Good evening, and welcome to Array Technologies Fourth Quarter and Full Year 2020 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks in Q&A. At this time, I'd like to turn the call over to Cody Mueller, Investor Relations of Array Technologies. Thank you. You may begin.

Good evening and thank you for joining us on today's conference call to discuss Array Technologies fourth quarter and full year 2020 results. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's earnings press release and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission. Each of which can be found on our website, 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 fourth quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Jim Fusaro, Array Technologies' CEO.

Thanks, Cody, and good evening everyone. Thank you for joining our earnings call. In addition to Cody, I'm joined today by Nipul Patel, our Chief Financial Officer; and Jeff Krantz, our Chief Commercial Officer. I'm pleased to report that we generated revenues of $181 million in the fourth quarter and $873 million for the full year 2020 exceeding the high end of our full year guidance that we previously provided. Full year 2020 revenues increased 35% versus last year, reflecting continued strong growth in the US solar market increasing penetration of trackers versus fixed tilt and continued market share gains by our products. We anticipate continued strong growth in 2021. Since our last earnings call, there have been several developments that have caused us to set our growth expectations higher. First, the recent two-year extension of the solar ITC has expanded the number of solar projects that are viable and we believe it will result in a substantial increase in demand for our products. Second, corporate commitments to decarbonize continue to increase and most companies plan to meet their sustainability goals by buying renewable energy. Meeting that demand requires a lot more generation. We believe the lion's share of that will be met with solar. To put some context around that. since our last earnings call, in the beginning of November, 323 global companies, including 59 in North America have announced commitments to source the energy that they use from renewable sources or established targets for emission reductions that rely on using energy from renewable sources. And that's in addition to the 922 global corporations that already have these types of commitments in place. Third, President Biden's election in combination with Democratic control of Congress increases the probability of major climate-change related legislation that is likely to accelerate solar deployments.…

Thanks, Jim. Before I talk about our fourth quarter results, it is important to keep in mind that our 2020 results were heavily first-half weighted as a result of our customers' attempt to capture incentives by the federal government related to the 2020 step down in the ITC. This caused our customers to place the bulk of their orders in the back half of 2019 and then take delivery in the fourth quarter of 2019 and the first two quarters in 2020. 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 the ITC step down skewed revenues in 2020 to Q1 and Q2, while revenues in 2019 were more evenly distributed. For the fourth quarter, we generated revenues of $180.6 million, which was a decrease over the prior year period as a result of these changes in seasonal order pattern. However, our revenues exceeded the high end of our guidance as we had better than anticipated project delivery conversion at the end of the year. ASPs in the quarter were up approximately 2% year-over-year. Gross margins in the fourth quarter were 19.6% lower than the prior year period as a result of having less revenue to absorb fixed cost and project mix but we're in line with our expectations for the quarter. Operating expenses increased compared to the year-ago period, primarily due to a $10.4 million expense related to the revaluation of contingent consideration, mainly related to the earn-out obligation we have with our founder along with higher costs associated with being a public company and increase in headcount. We recorded a net loss in the quarter of $2.2 million, primarily as a result of the $10.4 million contingent consideration charge. This is…

Thanks, Nipul. I'll close by reiterating how proud I am of the Array team for all that we accomplished in 2020, from our hugely successful IPO to our strong financial performance to the work we have done to lay a foundation for continued growth in 2021. It was truly an incredible year. We appreciate the support of our shareholders as we continue to grow our company. And with that, operator, please open the line for questions.

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Lee with Goldman Sachs. Proceed with your question.

Hey, guys. Good afternoon. Thanks for taking the questions. Good job on the first quarter out here. I had a couple here I guess, with respect to, you mentioned Nipul, the pricing dynamic for 2020, you were up 2% average ASP, I think. How should we be thinking about pricing in 2021? What's embedded in your outlook here? Just given some of the comments around cost inflation, are you capturing some of that in price? And can you quantify it to any degree? And then are you able to go out to the market with more price increases if we continue to see inflation sort of pressure in some of your input costs moving throughout the year and there is not a normalization?

Yes. Hey, Brian, it's Nipul. Thanks. Thanks for those questions. What I would say, you're right as I mentioned, the 2% prices -- price increase year-on-year. We've held prices relatively flat, and we think they are stable. However, we do have the option as mentioned as -- to go back in the market. We've built in that range in our guidance to allow us to evaluate case by case, Brian. But yes, we do have that option.

Okay, that's great. And then, second question on the contracts and awarded orders. I know you guys aren't going to make this a recurring update per se, but can you speak to -- it sounded directionally like you've seen some growth in that even off the December 31, 2020 reported level. Can you give us a sense of where that sat now early on in 2021, and then kind of what the geographic mix is, it's, you said 15% of sales by Q4 2021 will be non-US. Is it 85-15 in that kind of contracts awarded order backlog or is it different there? Thank you.

Yes, sure. So. Hey, so regarding the backlog and awarded orders, like you mentioned, we decided we're going to provide that once a year, the concrete number as part of our annual guidance process, but yes, what we've seen is it is growing since December 31, and we'll give qualitative measures on that going forward, but we feel pretty good about that. The thing to really mentioned about this Brian to is with the ordering pattern changes in 2020, with the ITC being extended, we feel really good that we have 60% coverage at year-end of our mid-point guidance. So, we really feel good about that as well as the increase from January.

All right. And then, just Nipul, in terms of the mix, any kind of geographic color you can provide? Is it that 85-15 or are you seeing more skew even toward non-US in that mix?

Yes. So what we've said, Jim mentioned in his script is there is a little bit of a ramp in the international sales, and we feel by the end of the year, the fourth quarter will be at a 15% mix. Right now, I think for the overall blended, I would say it's in the 90%-10% for the full year.

Okay, fair enough. Thanks a lot, guys.

Thanks, Brian.

Our next question comes from the line of Shar Pourreza with Guggenheim Partners. Proceed with your question.

Hey, good evening, guys.

Hi, Shar.

So, just a couple of quick questions here. Obviously, you've touched on what's driving the lower EBITDA margin in '21 and sort of that mid-point of the new guidance implies around 16%, and obviously you guys highlight several items like commodity costs, public company costs sort of that international push as the driver of some of that compression, but as we sort of think about margins, maybe in the medium term say post '21, should we assume some incremental margin compression further from what we're seeing today, as you're guiding as, let's say you expand internationally or should we assume maybe that 16% a pretty good floor for our modeling purposes as we think about post '21?

Yes. Hey, Shar, it's Nipul again.

Hey, Nipul.

We've given that kind of range, and the medium-term being 16% to 18% EBITDA and that's where we feel it still is with the commodity pricing as it is right now that's what any investments we're making consciously for the revenues that will be coming, we feel that that is kind of near the floor where we feel.

Okay, that's perfect. That's I just wanted to make sure that's reiterated. And then obviously, you recently increased the size of your revolver. Just maybe highlight why the -- why you saw that increase in capacity? Is it sort of organic or inorganic opportunities? In the past, you've highlighted that you would utilize your revolver for let's say, some bolt-on acquisitions, right? And then just maybe just a quick refresh, thoughts on M&A, in the near term, are you sort of targeting sort of existing parts of the BOS? Or is there new -- other new innovations that you could look to acquire, similar to the technology investment you made earlier this year?

Sure. Shar, I'll take the first half of that, and I'll pass the M&A question to Jim.

Great.

But as far as the revolver, yes. We are always looking for flexibility in our capital structure, obviously, to -- the way we look at our capital structures, invest in high ROI projects, but also look at opportunities for bolt-on or inorganic growth. And so, we provide ourselves we believe the flexibility to expand that revolver to accomplish both of those. Jim, do you want to take on the M&A?

Yes, so we're going to continue to keep that pipeline robust and our thesis remains the same, to the extent we can tap into additional wallet share whether it's mechanical balance of system or electrical balance of system, and most importantly technology. That remains really foundational to our strategy on M&A, and I think our investment in technology that we noted is really the first step towards that. So we remain very optimistic about what we have in the M&A pipeline and we're going to continue to vet that going forward.

Got it. And then, just lastly for me; I'm just wondering, just from a sentiment, it could be positive, it could be negative. If you've seen any sort of shift from your customers following maybe some of the events we saw in ERCOT, MISO and the SPP regions from the recent weather events. Has sort of -- has that swung any of your sort of your order books as we think about what we just went through a few weeks ago --- a couple of weeks ago?

No, not at this moment, Shar, but I'm happy to report that we've got nearly 40 sites in the affected region, nearly 3 gigawatts and we have not received any word at any issue on our sites, so probably too early to tell, but really nothing notable.

Perfect. Congrats on the execution, guys

Thank you.

Thanks, Shar.

Our next question comes from the line of Paul Coster with JP Morgan. Proceed with your question.

Yes. Thank you for taking my question. It wasn't clear to me as the impacts of these investments and other expenses during the year; how it's distributed across gross versus EBIT margins? So it sounded like it was more below the line, below operating expense related than it was direct costs. Can you just sort of give us some sense there?

Yes, Paul, this is Jim. It's roughly half and half, with half of it going towards the innovation piece. And it's really about the future here. So this is -- I'm not the one that really coined this but certainly doing two things seemingly conflicting at the same time, delivering on the short term while investing in long-term, so half of it is on the innovation piece. And I'll let Nipul comment.

Yes. So on the other -- on the margin side, we built into our range. The impact of higher freight and raw material costs really not abating as quickly and that's really the other half of that cost that we have in our guidance range, Paul.

Yes, maybe a little unfair to ask this but if the pandemic could kind of cleared up more quickly, how much more EPS would -- I mean how much EPS has been sort of forfeit as a result of shifting things into the second half, international growth, in particular?

I couldn't really give you a quantifiable answer on that. My only wish and desire was that it would clear up faster, but that's just not the reality.

Yes, it has delayed, as we mentioned, in the second half.

Yes.

All right. Okay, last question. You've talked of China [ph] trying to sort of nail down, most of the big EPC customers as your proxies are going into the end market at least in the United States. What proportion of the largest like 10, 20, do you think you've now got secured as sort of regular customers?

Paul, I would just lead off by saying, we added 38 new customers, eight of which were international. I would have to get back to you with respect to the mix, which is the IPPs, developers versus EPC. I don't have that readily available, but we can get back to you on that.

Okay. All right, thanks very much. Appreciate it.

Thanks, Paul.

Thanks, Paul.

Our next question comes from the line of Stephen Byrd with Morgan Stanley. Proceed with your question.

Thanks so much for taking my questions. I wanted to just get your thoughts on the competitive playing field. Are you seeing -- are there new entrants, changes in offerings? And just wanted to also in that context, if you could just speak to sort of share that you described a little bit in your prepared remarks, just wondering if you could give any more specifics on sort of your take on kind of market share position and just relative competitive positioning more broadly?

Yes, Steve. I would first say that we respect all competitors. Haven't really seen any new entrants and with respect to market share, I would really just point you to our year-on-year growth. And then what we've outlined by way of the mid-point of our growth going forward into 2021 and then how that falls out with respect to share of demand, I'll let you do the math there.

Very good. Understood. And then just lastly, you talked to kind of the growth internationally, and it sounds like just, it's just rather it's just a bit of a delay, it's not as if there is a shift upwards in your cost structure to be able to execute internationally, but more of a delay. Am I sort of reading that properly?

Yes, that's exactly right. When you think of the delay, think of it in terms of certain countries had travel restrictions. So I couldn't get boots on the ground to really qualify the supply chain fulfillment and things of that nature. So that was really a delay.

That's perfect. That's all I had. Thank you.

Thanks, Stephen.

Our next question comes from the line of Michael Weinstein with Credit Suisse. Proceed with your question.

Hi, guys. Hey, I understand that 16% to 18% gross -- EBITDA margin guidance, as you increase the percentage coming from international, does that actually push things up towards the higher end of that range or is it all the same? I'm just curious about the difference between US and international.

Yes. So that's -- the way we look at that, we are still going to maintain the 16% to 18% range and as the mix changes, there'll be less investments that we're making this year. So we still think we'll be in that range.

Yes. But I mean just a follow-up with Shar's earlier question, I mean is it -- is international expected to have higher gross margins just -- versus the US?

Yes. That hasn't changed from what we had said before, Michael. It is initially, we know that they're going to be a little bit lower margins. but over the longer term, it's going to be at or higher than the domestics because of the input costs.

Got you. So what's the -- if you expect to maintain the range, what's the offset to that?

Well, as we're ramping up if you recall in international sales, so as the investments abate from this year, and the international ramps up. That's where you get the offset.

Yes. Okay. I see. I see. In terms of new technologies, you mentioned that you're invested in a new technology that's yet to be revealed. What -- are we talking about something that is still going to be in the tracker field? Or are we -- are you branching out into completely new, a solar value creation, something new in terms of creating efficiency?

Yes. I would say the look -- the way to look at it, Michael is, it's going to be within the tracker itself in utility-scale, but certainly, we're not limiting ourselves there when we look at technology.

Are you still -- are there other investments that you're working on, currently, also additional bolt-on acquisitions or major acquisitions?

I would just go back to what I said earlier that our pipeline remains very robust, and as they mature, they will become apparent.

Maybe you could comment a little bit more on the R&D capabilities that you think will be available in Phoenix under the Phoenix facility?

Yes. I would just refer you back to what we said earlier. Some of the pain points that our customers are seeing is that the time to install, so labor is an area that we're focusing on. We're also looking at means and ways through which you can minimize grading, so have more flexibility, foundation counts another, how you can generate more output or energy maximize that through software. So that's kind of the -- that we're working on, but we're really excited about the tech center.

And just two last ones from me. One is, is the cost of steel becoming a problem for you, world steel [ph]? And also where internationally, which continents are you planning on focusing on first, highest priority and which will be the next ones after that?

So, we obviously manage and monitor all commodities accordingly, and then we build in productivity measures to address that to continue to drive our value. If your question was pertaining to our supply chain, -- sorry, Michael, could you clarify your question?

Yes.

Yes, sorry...

[Indiscernible] supply chain, I mean I'm thinking about the pressure on margins from cost inputs.

Yes. I mean, there is always going to be pressure on cost. That's pretty much market agnostic and product agnostic. But that said, we've actually built up, we continue to build out our supply chain. We added 15 new suppliers in four new countries. So that's just going to be an area that we remain focused on going forward as we grow both domestic here and internationally.

All right. And also in terms of your focus on sales, where are you going to go next? What's the highest priority in terms of continents and countries? And what's the second after that?

Yes, I would actually point you back to what we've always said, and that is really a strategy of following our customers. We added 38 last year, eight of which were international, have international reach. We like to follow them into the regions that make the most sense since they are the ones that are actually investing in connecting to the grid. So I think you could look at South America and certain countries there, and then Western Europe, as well as Southeast Asia, not necessarily in that order, but those are areas that our customers seem to be gravitating towards.

Okay. Thanks a lot, guys.

Thanks, Michael.

Thank you.

Our next question comes from the line of Philip Shen with ROTH Capital Partners. Proceed with your question.

Hi, everyone. Thanks for taking my questions. First ones are around safe harbor. I was wondering if you might be able to share how many megawatts of safe harbor were in Q4? And then what do you expect in Q1 and what do you expect overall in the '21 guidance?

Yes. Hey, Phil, it's Nipul. How are you? So I -- we're going to not talk about megawatts, but I'll give it to you in revenues. So we had about $40 million in our Q4 numbers and we expect to deliver, of course, ITC related, now that is extended about $100 million in the first half of the year.

Okay, great. And then should we not expect any in the back half of '21?

Well, the ITC is extended now. So, we would assume normal seasonal patterns where Q2 and Q3 are the high build months.

Great. And then, you guys gave the backlog numbers $705 million and $654 million for the next 12 months. I was wondering if you could give those same numbers for what -- at the end of 2019?

Yes. Hey, Phil. We didn't track backlog and awarded orders at the 2019 at the same precision, we're doing it in 2020. But the numbers are roughly similar between the two periods, and as you know, it doesn't tell the full story because at the backlog, at the end of 2019, that represented what most of the customers planned for the full year. And you saw that manifested by the concentration of our revenues and profits in the first half of 2020. So that's why we feel really good. The backlog is about the same level, but the $654 million that we have this year is really, really represents about six months of deliveries and so we feel that it's great that already -- we have already covered about 60% of our full year mid-point guide.

Great. Thanks, Nipul. And then, as it relates to margin -- the margin outlook, I know you're not providing official guidance on this, but given the cadence of the safe harbor revenues, it's being concentrated in the first half, can you talk through what is either the gross or EBITDA margin look like in first half versus back half?

Yes. It's -- we are about the same throughout. So I would just take the revenue split that we had and about the same margin.

Okay, great. That's all really helpful. Thank you. I'll pass it on.

Thanks, Phil.

Our next question comes from the line of Colin Rusch with Oppenheimer. Proceed with your question.

Hey, guys. It's Joe [ph] on for Colin. Thanks for taking our questions. Given the growth in demand, we're expecting to come some of that's likely going to be from odd lot -- odd shaped lots are more difficult terrains, so can you maybe speak to the dynamics around addressing those sorts of sites?

Yes, I'm sorry. Colin or who's speaking?

This is Joe [ph] on for Colin.

I think as that -- hey, Joe. Yes. Our strategy, our product addresses those quite nicely, whether it's 1 to 20 megawatts and that was part and parcel of the reason that we went forward with what we do with RPCS because that's exactly what they do well for us. So we don't see any challenges with respect to the terrain flexibility of the odd-shaped sizes themselves that we've been servicing that market quite nicely, and we plan to do so going forward.

Okay, great. And then, a little bit back to the question around input costs and supply chain. Are you guys looking at any new materials that could potentially reduce your cost of goods sold?

Yes. Now, don't ask what they are.

Okay. Well, I mean, any color you can give there would be good.

Yes. We're looking at alternative materials, that's just part and parcel of what the R&D team does.

Sounds good. Thanks very much.

Thank you.

Our next question comes from the line of Jeff Osborne with Cowen. Proceed with your question.

Yes. Good afternoon. Most of the questions have been addressed, but just going back to the [indiscernible]; can you remind us roughly what percentage of the bill of materials is galvanized steel?

Yes. Hey, Jeff, it's Nipul. We're not -- we don't break out the bill of materials, obviously, we know for competitive products, but obviously, we have -- steel is a large component, a commodity that we use in our overall tracker.

Got it. So just a bit [ph], you're talking about the first half of the year fully booked based on the backlog and when would you be buying that steel just as it's been moving quite a bit? So have you locked in the steel as you locked in that pricing, so you have high visibility into the margins or not necessarily so?

Yes. So we typically -- I'll just give you our typical order patterns. We typically order material between six and 12 weeks from the date of the shipment. So we keep very low inventory. So the impact obviously, if the COGS, the recent run up prices would impact second half more than it would first half.

Got it. And then eight new customers internationally, can you talk about any particular geographies outside of Australia? Have you had any success? People have tried to ask about continents, but the eight new people, can you without naming them talk about what countries or regions they are from or is it all in Australia?

No, it's not all in Australia. It's still Western Europe, it's South America as well as parts of Asia. So you can think of Brazil, you can think of Spain and some other regions as well in Western Europe.

Got it. And then, the last one I had is just can you remind us, given your pricing, $0.10 or $0.11, whatever the number is, you're now talking about lowering labor costs with this investment that you made. Can you remind us what the labor cost is if utility-scale solar projects is roughly $1 or what would you think is the direct labor attributable to specifically the tracker that you're trying to lower?

Yes. I couldn't give you an absolute number, Jeff, simply because every site, every project has its own DNA depending on what the site construct looks like, the number of modules per row [ph] and things of that nature. All I can say is just reinforce the technology that we're looking at substantially reduces that. So we're quite excited about that.

Got it. Thank you.

Our next question comes from the line of Martin Malloy with John Rice -- with Johnson Rice. Proceed with your question.

Good afternoon.

Hey, Marty.

Hi. Could you give us an update, maybe on your strategy for monetizing the software?

Yes. Hi, Marty. So the strategy remains kind of three-fold here and that is first and foremost, to the extent, we can use that to create greater value at the point of sale, with our tracker that will always be included. And we're very pleased with the uptake that we currently have on our SmarTrack. The second one would be with respect to, in the event the customer has already an Array tracker out there and is interested in purchasing that by way of license and/or annuity going forward, we're working with several customers on that front. And then thirdly, would be to the extent there is opportunity for us to deploy and then to deploy the software at a later date, depending on the customer's request at commissioning. We have that means as well. We're still very early in the throes of deployment of the software solution, but are certainly quite excited about the uptick that we've seen thus far in the performance gains that is providing to customers where we have deployed.

Great. Thank you very much.

Thank you.

Thanks, Marty.

Our final question comes from the line of Kashy Harrison with Simmons Energy. Proceed with your question.

Hi, good evening, and thanks for taking my questions. So in the guidance, you highlight your expectation that commodity prices and freight charges to normalize over time. Just curious what drives that normalization view and then how long it would take -- how long the cost would need to remain elevated before you seriously decided are considered passing it on to customers, and then how to think about any concerns surrounding implications to demand from customers from higher costs?

Hey Kash, it's Nipul. How are you? So as far as that first part of the question, as far as how long we think it is and obviously, it's unknown, it's -- we're on unprecedented times as far as the commodity prices increasing. And it's really just -- it's a lot of the -- as the economy begins to reopen, there is a lot of pre-pandemic capacity that still remains idle. So we are thinking second half and late second half is when it's coming back online. And as far as your second half of the question, we're always evaluating all our pricing on our projects and we know that we have that ability and we'll look at it on a case by case basis, so.

Okay, fair enough. And then on the M&A front, I know you -- there's not a lot you can talk about, but I was just wondering if you could at least give us a timeline on when you think you might be able to buy the technology company that you refer to the remaining portion?

I couldn't give you a definitive timeline, other than we have certain milestones that need to be met by way of technology assessment and things of that nature. As they pan themselves out, we'll check the box and then proceed accordingly. But I couldn't give you a definitive timeline because there is elements that need to be satisfied as we go through the process.

I guess maybe asking in a different way, do you think this is a 2021 event maybe, or is it probably longer-term?

Yes, I couldn't tell you. I couldn't commit to a date on that.

Okay, all right. Fair enough. And then the last one from me. Good to see you're investing with R&D for the future of the business. I was just wondering if you could talk about the four innovations that you highlight on that separate press release, how to think about the impact of ASPs over the medium term? And that's it from me. Thanks.

Yes. Medium term, I don't think you'll see a large or an impact on medium term. This is long -- this is a longer play as we deploy. You can think of it out -- in the out years of '22 -- first-half '22 and beyond.

Got it. That's it from me. Thank you.

Thanks, Kashy.

We have reached the end of our question-and-answer session. And I would like to turn the call back over to management for any closing remarks.

Yes, thank you. Again, I just want to reiterate how proud I am of the Array team for all that we accomplished last year. We're certainly excited about our performance and plan to carry that forward into 2021 and where we are certainly excited about our growth going forward. So with that, I'd like to thank everyone.

And with that, this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.