Hello and welcome to the Array Technologies' Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Cody Mueller, Investor Relations at Array Technologies. Please go ahead.

Good evening and thank you for joining us on today's conference call to discuss Array Technologies' fourth quarter and full year 2022 results. Slides for today's presentation are available on the Investor Relations section of our website, arraytecinc.com. During this conference call, management will make forward-looking statements based on our 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. We identify the principal risks and uncertainties that may affect our performance in our reports and filings with the Securities and Exchange Commission, which can also be found on our Investor Relations website. We do not undertake a 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 Kevin Hostetler, Array Technologies' Chief Executive Officer.

Thanks Cody and welcome everyone. In addition to Cody, I'm also joined by Nipul Patel, our Chief Financial Officer; and Erica Brinker, our Chief Commercial Officer. Let's begin on slide four, where I will provide some highlights of our fourth quarter and full year results. We closed out 2022 with continued strong performance as revenue, adjusted EBITDA, and adjusted EPS were all above the midpoint of our previously issued full year guidance. Despite the continued module availability challenges and a number of site closures due to weather late in the year, we were still able to deliver revenue in the quarter of $402 million. This represents an increase of 83% from prior year's fourth quarter of which 22% was organic growth within our legacy Array segment. This puts our full year revenue at $1.638 billion, which exceeds the high end of our guidance range for the year and represents organic growth of nearly 50% and total growth of 92% from 2021. It is important to take a minute and put that growth in context. 2022 was a year marked with consistent module availability challenges; from WRO in the beginning of the year, to ADC BD in the spring and summer, and finally, the UFLPA in the second half of the year. The design of our Tracker system where we do not require pre-drilling into the torque tube, allowed our customers to make more flexible approach to the design of their sites in close conjunction with our applications engineering team. In instances where module availability was unknown during the design process, Array was able to support customers by designing a site with multiple module options. This ensured that as soon as modules became available, the time to install was greatly reduced. This is a testament to not only the unique design…

Thanks Kevin. Please turn to slide eight. Revenues for the fourth quarter increased 83$ to $402.1 million compared to $219.9 million for the prior year period, driven by higher ASP on our DuraTrack product and the acquisition of STI. The $402 million in revenue reflects $269 million from the legacy Array segment and $133 million from the FTI segment. Gross profit increased to $80.5 million from $10.3 million in the prior year period, driven primarily by an increase in volume from the acquisition of STI as well as ASP growth in our legacy Array segment. Gross margin increased to 20% from 4.7% as the legacy Array segment had minimal impact from our legacy price contracts in addition to strong margin performance in our FTI segment. Gross margin for the legacy Array business was 18.2% and the FTI business had gross margin of 23.8% in the quarter. Operating expenses increased to $64.2 million compared to $30.3 million during the same period in the prior year. The higher expense is primarily related to a $24.7 million increase in amortization expense related to the STI acquisition. The remaining increase represents the additional operating expenses from the FTI business as well as higher headcount related costs to support the company's growth and innovation. Net loss attributable to common shareholders was $17.3 million compared to a net loss of $32.1 million during the same period in the prior year and basic and diluted loss per share was $0.11 compared to basic and diluted loss per share of $0.24 during the same period in the prior year. Adjusted EBITDA increased to $51.7 million compared to $453,000 for the prior year period. Adjusted net income increased to $15 million compared to adjusted net loss of $7.8 million during the same period in the prior year and adjusted…

Thank you, Nipul. It has been almost one year since I started as the CEO of Array and I'm incredibly proud of what the team has accomplished during that time. No doubt there have been some challenges, but I firmly believe those challenges have made us a better company. So, I want to thank the entire global array team for all of their hard work over the last year and I look forward to all we will accomplish in the future together. With that, operator, please open the line for questions.

Thank you. And at this time, we will conduct our question-and-answer session. [Operator Instructions] Our first question comes from Brian Lee with Goldman Sachs. Please state your question.

Hey, guys. Good afternoon. Thanks for all the color here. I guess one question, Nipul, just starting off on the guidance, appreciate the volume versus price commentary you provided here as to what you're embedding in the outlook. But can you also give us a little bit of color as to per geography, sort of your view on volume versus price trends, baked into your 2023 outlook? And then also, I'm a little surprised to hear that pricing is flat versus 2022, I would have thought maybe pricing has a little bit more tailwind into 2023. So, are you being conservative there? Could we see some potential upside emerge on the pricing side of things, whether IRA-driven or not in the back half of the year? Just trying to get a sense of where your head's at around pricing?

Sure. Hey, Brian. From a pricing perspective, we look at by geography. Overall, we're relatively flat as we stated, but I would say we're a little bit higher on the FTI side. And as far as pricing staying flat overall, we think that there's probably a little bit of upside in there. But at this point, we can't see that, so therefore, we've called it as flat for the year.

Okay, fair enough. And then I know it's still sort of too early to make a call on the IRA potential impact, although you're optimistic. Can you again level set us as to, one, where lead-times are today for your US shipments? And then two, sort of what the timeframe you would expect or need a bit more clarity for some of your ongoing discussions with your supply chain and customers to materialize into some of that upside that's potentially out there?

Yes, sure. So, from a lead-time perspective, we're still at around 14 weeks lead-time for US projects. And we are having continued discussions with our customers and I think that as the language is clarified, we feel like we'll be able to come back to the market with any potential upside that comes from that. But stay -- our lead-time does stay about the same around 14 weeks.

All right, fair enough. I'll take the rest offline. Thanks guys.

Thank you. Our next question comes from Philip Shen with Roth MKM. Please state your question.

Hey guys, thanks for taking my questions. First one is on bookings year-to-date, was wondering if you might be able to give a little bit more color on that. I know you haven't seen the full acceleration yet from the IRA given the timing of the guidance from treasury. That said, was -- could you share where things stand thus far the first quarter is almost over here? Thanks.

Yes. Hey, Phil, Nipul. So, we continue to have solid bookings for the quarter and we're essentially done with the first quarter here. We still see strong momentum here in the first quarter of the year. So, we feel good about heading into 2023.

Great. Thanks Nipul. Shifting over to the backlog, you guys talked about backlog having high teens to low 20s margin. And your guide for 2023 is low -- or it's 20s greater than 20%s. Does that suggest that the lower margin backlog could hit more in 2024 and beyond? Or do you think -- can you help us square that up? Thanks.

Yes, that's really a project-by-project basis when we say the low teens and high 20s in the orderbook. And as mentioned in the prepared remarks, Phil, there'll certain quarters based on absorption of fixed costs where the margins may be in the high teens versus the low 20s. But overall, as we look at our guide for both segments, we see that throughout the year, we're going to have -- as we look at the full year, we'll have low 20s margins for both segments.

Great. Really appreciate the color. Sorry for the noise in background. One last one here. In terms of free cash flow, you guys had $130 million last year, you guided to more than $100 million this year of free cash flow. Are you planning to de-lever and not draw down on the preferreds? Specifically, why is the preferred dividend this year higher, it's $13 million to $14 million a quarter versus $48 million total last year. Are you thinking of drawing down more on the preferred Series A? If yes, how much dilution might that imply? Thanks.

Great. Now, that doesn't have to do with dilution. We're not planning to draw on the preferred at this point. What that really means there, if you recall, we had drawn a bit of the preferred at the beginning of the year. So, you've got the full year impact of that in there. And then we will make an assessment each quarter on kind of what the lowest cost of capital is when we decide to accrue the dividends and pay down the term loan instead based on the variable rate we have on our term loan. So, that's really the reason why you see a little bit higher in the preferred for 2020 -- for 2023.

Okay. Thanks very much, Nipul. I'll pass it on. Unless there's something else you guys want to share.

Thank you.

Thank you. Our next question comes from Mark Strouse with JPMorgan. Please state your question.

Hi, good afternoon. It's Drew on for Mark. Thanks for taking our questions. Just want to touch on the new products quickly. Can you just talk a little bit about what the H250 and OmniTrack are seeing from a market receptivity standpoint and how that's translating into orders and then what's kind of the timing outlook for future shipments?

Hi, this is Erica. I'm happy to speak to it. So, from a product perspective, what we're trying to address the customers are each of their individual needs project-by-project. So, we want to take a consultative approach, meaning depending on their site topography, wind speeds, we have a product that addresses those needs. So, DuraTrack has been our flagship product for several years. And with that, we have the related OmniTrack, which is terrain following, so that it opens up a lot more land possibilities than ever before without touching the actual terrain and it also takes into account environmental factors because you're not having to move any dirt. When we talked about the H250, that's allowing us to have more flexibility if you have uneven boundaries in your land. And sometimes the 32 rows work and sometimes the two rows design -- the dual row design with H250 is a much better fit for customers. And so what we're doing is opening up the addressable market that we -- in the way that we partner with our customers.

Okay, great. Thank you.

And I'll just say I'll just say from a customer point of view for them if the demand is very great when you talk about not having to -- when you can shorten lead-times by not moving land and leveraging our OmniTrack product, we are hearing from customers that they can't get it soon enough. So, we're excited to be able to have three products at our disposal. And just one other thing that I like to mention, with all of those products, our intent is to ensure that SmarTrack, our software runs across all of our tracker lines, so that our customers can have that consistency in the software delivery and productivity of their site.

Okay. And then just kind of a follow-up on that. Any thoughts on when shipments might be starting? And then also is that having any impact on why pricing might be somewhat flat and not increasing in 2023?

Let me address the pricing thing here. So, first of all, as many of you understood, steel had been coming down quite a bit up until about the last three weeks. We were on this deflationary pathway and we were having opposite conversations with analysts of, hey, do you have to reduce price because steel is demonstrably lower than it was last year. Now, steel has been reversing for the last three to four weeks. It's creeping back up. And we're taking a kind of a conservative approach at that because it's changing so quickly. So, again, we're protected the way we do our business. We're protected from a margin perspective on steel, but it certainly does have an impact in the overall price. And so what we see is this, as we've modeled out fairly flat, you've got a combination of things, you've got a combination of steel and aluminum, being at lower rates than they were at this time of last year, offset with the more difficult type of sites that require additional engineering and additional content to be able to make those sites work effectively. So, that's really what's driving that -- our current view of flat. What we haven't baked in, as Nipul said, not only haven't we baked in any impact of the IRA in terms of the overall manufacturing credits, but we also haven't baked in any potential impact from our -- what we believe is the best in class domestic supply chain, right? As you would expect to go forward and depending upon final nature of the domestic content clarification, we could see some additional pricing power yet in the back half of the year just due to that strength, we haven't domestic content to customers who will have to pay a premium for a higher percentage of domestic content if they want to get that extra 10% kicker. So, what we've done is just taken again as usual what you've seen with our team is a conservative view of that pricing at this point. And as we get additional information, as we understand further where commodities are going, both steel and aluminum in particular, we'll come back to the market and update on what we think our ASPs can do in the back half of the year.

That is very helpful. Thank you, Kevin.

Our next question comes from Julien Dumoulin-Smith with Bank of America. Please state your question.

Hey guys. Thanks for the time. Congratulations for everything. Hey, just coming back to domestic content, I just want to really square this away. I mean, just what exactly incremental do you need? I mean, obviously, you're doing a lot already here. Just in terms of clarity, specifics, and guidelines, again, I know you guys are probably in the mix in discussing these items here, but specifically as we see preliminary and final? And also, are you expecting kind of a little bit of an air pocket in the backlog as you think about that being kind of pent-up demand realized after finalized guidelines here? Is that the commentary as you think about that?

Julien, I think the demand we've seen so far is really non-IRA-related. So, we haven't yet seen that big pickup. So, we don't really consider that we have an air pocket in our current backlog. That current backlog is all the steady demand that we've seen, the steady increases, setting aside any expected increases we'll see from IRA. And then to answer that -- the first part of your question specifically is we're looking at the definition, there's two critical aspects we continue to wait on. The first is the definition of what will be considered domestic content. Again, there's multiple definitions floating around with Treasury that they have to decide upon finally, and give the industry. And one would include being able to import steel from China, for example, roll it in the US and call it domestic. The other says that the steel must be from melt to coke in the US, right? And those are two radically different positions. In the position that it would have to be pure US steel, we have a decidedly strong competitive advantage because we have worked on that US supply chain for many, many years and we have deep relationships, some of which we've talked publicly about in the past versus others in the industry who continue to bring steel in from offshore and have two rolling mills in the US and are calling that made in USA, right? So, depending upon that definition, we'll either be at worst case on par; at best case, we'll have a decided competitive advantage in the market. So, we're waiting on that. And again, that has implications in terms of market share, in terms pricing power, all of the above. And that's why we're trying to be very, very cautious until we have more…

Got it. Excellent. And just on the international side, the trajectory here you guys in Brazil, it seems nice. The time of the deal, it seemed like you got it a little bit more flattish in the FTI in Brazil specifically. And how you think about that outlook and the compounding first prospects there across the various geographies just to quantify perhaps qualitative comments on the call a little bit more?

Yes. So, in Brazil, over the last year, what shifted first in Brazil was less of the larger utility scale programs and much more than distributed generation programs. And that had to do with two things. Obviously, we had a great competitor come into Brazil and work really well. That's one part. And the second part was the funding from the national banks in Brazil who really support a lot of the green initiatives kind of pulled back waiting for this presidential election. Almost immediately after the presidential election, we started to see a lot of those utility scale programs go forward. And I'm quite pleased that our outlook in Brazil was very strong for this year and it's a very good mix of both utility scale and distributed generation products, but we're very bullish on the growth that we see coming in Brazil this year.

Awesome, guys. Congrats again. See you soon.

Thanks.

Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Please state your question.

Hey, good evening. Thanks for taking the questions and congratulations on the quarter here. Two questions. First, on the OpEx, if I look at the high end of the range somewhat implies around 7% OpEx as -- versus your revenues. I'm just trying to see like to get to that high teens EBITDA margin, which you guys talked about in the past, could we expect to hit that 25%-plus gross margin in 2024? Or just trying to understand, like, on the OpEx end, how we think about leverage going forward here? Thanks.

Hey, Maheep. It's Nipul. So, as discussed in the prepared remarks, there's investments that we need to make here in 2023. And as margins continue to steady at the baseline low-20s and potentially increase from there as we get more clarity on the IRA, in 2024, we feel like we'll get the operating expense leverage that this business can absolutely operate under. So, that's where we think that we'll get back into the higher EBITDA ranges in 2024 and beyond.

Got it. And just a second question on the UFLPA here. How should think about any upside here to this year's revenues? If we see UFLPA resolution faster here, any color you can give on how much time it takes to deliver the tracker once you have a purchase order in place? Any color could be helpful here? Thanks.

Yes. Hey Maheep. So, as far as the UFLPA is concerned, where we would see that is our orderbook converting faster. So, if UFLPA gets cleared quicker, as modules get cleared quicker, we would see a faster conversion on our orderbooks. So, we could potentially see that orderbook converting and as we add to it, potential some upside related to that.

Any way you can kind of like help us quantify how much of that orderbook could be delivered in 2023 if needed?

Yes. When you look at our orderbook and look 12 months ahead, it's about 1.1 times the orderbook is what our midpoint guide is. So, that conversion could happen a little bit quicker if the UFLPA gets cleared quicker.

Got it. Fine. I will take the rest offline. Thanks.

Our next question comes from Donovan Schafer with Northland Capital Markets. Please state your question.

Hey guys. Thanks for taking the questions. The first question I want to ask is about Nucor specifically, since that's supplier you guys have had for gosh, coming up on two years now. And if you can provide any commentary on kind of the length of that contract, if there's an expiration there with a fixed volume amount? And how much of kind of your run rate capacity or backlog does that cover? I'm just trying to get the sense, the underlying idea here is if there is a greater shift to needing to source domestically in the US, are you in a position to kind of have some of that locked in and box out other people or other competitors or does that become a negotiation and there's some scrambling there? Trying to give us that higher -- that broader idea, but if you can give any specifics on Nucor, that'd be great.

Yes. I mean, let me start -- go ahead. So, let me start, Nipul, with just saying that our specific contractual terms with Nucor are confidential and we're going to honor that confidentiality in the contract. So, I won't really talk more specifically about that in the terms of the contract. All I will tell you is that Nucor is one of several strong steel suppliers and partnerships that we've put in place over the last few years. They're a very important part of our business. They're a great partner. We work very closely with them in terms of understanding where our future demand is going to be and ensuring that their geographic footprint is aligned with what our future geographic footprint is to reduce transportation costs and things. So, we feel that our working relationship is incredibly strong. They're an incredibly strong partner of ours. And again, that's part of how we feel. They're one of the steel suppliers that add to our capacity that leave us feeling that we have a very well-developed North American capacity and supply chain. And we think we have the best in the market. That's all I can really comment on that.

And Don I wanted to add that we've talked about it before by the end of Q1 that we'd have 40 gigawatts of global capacity of about 32 of that in the US. So, Nucor, of course, is part of that overall capacity planning.

Okay, great. That's helpful.

And we're increasing that, Donovan. Every single quarter, we're increasing that. And -- so you imagine an exploded bill of materials, Donovan. And what we have is the overall capacity and then percentage of that capacity that can today be turned on to qualify under domestic content as we understand it. So, that's what we're focused on. So, how do we get -- and we've talked openly on our last call about our standard building materials today having between 70% and 75% domestic content and that's having the ability with a small premium to get up to that 90% to 95% domestic content in the building material. And that's what we're really focused on the percent of that 32 gigawatt that we can get up to that, say, 95% domestic content place.

Okay. And then kind of related to this, I was actually fascinated in opening remarks -- prepared remarks, you made a comment about not having to puncture the torque tube to clamp on modules and that giving you flexibility. I never connected that dot, I had always just -- assumed it was just the purlins, the ones that go perpendicular to the torque tube. That was the last piece and you had to figure out where you're going to punch a hole there. But realizing you can also slide on the north-south dimension along the torque tube. That -- as I understand it, that is enabled by having your unique octagonal cross-section and that's something you couldn't do with a circle. You can maybe do it with a square, but you couldn't do it with a circle, a circular cross-section. So, hadn't made that connection. And then I saw it re-plus this year, PV Hardware's tracker is actually doing an octagonal torque tube now. And yes, they've kind of followed your lead there and the FGCI -- FGC Solar, their 1P design is hexagonal. But the same idea you're coming up with some kind of a geometry that's non-circular gives you some of the benefits of circularity with some more maybe bending us to it versus a square, but by giving you that ability to have a puncture less fixing to the torque tube. So, I guess are you seeing a trend with other competitors switching to that kind of a unique, let's think of it as like a non-standard torque tube cross-section? And then back to the same question -- back to that same idea of what I just asked, are there any issues from a capacity standpoint in the US, I mean, can any role forming operation, role form for an octagonal cross-section or does that get at all more complicated or limited?

I think on the first part, yes, we have taken note of several of the recent launches in the industry that look a lot closer to an Array than maybe they do someone else's, right? So, that's something we're keeping a watchful eye on and certainly beyond the torque tube other elements of their design are starting to look a lot more like Array. So, it's an interesting observation Donovan and something that we're keenly observing and watching talking about internally on a regular basis. Relative to whether any tube -- now, I mean, I think if you get the correct dies in place, you could roll it, whether it be octagonal, hexagonal, any of the above. So, I don't think that's really the big barrier at this point. It's more in our proprietary clamping system, our rapid clamp system that allows you to build the infrastructure irrespective of knowing which panels you're going to get. We can design it from multiple panel options and then when you're allowed to get in those panels at the end of the day, we're able to provide a different clamp for that. Now, it's not only in the panel availability, it extends beyond that in terms of being able to have sites with mixed panels, right? So, you imagine that as companies are going to be scrambling to get to their percentage of domestic content that they need on these sites, and they may have a limited availability over the next couple of years of made in US panels, you imagine a scenario where customers are going to say I'm going to start at this site and the majority of panels in the site may be for solar because I had a certain level of availability of those panels. However, once I get to my 40% domestic content, using more of those at this particular site may be diminishing return versus saving those for another site and then I can mix panels on that site. Our infrastructure will allow you to do that differently than some others. I think that’s something that we're seeing in the market of interest.

Thank you. And our next question comes from Colin Rusch with Oppenheimer. Please state your question.

Thanks so much guys. Could you talk about how many of your customers are fully qualified with OmniTrack solution at this point? Are you -- is it the full complement of customers or is it a sub-segment of it at this point?

We're rolling OmniTrack out this year in select areas to make sure that it's properly installed by our partners and obviously looking at the ideal topography in which to install it. But certainly any of our customers would be welcome to use it with the correct requirements.

Okay. And then secondly, as you guys look at having increasing customer intimacy with some of these new designs. Are there other opportunities for incremental engineering improvements that on -- around footings or other areas where you can reduce labor out in the field and have it more in the factory setting in the next couple of years?

Yes. Colin, I think part of what you're seeing in that OpEx spend next year is kind of when I came in, I made a commitment to our engineering organization and our CTO and effectively said, look, one of the best uses of my capital is in new product development. And I looked at Erica's product management team and Terry's engineering team and made a commitment that if they bring forward really robust new product development initiatives, I will fund them, right? And that's really what you see in that OpEx increase. So, we've increased our engineering spend this year, certainly over 35% and that's part of what you see in the OpEx line. And that's really all about there's a large number of products that we think we could bring to bear to the market that are really focused on a few areas. Obviously, you've seen us disclose a lot more of what we're doing on the software side of things and there's more to come beyond this. A lot more areas where we can ease installation and reduce installation costs. So, I think this is a year of what I would say a rapid succession of product launches of a lot of what I would say maybe small to midsize new product development initiatives, but I think we're going to be really welcome by our customers as we go forward throughout the year.

That's super helpful. Thanks guys.

You got it.

Our next question comes from Jeff Osborne with TD Cowen. Please state your question.

Yes. Thank you. I just had two quick ones. One is on your Spain business. I was curious what you're seeing there? And I think couple of quarters ago, you had some challenges on the EPC side of the business there. I was curious what initiatives you put in place to improve the profitability on that front?

Yes. So, Jeff, one of the simple things was that the challenge that our end -- so remember that the challenge in the Spain business really came out as they attempted to do some construction projects in the US following some of their Spanish customers that do global installations to the US at the request of that customer in particular. And they just didn't have the experience to how to operate in the US, right? So, a few things we've done. So, first, we have through our partnership with now Array and STI working together, we've assigned several Array team members to support those projects and to serve as Project Managers in region to help with hiring of labor, management of that labor, negotiating with the unions that we would need on some of these projects, and all of that. So, that's part of it. I would say the bigger benefit came as a result of the end customer not being able to have a steady supply of panels. And in our contract that lack of steady supply of panels that created a time break in the program, contractor allowed us to go and renegotiate some of those labor terms or what have you that the team originally signed up for that we're not the best, right? So, that's part of what you're seeing here. And as we go to complete those projects, they'll just be under a better set of terms. Now that we had a great -- much greater understanding of the complexity of the projects and what's needed to bring them to fruition.

Got it. That's very helpful. And my follow-up is on a completely different topic. But on the backlog developments that you've had in Q4 and Q1, are you actually having conversations around 24 deliveries yet? Or are folks developers waiting for the IRA clarity to be announced to have that visibility in place?

Yes, we're doing both. Obviously, we have customers as we continue to discuss that are talking about larger programs of gigawatts of business over the next several years. Those are conversations that are ongoing. I think some of those programs are coming through and others are just waiting for that clarity as they determine to what degree they need to put, how many eggs in a raised basket depending upon, for example, the domestic concept provisions.

Are they putting deposits on those multiyear orders or no?

The deposits will stay in the same format as we have today, meaning there will be some minimum requirements annually, for example, on these contracts, almost like a take-or-pay on a minimum basis. And then the deposits come as we sign up those individual projects that pull down from that overall volume commitment.

Thank you.

Just a little clarification too is that our orderbook is -- would only be -- would only keep the system named projects. So, what Kevin's talking about are things that we're getting into, but they're not in our orderbook at this point.

Yes, absolutely.

And that's a clear distinction we want to make sure that everyone on this call understands is that our orderbook, when we say orderbook, does not include volume commitments that don't have very specific either awarded or contracted named projects.

But if I'm hearing you right, you have MSA agreements with developers that might go out three or five years, but named projects might only go out 18 to 24 months. That's the right way to think about it?

Well, the projects -- the size of the projects, right, will depend how long they go out, right? But -- it’s the way to think about it Jeff.

We would -- I guess the clarity we want to make is that our backlog -- so when we compare our backlog to others in the industry that have recently discussed their backlog, they've included these long-term megawatt commitments that they may have with the customer, we have not included that in our backlog. So, our backlog is more easily translated to a future revenue stream that's more predictable than maybe theirs. If we were to include those, we would have a much higher number that we'd be talking about. But we like that clarity and line of sight of our backlog and conversion to a particular revenue within a particular set period of time.

Got it. Thank you. Appreciate it.

Our next question comes from Joseph Osha with Guggenheim Partners. Please state your question.

All right. I made it. Thank you and hello everyone.

Hi, Joseph.

Hi. I wanted to return to some of the comments that you were making about domestic content and how that reflects as pricing with your customers? I want to understand the logistics of this. If you have an order in hand and you're unclear yet about whether your customers are going to be able to claim the domestic content credit or not. Is there something written into the contract that allows you to reopen the conversation depending on the outcome of IRS guidance or what? I just want to make sure I understand exactly how this works.

So, to be clear, the orders that we have in our backlog have no -- I would say, largely have no specific domestic content requirement, right, which means we could satisfy them with our -- for lack of a better word, standard bill of material today at 70% to 75% or we can add more domestic content. What will come -- what I foresee is in the future as the domestic content requirements become clearer and those sites now can start doing the formulaic math of what they need to get to their 40% and then they're increasing 45% to up to the 55% in a few years. When they have that clear to be able to do their math, they'll come back to us and say, hey, Array, on this 125-megawatt project, we need as much domestic content as you can give us. What's the premium to go from that 75% up to that 95%, right? And again, that would open a change order likely in the contract. But today, we're not specifying any of that enhanced domestic content for us that way.

Okay. So, all right. So, again, so basically the way it's written now, it leaves you the option basically to say, hey, this is a change order. If somebody comes back and hits you with a specific request?

That's correct.

Okay. All right. I got it. Thanks very much. That was my only question.

You're welcome.

Our next question comes from Jordan Levy with Truist Securities. Please state your question. Jordan Levy, your line is open, please go ahead. Okay. We'll move on to the next question. Our next question comes from Vikram Bagri with Citi. Please state your question.

Hey, guys. I wanted to ask follow-up on the uncertainty caused by the IRA and unavailability of modules. Is it a way to quantify what kind of impact it will have; one, on the backlog, it seems like there is -- there are orders on the sideline, which are not included in the backlog, which will quickly materialize into backlog once the clarity is provided, one? And then two, how much of the decline -- the sequential decline in one -- first quarter that you talked about, 20% is caused by seasonality versus lack of clarity on IRA versus module availability? And have you seen any slippage in timing of any of the projects because of lack of clarity on IRA front and/or the module availability issues?

Hey Vikram, this is Nipul, I'll start. So, on your second question first, of the first quarter 20% down sequentially as mentioned in the prepared remarks, part of that is just normal seasonality, Q1 and we mostly have a North American business. So, that's typically -- depending on weather conditions at sites, we typically have lower deliveries in that first quarter. In addition, we've been stating all along for the last couple of quarters here that the UFLPA and the module availability has slowed down some of the conversion -- your conversion and we expected that in Q1. So, a combination of those two items is the reason why we're down sequentially 20%. As far as quantifying the impact of the IRA, I just -- at this point, we don't feel comfortable because there's a lot of unknowns, right, in that. And once -- as Kevin said earlier, once we get that clarity, we made the commitment to have that transparency and come out to the market on how that impacts. The bottom-line is it should be upside once we get clarity, but we just don't have that at this point.

Understood. And then as a follow-up, what is causing or driving the cautious outlook in Europe, permitting clearly stuff and it seems like EU is taking steps to address that. Is it entirely related to difficult permitting that you're expecting to be addressed? Or is it something else related to Critical Materials Act or Net-Zero Act, which is causing somewhat uncertainty in the market? I was trying to understand what's causing the cautious outlook in Europe?

Yes. Well, it's all relative first of all.

Yes, go ahead Kevin.

No. That was the only -- go ahead, Nipul. The only point I wanted to make is it's cautious on a relative basis to the hyper growth we'll expect in the US in the near-term, right?

That's right. And what I would say is in talking to our businesses, it's primarily delays related to permitting that's causing our -- that cautiousness in Europe for us.

Thank you. That's all I had.

Our next question comes from Jordan Levy with Truist Securities. Please state your question.

Afternoon all. Can you hear me okay?

Yes.

Got you. Yes.

Great. Thanks so much for all the detail. Just a quick one from me. Wanted to see if we could just get a little more of your thoughts on the Australia market. You mentioned the in-country content you were able to secure there as a key differentiator, certainly key international markets. So, just wanted to get your thoughts on how you're continuing to think about Australia and your mix and the opportunity presented through being able to get that in country content?

Yes, I mean -- so clearly what you're seeing is a little bit of protectionism crop up all over the world in some of it in response to the US IRA, right? But certainly that increasing domestic content requirements are cropping up in other countries around the world as well. In Australia, the team brought that forward, worked very closely with our supply chain organization for a period of months as we quickly went out and looked at all the different component vendors we can utilize. They have a lot of rapid testing of their materials, evaluation of the financial strength of each of those partners when we choose. And then we feel we've locked up kind of the best of each of the players into a program to work with Array very closely, right? So, I think we feel that we've done our work in Australia. We're going to be in a great position as evidenced by the winning of the first award. And I think there'll be several others that as we go throughout this year and next year that we'll win as directly related to our ability to supply that domestic content.

Great. Thanks so much for squeezing me in.

Absolutely.

Thanks. We have a next question from Maheep Mandloi with Credit Suisse. Please go ahead.

Hey, sorry, just one quick housekeeping. For the 10-K, I haven't seen it out yet. Just wondering on the timing front. Thanks.

Yes, hey, Maheep. Yes, we are working to get that filed here as quickly as possible. Likely, we like to file the 10-K soon after our earnings call. So, we should see it here today or tomorrow and -- filed at the SEC.

Yes. All right. I appreciate that. Thanks.

Thank you. There are no further questions at this time. I'll hand it back to management for closing remarks.

Thank you, Diego. Just in closing, I just once again would like to thank the Array associates all around the world who continue to demonstrate a passion for execution and a passion for the mission that we're on for our environment. So, thank you again and thank you all for attending.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.