Kashi Harrison: The next question we have is from Colin Rusch of Oppenheimer. Please go ahead.
Kashi Harrison: As there are this is andre.
Allen: Allen I was just hoping you could speak to the impact of.
Allen: Racing.
Operator: 3% On free cash funds, we now expect a range of $60 million to $100 million for the year. This reduction is largely reflective of the changes to our top line and the anticipated impact on our working capital to end the year. We expect our capital expenditures to be approximately $25 million from the year, which is primarily driven by spend related to our new Albuquerque Manufacturing Facility.
Colin Rusch: On pricing the domestic content matters and when you would expect to start realizing some of those assets.
Operator: So, when we look at domestic content, we spend a lot of time talking with our suppliers and customers about where their needs are as it relates to getting to their percentage of credit. So, for example, if a customer has 100% domestic panels, they'll primarily need TorQ only as part of that, and then any of them in their mix of panels require a higher percentage of domestic content. Now, we'll work with our customers on what that means.
Speaker Change: So when we look at the best of content you know, we spent a lot of time talking with our.
Speaker Change: Suppliers and customers about you where their needs are as it relates to <unk>.
Speaker Change: Getting to their percentage of credit. So for example, if a customer has 100% domestic paddles built primarily need to work to only as part of that and then any then further mix of peddled require a higher percentage of domestic content now we'll work with our customers on what that needs.
Operator: By the way, looking ahead to the third quarter specifically,[inaudible] we received numerous inbound indications of interest for industry colleagues as well. These have been passed along to our search partner for their additional screen and potential inclusion in our process. We will continue our initial screening interviews to pair down our list of candidates open in the next several weeks. It's my expectation that this process will take between three and six months to fully vet our final candidates and move to the offer stage.
Operator: For certain components, there's really no add. For other components, there may be an incremental cost as it relates to getting the domestic version of that particular component, and we'll work with our customers on what their sensitivities are and how that pencils into the overall project.
Speaker Change: For certain components, there's really no add other components, there maybe an incremental cost as it relates to getting into domestic version of that particular component and well work with our customers on what their sensitivities are and how that penciled into the overall project.
Operator: The next question we have is from Vikram Bagri of City. Please go ahead.
Speaker Change: The next question we have is from the Congress I agree of Citi. Please go ahead.
Vikram Bagri: Good afternoon, everyone. Kevin, you touched on higher win rates that you're witnessing recently. Can you put the current win rate into perspective, maybe compare it to the historical win rate? And then, related to that, given the higher win rate, shouldn't you exceed the bookings in 2022 this year, given the size of the market? And then finally, are you seeing increased quoting but slower bookings due to the delays that you talked about, the project delays, and so forth? So, you know, maybe we will see a higher pace of bookings at some point when the delays are resolved. Thank you.
Speaker Change: Good afternoon, everyone. Kevin you touched on high win rates that you're witnessing recently can you put the current wouldn't read that into perspective, maybe maybe compare it to historical win rate.
Speaker Change: And then related to that given behind wooden grade shouldn't you exceed the bookings in 2022 this year given the size of the market.
Operator: Quickly wrap up, we have a lot of exciting innovation. Customer and industry initiatives going on in array. I'm proud of our execution within the board, and I'm confident in the resilience of our team and business as we navigate through near term customer project delays and look to the bright long-term outlook for utility scale solar.
Speaker Change: And then finally are you seeing increased quoting but slower bookings due to delays that you talked about the project delays and so forth. So you know maybe.
Speaker Change: Maybe we see higher piece of bookings at some point when the days are resolved. Thank you.
Operator: Okay, so the first question I think I heard was really about win rates, and while we won't give a numerical answer for that, we're quite satisfied that the win rates that we saw creeping up in the Q4 of last year stayed high through Q1, and they stayed consistently high through Q2, and I'll tell you that that win rate percentage is what I would characterize as much higher than our historical market share rate. So we feel really good about our continued win rate on the orders we're getting.
Speaker Change: Yeah. Okay. So the first question I think I heard it was really about win rate and while we don't give out.
Operator: With that, we will now open up all of the questions. Operator? Thank you.
Speaker Change: Numerical answer for that we're quite satisfied that the win rates that we saw it creeping up in the Q4 of last year stay high through Q1 has stayed consistently high through Q2, and I will tell you that that win rate percentage is what I would characterized as much higher than our historical market share right. So we feel really good.
Operator: We will now be conducting a question and on suspicion. If you would like to ask a question, please press star and then want on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If you would like to remove your question from the queue. For participants using speak equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Good about our continued win rate.
Allen: On the orders we're getting the second thing is that our pipeline still remains incredibly robust and and roughly I think on a year over year quarter over quarter basis, we're still at roughly three times the pipeline that we saw.
Operator: The second thing is that our pipeline still remains incredibly robust, and roughly, I think, on a year-over-year, quarter-over-quarter basis, we're still at roughly three times the pipeline that we saw, you know, at this time, and in Q2, for example, 23. So the amount of business out there that's coming into the funnel remains very, very strong. Our win rate remains very, very strong, and we feel really good about the programs we're winning and the margins we're winning those programs at. I think that answers your question. The next question we have is from Michael Bloom of Wells Fargo; please go ahead. Thanks. Good afternoon, everyone.
Operator: Please note that due to time constraint, there will only be time for one question per person.
Mark Strouse: The first question we have is from Mark Strauss of JP Morgan. Please go ahead. Yes, great. Thank you very much for taking our questions. My one question, I wanted to talk about the fasteners that are now in the 45x guide. Now include, I mean, just kind of what gave you the confidence to do that? You do have some kind of IRS. And then Kevin, you've talked about kind of a wide range of expectations for what that fastener credit could be. Where in that range you were landing with your guidance here. Thank you. Thanks, Mark. I'm sorry.
Speaker Change: At this time at end of Q2 for example, 23, so the amount of business out there that's coming into the funnel remains very very strong our win rate remains very very strong and we feel really good about the programs or wedding and the margins weren't waiting best programs at <unk>.
Speaker Change: I think that answers your question.
Operator: The next question we have is from Michael Bloom of Wells Fargo; please go ahead. Thanks. Good afternoon, everyone.
Speaker Change: The next question we have is from Michael Blum of Wells Fargo. Please go ahead.
Michael Bloom: Well, I can tell you that when we did our Pareto of every push-out, so when we have a push-out, we request an explanation from the customer, obviously, we categorize that, we do a Pareto, we look at that Pareto in terms of number of projects, megawatts, dollars, any other way you can imagine. And the point is that, yes, the interconnection and some of the finance things that continue on are still in that top three.
Michael Blum: Thanks. Good afternoon, everyone. You know you cited the a b C D and domestic.
Michael Blum: Domestic content guidance, that's causing some of the near term slowdown for customers and I'm wondering if you're seeing any change in customer behavior or deferral of projects due to the upcoming election do you think that's playing any role in customers' decision tree.
Operator: You came through a little bit broken up on our end, but I think the cruxier question was around the new addition of some of the structural fastener elements into the quarter. And then I think I heard the second part in terms of where we land on expectations. Was it of clients with that support? Yeah, it's exactly. Yeah, thank you. Sorry for the line here. That's okay. So as we've discussed all along, we have several components that we believe qualify under the structural fasteners as currently defined.
Speaker Change: Well I can tell you that when we when we did our our parade of every push outs. So when we have a pushout we request an explanation from the customer obviously, we categorize that we do afraid Oh, we look at that credo in terms of number of projects megawatts dollars every which way you can imagine.
Operator: And what we've done much like we've done for other elements under 45X is we've done through a pretty extensive process, having a third party company come in an interview and validate how we define something. The engineering parameters of it, how it overlays with the definition provided under the existing definition of structural fasteners. We then have that reviewed by third party accounting firm as well. And we then form an opinion that that would qualify our sourcing team, then immediately engages that those particular vendors and the negotiation of those contracts.
Michael Blum: And the point being is that yes, the interconnection and some of the finance things that continue on are still in that top three the first time when was this quarter, where a D. C. B D. Also showed up in that top three that was it was three to be clear, but it showed up in the top three and that was the first time that broke into the top three of our parade Oaks as.
Michael Bloom: The first time was this quarter, where ADCBD also showed up in that top three, and it was three, to be clear, but it showed up in the top three, and that was the first time that it broke into the top three of our Pareto as issues creating push-outs and delays. However, there were none that specifically identified a project pushing due to concerns with the elections.
Speaker Change: Issues create.
Speaker Change: Creating push outs and delays there were none that specifically identified a project pushing due to concerns with the elections. However, I do think on some of the order book momentum I think there's some hold up waiting to see.
Operator: However, I do think on some of the order momentum; I think there's some holdup waiting to see what potential impacts the election may have on the longer-term renewable energy industry. Our internal view is, you know, as evidenced by some of the news that came out today and the number of congressmen that signed on, Republican congressmen that signed on to a letter requesting that the IRA not be defunded, and that information came out overnight. significant.
Michael Blum:
Michael Blum: Waiting to see what potential impacts of the election may have on the longer term renewable energy industry. Our internal view is as.
Operator: And what you're seeing now is the beginning, the washing in some of those components that we know qualify that we've done we have now a definitive negotiated agreement and sharing agreement of those benefits with that's going to continue on. There'll be additional components added as we go throughout the year and as we negotiate those contracts with sub vendors. And the reason we're not as clear as giving a definitive dollar amount is we don't really think that's going to be helpful in any given quarter because there's this constant wash in and catch up.
Speaker Change: As evidenced by some of the news that came out today and the number of congressmen that signed a Republican congressmen that signed onto a letter requesting that the higher rate not be funded and that information came out overnight.
Speaker Change: Significant just the fact that over 75% of the benefits from the IRA today are being experienced by Republican controlled controlled districts is an incredibly significant statistic and these are about new jobs factory openings.
Operator: Just the fact that over 75 percent of the benefits from the IRA today are being experienced by Republican-controlled districts is an incredibly significant statistic, and these are about new jobs, factory openings, high-paying solar industry jobs, so we feel that there's some stickiness to the IRA, and certainly to the elements of the IRA related to what we care about within the subset of solar and within manufacturing credits and the on-shoring of manufacturing in the U So, of all the things that may be negatively impacted under the IRA, we feel that our areas of concern are probably, maybe better than some of the others out there.
Operator: So for example, some of what you'll see in Q2 is a catch up for Q1 and Q2 on certain components. And I think the way we've approached it has been very consistently say look, we're running a much better business than we have two years ago, for example, with or without 45x. So what we say is we're really pleased with our core margin performance being in the mid 20s with no IRA benefits.
Speaker Change: High paying solar industry jobs. So we feel that there is some stickiness to the I R. A.
Speaker Change: And certainly to the elements of the higher rate related to what we care about within the subset of solar and within manufacturing credits and onshoring of manufacturing in the U S. So we feel all the things that may be negatively impacted under Dr rate, we feel that our areas of concern are probably.
Operator: We're very comfortably there now and we're going to communicate that routinely to the market. Second level of communication to the market was we felt that we would be in the low 30s gross margins with the initial benefits we were receiving from tortu. We're communicating to the market that's playing out as expected as well. And now that the new conversation is that we expect to be in the low to mid 30s with structural fasteners included as a rule.
Speaker Change: Maybe better than some of the others out there. So the answer your question no specific mentioned in the parade all of those things for election, I think generally speaking some of the industry may be slowing down in coming quarters, just trying to figure out what the potential impact and I think there was a period of time post.
Operator: So to answer your question, there is no specific mention in the Pareto of those things for election. I think, generally speaking, some of the industry may be slowing down incoming orders just trying to figure out what the potential impact is. And I think there was a period of time after the debate where that got very acute, and people were more concerned, and I think that's maybe ebbed somewhat here over the last two weeks. The next question we have is from Dylan Nassano of Wolf Research. Please go ahead.
Speaker Change: The debate, where that got very acute and people were.
Speaker Change: More concerned and I think that's maybe at somewhat here over the last two weeks.
Operator: So that's kind of the approach we're taking. Specifically on clamps as we talked about earlier, we while under the definition of a longitudinal perlin are clamps classified under that as evidenced by both third party accounting room and review and third party engineering reviews. So currently we're taking that 87 cents per kilogram on those clamps and what you'll see is the rolling in of that as we negotiate that savings that the split of that credit rather with other vendors and also begin to take me for those that we made faster in our own facility.
Glenn <unk>: The next question, we have Glenn <unk> of Wolfe Research. Please go ahead.
Operator: Yeah, hi, thanks for taking my question.
Glenn <unk>: Yeah, Hi, Thanks for taking my question I was just hoping if you could provide a little bit more color on your expected timing of the delays are specifically even within maybe the pipeline in the backlog are you are you seeing things maybe even slip further from 20, 25% in 2026.
Dylan Nassano: Not at this point. What we've seen in these pushouts in particular, I think a disproportionate amount of them have gone into the first half of next year, and obviously, but we have to be really careful because we're trying to be mindful of this batch of pushouts, and while we've seen it slow down over the last couple of weeks, we don't know if it is going to re-accelerate kind of towards the end of the year.
Speaker Change: Not at this point, what we've seen in these push outs in particular.
Operator: So all that to be said is we really feel good about the margins within without 45x. We've been holding true to the margin performance without structural fasteners and now we're guiding to a higher margin level of performance, inclusive and structural fasteners.
Speaker Change: This I think the disproportionate amount of them have gone into the first half of next year, and obviously, but but we have to be really careful because we're where we're trying to be mindful of the dispatch of push outs and while we've seen it slow down over the last couple of weeks. We don't know if it were to reaccelerate kind of towards the end of the year. So we're being very much.
Christine Cho: The next question we have is from Christine Cho of Parkies. Please go ahead. Hello. Thank you for taking my question. I wanted to ask on your backlog, you know, it looks like it was reduced by 300 million give or take on from the commodity price updates, the projects go changes and effects impacts. I thought you lock in most of your raw materials and your ASP at the time of booking.
Dylan Nassano: So we're being very mindful. As of today, we're given that statistic that we feel really strongly about, that 80% of the backlog is due to shift between the end of Q2 and the end of 2025 at this point, and we feel that's pretty solid.
Speaker Change: As of today, we're giving that statistic that we feel really strongly about that 80% of the backlog is due to ship between the end of Q2 and the end of 2025 at this point, we feel that's pretty solid.
Operator: So can you just remind us why ASP would, you know, be moving around tied to commodity prices and then was any of it related to 45x credits and can you give us general sense of how much of your backlog, and Chris Perthell. Well, we'll start with the last. We don't really break out backlog by regions, typically, but let me give you some color on the change in backlog. So, the, so first of all, to be clear, every quarter we experience in and out in the order book, through the pricing changes, growth changes, these are just normal events within a large scale project business.
Operator: The next question we have is from Mandeep Mandloi of Mizuho. Please go ahead.
Speaker Change: The next question we have is from my deep Smith of.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Operator: Hey, thanks for taking the question. It's Maheep Mandloi from Israel.
Smith: Oh, Hey, thanks for taking the question.
Speaker Change: Monday from Mizuho.
Speaker Change: Two parts I think questions first just looking at the Q it looks like the U S T I M.
Speaker Change: Gross margins were pretty low somewhere around 13%, so it looks like you're making.
Speaker Change: Looking at our north of 40% in the U S is that reflective of how you kind of see the split and margin score Oh.
Speaker Change: The Q3 and in the backlog and second part would be.
Speaker Change: Push out you are seeing seems more structured like talking to the other competitor that's the industrial as well.
Speaker Change: So does that.
Speaker Change: Called for any cost cuts so are we.
Speaker Change: And then kind of readjust to this new environment of a new.
Operator: And in most quarters, the puts and takes largely outside each other, and we don't, on these calls, have to get into any explanation of those. But simply put in some quarters and certainly this one is one for the magnitude is greater than in other quarters. Given that our order book is elongated, and what you saw here is really three factors. The first, what I should say for the first is rounding, right?
Speaker Change: Normal of up Skilling Williams in the market.
Speaker Change: Okay.
Operator: Sure, so on the first part, the FDI gross margins that you've seen here today are more of a function of us having to shift our sources from Asia to local sources simply due to some increased transit times. Obviously, we've all talked about the challenges of getting materials through the Red Sea that were more acute in Q1 and in the beginning of Q2. We believe that it's transitory and that our margins will recover a bit in FTI in the back half as we've begun receiving those shipments from Asia now in a more timely manner and will rely less on local, more expensive sources. We did that in order to satisfy our customers' delivery dates, primarily in Europe and Latin America.
Maheep Mandloi: Two parts to this question. First, just looking at the Q, it looks like the STI gross margins were pretty low, somewhere around 13%, so it looks like you're making it on north of 40% in the U.S. Is that reflective of how you kind of see the split and margins for Q3 and the backlog? And secondly, the pushout you're seeing seems more structured, like talking to the other companies in the industry as well. So does that call for any cost cuts or for any kind of readjustment to this new environment or new normal of slower volumes in the market? Thanks. Sure, so on the first part the...
Speaker Change: Sure. So on the first part the STI gross margins that you've seen year to date are more of a function of us having to shift.
Speaker Change: Our source of supply from Asia to local sources simply due to some increased transit times and obviously, we've all talked about the challenges of getting materials through the Red Sea that were more acute in Q1 and the beginning of Q2.
Operator: And it's really about 200 million, you're solving for not 300. And about 44 of that is simply surrounding between the 2.1 and the 2.0. So, what you're really looking at here is three factors below the rounding. And the first is obviously repricing of certain orders in the order book, due to come out of you changes. And this is a broad base. This is largely related to a large customer, one of our largest customers, who places their orders well in advance, meaning we're looking at six quarters worth of orders with that individual customer.
Speaker Change: We believe that as transitory and our margins will recover a bit and S. T. I in the back half as we've begun receiving those shipments from Asia now on a more timely manner and will rely less on local more expensive sources, we did that in order to satisfy our customers.
Speaker Change: Delivery dates primarily in Europe, and Latin America.
Operator: And with that customer, we put those orders on the book and they're priced, given that current pricing, not six quarters forward. And I'll remind you that from Q1 and Q2 of last year, to Q3 and Q4 of this year, steel is down about 35%. So, that's the magnitude that we're having to correct the steel component pricing in those orders with this large customer. Now, what we've done with this customer in particular said, look, we don't expect steel to come back anytime soon.
Operator: Again, we think that... The episode is somewhat behind us, so we should see improvement in FTI gross margins going into the second half of the year. And then, obviously, as related to cost-cutting initiatives, any time you have a change in business to this degree, you're going to be mindful of pulling back expenses in the business, reducing new hires, and reallocating of resources within the company. All of that that's within management's control, we've been implementing for some time, and we feel really good about our ability.
Speaker Change: We think that.
Speaker Change: So it is somewhat behind us so we shouldn't see a improvement in STI gross margins going into the back part of the year and then obviously as it related to two cost cutting initiatives anytime you have a change in business.
Speaker Change: Degree youre going to be mindful of pulling back expenses in the business reduction of new hires.
Speaker Change: Allocation of.
Speaker Change: Resources within the company all of that that's within management's control we've been inactive for some time and we feel really good about our ability, but one thing you can look at our numbers routinely understand but we know how to execute really well on that which is within our control and we're doing everything you would expect us to be doing in that manner right.
Operator: The one thing you can look at our numbers routinely, understand that we know how to execute really well on that which is within our control, and we're doing everything you would expect us to be doing in that manner right now.
Operator: So, we've proactively gone forward into those orders and repriced those as well. So, that's why you see that particular magnitude. The second perturbing factor is really about project scope changes. They happen all the time here. We have two, I would say significant project scope changes one, where a large customer decided to change the configuration of a project so that they could utilize safe harbor inventory, which reduced our portion of the project.
Speaker Change: Now.
Speaker Change: And have been for some time.
Operator: The next question we have is from Donovan Schafer of Northland Capital Markets. Please go ahead.
Speaker Change: The next question, we have is from Donovan Schafer of Northland Capital markets. Please go ahead.
Donovan Schafer: Hey guys, thanks for taking the questions. And I apologize if any of this has been asked and answered already. I was a little late in joining the call.
Donovan Schafer: Hey, guys. Thanks for taking the questions and I apologize if any of this has been asked and answered already.
Operator: It'll all be an array project, but a lot of it will be satisfied with safe harbor inventory for holding for that customer. The second was again, a very large project where the customer had initially asked us to provide foundations. I think many of you know, we don't particularly love to provide foundations because it's a vial product and we're not able to mark them up. It's diluted to us and the customer has since decided to go ahead and source those directly.
Donovan Schafer: And joining the call so for the Skylake tracker I wanted to ask you know if you can.
Neil Manning: So, for the Skylink tracker, I want to ask, you know, if you can really zero in on the specific attributes that make this more attractive or attractive in certain situations versus the other models that you have available. For example, I think it says it connects up to eight rows, whereas DuraTrac actually can go up to like 30 or 32. And then the appeal, if this has appeal in certain markets versus others or specific applications, more specifics there would be helpful.
Operator: And in that case, we're actually not upset because our margins increase when we don't provide foundations. The last and smaller of the three components was really related to the effects impact of the Brazilian backlog. And I think one of the things I'll note to be clear, on a megawatt of trackers basis, the order book did not decline. It in fact increased. So again, what you're seeing there is it's surely related to some of the repriving and decoding of non-core elements. That makes sense.
Speaker Change: Really zero in on these specific attributes that make this more attractive or attractive in certain situations versus the other models that you have available you know I think it says it connects up to eight rows, whereas a terror attack actually you can go up like 30 or 32.
Speaker Change: And then the appeal is this has appeal in certain markets versus others or specific applications, just more specifics there would be helpful.
Neil Manning: Sure, it's me; I'll jump in and take that one. So, in Skylink, we're really excited because what it allows us to do is take the attributes of the main Georgia Track and AVI Track, which are so successful, and allows us to get really targeted in certain areas of the market where we think we can make a real difference. And the 8-link row allows us to get really optimized for smaller parcels and configurations. So when you think about all the deployments that have been done to date, most of the nice square rectangular potion stamp size sites have already been taken, so to speak.
Neil Manning: Sure, it's the all-john.
Speaker Change: Sure Yeah, I'll jump in and take that one so on skylake really excited because what it allows us to do is take.
Speaker Change: The attributions of danger refracted abstract so successful allows us to get.
Speaker Change: Really targeted in certain areas of the market, where we think we can make a real difference and enabling role allows us to get really optimized for smaller.
Jordan Levy: The next question we have is from Jordan Levy of Choose Securities. Please go ahead. Thanks for taking my question. I think Kevin mentioned offsetting some of the impact of the top line reduction through better gross margins, but I'm just looking at the numbers. I think the new guide implies around a 200 basis point decrease in EBITDA margins.
Speaker Change: Parcels of configurations. So when you think about all the deployments have been done to date.
Speaker Change: Most of the base, where we triangulate postage stamp sized sites have already been taken so to speak. So now we're at more irregular both of them are tightened topography and from kind of shape perspective around getting highly tailored optimized designed configurations.
Neil Manning: So now we're at more irregularities, both from a topography and from kind of a shape perspective around getting highly tailored, optimized design configurations. You know, very, very pleased to say we've solved this, and the reaction we had last week, we had 40 customers here for our second customer experience forum, was very, very strong. I think there was some excitement in solving yet another tranche, if you will, of the overall tracker market. The next question we have is from Moses Sutton of BNP Peribus. Please go ahead. Thanks for squeezing me in. What's the reasoning developers are giving you for delaying projects on the domain?
Operator: So I don't know if I'm thinking about that the right way or if there's some offset from operating Webber or something like that, but maybe just how many walked through that? Yeah, that's the fact. You were just seeing the offset on the operating leverage with the volume decline. Absolutely. That's it. Yeah, thank you.
Speaker Change: Those locations are the best cost available. So this configuration of enabling froze allows us getting much more finely tuned air.
Speaker Change: Other thing another couple of things that make it really attractive from a weather potential standpoint is with the no trenching and wireless connectivity along with T. V powers are getting power off the grid.
Tyler bisset: The next question we have is from Brian Lee of Goldman Sachs. Please go ahead. Hey guys, this is Tyler Bisset on for Brian. Thank you for taking our questions. You guys have over 50 gigawatts of capacity globally, but are installing a much lower quantity. So how are you guys managing utilization? Are you thinking of rationalizing your manufacturing base at all? So what you imagine is because you don't know in future years the geographic mix of where so not only domestically where you're going to need to build, but also internationally, you need to have far more megawattic capacity than you plan to ship that given year.
Speaker Change: Cases of stories, we can operate for storage either for snow or severe weather, our without grid power, which allows us to be particularly optimized all of them in areas, where historically they concern and particularly affected then in cold weather, we had extremely cold temperatures.
Tyler bisset: So for example, knowing that logistics is about 10% of our bill of material. Having 30 gigawatts domestically allows you to supply any region that may have an increase in work with localized content. So that should help you understand why we need to always over drive on the overall megawatts of capacity we have versus the annual delivery. It's really about being able to satisfy your customers geographically with local steel, which again is the lowest landed cost. So that's the critical part of that.
Speaker Change: Those trackers and the market that require batteries and we don't see those trackers other market require batteries all that trouble operating at extremely low temperatures of the array product line, there's not using batteries can be affected it is extremely low temperatures based on the configuration. So combination of those factors because really.
Speaker Change: The Skylake will be a great addition to the door attract all detract platforms and we've already gotten a lot of great feedback from our customer for this last week and we're already getting a lot of inbound requests. So thanks for your question.
Speaker Change: One comment I'll make on that is I know that obviously many of US read the notes been Phil Shen puts out from Roth and one of his recent notes. It was one of the voice of customer commentary. So I sat in my office reading the commentary that customers were looking for a way to solve the trenching issue I mean, knowing that we were about six days away from launching the solution to the trenching.
Speaker Change: So for me personally it was good to see that voice of customer it matched up with what we had been working on internally with our customers and.
Lip Chain: Next question we have is one for lip chain of Ross capital partners.
Operator: Please go ahead. Thanks for taking my questions. I'd like to see if you can give us a little bit more color on the margins on the current backlog. So the guidance implies about 540 million of revenues in the back half of this year at the low to mid 30. The gross margins. And so that 540 million consumes about a quarter of your backlog. Is it reasonable to model consistent gross margins on the remaining three quarters of the backlog?
Speaker Change: Very very pleased to say, we solve this and the reaction we had last week as we had 40 customers here.
Speaker Change: For our costs, our second customer experience for them was very very strong I think there was there was some excitement of solving yet another tranche. If you will of the overall tracker market.
Operator: The next question we have is from Moses Sutton of BNP Paribus. Please go ahead. Thanks for squeezing me in.
Speaker Change: The next question, we have is from Moses Sutton of BNP Paribas. Please go ahead.
Moses Sutton: Thanks for squeezing me in and what what's the reasoning developers are giving you for delaying projects under domestic content rule, some sort of thinking through the logic I am I would think they wouldnt be redesigning. The project you know and be doing refinancing when he near shovel ready maybe it would be for further out project maybe.
Operator: Or should we assume some kind of some kind of ASP headwind as you've been reducing price at that. Thanks. I guess the quick answer is yes, it's fair what we're signaling at those low to mid 30s margins continuing. And that's indicative of what's currently in our backlog. Great. Thanks. Again, I will say you will have quarter to quarter variants that you know as you have some larger orders that you may have taken at a lower SAP. So it won't be a flat line number. But you know, I think we're pretty comfortable in our commentary of low to mid 30s margins as we go forward.
Speaker Change: They just been waiting for domestic sale, what's the thought there and then similarly for the a D. C V. D. How do you think about all the panel imports that came in to date or are some of these customers not getting their imports how do you think about that.
Moses Sutton: So on the first part, the domestic content, the delay is really in terms of maximizing the amount of purely domestically manufactured panels they need. So suffice to say, if you're using a domestically made panel, the only component you need to get over that 40% threshold for year one would be the torque to 9% as currently allocated in Table 1.
Speaker Change: So on the first part the domestic content.
Speaker Change: The delay is really in terms of maximizing the amount of purely domestically manufactured panels. They need so suffice to say if you're using a domestically made panel the only component you need to get over that 40% threshold for year one.
John Wyndham: The next question we have is from John Wyndham of UBAs. Please go. Great, thanks for taking the questions. I just wanted to get your thoughts a little bit about what you're doing sort of internally to manage the process of a scaling back and volume shift. You know, just in terms of scaling back work hours, keeping production up and storing it in inventory. Just talk to me a little bit how the management internally is going on with dealing with delays. Thanks so much for the questions.
Speaker Change: Would it be the torque to 9%.
Speaker Change: It's currently allocated in table one now.
Operator: The expectation is that several of those elements or percentages as presented in Table 1 will change. Between the draft table and the final table yet to be issued, there is expectation that several of those percentages will change. As such, you are trying to maximize how many domestic panels versus can you blend the site with some domestic and some foreign panels. So that maximization is what holds you up a little bit.
Speaker Change: The expectations is several of those elements are percentages as presented in table, one will change between the draft table and the final table yet to be issued there is expectation that several of those percentages change as such you're.
Speaker Change: Trying to maximize how many domestic panels versus can you blend to site with some domestic and some foreign panels. So that maximization is what holds you up a little bit right there.
Operator: Yeah, I think that's a great question. Now, first I'll remind you that 80% of what arrives at our customers, we don't touch. A lot of our internal processes relative to engineering, design, quoting, and what have you. Again, as we continue to have strong incoming order rates, strong wind rates, that we don't really need to flex down at all. That's really positive and our overall pipeline continues to remain very strong and robust.
Operator: And this isn't, you know, I don't think these projects are going to be held up for a long time. This is short term. That's transitory. That gets solved as the new rules get finalized at the end of Q3 and into Q4.
Speaker Change: And this isn't.
Speaker Change: No I don't think these projects are gonna be held up for a long time. This is short term that's transitory that gets solved as the new rules get finalized in end of Q3 and into Q4. So we expect that to be very transitory and just moving on and as we mentioned in our prepared remarks, what that's done is it's created.
Operator: So we expect that to be very transitory and just moving on. And as we mentioned in our prepared remarks, what that's done is it's created many more of our customers coming to us now saying, hey, look, I may, maybe previously weren't really focused on this. But with the ease of use of that table and the lower amount of paperwork, I would like to consider this as a domestic content order going forward. So that's certainly picking up in interest given the ease of the table.
Operator: And then your second question related to ADCDD, look, that's simply a delay. What we're seeing is that one of our customers decides to change panels because of panel availability or the threat of tariffs because the levels of tariffs have not been fully defined.
Operator: So what we're going to do is what we're really focused on is ensuring that the first is that we reduce the cycle time. What we've talked about on these calls many quarters is our in-depth process at the end of every quarter looking at every quarter in our order book and working on that with our customers. And what we saw this quarter in particular, when we did that exercise beginning kind of middle of June and forward over that coming four weeks, we saw a lot of customers changing and pushing out.
Speaker Change: Maybe more of our customers coming to US now, saying, Hey look I made maybe previously weren't really focused on this but with the ease of use of that table in the lower amount of paperwork.
Speaker Change: I would like to consider this as a domestic content quarter going forward. So that's certainly picking up interest given the ease of the table and then your second question related to a B C D well.
Speaker Change: That's simply a delay what we're seeing to be clear. It's one of our customers decides to change panels because of panel availability or a threat of.
Operator: And that for us, we were mindful of OK. In uncertain times, you have to increase the amount of times you're looking at the dials, which means we're moving that process to monthly until we get through this period of uncertainty and customers and pushing out. So we're just going to shriek that. The second thing we're ensuring we do is we have a very robust process here internally that we're looking between sales and operations almost on a weekly, every other week basis.
Speaker Change: Tariffs because of the levels of tariffs have not been fully defined from our perspective, that's not a delay to us as a manufacturer. That's a very long delay there are other elements within the overall value stream, but it has to get redesigned beyond us we can do that redesign in a matter of days and redesign the site for a different panel.
Operator: From our perspective, that's not a delay for us as a manufacturer; that's a very long delay. There are other elements within the overall value stream that have to get redesigned beyond us. We can do that redesign in a matter of days and redesign a site for a different panel in a matter of hours or certainly within a couple of days for a customer. However, there are lots of other elements that have to then be redesigned in terms of the E-BUS, some of the foundations may change, other things that we don't currently supply that would elongate that time period for them to be ready with a panel
Operator: We're ensuring that those communications are happening and that the changes in demand week to week are being passed straight through the operations so that we ensure that we don't negatively impact working capital inventory. And what you continue to see in our our our balance sheet is really, really strong management of inventory. We're minimizing and when we typically go out and work with our vendors on those capacity commitments and what we would call take or pay agreements, we minimize those and we've done that for a couple of years such that our vendors are offering much more flexibility and volumes with us without penalties.
Speaker Change: In a matter of hours or certainly within a couple of days for a customer there are lots of other elements that have been being redesigned in terms of the E bus. Some of the foundations may change other things that we don't currently supply that would elongate that time period for them to be ready with a panel will change and that is.
Operator: And that's part of what we're seeing in the market. Because of the flexibility of our clamp solution, we could redesign that quickly, provide different clamps and a different layout design literally in a matter of two to three days. The other elements that were redesigned at that site could take much longer.
Speaker Change: Part of what we're seeing in the market.
Speaker Change: Our flexibility and bark plant solution, we can redesign that quickly provide different plants at a different layout design literally in a matter of two to three days.
Operator: So all that's coming to play in a time like this. And I think this is all who knows to kneel in the operation team would put these things in place over the last two years to really have much better performance, even in a difficult time.
Speaker Change: I think other elements first redesign of that site could take much longer.
Operator: Ladies and gentlemen, we have reached the end of the question and answer session. And with that, we conclude today's conference. Thank you for joining us. You may now disconnect your lines.
Speaker Change: Ladies and gentlemen, we have reached the end of the question and answer session and that concludes today's conference. Thank you for joining US you may now disconnect your lines.
Kasope Harrison: The next question we have is from Keshe Harrison of Piper Sandler. Please go ahead. Good evening, and thank you for taking my question. So Kevin in the prepared remarks, you said 80% of the backlog is expected to come online prior to your end 25. Have you taken a look at what proportion of that backlog you would say is fully dearest from a bottleneck perspective. You know, IE not waiting on interconnects or financing or high voltage equipment, et cetera.
Speaker Change: Hum.
Speaker Change: [noise] Uh-huh.
Speaker Change: Oh.
Speaker Change: [music].
Kasope Harrison: And then, you know, part and parcel with that just given the longer cycle times that you're currently seeing the market market today. Can you just give us a rule of thumb on the lag between bookings and shipments? For example, if you booked in 3Q of this like next quarter, when would you expect that to ship? Thank you.
Operator: I think I'll come at that answer a couple of different ways, Kashi. So first, we think about the lag and the average delays. I was doing some research yesterday on industry databases and looking at the average delays that we're seeing within those databases. And I think about the top 50 projects that are active in the US utility scale solar projects. They're right now delayed from their original start date on average. So I think it was.
Operator: Here which means I reflect on the numbers on yesterday. So 19% of the projects were saying, look, we're still on track as of now to get our original date. I'm sorry, 19 out of the top 50, the rest were delayed on average five to seven months. And that gives you a sense of the type of delays we're seeing. When we do sit there and do our review of all the projects, we are asking customers a series of questions that includes, are you confident that you'll have your long lead time electrical equipment done?
Operator: Do you have your financing locked up if it is at risk when you expect to have it locked up? So there's a series of these questions that we're doing to put it into our schedule. So if a customer says, hey, look, I'm ready to go in Q1, but it's no, no, no, no, no, no, no, those questions. We won't project that to go into Q1 to be clear. Right. We're going to we're going to doubt that that's really going to happen on time and not project it into our Q1.
Operator: So that is a process that we go through in those additional questions we've been doing for several quarters now and in our mind getting smarter. And I think that's part of what we're able to to get in in terms of the deeper dive on these projects this time, we're saying, look, some of these customers are not realistic with start dates. And we need to push them out. And that's that's part of what we went with this year in this quarter.
Joe Osha: The next question we have is from Joe Oshar of Gugunaan Partners. Please go ahead. Thank you.
Operator: Just thinking about the outlook in the next year, I'm not going to ask for guidance, but would it be fair to assume that you're going to run the business to try and recapture some of this operating leverage that you're giving up in the back after this year. Thank you. Yeah, I mean, clearly, we're at the size of business that we don't need to scale up internally a whole lot as evidenced by if you just go back a couple of years.
Operator: And what we've changed in the business road is the headcount is scaling down the construction side, mostly in our international locations. So that the headcount we are remaining with and I think at the end of the quarter was maybe just a pinch over a thousand employees. Again, you're talking about internal processes that we've been spending a lot of money automating such that we will have great operational gearing as we move forward in an additional volume. So we feel really good about that without having to scale a whole lot of headcount to achieve that. So feel really good about the operational during the business.
Colin Rich: The next question we have is from Colin Rich of Oppenheimer, please go ahead.
Andre Adams: Is there this is Andre Adams on for Colin. Let's just hoping you could speak to the impact of racing on pricing of domestic content headers and when you would expect to start realizing some of those. So when we look at domestic content, you always spend a lot of time talking with our suppliers and customers about where their needs are as relates to getting to their percentage of credit. So for example, if a customer has 100% domestic panels, you'll primarily need to work to only as part of that.
Andre Adams: And then any then further mix of a panel will require a higher percentage of domestic content. Now, we'll work with our customers on what that needs. That certain components is really no added on other components. There may be an incremental cost as relates to getting the domestic brews that that particular component. And we'll work with our customers on what their sensitivities are and how that pencils into the overall project.
Vikram Bagri: Next question we have is from Vikram Bagri of City, please go ahead.
Operator: Good afternoon, everyone. Kevin, you touched on high wind rates that you're witnessing recently. Can you put the current wind rate into perspective, maybe, maybe compare it to historical wind rate. And then related to that, given the high wind rate, shouldn't you exceed the bookings in 2022 this year given the size of the market. And then finally, are you seeing increased coating but slower bookings due to delays that you talked about, the project delays and so forth. So, you know, maybe we see higher pace of bookings at some points than the delays are resolved.
Operator: Thank you. Now, okay, so the first question I think I always really about wind rate and while we won't give a numerical answer for that, we're quite satisfied that the wind rates that we saw creeping up in the Q4 last year stayed high through Q1 have stayed consistently high through Q2. And I'll tell you that that wind rate percentage is what I would characterize as much higher than our historical market share rate.
Operator: So, we feel really good about our continued wind rate on the orders we're getting. The second thing is that our pipeline still remains incredibly robust and roughly I think on a year over year quarter of the quarter basis, we're still roughly three times the pipeline that we saw at this time. And the Q2, for example, 23. So, the amount of business out there that's coming into the funnel remains very, very strong. Our wind rate remains very, very strong.
Operator: And we feel really good about the programs we're winning and the margins were winning those programs that I think that answers your question.
Operator: You know, you cited ADCVD and the new domestic content guidance as causing some of the near term slowdown for customers. I'm wondering if you're seeing any change in customer behavior deferral projects due to the upcoming election. Do you think that's playing any role in customers decision tree? Well, I can tell you that when we did our perado of every push out, so when we have a push out, we request an explanation from the customer.
Operator: Obviously, we categorize that we do a perado. We look at that perado in terms of number of projects, megawatts, dollars, every which way you can imagine. And the point thing is that, yes, the interconnection and some of the finance things that continue on are still in that top three, the first time when was this quarter where ADCVD also showed up in that top three. It was three to be clear, but it showed up in the top three.
Operator: And that was the first time that broke into the top three of our perado as issues creating push out and delays. There were none that specifically identified a project pushing due to concerns with the elections. However, I do think on some of the order book momentum, I think there's some hold up waiting to see. We need to see what potential impacts of the election may have on the longer-term renewable energy industry.
Operator: Our internal view is, you know, as evidenced by some of the news that came out today in the number of congressmen that signed on, Republican congressmen that signed on to a letter requesting that the IRA not be defunded and that information came out overnight. Significant. Just the fact that over 75% of the benefits from the IRA today are being experienced by Republican control, control districts is an incredibly significant statistic and these are about new jobs, factory openings, high paying solar industry jobs.
Operator: So we feel that there's some stickiness to the IRA and certainly to the elements of the IRA related to what we care about within the subset of solar and within manufacturing credits and ensuring of manufacturing the U.S. So we feel of all the things that may be negatively impacted under the IRA, we feel that our areas of concern are probably maybe better than some of the others up out there.
Operator: So the answer question, no specific mention in the cradle of those things for election. I think generally speaking, some of the industry may be slowing down the incoming orders, just trying to figure out what the potential impacts. And I think there was a period of time post the debate where that got very acute. And people were more concerned. And I think that the last maybe had somewhat here over the last two weeks.
Dylan Nassano: The next question we have is from Dylan, the son of Wolf Research, please go ahead. Yeah, hi, thanks for taking my question. I was just hoping if you could provide a little bit more color on the expected timing of the delays, specifically even within maybe the pipeline and the backlog. Are you seeing things maybe even slip further from 2025 to even 2026? Now at this point, what we've seen in these pushouts in particular, this I think the disproportionate amount of them have gone into the first half of next year.
Dylan Nassano: And obviously, but look, we have to be really careful because we're we're trying to be mindful of this patch of pushouts. And while we've seen it slow down over the last couple of weeks, we don't know if it were to re accelerate kind of towards the end of the year. So we're being very mindful as of today. We're given that statistic that we feel really strongly about that 80% of the backlog is due to shift between the end of Q2 and the end of 2025 at this point. And we feel that's pretty solid.
Maheep Mandloi: The next question we have is from my deep smandloy of Mizzou, please go ahead. Hey, thanks for bringing the question. That's my deep one live from Mizzou.
Operator: Two parts of the questions first is looking at the cute looks like the STI gross margins for the delay. So we're on 13% so looks like you making it on not the 40% in the US. Is that reflective of how you kind of see the split and margins for the two, three and the backlog and second part, but the pushouts you're seeing seems more structured like talking to the other companies in this industry as well. So does that call for any cost cuts or for as you kind of read just to this new environment or new normal of slower volumes of the market. Thank you.
Operator: Sure. So on the first part, the FGI gross margins that you've seen here today are more of a function of us having to shift our sources supply from Asia to local sources, simply due to some increased transit times. Obviously, we've all talked about the challenges of getting materials through the Red Sea that were more acute in Q1 in the beginning of Q2. We believe that's transitory and our margins will recover a bit in FTI in the back half.
Operator: As we've begun receiving those shipments from Asia now on a more timely matter, and we'll rely less on local, more expensive sources. We did that more to satisfy our customers' delivery dates primarily in Europe and Latin America.
Operator: Again, we think that episode is somewhat behind us, so we should see improvement in FTI gross margins going into the back part of the year. And then obviously, as related to cost cutting initiatives, anytime you have a change in business to this degree, they're going to be mindful of pulling back expenses in the business reduction of new hires, reallocation of resources within the company. All of that that's within management's control we've been enacting for some time, and we feel really good about our ability.
Operator: The one thing you can look at our numbers, we routinely understand that we know how to execute really well on that, which is within our control, and we're doing everything you would expect us to be doing in that manner right now, and have been for some time.
Donovan Schafer: The next question we have is from Donovan Schaefer of Northland Capital Markets.
Donovan Schafer: Please go ahead. Hey guys, thanks for taking the questions. And I apologize if any of this has been asked and answered already, I was a little late in joining the call.
Neil Manning: So for the SkyLink tracker, I want to ask, you know, if you can really zero in on the specific attributes that make this more attractive or attractive in certain situations versus the other models that you have available, I think it says it connects up to eight rows, whereas DuraTrack actually can go up to like 30 or 32. And then the appeal, if this has appeal in certain markets versus others or specific applications, just more specific, there would be helpful.
Neil Manning: Sure, it's me, I'll jump in and take that one. So SkyLink, we're really excited, because what it allows us to do is take the attributes of main DuraTrack and NaviTrack so successful. A lot of us to get really targeted in certain areas in the market where we think we can make a real difference. And you know, eight link row allows us to get really optimized for smaller parcels and configurations. So when you think about, you know, all the deployments have been done today, you know, most of the nice square rectangular quotient stamp size sites have already been taken, so to speak.
Neil Manning: So now we're at more irregular, both from a talking topography and from kind of a shape perspective around getting highly tailored, optimized design configurations into those locations are the best possible. So this configuration in eight link rows allows us to get much more finely tuned there. Another thing, another couple of things that make it really attractive from a weather potential standpoint is with the node-frenching and wireless connectivity, along with TV powers or getting power off the grid.
Neil Manning: In cases of storms, we can operate for storage, either for snow or for severe weather without grid power, which allows us to be particularly optimized on an area where storms are being concerned. And particularly effective than in cold weather, we have extremely cold temperatures. Those trackers on the market that require batteries, and we don't, those trackers on the market require batteries have trouble operating extremely low temperatures. The array product lines that is not using batteries can be affected at those extremely low temperatures based on a configuration.
Neil Manning: So, combination of those factors make us really excited that Skylink will be great additions to the tourist track, non-etrack platforms. And we've already gotten a lot of great feedback from our customer for this last week. We're already getting a lot of down requests. So thanks for the question.
Operator: One comment I'll make on that is I know that obviously many of us read the notes that Phil Shen puts out from Roth. And one of his recent notes, it was one of the voice or customer commentaries. So I sat in my office reading the commentary that customers were looking for ready to solve the trenching issue. He's knowing that we were about six days away from launching the solution to the trenching issue.
Operator: So I mean personally it was good to see that voice or customer have matched up with what we had been working on internally with our customers. You know, very, very pleased to say we've solved this and the reaction we had last week is we had 40 customers here for our customer. Our second customer experience form was very, very strong. I think there was some excitement of solving yet another tranche, if you will, of the overall track or market.
Moses Sutton: The next question we have is from Moses Sutton of BNP Parabas. Please go ahead. Thanks for squeezing me in.
Moses Sutton: What's the reasoning developers are giving you for delaying projects on the domestic content rule, so sort of thinking to the logic, I would think they wouldn't be redesigning the project, you know, and redoing refining things when it's near shovel ready. Maybe it would be for further out projects. Maybe are they just awaiting for domestic sell? What's the thought there?
Operator: And then similarly for the ADCVD, how do you think about all the panel imports that came into date are some of these customers not getting there? Import, how do you think about that?
Operator: So I'm first part of the domestic content. The delay is really in terms of maximizing the amount of purely domestically manufactured panels they need. So suffice to say, if you're using a domestically made panel, the only component you need to get over that 40% threshold for year one would be the torque to 9% as currently allocated in table one. Now, the expectation is. Several of those elements are percentages as presented in table one will change between the draft table and the final table yet to be issued.
Operator: There is expectation that several of those percentages change as such year trying to maximize how many domestic panels versus can you blend the site with some domestic and some foreign panels. So that maximization is what holds you up a little bit right there. And this isn't, you know, I don't think these projects are going to be held up for a long time. This is short term. That's transitory. That gets solved as the new rules get finalized in end of Q3 and into Q4.
Operator: So we expect that to be very transitory and just moving on. And as we mentioned our prepared remarks, what that's done is it's created many more of our customers coming to us now saying, hey, look, I may maybe previously weren't really focused on this. But with the ease of use of that table and the lower amount of paperwork, I would like to consider this as a domestic content order going forward. So that's certainly picking up an interest given that ease of the table.
Operator: And then your second question related to ADCD, look, that's simply a delay. What we're seeing to be clear, if one of our customers decides to change panels because of panel availability or threat of tariffs because the level of tariffs have not been fully defined from our perspective, that's not a delay to us as a manufacturer that's a very long delay. There are other elements within the overall value stream that have to get redesigned beyond us.
Operator: We can do that redesign in a matter of days and redesign the sites for a different panel in a matter of hours or certainly within a couple of days for a customer. There are lots of other elements that have to then be redesigned in terms of the eboss, some of the foundations may change. Other things that we don't currently supply that would elongate that time period for them to be ready with a panel change.
Operator: And that's part of what we're seeing in the work. Our flexibility of our clamp solution, we could redesign that quickly, provide different clamps, kind of different layout design, and literally in a matter of two to three days. But these other elements best be redesigned in that site could take much longer.
Operator: Ladies and gentlemen, we have reached the end of the question and on-sufficient session. And with that, we conclude today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Thank you.