Inflation took a sharp bite out of Array Technologies’ bottom line this past spring.
The Albuquerque-based firm, which manufactures solar tracking systems for utility-scale solar projects, said “unprecedented” price hikes for materials and shipping cut its gross margins on customer contracts to 13.2% in the second-quarter, down from 19.3% in the April-June period last year.
That, in turn, sliced away profits. Net income fell from a $2.4 million gain in second-quarter 2020 to a $17,000 loss this year, the company reported in an earnings conference call with investors last week.
“We’ve seen tremendous increases for inputs and freight costs in the past several months,” Array CEO Jim Fusaro told investors. “The magnitude and unprecedented speed of inflation put significant pressure on our margins.”
Prices for steel climbed by about 300% compared to a year ago, Fusaro said. Aluminum prices are also up by about 60%, and freight costs have doubled.
In general, Array’s total input costs increased by 14% in the second quarter compared with the same period a year ago.
Like Array, many solar companies are suffering from inflation, which ignited after coronavirus vaccination campaigns allowed the U.S. economy to reopen early this year. Consumer demand has surged, but supply chains remain crippled by the pandemic and businesses are struggling to keep up, causing an inflationary spiral.
That, plus a two-year extension last December of the federal government’s 26% income tax credit for solar projects, has created problems for Array since January.
That’s because Array customers raced to place orders for solar trackers in recent years before tax breaks disappeared. But with the new tax extension, developers now have more time to plan projects, slowing demand.
As a result, company revenue fell 19% in the first half of this year, from $552.6 million in 2019 to $448.7 million this year. Net income for January-June fell from $76 million in 2019 to $2.9 million.
Investors got spooked in the spring. The company went public on Nasdaq last October, but its stock price has declined from above $40 a share in January to $17.38 as of Tuesday.
Still, things are looking up for the coming months, thanks to negotiations that have locked-in pricing with suppliers on 85% of Array’s input costs for the rest of this year, Fusaro said. In addition, the company has significantly shortened the time between agreeing on prices with customers and actually ordering materials to reduce inflation exposure.
And, Array announced a new agreement last week for Blackstone Energy Partners to acquire up to $500 million in company stock, providing needed cash to pay down debt and for investments going forward.
Perhaps most important, the company had $882 million in accumulated customer contracts and orders on its books as of June 30. That’s the highest it’s ever been, Fusaro told investors.