Array Technologies, Inc.ARRYNASDAQ
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Operator: Greetings. Welcome to Array Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Sheppard, Investor Relations at Array. Please go ahead.
Sarah Sheppard: Thank you. I would like to welcome everyone to Array Technologies Third Quarter 2025 Earnings Conference Call. I'm joined on this call by Kevin Hostetler, our CEO; Keith Jennings, our CFO; and Neil Manning, our President and COO. Today's call is being webcast via our Investor Relations site at ir.arraytechinc.com, where the related presentation and press release are also available. In addition, the press release and the presentation detailing our quarterly results have been posted on the website. Today's discussion of financial results includes non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures can be found in the related presentation on our website. We encourage you to visit our website at arraytechinc.com for the most current information on our company. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made on this call. We refer you to the documents we file with the SEC, including our most recent Form 10-K for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results, except as required by law. I'll now turn the call over to Kevin.
Kevin Hostetler: Thank you, Sarah. Good afternoon, everyone, and thank you for joining us. I'll begin with some highlights on the quarter and updates on our APA acquisition and our commercial momentum. Then Neil Manning, our President and Chief Operating Officer, will provide some supply chain and operational updates for the quarter. Keith Jennings, our Chief Financial Officer, will then provide detailed commentary on our third quarter 2025 financial performance and updates on our full year 2025 financial guidance. Then we'll open the line up for your questions. I'll begin on Slide 5. We are thrilled to announce another exceptional quarter of commercial, operational and financial performance. Our revenue reached $393 million, marking an impressive 70% year-over-year revenue growth, driven by a 56% increase in volume in the quarter. The completion of the APA acquisition midway through the quarter contributed approximately $17 million in revenues to our results. When we assess our performance from a year-to-date standpoint, we have already generated over $1 billion of revenue, surpassing our total annual revenue from 2024, and we have grown volume an impressive 74% year-over-year. This outcome highlights our team's steadfast dedication and resilience, effectively navigating the uncertain regulatory environment and fluctuating market conditions. We saw sequential adjusted gross margin improvement quarter-over-quarter, driven by outperformance in our ATI business. Our bottom line performance remains outstanding with significant net income improvement year-over-year and an adjusted EBITDA result of $72 million. This achievement driven by strong execution and substantial volume growth marks our second highest quarter of adjusted EBITDA on record. Finally, our commercial momentum continued this quarter as we posted sequential order book growth and a book-to-bill ratio of greater than 1. Our diverse portfolio of products, services and software offerings continues to win, and our robust bookings are a testament to the time and effort invested in our relationships with critical Tier 1 customers. We are particularly pleased with the market's adoption of our latest new product offerings, OmniTrack, Skylink and Hail XP. And we note that these 3 recently launched products already account for nearly 40% of our order book. It's important to note that this quarter's order book result of $1.9 billion does not yet include APA's backlog. As we continue to align and harmonize our commercial policies, we expect to add their customer orders to our metric by year-end. Further, we should note that as we've taken a more conservative approach to the addition of international orders to our order book, our quarter ending order book represents over 95% domestic business. Turning to Slide 6. I want to briefly touch on our integration of APA and provide some exciting product and commercial updates. Although we are in the early stages of our APA integration, we are very pleased with their recent commercial progress and pipeline growth. Although only a couple of months in, we remain on schedule with our internal objectives and are seeing strong collaboration across our teams. Our priority is to maintain seamless business operations as we align processes and systematically realize synergies. As you would expect, we have taken meaningful steps to achieve our targeted procurement efficiencies by utilizing Array's scale and established supplier partnerships to drive these future benefits. We also recently introduced a unified sales strategy for customer engagement and quoting, empowering both the Array and APA teams to seamlessly offer the full Array and APA product portfolios. This collaboration will deliver greater optionality and value to our customers and unlock significant growth in our share of wallet and total addressable market. APA is already benefiting from Array support with notable momentum in larger utility-scale project opportunities across both engineered foundations and fixed tilt systems. Array's strong market credibility and bankability are unlocking new growth channels for APA, and we are actively pursuing those prospects. We are also laser-focused on enhancing our competitive advantage and accelerating our strategic product road map. Our co-development of a suite of integrated tracker and foundation solutions is well underway, and we expect these innovative solutions for customers to be available in the second half of 2026. Finally, APA's innovation pipeline in engineered foundations and fixed tilt mounting systems remains robust and continues to position APA for sustained growth across its product categories. We look forward to sharing more color about APA's exciting strategic initiatives when we provide our 2026 guidance. Turning to Slide 7. I'll focus a bit more on our recent commercial momentum and how that is translating to our expected future growth. Although some regulatory uncertainty persists this year, we continue to observe strong fundamental demand as we stay in close contact with our customers and assess their project pipelines. One indication of that underlying demand, our early-stage project pipeline has impressively achieved double-digit expansion year-to-date. We remain committed to providing flexibility, helping our customers adapt to changing market conditions by offering a wide range of sourcing options and a broad product portfolio catered to customer feedback. We view this expansion of our funnel as a good indication of our momentum as we close out the year and head into 2026. Our ongoing commitment to customer engagement continues to enhance both the quality and mix of our order book. This year, we have connected with over 300 customers and industry partners through Array days and insurance forms, and we continue to receive outstanding feedback on our enhanced customer engagement. As we strengthen our partnerships with major Tier 1 customers, we're increasingly engaging in conversations around larger volume commitment agreements, fueling our optimism for 2026 and beyond. A recent proof point is our Q4 award of a multiyear multi-gigawatt portfolio with an independent power producer, underscoring the momentum behind our growth strategy. By clearly communicating the value proposition of our product portfolio, we have deepened customer understanding of the advantages that our unique and patented technology delivers, particularly in reducing LCOE and mitigating severe weather risks. The strong demand for our latest products is evident with these offerings now representing 40% of our total order book this quarter, as previously noted. Alongside this rapid new product adoption, our SmarTrack software deployments have accelerated significantly. In fact, the number of active installations for hail alert response and backtracking and diffuse underway now exceeds our entire historical installed base, and we expect this traction to continue. Looking ahead to 2026 and beyond, we remain highly optimistic about the demand environment. For next year, we anticipate delivering both organic growth within our core Array business and inorganic growth with the integration of APA. This outlook is underpinned by a robust order book and our improving book-to-bill momentum. While it is still early in the fourth quarter, we expect to finish the year with strong bookings and further order book expansion. Notably, our current order book is predominantly comprised of domestic projects, reflecting verbal awards and contracts with high-quality customers. Internationally, we are making steady commercial progress in our selected targeted regions. Importantly, as noted earlier, we have taken a cautious approach regarding the inclusion of international verbal awards in our order book to mitigate any potential risk of de-bookings. We look forward to providing updates on these pivotal projects when we give a more fulsome update on our 2026 guidance. Overall, the progress achieved this year reinforces our confidence as our commercial engine is operating at full strength, our new products, which originated from direct customer engagement are delivering, and our supply chain organization is providing the ultimate flexibility for our customers in a time of uncertainty. These factors are producing strong year-over-year growth in revenues and volumes. I'll now turn it over to Neil to discuss some important supply chain updates.
Neil Manning: Thank you, Kevin. Let's turn to Slide 8. I'd like to provide an update on our supply chain performance and how we're navigating the evolving tariff landscape to deliver strong results for our customers and shareholders. Our team has proactively executed a flexible supply chain strategy that's focused on optimizing costs and maintaining high service levels for our customers. As you know, the global tariff environment remains highly uncertain and dynamic with new regulations and rate changes emerging across multiple regions on almost a weekly basis. Our approach centers on resiliency and adaptability. We source from over 50 domestic and 100 international suppliers, giving us the agility to optimize our bill of materials between domestic and imported components to meet the specific needs of our customers. This flexibility allows us to offer our 100% domestic content tracker for treasury guidance, leveraging over 40 gigawatts of U.S. supplier capacity. This also allows us to optimize incentives and routings to drive the lowest landed cost and best outcome for our customers. For example, when customers don't require domestic content, in some cases, it remains optimal to import a particular component and pay the tariff to attain the lowest landed cost for a project. With the opening of our new and expanded Albuquerque facility and the addition of APA's Ohio manufacturing, which we also intend to expand, our domestic capabilities continue to strengthen. We're exploring optionality for enhanced manufacturing geographies to offer greater flexibility to our customers between our domestic locations. A key factor shaping our supply chain strategy this year has been the Section 232 tariffs on steel and aluminum. These tariffs have significantly increased costs for imported steel and aluminum products, sometimes doubling the tariff rate on certain goods. Further, the imported steel and aluminum tariffs created headroom for domestic steel and aluminum suppliers to raise their pricing numerous times throughout 2025. For example, steel peaked at more than 35% higher since January 20, inauguration day and now sits roughly 17% higher. Our team has responded by negotiating tariff relief with the suppliers, leveraging domestic sourcing and utilizing USMCA derivative rules to minimize exposure. As part of our long-standing U.S.-centric supply chain strategy, we've historically supplied the majority of our torque tubes domestically with some exceptions for West Coast projects. However now, just about all of our torque tubes and stampings have transitioned to U.S. suppliers, and we're on track to onshore dampers by the end of the year. These actions have resulted in cost avoidance, risk mitigation and further limited our exposure to tariff impacts. Additionally, many onshore components qualify for 45X IRA credits that further enables our domestic manufacturing and supply chain. When it comes to tariffs overall, our strategy is both active and forward-looking. We maximize our scale to drive cost and lead time optimization, and we negotiated tariff pass-through agreements with certain suppliers to streamline recovery processes. Tariffs are now incorporated into our upfront quotes, ensuring transparency and predictability for our customers. Through these efforts, we've continuously reduced our tariff exposure, now expecting by the end of the year, less than 14% of the typical bill of materials exposed to tariff impacts. For example, our onshoring initiatives are expected to reduce our exposure to India by roughly 50% by year-end. Additionally, we have achieved significant cost avoidance through supplier negotiations in Mexico and Thailand, allowing us to continue to flex between U.S. and international sources to ensure the lowest landed cost for our customers. Our supply chain team has demonstrated exceptional agility responding to tariff changes, negotiating relief and capturing value for Array. Proactive supply chain strategies and robust tariff management have enabled us to navigate a complex market environment, limit the impact of tariffs and deliver on our commitments to customers. With that, I'll now turn it over to Keith to provide more details on our third quarter results. Keith?
Keith Jennings: Thank you, Neil. Good afternoon. I will begin on Slide 10. We had an exceptional third quarter. Revenue was $393 million, representing growth of 70% above the prior year quarter and 9% sequentially. Our recently closed acquisition of APA contributed $17 million, and we had approximately $30 million of pull-ins from the fourth quarter into this quarter. As Kevin noted, our 2025 year-to-date revenue of over $1 billion has surpassed the full year 2024 revenues of $916 million, staying on track to post an outstanding year. Our continued sustainable growth will be supported by the ability to drive volume, optimize geographic focus and our business mix along with the contributions from the acquisition of APA. Sequentially, ASPs were higher in both our ATI and STI segments, aligned with the forecasted effect of rising commodity prices experienced earlier in the year. Delivered volume measured in megawatts of generation capacity for the quarter increased by 56% over the prior year quarter, continuing our strong momentum with year-to-date volume up an impressive 74% over the prior year. In the third quarter, adjusted gross profit increased 35% year-over-year to $111 million, representing an adjusted gross margin of 28.1%. The net effect of the revenue pull-in from the fourth quarter was about $9 million of adjusted gross profit and $0.04 EPS pulled forward. When compared to the prior year, gross margins declined primarily due to the falloff of the prior year 45x amortization benefit, commodities inflation relative to ASP increases and approximately 110 basis points of tariff drag in the quarter. Sequentially, adjusted gross margin improved by 30 basis points, primarily due to a higher mix of domestic projects and ASP improvements to product mix with an offset from lower international shipments primarily in Brazil. APA also had a slight dilutive impact on overall adjusted gross margin in the quarter of about 20 basis points. Anticipated 45X benefits and the outcomes of our supply chain synergy initiatives are expected to provide ample opportunity to transition this to an accretive impact in the near future. Adjusted SG&A was $39 million, just under 10% of revenues. This rate compares favorably to the adjusted SG&A of $36 million in the third quarter of 2024, which was 15.5% of revenue. We continue to achieve operating leverage from top line growth through our relentless focus on operational efficiency and process improvement while making meaningful investments in the customer-facing touch points. Adjusted EBITDA was $72 million with an adjusted EBITDA margin of 18.3%. This represents 55% earnings growth when compared to adjusted EBITDA of $47 million and adjusted EBITDA margin of 20% in the third quarter of 2024. Sequentially, adjusted EBITDA earnings grew 14%, with adjusted EBITDA margin improving 80 basis points driven by the mix shift towards higher ASP domestic sales. GAAP net income attributable to common stockholders in the third quarter was $18 million compared to a net loss of $155 million in the prior year. Sequentially, net income declined $10 million from the second quarter of 2025, which included the additional gain from repurchasing a portion of our 2028 convertible notes at a discount last quarter. Diluted income per share was $0.12 compared to the diluted loss per share of $1.02 in the prior year, which was primarily driven by the goodwill impairment taken in the quarter. Adjusted net income was $46 million, 73% growth above the $26 million in the third quarter of 2024. Adjusted diluted net income per share was $0.30 compared to $0.17 in the prior year and $0.25 in the second quarter. During the quarter, net cash generated by operating activities was $27 million. Net cash used for investing activities in the quarter was $170 million, primarily driven by the acquisition of APA and the ongoing investment in our new Albuquerque manufacturing facility. Free cash flow for the period was $22 million, bringing the year-to-date total to $44 million and generally in line with our seasonal expectations. Slide 12 provides an update on our leverage and liquidity position. Following the completion of the APA Solar acquisition in the quarter. We ended the quarter with $222 million in total cash on hand and total liquidity of over $365 million, including availability under our undrawn revolver. We ended the quarter with a net debt leverage ratio of 2.1x trailing 12 months adjusted EBITDA. Our exceptional agility and strong balance sheet position us well to capitalize on emerging opportunities and drive sustained growth, giving us greater confidence in our future performance. Finally, on Slide 13, we have updated our full year 2025 guidance. Given our strong performance and the inclusion of APA, we are raising our full year revenue guidance and updating midpoints on several key indicators. We expect full year 2025 revenue within the range of $1.25 billion to $1.28 billion, increasing the midpoint of our range by over $60 million, inclusive of approximately $50 million of revenue from APA. We expect adjusted gross margin within the range of 27% to 28%. This includes the negative impact of accounting for tariff pass-through, the gross margin dilution from APA, delayed international project commissioning pushing our high-margin software revenues and inflationary pressures impacting both inventory and logistics costs. Adjusted G&A is expected to range between $160 million to $165 million, primarily due to the inclusion of the APA business and our incremental investments ahead of the anticipated growth in 2026. Adjusted EBITDA is expected to range between $185 million and $195 million, with adjusted diluted earnings per share forecasted to be in the range of $0.64 to $0.70. Free cash flow is expected to come in at approximately $100 million for 2025, slightly lower than previously expected, primarily due to acquisition-related expenses and timing of some 45X collections and customer deposits shifting into 2026. Capital expenditures are now expected to be approximately $20 million and primarily driven by project timing at our new Albuquerque facility. Looking ahead, we are exceptionally well positioned with approximately $1.9 billion of backlog, added capabilities to seize new opportunities, deliver industry-leading growth and create lasting value for our shareholders. Thank you for your time today. Now back to Kevin for closing remarks.
Kevin Hostetler: Thank you, Keith. To sum up, this quarter's results reflect our team's disciplined execution and our ability to adapt and lead in a dynamic market. With our strong financial position, robust and increasing order book and ongoing innovation, we remain confident in our strategy and our capacity to deliver sustained value going forward. Thank you for your continued support. And with that, I'll now open the call for your questions. Operator?
Operator: [Operator Instructions] The first question that we have today comes from Mark Strouse of JPMorgan Chase and Co.
Mark W. Strouse: The first one, Kevin, just with -- I appreciate your comments about continued growth in 2026. But just with another couple of months under your belt since RE+, just curious if you can kind of paint a picture for us how you're thinking about the next several years now with Safe Harbor out of the way.
Kevin Hostetler: Yes. I think, Mark, we're returning to a period of more normalized flow of business at this point. As I made many comments RE+ about me not expecting this big windfall of safe harbor. We really didn't expect that. As our order book has changed over the last couple of years to have many, many more Tier 1 customers, we made the comment last quarter that over 50% of the order book is what we would call Tier 1. And at that point, these Tier 1 customers have already safe harbored through '29 and '30. So we didn't expect this influx of safe harbor. So the orders we're receiving now are much more normalized demand for the next couple of years. And we feel that's a much better position to be in. We feel that's back to kind of a historical norm rather than have any artificial pull in or pull forward driven by regulatory issues. So we feel really good about what we're seeing. We feel really good about our win rate. The commentary I made about the multi-gigawatt multiyear piece and there's a great example that -- to be clear, that's not in the backlog or order book at this point. For the numbers we reflected that $1.9 billion was as of the end of Q3. And while we endeavor to have that land in Q3, we certainly didn't want to push the customer too hard. We're able to get that landed here in Q4. So we feel really good about that type of momentum and the fact that we're winning larger orders and more bundles of orders at this point.
Mark W. Strouse: Okay. I might follow up on that one offline. Keith, the implied 4Q guide for EBITDA margins is a bit lower than history. You talked about some of the factors that are influencing that. I'm just I'm curious, I know you're not going to give formal 2026 guidance yet, but kind of looking a bit further beyond 4Q of 2025, how should we think about the cadence of EBITDA margin?
Keith Jennings: Mark, thank you for the questions. 4Q is, I would call it, a trough quarter. It is affected primarily by lower revenue volumes than anything else. And so with that, we are losing a bit of P&L leverage in the quarter. I would, at this point, say that we are very happy with how the year is shaping up and how the full year guidance is holding from where we've guided it in Q3 and earlier and then added APA. In terms of how we are looking forward, I would say that aligned with Kevin's comments about our confidence in the order book, when I look at it, I looked at it this morning, I was surprised -- not surprised, but it was a confirmatory view that greater than 50% of the order book is now not EPCs, so which means that our expansion into different customer base, IPPs, utilities and developers are taking hold. And so I think that when I think about the margin profile going into 2026, I think where we will close this year will be something that we will try to find good opportunities to hold. So we have guided towards 27% to 28% on the full year. I can't think of any reason other than massive inflation and tariffs that could pull us off that trajectory right now.
Kevin Hostetler: I think, Mark, one of the things I'll add to that, just to explain the cyclicality. If you go back historically, Array, when you have a disproportionate focus on North America, you have your build season is Q2 and Q3 when we're shipping. Those are typically the highest quarters and then you slow down going into winter. What is different in the last couple of years is we had STI Brazil, which was our second largest operating segment. And when you think about that, their construction is countercyclical to North America, right? So that always added to our Q4 and Q1. As Brazil is not operating on full cylinders due to all the issues we've talked about on previous calls, you don't have that additional layer to [ burry up ] Q4 and Q1. So then you're really focusing on disproportionate North American business in Q4 and Q1, which has that cyclicality before the build -- the big build in Q2 and Q3, which again, you've known our business for several years, that's much more akin to the historical flow of the business and to the North American construction season.
Operator: The next question we have comes from Joseph Osha of Guggenheim Securities.
Joseph Osha: Congratulations on the solid quarter. Two questions. First, am I doing my math right in understanding that essentially adjusting for APA, you've added about $10 million in non-APA revenue to your guide for the year. Am I getting that right?
Keith Jennings: Joe, this is Keith. Yes, you're getting that right.
Joseph Osha: Okay. And did I also hear that you had about $30 million in tracker revenue come from what you'd expected from Q4 into Q3?
Keith Jennings: Yes. So that kind of puts more pressure on Q4 in terms of margin.
Joseph Osha: Just get my puts and takes right. Other question, I don't imagine you want to give a number, but doing some math and thinking about this multi-gigawatt award that you just talked about, can we fairly say that we can perhaps expect this $1.9 billion visibility number to be up again as we enter 2026?
Keith Jennings: That is our expectations internally thus far. Yes.
Joseph Osha: Well, now it's external, too.
Kevin Hostetler: And Joe, you should also adjust for the fact that we don't have APA in the $1.9 billion at this time. So as we conform policies, that should also add to the backlog by the end of the year. Let me just make -- let me just -- while we have the questions on order book, I just want to make a couple of points perfectly clear. So as Keith talked about, the quality of our order book has really improved so that, that 1.9 is not the same as a 1.9 a year ago for a few factors. The first is the higher percentage of Tier 1 customers, as Keith alluded to. We won't give the exact percentage, but it's continuing at greater than 50% now. And those customers already have strong safe harbor strategies. So the likelihood of pushouts and delays or interconnect issues goes down the more we're going direct to utilities, direct to IPPs, et cetera. The second thing is we've noted it, and I want to make sure we recognize it, is the higher concentration of domestic content. We experienced in Q1 and Q2 this year, some of those -- we had to introduce a term of net bookings because of de-bookings as projects got delayed and we held to our rules of what would go into the order book, in particular, in Brazil. So we took the approach of keeping those orders on the sideline and treating them much more like book and turn business. What I mean by that is as we really see that, that is about to ship and go, we'll treat it as book and turn. And as such, it's a higher quality order book because the likelihood of de-bookings is very much diminished at that point. We just talked about the fact that APA is not yet included but will be in Q4. And again, Joe, we've given you that strong signal that we do expect additional backlog to build in Q4. So all in all, we feel very pleased with our order book results here in the quarter and what we expect between now and year-end.
Operator: The next question we have comes from Julien Dumoulin-Smith of Jefferies.
Julien Dumoulin-Smith: Excellent. Look, I just wanted to follow up a little bit. Let's start with a little bit macro and then we'll do micro. Look, your peer is talking about doing some diversification. Your peer in EBOS is talking about expanding the scope of their business. How do you think about your venture or journey into expanding the scope of your business? Obviously, you guys did this APA. You're talking about foundation here. But any venture to kind of expand the scope here? Or for the time being, let's get this core product right and sell it even more appropriately?
Keith Jennings: Yes. I think when we -- let me address that let's get this core product right. I think we've done that over the last couple of years with our new product. And look, to give you the signal and show you the chart of how much our new products are hitting the sweet spot of the market is pretty significant. If you would have told me when we launched them 2 years ago that within 2 years, we'd be at over 40% of our backlog be those new products. that would be deemed an incredible success. So we're really pleased with that. We will continue to look at how we increase the share of our customers' wallet, in particular, focusing under the panel. And what I mean by that is not the panel. But there's a larger ecosystem there that we can do -- that we can work with, both in terms of partnering, venturing together as well as either acquiring or internally developing other components that would be utilized under the panel to increase the share of wallet. That's been a consistent strategy here for 2 years. We're going to continue to execute on that.
Julien Dumoulin-Smith: Excellent. And can I really go back to the question about this integrated foundation solution? I mean, can you talk a little bit about early client interest and potential bookings? But more importantly, can you talk about what it costs to get there and the margins potential on this product, right? If you can elaborate again, I know it might be a little sensitive, but to the extent possible, the CapEx or dollars required to get there as well as kind of the margin profile as best you could [ delineate it? ]
Kevin Hostetler: So minimal in terms of additional investment to get there. And to be clear, how we got to the APA from an acquisition standpoint was that we were engaged in co-development of this product prior to completing the acquisition. So this is something we started well over a year ago. I think it's fair to say the designs are done. We're in tooling at this point to be able to put soft launch in the first half of next year and hard launch in the second half. So we're fairly far along. And to be clear on what we're doing is when you have the A frame right now, you have a very large heavy chunk of steel, which is an interface required to interface with ours, every one of our competitors' tracker systems requires an interface as well. And what we're doing is adapting the A frame so that the top of that A frame instead of requiring a very large heavy expensive steel interface just becomes the base for our tracker [indiscernible]. I think it's -- it's a very strong play. It creates an incredible set of economics for our customers, and then it begins to bring the engineered foundations from a cost point down to be incredibly competitive with standard piles at that point. So you're able to then be able to achieve an engineered foundation solution for non-engineered foundation pricing, if you will. It will have a degree of interoperability that I think is superior, take weight out of the product, take steel costs, all of the above. So we're really excited about it. I think it's fair to say we're fairly far along in that journey, and we expect to be able to put some of that into the ground in the first half of the year. We have some test sites identified, and then we'll go forward from there and open it up for sale in the second half. And then just a couple of comments on the traction. Look, one of the biggest things we need to add in SG&A in Q4 is additional -- good news is additional sales resources within the APA business. We currently have 7 open recs for sales, design, engineers just to handle the influx of inbound orders we're receiving now, inbound quotation requests for the combined solution between APA and Array. So it's getting quite exciting for us.
Operator: The next question we have comes from Jon Windham of UBS.
Jonathan Windham: Congratulations on the quarter. I was wondering if we could just get some more thoughts and commentary around the international business and if there's any opportunity to manufacture domestically in the U.S. for export. Appreciate it.
Neil Manning: Yes. I'll take international. So we're pleased with our year-to-date progress. If you look at Brazil, despite the challenges that Kevin referenced there.
Operator: [Operator Instructions] [Audio Gap] We have a question from Jon Windham of UBS.
Jonathan Windham: All right. I was just asking for some color about the outlook for the international business and whether there's an opportunity, at least within North America to manufacture in the United States, capture tax credit to the export market.
Neil Manning: Jon, it's Neil. Let me take the international question. I'm not sure where we cut out previously. So we're really pleased with how we performed year-to-date from an international perspective despite the Brazil challenges. So if you look at our STI segment on a year-over-year basis, we're up over 10% despite what's going on in Brazil. And then on top of that, we look at Australia as a separate entity, and we're up nicely year-over-year there as well. So we're pleased year-to-date how the international business has progressed. That's really a testament to our diversification strategy that we've been deploying. So both Europe and Latin America, it's been primarily an H250 platform that we've been selling under the old STI business. And we've introduced DuraTrack and OmniTrack in both of those regions, and we're really seeing a nice progression in the pipeline and interest [ and traction ] for that product line in those markets that appreciate what DuraTrack brings from an applicability in higher wind and difficult soil conditions. It's really a differentiating product for us in those additional markets and brings with it enhanced margin opportunity for that differentiating feature as well. So we feel good about the progress on that front. Separate to that, when it comes to export from the U.S., one of the things we look at is what is the most appropriate supply chain for a particular project based on its locality. In the U.S., primarily, it's a domestic production for domestic consumption. On the international business, we look at an international supply chain that's targeted at the most beneficial and lowest landed cost for a particular project. And so for Europe and South America and elsewhere, we'll do an analysis on a per project basis, what components come from what supplier at the right mix with the right logistics cost to get you to that lowest landed cost. And obviously, where it makes sense to import from different countries, including the U.S., we obviously take a look at that and analyze that and do that on a project-specific basis.
Operator: The next question we have comes from Brian Lee of Goldman Sachs.
Unknown Analyst: [indiscernible] on here for Brian Lee. Just trying to think across, again, there seems to be a decent bit of moving parts here heading into next year and not looking for guidance or anything, but increase in steel prices, Omnitrack, Skylink, Hail XP becoming a larger portion of the backlog, accretion from APA, potential 45X from APA and reduction of tariff exposed bill of material. Could you just help us frame us or frame for us what could be accretive to gross margins, accretive to gross margin dollars and just some of the puts and takes heading into next year?
Keith Jennings: Nick, this is Keith. 2026 for us right now is still on the drawing board. I know we've given some earlier comments both that we expect growth in terms of revenues, given the strength of the order book, the addition of APA and the outlook for the innovative products that we have been adding. We also are committing that we're going to strive to maintain our gross margins in the range that we're currently operating. But beyond that, I think it will be too soon to say much more about '26.
Unknown Analyst: Okay. No worries. And just, I guess, one more. That $9 million of acquisition-related expenses realized this Q, are there any more cleanups expected or I guess, any more expenses that could be a headwind to EBITDA over the coming quarters? Or is it just onetime?
Keith Jennings: Most of the acquisition-related expenses were adjusted out. So. Other than being an impact on the GAAP P&L, I think we shouldn't expect any impact from the M&A other than just accretive EBITDA margins.
Operator: The next question we have comes from Ben Kallo of Baird.
Ben Kallo: My first question was just on if you're seeing any kind of flight to quality just between you and Nextracker from other trackers or racking companies in the U.S. So maybe the easy way is of market share gains, if you could talk about that. And then on the independent power producer in the multi-gigawatt deal, could you just talk maybe about what their solution was, if this is diversification, if they're moving away from someone else or a completely new business? If any color you can give on that would be helpful.
Kevin Hostetler: Yes. I think the answer is actually common for both questions. So look, we do think there's a flight to quality, but a lot of that is really being driven by our strength in the front end of the business. A few things that we've done year-to-date, not only have we revamped our sales team and our sales team leadership, but we've also added an entire group of individuals that we call our technical sales team -- these are engineers selling to engineers and ensuring that we revamp our value propositions and get very clear on our value propositions to each individual channel we sell to. And the reality is our ability to generate more energy with our passive stow system to have an improved ground coverage ratio relative to some of the peer companies. It's really helpful when we're doing a very highly technical sale to the engineers who then instruct purchasing that this is because of the improved LCOE, this is the tracker of choice. That's what's really happening for us out there and that to be absolutely clear, we were not the lowest priced tracker presented in this multi-gigawatt. We were the best value selected by the customer. Not at all the lowest price, but we were able to generate value for that price for the customer, utilizing some of the very technical subsets of issues we just talked about, the passive stow, hail mitigation, severe weather and ground coverage ratio were all critical elements that this customer valued and put into their return matrix that all yielded that order in our direction despite being higher priced.
Ben Kallo: If I could just quickly follow on with electricity prices increasing in the LCOE proposition, are you getting better pricing as electricity prices increase? Or does it not work like that?
Kevin Hostetler: It doesn't work that way. Our pricing typically flows more relative to commodities. And then your win rate goes up with your improved LCOE. But it doesn't -- look, there's narrow ranges of the above. But what you saw and it should not go unnoticed, but our ASPs increased for the first time in 6 quarters as we predicted earlier in the year that as the steel prices rose, over time, that would be reflected in ASPs, and we did see that this quarter. So you had an increase in ASPs this quarter, but ASPs for us is more a function of the commodity inputs and then win rate is more of a function of our ability to communicate our strong value proposition to the market.
Operator: The next question we have comes from Philip Shen of ROTH Capital Partners.
Philip Shen: Congrats on the strong bookings in the quarter. I wanted to check in with you on the international side of the business. Would love to understand if there's any potential upside from Brazil or LatAm in the Q4 guide. And given the removal from the backlog, perhaps there can be some business there near term that might be an upside surprise.
Neil Manning: So Phil, it's Neil. So let me explain it this way. So certainly, the Brazil business and macroeconomic climate has been a challenge over the last quarters that we've talked about quite often, and we've been diversifying in that market. And one of the interesting things that we've seen, and Kevin articulated earlier about our order book rules around having a defined project with a start date with a PPA in place. And those rules apply really well for the domestic market here in the U.S. that what we've seen elsewhere in other markets, those sometimes get a little bit out of sequence. So we may see an awarded order that then our customer takes the contract with us that then they take into their PPA finalization. So what that really means is that we have awarded business that is not shown in the order book that will convert in future periods. And we're seeing that more and more, particularly in South America. So I guess to get to your point that in that $1.9 billion order book, there is business that we do expect to see on top of that, that will turn over the next couple of quarters.
Philip Shen: Got it. Okay. And then shifting to APA again. Is it fair to conclude that the APA revenue in '25 will be roughly flat year-over-year? And then what kind of growth should we expect from APA in '26? I know you haven't given guidance yet, but -- and so far as you can give a little bit of color, that would be fantastic. And then if you can, and I know a lot of people are asking about this at RE+ when you announced the acquisition, but what is the APA revenue mix by tracker, if you can give a rough sense, assuming a baseline of about $130 million of revenue? Like how much of it historically or is now with your tracker versus one of your peers like a GameChange or Nextracker. And so just trying to get a feel for what kind of exposure you might have, to other trackers? And then how quickly you might need to make up for some of that lost revenue if one of those trackers steps away from wanting to use APA?
Keith Jennings: Phil, this is Keith Jennings. Let me start with just the math. So yes, APA 2025, based on our guide, we will have slight growth, I think, just over 1% given what we had to disclose in terms of pro formas in our 10-Q. I think that was an understandable performance given the distraction in the market with 1BB and particularly even the outcome of 1BB, which I think hit mostly the residential and community solar market more than the utility scale markets. And so as they've come in-house, we feel fairly strongly about the outlook for APA with Array as a partnership, particularly as we introduce them to more utility scale customers and clients that find them more attractive now that they have a bankable partner. And so our outlook for them is really strong, and we're still very excited about the acquisition that we just executed. In terms of the breakout between the various partners that they have been supporting, we're not prepared to disclose that. And I think that we remain committed to the customers of APA, regardless of which tracker company they choose to go with. We believe that APA and its engineered foundation is the best technical solution in the market. All customers should be able to benefit from that. With that, Kevin, anything to add?
Kevin Hostetler: Yes. Look, so to be clear, Phil, there's not been any of APA's customers that have said, "Hey, we're going to pull business away." There's only one meaningful competitor that has any backlog with APA. The they have backlog with APA because their existing solution doesn't solve what APA solves, right? They have their own foundation solution. And if they could solve it with their own, I promise you they would. That's the case. So what we focus on is allowing APA to continue to serve their customers, continue to work on new product development with peer tracker companies. We're going to continue to allow that level of support. I have personally engaged in senior management discussions with each of those competing tracker companies and given them my personal assurance that we will continue to behave accordingly. We have created separate firewalls in the company to allow them to conduct that business with our competitors such that Array cannot see their engineering, their pricing, any of the above. So we've taken a very high road approach to ensure that we allow them to maintain those relationships and, in fact, continue to do aggressive new product development with those customers that on a tracker may be a competitor of ours. So I think we're taking a very good approach there. We feel really good about that as we move forward. I would say the influx of opportunities on the utility scale segment, when you think about moving from C&I to utility scale, it only takes a handful of utility scale projects in a given year for APA to win to totally and very dramatically change the scale of that business. I am very pleased with the amount of traction we're getting in that at this point and the amount of quote opportunities we are now getting in the business on utility scale foundation solutions. So we're quite excited about the trajectory of that business.
Operator: The next question we have comes from Tom Curran of Seaport Research Partners.
Thomas Patrick Curran: Kevin or Keith, does Array currently have any contracts with BP in the order book via Lightsource or any other BP affiliates? And if so, could you give us an indication of what that total BP exposure represents as a portion of the backlog?
Kevin Hostetler: We don't give specific backlog or business numbers with any customer, but BP has historically been a good customer of Array, but we don't put that out publicly, sorry.
Thomas Patrick Curran: Understood. Maybe I'll just try a different angle. Have you been given any reasons to believe or seeing any signals that there could be any issues with upcoming expected deliveries to BP affiliated projects?
Kevin Hostetler: We've not been made aware of any that I can think of.
Operator: The next question we have comes from Dimple Gosai of Bank of America.
Dimple Gosai: With domestic steel pricing moving around and tariffs tightening, can you maybe help us quantify the degree of cost pass-through you're achieving today? How much price discipline is holding in bids as the market normalizes around domestic content?
Keith Jennings: So I think -- Dimple, this is Keith. A few things. we tend to be able to price our products in line with expected delivery dates and steel prices at the time of contracting. And so -- and that achieves some level of locking on most of our materials. We do have some materials that may float. But for the most part, we're able to hold our margins. If you think about where spot market for steel is today at around USD 847 a metric ton, that was roughly 13% lower in 2024. And when we spoke earlier in the year and we saw these forward prices then, we talked about expecting ASPs to go up, and you've seen that now. Sitting here today, when I look forward to 2025 and look at the forward curve, I see an average for 2025 at 849 (sic) [ USD 849 per metric ton ], which is in line with where we are. I see 2026 at 874 [ USD 874 per metric ton], which is marginally up. So we are -- I'm sure our customers are seeing all these things. So when we have conversations, we are all having all having informed conversations about where pricing should be so that we can all have healthy margins and continue to do business.
Neil Manning: Let me just add on to that as far as passing through both from a steel pricing from a tariff standpoint. With steel up 22% year-to-date, we also saw, as Kevin mentioned earlier, a sequential increase in ASPs. It's demonstrating that steel pricing is flowing through into ASPs, which as we've talked about previously, flows through from a gross profit dollar perspective, which is helpful from obviously a P&L standpoint. Something to add on tariffs, as we've also communicated previously, 70%, 75% of our contracts allow us to pass through those tariffs directly to customers. There are times where we'll negotiate with customers on a commercial basis for the best overall outcome of their project for us to go forward. So we may negotiate on a project basis that pass-through. But ultimately, as tariffs normalize, we then bake it into ASPs. So overall, we feel quite good that steel pricing is certainly flowing through. And obviously, the vast majority of tariffs are as well.
Keith Jennings: Don't forget that the tariffs create a drag on the margin rate because we don't get a lot of markup on tariffs even when they flow through prices. I would say just more -- sorry, operator. Just one more clarifying point on the other side of that equation would be pricing, and we continue to see rational pricing behaviors in the market. I want to make sure that's clear.
Operator: The final question we have comes from Colin Rusch of Oppenheimer.
Colin Rusch: Given the concern around time line for a lot of these projects, can you talk a little bit about your opportunity for driving incremental labor efficiency within the existing designs? And if you're working on any updated designs that could drive incremental or shorter time frames out in the field?
Neil Manning: Yes. This is Neil. I'll take that one, Colin. So yes, so when you look at our innovations we brought to market over the last couple of years, we've talked that has really manifested itself really well into the pipeline at this point with OmniTrack and SkyLink and others. One of the key factors there is around ease of installation and making things easier for our customers. So you look at SkyLink, for example, with wireless connectivity, minimizing the need to trench on a site, that certainly brings with it installation efficiencies that our customers certainly appreciate on certain parcels where they're deploying where they have difficult soil conditions where trenching is problematic. Separate to that, when you look at DuraTrack and OmniTrack, from a sheer number of parts perspective, we're several fold smaller or fewer quantity in components than competitors, which also bring with it an installation efficiency that our EPC customers, in particular, appreciate. So they're oftentimes put in a factor that gives us a credit for the overall cost of our solution because of the ease of installation. And we continue to hear that time and time again from EPCs as recently as I had when I was down in Australia last week in a number of meetings. So when you think about what our innovations going forward look like, they're on a couple of fronts, right? It's to continue to drive effectiveness and ease of installation for our customers, along with protecting their assets. When you look at extreme weather with Hail Alert Response, Hail XP and other factors, those are the things that we're driving towards ease of customer, more value for installation and more value for the long-term asset over the lifetime of the installation.
Operator: Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session and the end of our conference. Thank you for joining us. You may now disconnect your lines.