Array Technologies, Inc. (ARRY) is a leading global manufacturer and supplier of utility-scale solar tracking systems and technologies. The company's innovative and patented designs have solidified its position as a dominant player in the rapidly growing solar energy industry. With a robust product portfolio, a strong focus on research and development, and a commitment to operational excellence, Array Technologies is well-positioned to capitalize on the surging demand for renewable energy solutions.
Pioneering the Solar Tracking Industry
Array Technologies was founded in 1989 and has since established itself as a trailblazer in the solar tracking industry. The company's principal products are a portfolio of integrated solar tracking systems comprised of steel supports, electric motors, gearboxes, and electronic controllers. The company's flagship product, the DuraTrack HZ v3, utilizes a patented linked-row, single-driving apparatus that allows one motor to drive multiple rows of solar panels. This innovative design sets Array Technologies apart from its competitors, offering greater reliability, lower installation costs, reduced maintenance requirements, and competitive manufacturing costs.
In 2022, the company expanded its product portfolio with the introduction of the SkyLink and SkyTrack solutions, further enhancing its ability to address the evolving needs of the utility-scale solar market. These new offerings provide customers with increased flexibility and efficiency in project design and installation, solidifying Array Technologies' position as a leading provider of cutting-edge solar tracking technologies.
Array Technologies has undergone significant corporate changes over the years. In 2016, the company was acquired by former parent company ATI Investment Parent, LLC, which allowed Array to expand its global reach and enhance its product development capabilities. In 2020, Array completed its initial public offering, raising $145.5 million, which provided capital to support the company's continued growth and innovation.
A key milestone in Array's history was the acquisition of STI Norland in 2022. This strategic move accelerated the company's international expansion and improved its ability to address rising global demand for utility-scale solar projects, particularly in developing countries in Latin America and Africa. The integration of STI expanded Array's product portfolio and manufacturing footprint.
Financial Strength and Operational Excellence
Financials
Array Technologies' financial performance has been robust, with the company reporting $1.58 billion in total revenue for the fiscal year ended December 31, 2023. The company's net income for the same period was $137.24 million, with operating cash flow of $231.96 million and free cash flow of $214.97 million. However, the most recent quarter (Q2 2024) saw a decline in performance, with revenue of $255.77 million, representing a 50% year-over-year decrease. This decline was primarily attributed to project delays from customers, as well as a decrease in volume and average selling prices. Despite these challenges, the company still managed to generate a net income of $25.70 million for the quarter.
Liquidity
The company's balance sheet remains strong, with a debt-to-equity ratio of 1.18 as of June 30, 2024. Array Technologies had a cash balance of $282.32 million and $184.10 million available under its $200 million revolving credit facility as of the same date. The company's current ratio of 2.51 and quick ratio of 2.02 as of June 30, 2024, indicate a healthy liquidity position, providing the company with the financial flexibility to execute its growth strategy.
Operational excellence is a hallmark of Array Technologies' success. The company has a global manufacturing footprint, with 31 domestic factories, including its facility in Albuquerque, New Mexico. This extensive production capacity, coupled with its strong supplier relationships and inventory optimization initiatives, has enabled Array Technologies to maintain industry-leading lead times and on-time delivery performance, exceeding 95% in recent quarters.
Business Segments and Market Presence
Array Technologies operates through two reportable segments: Array Legacy Operations and STI Operations. The Array Legacy Operations segment focuses on the design, manufacture, and sale of utility-scale solar tracker systems primarily in the U.S. market. This segment leverages the company's patented design that allows one motor to drive multiple rows of solar panels, offering significant advantages over competitor designs.
The STI Operations segment, which was added through the acquisition of STI Norland in 2022, concentrates on international markets such as Spain, Brazil, South Africa, and other developing regions. This segment has enabled Array to accelerate its international expansion and better address the rising global demand for utility-scale solar projects.
For the six months ended June 30, 2024, the Array Legacy Operations segment generated $299.54 million in revenue and $126.39 million in gross profit, while the STI Operations segment contributed $109.63 million in revenue and $14.65 million in gross profit. In terms of geographic distribution, 72% of the company's revenue was derived from the U.S. market in Q2 2024, with the remaining 28% coming from international markets.
Since its inception, Array Technologies has shipped over 77.4 gigawatts of trackers worldwide, solidifying its position as a leader in the industry. The company primarily sells its products to engineering, procurement and construction firms (EPCs) that build solar energy projects, as well as large solar developers, independent power producers, and utilities.
Navigating Industry Challenges and Opportunities
The solar energy industry has faced its share of challenges, including supply chain disruptions, tariff uncertainties, and project timing delays. Array Technologies has demonstrated its agility in navigating these obstacles, leveraging its robust supply chain capabilities and strong customer relationships to mitigate the impact on its operations. The company has also had to navigate changes in government incentives and regulations for renewable energy in various countries. Despite these obstacles, Array has maintained its position as an industry leader through continuous innovation, operational excellence, and a focus on delivering value to its customers worldwide.
In the face of these challenges, the company has remained focused on innovation and operational improvements. Array Technologies' recent introduction of the SkyLink and SkyTrack solutions has been well-received by the market, with customers praising the products' ability to reduce installation costs and increase project flexibility.
Furthermore, the company has proactively engaged with the insurance industry, hosting a forum to educate insurers on the performance and risk-mitigation capabilities of its tracking systems. This strategic initiative underscores Array Technologies' commitment to supporting the long-term success of its customers and the broader solar energy ecosystem.
Capitalizing on Regulatory Tailwinds
The passage of the Inflation Reduction Act (IRA) in 2022 has provided a significant boost to the renewable energy industry, including solar. The IRA's provisions, such as the extension and enhancement of the Investment Tax Credit (ITC) and the introduction of the 45X Advanced Manufacturing Production Tax Credit, have created a favorable regulatory environment for Array Technologies.
The company has been actively leveraging the IRA's incentives, working closely with its suppliers to maximize the benefits of the 45X tax credit. This collaborative approach has allowed Array Technologies to enhance its profitability and maintain a competitive edge in the market. In fact, the company's recent financial results included incremental 45X tax credit benefits that contributed to its adjusted gross margin performance.
Moreover, the IRA's emphasis on domestic content requirements presents an opportunity for Array Technologies to further solidify its position as a leading provider of American-made solar tracking solutions. The company is committed to supporting its customers' domestic content needs and is on track to deliver a 100% domestic Array tracker in the first half of 2025.
Outlook and Risks
Despite the near-term headwinds faced by the industry, the long-term outlook for Array Technologies remains promising. The solar energy industry is expected to grow at a CAGR of 8.8% from 2024 to 2028, reaching $1.55 trillion in market size by 2028, according to a report by Business Research Company. This growth is being driven by increasing environmental concerns and stringent regulations in developed countries, leading to a surge in installed capacity for renewable energy.
However, Array Technologies has recently revised its guidance for the full year 2024 due to various challenges. The company now expects revenue to be in the range of $900 million to $1 billion, down from its previous guidance. Adjusted EBITDA is projected to be between $185 million and $210 million, with adjusted EPS between $0.64 and $0.74 for the full year. Free cash flow is expected to be in the range of $60 million to $100 million.
The main reasons cited for the reduced guidance were customer project timing challenges related to interconnection, permitting, financing, labor constraints, as well as new near-term headwinds from ADCVD petitions and new domestic content guidance. It's important to note that these issues are causing project pushouts rather than cancellations, suggesting potential for recovery in future periods.
Additional risks to consider include regulatory changes, trade tensions, and supply chain disruptions that could potentially impact Array Technologies' operations and financial performance. The industry's reliance on government incentives and policies also introduces an element of uncertainty that the company must navigate effectively.
It's worth noting that Array Technologies is currently facing a lawsuit related to its October 2020 IPO. While the case was dismissed by the court in May 2023, the plaintiffs have appealed the dismissal. The company believes the likelihood of any material loss related to this matter is remote.
Conclusion
Array Technologies' unwavering commitment to innovation, operational excellence, and strategic partnerships has firmly established it as a dominant force in the utility-scale solar tracking market. With a strong financial foundation, a diverse product portfolio, and a focus on supporting the growing demand for renewable energy solutions, the company is well-positioned to continue its trajectory of success.
Despite facing near-term challenges, Array Technologies' long-term prospects remain bright, supported by the overall growth trajectory of the solar energy industry and the company's strategic positioning in both domestic and international markets. As the solar energy industry navigates the evolving landscape, Array Technologies remains a compelling investment opportunity for those seeking to capitalize on the sector's long-term growth potential, albeit with careful consideration of the risks and market dynamics at play.