Greetings and welcome to Array Technologies' Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you host, Cody Mueller, Investor Relations at Array. Please go ahead.

Good evening and thank you for joining us on today's conference call to discuss Array Technologies' third quarter 2023 results. Slides for today's presentation are available on the Investor Relations section of our website, arraytechinc.com. During this conference call, management will make forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identify the principal risks and uncertainties that may affect our performance in our reports and filings with the Securities and Exchange Commission, which can also be found on our Investor Relations website. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Kevin Hostetler, Array Technologies' Chief Executive Officer.

Thanks Cody and welcome everyone. In addition to Cody, I'm also joined by Nipul Patel, our Chief Financial Officer. Before I start with the discussion on the quarter, I would like to first discuss our transition into CFO position that we announced earlier today. Starting on November 13th, Kurt Wood will take over as the CFO of Array Technologies, replacing Nipul Patel. We are grateful that Nipul has agreed to stay on board in an advisory role until the end of the year to ensure that we have a smooth transition. I would like to thank Nipul for his instrumental role in the success of Array, from leading the company through the IPO to being a driving force behind the gross margin recovery and the improvements in our cash and liquid position. We certainly would not be where we are today without Nipul. The entire team at Array wishes him the best in his future endeavors. I am also extremely pleased to welcome Kurt Wood on board. Kurt brings an incredibly strong finance and operational background to Array that will be invaluable to us as we continue to grow and mature as a company. With that, let's move to Slide 3 where I'll provide some highlights from the quarter. Array once again delivered a strong performance against all of our key metrics. For the quarter, we delivered $350 million in revenue, which was in line with our expectations, and as Nipul will discuss more later, is inclusive of a roughly $20 million reduction for year-to-date reclassification of Brazilian ICMS tax incentives. This quarter, we also continued to over-deliver on our gross margin expectations, reporting 26% on an adjusted basis, which combined with an increased expectation for Q4, has raised our full year outlook on gross margins once again. It's important to point out this result does not include any benefit from the IRA's 45X manufacturing credits. On the strength of our margin performance, we recorded adjusted EBITDA of $57.4 million, which represented 16.4% of sales, an increase of 560 basis points from the same quarter last year. I'm also happy to note that we delivered $69 million in free cash flow this quarter, bringing our year-to-date total to $126 million, which keeps us well on pace to our previously stated target of delivering between $150 million and $200 million of free cash flow in 2023. In the quarter, we also made a $50 million prepayment of our term loan, bringing the total principal balance down to $239 million. Finally, this quarter, I'll only spend a short amount of time talking about the overall demand landscape as not much has changed since last quarter. As shown by our reduced revenue outlook, we have continued to be impacted by short-term project timing challenges that are outside of our control. For instance, this quarter, we had several projects that experienced delays associated with financing as developers are focused on renegotiating PPA rates to improve project returns in this higher interest rate environment. While we fully expect financing and continued delays related to permitting and other items to be sorted out in the near term, this is yet another complexity that we are working to understand with our customers. However, it's important to note that we have continued to execute on elements that we can control and have largely maintained our profitability and free cash flow expectations for the full year. As we look past some of these short-term project timing issues, I remain optimistic about the direction of our industry. Remember, solar accounted for over 50% of all new electrical generating capacity added to the US grid at the start of this year, and there is no reason to believe this will slow down. It still represents the cheapest and fastest form of new energy generation. Also, utility scale solar is not facing any structural demand weakness or destocking issues. Add to that the fact that the tracker market is poised to well outpace the strong overall projected utility scale solar growth over the next few years, and we still have many more tailwinds in this industry than headwinds. So, while our bookings number this quarter was still reflective of these near-term dynamics, we are seeing lots of positive proof points on the longer term outlook, which align with these trends. For example, we have seen our domestic project pipeline double from June 30th to September 30th. This is a strong sign of the health of our demand overall, but also showcases the traction our new product offerings are gaining with our customers. As we already have multiple gigawatts of quoting activity on both the H250 and the OmniTrack. Also, we're pleased to note that we have recently signed three long-term agreements, which collectively will represent multiple gigawatts in future projects. All of these agreements included deposits tied to dedicated capacity and represent programs that initiate in the second quarter of 2024 and beyond. And finally, of the $320 million of IRA-related projects that were on hold at June 30th, we only saw $35 million convert to orders this quarter, which leaves almost $300 million still sitting on the sidelines. This means we have not yet unlocked anywhere near the full value of those projects into our order book. So, while we will obviously wait until our fourth-quarter call to provide a more detailed discussion about 2024, I am encouraged by the positive indications we have been seeing.

Thanks Kevin and I appreciate the kind words. After nearly a five-year run of turning a privately held company into a successful public company listed on NASDAQ, it is the right time for me to step down as the CFO. I'm grateful for the opportunity to have worked alongside such a collaborative and talented team. I thank Kevin for his leadership and for supporting my career growth, and I believe Array is well-positioned strategically and financially to continue its growth and drive value for our customers and shareholders. I'm highly confident in Array's leadership and future, and I look forward to working with my successor, Kurt, on a smooth transition in the upcoming months. I'd also like to thank the employees at Array for their hard work and support over the years. It has been an honor working alongside them. That being said, let's get into a summary of our third quarter financials. Please turn to Slide 6. In the third quarter, we reported revenue of $350.4 million compared to $515 million for the prior year period. It's important to note that our third quarter revenue excluded the impact of a $20.1 million Brazil value-added tax or ICMS that was reclassified from revenue to cost of revenue. This reclassification was determined to be appropriate after we evaluated the expected treatment of governmental incentives for the 45X manufacturing credit under the Inflation Reduction Act but has no impact on profitability or cash flow. The comparable amount in the prior year was $8.2 million and was not reclassified out of revenue. Our reported $350 million in revenue reflects roughly $245 million from the Legacy Array segment and $106 million from the STI segment. This result was driven by both a 22% decrease in the total number of megawatts shipped from 4.4 gigawatts to 3.4 gigawatts and a 12% decline in ASP from $0.116 per watt to $0.102 per watt. As communicated last quarter, this was an expected volume decline and change in project timing year-over-year given the scale of project push outs we've seen due to the various macroeconomic elements at play. Additionally, the ASP decline was also anticipated given the reduction in steel, aluminum, and logistics costs year-over-year. This quarter, we introduced adjusted gross profit and margin as a new non-GAAP metric following the reclassification of our developed technology amortization expense from operating expenses to cost of revenue. We believe this reclassification aligns the presentation of our financials more broadly with industry peers and this change did not affect operating income, net income, or earnings per share for any current or historical periods. That said, adjusted gross profit increased to $91 million from $82.4 million in the prior year period due to improved gross margin despite the reduction in volume. Gross margin increased to 26% from 16% on an adjusted basis. Adjusted gross margin was 25.3% for the Legacy Array business and 27.6% for the STI business in the quarter. We are pleased to see our margin performance continue to benefit from our operational improvements and focused on our non-tracker revenue opportunities. Operating expenses of $47.2 million were down $12.2 million from $59.4 million during the same period in the previous year. However, we had a $12 million improvement in amortization expense year-over-year due to lower amortization of intangible assets related to the acquisition of STI. Excluding this impact, our operating expenses are roughly flat year-over-year. Net income attributable to common shareholders was $10.1 million compared to $28.4 million during the same period in the prior year. Basic and diluted income per share was $0.07 compared to basic and diluted income per share of $0.19 during the same period in the prior year. This decline year-over-year was largely due to a $43 million legal settlement we received in the third quarter of 2022. Adjusted EBITDA increased to $57.4 million compared to $55.4 million for the prior year period. Adjusted net income increased to $31.4 million compared to adjusted net income of $28.9 million during the same period in the prior year, and adjusted basic and diluted net income per share was $0.21 compared to adjusted basic and diluted net income per share of $0.19 during the same period in the prior year. Finally, our free cash flow for the period was $69.4 million versus $102 million for the same period in the prior year. On a year-to-date basis, our free cash flow of $126.4 million represented a 238% year-over-year increase. Now, I'd like to go to Slide 7 where I will discuss our updated outlook for 2023. For the full year 2023, we now expect revenue to be in the range of $1.525 billion to $1.575 billion. This update to our topline guidance was driven by three factors. First, the ICMS reclassification, which will reduce our outlook by approximately $25 million. Second, we had four projects that were delayed due to developer financing challenges. While we fully expect these challenges to be alleviated in the near future, we can no longer count on the deliveries to occur in 2023. And third, we had several projects with permitting delays in Spain, which we now expect to deliver at the beginning of 2024. However, as a testament to our continued operational improvement and our focus on high-margin non-tracker offerings, we are largely holding our adjusted EBITDA and adjusted EPS guidance as we have increased our gross margin outlook to be in the mid to high 20s for both segments. We now expect to be in the range of $280 million to $290 million for adjusted EBITDA and $1 and $1.05 adjusted EPS. It's important to note that these changes do not reflect any assumed benefits from the 45X manufacturing credits. Although we are actively finalizing with our suppliers and will provide an update to the market when final 45X guidance is provided or once we complete the agreements with our suppliers and have ensured proper recognition on timing under US GAAP. Finally, with the improvement in our adjusted EBITDA margin, we are well on track to deliver our previously provided free cash flow guidance of between $150 million and $200 million for the full year, as Kevin mentioned. Now, I'll turn it back over to Kevin for some closing remarks.

Thank you, Nipul. I am pleased with our performance this quarter as we once again delivered better than anticipated earnings. We continue to work hard on improving our business and product and service offerings to ensure we deliver increasingly more value to our customers, and we look forward to updating the market on even more exciting progress in this area in the near future. With that, operator, please open the line for questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Mark Strouse at JPMorgan. Please go ahead.

Yes. Good afternoon. Thank you very much for taking our questions. I wanted to start with the projects that have been delayed. So, just to be clear, these are delayed, you're not seeing any cancellations other than the Brazilian contract that you mentioned? And then anything on timing, what are you hearing from your customers? Is this kind of a matter of months, quarters? Is it just kind of indefinite until they renegotiate?

Yes, Mark. This is Kevin. Thank you for your question. We haven't observed any significant cancellations at this time; instead, we are encountering project delays and shifts. Many customers are trying to renegotiate power purchase agreements before proceeding with their projects. This is a major factor we're noticing, along with ongoing interconnect and panel availability issues we've faced for several quarters. Currently, the delays are not just a matter of weeks, but they are extending into months—three to four months, in fact. Customers are pushing target dates further out, into March, April, and May, particularly as we approach the winter build season in North America. In our quarterly reviews, we examine orders carefully, speaking with customers to confirm project timelines, and many are now deferring projects beyond this year, moving into the end of the first quarter and the beginning of the second quarter. This encapsulates what we’re experiencing.

Okay. And then just a follow-up. On the 45X split, or the IRA 45X, understand we're still waiting on the government here. But we were under the impression that there was better clarity that the industry was getting as far as kind of what the splits might be between the different participants within the value chain. Any update there that you can help us kind of quantify how to think about and how you've historically talked about keeping about a third or so of that, 45X credit? Thank you.

Yes. Another good question, Mark. So, I can only say that as usual, we won't negotiate against ourselves in public form, right? But I will tell you that while, historically, you've heard me say we think it's going to be a third, a third, a third, what we're negotiating now in all cases is greater than half coming to Array. And I think that's a substantial upside to what we thought previously. So, I think we're going to continue to negotiate each of those contracts with vendors on an individual basis, but I think we're more optimistic than we were perhaps a few quarters ago.

Great. Okay. Thanks, Kevin. And thank you, Nipul, for all of your help since the IPO.

Thanks, Mark.

Thank you. The next question we have comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.

I want to revisit the delay question first. When considering the shift in the backlog, how do you view this in terms of adding to the backlog versus introducing new projects? In theory, shouldn't we expect to see an increase in the backlog? Additionally, as you mentioned, what should we expect for 2024?

Step up in terms of volume, is that what you're asking?

Yes. I was saying on 2024, step up here, just how you think about recovery, like recognizing these projects that are delayed? And then just why are we not seeing more of a bloat in the backlog? Kind of an expansion?

Yes. We are observing significant growth in our pipeline, the fastest we have seen so far. Our overall pipeline is nearly doubling in just one quarter, which is noteworthy. However, we are still experiencing delays in converting these opportunities into actual orders. This situation will persist until we gain clarity regarding the IRA because our customers are uncertain about what we should quote them. Consequently, our pipeline is expanding as we prepare for various demand scenarios. The conversion of this pipeline into our order book is prolonged and delayed due to the lack of clear guidelines. A few customers have indicated their understanding and requested quotes based on their best estimations of domestic content, urging us to proceed with orders. This has resulted in about $35 million of the $320 million that was on hold waiting for IRA clarity moving forward. Many customers are still waiting for further information. Therefore, we will not see an increase in the order book until we obtain that clarity. Some customers may move ahead with looser understandings, which are not fully defined. I expect this situation to continue into the end of the year. Regarding 2024, I anticipate that these challenges will persist across the industry. Keep in mind that we cannot simply add all this year's push to next year’s figures due to factors like labor and interconnection constraints. Thus, the growth next year will likely be more subdued than the previously expected market growth rate of 20% to 30% CAGR as we await further resolutions.

Got it. In the international backlog, you feel good at this point just given the dynamics you described on the prepared remarks?

Yes. We feel really good about Latin America. I feel good about Australia, good about Europe. I think we feel pretty good. We've had a great level of growth as you've seen this year internationally as we've really focused on working on those businesses and improving the quality of those businesses. So, we expect that to continue going forward.

Thank you. Excellent guys. Thank you.

Thank you. The next question we have comes from Donovan Schafer of Northland Capital Market. Please go ahead.

Hey guys. Thanks for taking the questions. So, my first question on the project delays is, I guess, Kevin, you just hinted, the labor constraints and other things, but if some of the projects that have been delayed, if they're able to ink a PPA tomorrow or the next day with your customers, it was around their customers and find the right price that allows them to proceed with the project. Can that dry? Can that be pretty quickly converted into revenue? Or would it even if that was something resolved, hypothetically tomorrow, would that still take another quarter or something before it could flow through and have an impact?

You're right. It will still require a quarter of our usual lead time. We are being very cautious not to preemptively order and assume everything will be resolved by a certain month, which could lead to over-investing in our supply chain. We are in constant communication with these customers, checking in daily. As they pursue additional Power Purchase Agreements, we are having updates every couple of days to see how successful they are. So far, in every case I'm aware of, they are confident about receiving the revised PPAs, but the negotiations are taking longer than a few weeks. One of the large developers explained that the utilities purchasing this energy have already committed to their customers and shareholders to meet specific renewable energy targets. The demand for energy is rising, and customers are looking for lower carbon energy sources. We are optimistic about these fundamentals and confident in the need for renewable energy. We're hearing that negotiations on these PPAs are going well, but it's just a matter of timing. This is a direct quote from one of our large developers currently facing this situation.

Okay. And then as a follow-up, I know in this space there can be very large projects, there can be a lot of lumpiness in this business in general. But I have to ask just because we have had some other equipment providers that serve the US Utility scale market, whether it's trackers or other kinds of equipment as I showed some sequential improvement this quarter. And so do you think that comes down to just lumpiness and maybe kind of related if you can comment on it? Is it maybe a case? Could we see something here like what we saw in Q1 where you were almost sort of being punished for having high domestic content and not like your if you’re not high domestic content, you're not compromising on price, then maybe that leads to more customers kind of holding out again to get the next incremental piece of guidance. Are those any factors anything you can share there would be very helpful.

I think it's a consistent set of factors that we're seeing as we're really focused on those domestic content customers. Those are the same customers. And that's why we've identified the $300 million sitting on the sidelines that we had hoped would have converted. But we all cannot control the pace with which the government is providing this level of clarity that's needed to go forward. We all had hoped it was hitting their previous deadline, which was October, but October, obviously, has come and gone without any clarity. And now the latest update is that we may hear bits and pieces by the end of the year but likely not the full story. And again, as I just alluded to, so what you have is you have a couple of customers asking for quotes with a lot of, I should say, leeway or liberty on our side is that, well, we could give you this at this price given this definition, but we're not going to guarantee that that'll be the final definition. And some of those customers are saying that's okay to me. I need to get going. But that's only of the $320 million, that's $35 million only, right? So, it's a small percentage yet that are moving forward despite a lack of clarity. And again, I'd caution people to not think about bookings on a quarterly basis as you did in Q1, and then Q2, we had a great level of bookings that surprised to the upside significantly. That lumpiness and that seesaw, I think, is going to continue for a couple of quarters.

Thank you sir. The next question we have comes from Tristan Richardson of Scotiabank. Please go ahead.

Hi. Good evening, guys. Appreciate all the comments on what you're seeing in the market. Maybe if you could just help us out from an update on average project size either in the pipeline today or at least in the backlog either from a megawatt perspective or even a dollar perspective?

Hey Tristan, it's Nipul. On average in our order book and backlog, it's about 150 megawatts.

Great. That's helpful. And then maybe just are there any other characteristics kind of where you're seeing this dynamic with respect to developers? Is it for smaller projects, or larger projects that are perhaps a little bit more dependent on financing, etc? Is this just a or is this more broad-based?

It is broad-based. So, as you know, we do quite a bit of work in the C&I space as well. We believe we're the largest provider of trackers to the C&I space. And while we've been experiencing this for now a couple of quarters on the utility scale, we're also seeing it in the C&I space in the last quarter. It's really coming to light all the delays. So, I think it's something that's more broad-based. And I don't think anyone's immune from this in the industry. So, if anyone out there is saying, look, this isn't happening to us at all, I don't believe that. It's consistent. I'm constantly on the phone with developers and our partners, and it's a consistent theme that I'm hearing in the marketplace. It's not an Array issue, to be clear.

I appreciate it, Kevin. And thank you, Nipul. All the best.

Thanks, Tristan.

Thank you. The next question we have comes from Jordan Levy from Trust Securities. Please proceed.

Good afternoon, everyone. I want to echo what has already been said, Nipul. Thank you for your efforts. To begin, I'm interested to know how the current market dynamics, particularly the project delays, are affecting your perspective on the industry and what broader updates you have based on your observations.

No. There's nothing we're seeing that's different from a competitive landscape. What we saw earlier in the year was much more price aggression from some of our competitors. I think that's abating somewhat now as we get into the back half. Outside of that, not really seeing any changes in market dynamics are noteworthy.

Appreciate that. And then maybe just as it relates to the new product rollouts in 2024, how should we think about that in light of the IRA guidance, and is it beholden to kind of the same factors we're talking about for the broader order book?

New product development going into next year? Look, I'm one of the areas I continue to be most excited about is the amount of effort that we've put into our accelerated new product development. We talked about a little bit on the last call, we still have several exciting announcements to make in terms of new products that come out both in Q4 and then into next year. And I would just say, stay tuned and let us get through our timing internally and we'll make those announcements as appropriate. But there are some exciting things going on here in Q4 yet and then again into next year.

Thanks so much for everything.

You're welcome, Jordan.

Thank you. The next question we have comes from Brian Lee of Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. Nipul, you will be missed. Pleasure working with you. Brian, I guess, a question I had, and I apologize, I had to jump on late if you already covered this. A couple of quarters ago, you mentioned $150 million being pushed from 2023 to 2024. At the midpoint, there's about another $150 million not quite coming out of the guidance revenue-wise. So, is it fair to assume, do you have visibility that that's roughly $300 million of revenue which has come out of this year is firmly in 2024? Do you have that visibility and timing commitment from these customers that you've seen slip into next year? Or is there some of that where you're having to go back and rewind the business or you're waiting to make sure that these customers are still going to move forward with their products? Just wondering how much of this is just timing versus some of this stuff actually maybe just moving out into the right and not going back.

Yes, Brian, I think that's a great question. And I'll tell you, it's 100% exclusively timing. We've not had project cancellations at this point. The bulk of these have slid to the right. But historically, if something would have slid to the right, it would have slid to the right weeks or maybe six weeks. What's happening now is they're sliding to the right certainly three months, four months. So, we do have visibility to these next year. As I said, none of them have been canceled. We're not renegotiating rates on these for our products. So, this is simply about getting financing, getting supply of panels, getting supply of labor, and or getting a revised PPA or connection date. That's what we're doing. But none of these products have been canceled.

Fair enough. No, that clarification is super helpful. I guess the second question I have is just around, I know you alluded to it in a prior question, but maybe just diving into it a bit more, if you could elaborate. On a quarter-to-quarter basis, I know we shouldn't get too infatuated with the bookings number and sort of what the implied share as those are between you and other Tractor players in the space. But over the balance of this year, there's been a couple of push-ups for you all that maybe others in your peer group haven't been seeing. So, the natural question is, are there changes you're seeing in the competitive landscape market share-wise? Anything that is notable, just given this is a couple quarters here where you've had some issues around timing, whereas maybe some of your peers haven't had as much of that through the balance of this year?

I think there's a few things to think about. The first, what I'll tell you, is I think market share flexes from quarter-to-quarter quite a bit with the inclusion of one, two, or three projects when you're looking at the increasing size of the utility scale landscape here per project. So, that's certainly something. I think there's a secondary component, which really has to do with the percentage of business that's domestic, U.S.-based experiencing these, versus international. And we all recognize that we have a higher percentage of domestic revenue in our business than maybe some of our other public peer companies. So, if you were to sit here and talk about this in Q1 or Q2, you would have been looking at us and our publicly traded competitors and looking at us within a half of a percentage point of market share domestically, right? And I think that was indicative of a strong gain in 2022 for Array and a rapid loss of market share for one of our competitors. Right on the back of that, what we saw was some really aggressive pricing in the market and we chose to hold our discipline in price. And I think that still, in my gut, was the right decision not to dilute our value proposition, dilute our price. And I think that will serve us well in maintaining margins and hitting our margin aspirations as we finish this year and turn into 2024. So, outside of that, no different dynamics that really I want to talk about. I don't think there's any real changes. Look, as it relates to new product and software, every quarter one of us is one up in the other in a small percentage back and forth, back and forth. And I think that's going to continue. We both are investing a lot in new product development, both in terms of our product portfolio as well as our software portfolio. So, I think you're going to continue to see that. And I think it's going to continue to be largely a few players controlling the bulk of the domestic market as we go forward. And we're certainly going to be at that table.

Okay, makes sense. I'll pass it on, guys. Thanks a lot. Appreciate it.

Thank you. The next question we have comes from Colin Rusch from Oppenheimer. Please go ahead.

Thanks so much, guys. You know, with the new products in hand, can you talk about the competitive environment outside the US and just how intense it is at this point and how much progress you're making in terms of moving customers through the sales funnel?

Yes, I think that the difference outside of the US, again, none of the markets are monolithic. They're all very different. And the experience we're having in Brazil in terms of tremendous market share recovery and Australia is different than Europe. And the price points are radically different in each one of these regions. And I'd say the biggest focus for us is increasing our competitiveness by leveraging our global supply chain first. Second is taking our joint engineering organization and cost-reducing our product portfolio. As an example, as we rapidly launched the H250 for the US and again, we'll initiate deliveries of that in January of 24, we quickly had such demand for that product for both the EU and LatAm region for that improved product line. And I don't think we gave the data on the call, but we've got over 6 gigawatts in various stages of quotes of that already on a global basis. And there's a significant amount of that that is outside the US. So that revised product platform is getting a lot of attention globally. And I think that's probably one of the biggest efforts we'll do to be more competitive internationally is the launching of that product on a global basis the addition of the Array software on top of that product and then leveraging the global supply chain to continue to cost-reduce and be more competitive on a price basis internationally. Those are the three levers that we're pulling, and we feel really good about our traction that we have thus far.

Perfect. Thanks so much. And then just in terms of how you execute against that and the spend levels on the R&D line, how are you expecting that to trend? You've been able to get some pretty significant operating leverage to date. Is there something you're going to need to spend in a meaningful way to deliver on all of those elements? Or are you going to be able to do that within a pretty reasonable budget similar to what you've been spending recently?

Yes, I think if you look at the uptick, I believe this year we were up circa 40% in terms of R&D as a percentage, and I think that's a more respectable level than what we were historically. And I think the team's going to deliver a phenomenal funnel of new product development for that spend. But I want to be absolutely clear on this. I think the use of our profit to generate more incremental new product development, I really believe in. And if the team continues to bring me great new product ideas that are vetted by both sales, product management, and the engineering organization, I'm going to continue to fund them even if I have to increase that. Running an engineered products company, your new product development is one of the lifebloods of your company. And we're going to continue to spend there, because I think the more we dive in and the more we open our eyes to what adjacencies we could get into with our products, we feel stronger and stronger about it. So we're going to continue to emphasize new product development. We'll be spending at least a similar amount next year, if not accelerated further.

Thanks so much, guys.

Thank you. The next question we have comes from Joe Osha from Guggenheim Partners. Please go ahead.

Hi. Thank you for allowing me to ask a question. I hope you have some exciting plans. To revisit the ongoing discussion, it appears that developers are returning to explore and renegotiate Power Purchase Agreements. Regulatory bodies don’t always comply fully; they might offer a partial solution and suggest securing the remainder elsewhere. I'm curious about your thoughts regarding the possibility of these developers approaching you again next year, expressing that they didn't receive all they needed, and requesting to revisit the contract terms and pricing.

Yes, that's a great point. So clearly, what you're seeing is that as these developers over the last years have settled for a particular IRR and interest rates are rising, that IRR is no longer attractive when you could go put your money in a CD and get 5% today, right? So they're raising their hurdle rates, and they have two choices there, right? It's either go back and raise PPA, so they're de facto raising revenues, or the flip side of that is they've got to go and reduce costs. So are we having conversations with developers on how we could redesign sites to take costs out of those sites for those developers? We absolutely are. That would be a natural occurrence for us at this stage. So we are having those dialogues. I would say in some cases there are some pricing concessions on that, but again, thus far, we've been able to offset those with cost reductions. But certainly, that's a natural dynamic that we could see as we go into next year, absolutely.

And thank you. And just to follow up, I mean, obviously this is happening, but the fact that rates are high is not a surprise for anybody. Is the fact that this seems to be hitting now just a function of people getting their ducks in a row for the end of the year, or what? It's interesting to me that this appears to be occurring now when the rates environment has been with us for a while.

Yes, I agree. Absolutely. I 100% agree with you. The rate environment has been with us a while, so we're a little bit caught off guard that this is happening more now, more recently. But we've had conversations with developers who are simply raising their internal rates of return expectations given this environment. And obviously, where a lot of our customers are counting on the IRA benefits to support that, coupled with falling module prices, and then also the domestic content adder is the big piece that I think a lot are counting on to further move forward on some of these projects. And I think that's probably the incremental delay is that piece that we all expected.

I'm sorry to belabor this, but you said something very interesting there I want to clarify. It's less, it sounds like, about bank financing being more expensive, since most of these guys have that locked in anyway. It's more about developer internal IRR hurdle rates. Is that what you're saying?

Well, yes, I think it's both. I think it's about one developer I spoke to about a week and a half ago who's challenged with this very dilemma. Right now, it's also about that developer being able to sell a project at a particular IRR in the future, given other interest rates and other investment alternatives, right?

Thank you. The next question we have comes from Jon Windham from UBS. Please go ahead.

Hey, thanks for taking the questions. I just want to talk about the adjustment in revenue. If we exclude the Brazil-related accounting classification, there's about $118 million pushed off in the next year. We're more or less maintaining the EBITDA guide, which means basically $21 million of EBITDA that's not being pushed out. So can you talk a little bit about what's driving the higher profitability and what you are shipping?

Yes. Hey, Jon. Its Nipul. So the higher profitability is continued favorability in logistics costs and material costs that we're seeing flow through for the balance of the year. We had a couple of projects we talked about that we're delivering in the back half of the year at the lower challenge margins, especially overseas. Those have been a little bit delayed, and so therefore that's helped with the pricing, helped with the overall margins. But that's the reason why we're keeping the mid to high teens gross margins for the full year.

Got it. And maybe just a quick follow-up. How much of the project delays do you see as a function of customer selection, or is it a bit more random and certain developers have certain problems with projects? Is there anything you could do due diligence-wise to try to lessen these in the future? Thanks for taking the time.

No, there's nothing I could think of that we would do differently. No.

Thank you. The next question we have comes from Tom Curran from Seaport Global Securities. Please go ahead.

Hi. Thanks for taking my question. Would you share what non-tracker offerings accounted for as a percentage of 3Q's top line, and maybe give us an estimate or range for their likely contribution to full year 2023 revenue? And then I guess part two on this topic would be, as I think about the non-tracker side, it seems to consist of four drivers, aftermarket sales, engineering services, smart track monetization, and then better change order capture. Perhaps would you provide us an update on the progress you're making with each?

No, Tom. Sorry. I think it's too premature. We've been at it for a few quarters. It's still going to be lumpy. I think we're going to end the year very pleased with our overall revenues in that space because, again, it's been a high quality of revenue for us, but we're not at this point ready to go and delineate by subsegment or to give you a forecast for the full year 2023.

Okay. I'll try. Kevin, could you perhaps maybe just highlight within those four subsegments, as I'm categorizing them, are there any that are clearly in the lead right now or that you're more optimistic about or making more progress with faster than others?

Look, I think they're all contributing at a really exciting rate for us. If I think about smart track software, for example, what's in the order book is five times what's been deployed to date, right? So that's an exciting piece for us. The better change order management is really about taking what were profit leaks historically and converting them into positive both revenue and margin. And that's going really, really well for us. And it's really about just having the discipline to, as we get changes, to ensure that we're monetizing those changes. And this is about making sure we're balanced and fair with our customers. But again, if we have to take back material or dispose of something, that we're doing that in a more effective way than maybe historically where we may have played too much of a nice guy in the middle, if you will. We're doing that. The engineering services are going very well for us. So I think every single one of them are beginning to contribute. But to be clear, what's driving it is really the fact that we brought in product management. We decided to productize each of those, which meant clearly delineated value propositions, sales literature, content, value selling, training for the sales team, ensuring that they're quotable up front in the project, going back and looking at how we harvest our installed base, and look at some of the additional O&M services we could do after that. It is a really comprehensive amount of work that's been done over the last six months to drive that. And I'm just really pleased with the level of traction that we're getting on all that. And again, it's a good quality revenue for us as we go forward.

Got it. That was some helpful color. And then, Nipul, best of luck. And just as you prepare to pass the baton here, would you refresh us on what was your leverage target as part of the ongoing debt reduction? What were you hoping to get to?

Yes. It was in the secured leverage is going to be under one by the end of the year, and the total debt was going to be around 2 to 2.5.

Got it. Thanks.

Very much on pace for that. We're very pleased with the cash flow of the business at this point.

Thank you. The next question we have comes from Philip Shen of ROTH MKM. Please go ahead.

Hi, all. Thanks for taking my questions. I'm jumping on a bit late here. Nipul, it's been great working with you. Sorry to see you go. I know this may have been addressed from some angles, but wanted to just see if you could talk about any patterns you're seeing for the pushouts, meaning are you seeing any similarities with the developers? Or are they smaller ones? Are the utility developers typically not impacted? Or have you seen delayed projects even from the larger utility developers? Are there any other patterns as it relates to access to capital? I know you were talking earlier, Kevin, about just making internal decisions requiring a higher return, but just curious if you could see or share any patterns with these customers. Thanks.

Phil, it's nothing that we're willing to give any additional color on at this point. I think it's suffice to say, it's been actually fairly broad-based. I don't think there's been any customer subsegment that's been immune to it at this point. I'll leave it at that.

Thank you. The next question we have comes from Philip Shen from ROTH MKM. Please go ahead.

Hi, all. Thanks for taking my questions. I'm jumping on a bit late here. Nipul, it's been great working with you. Sorry to see you go. I know this may have been addressed from some angles, but wanted to just see if you could talk about any patterns you're seeing for the pushouts, meaning are you seeing any similarities with the developers? Or are they smaller ones? Are the utility developers typically not impacted? Or have you seen delayed projects even from the larger utility developers? Are there any other patterns as it relates to access to capital? I know you were talking earlier, Kevin, about just making internal decisions requiring a higher return, but just curious if you could see or share any patterns with these customers. Thanks.

Phil, it's nothing that we're willing to give any additional color on at this point. I think it's suffice to say, it's been actually fairly broad-based. I don't think there's been any customer subsegment that's been immune to it at this point. I'll leave it at that.

Thank you. The next question we have comes from Philip Shen from ROTH MKM. Please go ahead.

Hi, all. Thanks for taking my questions. I'm jumping on a bit late here. Nipul, it's been great working with you. Sorry to see you go. I know this may have been addressed from some angles, but wanted to just see if you could talk about any patterns you're seeing for the pushouts, meaning are you seeing any similarities with the developers? Or are they smaller ones? Are the utility developers typically not impacted? Or have you seen delayed projects even from the larger utility developers? Are there any other patterns as it relates to access to capital? I know you were talking earlier, Kevin, about just making internal decisions requiring a higher return, but just curious if you could see or share any patterns with these customers. Thanks.

Phil, it's nothing that we're willing to give any additional color on at this point. I think it's suffice to say, it's been actually fairly broad-based. I don't think there's been any customer subsegment that's been immune to it at this point. I'll leave it at that.

Thank you. The next question we have comes from Philip Shen from ROTH MKM. Please go ahead.

Hi, all. Thanks for taking my questions. I'm jumping on a bit late here. Nipul, it's been great working with you. Sorry to see you go. I know this may have been addressed from some angles, but wanted to just see if you could talk about any patterns you're seeing for the pushouts, meaning are you seeing any similarities with the developers? Or are they smaller ones? Are the utility developers typically not impacted? Or have you seen delayed projects even from the larger utility developers? Are there any other patterns as it relates to access to capital? I know you were talking earlier, Kevin, about just making internal decisions requiring a higher return, but just curious if you could see or share any patterns with these customers. Thanks.

Phil, it's nothing that we're willing to give any additional color on at this point. I think it's suffice to say, it's been actually fairly broad-based. I don't think there's been any customer subsegment that's been immune to it at this point. I'll leave it at that.

Thank you. The next question we have comes from Tom Curran from Seaport Global Securities. Please go ahead.

Hi. Thanks for taking my question. Would you share what non-tracker offerings accounted for as a percentage of 3Q's top line, and maybe give us an estimate or range for their likely contribution to full year 2023 revenue? And then I guess part two on this topic would be, as I think about the non-tracker side, it seems to consist of four drivers, aftermarket sales, engineering services, smart track monetization, and then better change order capture. Perhaps would you provide us an update on the progress you're making with each?