ARRY - NASDAQ

Greetings and welcome to Array Technologies' Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Sheppard of Investor Relations at Array. Please go ahead.

Thank you and welcome to Array Technologies third quarter 2024 financial conference call. On the call with me today are Kevin Hostetler, our CEO; Neil Manning, our President and COO; and James

Thank you, Sarah. Good afternoon, everyone. Today, I'll begin with a brief business and market update, then Neil Manning, our President and Chief Operating Officer, will provide some product and commercial updates for the quarter. I'll then wrap up the call with third quarter financial highlights and full year financial guidance. Then we'll open up the line for your questions. In the third quarter, we once again saw solid financial performance and execution from the business. Starting on Slide 3, I'll begin with the summary and some highlights of the quarter and then discuss the latest near-term market dynamics and industry environment. We achieved $231 million of revenue, which was in the upper half of the guidance range we provided on our last earnings call. Adjusted gross margin came in at 35.4%, which included 45X benefits related to both torque tubes and structural fasteners. Compared to the prior year, our adjusted gross margin performance reflected a 940 basis point improvement. We also delivered $46.7 million of adjusted EBITDA, representing 20.2% of revenue, and we generated $43.9 million of free cash flow to end the quarter with a strong cash balance of $332 million. Our order book remained consistent at $2 billion to end the quarter. While this quarter's orders and the number of total projects awarded in the market were a bit muted given the election uncertainty and other market factors, the overall momentum of the business remains strong. At quarter end, our overall domestic pipeline of opportunities was over 3 times larger than at the end of Q3 of 2023. Our win rate continues to be higher than our historical market share, and we're seeing great traction with our recently expanded product portfolio. Of note, our OmniTrack terrain following tracker now impressively represents more than 20% of our global order book. We believe the continued success of this product is indicative of the wide varieties of terrain now being used for solar projects, both in the U.S. and internationally. It's an exciting trend for the industry to continue to expand its total addressable market and remain one of the lowest cost options for new energy generation. Transitioning to Slide 4, I want to take the time to talk through the promising growth trajectory for solar. Looking to 2025 and beyond, we believe the demand and value proposition for utility scale solar remains robust. According to EIA data, solar energy remains the leading source of new electric capacity additions in the U.S. with 59% of all additions in the first half of 2024. Based on planned additions data, it's expected that solar remains at approximately 60% of all new additions to close out the year as well. We expect that solar will continue to be the largest driver of new energy generation in the years to come as various reports outline that utility scale solar remains one of the lowest cost options to satisfy rapidly growing energy needs. We are bullish that these demand drivers, coupled with continued legislative support and emerging tailwinds such as AI data center green energy demand will provide bright prospects for the industry in general and for Array in particular, in the coming years. Looking to nearer-term growth, many are speculating on overall U.S. utility scale installation growth over the next few years. Looking at 2025 specifically, third-party projections range between mid to high single-digit growth from 2024. However, as we look at the year ahead for Array, we anticipate strong double-digit growth within our overall business due to several elements. First of all, a significant portion of our order book is still scheduled for delivery between Q4 2024 through the end of 2025. And I'll remind you, we will still book additional deliveries for 2025 over the next few quarters. While this provides us with strong visibility, we continue to frequently engage with our customers to assess expected project time lines. Secondly, we are encouraged by the continued strength in our win rate this year, largely driven by our focus on strategic customer engagement and innovative and differentiated product offerings. Outside of the U.S., we also remain encouraged by our positioning in international markets. For instance, greener consultancy data recently confirmed that Array boasts the leading market share for distributed generation projects in Brazil. In Europe, while overall market demand has been modest, we are confident that our targeted customer activities will continue to support share growth in the coming quarters. To that end, we will continue to set ourselves up for success to support growth in 2025 and beyond and to navigate near-term challenges to the best of our ability. Moving to Slide 5. I want to specifically cover the current U.S. market dynamics we're seeing. In 2024, we've talked at length about the various project pushout elements with which our customers have had to contend. Looking to the future, we believe some of these dynamics may be more persistent challenges, while others have opportunity to incrementally improve as we head into 2025. The more persistent headwinds that customers will continue to navigate include permitting and interconnection delays, shortages of high-voltage circuit breakers and transformers, and EPC labor constraints. Although there is much discussion around interconnection queue regulation and permitting reform, we believe that in practice, it will take some time to implement these changes to move projects along at a more normalized cadence. Similarly, with long lead-times for electrical equipment, although customers are seeing early signs of improvements in these lead-times, the industry will need time to build out additional manufacturing capacity for these components. That being said, we are optimistic that there are a number of factors that have the potential to facilitate incremental improvement in project timing as we move forward. The first factor encompasses the more favorable financing environment due to the Federal Reserve's interest rate cuts. Additionally, final clarity on AD/CVD tariffs should allow projects to advance with more certainty. While we have commented in the past that we believe these tariffs negatively impact the industry as a whole, the biggest factor in AD/CVD-related delays is related to the uncertainty surrounding the total cost of solar panels. Once developers understand the total tariff-related costs associated with specific panel selections, they can better plan their overall sourcing strategies to optimize overall project costs and returns. The preliminary determination on antidumping tariffs is scheduled to be issued later this month, which should help customers with their evaluations. Further clarity around IRA incentives also assists industry participants in understanding their total project costs. We were pleased to see the final 45X rules released in October as this represents long-term support for domestic manufacturing initiatives. Specifically for Array, the 45X tax credits are helping us increase our domestic production and onshore critical components and good-paying jobs through our new Albuquerque manufacturing facility. Although the final rule did not broaden the category of structural fastener to be inclusive of our clamps as we had advocated, we are still pleased that 45X is more solidified. As a reminder, our 2024 guidance did not assume clamps would be included in the definition of structural fastener. Under the final rule, we continue to recognize credits for our clamps under the current longitudinal Perlin definition within the torque tube 45X guidance. On domestic content, Treasury anticipates releasing updated guidance before the end of the Biden administration to update the elective safe harbor data, make additional technical clarifications, improve accuracy and more. We feel that this additional guidance will be helpful for our customers pursuing the domestic content adder through the elective safe harbor table. We currently have a significant portion of our domestic order book evaluating domestic content. So we view further updates to this guidance as very impactful for project considerations. Finally, we remain confident that solar maintains bipartisan support and would note that our industry performed well under the First Trump administration. We have discussed at length how utility-scale solar incentives in the IRA are creating good paying jobs and opportunities for both Republican and Democratic districts alike. Notably, there is growing bipartisan support for protecting the energy tax credits portion of the IRA as evidenced by a number of house GOP members requesting Speaker Johnson to exclude these provisions from any repeal effort. The domestic content bonus credit, in particular, is a critical component of the legislation that strengthens domestic manufacturing while accelerating the deployment of clean energy across the country. Overall, there are many challenges and opportunities that customers are currently navigating in the market. However, it's important to note that we see the U.S. market stabilizing, not worsening from the level of customer pushouts we witnessed in midyear 2024. Now, I'll turn it over to Neil to speak about some exciting product and commercial updates.

Thanks, Kevin. Moving to Slide 6. I'd like to spend a few moments talking on the recent announcement of our 77-degree tracker in the context of our broader innovation track record as shown here. With the rising frequency and concern on hail damage in the industry, Array has responded to the challenge with the introduction of the steepest stow angle for protective hail stow in the industry. This new offering will feature our proven DuraTrack and OmniTrack design and is enhanced by our Array SmarTrack Hail Alert Response Software. This tracker provides unprecedented flexibility and protection from against both hail and wind, significantly reducing the risk of damage to a solar site. Providing our customers with the best solutions to reduce the risks imposed by extreme weather events remains one of our top priorities and drives many of our innovation efforts. To put our track record in context, in 2015, we first introduced passive wind stow capabilities to our DuraTrack products, providing our customers with a premier solution to mitigate stress from high wind loads, and we do this while providing up to 4% increased energy production when compared to active stope protocols provided by our competitors. Our Passive Wind Stow technology, which relies on one of Array's key differentiating patents, allows for individual rows to move to high tilt when the wind threshold is exceeded through a clutch in a gearbox. This allows the net torque to move the road to a predetermined tilt position. Oftentimes, this results in exterior rows moving to the stow position while most interior rows continue to track normally. This unique architecture allows for higher energy production than competitive offerings. Earlier this year, we introduced hail alert response as part of our SmarTrack suite of controller and software solutions. Hail Alert Response is integrated with third-party weather services to move all rows at a site to a maximum defensive tilt position away from the direction of the storm's wind at a predetermined time line. Moving the modules to a high tilt reduces the kinetic energy impact on the module from hail and significantly reduces the risk of damage of glass breakage and cell cracking. In the third quarter of this year, we launched our SkyLink architecture, which works with the existing DuraTrack and OmniTrack solutions. SkyLink provides an eight-row string powered solution featuring DC motors and

Thanks, Neil. Moving to Slide 8. I would like to start off by providing some additional details around the third quarter results. As I previously mentioned, we delivered revenue within our guidance range of $231.4 million, which was down 34% from the third quarter of 2023, largely due to the project pushouts we've experienced this year. We experienced both declining volume and ASPs year-over-year in the U.S. and internationally. Sales in North America represented approximately 70% of our revenue for the quarter, with the remainder of our revenue coming from international locations. We achieved third quarter adjusted gross margin of 35.4%, an improvement of over 900 basis points year-over-year. Operating expenses of $211 million were up approximately $164 million from $47.2 million during the same period of the previous year. This increase was driven by a $162 million noncash goodwill impairment charge related to the 2022 STI acquisition. The goodwill impairment charge was triggered by the sustained decline in our stock price in the second half of Q3, resulting in a decrease in market capitalization, coupled with an update to long-term projections for certain markets for the STI operations. Adjusted EBITDA was $46.7 million, representing an adjusted EBITDA margin of 20.2%. This compares to adjusted EBITDA of $57.4 million and adjusted EBITDA margin of 16.4% in the third quarter of 2023. On a GAAP basis, net loss attributable to common shareholders in the third quarter of 2024 was $155.4 million compared to net income of $10 million in the prior year period. Basic and diluted loss per share was $1.02 compared to basic and diluted income per share of $0.07 in the same period last year. Adjusted net income was $26.5 million versus $31.7 million during the third quarter of 2023, and adjusted basic and diluted net income per share was $0.17 compared to $0.21 during the prior year period. Finally, our free cash flow for the period was $43.9 million versus $69.4 million for the same period last year. Now, I'd like to go to Slide 9 and provide a more detailed update to our full year 2024 guidance. As we addressed within our guidance revision last year, we carefully contemplated a number of different project timing scenarios that could occur within our customer base. Although we did see some projects shift to the right in Brazil due to continued real weakness impacting PPA negotiations, which resulted in the narrowing of our top line guidance range to $900 million to $920 million, this was certainly considered within those potential outcomes. To be clear, we only continue to see some project pushouts, not project cancellations, and we feel some customer challenges have abated since the accelerated level of pushouts we witnessed at the midpoint of the year. Notably, within our domestic business, we have not seen our U.S. projects shift substantially from our expectations in our last guidance revision. We are lowering our adjusted EBITDA and adjusted net income per share ranges slightly given a combination of changes in overall project mix within the narrow top line guide and increased strategic investments and additional nonrecurring expenses. We are anticipating record annual adjusted gross margin of approximately 34% for 2024, largely due to the torque tube and structural fastener 45X benefits we've been able to realize. As a reminder, 2024 represents a transitional year for 45X with some benefit catch-up recognized this year related to 2023 shipments. Additionally, within the framework of our updated guidance, we are now expecting adjusted G&A expense to be between $138 million to $140 million, which is reflective of some increased nonrecurring charges and strategic investments we are making as we look to 2025. We are now expecting a reduced 2024 effective tax rate of 20% to 21%, excluding the goodwill impairment charge, given our latest anticipated regional income mix and some additional R&D-related tax credits. Finally, we are pleased to raise our free cash flow guidance to $100 million to $115 million from the prior guidance range of $60 million to $100 million, given our enhanced focus on working capital improvements to close out the year. As I've mentioned, we continue to anticipate a growing, highly profitable cash-generative business as we move into the year ahead, and I'm incredibly proud of the team's efforts on these fronts. Finally, before opening the line for questions, I want to provide a brief update on our CFO search. We mentioned last quarter that we were in the process of a very thorough vetting of an impressive initial slate of candidates. After extensive interviews and reviews, we're pleased to have entered the final stage of this process. While we can't disclose more details at this time, we are confident that we are near the goal line. In conclusion, as I look at the opportunities for our business in the coming years, I'm feeling very encouraged and proud of our employees who have dedicated their time and efforts to set up the company for future success. We will continue to manage the elements within our control by focusing on our business momentum, customer engagement, product innovation and operational execution as we move forward. With that, we will now open the call for questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Julien Dumoulin-Smith from Jefferies. Please proceed with your questions Julien.

Thank you, operator. Good afternoon team. Thanks so much for the time here. Just wanted to follow-up a little bit on the comment with the $2 billion backlog here. Can you comment a little bit on the cadence of that realization? I mean, Kevin, you've spoken on that, I think it was last quarter here. Any updated thoughts on the realization? I mean, obviously, things are moving in and out here. I imagine there's probably been some level of delays and pushouts still. So how is that coming together here as you think about the revenues through 2025, if you will? And how are you seeing that mix evolve in terms of both layering in versus pushouts, if you will, within that $2 billion?

Yes. Thanks, Julien. Great question. I could say, first of all, in the last quarter's call, we had to talk about that very acute period that was a period of four to five weeks where we had a number of projects push. And the only thing reflecting back on that, that I could put that to is that we had our customers evaluating their second half of the year plans and making their updates and getting more realistic with their own forecast and plans. Because once we got through that period, the business very quickly returned to what I would call a normalized level of pushouts and delays, meaning, look, in a project business, you always have pushouts and pull-ins, and that cycles much more what we saw as the quarter progressed back to a normalized level, some projects pulled in. Certainly, we saw some pull-ins domestically, a couple of pushouts internationally. But back to that very normalized level of cadence that we've seen and that we've always had historically. So I think the -- look, the commentary regarding last time where we said about 80% of that backlog was due to convert between the end of Q2 and 2025, very consistent. It's probably gone up a couple of percentage points, but that would be a very consistent number. And the difference there and what we want to make sure we still communicate is we're still going to be booking orders for 2025, certainly this quarter and for a couple of more quarters. So we feel really good about our 2025 at this point. We feel good about being able to put up strong growth. And again, that strong growth without a lot of go-get left in the operating plan, if you think of it that way, right? So, this is stuff that's already in our backlog that we'll be executing to. So we feel really good about what's shaping up for 2025 for us.

And Kevin, just to clarify that last comment there, you talked about the 80% being intact. Is that over six rolling quarters? Or is that kind of on an apples-to-apples basis for the same period that the total revenue implied for 2025 is still kind of comparable as far as the backlog goes?

Yes, it's apples-to-apples.

All right. awesome.

Holding a little bit higher.

Little bit higher even. Okay, excellent.

Thank you. The next question comes from Mark Strouse from JPMorgan. Please proceed with your question sir.

Yes, good evening. It's Drew on for Mark. Thank you for taking the questions. Just kind of want to follow up on that, and I appreciate the encouraging commentary on 2025. But can you just talk a little bit what's giving you confidence in these projects realizing and happening in 2025? Maybe as you hinted on that interconnections may not be getting better as you might have hoped previously? And maybe just anything you can say on what is giving you the confidence that the project pushouts are going to alleviate somewhat into 2025?

Well, I think to be clear, I think there will still be some level of pushouts and pull-ins back to kind of what we would say is our normalized cadence. The difference in our 2025 setup from our 2024, if you think about in 2024, we still had -- at the beginning of 2024, we had in our operating plan a level of go-gets that we still needed to convert in to deliver the back half of the year. And as we look at our 2025 plan, it's all in our backlog already. So that needing to convert additional business is already converted in our backlog, plus a few more quarters of bookings make us feel pretty good about what we see in 2025. I think most of the market is now able to contend with some of the long lead-time equipment, some of the labor shortages. And I think as we're getting closer to our customers and really validating their go-forward plans and their project time lines, we feel better about the setup for 2025 certainly than we did coming into 2024.

Okay, great. Thanks. And then just one other. On the STI write-down, can you just kind of talk about what went into the longer-term outlook being revised there? I mean maybe what markets, what's changing? And what's been different than you would have expected a year or so ago?

Yes. Let me -- we have James

Yes. Thank you. Thank you, Kevin. Julien, I think just looking at the Brazilian market that we participated in and recently experienced accelerated devaluation of the real, the Brazilian real, that really triggered for us to relook at -- if you look at the volume, look at the pricing, it stayed the same when you have a weaker real, when it translated to U.S. dollar, you're going to have a lower revenue. I think that will trigger this. So, in addition to kind of market capitalization. So that's kind of triggered a rejuggling a little bit in terms of outlook or the projections for the outer years. So, that's one of the triggering events.

Okay. Thank you

Sure. You're welcome.

Next question.

Thank you. The next question comes from Brian Lee from Goldman Sachs. Please proceed with your questions Brian.

Hey guys, good afternoon. Thanks for taking the questions. I guess on the 2025 outlook, talking about strong double-digit growth, that's encouraging to see. Can you give us a sense, Kevin, you've done a good job throughout the year talking about volumes up, volumes down, price, et cetera. So as you think about the outlook here for 2025, it sounds like you're pretty optimistic. How does that shake out between U.S., international? And then kind of what's your baseline thinking around the pricing on a year-on-year basis to get to the strong double-digit growth view?

Yes. So look, we're not really going to guide 2025 today. So I want to be careful. I don't go too far in discussion. But I'll say what makes us feel good about those numbers is that, that's already coming out of our backlog. So, if you think about just looking at our backlog and the guidance we've given you, and if you do the math, you see that there's already strong double-digit growth already sitting in the order book already scheduled for delivery. And frankly, a lot of that we feel really good about in that, as I mentioned earlier, it's not about a go get to fill a gap. This is already in the order book, already in our SIOP process, already planning for deliveries next year. So we feel really good about the visibility we have now to that. Look, we don't have any help in that from higher pricing of steel. In fact, it's not. And remember that these orders in our order book that are shipping would have been booked in the last three to four quarters that we'll be shipping next year. So, those price points and those margins, we feel good about. They've been consistent with those expectations we've set on every call to date. So we feel pretty good about the setup for next year in terms of volume, margin, operational gearing and the investments we're making primarily on the front end of our business to even further the acceleration.

Okay. You started the year out high 30s, -- and you're raising the gross margin view for the year. I mean you back into the math, you're kind of going to be in the low 30s exiting the year. And you made the comment that some catch-up credits that kind of skew the numbers at least for 2024. So, as we think about the Q4 run rate, let's say, you're in the low 30s, is that kind of representative of the average you're seeing in your current backlog? As you said, these are bookings with price points over the past couple of quarters. Is Q4 kind of reflective of the run rate you'd be seeing going into 2025? Thank you guys.

Yes. Sorry, I'm going to be -- again, I'm going to be careful. I'm not ready to guide margins for next year until we thoroughly get through our AOP process project-by-project and what have you. What I will say is that in Q4, obviously, sequentially, you'll see a slight dip in margins, but that's more primarily related to one large order of an old VCA that certainly I inherited from 2021 that is a very low-margin VCA. And whenever we have large orders come against that VCA, it negatively impacts our margins. So that's really what you're seeing in Q4. I would say it's a bit of an anomaly, but we're not ready to guide yet margins for next year until we get through our operating process.

Thank you. The next question comes from Jordan Levy from Truist Securities. Please proceed with your questions Jordan.

Good afternoon all and thanks for taking my questions. I just wanted to see maybe just following on the last question you had, is there any timeline you can give on sort of how far out that VCA extends? And then maybe just as sort of a follow-on to that, if there's been any kind of additional shifts in VCA structure versus EPC structure?

No, I think this is actually the only one remaining fixed price VCA contract that we have in the company. It was signed in 2021. It extends through 2026, and there's probably a couple of more projects we'll ship between now and the end of the VCA against this that are lower margin.

Thank you. The next question comes from Jon Windham from UBS. Please proceed with your questions Jon.

Perfect. Thanks for taking some time for the questions. I'm just wondering if you anticipate any potential changes in customer behaviors in ordering given the risk under the new administration and their attempts to potentially try to Safe Harbor? thanks

No, I think it's too early to tell on that, right? Certainly, like you, I've read every possible note in the last 48 hours of what different customer behaviors may evolve, be it acceleration or delay, and we truly don't have a good view of that. It's just far too new, far too fresh for that. We'll be ready to serve our customers in any way they need to be served. We can certainly accelerate given our strong domestic supply chain. If that's what they choose to do, we're ready to help them do that. I think the biggest thing that will determine the cadence of customer orders is clarity around domestic content and clarity around the AD/CVD tariff rates. That's what we've continually discussed as being the elements that are causing pause. Again, we expect these to get cleared up by the end of the year. We feel pretty good about the cadence as we exit the year into next year.

Thank you. The next question comes from Philip Shen from ROTH Capital Partners. Please proceed with your questions Philip.

Yes, thanks for taking my questions. First group of questions is around bookings. Can you share what the gross bookings were in Q3? Do you have any de-grossing or de-booking? And then how do you expect bookings to transition or be in Q4? And then we calculate about $230 million for bookings for Q3, so does that sound about right? And then the second group of questions is around Brazil. Can you share how much of your latest backlog is for Brazil? Thanks.

Look, what we've said pretty clearly is that our order book remained flat at $2 billion, Phil, and order activity and projects awarded were slightly muted in the quarter given the uncertainty around the election and also AD/CVD rates. I think what we're most excited about is that the overall pipeline of opportunities in the U.S., looking at it year-over-year, is over 3 times larger than it was this time last year, which is incredibly significant. The kind of what we call the higher probability pipeline over 2.5 times larger, so we feel really good about that momentum. And the fact that our win rate continues to be higher than our historical market share. We're winning orders with customers that we hadn't seen orders with in over two years at this point. We're excited about the momentum we have with historical low share of wallet customers. We're excited about winning with customers that we hadn't in some time. We're excited that OmniTrack is now over 20% of our backlog and continuing to accelerate. And we're particularly excited that we won our first order of SkyLink early in Q4 with, again, a targeted customer that we had not received an order in over two years for. And the SkyLink in particular solved this customer's problems they needed on a site vis-à-vis quick installation, less cabling, all of that was a perfect fit that opened up a new geography to us with a new targeted customer. So, we're excited about the momentum we're seeing on the front end of our business. Your second question was on Brazil, and what in particular?

Which of the backlog is Brazil? Thank you.

I don't think -- we have not historically broken out backlog by region. Not a metric we provide. Next question.

Thank you. The next question comes from Dimple Gosai from BofA. Please proceed with your question.

Hi there. Thank you for taking my question. Can you speak a little bit about the final manufacturing guidance that came out, where it seems that additional components didn't quite change for qualification. What's kind of included in your margin guide there? To some extent, I think there was some level of optimism that more components could qualify, whereby you qualify for the $2.28 per kilogram versus the $0.87 under new definition. If you could just give some more clarity there, that would be really helpful. Thank you.

I'll take that one. This is Neil. And this is around domestic content. We feel really well established from a domestic content perspective. We announced in Q3 of last year that we were able to provide 85% or better domestic content. Really not a big lift to get to 100%, which we've already announced that we'll be capable of shipping in the first half of 2025. Now, as a reference to Cable One from our capability to provide that, that gets into a number of components. As I mentioned before, we're really well suited to already providing many of those from domestic sources already. And we're working with a few suppliers that were not fully domesticated to be ready for that Q1, that first half of 2025 target. We're not in a position where we're going to break out margins specifically for domestic content versus nondomestic content. But overall, we feel really well suited. As the guidance solidifies, we've been talking with customers, we think that about 20% or so of our current quotations have some level of domestic content required as part of it. And we feel really excited and able to be able to meet those requirements for our customers as they look to solidify their planning for 2025.

And I think I'll answer the specific question regarding the 45X credits. And in particular, I think you're referencing clamps. On our last call, we discussed that we had, we were hopeful but not forecasting to be clear, that clamps would classify or be delineated under structural fasteners and therein by weight get a higher level of credit. Unfortunately, what we found through this last round was they were not in a position to change any of the original language that had already been locked in stone. They could not do that, so we're back to considering clamps under the longitudinal purlins portion of the definition under torque tube at a lower level. But again, that was not put into our guidance at the higher level, so we're quite satisfied at this point. I think what we're more focused on is the fact that that level of clarity allows things to move forward. And we're as excited about that portion that now things can move forward, people understand where they are. And as Neil indicated, over -- just over 20% of our order book is now focused on some level of domestic content at this point. We're excited about being able to deliver that for our customers.

Thank you. The next question comes from Joe Osha from Guggenheim Partners. Please proceed with your question Joe.

Thank you. Hello everyone. Back to AD/CVD and November 2027, one of the things that we often see is that not every module maker is treated equally. How much of a challenge could we see with developers switching out panels from one vendor to another? And how does that impact your business? Thanks.

Yes, I think for us, we're really excited about that. First, I can tell you that when we're designing a site now, and this has been this way for about a year since the AD/CVD, we're not giving a vendor a one-site design. One of the challenges we have internally is that our customers rather are asking us for three and four different site designs on three or four different panels, right? They're unsure which panel they're going to choose in the end. We're doing multiple site designs for our customers under varying different supply chain strategies they have for different panels. And we've been doing that consistently now for probably eight months or so, right? Where we used to historically give you one quote, one design, we're giving you four quotes with four different designs. And what happens in that next round of AD/CVD clarity is once our customers understand those economics of those different panel choices, they will then make their supply chain choices and pick one of those four designs and move forward. Now the benefit for us and our unique ability to do that versus other competitors in the industry is that we don't drill into our torque tubes. We don't have preset fixed positions for clamping systems, so that as our clamps slide on to the torque tube, you could slide those to the left or right several inches, or feet if need be, but we have a much greater level of flexibility without needing to re-drill torque tubes out in the field. Our customers can do those late selection of panels better with an array system than our competitors. And as such, we're giving them multiple designs and getting them ready to be able to make panel selections late in the process.

Thank you. The next question comes from Vikram Bagri from Citigroup. Please proceed with your questions.

Good evening everyone. Kevin, can you talk about any changes to contract terms with customers, if there are any? What percentage of orders do have cash down payments? Are you taking some sort of guarantee in every order you receive? And in terms of second question, your outlook for Brazilian market, you mentioned that you highlighted you're a leader in that market. If you can just talk about how you're thinking about expectations in 2025, 2026, you see year-on-year growth in Brazilian market? Not asking for guidance, but just broad outlook, do you still see that market growing healthily for you? And then final question, in terms of 45X, I know you've been talking about sharing 45X in cases where you can gain more wallet share with your customers. Have you shared 45X with any of your customers? And in cases you have, should we think about gross margin that percentage gross margin goes down, but the absolute gross margin goes up as you gain more wallet share by giving up some 45X? Have you shared any and are we thinking about it the right way? Thank you.

Great question. We're going to unpack all those questions. And let me take the first couple, and I'll turn it over to Neil, as Neil runs the Brazilian operations, so he'll give you a better answer on Brazil. I'll say it again, that currently we have no orders within our order book which requires the explicit sharing of 45X credits. Now, that being said, we recognize our margins. And when you look at our Q later today, our margins domestically are doing really, really well, and we're benefiting strongly from 45X credits. We are mindful of this. And we're opportunistically providing our customers more competitive pricing, utilizing some of the 45X. But it is not an explicit sharing agreement with 45X. It's about us realizing the benefits that we're getting and being able to pass them on in more competitive situations. We feel really good about our ability to use some of that outsized margin domestically to drive additional business. And as I said, you'll see that in the Q that our domestic margins are going really, really well at this point. The second question or second element of the question was really about terms and contractual terms and what we were seeing relative to that. Look, always on occasion you may negotiate one-off exceptions on terms. But we've seen no real material shifts in customer deposit behaviors or requests. I will say that, look, as order cycles have elongated in the last year, I've had a couple of customer conversations where customers are less willing to put full contractual deposits down too early. Historically, where we may have gotten a 20% down payment very early in the process, in a couple of cases, I've worked with those customers to reduce that initial 20% down to a lower percentage initially, and then they provide additional deposits over time as we get closer to the project kickoff. I could say that's only happened on a couple of occasions this year in total. It's not something that's really gone programmatic to us at all. And our goal is to routinely have as much of our backlog fully contracted, and by fully contracted, that means there are penalties associated with delays, cancellations, things of that nature. Our goal is always to have as much of our backlog fully contracted. We're going to continue that practice and continue focusing on customer deposits prior to ordering materials and locking in our pricing. And as we do that, I'm certainly happy to get a large order fully contracted even if that means say half of my historical deposit upfront on an order. Selectively, we're willing to do that because I really want that contract off the street and in my books with penalties. Does that make sense? I'll turn it over to Neil.

Yes. And just over on the Brazil topic, again, not going to guide for 2025, but let me talk a little bit about the context of what we've seen this year. As Kevin mentioned, earlier in the year, we saw a lot of project pushes in the period in the kind of that midsummer timeframe. We saw some of the same in Brazil during that time. But at this point, that's largely settled out. We haven't seen that rate of change since that period early in the summer. And now that market obviously is working through a number of factors. There's certainly some of the currency challenges. There's also the curtailment dynamic that's taking place with the Brazilian power grid. We do think it's going to take a couple of quarters for that to settle out. But we do feel confident in our position there. We gained a lot of share from 2023 into 2024. It's been publicly noted that we're the largest DG provider in Brazil at this point as well, so we feel really well positioned. We do think it's going to take a couple of quarters for things to settle out. But as things then pick up again, we feel really well positioned to pick up where we left off.

If I can add, I think one of the things that the team in Brazil under Neil's leadership has done a great job over the last couple of years is we recognize that the Brazilian market shifts from period to period between large utility scale and DG projects. This means you're going from maybe doing 10 or 15 large projects a year to literally hundreds of five and 10 and 15 and 20-megawatt projects. We set up a model that allows our business to shift very, very quickly between the two when we see. And that's what you're seeing. You're seeing the results of that increased process and operating efficiency of being able to pull that shift very quickly is what you're seeing in our DG market share. Certainly, in 2023 over 2022, we gained a lot of market share in utility, tying for the number one market share in utility scale solar in Brazil, gaining 9 full percentage points. And then immediately shifting thereafter when the utility scale is getting bogged down a little bit in the near term, shifting to have the largest market share in the DG portion of the Brazilian market. It's really a strong credit to the team in Brazil that's being able to pivot the business very, very quickly for whatever the market throws at us down there. And I think that's a big note of success in our business model in Brazil to-date.

Thank you. The next question comes from Kashy Harrison from Piper Sandler. Please proceed with your question.

Good afternoon. Thanks for taking my question. So, just one for me, Kevin. How do you philosophically think about the appropriate level of SG&A for the business, both quantitatively, whether that's relative to sales or backlog or what have you, qualitatively as you think about strategic and R&D and what have you?

Yes, I mean we treat the buckets very differently, right? Relative to R&D, as the team brings forward really strong projects that pencil out with a high degree of margin accretion and revenue tied to them, we will fund them, period. That's period, nonstop. We believe that some of the best use of our funds is driving organic growth through new product development. We're seeing some of the new product development that we started when I got here two years ago finally coming to fruition and finally showing up in meaningful changes in our orderbook, so we're going to continue that. I think relative to SG&A on the front end of our business, what we found is that we have ample opportunities to continue investing in the front end of our business, both internationally. Certainly, in the last quarter, if I think about some of the adds and those "strategic investments" we referenced in our prepared remarks, that's about sales and marketing talent coming into the company and getting much more aggressive. We've added salespeople in Europe. We've added salespeople in the U.S. We've added targeted product marketing specialists in the U.S. to really continue to get the word out of our superior product advantages in the market. Look, we had been out marketed in this business for some time. We're just flipping and getting much more aggressive on the front end of our business. We've got new sales leadership in place, new commercial officer named, and several new bodies in the business already in just the last say two to three months coming in to help us accelerate the front end of that business.

The next question comes from Colin Rusch from Oppenheimer. Please proceed with your question Colin. Colin, you may proceed with your question.

Sorry about that guys. I'm curious about the competitive landscape and how much activity you're seeing in terms of cost reduction from any of your peers and the pricing dynamics that you might be seeing as a result of that.

I wouldn't say we're seeing much change between -- historically, look, this is always a competitive marketplace between certainly the top few of us. I would say it continues to be a competitive marketplace for the top three of us. But I can say we're not seeing big deterioration in ASPs or anyone driving down price. I think what we're seeing is the beginning of some creeping in of sharing of 45x on behalf of some of our competitors, and that's showing up in some price. And again, when you look at our strong domestic margins in the Q, you'll see that we've got ample room to do that alongside to even grow our market share even further than we think we've recovered this year. We feel it's still fairly disciplined at this point. It's certainly not -- it's nothing close to a price war out there. What we're seeing is targeted projects that maybe fit us or fit a competitor, we're being aggressive to ensure those come into our order book. And I think they're behaving similarly.

Appreciate that.

Thank you. The next question comes from Derek Soderberg from Cantor Fitzgerald. Please proceed with your question.

Yes, hey guys. Most of my questions have been asked, but maybe on the 77-degree tracker, curious what's sort of the significance of having this solution for you guys? Do you think maybe your architecture is uniquely suited for it? I know it's in the early days. Maybe what's the value of this type of solution in the market in terms of selling price increases? Is that material? Is there a margin improvement attached to that? Anything on that would be helpful. Thanks.

Yes, we spent a lot of time with our customers with industry forums this year. We held an insurance forum earlier this year at our headquarters. And we really wanted to hear from our customers and from the industry what they're seeing and feeling and hearing, especially given a lot of the extreme weather events. Of note, there was a major storm, a set of storms in Texas around the middle of the year, where there's significant damage. And to be clear, we feel that our legacy platform, it stows at 52 degrees, has performed really, really well in the real world. And actually, it's performed quite well when you look at competitors' offerings that are right nearby. We feel really good about our current product and its ability to perform well in extreme weather for a lot of the reasons we talked about in the prepared remarks. But that being said, given that hail claims are like 1% of all claims but represent about 50% of the losses, there's a high degree of sensitivity around anything that can be done to improve, especially when it comes to large-size hail, which is really what provides -- like 3-inch diameter or more is really what drives the predominant amount of damage for these sites. And there's a prevailing view that we heard from our customers and industry contacts that, hey, a higher degree would be helpful as they look to mitigate potential claims and losses in the analyses that they use despite what's been kind of happening from a real-world perspective out there. Long story short is, we worked with our technical teams, spent a lot of time discussing and ultimately determined that, hey, there's an opportunity for us to really meet the needs and what is being asked for to come out with what we will believe is this highest degree stow capable to protect against extreme weather events. That being said, it's going to be set upon the DuraTrack and OmniTrack platform. It's not a brand-new offering, so it's going to be built largely upon the existing platform, which makes it pretty straightforward for us to bring to market. And ultimately, when it comes to certain design criteria that customers are asking for, specific enhancements do oftentimes bring with it potential margin opportunities, but we're not ready to get into that level of detail at this point. That being said, great response at the RE+ conference that was held in Anaheim in September. We got great feedback from our customers, a lot of enthusiasm, a lot of interest, and we look forward to talking about it a lot more as it gets closer to coming out.

The next question comes from Maheep Mandloi from Mizuho Securities. Please proceed with your question.

Hi thanks very much. It's David on for Maheep. I just have a quick one. With your competitor acquiring foundation companies, is that impacting your ability to bid for any projects?

No, from our perspective, those foundation companies that were bought, kind of rocky soil, those types of environments are really a niche kind of part of the market. And to be clear, we're certified to work with that provider. And given that's a niche offering, we're still certified to work with them. They're working with us. And we don't really feel that there's any limitation to us from a go-forward standpoint in that niche. We're obviously evaluating opportunities in that space and in other spaces where it makes sense from rocky soil, Upper Midwest. This is why we talked about with SkyLink, that there are certain opportunities for us to have solutions that are custom tailored to certain geographies and parts of the country and around the world. And we don't feel any limitation based on that acquisition was made, and we're quite comfortable with our position when it comes to specific soil and terrain.