Q3 2024 Array Technologies Inc Earnings Call
Greetings and welcome to everybody technologies third quarter 'twenty 'twenty four earnings call.
At this time, all participants are in listen only mode.
Turning nonsense session will follow the formal presentation.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Sara Shepherd and then they still relations.
Speaker Change: Please go ahead.
Sara Shepherd: Thank you and welcome to array technologies third quarter 2024 financial conference call on the call with me today are Kevin Hospitaler, our CEO, Neil Manning, our president and CEO and.
Sara Shepherd: And James <unk>, our Chief Accounting Officer.
Sara Shepherd: Today's call is being webcast from our Investor Relations site, IR dot array checking dotcom, including audio and slides.
Sara Shepherd: The press release detailing our quarterly results has been posted on the website.
Sara Shepherd: Today's discussion of financial results includes non-GAAP measures I.
A reconciliation of GAAP to non-GAAP financial measures can be found on our website.
Sara Shepherd: Cause you to visit our website at array Takeda dot com throughout the quarter for the most current information on the company.
Sara Shepherd: As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply are expected results and other matters.
Sara Shepherd: These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Sara Shepherd: We refer you to the documents, we file with the SEC, including our most recent Form 10-Q for a discussion of breast that may affect our future results.
Sara Shepherd: Although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee future results levels of activity performance or achievements.
Sara Shepherd: We're under no duty to update any of the forward looking statements chicken for these statements to actual results.
Speaker Change: Now I'll turn the call over to Kevin.
Kevin Hospitaler: Thank you Sarah good afternoon, everyone.
Kevin Hospitaler: Today, I'll begin with a brief business and market update.
Kevin Hospitaler: <unk>, our president and Chief operating officer, who will provide some product and commercial updates for the quarter.
Kevin Hospitaler: I'll, then wrap up the call with third quarter financial highlights and full year financial guidance, then we'll open up the line for your questions.
In the third quarter, we once again saw solid financial performance and execution from the business.
Kevin Hospitaler: Starting on slide three I'll begin with a summary, and some highlights of the quarter and then discuss the latest near term market dynamics in the industry environments.
Kevin Hospitaler: We achieved $231 million of revenue, which was in the upper half of the guidance range. We provided on our last earnings call.
Kevin Hospitaler: Adjusted gross margin came in at 35, 4%, which included 45 X benefits related to both torque tubes and structural fasteners.
Kevin Hospitaler: Compared to the prior year, our adjusted gross margin performance reflected a 940 basis point improvement.
Kevin Hospitaler: We also delivered $46 $7 million of adjusted EBITDA, representing 22% of revenue.
Kevin Hospitaler: We generated $43 $9 million of free cash flow to end the quarter with a strong cash balance of $332 million.
Kevin Hospitaler: Our order book remained consistent at $2 billion to end the quarter.
Kevin Hospitaler: While this quarter's orders and the number of total projects awarded in the market were a bit muted given the election uncertainty and other market factors.
Kevin Hospitaler: The overall momentum of the business remain strong.
Kevin Hospitaler: At quarter end, our overall domestic pipeline of opportunities was over three times larger than at the end of Q3 of 2023.
Kevin Hospitaler: Our win rate continues to be higher than our historical market share and we're seeing great traction with our recently expanded product portfolio.
Speaker Change: Of note.
Speaker Change: Our omni track terrain following tracker now impressively represents more than 20% of our global order book.
Speaker Change: We believe the continued success of this product is indicative of the wide variety of terrain now being used for solar projects, both in the U S and internationally.
Speaker Change: It's an exciting trend for the industry to continue to expand its total addressable market and remain one of the lowest cost options for new energy generation.
Speaker Change: Transitioning to slide four I want to take the time to talk through the promising growth trajectory for solar.
Speaker Change: Looking to 2025 and beyond we believe the demand and value proposition for utility scale solar remains robust.
Speaker Change: According to EIA data solar energy remains the leading source of new electric capacity additions in the U S with 59% of all additions in the first half of 'twenty 'twenty four.
Speaker Change: Based on planned editions data, it's expected that solar remains at approximately 60% of all new editions to close out the year as well.
Speaker Change: We expect that solar will continue to be the largest driver of new energy generation in the years to come as various reports outline that utility scale solar remains one of the lowest cost options to satisfy rapidly growing energy needs.
Speaker Change: Yes.
Speaker Change: We are bullish that these demand drivers coupled with continued legislative support and emerging tailwind such as AI data Center Green energy demand will provide bright prospects for the industry in general and for array and particular in the coming years.
Kevin Hospitaler: Looking to near term growth many are speculating on overall U S utility scale installation growth over the next few years.
Kevin Hospitaler: Looking at 2025, specifically third party projections range between mid to high single digit growth from 'twenty to 'twenty four.
Kevin Hospitaler: However.
Kevin Hospitaler: As we look at the year ahead for array, we anticipate strong double digit growth within our overall business due to several elements.
Kevin Hospitaler: First of all.
Kevin Hospitaler: A significant portion of our order book is still scheduled for delivery between Q4 2024 through the end of 2025.
Kevin Hospitaler: And I'll remind you we will still book additional deliveries for 2025 over the next few quarters.
Kevin Hospitaler: While this provides us with strong visibility we continue to frequently engage with our customers to assess expected project timelines.
Kevin Hospitaler: Secondly, we are encouraged by the continued strength in our win rate this year, largely driven by our focus on strategic customer engagement and innovative and differentiated product offerings.
Kevin Hospitaler: Outside of the U S. We also remain encouraged by our positioning in international markets for instance, greener consultancy data recently confirmed that array both the leading market share for distributed generation projects in Brazil.
Kevin Hospitaler: In Europe, while overall market demand has been modest we are confident that our targeted customer activities will continue to support share growth in the coming quarters.
Kevin Hospitaler: To that end, we will continue to set ourselves up for success to support growth in 2025, and beyond and to navigate near term challenges to the best of our ability.
Kevin Hospitaler: Yeah.
Kevin Hospitaler: Moving to slide five I want to specifically cover the current U S market dynamics, we're seeing.
Kevin Hospitaler: In 2024, we've talked at length about the various project pushout elements with which our customers have had to content.
Kevin Hospitaler: Looking to the future. We believe some of these dynamics may be more persistent challenges, while others have opportunity to incrementally improve as we head into 2025.
Kevin Hospitaler: The more persistent headwinds that customers will continue to navigate include permitting and interconnection delays.
Kevin Hospitaler: Shortages of high voltage circuit breakers, and Transformers and E. P C labor constraints.
Kevin Hospitaler: Although there is much discussion around interconnection queue regulation and permitting reform, we believe that in practice. It will take some time to implement these changes to move projects along at a more normalized cadence.
Kevin Hospitaler: Similarly.
Kevin Hospitaler: With long lead times for electrical equipment, although customers are seeing early signs of improvements in these lead times the industry will need time to build out additional manufacturing capacity for these components.
Kevin Hospitaler: That being said we are optimistic that there are a number of factors that have the potential to facilitate incremental improvement and project timing as we move forward.
Kevin Hospitaler: The first factor encompasses the more favorable financing environment due to the federal reserves interest rate cuts. Additionally.
Kevin Hospitaler: Additionally.
Kevin Hospitaler: Final clarity on a D. C V D tariffs should allow projects to advance with more certainty.
Kevin Hospitaler: While we have commented in the past that we believe these tariffs negatively impact the industry as a whole.
Kevin Hospitaler: Biggest factor and a D. C V D related delays is related to the uncertainty surrounding the total cost of solar panels.
Kevin Hospitaler: Once developers understand the total tariff related cost associated with specific panel selections. They can better plan their overall sourcing strategies to optimize overall project costs and returns.
The preliminary determination on anti dumping tariffs is scheduled to be issued later this month, which should help customers with their evaluations.
Kevin Hospitaler: Further clarity around IRA incentives also assist industry participants and understanding their total project costs. We were pleased to see the final 45 X rules released in October is this represents long term support for domestic manufacturing initiatives.
Kevin Hospitaler: Specifically for array forty-five ex tax credits are helping us increase our domestic production in onshore critical components and good paying jobs through our new Albuquerque manufacturing facility.
Kevin Hospitaler: Although the final rule did not broadened the category of structural fasteners to be inclusive of our clamps. Since we had advocated we are still pleased that 45 X is more solidified.
Kevin Hospitaler: As a reminder, our 2024 guidance did not assume clamps would be included in the definition of structural fastener.
Kevin Hospitaler: Under the final rule, we continue to recognize credits for our clamps under the current longitudinal perlin definition within the torque tube forty-five ex guidance.
Kevin Hospitaler: On domestic content Treasury anticipates, releasing updated guidance before the end of the bite and administration to update the elective safe Harbor data make additional technical clarifications improve accuracy and more.
Kevin Hospitaler: We feel that this additional guidance will be helpful for our customers pursuing the domestic content adder to the elective safe Harbor table.
Kevin Hospitaler: We currently have a significant portion of our domestic order book evaluating domestic context.
Kevin Hospitaler: So we view further updates for this guidance is very impactful for project considerations.
Kevin Hospitaler: Finally.
Kevin Hospitaler: We remain confident that solar maintains bipartisan support.
Kevin Hospitaler: And would note that our industry performed well under the first Trump administration.
Kevin Hospitaler: We have discussed at length, how utility scale solar incentives in their IRA or creating good paying jobs and opportunities for both Republican and Democratic districts are like.
Kevin Hospitaler: Notably there is growing bipartisan support for protecting the energy tax credits portion of the IRA as evidenced by a number of house GOP members requesting speaker Johnson to exclude these provisions from any repeal effort.
Kevin Hospitaler: The domestic content bonus credit in particular is a critical component of the legislation that strengthens domestic manufacturing, while accelerating the deployment of clean energy across the country.
Kevin Hospitaler: Overall, there are many challenges and opportunities that customers are currently navigating in the market.
Kevin Hospitaler: However, it's important to note that we see the U S market stabilizing not worsening from the level of customer push outs, we witnessed at mid year 2024.
Speaker Change: Now I'll turn it over to Neil to speak about some exciting product and commercial updates. Thanks.
Neil Manning: Thanks, Kevin moving to slide six I'd like to spend a few moments talking on the recent announcement of our 77 degree tracker in the context of our broader innovation track record is shown here.
Neil Manning: With a rising frequency you concern unheard damaging the industry raise responded to the challenge with the introduction of the steepest still angle for protective hailstone in the industry.
Neil Manning: This new offering will feature our proven Georgia cracking omni track design is enhanced by our race Smart truck Halo alert response software.
Neil Manning: This trial provides unprecedented flexibility and protection from a against both hail and wind significantly reducing the risk of damage to a solar site.
Neil Manning: Providing our customers with the best solutions to reduce the risks imposed by extreme weather events remains one of our top priorities and drugs many of our innovation efforts.
Neil Manning: To put our track record in context in 2015, we first introduced passive wind still capabilities sort of Georgia Tech products, providing our customers with a premier solution mitigates dress from high wind loads.
Neil Manning: We do this while providing up to 4% increased energy production when compared to active still protocols provided by our competitors.
Neil Manning: Our passive window technology, which relies on one raise key differentiating patents allows for individual roes to move to high tilt when the wind threshold is exceeded their clutch into gearbox.
Neil Manning: This allows the debt torque to move the rotor predetermine until position.
Neil Manning: Oftentimes this resulted exterior arose moving to the stope position well most interior arose continued attract normally does.
Neil Manning: This unique architecture allows for higher energy production the competitive offerings.
Neil Manning: Earlier this year are reintroduced Hell alert response as part of our smart truck suite of controller and software solutions tailor responses integrated with third party weather services to move all of those at a site to a maximum defensive position.
Neil Manning: Away from the direction of the storms wind at a predetermined timeline.
Neil Manning: Moving to modules to hyattsville reduces the kinetic energy impact on a module from hail and significantly reduces the risk of damage, but glass breakage and sell cracking.
Neil Manning: In the third quarter of this year, we launched our Skylake architecture, which works with the existing door tracking Omnichannel solutions.
Neil Manning: Skylake provides an eight rows drink power solution, featuring DC motors and Zigbee wireless communications.
Neil Manning: Greatest to operate down to minus 40 degrees Celsius Skylake provides continuous power to D ray to facilitate seamless operation.
Neil Manning: Even when there may be an interruption to grid power due to weather impacts in the area.
Neil Manning: And importantly, skylake does not require the use of batteries to do so.
Neil Manning: Finally before year end, we will be launching our automated still response another solution available as part of <unk> software platform, which uses onsite snow sensors to move rows of hyattsville does any accumulated snow.
Neil Manning: Reducing the risk of stressing the module is due to high snowbirds and eliminate the risk of ice formation of modules.
Neil Manning: Snow melts and Refreezes.
Neil Manning: Investments in utility scale PV sites are significant and are ready we will continue to develop solutions to protect these investments from damage experienced severe weather events.
Neil Manning: Damage from hail and other extreme weather events only represents a small number of the total volume of insurance claims within our industry, but these claims represent more than half of this financial damages incurred.
Neil Manning: It will be critical to provide continuous enhancements in solutions to mitigate the risk of extreme weather to alleviate insurance concerns or protect utility scale PV investments.
Neil Manning: And I'm happy to say that we received well over 300 patents since 2015, the validate and projected the innovative solutions delivered by our team.
Neil Manning: Additionally, the Army plus conference in September it provided a fantastic for them to receive feedback from our customers on our latest product offerings.
Neil Manning: Many were eager to learn more about our 77 degree tracker related increase still requirements by insurers for sites and hail prone regions.
Neil Manning: Skylake has also been very well received since its launch with numerous customers crazy the design flexibility and site layout advantages the product provides.
Neil Manning: Skylake architecture opens new markets for array and in fact, we're thrilled to announce that we've already wanted to order for Skylake in early Q4.
Speaker Change: With that I'll turn it back over to Kevin to give a more detailed update on third quarter financials and full year guidance Kevin.
Kevin Hospitaler: Thanks, Neil moving to slide eight I would like to start off by providing some additional details around the third quarter results.
Kevin Hospitaler: As I previously mentioned, we delivered revenue within our guidance range of $231 4 million, which was down 34% from the third quarter of 2023, largely due to the project push outs we've experienced this year.
Kevin Hospitaler: We experienced both declining volume and asps year over year in the U S and international say.
Kevin Hospitaler: Sales in North America represented approximately 70% of our revenue for the quarter with the remainder of our revenue coming from international locations.
Kevin Hospitaler: We achieved third quarter adjusted gross margin of 35, 4% an improvement of over 900 basis points year over year.
Kevin Hospitaler: Operating expenses of $211 million were up approximately $164 million from $47 $2 million during the same period of the previous year.
Kevin Hospitaler: This increase was driven by a $162 million noncash goodwill impairment charge related to the 2022 S. T I acquisition.
The goodwill impairment charge was triggered by the sustained decline in our stock price in the second half of Q3, resulting in a decrease in market capitalization, coupled with an update to long term projections for certain markets for the STI operations.
Kevin Hospitaler: Adjusted EBITDA was $46 $7 million, representing an adjusted EBITDA margin of 22%.
Kevin Hospitaler: This compares to adjusted EBITDA of $57 $4 million and adjusted EBITDA margin of 16, 4% in the third quarter of 2023.
Kevin Hospitaler: On a GAAP basis net loss attributable to common shareholders in the third quarter of 2024 was $155 $4 million compared to net income of $10 million in the prior year period.
Kevin Hospitaler: Basic and diluted loss per share was $1 <unk> compared to basic and diluted income per share of seven.
Kevin Hospitaler: In the same period last year.
Adjusted net income was $26 $5 million versus $31 $7 million during the third quarter of 2023, and adjusted basic and diluted net income per share was <unk> 17, compared to 21 cents during the prior year period.
Kevin Hospitaler: Finally, our free cash flow for the period was $43 $9 million versus $69 4 million for the same period last year.
Kevin Hospitaler: Now I'd like to go to slide nine and provide a more detail update to our full year 2020 for guidance.
As we address within our guidance revision last year, we carefully contemplated a number of different project timing scenarios that could occur within our customer base.
Kevin Hospitaler: Although we did see some projects shift to the right in Brazil due to continued real weakness impacting PPA negotiations, which resulted in the narrowing of our topline guidance range to 900 million to $920 million. This was certainly considered within those potential outcomes.
Kevin Hospitaler: To be clear, we only continue to see some project push outs not project cancellations and we feel some customer challenges have abated since the accelerated level of push outs, we witnessed at the mid point of the year.
Kevin Hospitaler: Notably within our domestic business, we have not seen our U S project shifts substantially from our expectations and our last guidance revision.
Kevin Hospitaler: We are lowering our adjusted EBITDA and adjusted net income per share range is slightly given a combination of changes in overall project mix within the narrowed topline guide and increased strategic investments and additional nonrecurring expenses.
Kevin Hospitaler: We are anticipating record annual adjusted gross margin of approximately 34% for 2024, largely due to the torque tube and structural fastener 45 X benefits, we've been able to realize.
Kevin Hospitaler: As a reminder, 2024 represents a transitional year for 45 decks with some benefits ketchup recognized this year related to 2023 shipments.
We are now expecting a reduced 2024 effective tax rate of 20% to 21%, excluding the goodwill impairment charge, given our latest anticipated regional income mix and some additional R&D related tax credits.
Kevin Hospitaler: Finally, we are pleased to raise our free cash flow guidance to $100 million to $115 million from the prior guidance range of 60 million to $100 million given our enhanced focus on working capital improvements to close out the year.
Kevin Hospitaler: As I've mentioned, we continue to anticipate a growing highly profitable cash generative business as we move into the year ahead, and I'm incredibly proud of the team's efforts on these fronts.
Kevin Hospitaler: Finally before opening the line for questions I want to provide a brief update on our CFO search.
Kevin Hospitaler: We mentioned last quarter that we're in the process of a very thorough vetting of an impressive initial slate of candidates.
Kevin Hospitaler: After extensive interviews and reviews. We're pleased to have entered the final stage of this process, while we can't disclose more details at this time, we are confident that we are near the goal line.
Kevin Hospitaler: In conclusion as I look at the opportunities for our business in the coming years I'm, feeling very encouraged and proud of our employees, who have dedicated their time and efforts to set up the company for future success.
Kevin Hospitaler: We will continue to manage the elements within our control by focusing on our business momentum.
Kevin Hospitaler: Customer engagement product innovation and operational execution as we move forward.
Speaker Change: With that we will now open the call for questions operator.
Speaker Change: Thank you at this time group will be conducting a question and answer session.
Speaker Change: I'd like to ask a question. Please press star and then one on your telephone keypad you May Please God and then two if you would like to move your question from the queue.
Speaker Change: Can you ask that all questions be limited to one question per analyst.
Please hold while we poll for questions.
Speaker Change: The first question comes from Julien Dumoulin Smith from Jefferies. Please proceed with your questions Julien.
Speaker Change: Thank you operator, good afternoon team. Thanks, so much for the time here I'm just wanted to follow up a little bit on that comment with the two dollar.
Speaker Change: Two 2 billion backward backlog here can you comment a little bit on the cadence of that realization I mean, Kevin you you'd spoken on that I think it was last quarter here any updated thoughts on the realization I mean, obviously things are moving in and out here I imagine they've probably been some level of delays and push outs still so how is that coming.
Speaker Change: Together here as you think about the you know revenues to 25, if you will and how are you seeing that mix evolve in terms of both.
Speaker Change: <unk> versus push outs, if you will.
Speaker Change: Within that $2 billion.
Speaker Change: Yeah. Thanks, Julian Great question, I can say first of all.
Speaker Change: You know in the last quarters call. We had to talk about that very acute period that was a period of four to five weeks, where we had.
A number of projects push and the only thing reflecting back on that that I could I could put that too is that we had our customers.
Speaker Change: Valuation of their second half of the year plans and making their updates and getting more realistic with their own forecast and plans because once we got through that period. The business very quickly returned to what I would call a normalized level of push outs and delays I mean again look at the project business, you always have push outs and pull ins and that cycle is much more of what we saw as.
Speaker Change: As the quarter progressed back to a normalized level some projects pulled in.
Speaker Change: Certainly we saw some pull ins domestically a couple of push outs internationally.
Speaker Change: But back to that very normalized level of cadence that we've seen and we've always had historically so I think the.
Speaker Change: The commentary regarding last time, where we said about 80% of that backlog was due to convert between you know the end of Q2, and our 2025 very consistent it's probably gone up a couple of percentage points, but that would be a very consistent number.
Speaker Change: And the difference there and what we want to make sure we still communicate as.
Speaker Change: We're still gonna be booking orders for 2025, certainly this quarter and for a couple of more quarters. So we feel really good about our 2025 at this point, we feel good about being able to put up strong growth and.
Speaker Change: And again that strong growth without a lot of go get left in the operating plant. If you think of it that way right. So this is stuff that's already in our backlog, but we'll be executing too. So we feel really good about what shaping up for 2025 for us.
Speaker Change: And Kevin just to clarify that last comment there you talked about the 80% being in fact is that over quotes six rolling quarters or is that kind of in an apples to apples basis for the same period that the total revenue implied for 25 is still kind of comparable as far as the backlog goes.
Speaker Change: Yep, it's apples to apples.
Speaker Change: Alright awesome. Thank.
Speaker Change: Thank you very much higher.
Speaker Change: Little bit higher even okay excellent.
Speaker Change: Thank you. The next question comes from Mark Strouse from JP Morgan. Please proceed with your question.
Speaker Change: Yeah. Good evening, it's drew on for Mark. Thank you for taking the question I'm just kind of a follow up on that and I. Appreciate the encouraging commentary on 25, but can you just talk a little bit what's giving you confidence.
Speaker Change: You know in these projects, realizing realizing and happening in 'twenty five you know maybe you hinted on that the interconnections may not be getting.
Speaker Change: Better as you might've hoped previously and maybe if you get anything you can say on what is giving you. The confidence that you know the project push outs are going to alleviate somewhat into 'twenty five.
Speaker Change: Well I think to be clear I think there'll still be some level of push outs and pull ins back to kind of what we would say is our normalized cadence the difference in our 25 set up from our 24. If you think about in 'twenty 'twenty four we still had a at the beginning of 'twenty four we had in our operating plan a level of go gets that we still needed to convert.
Speaker Change: Kurt.
Speaker Change: To deliver the back half of the year and as we look at our 2025 plan. It's all in our backlog already so that needing to convert additional business is already converted in our backlog plus a few more quarters of bookings make us feel pretty good about what we see in 2025 I think most of the market is as now able to can.
Speaker Change: And with some of the long lead time equipment some of the labor shortages and I think as we're getting closer to our customers and really validating their go forward plans and their project timelines, we feel better about the setup for 2025, certainly than we did coming into 2024.
Speaker Change: Okay, great. Thanks, and then just one other Oh I'm F. C. I write down can you just kind of talk about what went into the longer term outlook being revised their I mean, maybe what markets whats changing and and and what's been different than you than you would've expected or you know a year or so ago.
Speaker Change: Yeah, Let me, we have James Chu with Us our Chief Accounting Officer, and this is his real area of focus so let me turn it over and ask him to give you a really great answer yes. Thank you. Thanks, Julian I think it just looking at that.
Speaker Change: The Brazilian market and we participated in and then recently experienced.
Speaker Change: Accelerated Italia showed me out the Brazilian real that really triggered.
Speaker Change: For us to look at it if you look at the ball game and looking at the pricing is staying the same when you have a weaker yeah. When you translate it to the installed or youre going to have a lower revenue I think that would trigger. This so in addition to kind of our market capitalization. So that's coming.
Speaker Change: Triggered a recheck alluding a little bit in terms of outlook or to projections for the outer years. So so that's one of the triggering event.
Speaker Change: Okay. Thank you.
Speaker Change: Sure.
Speaker Change: You're welcome next question. Thank you. Thank you. The next question comes from Brian Lee from Goldman Sachs. Please proceed with your questions Brian.
Yeah.
Brian Lee: Hey, guys. Good afternoon, thanks for taking the questions I.
Brian Lee: Yes.
The 25 outlook.
Brian Lee: Strong double digit growth.
Brian Lee: G C can you give us a sense Kevin.
Speaker Change: You've done a good job throughout the year talking about you know volume somebody is down you know pilots et cetera. So as you think about the outlook here for 25.
Speaker Change: It sounds like you're pretty optimistic how does that shake out between U S International and then kind of what's your what's your baseline thinking around the pricing on a year on year.
Speaker Change: Just to get to the strong double digit growth for you.
Speaker Change: Yeah, so well.
Speaker Change: Look when we're not really going to guide 2025 today, So I want to be careful I don't go go too far in discussion, but I'll say, what what makes us feel good about those numbers is that that's already coming out of our backlog. So if you think about just looking at our backlog and the guidance we've given you.
Speaker Change: And if you do the math you see that there's already strong double digit growth already sitting in the order book already scheduled for delivery and frankly, a lot of that.
Speaker Change: We feel really good about in the as I mentioned earlier, it's not about a go get to fill a gap. This is already in the order book.
Speaker Change: <unk> already in our S. IOP process already planning for deliveries next year. So we feel really good about the visibility we have now to that look we don't have any help in that from a higher pricing is still in fact, it's not and remember that these orders in our order book.
Speaker Change: Better shipping would've been booked in the last three or four quarters that we'll be shipping next year. So those price points in those margins, we feel good about they've been consistent with those expectations. We set on every call to date. So we feel pretty good about the setup for next year in terms of volume margin operational gearing.
Speaker Change: And.
Speaker Change: And the investments, we're making primarily on the front end of our business to even further the acceleration.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our topic.
Speaker Change: You started the year out high Thirty's.
Speaker Change: And you're raising the gross margin for the year.
Speaker Change: It does not do you kind of get to be in the low thirties exiting the year.
Speaker Change: You made the comment that some ketchup credits.
It kind of skew the numbers at least 24, so as we think about the Q4 run rate, let's say you're in the low thirty's is that kind of representative.
Speaker Change: The average you're seeking a backlog like you said these are bookings at price points over the past couple of quarters is Q4 kind of a flat run rate you'd be seeing going into 25. Thank you guys.
Speaker Change: Yes, sorry, I'm gonna be again, I'm gonna be careful I'm not ready to guide margins for next year until we are.
Speaker Change: Thoroughly get through our process project by project and what have you what I will say is that in Q4, obviously sequentially, you'll see a slight dip in margins, but that's more primarily related to one large order often old VCA that that you know certainly I inherited from 'twenty to 'twenty. One that is a very low margin V C.
Speaker Change: And whenever we have large orders come against that D. C. A it negatively impacts our margins. So that's really what youre seeing in Q4, I would say, it's a it's a bit of an anomaly, but were not ready to guide yet margins for next year until we get through our operating process.
Speaker Change: Thank you. The next question comes from Jordan Levy from tourists Securities. Please proceed with your questions children.
Speaker Change: Good afternoon, all and thanks for taking my questions.
Speaker Change: I just want to see maybe just following on the last question you had.
Speaker Change: Is there any timeline you can give on sort of how far out that VCA extends and then maybe just as a sort of a follow on to that if theres been any kind of additional shifts and V. C a structure.
Speaker Change: You know versus EPC contract.
Speaker Change: No I think this is actually the only one remaining fixed price VCA contract that we have in the company. It was signed in 'twenty 'twenty. One it extends through 2026, and there's probably a couple of more projects will ship between now and the end of the V. C. A against this that are that are lower margin.
Yeah.
Speaker Change: Thank you. The next question comes from Jon Windham from UBS. Please proceed with your question.
Jon Windham: Perfect. Thanks for taking some time for the questions. I was just wondering if you anticipate any potential changes in customer behaviors and ordering.
Jon Windham: Given the risks under the new administration in their attempts to potentially try to safe Harbor. Thanks.
Jon Windham: Yeah.
Speaker Change: No I think it's too early to tell on that right.
Speaker Change: You know certainly like you I've read every possible note in the last 48 hours of what different customer behaviors may evolve b acceleration or delay and we truly don't have a good view of that it's just far too new far too fresh for that will be ready to serve our customers in any way they need to be.
Speaker Change: We can certainly accelerate given our strong domestic supply chain.
Speaker Change: If that's what they choose to do we are ready to help them do that I think the biggest thing that'll determine the cadence of customer orders as clarity around domestic content and clarity around the 80 CVD tariff rates. That's what we've continually discussed as being the elements that are causing pause.
Speaker Change: Again, we expect these to get cleared up by the end of the year. So we feel pretty good about the cadence as we exit the year into next year.
Speaker Change: Thank you. The next question comes from Philip Shen from Roth Capital Partners. Please proceed with your question Philip.
Speaker Change: Hey, guys. Thanks for taking my questions are first a group of questions is around bookings can you share what the gross bookings were in Q3 do you have any de grossing or D. Booking and then how do you expect bookings to.
Speaker Change: Transition or be in Q4, and then we calculate about $230 million for bookings for Q3. So does that sound about right and then the second group of questions is around Brazil can you share how much of your latest backlog is for Brazil.
Speaker Change: Okay.
Phil: Look what we've what we've said pretty clearly is that our order book remained flat at 2 billion, Phil and order activity in projects awarded were slightly muted in the quarter given the uncertainty around the election and also a D. C V D rates.
I think what we're most excited about is that the overall pipeline of opportunities in the U S and looking at it year over year is over three times larger than it was this time last year, which is incredibly significant.
Phil: The kind of what we call the higher probability pipeline over two and a half times larger so we feel really good about that momentum.
Phil: And the fact that our win rate continues to be higher than our historical market share.
Phil: We're winning orders with customers that we hadn't seen orders with over two years at this point. So we're excited about the momentum we have with historical low share of wallet customers. We're excited about winning with customers that we hadn't in some time. We're excited that omni track is now over 20% of our backlog and continuing to accelerate and we're particularly excited.
Phil: We won our first order of Skylake early in Q4 with again, a targeted customer that we had not received an order in over two years for it and the skylake in particular solve this customer's problems they need it on our site vis vis quick installation less cabling all of that was a perfect fit that opened up a new.
Phil: To us with a new targeted customers. So we're excited about the momentum we're seeing on the front end of our business. Your second question was on Brazil.
Speaker Change: And what in particular.
Speaker Change: Which of the backlog is Brazil. Thank you.
Speaker Change: Okay.
Speaker Change: I don't think we we have not historically broken out backlog by region.
Speaker Change: It's not a metric we provide.
Speaker Change: Okay. Thank you. Your next question. The next question comes from Tim Lugo Tsai from both that Keith just a question.
Speaker Change: Hi, there. Thank you for taking my question.
Speaker Change: Can you speak a little bit about you know the final manufacturing guidance that came out you know where it seems that additional components.
Speaker Change: Didn't quite change for qualification you know what's kind of included in your margin guide that to some extent I think there was some level of optimism that more components could qualify you know whereby you qualify for the $2 20, each a kilogram buses you know this the 87 cents and then your definition. So if you could just give some more clarity there.
Speaker Change: That would be really helpful. Thank you.
Neil Manning: So I'll take that one so this is Neil this is excuse me around domestic content.
Neil Manning: Really well established from the best of content perspective, you know, we announced in Q3 of last year that we were able to provide 85% or better domestic content. So really not a big lift to get to a 100%, which we've already announced that will be capable of shipping in the first half of 2025.
Neil Manning: You referenced two.
Neil Manning: Table, one from our capability to provide that that that gets into a number of components. You know as I mentioned before we're really vocal students are already provided fast many of those from domestic sources already and we're working with a few suppliers that we were not fully domesticated to be ready for that Q1 <unk>.
Neil Manning: Half of 'twenty 'twenty five target from yeah, we're not in a position where we're going to break out margin specifically for divested content versus non domestic content, but overall, we feel really well suited as the guidance solidifies we've been talking with customers we think about.
Neil Manning: About 20% or so of our.
Neil Manning: Current quotations have some level of domestic content required as part of it and we feel really excited and able to be able to meet those requirements of our customers as they look to solidify their planning for 'twenty 'twenty five.
Speaker Change: And I think all I'll answer the specific question regarding the 45 X credits and in particular, I think you're referencing clamps.
Speaker Change: On our last call. We discussed that we had we were hopeful but not forecasting to be clear that clients would classify or be delineated under structural fasteners and therefore, they're in by weight get a higher level of credit.
Speaker Change: Unfortunately, what we found through this last round was they were not in a position to change any of the original language that had already been locked in stone. So they could not do that so we're back to considering claims under the longitudinal kurland portion of the definition under torque tube at a law.
Speaker Change: Lower level, but again that was not put into our guidance at the higher levels. So we're quite satisfied at this point I think what we're more focused on is the fact that that level of clarity allows things to move forward and we're as excited about that portion that now things can move forward people understand where they are and as Neil indicated over just over 20 person.
Speaker Change: Our order book is now focused on some level of domestic content at this point. So we're excited about being able to deliver that for our customers.
Speaker Change: Thank you. The next question comes from Joe Osha from Guggenheim Partners. Please proceed with your question Joe.
Joe Osha: Thank you Hello, everyone back to 80 CVD in November 27th one of the things that we often see is that you know not every module maker is treated equally you know how much of a challenge.
Joe Osha: We see with developers switching out panels from one vendor to another and how does that affect your business. Thanks.
Speaker Change: Yeah, I think for us where we're really excited about that so first I.
Speaker Change: I can tell you that when we're designing a site now and this has been this way for about a year.
Speaker Change: Since the a D C V D. We're not giving a vendor a one site design what are the challenges. We have internally is that our customers rather are asking us for three and four different site designs on three or four different paths right, they're unsure which handle theyre going to choose and the and so we're doing multiple site designs for our.
Speaker Change: Customers under varying different supply chain strategies, they have for different panels, and we've been doing that consistently now for probably eight months or so right. So where we're used to historically give you one quote one design, we're giving you for quotes with four different designs and what happens in the next round of a D. CVD clarity is once our customers.
Speaker Change: Understand those economics of those different panel choices. They will then make their supply chain choices and pick one of those four designs and move forward now.
Speaker Change: The benefit for us and our unique ability to do that versus other competitors in the industry.
Speaker Change: Is that we don't drill into our torque tubes, we don't have pre set fixed positions for clamping systems, so that as our clients slight onto the torque to you could you could slide those to the left or right several inches or feet, if need be but we have a much greater level of flexibility without needing to re drill.
Speaker Change: Torque tubes out in the field. So our customers can do those late selection of panels better within array system than our competitors.
Speaker Change: And as such we're getting a multiple designs and getting them ready to be able to make panel selections late in the process.
Speaker Change: Thank you. The next question comes from the Killen badly from Citigroup. Please proceed with your question.
Speaker Change: Good evening everyone.
Speaker Change: Can you talk about any changes to contract terms with customers if they'd already what percentage of orders do have cashed out that they've made and so are you taking some sort of guarantee in the Albany.
Speaker Change: They need to see.
Speaker Change: In terms of a second question.
Speaker Change: Outlook for the Brazilian market.
Speaker Change: You've mentioned that you highlighted you are a leader in that market. If you can just talk about how you're thinking about expectations. In 2005. When you say, it's you see year on year growth in Brazilian market.
Speaker Change: For guidance, but just broad outlook do you still see that market growing healthily for you and then a final question in terms of 45 day, because I know you've been talking about shooting 45 X in cases, where you can gain more wallet share with your customers.
Speaker Change: Have you shared 45 X. Because then you have to go customers. In cases, you had could we think about gross margin that you listen to its gross margin goes down but the absolute gross margin goes up as you gain more wallet share.
Speaker Change: Giving up some 45 have you have you shared any and I would be thinking about it the right way. Thank you.
Speaker Change: Great question, we're going to unpack all of those questions.
Speaker Change: Let me take the first couple of I'll turn it over to Neil as Neil runs that Brazilian operation. So I'll give you a better answer on Brazil. So.
Speaker Change: I'll say it again to currently we have no orders within our order book, which requires the explicit sharing of 45 X credits now that being said, we recognize our margins and when you look at our Q later today, our margins domestically are doing really really well and we're benefiting strongly from 45 X credits we are mindful of this.
Speaker Change: And we're.
Speaker Change: Opportunistically, providing our customers more competitive pricing utilizing some of the 45 X, but it is not an explicit sharing agreement with 45 X. It's about us realizing the benefits that we're getting and being able to pass them on and more competitive situations. So we feel really good about our ability to use some of that outsized.
Speaker Change: Domestically to drive additional business and.
Speaker Change: As I said, you'll see that in the Q that our domestic margins are going really really well at this point.
Speaker Change:
Speaker Change: The second.
Speaker Change: Second question or second element of the question was really about terms and contractual terms and what we were seeing relative to that look.
Speaker Change:
Speaker Change: Always on occasion, you may negotiate negotiate one off exceptions.
Speaker Change: On terms, but we've seen no real material shifts in customer deposit behaviors or requests.
Speaker Change: I will say that look is as order cycles have elongated in the last year.
Speaker Change: Had a couple of customer conversations where customers are less willing to put full contractual deposits down too early so historically, where we may have gotten a 20% downpayment very early in the process in a couple of cases I've worked with those customers to reduce that initial 20%.
Speaker Change: Down to a lower percentage initially and then they provide additional deposits over time as we get closer to the project kicked off so I could say that's only happened on on a couple of occasions. This year in total so it's not something that's really gone programmatic to us at all.
Speaker Change: And our goal is to routinely have as much of our backlog fully contracted and by fully contracted that means there are penalties associated with delays cancellations and things of that nature. So our goal is always to have as much of our backlog fully contracted we're going to continue that practice and continued focusing on customer.
Speaker Change: Deposits prior to ordering materials and locking in our pricing and as we do that I'm certainly happy to get a large order fully contracted.
Speaker Change: Even if that means say half of my historical deposit upfront on an order right selectively we're willing to do that because I really want that contract off the street and in my books with penalties if that makes sense.
Speaker Change: And I sort of think Nielsen or anything.
Speaker Change: Yeah, and then just over on the Brazil topics. So again not going to guide for 2025, but let me talk to a little bit about the context of what we've seen this year. So as Kevin mentioned earlier in the year. We saw a lot of project pushes for it in Q period in kind of that mid summer timeframe. We saw some of the same in Brazil during that time, but at this point that's largely settled out.
Speaker Change: So we haven't seen that rate of change.
Since that period early this summer and now that market. Obviously is working through a number of factors. There's certainly some of the currency challenges.
Speaker Change: Also the curtailment a dynamic that's taking place with the Brazilian power grid.
Speaker Change: So we do think it's going to take a couple of quarters for that to settle out.
Speaker Change: But we do feel confident in our position there we gained a lot of share for 2023 and 2024.
Speaker Change: It's been publicly noted that we were the largest D. G provider in Brazil at this point as well so we feel really well positioned we do think it's going to take a couple of quarters for things to settle out but those things then pick up again, we feel really well positioned to pick up where we left off.
Speaker Change: I can add I think one of the things that the team in Brazil. Other Nielsen leadership has done a great job over the last couple of years. It's we recognize that the Brazilian market shifts from period to period between large utility scale and DG projects. So this means you are going from maybe doing 10 or 15 large projects a year too literally hunter.
Speaker Change: <unk>, a five and 10 and 15 and 20 megawatt projects, we set up a model that allows our business to shift very very quickly between the two when we see and that's what youre seeing youre seeing the results of that increase process and operator operating efficiency of being able to pull that shift very quickly is what youre seeing in our D.
Speaker Change: <unk> market share certainly in 'twenty three over 'twenty, two we gained a lot of market share and utility.
Speaker Change: Tying for the for the number one market share in utility scale solar in Brazil, gaining nine full percentage points and then immediately shifting thereafter, when the utility scale is getting bogged down a little bit in the near term shifting to have the largest market share in the D. G portion of the Brazilian market. So it's real strong credit to the team in Brazil, that's being able to pivot the business.
Speaker Change: Very quickly.
Speaker Change: For whatever the market throws at us down there and I think that's a big noticed success in our business model in Brazil to date.
Speaker Change: Okay.
Speaker Change: Thank you next question next question comes from.
Speaker Change: The next question comes from Kashi Harrison from Piper Sandler. Please proceed with your question.
Kashi Harrison: Good afternoon, and thanks for taking my question.
Speaker Change: So just the one from me you know Kevin how do you philosophically think about the appropriate level a level of SG&A for the business are both quantitatively.
Speaker Change: Whether that's relative to sales or backlog or what have you.
Speaker Change: Qualitatively as you think about our strategic and and R&D and what have you.
Speaker Change: Yeah, I mean, we treat the buckets very differently right relative to R&D as the team brings forward really strong projects that pencil out with.
Speaker Change: With a high degree of margin accretion and revenue tied to them. We will fund them period. That's period nonstop, we believe that some of the best use of our funds is driving organic growth through new product development. We're seeing some of the new product development that we started when I got here two years ago, finally, coming to fruition and finally showing up in meaningful Chi.
Speaker Change: <unk> and our order book, So we're going to continue that.
Speaker Change: Relative to SG&A on the front end of our business. What we found is that we have ample opportunities to continue investing in the front end of our business. Both internationally certainly in the last quarter. If I think about some of the ads in those quote unquote strategic investments we referenced in our prepared remarks, that's about sales and marketing talent coming into the company and getting much more.
Speaker Change: Aggressive we've added salespeople in Europe, we've added salespeople in the U S. We've added targeted.
Speaker Change: Product marketing specialists in the U S to really continue to to get the word out of our superior product advantages in the market look we had been out marketing in this business for some time, we're just flipping and getting much more aggressive on the front end of our business.
Speaker Change: Got new sales leadership in place New commercial officer named and several new bodies in the business already in just the last say two to three months coming in to help us accelerate the front end of that business.
Speaker Change: The next question comes from Colin Rusch from Oppenheimer. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Colin you May call. It maybe a question in your line.
Speaker Change: Sorry about that guys.
Speaker Change: I'm curious about the competitive landscape and how much activity youre seeing in terms of cost reduction.
Speaker Change: Any of your peers are and and the pricing dynamics you might be seen as a result.
Speaker Change: I wouldn't say, we're seeing much changes between.
Speaker Change: You know historically look this is always a competitive marketplace between certainly the top few of us.
Speaker Change: I would say it continues to be a competitive marketplace for the top three of us, but I can say, we're not seeing big deterioration in asp's or anyone driving down price I think what we're seeing is the beginning of some creeping in a sharing of 45 X on behalf of some of our competitors.
Speaker Change: And that's showing up in some price and again when you look at our strong domestic margins in the Q, you'll see that we've got ample room to do that alongside it.
Two to even grow our market share even further than we think we have recovered. This year. So we feel it's still fairly disciplined at this point its certainly not a.
Speaker Change: Nothing close to a price war out there of what we're seeing is targeted projects.
Speaker Change: Maybe fit us or fit a competitor, we're being aggressive to ensure those come into our order book.
Speaker Change: And I think theyre very similarly.
Speaker Change: I appreciate that.
Speaker Change: Thank you. The next question comes from Derek Soderberg from Cantor Fitzgerald. Please proceed with your question.
Speaker Change: Yeah, Hey, guys. Most of my questions have been asked but maybe.
Speaker Change: Maybe on the 77 degree tracker curious you know what sort of the significance of having this solution for you guys. Do you think maybe your architecture is uniquely suited for it I know it's in the early days of May.
Speaker Change: Maybe what's the value of this type of solution in the market in terms of selling price increases is that material is there a margin improvement attached to that anything on that would be helpful. Thanks.
Speaker Change: Yeah. So when we we spent a lot of time with our customers with industry forums. This year, we held it insurance Forum earlier this year and at headquarters and.
Speaker Change: We really wanted to hear from our customers or from the industry, you know, what theyre seeing and feeling in hearing, especially given a lot of the extreme weather events.
Speaker Change: There was a major storm and set of storms in Texas around middle of the year, where there's a significant damage and to be clear we feel that your legacy platform. It's dosed at 52 degrees has performed really really well in the real world and actually it's performed quite well when you look at competitors' offerings that are right nearby. So we feel really good about our current.
Speaker Change: Product and its ability to perform well and extreme weather for a lot of the reasons, we talked about in the prepared remarks, but that being said you know given that you.
Health claims are like 1% of all claims but represent about 50% of the losses. There is a high degree of sensitivity around anything that can be done to improve especially when it comes to large size hail, which is really what provides like three inch diameter or more is really what drives the predominant amount of damage for these sites and there's a prevailing view.
Speaker Change: New that we heard from our customers and industry contacts that he have a higher degree of would be helpful. As they look to mitigate a potential claims and losses and the analyses that they use despite what's been kind of happening from a real world perspective out there. So long story short is we worked with our technical teams spend a lot of time discussing.
Speaker Change: And ultimately determined that hey, there's an opportunity for us to really meet the needs and what is being asked for to come out with what we will believe is this highest degree so capable to protect against extreme weather events that being said, it's gonna be set upon the George Washington, <unk> platform. So it's not a <unk>.
Speaker Change: Brand new offerings. So it's gonna be built largely upon the existing platform, which makes it pretty straightforward for us to bring to market.
Speaker Change: And ultimately when it comes to certain design criteria that customers are asking for a specific.
Speaker Change: Specific enhancements do oftentimes bring with it a potential margin opportunities, but we're not ready to get into that level of detail at this point that being said great response already plus conference that was held in Anaheim in September.
Speaker Change: Feedback from our customers a lot of enthusiasm a lot of interest and we look forward to talk to you about a lot more as it gets closer to coming out.
Speaker Change: Okay.
Speaker Change: The next question comes from Mohit <unk> from Mizuho Securities. Please proceed with your question.
Speaker Change: Hi, Thanks, very much it's David on for me.
Speaker Change: Just a quick one with your competitor acquiring foundation companies is that impacting your ability to bid for any projects.
Speaker Change: No from our perspective, Hey, you.
Speaker Change: Those foundation companies or robot.
Speaker Change: Kind of Rocky soil those types of environments are really a niche kind.
Speaker Change: Kind of part of the market.
Speaker Change: And to be clear.
Speaker Change: Certified to work with with that provider and given that it's a niche offering we're still certified to work with them. They are working with us and we don't really feel that there's any limitation to us from a go forward standpoint in that niche you were obviously evaluating opportunities in that space and in other spaces, where it makes sense from your Rockies.
Speaker Change: Oil.
Speaker Change: Upper Midwest. This is why we talked about with with Skylake.
Speaker Change: Certain opportunities for us to have solutions that are custom tailored to certain geographies in parts of the country you're in around the world.
Speaker Change: And.
Speaker Change: We don't feel any limitation based on the data acquisition was made and we're quite comfortable with our position when it comes to specific soil train.
Speaker Change: Thank you very much ladies and gentlemen, we have reached the end of our question and answer session and this does conclude today's conference. Thank you very much for joining US you may now disconnect your lines.
Speaker Change: [music].