Array Technologies, Inc. (ARRY) Earnings Call Transcript

Greetings. Welcome to ARRAY Technologies conference call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Sarah Sheppard of Investor Relations. Thank you. You may begin.

Thank you. I would like to welcome everyone to ARRAY Technologies conference call concerning our recently announced proposed acquisition of Affordable Wire Management. I'm joined on this call by Kevin Hostetler, our CEO; Keith Jennings, our CFO; and Dr. Aaron Gabelnick, our Chief Strategy and Technology Officer. Today's call is being webcast via our Investor Relations site at ir.arraytechinc.com, including audio and slides. In addition, the press release and the presentation detailing our proposed acquisitions have been posted on the website. As a reminder, the matters we are discussing today include forward-looking statements regarding the proposed acquisition of AWM, the anticipated benefits, including synergies and increased competitive advantages, the anticipated impact of the acquisition on our business and future financial and operating results and other matters. I would also like to kindly remind you that our second quarter ended on June 30, and we expect to announce earnings on August 5, which means we will not discuss second quarter results on this webcast. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made on this call. For details, please see the information at the beginning of the presentation materials. And as always, we refer you to the documents we file with the SEC 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. During this call, we will refer to AWM's trailing 12-month EBITDA as of May 31, 2026, which is defined in the presentation materials posted to our website. I'll now turn the call over to Kevin.

Thank you, and good afternoon, everyone. I appreciate you joining us on short notice today to discuss another exciting transaction milestone for ARRAY, one that extends the balance of system strategy we laid out for you last year when we welcomed APA Solar to the ARRAY family. This pending acquisition reflects the disciplined M&A strategy we've discussed, acquiring leading profitable businesses with differentiated technology that complement and strengthen our full stack platform and create value through a high degree of technical interoperability. Let's begin on Slide 2. This afternoon, we announced that we have signed a definitive agreement to acquire 100% of Affordable Wire Management, or AWM, a leading independent provider of cable management systems for utility-scale solar projects in the United States with an increasingly growing presence in battery energy storage solutions and data center applications. The total consideration of $203 million consists of a base purchase price of $153 million and up to $50 million of additional consideration. At full value of total consideration, this represents an attractive multiple of approximately 8.8x trailing 12-month EBITDA of AWM. We expect the transaction to be high single-digit accretive to ARRAY's adjusted EPS in year 1 before synergies. Closing is expected in the third quarter of this year, subject to regulatory clearance and customary closing conditions. And consistent with our disciplined approach to capital allocation and the strong cash generation of our business, we expect to fund the base purchase price at closing entirely with cash on hand while maintaining an appropriate level of liquidity for our operations. Let's continue on Slide 3. I want to start with the underlying why of this acquisition, which comes down to 4 points. First, AWM meaningfully expands our share of wallet. Wire management is one of the most technically important segments of the electrical balance of system. We estimate the global addressable market for AWM's current products at $200 million to $250 million annually with core U.S. cable management alone representing an approximately $150 million annual opportunity. And critically, this is a market where AWM is already a leader. Beyond the core, we see significant growth vectors in international markets, battery storage and data center applications, segments that are being propelled by AI-driven load growth and U.S. onshoring. Second, this deal is financially compelling. We signed this transaction at an attractive total consideration of approximately 8.8x trailing 12-month EBITDA of AWM, a multiple that only improves with expected tax benefits and as the EBITDA-based earn-out is achieved for a business with a track record of consistent profitability and rapid growth. We expect the transaction to be high single-digit accretive to our adjusted EPS in year 1 before any synergies. Third, this acquisition is another deliberate step in building the industry's leading full stack balance of system platform. Our strategy is to bring together leading technologies in each critical solar infrastructure category, trackers, foundations, fixed tilt structure, wire management and software and engineer them to work as one integrated system. We believe we can engineer these systems to work together, driving higher energy yield and lower installed costs for our customers with one accountable supplier. Aaron will walk you through what the interoperability unlocks in a few minutes. And fourth, we see significant cost and revenue synergies. On the cost side, we see opportunities across procurement and application engineering. On the revenue side, we see opportunities to cross-sell across our respective customer bases, leverage ARRAY's global channel for international expansion and over time, bring a more integrated product offering to the market. We believe the greatest value isn't created by assembling unrelated products. It's created by bringing together category leaders whose technologies become even more valuable when engineered as one system. Let's move to Slide 4. I want to spend a moment on the company itself because AWM story is a remarkable one. Founded in 2020 by Scott Rand and Dan Smith, AWM has scaled from a standing start to nearly $60 million in revenue in just 5 years, building a leading cable management franchise in utility-scale solar while remaining consistently profitable along the way. This is an exceptional entrepreneurial achievement, and it speaks to the quality of the products and the team. AWM is headquartered in Tempe, Arizona, with a diversified global supply chain. The company is a leader in U.S. utility-scale solar wire management with a strong presence throughout North America and each of the top 10 EPCs in the country has selected AWM for their projects. The business has an installed base of more than 40 gigawatts, supply chain capacity supporting over 150 gigawatts and a portfolio of over 70 patents protecting its innovative suite of products. And notably, AWM operates an asset-light business model. The team focuses its resources on engineering, design and customer support while largely outsourcing manufacturing to its diversified global supply base. That model has enabled AWM to scale rapidly with minimal capital intensity, and it underpins the consistent profitability. Much like APA last year, AWM is a founder-led business with a culture of customer service, engineering rigor and speed, a culture we believe will integrate very well with ARRAY's values and execution framework. We're thrilled to welcome Scott, Dan and the entire AWM team who are expected to remain with the business following the closing. With that, I'll turn it over to Dr. Aaron Gabelnick, our Chief Strategy and Technology Officer, to take you deeper into AWM's products and the strategic value they bring to ARRAY.

Thanks, Kevin. Let's turn to Slide 5. For those less familiar with the category, wire management is the system of hangers, clips, rails and cable protection hardware that routes and secures the electrical cabling across utility-scale solar or storage project. It may not be the largest line item on a project, but it's technically very critical and touches every row of every site. When done poorly, it drives rework, failures in the field and long-term O&M costs. When done well, it is a meaningful lever to improve installation speed, system reliability and overall project performance. Along with their leading engineering and design capabilities, AWM has built one of the most comprehensive product suites in the space. On the solar side, that includes its core cable management system, or CMS, the flagship hanger system, the Bonsai, back-of-module line, the SUMAC Rail solution for cluster disconnects and the Solar lockout/tagout or LOTO line of safety products. On the storage side, its Strata Cleat System and Strata Pack System platform serve Utility-Scale BESS and increasingly data center applications. Like ARRAY, AWM competes through innovative engineering rather than commodity hardware, designing products that reduce installation labor, improve long-term reliability, enhance system performance and deliver better overall project economics. Moving to Slide 6. I want to highlight what we believe is AWM's most differentiated capability and frankly, one of the things that most impressed us during diligence, it's ampacity modeling. Ampacity is the amount of electrical current that a cable can safely carry, and it is directly influenced by how cables are routed, bundled and spaced. AWM has a sophisticated industry-leading ampacity model that analyzes cable arrangements against the engineer of records design plans and produces cable-specific ampacity tables. The result is generally an increase in ampacity of more than 20% compared to other solutions. In practical terms, that means customers can carry more current on the same cable or use higher gauge or thinner cable to carry the same current. In a market where copper and labor are two of the largest cost drivers, that is a real engineered value, not commodity hardware. It's the same engineered value philosophy that underpins ARRAY's product portfolio and is a big part of why the top EPCs have selected AWM. Let's turn to Slide 7 and talk about the market opportunity. As Kevin mentioned, we sized the global wire management opportunity for AWM's existing product portfolio at $200 million to $250 million annually, grounded in third-party installed capacity forecasts. Within that, AWM is a market leader in U.S. utility scale solar with their core CMS product. Following AWM's track record of new product development, we're excited about the significant incremental opportunity across the broader electrical balance of systems market in solar, BESS and data centers. What makes this particularly attractive is the attach rate dynamic. Beyond the core hanger system, AWM's attached products, Bonsai, SUMAC, Kitting services, BESS solutions and its proprietary Ez Pile Post can more than double revenue per megawatt versus CMS alone on a given project. And just as we described with APA, these are expected to be at an attractive contribution margin on incremental sales, the same sales conversation driving a larger share of the project. Layer in international expansion through ARRAY's global channel and the extension into BESS and data centers and the next phases of expected growth become clear. Slide 8 shows why this pending acquisition is strategically important. It brings together the key components of our balance of system strategy and expands our ability to deliver more integrated solutions for customers. We are focused on acquiring leading profitable infrastructure companies with differentiated engineering capabilities. Individually, these businesses are leaders in their categories. Together, they become something competitors cannot easily replicate, a technically integrated platform that improves customer economics across the entire project. Starting with the tracker and software layer, DuraTrack, OmniTrack, Skylink, D2S and SmartTrack. As the engineered foundations and fixed-tilt capabilities we gained with APA was an ideal production partner for AWM's Ez Pile, now add wire management with ampacity and routing optimized to and from the tracker itself. Together, these capabilities are expected to create a more integrated balance of systems offering, which features leading brands in each segment, which together are expected to produce higher energy yield, lower cost and faster installations and a single accountable business partner. Let me make this interoperability concrete with a couple of examples. Because we provide the tracker architecture, we can optimize harness lengths and deliver the lowest voltage drop with no bearing gap penalty. AWM's single-sided pinyon hanger allows us to shorten the torque tube and tighten module gaps, that's taking steel out of the system. And looking forward, we see many potential product integration opportunities to drive better system costs and faster installs. These are the kind of step-change system cost reductions that are enabled when the tracker, foundation and wire management are designed together. Turning to Slide 9. I want to spend a moment on what we believe is a very exciting growth dimension of this acquisition, battery storage and data centers. AI-driven load growth and U.S. onshoring are accelerating demand for battery storage and data center power infrastructure and AWM's Strata Pack platform is purpose-built for these applications. It offers prebuilt adjustability to handle variable lengths and offsets between the BESS unit and the transformer, a platform rated to support personnel for safe access during commissioning and maintenance and compatibility with a full range of foundation types, precast blocks, posts or anchors. Combined with the Strata Cleat system and AWM's ampacity modeling, it is a complete solution. And this is not theoretical. The first BESS installations are already shipping and AWM has secured its first data center backlog order through the Strata Pack application. We believe this positions us at the front end of 2 of the fastest-growing demand curves in energy infrastructure. Let's turn to Slide 10. As with APA, we will be integrating AWM from a position of strength and the value flows in both directions. First, our global sales channel. ARRAY's distribution across Latin America, EMEA and Asia Pacific opens near immediate international revenue expansion opportunity for AWM's products, which today are concentrated in the U.S. market. Second, ARRAY and APA's operational scale. ARRAY brings significant economies of scale through our extensive global networks across manufacturing, procurement and logistics. This provides ample opportunity to drive product cost and efficiency. Third, the APA connection. APA is planned to produce AWM's proprietary EZ Pile and brings a leading domestic fixed tilt market position. We believe this pending acquisition immediately deepens the strategic value of last year's APA transaction by adding in-house scalable foundation manufacturing behind AWM's product road map. And finally, our balance sheet and R&D capabilities. We believe ARRAY's bankability, an installed base of more than 100 gigawatts and a robust combined patent portfolio gives AWM an accelerated, better finance product road map than they could pursue independently. As we look ahead, we expect to continue applying the same disciplined approach, adding leading technologies that complement the platform, expand our share of wallet and create additional opportunities for technical integration across the system. Now I'd like to turn the call over to Keith to walk through the transaction terms and financial rationale.

Thank you, Aaron. I will begin with a brief overview of the transaction terms. The base purchase price is $153 million, subject to customary purchase price adjustments with 100% of the base purchase price payable in cash at closing. In addition, the sellers are eligible for additional consideration of up to $50 million payable through 2028. This is comprised of 2 components: first, $5 million payable on each of the first and second anniversaries of the closing conditioned on the continued employment of the 2 founders. Second, up to $40 million based on the percentage achievement of certain EBITDA targets. This $40 million is payable in 3 installments of up to $8 million based on 2026 full year performance and up to $16 million for each of 2027 and 2028 performance. ARRAY may elect to pay the deferred consideration and performance earn-out in cash or shares of ARRAY common stock. If paid in stock, the number of shares will be determined by the 10-day VWAP ending immediately prior to payment. We structured the additional consideration deliberately to align the founders with delivering AWM's growth trajectory while focusing on the envisioned effective integration and synergy capture. It retains the leadership that built this business and means our implied multiple effectively improves as the targeted performance is achieved. This provides a strong incentive for both parties to accelerate the integration of our organizations in pursuit of both commercial and supply chain synergies. Importantly, upon closing, ARRAY expects to step up the tax basis in AWM's assets, resulting in the opportunity for incremental tax-driven value, enhancing the effective economics of the transaction. As Kevin mentioned, we expect the transaction to close in the third quarter of 2026, following HSR clearance and satisfaction of other customary closing conditions. Moving to Slide 12. Let me briefly reiterate why this transaction creates value for ARRAY shareholders. AWM expands ARRAY's share of wallet with entry into wire management through a leading suite of proven, highly engineered products and the ability to use ARRAY's global footprint to bring these solutions to international partners. And it gives us an additional platform for BESS and data centers entry to support the fast-growing AI-driven demand opportunities. It is financially compelling. The total consideration represents approximately 8.8x trailing 12-month EBITDA for a consistently profitable business with a highly attractive and accretive EBITDA margin with expected high single-digit accretion to our adjusted EPS in year 1 before synergies and meaningful tax benefits from the basis step-up. It advances our strategy to offer an integrated balance of systems platform, tracker, foundations and wire management designed together for higher yield and lower cost with system optimization opportunities through interoperability. Lastly, there is significant opportunity to drive incremental value through both cost and commercial synergies. Cost synergies driven by procurement, engineering optimization and commercial synergy opportunities through cross-selling, market and product expansion. The timing of close for this acquisition will dictate the 2026 financial year impact. We expect to update the full year outlook for AWM's contribution following closing. With that, I'll turn it back over to Kevin for closing remarks.

Thank you, Keith. To wrap up, the addition of AWM to APA and ARRAY will bring together a suite of fit-for-purpose tracker solutions, software, engineered foundations, fixed-tilt systems and wire management solutions under one umbrella. And most importantly, we'll do so with leading brands in each aspect. This is a differentiated position in this industry, and it reflects the deliberate disciplined strategy we've been executing, expanding what we deliver under the panel, deepening the value we create for developers and EPCs and doing it at valuations and structures that are financially attractive for our shareholders. This acquisition is expected to strengthen our product portfolio, extend our reach into battery storage and data center applications and enhance our ability to deliver integrated high-value solutions to our customers. It also supports our long-term growth, margin expansion and shareholder value creation. This transaction is another step in executing the strategy we've consistently outlined, building the leading full stack infrastructure platform beneath the solar panel. By combining the best technologies in each category, focusing on profitable market leaders and engineering those solutions to work together, we believe we are creating a business with stronger competitive advantages, greater customer value and more durable long-term growth. I want to thank Scott, Dan and the entire AWM team for their collaboration throughout this process. Their team, technology and track record are a strong fit with our culture and vision, and we look forward to welcoming them to the ARRAY family and to the value we'll create together. We could not be more excited about the future of ARRAY, the platform we are building and the value we can create for our customers, shareholders and employees. Thank you again for joining us today, and that concludes today's presentation.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.