SuRo Capital Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 11 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the NextTracker First Quarter Fiscal Year 20 24 Financial Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, July 26, 2023. I would now like to turn the conference over to Don Quimby, Director, finance and IR.

Operator

Please go ahead.

Speaker 1

Thank you. Good afternoon and welcome to NEXTracker's earnings conference call for our Q1 fiscal 2024 results. With me today is our Chief Executive Officer and Founder, Dan Sugar our President, Howard Wenger and our Chief Financial Officer, Dave Bennett. All 3 will give brief remarks followed by Q and A. Slides from today's call as well as a copy of the earnings press release and summary financials are available on the Investor Relations section at nextracker.com.

Speaker 1

This call is being recorded and will be available for replay on the Investor Relations section of our website. As a reminder, today's call contains forward looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release or in

Speaker 2

the Risk Factors section of

Speaker 1

our most recent filings with the SEC. Note, this information is subject to change and we undertake no obligation to update these forward looking statements. Please note, we will provide non GAAP measures on today's conference call. The full non GAAP to GAAP reconciliations can be found in the appendix slide of today's presentation as well as in the summary financials posted on the Investor Relations section of our website. All growth metrics will be on a year over year basis unless stated otherwise.

Speaker 1

Now, I'd like to turn the call over to our CEO. Dan? Thank you for joining us to review our Q1 fiscal 2024 results. With me today are Howard Wenger, President and Dave Bennett, Chief Financial Officer. Following our remarks, we look forward to your questions.

Speaker 1

Please turn to Slide 3. I'm very pleased with our execution and results in Q1 across all key metrics. Starting with our financial results. Revenue for the quarter was $480,000,000 increasing 19% year on year. Our EBITDA for the quarter was $84,000,000 up over 160% year on year.

Speaker 1

Increased profitability is attributable to pricing discipline, monetization of distinct product features and improved operational efficiency. We achieved solid positive cash flow for the quarter, further bolstering NEXTracker's robust and differentiated liquidity position in the industry. Dave will provide more detail on our financials. We have been relentlessly driving solar technology innovation that provides tangible value to customers in hardware, controls and software. Our innovation is focused on reducing LCOE, the levelized cost of energy solar power, which supports our customers to increase their project profitability and next tracker to exercise pricing discipline.

Speaker 1

We have exciting product announcements planned for the major RE Plus trade show in September. We posted another strong quarter of new contract bookings building upon our booking achievements of last fiscal year. We ended the quarter with new record backlog over $3,000,000,000 up from $2,600,000,000 as of the end of fiscal year 2023. Sales momentum continued with repeat business and new customers across diverse and expanding geographies. This is reflected in our strong international performance in the quarter where over 40% of our revenue was attributable to overseas projects.

Speaker 1

We were pleased that Wood Mackenzie recently named NeXT Tracker as the global tracker market share leader for 2022 by significant margin. This is the 8th consecutive year NEXTracker has led the industry. Based on our Q1 results and strong industry position, we are increasing our annual revenue and EBITDA guidance as Dave will cover. In our prior earnings call, we quantified progress in LCOE and the growth of solar as today's largest source of new power being added to most grids. And we also reviewed that in the U.

Speaker 1

S, The IRA provides an attractive 30% investment tax credit level for 10 years with upside for U. S. Manufacturer content. Today, I will provide some qualitative comments on market dynamics based on our insights from meeting hundreds of customers at global events last quarter. To give a sense of engagement at Intersolar Europe last month, Over 100,000 people attended the conference.

Speaker 1

We are seeing strong demand factors driven by cost reduction in solar panels and battery storage combined with performance enhancements in panels, power electronics and trackers such as NeXT Tracker's proven through capture technology. In sum, these factors are yielding lower LCOE and solar is breaking away from fossil and nuclear power as a lower cost, lower risk and faster to deploy resource, even when the cost of battery storage is included, which is now typical in major markets like the USA. In parallel, electricity demand is increasing with the electrification of transportation and end use demand. In the U. S, customer pull for local eMaint components has paired with industrial policy, resulting in over 60 new or expanded factory announcements in just the past year for solar and storage.

Speaker 1

Hundreds of thousands of people are working directly in solar. New factories and growing jobs are providing broad support for the industry. Given solar today provides under 5% of global electric power generation. We envision significant long term growth as cost effective solar increases its Share of power for the grid responding to a world where electricity demand keeps increasing and society trends toward de carbonization. Now turning back to NeXtracker.

Speaker 1

Our global supply chain is a key competitive advantage, which we generally map to align to our local markets. This ecosystem comprises about 50 partners across 16 countries and 5 continents. To serve our ongoing growth, NEXTracker is continuing to collaborate with our valued subcontractors to increase our global manufacturing footprint. I will cover our U. S.

Speaker 1

Position shortly. After we reported our Q4 results, The U. S. Department of Treasury issued guidance regarding IRA domestic content provisions. Receiving these rules clarifications was incrementally helpful for tracker and we continue to work with our customers and trade associations to further clarify the requirements.

Speaker 1

We continue to exclude and potential IRA impacts from our guidance pending definitive clarifications and market response. After quarter end, we completed a successful secondary offering of NEXTracker stock to the market, allowing our pre IPO shareholders to reduce their ownership and increased the liquidity of our stock. Following the transaction, Flex owns less than 52% of NEXTracker shares. The headwinds noted previously regarding solar panel availability and permitting delays for electrical interconnection and project construction starts still exist and are likely to continue for the intermediate term, though there is tangible progress on U. S.

Speaker 1

Solar panel availability. Slide 4, accelerating our U. S. Manufacturing suppliers has been a key objective. I'm pleased that ramping the 25 gigawatts of contract capacity is on track.

Speaker 1

Last quarter, we celebrated a new plant opening in Memphis, Tennessee with our legacy supply partner MSS. Joining in the plant dedication was our customers, Silicon Ranch Corporation, awarded us a second volume commitment agreement of 3 gigawatts during the event. A key raw material supplier, U. S. Steel and the CEO of the Solar Energy Industries Association, a key trade association driving solar policy.

Speaker 1

At this public opening, NEXTracker finished goods were on the floor ready to ship to regional job sites underscoring our ability to quickly scale with our partners. Our focus in the U. S. Continues to be sourcing from electric arc furnace mills that are significantly lower carbon than most overseas steel production. We're continuing to build our supply chain and next month are planning another strategic supply announcement.

Speaker 1

We now have over 10 manufacturing facilities with dedicated NexTracker lines in the United States. And now I'll turn the call over to Howard to expand upon our commercial progress.

Speaker 3

Let me echo Dan by congratulating the NeXtracker team. We are very pleased with the company's execution resulting in another strong quarter performance. Last earnings call on May 10, we provided some background on the company given it was our first reporting quarter since going public earlier this year. I specifically covered our technological innovation, which coupled with our best in class team allows us to win business across all regions and terrains. Please turn to Slide 5.

Speaker 3

We reported last quarter that we had significant sales velocity and wins leading to a company record backlog of $2,600,000,000 ending our fiscal year 2023. We plan to report our backlog on an annual basis, while providing sales and customer demand insights on a quarterly basis. This is consistent with our annual focus as a company and reflects the nature of our large scale project business. This quarter, we are pleased to report that our strong sales momentum continued and we significantly added to our backlog. Our backlog is now greater than $3,000,000,000 atquarterend, establishing a new record for the company.

Speaker 3

We believe we have a distinct competitive advantage creating demand pull. This is driven by our differentiated product offering, scale global supply chain and close relationships with our customers and partners where over 80% of our revenue is generated by repeat business. Further, we believe the investment thesis is intact for large scale solar in the U. S. Right now.

Speaker 3

Independent of the 10% domestic content bonus provided by the Inflation Reduction Act or IRA. There is justifiably a lot of focus on the to concept provisions and government guidance on how to interpret them. But keep in mind that the IRA created a well formed and well known consequential policy in the form of establishing a 30% investment tax credit or ITC, which has no domestic content requirements. The ITC has been the predominant federal policy instrument for solar for decades. So generally speaking, the 30 percent ITC is well understood and is now contemplated in the economics of developing solar power plants.

Speaker 3

Further, recall that the ITC was scheduled to decline pre IRA to 10% next year. So elevating it to 30% and holding it constant for at least 10 years is an incredibly significant change and we believe it is the biggest pillar and driver of Aira in terms of utility scale solar demand. Of course, the domestic content and manufacturing tax credits are important and government clarifications and market responses are still ongoing, but we believe there is sufficient understanding of the IRA provisions today to continue to propel the large scale solar segment forward. We believe these factors are driving continued demand in the U. S, but we're also seeing demand strength internationally.

Speaker 3

This is illustrated on the map on Slide 5, where you can see we executed agreements totaling over 10 gigawatts of projects during our fiscal Q1. Although this is a subset of our project and customer wins from the quarter, the intent is to highlight the magnitude of NEXTracker's continued sales strength and the breadth of our global reach spanning multiple continents. We had a healthy combination of EPC and ECA business with new and repeat customers from North America to South America, from Europe to Africa and Asia and Oceania. These sample Q1 company wins also reflect the strength of our global team in sales, marketing, supply chain, training, finance and support that provide a platform to further scale and grow. In summary, we saw demand strength in all of our core markets around the world.

Speaker 3

Now let me turn the call over to Dave Bennett, our Chief Financial Officer to review the financial details of the quarter and to discuss our guidance for fiscal 2024.

Speaker 2

Thank you, Howard. Q1 fiscal 2024 represents the first full financial period for NEXTracker as a public company. We are off to a great start. Please turn to Slide 7 for our fiscal 2024 Q1 results. Revenue for the quarter closed at the high end of our guidance at 480,000,000 an increase of 19% year over year.

Speaker 2

Rest of the world revenue was 209,000,000 up 56% year over year and 44% of our current quarter mix. As expected, revenue in the U. S. Was relatively flat versus the prior year quarter, primarily due to push out certain projects due to permit delays and panel availability. While the rest of the world was particularly strong this quarter, There is no change to our expectation that the U.

Speaker 2

S. Will represent 60% to 70% of total revenue for the year. Adjusted EBITDA increased $52,000,000 to $84,000,000 from the Q1 of fiscal 2023, an increase of over 160%. Our strong results were largely driven by improved execution along with lower logistics costs. We ended the quarter at 17.4% adjusted EBITDA margin, up from approximately 8% in the prior year.

Speaker 2

While we are very pleased with the positive EBITDA results, we don't expect this level of outperformance to continue throughout the year. And as always, encourage you to evaluate NEXTracker on an annual basis. We remain focused on sustainable year over year growth and have increased our annual guidance that I'll speak to in a couple of slides. Adjusted free cash flow was $225,000,000 for the quarter, driven by networking capital management, increased customer deposits resulting from strong bookings and elevated adjusted EBITDA. Net working capital as of June 30 was less than 10% of annualized revenue, which was favorable to our guided 10% to 15% levels.

Speaker 2

We do expect to fund our networking capital as well as continuing to ramp U. S. Manufacturing over the next two quarters to support our planned growth, which may temporarily pressure free cash flow. Turning to Slide 8 for an update on our balance sheet and liquidity. We believe that our capital structure, including a strong balance sheet and ample liquidity, is a key competitive advantage.

Speaker 2

We closed the quarter with cash of $355,000,000 which exceeds our total debt by over 200,000,000 Total liquidity as of June 30 was $855,000,000 comprised of our undrawn $500,000,000 revolver and our current cash balance. We continue to operate with a debt to adjusted EBITDA of less than 1 with no significant debt maturities until fiscal 2028. As Dan outlined, we closed on the secondary offering that resulted in an increase in public float for the NeXT Tracker common stock. Following the transaction, 3 IPO owners now own approximately 66% of NeXT Tracker, comprised of approximately 52% Flex and 14% TPG. It is important to note that all proceeds from the secondary offering that closed in the 1st week of July, so our fiscal Q2 were distributed to the pre IPO owners.

Speaker 2

Please turn to the next slide for our updated fiscal 2024 guidance. Driven by our strong Q1 results In addition to higher expected volume in the second half, we have increased our fiscal 2024 full year guidance. The factors supporting our assumptions and setting guidance are largely unchanged from last quarter. We will continue to invest in the business, including ramping production, Further innovation around product development and building out the team to take advantage of the opportunity ahead of us. Based on the current ownership structure adjusted for the follow on transaction, we continue to expect our adjusted tax rate to range between 15% 20% of adjusted pretax income.

Speaker 2

We have again not factored in additional profitability resulting from the Inflation Reduction Act. Our full year revised fiscal 2024 guidance is as follows: We are increasing revenue guidance by approximately 5 percent or $100,000,000 to a range of $2,200,000,000 to 2,400,000,000 At the midpoint, we are expecting 21% year over year growth. We are also increasing our EBITDA guidance by over 10% were $30,000,000 to $315,000,000 at the midpoint of $290,000,000 to 340,000,000 due to strong execution that includes maintaining pricing discipline and prioritizing higher margin business. At the midpoint, we expect fiscal 2024 adjusted EBITDA to grow approximately 50% year over year. GAAP EPS is expected to be between $1.20 to $1.40 per share and includes approximately $0.25 related to stock based compensation and intangible amortization.

Speaker 2

Adjusted EPS is now expected to be between 1.45 to $1.65 per share based upon 147,500,000 weighted average shares outstanding. Our Q2 fiscal 2024 outlook is as follows. Revenue is expected to grow 15% to 20% versus Q2 Fiscal 2023 adjusted EBITDA margin is expected to be between 13% 14%, up approximately 400 basis points to 500 basis points compared to the same period last year. The EBITDA guidance reflects the normal quarterly volatility of the business. So as always, we direct you to evaluate our progress on an annual basis.

Speaker 2

I will now turn the call back to Dan for some concluding remarks.

Speaker 1

Thank you, Dave. The macro for solar is strong in the U. S. And abroad, and we continue to see accelerated investment into renewables. Solar has achieved its position as the number one source of new power generation through technology and cost reduction.

Speaker 1

We believe these trends will continue, which will result in significant long term industry growth and that NEXTracker is ideally positioned to leverage this opportunity. Regarding X Tracker's performance, none of these results would have been possible without the confidence of our customers, which we endeavor to earn every day and the hard work and dedication of the NEXTracker team for which we're extremely appreciative. We now look forward to your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Questions will be taken in the order received. One moment please for your first question. And your first question comes from the line of Julien Dumoulin Smith from Bank of America. Please go ahead.

Speaker 4

Hey guys, it's actually Alex Brable on for Julian. Congrats on the strong results yet again. Just wanted to kick off with maybe some of the dynamics on the geographies here. Obviously, U. S.

Speaker 4

Relatively flat, flagging some headwinds there. I'm just curious on the permitting piece specifically, if you can sort of expand on your exposures, how you're positioning around that? And then relative to sort of not only domestic content, but also transferability guidance, how are you seeing that as sort of a headwind or even a catalyst in the back half for developers to sort of move forward and put a date on projects and then sort of confirm the order with you guys. Thanks.

Speaker 1

Alex, Dan Sugar. Thank you for your question. I'll take the first part. Howard will take the second part. So with respect to a project permitting, first, our increased guidance reflects the environment that we're operating in, our expectations.

Speaker 1

Any individual project can be pushed. There is an enormous portfolio of projects that we're supporting. So we take those factors into account where entitlements are either granted or we consider upcoming projects on a probabilistic basis based on the level of entitlements and where do they stand. An advantage for us in managing So many projects in so many geographies is that if one project has slowed down, there's usually another wanting to take its place. So that would be my answer to that.

Speaker 1

And Howard, if you could address the second part of the question. Sure.

Speaker 3

Hey, Alex. So we just want to you said something about headwinds. I mean, we hit the high end of our guide. We believe that we're still planning for the same mix of U. S.

Speaker 3

And international on an annual basis. And as Dan mentioned, Quarter to quarter, things may fluctuate. So that's why we keep reorienting everyone to our annual performance.

Speaker 5

That said,

Speaker 3

things are going extremely well. We had a really strong bookings quarter, including in the U. S. As far as tax equity and transferability, we're not seeing over constraints there right now in tax equity. We do believe that there is upside with the transferability clarification.

Speaker 3

And so we appreciate the question.

Speaker 1

Thanks, please. Thanks, please. Feel free for a follow on, Alex. Thank you. Did you have a follow on?

Speaker 4

Yes. Just a brief follow on just on the pricing piece. You guys mentioned distillate pricing a couple of times. Obviously, some benefits maybe on the supply chain side, rolling off to Dave's comment. Just curious if you could expand on that a little bit really briefly.

Speaker 1

Well, we don't share ASP. What I will say is There's a place of quality. Our customers really want to ensure that their projects are supported, design, execution, commissioning with the highest performance trackers. With a company that has solid financial stability, Dave covered our liquidity position and ability to service them with a team that really understands the business that's been in their shoes. And so Given the as Howard mentioned, how the very significant Improvement in economics in the projects in the U.

Speaker 1

S, many of which had been anticipated to have a 10% investment tax credit, now have a 30% Customers are really focused on delivery. And so we don't chase Projects with price. What we really try to do is deliver value, deliver operational excellence and really do everything we need to do to ensure our customers are successful in their projects. So that's where we're focused.

Operator

Thank you. And your next question comes from the line of Mark Strouse from JPMorgan. Please go ahead.

Speaker 2

Yes, good afternoon.

Speaker 6

Thank you very much for taking our questions. Good to see the supply chain continue to build out here. I'm just curious as you're signing these new contract or yes, these new partnerships, how you're baking in kind of flexibility Into those contracts with the IRA Treasury guidance still kind of unknown. Are those contracts Fixed or is there some kind of flexibility that you're baking in there? And then is there any kind of goalpost that you can point us to as far as An upside or a downside and kind of what the percentage split of the kind of the 45x credit that you might be able to keep?

Speaker 1

I'll address the last question first, Mark. Thank you for that. No, we're not speaking to that At this time, a potential split of the 45x credits. With respect to the How we are dealing with flexibility. I want to pull back a little and just speak to The relationships we have with a number of our key subcontractors and suppliers.

Speaker 1

Last quarter, one of the Public factory openings that we had was with MSS. It was in Memphis. We were able to bring life to an old facility that had just been used for warehousing, hadn't been used for manufacturing in many decades. And this is a supplier that we've had a long relationship with on multiple continents. And We have been able to work productively with these suppliers in a variety of markets.

Speaker 1

They understand the industry and have worked well with us. And so the and are reliable performers. And we've continued to work with some new, help cultivate some new participants in the industry, which is really exciting. So we think our supply chain is very robust. It's a differentiated advantage for the company.

Speaker 1

As we noted, we have over 10 facilities across U. S. With over 25 gigawatts of contracted capacity. And next month, We're planning another major factory announcement. So we're continuing to build, but we're really A strong relationship company and that served us well historically and we think well in the future.

Speaker 1

Mark, do you have a follow on question, please?

Speaker 6

Yes, please. Just I think a real simple follow-up question here. I just want to make sure I'm thinking about the greater than $3,000,000,000 backlog correctly. Does that include or exclude VCA. I just want to make sure I'm comparing it to the appropriate metric from last quarter.

Speaker 3

It includes VCAs.

Speaker 1

Okay.

Speaker 6

Thank you, Howard. Thank you very much.

Speaker 3

One thing I'd like to add on VCAs is it stands for volume commitment agreement. It's not an LOI, it's not a letter of interest, It's not a term sheet. It's a binding agreement backed by deposits and collateral with binding liquidated damages on both sides with specific projects and project sizes and pricing. So you can think of it as an EPC agreement, of multiple EPC agreements wrapped into one agreement. Appreciate the question, Mark.

Operator

Thank you. And your next question comes from the line of Christine Cho from Barclays. Please go ahead.

Speaker 7

Good evening. Thank you for taking my question. So maybe if I could start on the backlog. Previously, you guys have talked about it being a 2 third, 1 third split for U. S.

Speaker 7

And rest of world. And I understand you don't want to give specific for the backlog on a quarterly basis. But as we think about the bookings that you did in the fiscal Q1, would it be fair to say that split is still valid for the bookings you did? And if you could provide any qualitative comments on how VCAs are also trending?

Speaker 3

Sure. This is Howard. So, that's correct. We're going to be providing annually More detail on our backlog, but we're giving a lot of insights quarterly. And for example, we know we're above $3,000,000,000 in backlog this quarter.

Speaker 3

We also note on Slide 5 that we have over 10 gigawatts, more than 10 gigawatts of signed executed contracts in the quarter and the geographies associated with those. So we're actually giving a fair amount of information that should give you a lot of Directional guidance. As far as the mix goes, there are BCA agreements and EPC agreements contained, as As I answered to previous question, and it's consistent with our historical mix that we discussed on the last call. And both VCAs and EPCs agreements contributed to the growth of our backlog in the quarter. Appreciate the question.

Speaker 3

Do you have a follow on?

Speaker 7

I do. Okay. Just thinking about the 10 gigawatts assigned executed contracts in the quarter. As we do think about bookings for the quarter, would you be able to qualitatively talk about how piece for bookings have trended just as fuel prices have come down?

Speaker 3

Well, pricing actually can vary Geography by geography, even project to project because of terrain and size and so forth. But On a macro scale, pricing is stable.

Speaker 7

Thank you.

Speaker 1

Thank you.

Operator

Thank you. And your next question comes from the line of Vikram Bagri from Citi. Please go ahead.

Speaker 8

Good afternoon, everyone. It looks like revenues in the remainder of the year are levered to U. S. With More than 80% of the revenues, it looks like in rest of the fiscal will be coming from U. S.

Speaker 8

I was wondering if you can talk about the magnitude of delays you So in permitting and related to panels and the size of orders, you made just wanted to understand the confidence in U. S. Orders converting this year.

Speaker 9

Yes. Thank you for the question.

Speaker 1

Typically, it's just business as usual, but then there'll be a few jobs that have an issue, Whether it's a permit issue or a panel issue or something. We're confident in our forecast And which is why we increased our guidance 10% I'm sorry, 5% of revenue as covered by Dave and 10% on earnings, we're not seeing delays in orders. We're seeing projects proceeding, but then there'll be occasional projects that have Every project requires a local jurisdiction to issue a building permit. Just like if you're adding a Bathroom at your house or something, you need a permit for that. And so some local jurisdictions, there's delays and what was originally anticipated about the project.

Speaker 1

But in aggregate, the overall demand, we're seeing strong demand and strong fulfillment with occasional delays, but in aggregate, we're able to grow and increase our guidance. Thank you. Did you have a follow on question?

Speaker 8

Yes, I do. I wanted to ask the question on how much of the 45x credit may ultimately be retained by you and your peers. I I was wondering if you can talk about the pricing competition you're seeing in the market. You mentioned you're not achieving pricing. How are you balancing growth versus sort of competing with the peers on pricing.

Speaker 8

From what we understand and what we've seen, the pricing competition remains pretty stiff. Just wondering like are you seeing that in the market as well? And does that indicate a lot of the 45x credit may get competed away in this competitive environment?

Speaker 1

Thank you for the question. No, we don't Really see that 45x has a factor in how we think about pricing or our dialogue with customers. That would be a general answer to that. We're really focused on Supporting the really Tier 1 customers and that doesn't necessarily mean they have to be The biggest customers, but we're really focused on supporting customers that have quality projects, that have quality operations, that have reliable performance in terms of developing new projects that need reliable spin conversely, they want to work with NEXTracker because We're going to be there for them. And so really what we're focused on, Howard mentioned, Some of the volume commitment agreements we've executed and several We announced last quarter, for example, in the Memphis facility that Silicon Ranch Corporation executed a second volume Commitment agreement, which doubled from the original one we had last year.

Speaker 1

We had an agreement that was 1.5 gigawatts. It came back with a 3 gigawatt fund commitment agreement with financial securities, as Howard mentioned. What they're really focused on is, We want reliable supply with high performing trackers with U. S. Content It's regionalized design support and things like that.

Speaker 1

That's what our Thank you for your question. Next question please.

Operator

Thank you. And your next question comes from the line of Philip Shen from Roth MTM. Please go ahead.

Speaker 5

Hey guys, congrats on the strong execution. First question is on margins. You had a really strong quarter here. Can you give us a little more color on How you were able to drive those strong margins? I think you talked about Howard, actually Dan, price discipline, monetization of features And there's something else, but could

Speaker 2

you give us a little

Speaker 5

bit more detail and specifically how much is software contributing to both revenue And that gross profit line? And then to what degree did 45x support this quarter? And looking ahead, I know Dave you talked about you can't look at the whole quarter or just this quarter and extrapolate, You have to look at the whole year, but is it fair to say that we're at a new level of margins for the next quarter and so forth or do we go back down to 18%? Thanks.

Speaker 2

Hi, Phil. Thanks for the question and multiple part question. Let me I took some notes and I'll make sure I capture what you're looking for. From the last part, I think the answer is yes. Our RESET guidance does contemplate a higher margin.

Speaker 2

As I spoke to in the opening remarks, our execution upside and that is from start to finish quoting to execution of the product, We had upside. That included logistics costs that were lower than expected that did benefit profitability that we would not expect to continue at the same level. But on top of that, there are other elements that we're executing that we have baked into our reset on the guidance. Just look at fiscal 2 for fiscal 2024 or 2023, sorry, that was at a 14% EBITDA. We just closed the current quarter at 17.4 percent EBITDA.

Speaker 2

And looking at our current backlog, That's what drove the update of our guidance and the increasing of revenue by 5% and EBITDA by 10%. And to answer specifically, if you look at the high end of the guidance, at the midpoint of the revenue, That's an EBITDA of approximately 15%. So yes, we have baked an additional profit element into our forward look. You asked about software. 1 of the elements we messaged last quarter and continue to message now is that channel availability has impacted our software revenue recognition.

Speaker 2

We are actually below our guided 1% to 2% of revenue for the quarter. We expect that to be back up Throughout the year. So we do expect to land at that 1% to 2%.

Speaker 1

And Phil, with respect to 45x, None of the 45 there's 0 45x benefit baked in the results we just printed. That's all upside and we're confident that will come when treasury issues its definitive guidance. But until they do, we're not baking it in.

Speaker 5

Great. Thanks, guys. Shifting over to Let's see here. The overall market size, what do you think the U. S.

Speaker 5

Market from a total booking standpoint could be in 2023 2024. Just trying to figure out what your market share might be. And WoodMac came out with some numbers and showed you and array kind of more neck to neck, but wanted to see how fast you think The market is growing versus how fast you guys might be growing as well. Thanks.

Speaker 1

Yes. Thanks, Phil. Just to clarify, we saw the WoodMac report and also IHI actually published yesterday. They both had similar numbers with NEXTracker for the 8th year in a row as the number one global share by a significant margin And number 1 in the U. S.

Speaker 1

By a lesser margin. We believe but we're not focused on market share. We're focused on Innovation, adding value to customers, monetizing value where appropriate For the company, so we can keep reinvesting in new tech to advance solar and so forth. Look, I mean, the U. S.

Speaker 1

Market has, as Howard mentioned, unprecedented stimulus with this 30% ITC And we are seeing panels debottleneck. I mean, that's been the governor, the principal governor on the U. S. Market. We're seeing domestic suppliers significantly increased their shipments and their outlook.

Speaker 1

For Solar recently as the largest U. S. Company for Solar, the largest supplier of panels in the U. S. Has increased their capacity, increased their production and has new plants coming online in the U.

Speaker 1

S. In the near term and other U. S. Suppliers are continuing to move. We've seen several Tier 1 Asian manufacturers that are manufacturing Southeast Asia predominantly with their supply chain having less constraints from the customer and border protection.

Speaker 1

So In terms of how big the market can be, well, as I said in the past, one of the things I've consistently Underestimated my whole career in solar is how fast the market could grow. We're not and we are now positioned with NEXROC. One of the reasons we went to 25 gigawatts of capacity over 25 gigawatts of executed contracted capacity in the United States, Which is a really big number. One of the reasons we went big is to be able to handle Some incremental upside. So I think the answer to the question really comes to how fast can some of these panel Manufacturers scale in the U.

Speaker 1

S, how fast can these supply chains are coming from Southeast Asia And India and other sectors continued scaling. So we're very optimistic and which is one of the But based on concrete bottom up data, which is one of the reasons we've increased our plan for this year. Thanks for your question. Next question, please.

Operator

Thank you. And your next question comes from the line of Jordan Levy from Truist Securities. Please go ahead.

Speaker 9

Good afternoon all and nice quarter. I just want to see if we could shift over to the international side of the business I just wanted to see if you could talk about how the pipeline and some of your key markets outside the U. S. Are performing versus expectations and Any particular positive or negative momentum in any of your major international markets versus what you gave us last quarter?

Speaker 3

This is Howard. I'll respond to that. We as we noted, we had a really strong quarter internationally in terms Our P and L and deliveries. And then on the demand side, overall, it's a great picture. And one of the benefits of being in multiple continents with a leading share of in 4 continents is that if an area or country ebbs, another country can flow.

Speaker 3

And so we're seeing a lot of great activity in certain parts of the world like Australia and in Europe. Brazil is a little bit dynamic because of the wholesale price per power, but they're very committed large customers to that market. So we're continuing to see developments going through in Brazil. But it's something to that we're watching closely. But overall, the picture is really strong for the company and we're growing at a good clip and feel like we feel very confident with our mix for the year and going forward for the international business?

Speaker 3

Thank you for the question. You have a quick follow-up?

Speaker 9

Yes. A quick follow-up on just on Steel prices, we've seen them move up a little bit over the last few months. It doesn't seem like it's impacted your results or ability to grow the backlog. But just Want to see if we could get a quick refresher on how you all look at that impact of higher steel prices and if that's changed at all over the last several years?

Speaker 1

Hi, Jordan. This is Dan speaking. The answer is not really. We take a bit of a longer term view and have structured Very strong relationships with most of the larger mills in the U. S.

Speaker 1

And some of the larger mills abroad and think about the relationship Our demand marrying our demand, our fabrication capability and our supply altogether, that really came to light in our Memphis operation. We had this public opening in May. We had it's just a beautiful thing because we had Starting with the customer, which is where we're really focused, with Silicon Ranch double down with NeXtracker All tripled down really. They went from our prior 1.5 gigawatt ECA to a 3 gigawatt ECA. And a lot of their demand is regionalized, let's just say around the tenancy value.

Speaker 1

They're in many states, but let's just say That's an epicenter. But we opened a tracker factory in Memphis, right in the middle of their man center. One of the other and then on the steel side, bringing home, one of the other speakers was David Burrett, the CEO of U. S. Steel, which has

Speaker 2

a fantastic

Speaker 1

mill of the Big River Steel Facility. I had the privilege of being there. It's right across the Mississippi River in Arkansas. It's one of the Highest performing mills from a cleanliness standpoint, it's about the lowest CO2 producing mill in the world, certainly amongst them. And it's a very short distance from that mill to this Tracker facility.

Speaker 1

And so that particular mill can melt and coat steel, Coil that then we can process in our part per to MSS to process in that facility. Now that Particular facility is not limited to that mill nor is that mill limited to delivering to NeXtracker's partner MSS, Because as we mentioned, we have over 10 facilities under contract, but we really like this model of pairing demand with fabrication's capacity and supply all together in a system That's regionally optimized to minimize cost, to minimize CO2 with transport and to shorten the lead time as much as possible for customers so that we can reduce costs of logistics and be a reliable supplier. Thanks a lot, Jordan. Next question please.

Operator

Thank you. And your next question comes from the line of Donovan Shaffer from Northland Capital Markets. Please go ahead.

Speaker 10

Hi, guys. Thanks for taking the questions. So the first question I want to ask, So I know at least as far as like as a corporate practice with public facing sort of disclosures, you don't give revenue mix based on product types. But I would like to from a qualitative standpoint or maybe you are willing to share some kind of a number. The idea here, what I'd like to get at is something like a revenue mix from the different products and value offerings that you bring to the table Or even something where it's like, take for instance the train following tracker.

Speaker 10

I know Like say a 1 gigawatt deployment, you may actually only use the train following piece design for some small fraction of that. So if we talked about it as strictly, gee, what's the revenue mix, it could be like a tiny fraction. But What I want to I'd like something to help us kind of understand when our customers pulling the trigger on these things As a way to indicate or validate sort of externally by customer behavior, when and to what extent they value these offerings. That could even be something like 10% of your new bookings are enabled by the availability of a train following solution or X number come with the TruCapture or something to do with the 2P, the Gemini solution, if that ends up getting used on a certain maybe you win a site because you can use the 2P for certain portions of it, Anything like that. So just if you could provide any updates or clarification And ideally quantification, but anything that shows the degree of customers taking action on that breadth of offering?

Speaker 5

Appreciate the question. So

Speaker 3

and we appreciate the request More than anything, I'll say a few words and then we'll consider it for next quarter. But we on the last call, we talked about how TruCapture has been deployed on over 190 projects And how XTR, our extreme train following, has been deployed over 65 projects last quarter. So We these are commercial products. We are monetizing them. We're improving on them.

Speaker 3

Dan alluded to new product releases in his prepared remarks upcoming at the largest trade show in the U. S. Called RE Plus, which is in Las Vegas this year, the week of in the 2nd week of September. And so, we're very cognizant of investors and those who follow us to want to continue to understand Our products and how they are monetized. So we will take your request seriously.

Speaker 1

Thanks for the question.

Speaker 10

Okay. Yes. And if I can get in just a oh, sure. Yes. So a quick follow-up is just outside the usual culprits of exciting international geographies, There are any that stand out.

Speaker 10

I think Brazil, Australia, we all kind of know to pay attention to that. I think India has a lot of potential, But that can be a challenging market to operate in domestically for various reasons. So anything like maybe what's most promising in Africa or somewhere in the Middle East or if you've seen any traction in India or anything like that? Just what would be atypical markets that could be Under the radar.

Speaker 3

Yes. So, we put These are select a subset of wins during the quarter. On Slide 5, we have pins placed on a global map that correspond to where these over 10 gigawatts of wins took place. These are by wins, we mean contracts. And so in the approximate geographies, so you can see, yes, Africa, India, yes.

Speaker 3

Parts of Asia and the Middle East, yes. Not just Spain and Europe, other parts of Europe, yes. Latin America and Brazil, not the only place in Latin America. Just in the quarter, even in North America, there's a pin that's up above the United States and Canada. So There are a number of markets where we're present and that are promising markets either Growing with upside for the company or more mature markets, which have the whole pie growing rapidly like the United States?

Speaker 3

Thanks very much. We need to move on to our last question. We have one more question. No further questions.

Operator

Yes. There are no further questions at this time. Please proceed.

Speaker 1

Yes. Hey, Dan Shurer here. Thank you all very much for the questions and Chris's comments. In totality, the market dynamics are really strong due to fundamentals, Cost reduction of solar, better performance out of panels, inverters, Trackers, including NeXTrackers, patented proven TrueCapture technology. And this is improving by the market because solar in most grids around the world is the lowest cost way to generate power.

Speaker 1

Thank you very much and thank you for dialing into our investor call.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.

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Earnings Conference Call
SuRo Capital Q1 2024
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