Greetings, and welcome to the Array Technologies' First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Sheppard, Investor Relations at Array. Please go ahead.

Thank you, and welcome to Array Technologies first quarter 2024 financial conference call. On the call with me today are Kevin Hostetler, our CEO; and Kurt Wood, our CFO. Today's call is being webcast from our Investor Relations site at ir.arraytechinc.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website. Today's discussion of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of GAAP to non-GAAP financial measures can be found on our website. We encourage you to visit our website at arraytechinc.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we file with the SEC, including our most recent Form 10-K for a recent discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. I'll now turn the call over to Kevin.

Thank you, Sarah. Good afternoon, everyone. We started 2024 off with the momentum we experienced in the fourth quarter of 2023, continuing into the New Year. Beginning on Slide 3, I'll start with key highlights from our first quarter and some company-specific updates around our operational capabilities and product portfolio. We generated $153 million of revenue, slightly above the high end of the range we provided on our February earnings call. Adjusted gross margins came in at 38.3%, inclusive of a one-time $4 million benefit stemming from the successful resolution of a supplier quality issue. Excluding this one-time item, our adjusted gross margin was 35.7%, which was up 10 percentage points sequentially from the prior quarter, and up nearly 9 percentage points from the first quarter of 2023. As a reminder, starting this quarter, we are reporting gross margins inclusive of the benefits derived from 45X, which to-date only reflects the contribution from domestic content related to our torque tube. Having said that, our core adjusted gross margin, excluding 45X benefits, would have been in the mid-20s range for the quarter, which is consistent with our underlying long-term target. We delivered $26.2 million of adjusted EBITDA, representing 17.1% of revenue, inclusive of the $4 million benefit mentioned earlier. And we generated $45.1 million of free cash flow to end the quarter with a cash balance of $288 million. Total available liquidity was approximately $465 million, when including the capacity on our undrawn revolving credit facility. Moving to Slide 4, we continue to see broad demand across all market segments and customer types. This includes EPCs, developers, independent power producers, and utilities across utility scale and distributed generation projects, both domestically and internationally. In Q1, we booked approximately $400 million of new business and experienced a book-to-bill ratio greater than 2.5x…

Thank you, Kevin. I would like to start off by providing some additional details around the first quarter results, and ask that you turn your attention to Slide 9. As Kevin mentioned, revenue came in slightly above the high end of our guidance range at $153 million, which was down 59% from Q1 '23, and down 55% sequentially from the fourth quarter of 2023. Overall, we experienced declining volume in ASPs year-over-year in line with what we had communicated on our last call. Sales in North America represented 70% of our revenue for the quarter, with the remainder of our revenue coming from international locations. Before moving to gross margin, I'd like to briefly speak to the deferred revenue on our balance sheet and note we saw the balance increase by $20 million in the quarter, as customers made contractual deposits ahead of project deliveries scheduled for later this year. We expect our deferred revenue to increase again in the second quarter as additional deposits come due in advance of our second half ramp in revenues. We achieved first quarter adjusted gross margins of 38.3%, an expansion of over 11 percentage points year-over-year, which was inclusive of the $4 million one-time benefit to cost of goods sold, Kevin mentioned earlier. Excluding that one-time benefit, we saw first quarter adjusted gross margins expand by 880 basis points on a year-over-year basis to 35.7% and by 10 percentage points sequentially versus Q4 of last year, inclusive of 45X benefits associated with our torque tube. Our ability to expand margins on lower volume is a testament to the considerable operational improvements we have made within the business. Operating expenses of $46.7 million were down approximately 7% from $50.1 million during the same period of the previous year, and down 14%, or $7.3 million…

Thank you, Kurt. We are very excited about the continued positive momentum in the business. During the quarter, we officially launched new features to our severe weather mitigation offering, including Hail Alert Response, and we successfully rolled out the next generation of our H250 product. We continue to see our portfolio of products well-received by our customers, as evidenced by approximately $400 million of new bookings in the quarter, with a very healthy order book at $2.1 billion at the end of the quarter, which includes a meaningful amount of orders for 2025. This gives us greater visibility into the next year than historically would be the case at this time of the year. We remain very excited for solar in general, and more importantly, for Array to capitalize on the industry growth with our diverse product and service portfolio. We will now open the call up for questions. Operator?

[Operator Instructions] The first question that we have comes from Mark Strouse of JPMorgan.

I wanted to start with your pricing strategy for -- I think there's been some concern with investors that you're lowering your pricing. That might be kind of sacrificing margins. Obviously, you're reiterating your guidance for the year, but just kind of curious for your bookings for delivery in 2025 and beyond. Are you still confirming kind of that mid to high 20s gross margin for the non-45X gross margins?

It's Kevin. Look, we're not ready to give 2025 guidance relative to margin at this point. I'll just reiterate that we've been very consistent in our messaging around our margins and our ability to hit those mid-20s margins over time. And we've done that not by our price reductions weren't as a result of sacrificing margin, which is really quite evident here in Q1. It was really about those structural cost reductions that we're keeping a piece and passing a piece on to our customers. That's really what drove the increase in the momentum in market share recovery, as well as continued margins at the rate that we thought we would at the mid 20s. So we remain confident in our ability to do that as we go forward. We have yet to see how the market plays out relative to passing on 45X benefits. I think that's something we'll just have to wait a few quarters to see how that transpires. But as far as this year, we've reaffirmed our guidance in the low 30s overall gross margin inclusive of 45X benefits. And thus far, we're continuing to see those mid-20s margins without the 45X benefits. So we feel very comfortable in our strategy playing out.

Okay. And then this question might be somewhat difficult to answer. So maybe we could follow up offline, but just with the upside and downside with AD/CVD, I know there's a lot of moving parts, but maybe can you talk about kind of what you saw 2 years ago with the early 2022 AD/CVD investigation kind of puts and takes that you saw with your market share? And how much of that do you think was driven by that AD/CVD case?

I think we were -- look, we were a net benefit of AD/CVD back in 2022. As you recall, we gained several points of market share that were really as a result of our structure in that, as many of you on the call know, that with our torque tubes and our clamp solution, we do not pre-drill into the torque tube for spacing. We have a very flexible system that allows us to withstand changes in modules much later in the game, all the way up into time of installation. And I think that benefited us greatly last time as our customers were changing modules, and frankly throughout UFLPA, as our customers were changing modules readily just prior to installation. And our particular product configuration really allowed that and was very supportive of that. As it relates to this filing, look, we really just don't have a lot to say that it's too new. The filing hasn't been fully taken up yet, and we don't know what those results are, and we're not -- certainly not in a position to yet understand in the first 3 weeks the impact on this year. So we're going to remain silent on that until you get further down the understanding of how this is going to be received by the federal government and what their approach to continuing, either to continue the investigation or not, and then what ideas they have for potential tariffs and the impact of that market. We're certainly in touch with our customers on that, on a daily basis, just coming back from the ACP conference after several days. But again, there's not a set understanding of the full impact of that to our marketplace. And I'd be remiss if I tried to guess at this point.

The next question we have is from Christine Cho of Barclays.

So just on the gross margin point, if we back out this $4 million supplier settlement, gross margins was still 35%. You're guiding to low 30s. So just as it pertains to 1Q, was there anything else notable driving this quarter higher like any sort of like catch up from 2023? And then with respect to the cadence of gross margins, should we think that it should be pretty consistent in the low 30% range for the remainder of the year? Or should we think that maybe it's kind of slowly decreases from like 1Q?

This is Kurt. I think you clocked it right with the one-time benefit of the $4 million, that was about 2.6 percentage points of margin in the quarter. That was clearly a one-time item related to that settlement. We did see gross margins, obviously, each project will have a slightly different margin profile. Now, we did see a little bit more that benefited from 45X in this quarter. So that 35.5-ish that you referenced, that's about where we came in, but it did benefit a little bit more from a heavier weighting of 45X. We do think that as we look through the remainder of the year, it will be closer to the mid, the low 30s that we talked about. And we did mention on the last call that there is a certain amount of 45X, call it, powder that we left in case there was some get-backs that we had to do. We won't be the first movers in that type of advantage. And that would obviously mean that we're assuming a little bit lower gross margin. You're talking a couple hundred basis points in any direction in a quarter in the back half and what you're seeing in the first half here. I hope that answers your question.

Yes, that was helpful. And just my follow-up. You mentioned in your prepared remarks that deposits was positive this quarter, and it is positive for the first time in a while. Has anything changed contractually on how you collect these? Or is it just a function of your bookings this quarter being a lot larger than what exited your backlog versus last year?

If that is necessarily -- Kevin mentioned in his prepared remarks that, and we've mentioned this even in the call last time, that we are seeing a little bit more of a long-dated timeframe from when we get the bookings to when the project will actually be shovel-ready. Obviously, from a developer standpoint or an EPC, they don't want to put cash down on a longer timeframe. That'll hurt their IRR. So what we're seeing as we get bookings, that the cash is really meant to be to compensate us for any at-risk capital we put to work, to buy the inventory. So what we do expect is that there will be a little bit of a time lag between the booking itself and when the contract is signed to ultimately when we get the deposit. What we typically try to do is align that deposit to when we get the actual inventory exposure on our end to mitigate that. Now, obviously, there's some cancellation penalties in there, but that doesn't require them to put any cash up front for us. So that dynamic has changed a little bit over the last year that these timeframes have got elongated. But I think that's pretty consistent which you'll see throughout the industry.

[Operator Instructions] The next question we have comes from Brian Lee of Goldman Sachs.

I'll try to keep it to one here. Kevin, you mentioned on the guidance, you're reiterating the range for revenue. It's flat volume, which -- when you back into it would imply like pricing is down somewhere between 10% to 20% year-on-year based on the guidance low high. I know you don't want to get into '25 margins, but you have some bookings and a decent part of backlog here now that you said gives you better visibility into the next year than you normally would have. So presumably, you have a view on pricing. Would you think that '25 relative to the down 10% to 20% you're implying for 2024? Is about an equal price decline year or better or worse? Just trying to get a sense for what you're seeing in terms of the pricing trends based on the early part of the year for bookings and backlog that you have right now.

Yes, I think Brian, it's really hard to impact that because, again, we're in a hyper deflationary steel environment here in the very near term. So when you think about that from a steel pricing, just even year-to-date steels down from the spot price of last week. The last time I looked was down circa 36%. So very significant. So it's really hard to translate that. And I don't think I'm ready to translate that into a margin view for you just yet. It'd be too premature to do that. So remember what we've said in our last call that of that pricing decline, and I certainly have issue with your high end of 20%, it's not nearly that. Of the pricing decline of what we're seeing now and what we're booking now, the disproportionate amount of that pricing decline is purely related to commodities, right? And then there is a portion that is in the -- I would say, low to mid single digits that is our passing on of some of our cost savings to our customers. But the far disproportionate amount of ASP decline on a period-over-period is related purely to commodities, which again, our customers are very savvy and expect us to pass on those costs very effectively. So hopefully that helps.

Yes, no, that's helpful. I'll take the rest offline, appreciate it.

The next question we have comes from Joe Osha of Guggenheim Partners.

I'm wondering if we can have an update on the status of your clamps, the panel clamps in the 45X saga. Has that ship sailed? Or is there still a chance that we might see those be able to qualify?

Yes, I think it's too early to tell. We don't have the final information on that. We continue to lobby for clamps. And remember, we've been consistent in saying that there's 2 different areas that clamps may fall under. One is under the structural fastener definition. That one has certainly a higher value to it under that. I think it's $2.28 per kilogram. The other one is structural fasteners under a definition under the structural steel element that it can be considered part of that torque tube and structure, which has a lower dollar amount, but certainly can fit into that definition. We're still doing our part to continue to lobby and to provide our backup for why we think clamps are a structural fastener. If they're not, we feel pretty comfortable that they'll at least be part of the other, but less valuable piece of the thing. And look, we're still -- you asked me, when do you think we're going to have clarity? I wish I knew. This is something that we continue to see get kicked the can down the road. We are expecting some form of additional domestic content guidance here in the next few weeks, but we're left unsure of what all will be covered in that release. And again, I'll take this opportunity, Joe, to remind everyone on the call that we have yet to put the value of structural fasteners into our guidance for this year.

The next question we have comes from Jordan Levy of Truist Securities.

Maybe just want to see if you could provide us an update after a nice bookings quarter again on how customers are reacting to kind of the price decreases in DuraTrack versus the rollout of H250 as well as OmniTrack, just the dynamics you're seeing there.

Yes, sure. So let me unpack them a little bit different. The OmniTrack is starting to really gain traction for no pun intended there. We're starting to see acceleration. And as we've discussed in the past, that the large quantity of quotes, we're starting to see those now turn into orders, and we're very happy with the trend on that. What we're seeing in the DuraTrack versus the H250, at least internationally, the new version of the H250 is doing really, really well and will very quickly become the dominant platform for international business, certainly in Spain and in Brazil, at least in those 2 regions. And then relative to the H250 in the U.S., look, it's not gaining any traction as the reduced price on DuraTrack is just winning. What we look at is our win rate internally. And I can just say that our win rate, we've been very pleased in certainly in the last, say 6 months of our win rate, just continuing to uptick with our revised pricing. And we think we've hit a really sweet spot of the value proposition of DuraTrack for our customers. And our win rate versus those lower priced other offerings in the market, we're just really pleased at this point. So yes, I think that's going to continue.

This is Kurt. The only thing I would add on the OmniTrack is we've got multiple orders in our order book from that in all regions of our -- that we play in. So that's being well received. And as Kevin mentioned right now, the DuraTrack is winning here in the States and given the choice between an H250 or a DuraTrack, people will go for the higher quality product or higher featured product, I should say, which is the DuraTrack.

The next question we have comes from Kasope Harrison of Piper Sandler.

Kevin, on Slide 4 and in your prepared remarks, you talked -- you mentioned that I think more than 80% of your customers are Tier 1 in nature. Can you also give us a sense of what proportion of your backlog has essentially fully de-risked the critical equipment permitting and interconnection? I understand that the backlog is over multiple years, but I'm just trying to get a sense of how de-risked the volumes that land in '25 are or even '26.

Yes, I think, Kasope, when we're putting something into our backlog, first of all, we have to be -- we have a high confidence level. We have a start date. We've been awarded the order. And we have, over the last, say, 12 to 18 months, added several other criteria in that to get to our confidence in this project going forward. So we do look at the level of comfort in the financing. We look at interconnection permit. And we recently, about maybe 6 months ago started adding surety of supply of the high voltage components, the breakers and things of that nature. So I don't know that I have data for you in terms of what percentage of that. I can only say, it's better today than it would have been 6 months ago, because we've added several other filters for it to get into our backlog.

The next question we have is from Vikram Bagri of Citi.

Kevin, in your prepared remarks, you mentioned that Array is strategically getting share from, or wallet share from, with some clients. I was wondering, like, what do you do differently with these clients, one? And besides these selected customers, do you believe you're gaining share overall in the market? And then, on a relative note, I wanted to ask about pricing differently. Has there been more pricing action on your part beyond what you did earlier in the year, either with the selected clients or overall?

A lot to unpack there, Vikram. Let me just say that what we're doing to gain share is, first of all, taking the analytical approach to our value proposition and ensuring that we've got the right product priced effectively for the market, and then ensuring that our organization has been aligned to drive cost savings on a continual basis that we can pass on to our customers. So that's really what's the changed. It's been clarity of value proposition. And then the other thing has been certainly increasing my personal engagement in the marketplace. That's something that we've been doing a great deal of an engaging customers personally and sharing the value propositions with the customers and giving them a sense of the amount of innovation and new product that we have coming this year. We've done all of the above, and I think the customers are responding quite well as we've engaged them, such as having a customer forum here 45 days ago where we brought many customers in for a several-day event to give them a sense of that new product development funnel, the value proposition, the software improvements, all of those things. And I think the customers are paying attention to those things, and it's making a difference. The thing such -- the 2 that we highlighted here on the call of the automated hail response and the wind stow study are incredibly significant. And we could empirically show our customers in mid and high wind sites that we generate 2%, 3%, 4% more energy every year for that life of that asset at 30 years, it's incredibly significant. And I think our customers are responding really well to those things. We're not getting into a pricing war. That's certainly not happening at this point in the market. We're just being smarter and selective about those orders that we really want to a win and pursue.

The next question we have comes from Dushyant Ailani from Jefferies.

I just had one on DLM has talked about updating its western solar plant by 22 million acres. How do you see yourself in a position for that? And any timing on that as well?

I'm sorry, I couldn't hear. We have a bad connection. Can you repeat the question?

Sure, can you hear me now? The question was, yes, the question was that DLM has basically talked about updating its western solar plant by 22 million acres on the western, for the western states. Do you -- can you speak on the timing of that and how you see yourself positioning for that?

Well, certainly it will really be up to our customers, those developers that will be out there positioning for that business. And then we'll certainly work with the IPPs, developers, and the PCs to take our fair share of that business. We're excited about it. I think it's a very good move, and certainly, we'll participate. But we'll do that through our customers, not directly.

The next question we have comes from Philip Shen of ROTH MKM.

How do you expect Q2 and Q3 bookings to trend? Have you seen activity take a pause or be impacted given the uncertainty around the new AD/CVD tariffs? And then separately, from a housekeeping standpoint, can you share what the international versus U.S. mix was in the Q1 bookings?

Yes, Kevin, you want to take the first part about the booking trend and then I'll take the --

Yes, I mean, so we don't get quarterly booking trends and I think it's, we've stayed away from that. We're comfortable with the current momentum in our business and that's as far as I'll go with Q2 or Q3 bookings. We've really tried to get the market off of a quarterly booking trend and to think about the long-term of the year just due to the cyclicality, seasonality of the bookings and the fits and stops that we've seen in this industry over the last several years. So from that standpoint, I'm going to stay away from predicting Q2 and Q3 bookings. I'll just say that the underlying momentum in our business, we're pleased with to date. We haven't seen any significant change in that in the near term, but I will predict what may or may not happen quarters out. I'll let Kurt talk about the second part.

Yes, and I'll just add to that, you just -- Phil, as we go in and look at the bookings trends, we've had historically where you get a low quarter then you immediately go back with a high quarter like we saw in Q4 with $600 million. That's why we try and shift away because what we're not going to do is do any type of price concession or anything just to hit a booking number by the end of the quarter. That's just not what we price here. From an international standpoint, we haven't seen any kind of change from our historical revenue mix. It's pretty consistent with what that is. I think, from -- when we look at it and our Q should be out right now that you get that you we'll look at from a competitive standpoint. We have seen in Brazil, it's a little bit more competitive than what we've seen in the past there, but we're still winning our share. Our mix is the same. And as Kevin alluded to in his prepared remarks, our ability to perform and the track record that we have with the Array technology and the energy yield from those fields has been phenomenal. And that's certainly helping us in those markets with those proof points. For example, I know we referenced in my remarks the full year results, but it's just getting better. In December, we had 16 of the top 20 solar sites in Brazil were Array sites. And that's significant. And when you think about that data and you unpack it, the difference in the top 5 and say numbers 16 through 20 is several percentage points worth of efficiency. So this is where we've talked routinely about results beating rhetoric. And we love that a third party is out there capturing those results and putting them out there for everyone to see. It's really helping us win additional business down in that marketplace, because it's actual results and statistically very significantly better than the competitors that we compete against in those markets.

The next question we have comes from Maheep Mandloi of Mizuho Capital -- of Mizuho.

Yes, Maheep Mandloi here. Just a question on the international mix also. It looks like it's 75-25 U.S. international. Should we expect something similar for rest of the year? Just trying to get an understanding of the rest of your revenues, which might be exposed to AD/CVD here? And second part, on the margins on international, you talked about being competitive. It looks like around 15% for the 10-Q. Should we expect something similar going forward here or any expectations of improvements there?

Yes, a couple of things there. Regarding the mix, I think it's going to be fairly consistent. It obviously can move around in any quarter, but we see that fairly consistent with what we're doing. In the book, obviously, in Brazil and Spain, there's a little more book and ship in that same quarter on how those markets work. As far as margins, I mentioned a little bit earlier in the Q&A, there was a little bit more locally sourced supply coming into Brazil and Spain in particular versus some of the lower cost regions where we can source supply. We did that to accelerate some time schedules with some customers. We think the margins will improve in the second half here in those regions with what we've already kind of sourced and have coming in. But as you know, we've got to burn through the inventory that we've burned and secured for those projects. So I think you can see the Q2 kind of that similar range, and then you'll see that starting to lift in the second half.

The next question we have comes from Donovan Schafer of Northland Capital Markets.

So first I want to ask someone else earlier in the Q&A asked about the H250 tracker. Kevin, I think you commented that actually the new design, it seems to be, you seem to be suggesting, it's not that it's doing so great in the U.S. because DuraTrack is doing so well with the cost down structure, but that the redesign on the H250 that was actually done with the intention of making it more attractive in the U.S. market, that that is driving incremental interest internationally, that there's more, now that you've got the driveline between the 2 rows is kind of this rotating shaft instead of the pendulum swing thing that caused, is that correct? Am I understanding that correctly?

Yes, that's correct. The enhancements that we made initially targeting in the U.S. market, we frankly weren't going to launch internationally for a much longer period of time. Not only did we do product enhancements, but it was much more cost effective in the redesign. And this was about getting the FTI engineers working closely with the Array engineers and coming up with kind of some hybrid ideas for improving that product and reducing its cost. While that was originally targeted at a lower price point here in the U.S., you're absolutely right. The U.S. has still just migrated to accelerating the purchases of DuraTrack. And then what we saw happen very quickly is our international customers really wanted access to that product line, so we had to accelerate the international versions of that. And I would say that's by and large the disproportionate amount of what we're booking now in our international business. Now again, that'll be for delivery several quarters out. It's really predicated on that new platform, both in Spain and Brazil. So that platform is being well received.

Okay. And then, that's interesting. And then following up for kind of still sticking with international, there was the press release, the announcement, kind of a partnership with a Saudi Arabian, I think it's called like, I think the name is an Aluminum company, but it's -- I believe it's their steel fabrication sort of subsidiary. And so that, to go after that market and be able to bring in, have locally sourced materials and so forth. Saudi Arabia and significant portions, I think of like North Africa and maybe other parts of the Middle East can have such harsh weather conditions. And I remember someone once describing at least the DuraTrack as being built like a tank. So I'm curious, does your -- does that still, is that still the sense among market participants? Does that give you an edge in places like that? Is there still a reputation or perception? I mean, you've taken costs out, so I don't know, maybe hypothetically. Made it not as strong.

Great question. I just came back from a week over in Dubai and Abu Dhabi meeting with several end use customers, as well as supply chain partners. And I'll give you a sense of what we're focused on there. So look, this is going to be a very quickly developing market, albeit a market at a slightly lower price point than we would enjoy here domestically. But both in, more broadly in Africa, as well as the Middle East, I think it's going to be a huge market. So a few takeaways from my visit. So first, our approach has consistently been to partner with suppliers in region, for example, in Saudi, that will allow us to be able to get beneficial pricing because of the amount of domestic content we'll have in those regions. And I think our supply chain team and our Middle Eastern team have done a great job lining that up and putting us in a great position. When we met with several of the EPCs and developers, I would say my biggest takeaway was how well known our brand was and how welcome we are into the market. Look, the tone, quite honestly, was not only what took you so long, but thank God you're here. How do we get going together? So incredibly positive tone in that market. And we're taking it very seriously. We're actively hiring resources in region and we are actively bidding on a lot of work in that region at this point. So it is going to be a growth market. We'll talk more about it once we start really converting some of those inquiries into orders. A little premature now, but we're really excited about the market and I'm spending some of my personal time there with some of the members of the senior leadership team.

The next question we have comes from Tom Curran of Seaport Global Securities.

Kevin or Kurt, could you give us an idea of maybe just directionally how total non-tracker revenue did sequentially in 1Q and then are the 2 of you working on a plan to eventually break out non-tracker revenue or maybe just provide some more disclosures related to it? And if so, is that something we could expect to see in this year, 2024?

I don't think you'll see it this year. We'll break it out when it becomes material enough to do that. We obviously saw some this quarter coming in. We'll, not material enough to disclose part of our active strategy and we will break it out when it's material but it won't be in 2024.

The next question we have comes from Colin Rusch of Oppenheimer.

Guys, you talked about the CLIP solution, and I know you've worked on different footing solutions. Can you give us a sense of how much efficiency you can get or you can give your customers from a labor perspective or a time-to-installation perspective with some of those solutions?

You're talking relative to our new CLIP on the first solar Series 7 in particular? Is that what you're talking about?

I'm talking about just in general. It seems like an area of competitive advantage and opportunity for you guys to pick up some market share and drive some value for customers.

I don't think we'll quantify it here but suffice to say when we came in and working with Jerry, who's our Head of Engineering, look, it was one of those avenues, one of our 6 pillars we decided to focus on was ease of installation and speed of installation to reduce the overall installation costs of our customers. So from that, we started several new product development initiatives in order to focus on speed of installation, ease of installation, several of that being better, new enhanced CLIP design, several of them launched over the last 6 months and several more that'll be launching over the next 6 months. So I can't quantify it other than telling you it's a huge focus of ours and we've been working with several of our customers in validating those time studies of ease of installation and I could just say that it's being well-received. I guess, I would leave it at that. It's meaningful.

The next question we have comes from Andrew Percoco of Morgan Stanley.

So I guess, and apologies, if I'm belaboring something that's already been answered multiple times here, but my first question would just be on the pricing environment and what you're seeing from competitors understanding that you've already dropped your price or planning to drop your price this year and it's already embedded in your guidance and you're not sacrificing margin at this point, but what are you seeing from your competitors in response to what you're doing on price? Is it a rational market or is it an environment where pricing continues to get more fierce?

So, look, this is an industry that price really matters. We've said that many times and between certainly the top few of us in the market, we can use price to take an order off each other on a routine basis if you choose to. So what you're seeing is still somewhat rational behavior, but I will tell you of our larger competitors, certainly some targeted price reductions that maybe that they're putting in place in order to either regain market share or to preserve 1 or 2 key orders that they had hoped to win historically. And that's really just nothing new. So I wouldn't say it's a changed behavior. It's more acute these days, but we feel that our current pricing strategy and our win rate is really sustainable. We feel good about it. And as Kurt said a couple of times now, the fact is in our guide, we've left some room for the back half to use some of our 45X savings to pursue additional programs should we need to use price to do that.

Got it. Understood. Okay. And then my follow-up question is just on capital allocation priorities as you continue to generate pretty healthy free cash flow. What's the top priority? Is it continue deleveraging? Or is there any other internal investments that you're looking at, whether it be inorganic or organic? I'd just love your thoughts on that.

I'll take that one. This is Kurt. We have priorities, obviously, to continue to de-leverage. That's the focus of ours. We mentioned on the last call, I believe, or maybe it was on some callbacks that we wanted to get through the first half and there's going to be a little bit of an inventory ramp as we get ready for the second half growth. We don't want to dip into the revolver unless we have to. It's there for that, but it's more of an insurance policy. But our intent is to continue to delever at an aggressive pace. You recall last year, we did about $84 million, $77 million of which was on the Term Loan B. So we'll continue to take out. Even though we don't have any maturities during the next 2 years, we got some, the Term Loan B would be the next and it's got our highest rate. So that's going to continue to be what we look to take out. Unless we can negotiate something else in a very favorable way.

[Operator Instructions] The next question that we have comes from Sophie Karp of KeyBanc Capital Markets.

I was wondering if you could get a little bit more granular on the delivery push outs, I guess, that you guys are talking about into the second half of this year. And like, what are the predominant causes of it? I know there's a variety of factors you've listed, but just kind of trying to understand if there's a predominant trend that we should be following here? And what is your degree of confidence that the push outs are going to be, we can up to the end of the year, but not beyond that, maybe?

I wonder where you're hearing. We're not seeing any push outs in the first half. You recall when we gave our guidance, we said, we've taken all that into consideration. And I believe at the time we gave the call, we said it would be just under 30% of our full year revenue coming in the first half. That hasn't changed from that standpoint. What we see in the, it's early into the year still. I know it's May, but it's still early for what we have. There are, we did see a project or 2 from Q3 to Q4, still within the realm here. And as we talked about before, we took, when we gave guidance, we looked very carefully around projects that were late in December, and we just artificially, in our own mindset, even the customers were signaling, we'll put it in this year. We put it into next year from that aspect. But obviously, as a CFO, I'll be sleeping with 1 eye open, knowing that Q4, as we said in the call, is going to be the largest quarter for us from a revenue standpoint. As far as the reasons for the elongated timeframe, not necessarily push outs, as we talked about, supply chain of critical components, particularly the transformer. We've also got people trying to refinance. Obviously rates aren't going to come down as expected originally as thought at the end of the year that people were thinking, and all the other reasons that Kevin mentioned on the call. But just again, we want to reiterate that what we're seeing in the first half that wasn't anticipated and signaled and included in our guidance in the last call.

The next question we have comes from Moses Sutton of BNP Paribas.

For the 45X credits that were included, can you share the specific dollar value, I guess put differently, we thought that maybe the $41 million from 4Q would be recognized in 1Q. Just trying to understand the puts and takes of how you recognize 45X credit from the prior periods and then the new ones that are generated through COGS over time?

Once again, I want to reiterate what we talked about in the last call was 45X, we're going to just get one number going forward, I would say. As we look at it, we never said it was all going to be in Q1 on that. We said it would be recognized over the remaining volume that we have with those contracts going through, and that wasn't all in Q1. But we're going to just get one number going forward for simplicity within our guidance on that, and we'll leave it at that.

I would just add to that, Kurt, just to make sure we're clear. There wasn't a disproportionate amount of that $40 million included in Q1. There was not.

And I guess just shifting to bookings, $2.1 billion, how do you think of that on an annualized basis, just in general? So it used to be we would think of this as, at some point, that would be like a 1-year reflection, maybe around IPO, that was how it was discussed, but lead times have extended. Is that something that is a proxy for 15 or 18 months? Is there any way to think about that, or it's just too fluid?

I would say it's too fluid in the near term right now. I would say that we feel good about the amount of visibility we're beginning to have into next year, and certainly the first half of next year. But I do think it's too fluid for us to give you that range of conversion. We would typically wait a couple of quarters before we predict that for next year.

The next question we have comes from Dylan Nassano of Wolfe Research.

I just wanted to go back to the conversation that we were having around ASP deflation and kind of the margin profile. So, I mean, I guess, you spoke to being able to kind of, in the past, pass on cost savings to the customers, and you have some 45X dry powder, but I'm just trying to figure out, is there any other flex that's kind of left in the actual operating cost structure? And when would it make sense to kind of look for those kinds of levers to pull versus, looking at the 45X?

Yes, I'm not quite sure I understand the question. I could just say, look, we're going to continue to improve our business and drive for improved operational gearing. Obviously, you don't get the operational gearing when you have a $150 million quarter. So I think the margin performance that you've seen, given the low volume, is a signal that there's much more operational gearing to be had as the business scales back up. We work really hard on improving the functions within the business and being very mindful of costs, such that we feel this is a business that's going to have great operational leverage as we scale the business back up.

And I would add to that, this is Kurt, is that, look, there's a couple ways you get that leverage. One is, you know, supplier negotiations and volume. The other is engineering, cost out. An example of that is what Kevin mentioned before on the new H250, where that reduced costs and we rolled it out internationally. And then, maybe there's a third, which I'd say we put in the script, which was we announced a groundbreaking of our Albuquerque facility, and that's not to hit the 45X. It's to meet, cost efficiency and other things that we have. Now, that's not a 2025 thing. It'll start hitting in 2026, but we look at as price comes down, what can we do operationally from a design as well as negotiation, as well as just an overall supply chain infrastructure, including what we in-source versus outsource.

The last question we have comes from Jeff Osborne of TD Cowen.

Just maybe a follow-up on Moses's question. I was hoping you could help me interpret some numbers that are in the 10-Q. I think there's a reference to a vendor rebate of $57.1 million, of which $45.9 million is in prepaid expenses, and that compares to $44 million last quarter. So as those numbers move around, can you just help us figure out how to interpret them as what was recognized in the quarter, what we should be paying attention to with those numbers that you're now disclosing?

I'll have to get back to -- I'm just trying to get it in my mind without getting into the details of the Q. That might be the 45X credits that we're talking about that comes back in the form of a vendor rebate.

with the 45X -- can you walk us through how that is?

Remember how the 45X works. You'll see, we will recognize it after the P&L, but there's a couple of different ways that that gets monetized. Some customers will kind of pay you immediately. Some will pay you a quarter in arrears, and some customers will do pay-as-paid, and remember, this is monetized in a tax return. So what will happen at that standpoint is anything we earn in 2024 that's a pay-as-paid will then not come back to us until they file their corporate tax returns for the 2024 fiscal year, which could be in the fourth quarter of 2025 when they file that. So a variety of different things, but you will see that show up in that line for 45X.

So Jeff, I just want to make sure we're clear on that, that that is not indicative of the total 45X benefit that we're receiving because of the multiple different types of contracts we've engaged with our customers. That will be a portion only.

Would you say it's the majority that would flow through that line item or no?

I don't think we're going to give that level of clarity. I think what we've tried to provide you is the good guidance of our gross margin and the gross margin with and without 45X. And I think that's probably the best and quickest way to do the math to get an estimate of the 45X in the quarter.

Thank you, sir. Ladies and gentlemen, we have reached the end of our question and answer session. This concludes today's conference. Thank you for joining us. You may now disconnect your lines.