Good morning, and welcome to Array Technologies Third Quarter 2020 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Anthony Rozmus, Investor Relations for Array Technologies. Thank you. You may begin.

Thank you, operator. I'd like to welcome everyone to Array Technologies' third quarter earnings call. On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's earnings news release and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.arraytechinc.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Jim Fusaro, Array's Technologies' CEO.

Thanks, Anthony, and good morning, everyone. Thank you for joining our first earnings call as a public company. I'm joined today by Nipul Patel, our Chief Financial Officer; and Jeff Krantz, our Chief Commercial Officer. I'd like to start off by thanking our new investors for the tremendous support we received in our IPO. Going public was an important milestone for our company, and our entire team was energized by the result. Being that this is our first call, I would like to start off by providing a brief overview of Array Technologies for anyone who is new to our story, and then focus the rest of my remarks on the progress we are making on our growth initiatives, before turning it over to Nipul to talk about the quarter. Array Technologies is, first and foremost, a technology company. We are one of the world's largest manufacturing of ground-mounting systems used in utility-scale solar energy projects. Our principal product is an integrated system of steel supports, electric motors, gearboxes, electronic controllers and software, commonly referred to as a single-access tracker. Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increase their energy production up to 25%. Our product is patent-protected and has a compelling value proposition. In fact, we have approximately 10 years left on our core patent and more than 10 years left on other patents. Since Array's inception, we've shipped over 21 gigawatts of product. To put some context around the scale of our business, over the last 12 months, we've shipped over 26,000 miles of trackers, which is enough to circle the globe. Finally, we are proud that more than one in every four solar modules in operation today in the U.S. is on our product. We established a…

Thanks, Jim. I would like to begin by providing some context for comparing our 2019 versus 2020 results. As most of you know, 2020 was the first of three annual step-downs in the ITC or investment tax credit for solar. As a reminder, the ITC was originally put in place to support the economics of solar and provide the runway for the industry to become increasingly competitive to other forms of generation through innovation and economies of scale. This has largely been accomplished as the marginal cost of utility-scale solar is now lower than that of natural gas without subsidies in many parts of the country. While there is a potential for the ITC to be extended at the original level, the current legislation gradually reduces the size of the credit over three years, eventually to 10%. The result of these step-downs is to incentivize customers to place orders in Q3 and Q4 and then take delivery in Q1 and Q2 of the following year. As previously disclosed in our S-1 and road show, the impact on us is to concentrate more of our revenues in the first half than the second half, and that is what we saw this year and expect to see again next year. As a result, comparing a single quarter in 2020 to the same quarter in 2019 is not necessarily indicative of the trajectory of our business, since revenues in 2020 are skewed more to Q1 and Q2, while revenues in 2019 were more evenly distributed. It's also important to note that because of the large size of many of our orders, results in a single quarter are not necessarily indicative of what we may achieve over a full year. Given the ITC change, I'll provide a brief summary of our third quarter results,…

Thanks, Nipul. I'd like to wrap up by saying we are incredibly optimistic about the future of this company. The drive to decarbonized energy is only accelerating, and we are a direct beneficiary of that transition. Solar with single-access trackers has proven to be one of the cleanest and lowest cost forms of generation, and we see demand for trackers growing faster than the overall market for solar as customers convert from fixed tilt. Moreover, customers are increasingly recognizing the superior reliability and durability of our tracking system, and that is leading to market share gains for our products. These factors, combined with our strong order book, give us confidence that we are very well positioned to have another year of substantial growth in 2021. Thank you. Operator, please open the line for questions.

[Operator Instructions] Our first question is from Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Thanks for taking the questions and congrats on your first quarter out as a public company. I guess just a couple of questions around the model to begin with maybe. Can you give us what the U.S. and rest of world mix was for the quarter on revenue and megawatts?

Hey Brian, it's Nipul. How are you? Yes, we're not going to be reporting megawatts. I can give you the mix of that revenue for the quarter. It was 10% international and the remainder are U.S.

Okay, that's helpful. And then you mentioned, Nipul, the ASPs were flat from 2Q to 3Q. I assume that's a comment on the overall mix of business. Would you say the trends, ASP wise, were pretty similar across the two regions?

Yes. We're not seeing any changes in the pricing environment.

Okay, great. And then maybe just kind of a bigger picture question. You spent several minutes outlining the safe harbor situation and kind of how the mechanics of that work for your business model. So, that was very helpful. Is there some quantification you can provide as to how much volume you saw in megawatts and dollars in 2019 from a safe harbor perspective? And then it sounds like you're anticipating more of that in the end of 2020 and early '21. We have heard from some other component vendors through 3Q earnings that they seem to be expecting a much more muted safe harbor volume impact this year versus what they saw last year. So, just trying to maybe square up a little bit what the impact might be for you and why it could be different versus what we've heard from some of the other technology peers that are out there?

Yes, sure. Thanks, Brian. So yes, we're I would say we're in line with that at last year fourth quarter. It was about $100 million of safe harbor orders, and we're seeing a slightly lower number here in our Q4 of this year in the guidance we provided.

Okay, thanks guys. I'll pass it on.

Our next question is from Paul Coster with JPMorgan. Please go ahead.

Yes. Welcome to the public markets and thank you for taking my question this morning. Jim, perhaps we can just focus on the international initiative a little bit. Can you talk to us a little bit about the approach you're taking here? Is it -- are you sort of building it and hoping they will come in terms of infrastructure? Or are you following your clients into that market? What's the time line that investors should expect for a material change? And can you talk a little bit about the pricing and margins in that market?

Yes. Thanks, Paul. It's really the latter, as you alluded to. We're going to continue to work with our customers with respect to their growth in the various regions and countries. Having said that, I just wanted to kind of give you a quick update. We continue to expand out our resources with respect to those regions. We've actually increased the number of personnel, whether it's technical sales, business development in the countries such as the U.K., Spain, Brazil, Mexico and China and Australia. So as our customers go into those regions, we will follow accordingly. And I would just reflect back with what Nipul said on ASPs. They remain somewhat stable. And as we consider the margin performance, we're going to continue to build out our infrastructure, namely our supply chain, for local content in order to cause that to be an accelerant for margin improvement going forward on the international side.

And what about timeline?

I'm sorry. One more time, Paul?

Yes. What kind of timeline before we see material sort of impact of the international expansion program?

Yes. We're going to be reporting that out on an annualized basis. So, right now our sales internationally are roughly 10%, and that's going to materially change as we go forward into next year, but I don't want to provide too much guidance on the international mix for next year.

Hey Paul, we'll also provide more information during the annual call, the split between international and U.S.

Alright, thanks so much. I'll hop back on the queue.

Our next question is from Stephen Byrd with Morgan Stanley. Please go ahead.

Hey, good morning. Congrats on your first quarter as a public company.

Thanks.

I wanted to just pick up on the commentary you laid out in the release about increased customer activity, discussions around some potential sizable new orders. Are there any particular drivers you're seeing? Any trends? Or is this just specific to different customers? I'm just curious sort of, of late, if you're seeing something different than what you've seen in the past.

No, Stephen, it's really the same. Our thesis remains the same with respect to the growth of solar overall. Having said that, we will be announcing, in very short order, a large deal with a very strategic customer that includes not only domestic but international growth as well. So, our customers continue to see the value of our product, and those trends really haven't changed. If anything, they continue to strengthen on the basis of our value proposition.

Okay, understood. And then, I wanted to step way back and talk about U.S. policy and I know we're in a period of a lot of uncertainty. But to this yet that there is a U.S. stimulus package, and that includes the extension of the solar ITC. I just was curious, sort of big picture when you talk to your customers, when you think about the growth profile longer term, how important that ITC is versus just the core importance of how very cheap solar has become? I'm just kind of curious how you think about that relative shift that we might see from a stimulus package.

Yes. Stephen, it's really the latter. Our thesis remains the same with respect to the growth in solar. And that is just based on its cost structure, that's really the driving force, and then coupled with the mega trends of decarbonization and corporate America, those corporations globally. That continues to be the fuel. I would let the individual speculate on what U.S. policy would do. I'm not going to comment there, but just -- we see the cornerstone of growth being just the cost competitiveness of solar going forward and the other attributes I just spoke to.

Very fair. And then just last one for me. You've had a couple of questions already on sort of the international growth, and I'm pleased to see the increase in infrastructure that you're talking to. Is there a potential that you would see essentially enough growth there that you want to make an investment over the next, say, six to 12 months, that is your spending, your expenses could be maybe a little bit bigger than you had planned initially. But ultimately, you conclude that's worth it because you just see an increased volume of ultimate revenue there. How are you kind of thinking about that cadence of spending and infrastructure you need? Again, I don't view it as a negative signal at all, but I'm just curious if you kind of feel like you need to make more of an investment than maybe you'd initially planned just to make sure you can execute on all the opportunities.

Yes, Stephen, that's great. Our saying here is how much for how much. Every opportunity we're going to look at is going to be on an ROI basis and if we need to invest in a said region and put infrastructure in place to support the customer's growth, and that said region will absolutely do that. But we look at every opportunity on an ROI basis.

Very fair, that's all I had. Thank you.

Thanks, Stephen.

Our next question is from Shar Pourreza with Guggenheim Partners. Please go ahead.

Hey, good morning guys.

Good morning.

Congrats, echoing Stephen's comments on your first outing as a public company. Jim, you mentioned you're in the process of sort of evaluating potential acquisition targets. I know there are like sort of multiple areas of the balance of system-related solar products and utility products that you sort of target. But maybe if you could just provide some color on what type of acquisitions you're pursuing first, and then sort of, obviously, the source of funds for the acquisitions, assuming you're going to be tapping the revolver capacity?

Yes. Well, first of all, thanks, Shar. I don't want to give too much detail surrounding any acquisition targets because that obviously is highly sensitive. I would say, with respect to those bolt-on acquisitions, we do see opportunity across the board as we are selling to the same customers those various components and services that complement our tracker. And we just maintain a very healthy pipeline of opportunities that we vet accordingly. And with respect to how we would transact, I'll defer to Nipul on that one.

Yes. So Shar, so this obviously, these bolt-on acquisitions we see we can handle with our free cash flow as well as our tapping the revolver, if needed.

Got it. And so, we're a little over a month into the fourth quarter when you sort of expect to see a large increase in orders. Can you just share what you're seeing so far in terms of orders? Is the percentage of full-year order volume in line with last year? Or is it a little less, because last year was the first year of the ITC step down. And then sort of how should we sort of think about this dynamic in '21 and '22?

Yes. So, I would go back to our filing when we talked about our backlog, where our backlog was $703 million at the end of the quarter, and that was an increase, up over 30% from the same period of last year. So, we continue to see higher activity in Q4, which we feel really good about.

Got it. And then last one for me. A question for you again, Nipul. Gross margins were up around 3%, driven by sort of the supplier arrangements year-to-date versus last year. How should we maybe sort of think about the shape of the margins over time, especially as you start to increase your footprint internationally and also look to renegotiate contracts with your suppliers? So, there's a couple of counteracting items here.

Yes. And as we had we believe our margins that for the way to look at our margins is really on a full year basis. And the way that we see our margins is kind of what we said in the high-20s for the full-year or low-20s -- excuse me, for the full-year.

Got it, perfect. Thanks again, and congrats guys.

Thank you.

Thanks, Shar.

[Operator Instructions] Our next question is from Michael Weinstein with Credit Suisse. Please go ahead.

Hi, good morning guys. Congratulations again. Just in terms of the targeted acquisitions and bolt-on acquisitions, can you give us maybe at least an idea, are these in the U.S. or are these foreign acquisitions, overseas? Where is the emphasis going to be?

Again, I don't like to give too much detail on that, Michael, but I would just kind of point back to the synergies that we see with respect to our tracker and how that would complement the customer base.

Are these in on specific types of technologies or say, a technological ramp up that you're trying to achieve? Like what's the goal of the bolt-on strategy?

It's a complement of both. Yes, it's a complement of technology as well as products and services. And the way to really look at it is the balance of systems that we obviously want to address for the customer base, how we can continue to increase the value for them as well as our shareholders.

Got you. And just one more for me. What other additional disclosures can we expect in future quarters that go beyond what you're providing today?

So, from a disclosure perspective, for the annual call, we'll obviously provide full year guidance for 2021, but we'll also include the split on a revenue perspective from an international and domestic perspective.

Great. How about on EBITDA basis? Is that only going to be consolidated?

Yes. We'll provide EBITDA obviously, EBITDA guidance. We'll give you some color around what that EBITDA is comprised of.

Great, thank you very much.

Thank you.

Our next question is from Colin Rusch with Oppenheimer. Please go ahead.

Thanks, so much. With the fourth quarter guidance, how many megawatts are related to safe harboring? And how much, I guess how many megawatts related to safe harboring do you expect to recognize those revenue?

Colin, this is Nipul. So yes, for that guidance, as it's implied, I would say that there's a portion related to safe harbor, which is we're not going to provide the exact amounts, but there is a portion that's smaller than what I mentioned in the $100 million for the Q4 last year.

Okay. And then with the backlog, the $703 million, how much is related to safe harbor -- to pass safe harbor orders? And what's the expected timeline for the delivery on that full book?

Yes. That full book, like all of our backlog there's things coming in and out of it but we'd expect that full book to deliver by the end of 2021.

Okay, great. And then just actually, I'll take the rest off-line. Thanks so much, guys.

Thank you.

Our next question is from Jeff Osborne with Cowen and Company. Please go ahead.

Hey, good morning. Most of them have been asked. I just had two. One, will the 10-Q be out today or no?

Jeff, this is as you know, being -- going public just a couple of weeks ago and doing our first 10-Q, it's going to take a little bit longer. We expect it to be out probably sometime next week. It won't go out today.

And just to follow-up on Michael's question. The 10-Q will not have megawatts or geographic split of revenue? That's only something you're going to publish or disclose annually?

Correct. It will have the 10-Q will have the change in megawatts in our MD&A section, not the exact megawatt shift.

So, just given you have three objectives as a company, I just want to focus on the first two, gaining share in the U.S. and then growing internationally. How would you encourage your new shareholders to track your progress on those two initiatives? Is it just once a year that you want to be measured on that?

No, we will provide qualitative information throughout the quarter. So I apologize, that's we won't be providing exact dollar numbers or figures, but we will absolutely provide qualitative figures, so the market and the new shareholders can follow.

Got it. And then maybe just for Jim. Can you just touch on the decision to go after China? I think in the latest Wood Mackenzie report, the pricing in China is about $0.04 a watt less than the U.S. So, certainly competitive. Obviously, a huge opportunity. But I would have thought your partners that you have in the U.S. are less focused on China's utility-scale market and maybe more in Mexico, Brazil, Spain, some of the other markets that you referenced. So can you just touch on China, in particular, in the decision to go after that market?

Yes Jeff, let me clarify. We're not going after the market in China. We have resources internationally. China is one where we have technical resources and supply chain resources. So, as we discussed on the road show, that's kind of where we're focusing resources for Asia overall. So, the resources that we have in China, you can think of actually handling supply chain as well as some of the technical interfaces for suppliers out there.

Got it, that makes more sense. Thank you, I appreciate it.

Thanks, Jeff.

Our next question is from Paul Coster with JPMorgan. Please go ahead.

Yes, thanks for taking my follow-up question. Nipul, I wonder if you'd be kind enough to just sort of give us a sense of where the debt will stand at year-end and what the capital allocation strategy is with respect to the debt over the next couple of years.

Sure, yes. We as far as the debt, from the free cash flow that we're going to generate, we're going to. Let me start with the second part of your question there, Paul. Is from the free cash flow we're going to generate. Our key is to look at the high ROI projects and then and look at potential bolt-on acquisitions and then delever to keep under that three times leverage, as I had mentioned previously. But from a perspective of debt, we think it's we're going to be between [indiscernible] at year-end. That's what we're forecasting at this point.

Great. Thank you very much.

Our next question is from Philip Shen with ROTH Capital Partners. Please go ahead.

Hi, everyone. Thanks for taking my questions. In terms of market share for next year, what do you expect it to be in the U.S. for you guys given the backlog that you see?

Yes. Hi, Philip. I'm not going to comment on next year's share of demand, whether it's here in the U.S. or internationally. I would just defer back to Nipul. We'll continue to report on a quarterly basis of how we're doing.

Great. Thanks, Jim. And then in a bunch of the checks that we've done with customers, it seems like the preferences for trackers are quite strong. Some really prioritize the O&M savings, others prefer some of the other features that peers might offer. Just wondering, as you guys go and sell and try to gain that share, how do you work to change these very entrenched preferences?

Yes. Philip, we just continue to drive the value proposition, namely where we stand with respect to levelized cost of electricity or energy, I should say, where we believe we have a distinct advantage, our O&M advantage, zero scheduled maintenance. It's a very highly technical sale, and that continues to resonate with our customers. So really no change in how we're selling. It's just really driving that value across the board with the customers.

Great. And you mentioned, I think, earlier, Jim, that you expect a nice order with a strategic customer to come up both domestically and internationally. Can you talk about the number of those orders that might be in the pipeline? Is it more than one? Or and from a timing standpoint, do you think we could hear about that customer or the other customers sometime this year? Or do you think it might be earlier next year?

Yes. So, we're going to be announcing, it's planned tentatively planned for next week, and it's going to be north of one gigawatt, and it will be projects, domestic and international. And it will talk about enablement of the said decision by that customer. So, we're actually very excited about this one.

Great. And then what's the mix of international business in that order?

I can't disclose that, that's the customer's decision.

Can you share which country or region of the world that might be in?

No, unfortunately, I can't do that.

Okay, great. Thanks for taking my questions. Congrats on being a public company. And I'll pass it on.

This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

So, thank you operator. For those on the call, again, I want to thank you again and just reiterate how happy we are with the results of this quarter and our outlook going forward. We continue to execute on all fronts, very excited and very pleased. And again, a heartfelt thank you to everyone.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.