Earnings Call Transcript - ARRY Q3 2022

Operator, Operator

Hello and welcome to the Array Technologies Third Quarter 2022 Earnings Call. A question-and-answer session will follow the formal presentation. It is now my pleasure to turn the call over to Cody Mueller, Array Technologies. Please go ahead, sir.

Cody Mueller, Array Technologies

Good evening and thank you for joining us on today's conference call to discuss Array Technologies third quarter 2022 results. Slides for today's presentation are available on the Investor Relations section of our website, arraytecinc.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. Earlier today, the company filed an 8-K and an amended Form 10-Q for the quarter ended June 30, 2022. The restatement was due to an accounting error caused by a clerical error in the sales order entry process for contract value which overstated revenue and gross profit as well as a consolidation error that understated the reclassification of personnel costs from general and administrative to cost of revenue. The total income statement impact of these two errors for the three and six months ended June 30, 2022, was a reduction of revenue and adjusted EBITDA of $5.1 million, a reduction of gross profit of $7.4 million, a reduction of G&A expense of $2.4 million, and a reduction of net income of $2.4 million. These errors had no impact on the company's previously reported cash flow from operations and do not cause noncompliance with any financial covenants as of June 30. Any reference to the quarter or six months ended June 30, 2022, in today's conference call and on our accompanying presentation reflects the restated values. For more information regarding these errors, please refer to the appendix of our accompanying presentation as well as the Form 8-K and the explanatory note in our Form 10-Q. With that, let me turn the call over to Kevin Hostetler, Array Technologies Chief Executive Officer.

Kevin Hostetler, CEO

Thanks, Cody and good evening, everyone. Thank you for joining us on today's call. In addition to Cody, I'm also joined by Neal Patel, our Chief Financial Officer. Let's begin with Slide 4, where I'll provide some highlights for our third quarter. I'm incredibly proud of our performance this quarter as we again delivered results above expectations across the board. Revenue of $515 million this quarter represents our single largest quarter as a company and year-over-year growth of 173% or 12% on an organic basis. The continued organic growth is a particular bright spot for us considering the industry-wide challenges this year due to both AD/CVD and the UFLPAs. Our order book at September 30 was $1.8 billion, reflecting an increase year-over-year of 77%, inclusive of FTI and 36% when considering only our legacy array business. Sequentially, our order book is down approximately $100 million, which is reflective of the strength of our deliveries as new orders totaled almost $400 million in the third quarter, which was an increase sequentially from the second quarter. I will talk more about it in a minute but I do want to note that with only three months since the passage of the Inflation Reduction Act, or IRA, we are still too early in the project development process to expect any new bookings into our order book. As a reminder, our order book only considers named projects which have been awarded to us. Gross margin for the quarter was 15.6%, representing our fourth consecutive quarter of growth as we continue the margin improvement path we've previously laid out. Adjusted EBITDA in the third quarter of $55 million represents a year-over-year improvement of $59 million and a sequential improvement of approximately $35 million from the second quarter after giving effect to a $5 million downward adjustment in the second quarter from the restatement referred to earlier. Looking at our ending cash flow and liquidity position for the quarter, I'm extremely pleased with our execution. Nipul will walk through this in more detail a bit later, but we delivered $102 million of free cash flow in the quarter which has significantly strengthened our balance sheet as we prepare for the next phase of our growth. To that end, we currently have $329 million of liquidity, inclusive of the Blackstone preferred shares and $166 million in availability on our revolver. This is up significantly from $153 million of total liquidity in the prior quarter. Turning to our next slide. As I did last quarter, I'll take some time to provide an update on the domestic market as we continue to operate in a dynamic landscape. First, an update on the IRA and where we currently stand. In the months since the passage, we have seen an incredible amount of enthusiasm in the industry around the undeniable impact that the IRA will have on solar deployments over the next ten years. However, it is important for us to remind everyone that this act, one that is certainly not small and easy to implement, is only three months old. There is still a lot of work that needs to be done by the various governmental agencies tasked with rolling it out to define and clarify critical aspects of the bill before the industry can wholesale shift to the new paradigm. During this critical rollout period, we are actively engaged with key trade association groups, governmental agencies, and legislators to ensure that when completed, the application of this act benefits the solar industry in general but also our range specifically. In parallel, we are also continuing to push forward internally with what we do know. There are three key areas I will point out. First, we are having daily conversations with customers around building out the framework for pricing agreements under the IRA. These have progressed as far as discussing reserved capacity agreements and revisiting pricing for certain orders under varying levels of domestic content. Second, we have engaged with our suppliers on the domestic manufacturing credits to begin to establish the parameters under which these will be shared in the value chain. I can appreciate that everyone would like us to provide our view of those splits, but it is too early to give that definitive of an answer, and we will also avoid having these negotiations in public. Lastly, we are evaluating our own manufacturing footprint along with our key supplier relationships to ensure that we are maximizing the benefit to Array while ensuring we continue to maintain our key strategic relationships. Overall, with such a large and meaningful piece of legislation, I am thrilled with the progress that has been made to date and look forward to updating everyone on our continued progress as key aspects of the IRA are further defined. Moving to the next area, the UFLPA. We have been consistent in calling this out as Arista project timelines and that we did not expect a meaningful resolution by the end of this year. Unfortunately, that is still the case. Documentation requirements from Customs and Border Patrol have not seemed to get any further clarity since we last discussed this. This has led to more Tier 1 suppliers becoming more risk-averse and a fear that sooner or later, it will start to impact Tier 2 suppliers as well. While we have not been informed of any of our projects with module detainment to date, our position on this remains cautious. We continue to expect that the delays caused by the lack of clarity surrounding the enforcement of this act will provide a headwind on deliveries in the fourth quarter and will carry through to the first quarter of 2023. It is important to note that this is not a change in our outlook, rather a status quo assessment of where we have been all year. In fact, as Nipul will discuss more later, despite this expected slowdown, we are raising our full-year revenue outlook at the midpoint by $150 million. Finally, FEMA currently has a proposal to increase the structural risk category of large-scale utility projects. We recently had an expert from Array testifying at the public hearing on this matter where we imposed the increase to the risk category. We fully support ensuring that solar arrays are designed to work in even the most difficult weather conditions. In fact, this is a critical component of our value proposition. Every tracker we design is built to withstand the most severe weather conditions. To highlight that point, in recent years, our trackers have withstood both the extreme snowstorm in Texas and more recently, Hurricane Ian in Florida. So, we believe there is a balance to achieve with ensuring the structural integrity of the solar array while also ensuring that costs are not unnecessarily increased. If there is a new classification, we are very confident in our ability to support this for our customers. Shifting the focus to our internal operations, I will now move to Slide 6. I'll provide an update on the progress we have made in five key areas I outlined last quarter. While many of these areas will take more than three months to fully address, I am incredibly pleased with our progress in this brief period. I won't go point by point on these, but there are a couple of key things I will point out. First and maybe most impactful in the quarter is the improvement we have seen in our working capital efficiency which we measure through cash conversion cycle. This quarter, we improved this metric by 12 days from the second quarter and almost 50 days from the first quarter. Our teams drove significant improvements in both our receivables and our inventory which we previously highlighted as key focus areas. The net impact of this was seen in our free cash flow performance this quarter. Excluding the impact of the significant legal settlement previously noted, we generated $60 million of cash this quarter. This obviously is incredibly important in strengthening our balance sheet and allowed us to fully pay off our revolving facility as well as paying $12 million in interest on our preferred shares which had previously been paid in kind. The other area I will note is the evolution of the FTI business. First, on the construction side, early in my tenure, we noted the need to reduce our focus on construction activities within our FTI business, with a particular focus on construction in Brazil and the U.S. When compared to Q1 ending headcount, we have now reduced our construction headcount by approximately 20% in Spain, where we have been more selective in offering this service. In Brazil, we have reduced our construction headcount by approximately 70% since the first quarter, and we currently have no active construction projects slated for 2023. Next, on the integration side, we recently concluded a 14-week sprint on the integration which delivered several important steps forward for us as a combined company. First, we solidified and formally rolled out our combined organization. We will drive functional activities from a one-array standpoint while enabling our regional leadership to execute for day-to-day activities and to quickly make decisions at a point closest to our customers. Next, we've recently announced that the STI 250 will become fully available in the U.S. market in the coming months. This is an important development as the deployment of solar projects becomes more geographically diverse. I wanted to close with something not listed on the slide here. We have also had a lot of positive momentum in our innovation and development activities, highlighted by the recent announcement of Omnitrack. We have also been granted 15 new patents over the past three years, taking us from six active patents protecting our portfolio at the end of 2019 to 21 active patents surrounding our products currently. The largest portion of these patents have been received over the last 12 months. I look forward to more announcements in the future displaying some of these more recent developments. With this, I will turn the call over to Nipul for a deeper review of our third-quarter financial performance and an update on our full-year outlook.

Nipul Patel, CFO

Thanks, Kevin. I'm glad to speak with you all today. First, turning to Slide 8. I will walk through our results for the quarter. Revenues for the third quarter increased 173% to $515 million compared to $188.7 million for the prior year period. The $515 million in revenue reflects $400 million from the legacy Array segment and $115 million from the FTI segment. As Kevin mentioned, the $400 million from the legacy Array business represents organic growth of 112% compared to the prior year and is reflective of both an increase in the number of megawatts shipped and an increase in ASP of approximately 30%. The better-than-expected revenue performance from Array is a combination of projects moving from award to delivery faster than expected as well as a significant burn down of our past due shipments. The $115 million from the FTI segment represents growth of $42 million or 58% from the second quarter and is reflective of the natural seasonality of this business where more deliveries are expected to occur in the second half of the year. Gross profit increased to $80.2 million from $5.9 million in the prior year period, driven primarily by the increase in volume and ASP. Gross margin increased from 3.1% to 15.6%. Gross margin for the legacy array business was 16% and represents the fourth consecutive quarter of margin improvement and was in line with our expectations. The FTI business had gross margin of 14.2% in the quarter, which represented a sequential improvement as we had less volume on the U.S. construction business and saw improved margins in our Spain project. Operating expenses increased to $61.7 million compared to $45.4 million during the same period in the prior year. The higher expense is primarily related to a $17.4 million increase in amortization expense related to the FTI acquisition. Excluding this impact, the increase is primarily due to the addition of FTI Norland in addition to higher payroll-related costs due to an increase in headcount and professional fees as we invest in key strategic areas for our growth. Net income attributable to common shareholders was $28.6 million compared to a net loss of $33 million during the same period in the prior year and basic and diluted income per share were $0.19 compared to a basic and diluted loss per share of $0.25 during the same period in the prior year. These increases were partially driven by the legal settlement we received in August of approximately $43 million which was reported in other income in our financial statements. Adjusted EBITDA increased to $55.4 million compared to a loss of $3.9 million for the prior year period. Adjusted EPS was $0.18, up from a loss of $0.09 a year ago and was positively impacted by a larger than expected income tax benefit this quarter due to the mix of income between our geographies. We generated $102 million of free cash flow, a $134.8 million improvement from prior year, driven by better working capital efficiency and improved profitability. Now if we move to Slide 9, I want to provide an update on our liquidity and cash flow. During last quarter's call, we outlined some of the key metrics we were tracking and where we expected to finish the quarter. I am happy to announce that we have delivered on each one of those metrics. Excluding the Blackstone preferred shares, we ended the quarter with $229 million of liquidity against an outlook of $200 million to $245 million. Inherent in that number is the full availability of our revolver now that our secured debt-to-EBITDA ratio is 3.4% or below 7.1%. As we look forward to the fourth quarter, we still expect $100 million of free cash flow for the full year, inclusive of $12 million to $15 million of capital spend. I will end this slide knowing that as we progress forward, we continue to produce free cash flow, we will first use that cash to fund our organic growth and then evaluate other options such as delevering should we have excess capital. Moving to the next slide. We are modestly updating our full-year 2022 guidance. We now expect full-year '22 revenue to be in the range of $1.5 billion to $1.6 billion. We are modestly raising the lower end of our adjusted EBITDA range to $122 million and narrowing the high end to $132 million. Lastly, we are increasing our adjusted net income per common share to be in the range of $0.32 to $0.37. The increase in our revenue range is reflective of strength in our array segment, where in the third quarter, we saw projects move faster than anticipated which will provide some tailwinds for the full year. Additionally, a part of this increase is an updated estimate that between $75 million to $100 million of the projects we had pushed out of the year due to AD/CVD will not be delivered in 2022. The remaining projects are still expected to be delivered in 2023. We have slightly reduced our revenue outlook for the FTI segment which is mostly due to FX headwinds which will reduce the overall contribution to both revenue and adjusted EBITDA and a small amount of delayed project timing. We have reduced the midpoint of our adjusted EBITDA range to reflect a couple of items. First, as we discussed last quarter, we are expecting a lower gross margin from FTI for the year due to construction and logistics cost challenges. While we still anticipate SPI to exit the year in the high teens, the lower gross margins in the first three quarters of the year have our full-year expectations in the mid-teens. Second, the FX headwinds are expected to reduce our adjusted EBITDA by $3 million to $5 million from our original assumptions. Third, the updated guidance reflects the $5 million reduction in adjusted EBITDA from the second quarter restatement which we announced earlier today. Lastly, we are increasing our forecast for SG&A and we are engaging with outside resources to assist in our IRA engagement activities and are accelerating some investments in the business to ensure we are prepared for what will be a dynamic commercial and supply chain environment post-IRA. While our adjusted EBITDA margin is slightly down from our previous midpoint, an 8.2% for our updated midpoint still represents an increase of over 300 basis points from the prior year. Finally, for adjusted EPS, we are adjusting our expectations for our full-year ETR down to a range of 22% to 25% and the geographic mix of our income has changed. With that, I will turn it back over to Kevin to wrap it up.

Kevin Hostetler, CEO

Thank you, Nipul. I want to close by saying we had another great quarter of progression. Every day, we are building a more consistent, resilient, and dynamic company that is poised to take advantage of the opportunities that are coming our way. I very much look forward to continuing this journey with the team here at Array and updating you on all of our progress. With that, operator, please open the line for questions.

Operator, Operator

Thank you. We'll now begin the question-and-answer session. The first question will be from Brian Lee, Goldman Sachs.

Brian Lee, Analyst

I guess first one, just on the guidance update here. I appreciate some of the color around all the moving pieces. So maybe first off, on the AD/CVD project deliveries that are coming back in for '22, could you remind us what that would imply is left to be recaptured in '23? And is it your expectation that it all gets recaptured in '23? Or is some of that still kind of TBD and could be even further out?

Nipul Patel, CFO

Brian, it's Nipul. Yes, regarding the AD/CVD projects, we have about $140 million to capture in 2023 and we fully expect to capture them all in 2023.

Brian Lee, Analyst

Okay. That's great. And then if I just take the $75 million to $100 million and then also you sort of down-ticking the STI a bit at the high end, it seems like you're still seeing growth relative to the original guidance. So how much of that is sort of share gain? How much of that is other drivers, whether price or new volume or mix? Just trying to understand what else kind of surprised to the upside to give you confidence to raise the revenue view for this year? And then I had just one more follow-up.

Nipul Patel, CFO

Sure. We're seeing our projects convert faster in our order book. We've been a bit tempered in how we've stated our order book with convert but we've seen some favorability. We've been pretty consistent with our deliveries throughout the quarter and that's given us the space near the end of the quarter really to allow those projects that drop in that we can deliver at the end of the quarter; so we saw that again here in Q3.

Brian Lee, Analyst

Okay, that's great. And then just last one for me and I'll pass it on. The STI business, clearly, the margins are not where you want them to be. You're seeing some progress. So high teens exiting '22. But this was a 30% gross margin business when you bought it. So how should we think about sort of the normalized margin for this segment for you? And then how much, I guess, margin recovery for STI is feasible as we think about 2023?

Nipul Patel, CFO

Sure, I'll take that one too. It's about progress with the STI business. It was encouraging to see their margins increase sequentially, and we anticipate this trend will continue into the fourth quarter. The Brazil operations are generally within the margin range we expected from the acquisition. With the U.S. project mostly finished, that alleviates a significant burden on the Spanish business. When we evaluate the STI margins for the combined business, we project them to be in the low 20s, similar to the array business, due to the mix of Brazil with Spain. We continue to see that as the expected gross margin moving forward for the combined business.

Mark Strouse, Analyst

I wanted to revisit the comments regarding the FEMA decision. Could you help me understand what that looks like under various classifications? It seems that even a modest increase in the requirements could actually be beneficial for market share, considering your existing structural integrity. How should I think about the potential shifts, especially as the situation worsens regarding incremental costs? Could you walk us through a best-case and worst-case scenario?

Kevin Hostetler, CEO

Yes. Mark, we're not quite ready to discuss publicly the potential pricing changes at different bearing levels. However, your initial point is absolutely correct; we believe our structural integrity is the strongest in the market. Consequently, the cost to achieve a Class II certification for Array is significantly lower than that of many competitors. This gives us a clear pricing advantage overall. If we were to pursue Class IV certification, it would largely depend on ensuring that all competitors are on an even playing field regarding their engineering and certifications for those classifications. We prioritize maintaining a high standard of structural integrity as a major competitive edge and do not compromise on engineering quality. Hence, if some competitors do compromise, we believe that higher classifications will benefit Array. The smaller the price difference we need to offer for that higher certification, the better our position will be. While we don’t believe a classification change is necessary, if it were to occur, we feel confident in our advantage moving forward.

Mark Strouse, Analyst

Okay. And then I'm curious, I know it's only been a couple of months since Omnitrax was introduced. But can you just kind of give us initial customer feedback on that? Are you receiving orders there yet? Are you starting to see conversations open up for projects that you might have been precluded from previously?

Kevin Hostetler, CEO

Yes. I wouldn't say we're receiving orders yet. We're seeing many opportunities for Omnitrax, which requires us to do some additional upfront engineering work for qualification. We're experiencing a significant increase in inbound opportunities to qualify for Omnitrax. This is something the market is enthusiastic about, as it allows some of our customers to reassess their existing project slate. It's a very active situation right now. To be clear, it's not an influx of orders; rather, it's an influx of opportunities that we are currently navigating.

Philip Shen, Analyst

Can you explain why the $75 million to $100 million was brought in? Specifically, was it because many projects were developed using Tracker but not with modules? Do you anticipate this trend will continue into Q4? Looking ahead to 2023, if the UFLPA situation continues, do you think the industry will keep going in this direction? Or will there come a point where projects cannot be built without modules while still using Tracker?

Kevin Hostetler, CEO

Yes. So let me take the first part of that. If you remember our commentary around the pullback of the AD/CVD revenues was one that we very early on indicated was a conservative approach. We looked at project by project. And if a customer did not have confirmed delivery of those modules already, we decided to consider that at risk and pull it out of the forecast. So what you've seen transpire over that is some of those customers were able to get those modules in over that six months since we changed that forecast. So that's really what you're seeing. And I think you're seeing that coupled with, as we've really focused our operations teams on improving our linearity of business, it's allowed us to ship more and reduce the overall backlog in the business by just really hitting a very high level of linearity. We don't have a big hockey stick at the end of the quarter any longer. It's really, as we look through the whole quarter, it's about a 45-degree angle of the charts at this point, and we've had a couple of consecutive quarters of outstanding operational performance and driving that linearity. So that's helped us pull additional work in as well. So that's really the answer on that. As it relates to the UFLPA, look, I think what we're doing is still having customers ask us to do multiple module designs in secondary and tertiary module designs as they try to mitigate which modules they may get in and which modules may clear. I think we've always been open about our view that that was going to continue throughout the end of the year and certainly in Q4. And I think we've extended that through Q1 at this point.

Philip Shen, Analyst

How do you see the bookings trending through this quarter? You had a nice order yesterday. But as you look into Q1 and Q2, would you expect the bookings momentum to sustain? Or do you think it might slow down?

Kevin Hostetler, CEO

Well, look, I don't think we're ready to give a full year view of next year yet. We'll certainly do that with our earnings call in Q1. But the conversations we're having with customers on the back of the IRA right now is really about how much capacity can they secure with us. So we have customers approaching us looking to purchase a certain level of capacity and then to purchase secondarily a certain level of U.S. content within that capacity. So I think we're fairly excited about next year and certainly the year after relative to our position in the market, our leading domestic supply chain, I think we feel pretty good about our position. And if you just look at the momentum vis-à-vis some of the competitors who have come out with their numbers, we feel pretty good. We think we're winning rather than losing and our organic growth rates are amongst the best in the industry at this point.

Philip Shen, Analyst

One last question, if I may. You mentioned domestic content. We've heard that there might be an EPC capable of providing 40% domestic content without the module. Do you believe you could actually achieve that 40% threshold? Of course, we need to get the definition from the treasury soon. But considering the current awarding process, do you believe there is a reasonable path to assist your customers in reaching that 40% level?

Kevin Hostetler, CEO

Yes. So if you think about our current product without making a whole lot of modifications, we're roughly in that 75%, 76% range of what I would call pure domestic content. Minor tweaks to the bill of materials puts us up in the 90s. And again, when we talk about varying levels for our customers, we're going to be able to provide them that varying level that they need to either get seven points towards their domestic content or nine points towards their domestic content. And clearly, there's some pricing differential at that. So if you're a customer out there who needs those additional percentage points, yes, we can shift from some of the offshore suppliers to domestic suppliers to increase that for you. So that's really some of the conversations we're having with our customers about what is that price differential to get from, say, 75% to 95% domestic content were needed.

Kashy Harrison, Analyst

So it looks like the order book, as you indicated, declined a little bit by $100 million for the legacy business. But as you indicated, bookings were up quarter-over-quarter in Q3. Just wondering, what are you seeing for bookings in Q4? Do you expect another similar uptick quarter-over-quarter? Just any color there would be greatly appreciated.

Nipul Patel, CFO

Yes. Yes, we believe that the bookings will stay consistent and strong through Q4. No indications of that slowing down at this point.

Martin Malloy, Analyst

First question, considering the progress you've made in addressing the legacy backlog and the exit rate you've mentioned for gross profit margins this year, are there any factors we should consider that might prevent you from reaching or entering the low 20 percent gross profit margin range next year?

Unidentified Company Representative, Company Representative

Marty, it's Steve. As Kevin mentioned, we're not prepared to give our full year 2023 guidance. But if you look at the momentum, we still feel we'll exit this year in the high teens and back to our legacy historical margins in 2023.

Donovan Schafer, Analyst

I want to follow up on the portfolio strategy regarding STI Norland's tracker and the additions to your product line. I'm interested in knowing if having different products can help improve close rates and win projects. Additionally, I'm curious if this strategy allows for mixing and matching in projects. For example, with next Trackers' train-following solution, it's used selectively on segments with steep grades. Can this approach enable you to use the traditional Array tracker for the core of a project while incorporating STI Norland trackers in more challenging areas or vice versa, possibly deploying the traditional Array Tracker to handle higher wind loads on the edges and STI Norland trackers in the central part? I'm interested in whether this flexibility offers advantages for site designs that would appeal to customers.

Kevin Hostetler, CEO

I don't think that's part of our current solution. The challenge lies with the software that manages the overall site operations, as there are different software platforms for our solutions. Right now, we're focusing on an overall array platform for certain market conditions and an STI for others. The distinction also relates to pricing. If a customer doesn't require a fully robust array design and is looking for something at a lower price point, we have a different offering. For customers who are considering third-tier tracker suppliers, our lower-priced option might suit their needs if they don't demand the robustness and structural integrity of the core array product. However, we don't plan to mix and match different systems, like half STI and half Array, because that would lead to complications with the software control systems.

Kashy Harrison, Analyst

I don't believe that entering the torque tube conversion business would significantly add value for us. Our strength lies in our partnerships and relationships, where our partners have committed to sharing any benefits, such as tax benefits or manufacturing credits, which eliminates the need for us to pursue that business. We engage in various aspects of fastening and systems that interconnect those torque tubes, handling some internally while also outsourcing and offshoring parts of it. Our focus is on optimizing this mix of in-house production, domestic third-party sourcing, and outsourcing. Additionally, we aim to maintain strong partnerships, as we don't want to insource everything. We are planning to accelerate some capital expenditures in the fourth quarter, primarily to boost our overall capacity, which includes adding equipment to better serve our existing customers and prepare for potential incremental business growth. We expect to invest between $12 million and $15 million annually in capital expenditures, and even if we increase that by 30%, it will still be a minor investment without any major projects on the horizon. We are also exploring ways to regionalize some of our manufacturing to be closer to new builds, but we do not foresee any significant capital requirements at this stage.

Jeff Osborne, Analyst

I have a quick question, or actually three quick questions. Is there a general guideline for capital expenditures per gigawatt? You mentioned potentially manufacturing torque tubes or other components in-house, and historically, your business hasn’t been very capital-intensive. I wanted to get a clearer understanding of this in light of the scenario you just described in response to Joe's question.

Kevin Hostetler, CEO

To be clear, I don't think that us going into the torque tube conversion business adds a lot of value. Our strength in partnerships and relationships, those partners have committed to sharing any benefits, be the tax benefits, manufacturing credits, any of that with us which would preclude the need for us to go into that business. There are other elements of what we do in the fastening and systems that combine those torque tubes together. We outsource some of that, and we in-source some of that. And we offshore some of that as well. So it's in that balance of those three buckets of what we make in-house, what we also get domestically from a third-party source, and then what we outsource. It's in that optimization of that entire mix that we're so focused on. And again, we have our partners that we don't want to in-source 100%. So we have our partners, obviously, willing to share those credits with us. We will accelerate some CapEx here into Q4. It's more so to focus on increasing overall capacity.

Jeff Osborne, Analyst

That's great to hear. Two other quick ones. Similar to how the UFLPA outlook for Q4 relative to 3 months ago, would you say it's the same in your eyes in terms of risk, better or worse?

Kevin Hostetler, CEO

Yes, I think it's the same.

Jeff Osborne, Analyst

And the last question I had for you is just do you anticipate any projects in your funnel and potential backlog or bookings to be delayed until the treasury department decision comes out around some of these items as to whether the developer would get the 30% credit or 40% credit. I was just trying to get a sense of perspective for the first half of next year as those items likely come out in Q1.

Kevin Hostetler, CEO

I think what we're hearing is since most of this will be retroactive and the last state that it is retroactive. We don't expect there to be a whole lot of holdback because it won't change, right? So again, it's all about us keeping optionality out there for our customers and that's what we're really focused on. But we have not heard of anyone say we're going to wait until the full clarity here. And I don't think you can wait until full clarity because I think there is this race for securing capacity in the marketplace right now.

Operator, Operator

Thank you. We have no further questions. At this time, we'll close the conference. Thank you for attending today's presentation. You may now disconnect.