American solar tracker manufacturer Array Technologies, Inc. has entered an agreement with Blackstone Energy Partners with a commitment of up to $500 million capital in lieu of perpetual preferred stock to private equity funds managed by the latter. Blackstone now earns a seat on Array's board with this 'extraordinary amount of firepower'.
Proceeds will enable Array to repay existing loans and fund growth initiatives. Specifically, Array will be able to draw $350 million from the $500 million loan in lieu of perpetual preferred and up to an additional $150 million at any time before June 30, 2023. Blackstone will receive 7.875 million shares of Array's common stock accounting for the company's 5.8% shares outstanding.
Calling the Blackstone investment a 'strong endorsement' for itself, Array's Chairman of the Board, Brad Forth said it gives the company a 'pristine' balance sheet as its EBITDA and cash flow have been 'hit hard' by the current extraordinary supply chain disruption.
Higher commodity and shipping costs forced the company to pull back its 2021 annual guidance after enduring a 63% YoY drop in Q1/2021 gross profit due to lower volumes (see Array Technologies: 44% YoY Drop In Q1/2021 Revenues). Alarmed, the company entered into supply agreements to fix close to 85% of its input costs for the remainder of 2021, including nearly all of its steel requirements.
Guidance
With Blackstone Energy Partners backing it, the company has some visibility into its business for the year 2021 and has provided annual revenues guidance as between $850 million to $940 million. Adjusted EBITDA is ranged within $55 million and $75 million. "We are already seeing margins on new orders that are in line with our past performance and in some instances even higher. However, results for the balance of the year will continue to be impacted by the roll-off of backlog from the beginning of this year which is predominantly contracts that were priced prior to the current inflationary environment," cautioned CFO Nipul Patel. "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."
Nonetheless, Array shouldn't be too worried as Roth Capital Partners noted that the company is 'winning share away from peers' thanks to 'more attractive pricing resulting from better steel/logistics costs. The benefit, however, will take a bit longer than expected to flow through the financials, i.e. in 2022 and not as much in 2021,' said Philip Shen of Roth.
Q2/2021
During Q2/2021, it reported 76% annual growth in revenues with $202.8 million due to strong demand, and 23% increase in adjusted EBITDA of $16.2 million. While gross profit went up 21% to $26.8 million, its gross margin dropped to 13.2% compared to 19.3% a year back, primarily due to significantly higher input and freight costs.
Array CEO Jim Fusaro stated, "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."
At the end of Q2/2021, Array's total executed contracts and awarded orders added up to a record level for the company at $882 million.