Array Technologies: 44% YoY Drop In Q1/2021 Revenues

• Array Technologies' Q1/2021 revenues went down 44% YoY due to ITC safe harbor related shipments going down
• Lower volumes dropped its gross profit 63% to $43.9 million, while gross margin went down from 27% in Q1/2020, to 18%
• Management has withdrawn its annual guidance for 2021 due to high commodity and shipping prices
• It is also reviewing open purchase orders post which it can come up with a revised forecast

Global solar tracker supplier Array Technologies, Inc. has pulled back its annual guidance for the year 2021 citing continues increases in steel and freight costs as well as the company's ongoing review of open contracts to assess the costs it will pass on to the customers.

"We expect to update our guidance once we have completed the review of all of our open purchase orders and commodity and shipping prices remain stable for a long enough period of time to give us confidence in using them to develop a forecast for the remainder of the year," added company's CFO Nipul Patel.

Array's CEO Jim Fusaro believes increasing steel and freight costs will impact its margins in Q2/2021 and if these continue to increase, it might impact subsequent quarters. He shared that between Q1/2020 and Q1/2021, spot prices of a key raw material for its products, hot rolled coil steel have more than doubled, while continuing to increase by over 10% since April 1, 2021. "Steel represents almost half of our cost of goods sold and we do not hold large amounts of steel inventory, so a significant increase in the price of steel over a short period of time can negatively impact our results," shared Fusaro.

Nonetheless, the management sees steel prices and shipping costs normalizing 'once the 'restart' of the global economy in complete following the pandemic shutdowns'.

However, the company said it is taking measures to navigate through the rising costs including locking in raw material contracts like the one it recently signed with steel supplier Nucor Corporation to supply torque tubes and rolled steel that Array uses to produce clamps, foundations and brackets, and other components, in a bid to ensure security of supply and static pricing for a portion of its materials in 2021.

"We are taking several actions to mitigate the impact on the balance of the year, including passing through higher commodity and shipping costs to our customers, fixing commodity prices with our suppliers, entering into long-term contracts with freight providers, further diversifying our supply base, and increasing order lead-times to give us more time to procure raw material," stated Fusaro.

Financial results

In Q1/2021, Array's annual revenues declined 44% on annual basis to $245.9 million mainly due to reduction in the amount of Investment Tax Credit (ITC) safe harbor related shipments. Lower volumes in the quarter negatively impacted its gross profit bringing it down 63% to $43.9 million, while gross margin went down from 27% in Q1/2020, to 18%. Company's EBITDA decreased 69% to $34.5 million over the same period.

Since the beginning of 2021, the company has signed 9 contracts for 350 MW capacity worth $777.1 million, followed by a 4 GW contract from US EPC player Primoris Services Corporation in April 2021 (see 4 GW Solar Trackers Order For Array Technologies).

Despite a not so strong Q1/2021, analysts at Roth Capital Partners see the company to sail through. "It's not clear to us when the steel/ freight inflation comes to an end. That said, ARRY is clearly one of the two dominant tracker companies in the U.S. and may even extend its leadership through this downcycle," said Philip Shen.