US solar tracker provider Array Technologies slipped to a loss in the second quarter of 2021, but has changed business processes in order to reduce its exposure to future rises in commodity and shipping costs.
Meanwhile the company has reinstated guidance for the year, albeit marking a significant reduction in forecasted earnings, having withdrew its 2021 forecast while reporting its opening quarter results on the back of what it called “unprecedented” material and logistic cost increases.
Array also confirmed yesterday that it had agreed to sell up to US$500 million of perpetual preferred stock to funds managed by Blackstone Energy Partners.
During Q2 2021, Array recorded a 76% year-on-year increase in revenues, reaching US$202.8 million, contributing towards a 21% increase in gross profit to US$26.8 million as a result of higher volumes shipped.
However higher costs continued to erode its margin, leading Array to a net loss for the quarter of US$17,000 compared to a net profit of US$2.4 million recorded in Q2 2020.
Jim Fusaro, chief executive at Array Technologies, said higher input and logistics costs continued to be a headwind for the entire industry, but praised the work of his team in negotiating with customers and suppliers in recent months, allowing the company to tweak its business processes in order to reduce its exposure to future price spikes.
After Array withdrew its guidance in Q1, Fusaro noted that the company does not hold large inventories of steel, meaning it was more exposed to pricing volatility. Furthermore the company said it would be taking “several actions to mitigate” additional increases, including negotiating longer-term contracts with freight providers.
“That hard work and those changes are reflected in the profitability of the orders we have booked since May which have gross margins in line with what we generated last year. I am confident we are on a path to restore our gross margin to historical levels, but the improvement will be gradual as we still have legacy backlog at lower prices to burn off,” Fusaro said.
Array now expects full year revenue for 2021 to stand within the US$850 – 940 million range, with adjusted earnings to lie within a range of US$55 – 75 million. While the new revenue guidance is between 16 – 17% what was originally forecast at the start of the year (US$1,025 – 1,125 million), the renewed earnings guidance marks a significant reduction, between 58 – 66%, short on the US164 – 180 million previously forecast.
While margins on new orders are returning to historic levels, chief financial officer Nipul Patel warned that the balance of this year would continue to be impacted by contracts priced prior to increases in costs.
“The ‘hangover’ effect of older backlog should dissipate by the first quarter of 2022 at which point the new contracts we have signed will be reflected in our financial results,” Patel added.
There is better news, however, for Array Technologies in its executed contracts and awards book, which now stands at a new record of US$882 million.
“I am confident that those changes [to processes], in combination with our relentless focus on supporting our customers, will see our company emerge even stronger from the current environment than we were before,” Fusaro said.
Meanwhile, the company’s financial position has been bolstered through the capital raise that will see Blackstone Energy Partners purchase an initial US$350 million of stock with an additional option to procure US$150 million of stock at any time prior to 30 June 2023. Array said it would use the proceeds to pay down company debt and also fund growth initiatives, with Blackstone appointing one member to the company’s board as a result.
“This investment and its terms underscore the preeminent position that Array occupies in the solar industry and is a tremendous validation of the Company’s long-term growth potential,” Brad Forth, chairman at Array Technologies, said.
Array Technologies share price rose by more than 14% yesterday to a high of US$15.56.