Nextracker : 2024 Bank of America Power, Utilities and Clean Energy Conference Transcript

So, we went public about a year ago. We've enjoyed about a 30% CAGR for six years in a row with the company

• with our top line and appreciate the opportunity to speak today. Julien.

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Awesome. Excellent. Thank you, Dan. Appreciate it. Maybe just kicking things off here, right. So, I think the first question evidently from that is, how do you think about growth here in the near term, right because I think, this 26% CAGR number you just quoted here, [indiscernible] (00:07:10) address directly has gotten a lot of attention, right, especially in the context of a lot of your peers, where there's sort of this question of like, is there growth this year? Is sort of the new question in the last couple of weeks. And there's this implicit question of well, maybe it's a market share question. Do you want to tackle that directly, how you're seeing, your position in this marketplace evolve?

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Sure. My pleasure, Julien. Thanks for that question. So, there are headwinds and there's tailwinds. We've seen companies that are underperforming in the space, really highlighting a lot of the headwinds.

Those headwinds include permitting delays, interconnection queue delays, equipment shortages, labor issues, inflation, cost of capital. Are all those things real? Definitely, they're all real. And those things can impact any individual project. That's true.

But the tailwinds in totality are stronger than the headwinds, starting with what's embodied in Federal law for the last 18 months is that the investment tax credit went from 10% to 30%. And if you meet some criteria, which some of our customers have been able to achieve, it's 40%.

Every project happening today, utility-scale project was modeled with a 10% investment tax credit. There was a windfall for them of 20% to 30% tax credit. So, let's use a hypothetical 100 megawatt plant. What's that worth? Solar power plant.

So, it's 100 megawatts, $1 a watt, so $100 million. So, this 100 megawatt plant just got a $20 million to $30 million tailwind with the Inflation Reduction Act having this significantly higher investment tax credit, okay.

In India, I was just there. I saw Prime Minister, Modi give an electrifying speech. And basically they're all in on solar in India. And solar, there's a huge market there. We have our second largest office there with well over 200 people and we have the largest legacy operating fleet there, as well as 5 gigawatts of new projects we're fulfilling. I could keep going around the world, but the market conditions have never been so strong in home and abroad.

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Excellent. Actually, look, maybe to that end, just to clarify some of the earlier comments that you said on the call as well as just now, how do you think about the proportion of international growth?

I think you guys have this like broad heuristic of, two-thirds,one-third, I think, is the number that you guys talked about. But the way that you're describing it right now, I mean, look, obviously, the US is robust, but you've got entirely greenfield opportunities or maybe not entirely, but certainly you've got a running start in Canada and as you described, Canada's novel, and it's not necessarily been on your top list in the international markets, for instance, right.

Like a lot of new angles. How do you think about the growth in that heuristic in terms of international, is two-thirds,one-third this year and it's going to continue to kind of over index to international?

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Well, we've been, Julien, historically 50:50 overseas-US. So, we're a global manufacturer. We're manufacturing in over 30 countries. We have nine global offices and we're number one on four or five continents.

And so, we like the ability to - and we don't think about some countries like the US. We don't think about that monolithically. There's 3,000 utilities in the United States, believe it or not. There's 50 states, 3,000 utilities. There's many planning areas, we just heard from one of them.

But they all have different rules. And we kind of think of those as two different markets, but we like the international diversification. If there is a problem in one market, we're able to accelerate into another market or vice versa. And what we're really focused on is just adding value, right.

So, we like to find customers in these markets that are developing high-quality portfolios. We've tried to move from projects to programs. We have something - a commercial model we've talked about called our Volume Commitment Agreement where instead of transacting a project by a project with a contractor, what we do is our systems generate more energy where we have a much stronger financial position than any other providers in our space.

And so what we do is we enter into relationships with owners. Some of those owners operate on multiple continents. We love those owners. And so basically we focus on owners that understand the benefits that a company like Nextracker can bring to the table, we'll be competitive. We'll be in the competitive range.

But what that allows us to do when we move to a program-type environment is just deliver a much better experience. If you're earlier in the cycle, it allows us to value engineer, save the companies a lot of money. I'll give you a perfect example.

Nextracker pioneered a technology in the solar space called Extreme Terrain Following Tracker. So, many sites that are being built out there in the world are not flat. Just to wrap your brain around this for a second. Last fiscal year, we shipped on average about 325 megawatts or 350 megawatts a week, okay. That's a lot.

That's like a small coal plant every week, okay. That's what we did last year. That's 4 square miles a week, 4 square miles every week for the whole year. That's what we shipped. Okay. So, when you build on these sites, a lot of these sites are undulating, the way folks were building years back is that they would physically grade the sites with bulldozers, okay.

That's a lot of earthwork. You have to cut it. You have to fill it, and you have to [ph] recede (00:18:32) it, okay. We came up with a technology in concert with some of our customers that actually follows the terrain. So, you don't have to grade, no bulldozers or minimal bulldozer work.

It rapidly speeds the installation process and lowers costs and these systems also generate more power. So, when you're earlier in the cycle with customers, it allows you to say, hey, our tech doesn't require the bulldozer. The other competitors don't have that. So, let us work with your customers, save all this money and they get to accelerate their product portfolio.

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Thanks. How do you think about the margin profile here? You talked about 50:50, two-thirds,one-third. There's been this consternation out there before of like, well, is the international market more competitive, right, you don't have the same IRA dynamics, but as you describe, like you guys are a premium product, [ph] you sell at a better rate (00:19:30) if you want to talk about it being notionally better or at least has more adaptability, undulating [ph] terrain (00:19:37), for instance, how do you think about, as you expand and lean into that international market? Again, take that as the premise, sustaining the margins that again, you've been sequentially guiding up [ph] here on this as well (00:19:49), right?

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Yeah. Appreciate that. There are different margin profiles in different countries, different regions, and the same is true in the US, some regions have different margins than the others.

The key thing is really having discipline about pricing, not chasing individual projects, but to really focus on the high-quality customers. We value all customers, but what I mean by that is customers that have a more mature business process.

Their projects have better entitlements with more secure offtake agreements for the energy, better entitlements for the permitting, where they understand the value of the energy and they understand the value of a company that's operating toward an investment grade profile as Nextracker is where we have over $800 million of liquidity.

We've made money every year since I founded the company. We have very, very low debt and we've delivered millions of trackers around the world. The type of thing we do is sort of the skeletal and nervous system for your power plant. So, if you're building a - again, going back to the 100 megawatt example, it's a $100 million plant, the tracker may be a $10 million scope.

Why would you go to a Tier 2 to save even if it's like 10%, you save $1 million. And then in the US, after the tax, it's 3% tax credit and the accelerated depreciation, it might be a couple of hundred thousand dollars. So, you're

going to go to a Tier 2 for that, and then your whole skeletal and nervous system is dependent on a Tier 2 provider that might be undercapitalized with not a lot of tech out there in the real world. That would just be an imprudent decision.

The other thing is experience really matters. I've been in the industry since the 80s doing this, kind of a dinosaur. But if you look at our executive team, we have over 20 years average solar experience on our team.

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Maybe Dan, why don't we talk a little bit about just the near term, medium-term growth in the space just one more time. I mean, I continue to get this inbound from folks.

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How do you think about what sustainable growth rate is for you guys or how you think about your customers? I mean, there's been so much concern about, delays from third quarter and fourth quarter, basically the bottom line is you're feeling on track even now with your existing customers for this year. And more to the point, you see an ability to continue to compound in a very robust way. You talk about this 26% number...

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I mean, look, we've taken up our guidance three quarters in a row, and we've beat our numbers three quarters in a row. So, I'm not saying there's not concerns or headwinds or anything like that. I'm saying the intrinsic numbers like solar, let me contextualize things for you, okay.

I did my first utility scale plant in 1993, and in that year, the capital cost was $10 a watt, okay. In today's dollars, call that $30 a watt, okay. Then in 2009, so a couple of decades later, we did the largest solar power system in the United States.

It was at the Nellis Air Force Base, President Obama went there. 2009, it was $7 a watt. So, today, whatever, call it $12 a watt, something like that. Today's plants are a $1 a watt here. And they're $0.50 a watt in India, okay. The power is really, really, really low cost.

And I could go through all the reasons why that's happened and also speak to you all day about all the amazing tech that's going to keep driving down the cost of solar. Solar has completely revolutionized power generation, and now that storage is here at scale, you're going to see unlimited growth, which is why EIA finally drank the Kool-Aid, gets it.

Why they're saying solar is going be the number one source of power generation in the United States within 10 years. Okay, so now solar is going to do it, all right. So, just bear with me.

What are these segments and applications? Well, the utility-scale is by far over 50% by gigawatts and a lot more than that in gigawatt hours, because we track and our [ph] system is professionally managed (00:24:36).

Within utility-scale, the killer app, tracker. Nextracker has shipped as much tracker over the last seven years as our top three competitors combined. And we have a hell of a lot of domain expertise. We are not screwing around.

So, we have a vision of a world that's powered by renewables. And we have the right culture, the team, the discipline and business processes to execute. And so we're very focused on that, we're super serious. How do we keep winning and how is our margin keep going up? Because we're totally focused on the customer. Go ahead, please.

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Well, actually, since you say it right, I mean, you've had this incredible run on raising expectations, not just on volumes and outlook, but also on margins, right. And I think that this piece is really critical.

How do you think about continuing to compound that margin here today? You were starting to get at it, but I think that's something that a lot of folks are looking at, saying you've already now pushed things up to the mid-20s here on kind of a longer term base baseline.

How do you think about [ph] keeping going (00:25:53) here? I get that these credits are out there, that they're not necessarily reflected. In your core outlook, again, you could talk about that being medium-term or long-term, but how do you really elevate things from the mid-20s?

I mean, I think lot of your peers talk about mid-20s as being kind of where they see things as being and I don't think that they talk a lot about being able to improve. But you're sitting here talking about I've got levers to continue to drive that higher. I got some visibility. And you're speaking with confidence on the back of what I've already delivered, right? So, if I listen to you, independent of listening to your peers, it sounds like mid-20s and going.

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Well, I just want to start with also what we've been able to do is, meet and beat expectations. We didn't take, any given quarter like last quarter, we had a fantastic result from [ph] recognized margin (00:26:45) say okay, it's up into the right forever.

We basically say, look, we're optimizing the business annually and that's what we're really focus on. We have to report quarterly, that's fine. But we optimize the business annually, and we try to have a plan that we can meet despite unknowns when you set the plan by things that happen in the real world. For example, who would have thought that Houthis would start shooting missiles at ships coming through the Suez Canal. Or that the Panama