Nextpower - Q1 2024

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, welcome to the Nextracker Q1 fiscal year 2024 financial results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, July 26, 2023. I would now like to turn the conference over to Don Quinby, Director, Finance and IR. Please go ahead.

Don Quinby (Director of Finance and Investor Relations)

Thank you. Good afternoon, welcome to Nextracker's earnings conference call for our Q1 fiscal 2024 results. With me today is our Chief Executive Officer and Founder, Dan Shugar, our President, Howard Wenger, and our Chief Financial Officer, Dave Bennett. All three will give brief remarks followed by Q&A. Slides from this call, as well as a copy of the earnings press release and summary financials, are available on the investor relations section at nextracker.com. This call is being recorded and will be available for replay on the investor relations section of our website. As a reminder, today's call contains forward-looking statements which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially.

For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release, or in the Risk Factors section of our most recent filings with the SEC. Note, this information is subject to change, we undertake no obligation to update these forward-looking statements. Please note, we will provide non-GAAP measures on today's conference call. The full non-GAAP to GAAP reconciliations can be found in the appendix slide of today's presentation, as well as in the summary financials posted on the investor relations section of our website. All growth metrics will be on a year-over-year basis unless stated otherwise. Now, I'd like to turn the call over to our CEO. Dan?

Dan Shugar (CEO)

Thank you for joining us to review our Q1 fiscal 2024 results. With me today are Howard Wenger, President, and Dave Bennett, Chief Financial Officer. Following our remarks, we look forward to your questions. Please turn to slide three. I'm very pleased with our execution and results in Q1 across all key metrics. Starting with our financial results. Revenue for the quarter was $480 million, increasing 19% year-on-year. Our EBITDA for the quarter was $84 million, up over 160% year-on-year. Increased profitability is attributable to pricing discipline, monetization of distinct product features, and improved operational efficiency. We achieved solid positive cash flow for the quarter, further bolstering Nextracker's robust and differentiated liquidity position in the industry. Dave will provide more detail on our financials.

We have been relentlessly driving solar technology innovation that provides tangible value to customers in hardware, controls, and software. Our innovation is focused on reducing LCOE, the levelized cost of energy, solar power, which supports our customers to increase their project profitability and Nextracker to exercise pricing discipline. We have exciting product announcements planned for the major RE+ trade show in September. We posted another strong quarter of new contract bookings, building upon our booking achievements of last fiscal year. We ended the quarter with new record backlog, over $3 billion, up from $2.6 billion as of the end of fiscal year 2023. Sales momentum continued with repeat business and new customers across diverse and expanding geographies. This is reflected in our strong international performance in the quarter, where over 40% of our revenue was attributable to overseas projects.

We were pleased that Wood Mackenzie recently named Nextracker as the global tracker market share leader for 2022 by a significant margin. This is the eighth consecutive year Nextracker has led the industry. Based on our Q1 results and strong industry position, we are increasing our annual revenue and EBITDA guidance, as Dave will cover. In our prior earnings call, we quantified progress in LCOE and the growth of solar as today's largest source of new power being added to most grids. We also reviewed that in the U.S., the IRA provides an attractive 30% investment tax credit level for 10 years, with upside for U.S. manufacturing content. Today, I will provide some qualitative comments on market dynamics based on our insights from meeting hundreds of customers at global events last quarter.

To give a sense of engagement, at Intersolar Europe last month, over 100,000 people attended the conference. We are seeing strong demand vectors driven by cost reduction in solar panels and battery storage, combined with performance enhancements in panels, power electronics, and trackers, such as Nextracker's proven TrueCapture technology. These factors are yielding lower LCOE, and solar is breaking away from fossil and nuclear power as a lower cost, lower risk, and faster-to-deploy resource, even when the cost of battery storage is included, which is now typical in major markets like the USA. In parallel, electricity demand is increasing with the electrification of transportation and end-use demand. In the U.S., customer pull for locally made components has paired with industrial policy, resulting in over 60 new or expanded factory announcements in just the past year for solar and storage.

Hundreds of thousands of people are working directly in solar. New factories and growing jobs are providing broad support for the industry. Given solar today provides under 5% of global electric power generation, we envision significant long-term growth as cost-effective solar increases its share of power for the grid, responding to a world where electricity demand keeps increasing and society trends toward decarbonization. Turning back to Nextracker. Our global supply chain is a key competitive advantage, which we generally map to align to our local markets. This ecosystem comprises about 50 partners across 16 countries and five continents. To serve our ongoing growth, Nextracker is continuing to collaborate with our valued subcontractors to increase our global manufacturing footprint. I will cover our U.S. position shortly. After we reported our Q4 results, the U.S. Department of the Treasury issued guidance regarding IRA's domestic content provisions.

Receiving these rules clarifications was incrementally helpful for Nextracker, and we continue to work with our customers and trade associations to further clarify the requirements. We continue to exclude potential IRA impacts from our guidance, pending definitive clarifications and market response. After quarter end, we completed a successful secondary offering of Nextracker stock to the market, allowing our pre-IPO shareholders to reduce their ownership and increase the liquidity of our stock. Following the transaction, Flex owns less than 52% of Nextracker shares. The headwinds noted previously regarding solar panel availability and permitting delays for electrical interconnection and project construction starts still exist and are likely to continue for the intermediate term, though there is tangible progress on U.S. solar panel availability. Slide four. Accelerating our U.S. manufacturing suppliers has been a key objective. I'm pleased that ramping the 25 GW of contract capacity is on track.

Last quarter, we celebrated a new plant opening in Memphis, Tennessee, with our legacy supply partner, MSS. Joining in the plant dedication was our customer, Silicon Ranch Corporation, who awarded us a second volume commitment agreement of 3 GW during the event. A key raw material supplier, U.S. Steel, and the CEO of the Solar Energy Industries Association, a key trade association driving solar policy. At this public opening, Nextracker finished goods were on the floor, ready to ship to regional job sites, underscoring our ability to quickly scale with our partners. Our focus in the U.S. continues to be sourcing from electric arc furnace mills that are significantly lower carbon than most overseas steel production. We are continuing to build our supply chain, and next month, are planning another strategic supply announcement. We now have over 10 manufacturing facilities with dedicated Nextracker lines in the United States.

Now I'll turn the call over to Howard to expand upon our commercial progress.

Howard Wenger (President)

Let me echo Dan by congratulating the Nextracker team. We are very pleased with the company's execution, resulting in another strong quarter of performance. Last earnings call on May tenth, we provided some background on the company, given it was our first reporting quarter since going public earlier this year. I specifically covered our technological innovation, which, coupled with our best-in-class team, allows us to win business across all regions and terrains. Please turn to slide five. We reported last quarter that we had significant sales velocity and wins, leading to a company record backlog of $2.6 billion, ending our fiscal year 2023. We plan to report our backlog on an annual basis while providing sales and customer demand insights on a quarterly basis. This is consistent with our annual focus as a company and reflects the nature of our large-scale project business.

This quarter, we are pleased to report that our strong sales momentum continued, and we significantly added to our backlog. Our backlog is now greater than $3 billion at quarter end, establishing a new record for the company. We believe we have a distinct competitive advantage creating demand pull. This is driven by our differentiated product offering, scale, global supply chain, and close relationships with our customers and partners, where over 80% of our revenue is generated by repeat business. We believe the investment thesis is intact for large-scale solar in the U.S. right now, independent of the 10% domestic content bonus provided by the Inflation Reduction Act, or IRA. There is justifiably a lot of focus on the domestic content provisions and government guidance on how to interpret them.

Keep in mind that the IRA created a well-formed and well-known consequential policy in the form of establishing a 30% investment tax credit, or ITC, which has no domestic content requirements. The ITC has been the predominant federal policy instrument for solar for decades. Generally speaking, the 30% ITC is well understood and is now contemplated in the economics of developing solar power plants. Further, recall that the ITC was scheduled to decline pre-IRA to 10% next year. Elevating it to 30% and holding it constant for at least 10 years is an incredibly significant change, and we believe it is the biggest pillar and driver of IRA in terms of utility-scale solar demand. Of course, the domestic content and manufacturing tax credits are important, and government clarifications and market responses are still ongoing.

We believe there is sufficient understanding of the IRA provisions today to continue to propel the large-scale solar segment forward. We believe these factors are driving continued demand in the U.S., but we're also seeing demand strength internationally. This is illustrated on the map on slide five, where you can see we executed agreements totaling over 10 GW of projects during our fiscal Q1. Although this is a subset of our project and customer wins from the quarter, the intent is to highlight the magnitude of Nextracker's continued sales strength and the breadth of our global reach, spanning multiple continents. We had a healthy combination of EPC and EPCM business with new and repeat customers from North America to South America, from Europe to Africa, and Asia and Oceania.

These sample Q1 company wins also reflect the strength of our global team in sales, marketing, supply chain, training, finance, and support that provide a platform to further scale and grow. In summary, we saw demand strength in all of our core markets around the world. Let me turn the call over to Dave Bennett, our Chief Financial Officer, to review the financial details of the quarter and to discuss our guidance for fiscal 2024.

Dave Bennett (CFO)

Thank you, Howard. Q1 fiscal 2024 represents the first full financial period for Nextracker as a public company. We are off to a great start. Please turn to slide seven for our fiscal 2024 Q1 results. Revenue for the quarter closed at the high end of our guidance at $480 million, an increase of 19% year-over-year. Rest of the world revenue was $209 million, up 56% year-over-year, and 44% of our current quarter mix. As expected, revenue in the U.S. was relatively flat versus the prior year quarter, primarily due to push out of certain projects due to permit delays and panel availability.

While the rest of the world was particularly strong this quarter, there is no change to our expectation that the U.S. will represent 60%-70% of total revenue for the year. Adjusted EBITDA increased $52 million-$84 million from the Q1 of fiscal 2023, an increase of over 160%. Our strong results were largely driven by improved execution, along with lower logistics costs. We ended the quarter at 17.4% adjusted EBITDA margin, up from approximately 8% in the prior year. While we are very pleased with the positive EBITDA results, we don't expect this level of outperformance to continue throughout the year. As always, encourage you to evaluate Nextracker on an annual basis. We remain focused on sustainable year-over-year growth and have increased our annual guidance that I'll speak to in a couple of slides.

Adjusted free cash flow was $225 million for the quarter, driven by networking capital management, increased customer deposits resulting from strong bookings, and elevated adjusted EBITDA. Networking capital as of June thirtieth was less than 10% of annualized revenue, which was favorable to our guided 10%-15% levels. We do expect to fund our net working capital, as well as continuing to ramp U.S. manufacturing over the next two quarters to support our planned growth, which may temporarily pressure free cash flow. Turning to slide eight for an update on our balance sheet and liquidity. We believe that our capital structure, including a strong balance sheet and ample liquidity, is a key competitive advantage. We closed the quarter with cash of $355 million, which exceeds our total debt by over $200 million.

Total liquidity as of June 30th was $855 million, comprised of our undrawn $500 million revolver and our current cash balance. We continue to operate with a debt to adjusted EBITDA of less than 1, with no significant debt maturities until fiscal 2028. As Dan outlined, we closed on the secondary offering that resulted in an increase in public flow for the Nextracker common stock. Following the transaction, pre-IPO owners now own approximately 66% of Nextracker, comprised of approximately 52% Flex and 14% TPG. It is important to note that all proceeds from the secondary offering that closed in the first week of July, so our fiscal Q2, were distributed to the pre-IPO owners. Please turn to the next slide for our updated fiscal 2024 guidance.

Driven by our strong Q1 results, in addition to higher expected volume in the H2, we have increased our fiscal 2024 full year guidance. The factors supporting our assumptions in the setting guidance are largely unchanged from last quarter. We will continue to invest in the business, including ramping production, further innovation around product development, and building out the team to take advantage of the opportunity ahead of us. Based on the current ownership structure, adjusted for the follow-on transaction, we continue to expect our adjusted tax rate to range between 15% and 20% of adjusted pre-tax income. We have again not factored in additional profitability resulting from the Inflation Reduction Act.

Our full year revised fiscal 2024 guidance is as follows: We are increasing revenue guidance by approximately 5% or $100 million to a range of $2.2 billion-$2.4 billion. At the midpoint, we are expecting 21% year-over-year growth. We are also increasing our EBITDA guidance by over 10%, or $30 million-$315 million at the midpoint of $290 million-$340 million, due to strong execution that includes maintaining pricing discipline and prioritizing higher-margin business. At the midpoint, we expect fiscal 2024 adjusted EBITDA to grow approximately 50% year-over-year. GAAP EPS is expected to be between $1.20-$1.40 per share and includes approximately $0.25 related to stock-based compensation and intangible amortization.

Adjusted EPS is now expected to be between $1.45-$1.65 per share, based upon 147.5 million weighted average shares outstanding. Our Q2 fiscal 2024 outlook is as follows: Revenue is expected to grow 15%-20% versus Q2 fiscal 2023. Adjusted EBITDA margin is expected to be between 13% and 14%, up approximately 400 basis points-500 basis points compared to the same period last year. The EBITDA guidance reflects the normal quarterly volatility of the business, as always, we direct you to evaluate our progress on an annual basis. I will now turn the call back to Dan for some concluding remarks.

Dan Shugar (CEO)

Thank you, Dave. The macro for solar is strong in the U.S. and abroad, and we continue to see accelerated investment into renewables. Solar has achieved its position as the number 1 source of new power generation through technology and cost reduction. We believe these trends will continue, which will result in significant long-term industry growth, and that Nextracker is ideally positioned to leverage this opportunity. Regarding Nextracker's performance, none of these results would have been possible without the confidence of our customers, which we endeavor to earn every day, and the hard work and dedication of the Nextracker team, for which we're extremely appreciative. We now look forward to your questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your telephone keypad. You will hear a 3-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. One moment, please, for your first question. Your first question comes from the line of Julien Dumoulin-Smith from Bank of America. Please go ahead.

Alexander Virgo (Senior Equity Analyst)

Hey, guys. It's actually Alexander Virgo on for Julian. Congrats on the strong results yet again. Just wanted to kick off, you know, with maybe some of the dynamics on the geographies here. Obviously, U.S., relatively flat, flagging some headwinds there. I'm just curious on the permitting piece, specifically, if you can sort of expand on your exposures, how you're positioning around that. Relative to sort of not only domestic content, but also transferability guidance, how are you seeing that as sort of a headwind or even a catalyst in the back half for developers to sort of move forward and put a date on projects, and then, you know, sort of confirm the order with you guys? Thanks.

Dan Shugar (CEO)

Alex, Dan Shugar. Thank you for your question. I'll take the first part, Howard will take the second part. With respect to a project permitting, first, our increased guidance reflects the environment that we're operating in, our expectations. Any individual project can be pushed. There is an enormous portfolio of projects that we're supporting. We take those factors into account where entitlements are either granted or we consider upcoming projects on a probabilistic basis based on the level of entitlements and where they stand. An advantage for us in managing so many projects in so many geographies is that if one project is slowed down, there's usually another one or two take its place. That would be my answer to that. Howard, if you could address the second part of the question.

Howard Wenger (President)

Sure. Hey, Alex. We just want to, you said something about headwinds. I mean, we hit the high end of our guide. We believe that we're still planning for the same mix of U.S. and international on an annual basis, and as Dan mentioned, quarter to quarter, things may fluctuate. That's why we keep reorienting everyone to our annual performance. That said, things are going extremely well. We had a really strong bookings quarter, including in the U.S. As far as tax equity and transferability, we're not seeing over constraints there right now in tax equity. We do believe that there is upside with the transferability clarification, and so we appreciate the question. Next question, please.

Dan Shugar (CEO)

Thanks.

Howard Wenger (President)

Oh, feel free for a follow-on, Alex. Thank you. Did you have a follow-on?

Alexander Virgo (Senior Equity Analyst)

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

Dan Shugar (CEO)

Well, we don't share ASP. What I will say is there's a flight to quality. Our customers really want to ensure that their projects are supported on design, on execution, on commissioning with the highest performance trackers, with a company that has solid financial stability. Dave covered our liquidity position and ability to service them with a team that really understands the business, that's been in their shoes. As Howard mentioned, how the very significant improvement in economics in the projects in the U.S., many of which had been anticipated to have a 10% investment tax credit, now have a 30% investment tax credit. Customers are really focused on delivery, we don't chase projects with price.

What we really try to do is deliver value, deliver operational excellence, and really do everything we need to do to ensure our customers are successful in their projects. That's where we're focused.

Operator (participant)

Thank you.

Howard Wenger (President)

Next question, please.

Operator (participant)

Your next question. Yes, your next question comes from the line of Mark Strouse from JPMorgan. Please go ahead.

Mark Strouse (Executive Director and Senior Equity Analyst)

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

Dan Shugar (CEO)

I'll address the last question first, Mark. Thank you for that. No, we're not speaking to that at this time, a potential split of the 45X Credit. With respect to how we are dealing with flexibility, I want to pull back a little and just speak to the relationships we have with a number of our key subcontractors and suppliers. Last quarter, one of the public factory openings that we had was with MSS. It was in Memphis. We were able to bring life to an old facility that had just been used for warehousing, hadn't been used for manufacturing in many decades. This is a supplier that we've had a long relationship with on multiple continents, and we have been able to work productively with these suppliers in a variety of markets.

They understand the industry and have worked well with us, are reliable performers. We've continued to work with some new-

... helped cultivate some new participants in the industry, which is really exciting. We think our supply chain is very robust. It's a differentiated advantage for the company. As we noted, we have over 10 facilities across the U.S., with over 25 GW of contracted capacity. Next month, we're planning another major factory announcement. We're continuing to build, but we're really a strong relationship company, and that's served us well historically, and we think will on the future. Mark, do you have a follow-on question, please?

Mark Strouse (Executive Director and Senior Equity Analyst)

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

Howard Wenger (President)

It includes VCAs.

Mark Strouse (Executive Director and Senior Equity Analyst)

Okay. Thank you, Howard. Thank you very much.

Howard Wenger (President)

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

Operator (participant)

Thank you.

Howard Wenger (President)

Next question, please.

Operator (participant)

Your next question comes from the line of Christine Cho from Barclays. Please go ahead.

Christine Cho (Managing Director)

Good evening. Thank you for taking my question. Maybe if I could start on the backlog. You know, previously, you guys have talked about it being a 2/3, 1/3 split for, you know, U.S. and rest of world. I understand you don't want to give specifics for the backlog on a quarterly basis, but, you know, as we think about the bookings that you did, you know, in the fiscal 1st quarter, would it be fair to say that split is still valid for the bookings you did? If you could provide any qualitative comments on how VCAs are also trending.

Howard Wenger (President)

Sure. This is Howard. That's correct. We're going to be providing annually more detail on our backlog, but we're giving a lot of insights quarterly. For example, we know we're above $3 billion in backlog this quarter. We also note on Slide five that we have over 10 GW, more than 10 GW of signed, executed contracts in the quarter, and the geographies associated with those. We're actually giving a fair amount of information that should give you a lot of directional guidance.

As far as the mix goes, there are VCA agreements and EPC agreements contained, as I answered to a previous question. It's consistent with our historical mix that we discussed on the last call. Both VCAs and EPCs agreements contributed to the growth of our backlog in the quarter. Appreciate the question. Do you have a follow-on?

Christine Cho (Managing Director)

I do. Okay, just thinking about the 10 GW of signed, executed contracts in the quarter, as we do think about bookings for the quarter, would you be able to, you know, qualitatively talk about how ASPs for bookings have trended just as steel prices have come down?

Howard Wenger (President)

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

Christine Cho (Managing Director)

Thank you.

Howard Wenger (President)

Thank you.

Operator (participant)

Thank you. Once again, should you have a question, please press the star followed by the one on your telephone keypad. Your next question comes from the line of Vikram Bagri from Citi. Please go ahead.

Vikram Bagri (Director and Senior Analyst)

Good afternoon, everyone. It looks like revenues in the remainder of the year are levered to U.S., with more than 80% of the revenues, it looks like in rest of the fiscal will be coming from U.S. I was wondering if you can talk about the magnitude of delays you saw in permitting and related to panels and the size of orders delayed. Just wanted to understand the confidence in U.S. orders converting this year.

Howard Wenger (President)

Yeah, thank you for the question. Typically, it's just business as usual, there'll be a few jobs that have an issue, whether it's a permit issue or a panel issue or something. We're confident in our forecast, which is why we increased our guidance 10%-- I'm sorry, 5% on revenue, as covered by Dave, and 10% on earnings. We're not seeing delays in orders.

... projects proceeding. There'll be occasional projects. Every project requires a local jurisdiction to issue a building permit. Just like if you're adding a bathroom in your house or something, you need a permit for that. Some local jurisdictions, there's delays in what was originally anticipated by the project. In aggregate, the overall demand, we're seeing strong demand and strong fulfillment with occasional delays. In aggregate, we're able to grow and increase our guidance. Thank you. Did you have a follow-on question?

Vikram Bagri (Director and Senior Analyst)

Yes, I do. I wanted to ask the question on how much of the Section 45X credit may ultimately be retained by you and your peers. I was wondering if you can talk about the pricing competition you're seeing in the market. You mentioned you're not changing pricing. How are you balancing growth versus sort of competing with the peers on pricing? From what we understand and what we've seen, the pricing competition remains pretty stiff. I was wondering, like, are you seeing that in the market as well, and does that indicate a lot of the Section 45X credit may get competed away in this competitive environment?

Dan Shugar (CEO)

Thank you for the question. No, we don't really see that Section 45X as a factor in how we think about pricing or our dialogue with customers. It would be a general answer to that. We're really focused on supporting the really tier one customers, and that doesn't necessarily mean they have to be the biggest customers. We're really focused on supporting customers that have quality projects, that have quality operations, that have reliable performance in terms of developing their projects, that need reliable. Conversely, they want to work with Nextracker because we're going to be there for them. Really what we're focused on, Howard mentioned some of the volume commitment agreements we've executed and several from...

We announced last quarter, for example, in the Memphis facility, that Silicon Ranch Corporation executed a second volume commitment agreement, which doubled from the original one we had last year. We had an agreement that was 1.5 GW. They came back with a 3 GW volume commitment agreement with financial securities, as Howard mentioned. What they're really focused on is, "Hey, we want reliable supply with high-performing trackers, with U.S. content, that's regionalized, design support, and things like that." That's what our valued customers are really looking for, and we're set up to deliver that. Thank you for your question. Next question, please.

Operator (participant)

Thank you. Your next question comes from the line of Philip Shen from Roth MKM. Please go ahead.

Philip Shen (Senior Research Analyst)

Hey, guys. Congrats on the strong execution. First question's on margins. You had a really strong quarter here. Can you give us a little more color on how you were able to drive those strong margins? I think you talked about Howard, actually, Dan, price discipline, monetization of features, and there's something else. Could you give us a little more detail, and specifically, you know, how much is software contributing to both revenue and that gross profit line? To what degree did Section 45X support this quarter? Looking ahead, you know, I know, Dave, you talked about you can't look at the whole quarter or just this quarter and extrapolate. You have to look at the whole year.

Is it fair to say that we're at a new level of margins, for the next quarter and so forth, or do we go back down to 18%? Thanks.

Dan Shugar (CEO)

Hi, Phil. Thanks for the question and multiple-part question. I took some notes, and I capture what you're looking for. From the last part, I think the answer is yes, our reset guidance does contemplate a higher margin. As I spoke to in the opening remarks, our execution upside, and that is from start to finish, quoting to execution of the product, we had upside. That included logistics costs that were lower than expected, that did benefit profitability, that we would not expect to continue at the same level. On top of that, there are other elements that we're executing that we have baked into our reset on the guidance. Just look at fiscal 2024, or 2023, sorry, that was at a 14% EBITDA. We just closed the current quarter at 17.4% EBITDA.

Looking at our current backlog, that's what drove the update of our guidance and the increasing of revenue by 5% and EBITDA by 10%. To answer specifically, if you look at the high end of the guidance, at the midpoint of the revenue, that's an EBITDA of approximately 15%. Yes, we have baked an additional profit element into our forward look. You asked about software. One of the elements we messaged last quarter and continue to message now is that panel availability has impacted our software revenue recognition. We are actually below-

... our guided 1%-2% of revenue for the quarter, we expect that to be back up throughout the year. We do expect to land at that 1%-2%.

Philip, with respect to Section 45X, there's zero Section 45X benefits baked in the results we just printed. That's all upside, and we're confident that'll come when Treasury issues its definitive guidance. Until they do, we're not baking it in.

Philip Shen (Senior Research Analyst)

Great. Thanks, guys. Shifting over to, let's see here, the overall market size. What do you think the U.S. market, from a total booking standpoint, could be in 2023 and 2024? Just trying to figure out, you know, what your market share might be. WoodMac came out with some numbers and showed you and Array kind of more neck and neck, but wanted to see how fast you think the market is growing versus how fast you guys might be growing as well. Thanks.

Dan Shugar (CEO)

Yeah, thanks, Phil. Just to clarify, we saw the WoodMac report and also IHI actually published yesterday. They both had similar numbers with Nextracker for the eighth year in a row as the number 1 global share by a significant margin. Number one in the U.S. by a lesser margin. We're not focused on market share, we're focused on innovation, adding value to customers, monetizing value where appropriate for the company, so we can keep reinvesting in new tech to advance solar and so forth. I mean, the U.S. market has, as Howard mentioned, unprecedented stimulus with this 30% ITC gain that's happened. We are seeing panels debottleneck, as a debottleneck. I mean, that's been the governor, the principal governor on the U.S. market.

We're seeing domestic suppliers significantly increase their shipments and their outlook for solar recently. As the largest U.S. company for solar, the largest supplier of panels in the U.S. has increased their capacity, increased their production, and has new plants coming online in the U.S. in the near term, and other U.S. suppliers are continuing. We've seen several tier one Asian manufacturers that are manufacturing from Southeast Asia, predominantly with their supply chain, having less constraints from the Customs and Border Protection. In terms of how big the market can be, well, as I've said in the past, one of the things I've consistently underestimated my whole career in solar is how fast the market could grow. We are now positioned with Nextracker.

One of the reasons we went to 25 GW of capacity, over 25 GW of executed contracted capacity in the United States, which is a really big number. One of the reasons we went big is to be able to, and to be able to handle some incremental upside. I think the answer to the question really comes to how fast can some of these panel manufacturers scale in the U.S.? How fast can the supply chains that are coming from Southeast Asia and India and other sectors continue scaling? We're very optimistic, based on concrete bottom-up data, which is one of the reasons we've increased our plans for this year. Thanks for your question. Next question, please.

Operator (participant)

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

Jordan Levy (Equity Research Analyst)

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

Howard Wenger (President)

This is Howard. I'll respond to that. We, as we noted, we had a really strong quarter internationally in terms of our P&L and deliveries. On the demand side, overall, it's a great picture. One of the benefits of being in multiple continents with a leading share of, in four continents, is that if an area or country ebbs, another country can flow. So we're seeing a lot of great activity in certain parts of the world, like Australia and in Europe. Brazil is a little bit dynamic because of the wholesale price for power, but they're very committed large customers to that market, so we're continuing to see developments going through in Brazil. It's something watching closely.

Overall, the picture is really strong for the company, and we're growing at a good clip and we feel very confident with our mix for the year and going forward for the international business. Thank you for the question. Do you have a quick follow-up?

Jordan Levy (Equity Research Analyst)

Yeah, a quick follow-up. just on steel prices, we've seen them move up a little bit over the last 3 months. It doesn't seem like it's impacted your results or ability to grow the backlog, but just wanted to see if we could get a quick refresher on how you all look at that impact of higher steel prices, and if that's changed at all over the last several years.

Dan Shugar (CEO)

Hi, Jordan. This is Dan speaking. The answer is not really. We take a bit of a longer-term view and have structured very strong relationships with most of the larger mills in the U.S. and some of the larger mills abroad, and think about the relationship between marrying our demand, our fabrication ability, and our supply altogether. That really came to light in our Memphis operation. We had this public opening in May. We had. It was just a beautiful thing because we had, starting with the customer, which is where we're really focused, with Silicon Ranch, doubled down with Nextracker, well, tripled down, really. They went from our prior 1.5 GW ECA to a 3 GW ECA. A lot of their demand is regionalized, let's just say, around the Tennessee Valley.

For it, they're in many states, but let's just say that's an epicenter. We opened a tracker factory in Memphis, right in the middle of their demand center. One of the other, and then on the steel side, bringing it home, one of the other speakers was David Burritt, the CEO of U.S. Steel, which has a fantastic mill called the Big River Steel Facility. I had the privilege of being there. It's right across the Mississippi River in Arkansas. It's one of the highest-performing mills, from a cleanliness standpoint, it's about the lowest CO2 producing mill in the world, or certainly amongst them. It's a very short distance from that mill to this particular tracker facility.

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

Operator (participant)

Thank you. Your next question comes from the line of Donovan Schafer from Northland Capital Markets. Please go ahead.

Donovan Schafer (Managing Director and Senior Research Analyst)

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

I know in, you know, a 1, like, say, a 1 GW deployment, you may actually only use the terrain following piece of, you know, design for some small fraction of that. If we talked about it as strictly, you know, gee, what's their revenue mix? It could be like a tiny fraction. What I'd like something to help us kinda understand when are customers pulling the trigger on these things, as a way to indicate or validate sort of externally by customer behavior, when and to what extent they value these offerings.

They could even be something like, you know, 10% of your new bookings, you know, are enabled by the availability of a terrain following solution, or, you know, X number, you know, come with the TrueCapture or, you know, something to do with the 2P, the Gemini solution, if that ends up getting used on a certain... You know, maybe you win a site because you can use the 2P for certain portions of it. Anything like that. Just if you could provide any updates or clarification, and ideally quantification, but anything that shows the degree of customers taking action on that breadth of offering.

Howard Wenger (President)

Appreciate the question. We appreciate the request more than anything. I'll say a few words, then we'll consider it for next quarter. But we on the last call, we talked about how TrueCapture has been deployed on over 190 projects, and how XTR, our Extreme Terrain Following, has been deployed over 65 projects last quarter. These are commercial products. We are monetizing them. We're improving on them. Dan alluded to new product releases in his prepared remarks, upcoming at the largest trade show in the U.S. called RE Plus, which is in Las Vegas this year, the week of in the second week of September.

We're very cognizant of, investors and those who follow us, who want to continue to understand our products and how they're monetized. We will take your request seriously. Thanks for the question.

Donovan Schafer (Managing Director and Senior Research Analyst)

Okay.

Howard Wenger (President)

Um-

Donovan Schafer (Managing Director and Senior Research Analyst)

Yeah, if I can get in just.

Howard Wenger (President)

Sure.

Donovan Schafer (Managing Director and Senior Research Analyst)

Oh, sure. Oh, yes. Quick follow-up is, just outside the usual culprits of exciting international geographies, is there any that stand out? You know, I think Brazil, Australia, we all kinda know to pay attention to that. I think India has a lot of potential, but, that can be a challenging market to operate in domestically for various reasons. Anything like maybe what's most promising in Africa or, you know, somewhere in the Middle East, or if you've seen any traction in India or anything like that, just what would be atypical markets, but that could be under the radar?

Howard Wenger (President)

Yeah. Just this is, these are select, a subset of wins during the quarter. On slide five, we have pins placed on a global map that correspond to where these 10, over 10 GW of wins took place. These are. By wins, we mean contracts. In the approximate geography. You can see, yes, Africa, India, yes, parts of Asia and the Middle East, yes. Not just Spain and Europe, other parts of Europe, yes. Latin America, Brazil, not the only place in Latin America. Just in the quarter, even in North America, there's a pin that's up above the United States and Canada.

There are a number of markets where we're present, and that are promising markets, either growing with upside for the company or more mature markets which have the whole pie growing rapidly like the United States. Thanks very much. We need to move on to our last question. Oh, we have one more question. Oh, no further questions.

Operator (participant)

Yes, there are no further questions at this time.

Howard Wenger (President)

Well-

Operator (participant)

Please proceed.

Dan Shugar (CEO)

Yes. Hey, Dan Shugar here. Thank you all very much for the questions, and gracious comments. In totality, the market dynamics are really strong due to fundamentals, cost reduction of solar, better performance out of panels, inverters, trackers, including Nextracker's patented, proven TrueCapture technology. This is improving why the market, because solar, in most grids around the world, is the lowest cost way to generate power. Thank you very much, and thank you for dialing into our investor call.

Operator (participant)

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