Nextpower Inc. (NXT) Earnings Call Transcript & Summary

Yes, I was going to ask about the -- not necessarily the foundations business, but I want to take it a little bit bigger because one of the things me and my colleague, Will, we go around to a lot of like the EPC conferences and try to talk to the EPC companies, public and private, we'll just ask them who they use. And it's sort of the regular list of hardware suppliers on there. We use these guys, use these guys. But if you just let them talk, they'll start raving about Nextracker. Great customer service, easy to partner with, easy to solve problems with. I don't necessarily say those same things about a lot of the other ones. So seems like Nextracker has a large mind share and thought someone they want to work with is -- how far can you take that then to capture more wallet share to move into not just foundations, but you would think there is an ability to bring that brand in customer service to a higher share of the wallet at the utility scale site.

Yes, Jon, we're really going where our customers are asking us to go. And we are -- Dan Sugar, Founder of the company; Marco Miller, his team, Howard Wenger, the leadership of the company is just really, really focused on customer success. And when we go meet with our customers, Tier 1 EPC companies, Tier 1 owner operators, developers they have asked us, hey, this is a -- we're having challenges here with rocky soil, we're having challenges with soft soil. The installation costs are too high, how -- and they really trust our brand. Partially, it's a big -- it's a function of the company's mindset of I will sacrifice our company today to make the customer successful, i.e., if they're having a challenge at the site, we will drop everything to make them successful and not be like oh, we're not helping you or here's a giant change order, pay us for all this. It's really not that mindset but make them successful and then they will want to work with us preferentially. And that has really manifested in helping deepen those relationships. And specifically, with the 2 acquisitions that we recently did, it does increase the wallet share. So if you think about an overall tracker project as 100, we're about 10, or think of that is roughly 10% of the total equation. The foundations are a relatively important part of that as well and we've seen firsthand challenges. So in the traditional model, they would take an I-beam or a [ W-beam ] and they would pile dry that into the ground and that beam may not be perfectly lined up across the array across the solar field. And so when you go to put the tracker on top of that beam, it's not lined up. We've spent a lot of time and money to help them engineer to line up the torque tubes and the tracker. And so our customers have said, there's got to be a better way. And so we've we looked at the market and bought one company specializing in really hard soil, firm soil. And this is a really unique innovative company that we're now extending that and effectively, it allows you to do kind of one pass through the field. It allows you to work on a hilly terrain. We don't have to necessarily level the entire solar project. You can use the terrain following PV system that we've created, plus the drill in to hard rock and create an A-frame foundation that uses less material, lower cost, better for the environment. And so with that, we'll have wallet share. We should gain maybe instead of 10%, we can get to 13% or 14% in some of these projects. And so really, the last 2 acquisitions are really customer-led, there's got to be a better way and better technology. And because we're so good at mechanical engineering, we think we can take those to the next level, drive the cost down, integrate the solution with our tracker and provide more value to our customers and make some more money along the way.

Got it. I want to put the U.S. to the side for just a second, and we'll get into some of the policy more U.S. specific things. But higher tracker penetration internationally is a sort of pretty big theme. You're obviously, a global company. Maybe just walk us around the world, specific markets where you think over the next 3, 5 years will be most material?

Certainly. So first on the upstream side, the supply chain side, we've got a really amazing global footprint for our supply chain, over 80 manufacturing partners around the world. One of the great things with you, a lot of you all as investors is we have an asset-light model. We don't necessarily own the factories and inventory and that really has a huge benefit to return invested capital as a profile. And in that model, with localizing the supply chain, we've taken that to markets like India, Australia, Middle East, Europe, to localize manufacturing with our partners. And then so in those markets, they care deeply about local content. So India as an example, we can provide a tracker solution that's 95% domestic content in India that has a huge advantage for -- as our customers are bidding to win projects, being able to -- not necessarily with tax credits, but have demonstrate local content. And so those markets, I'll do kind of a brief walk. India with what Modi has done in that economy that really, I think there's really great days ahead in India. Traditionally, that was a fixed-tilt market. Energy prices were quite low. Interest costs are really high, very sensitive to upfront costs. It was mostly a fixed-tilt market. As that market develops, it's going to turn more into a tracker market, and we've seen that with a lot of projects. And so I think over time, over the next 10 or 20 years, India is going to be a driving force in the solar market. And we've got a really great team there. I think it might be our second largest market by total headcount. India started with the Nextracker when the company was founded, we built on our first offices in India, and we've got hundreds and hundreds of people there, and we're just expanding with a new office there and a new R&D center. So that market, we think, long term, is going to be a really great market and as that country has been industrializing and the GDP has been growing, that we see energy prices going up and the tracker market becoming a real meaningful share of the overall market. If you look at Australia, a smaller market, we've done incredibly well, very high share, an amazing team that we have in Australia, smaller but a really, really strong market. Latin America, we've seen some really strong wins. I would say Brazil has been up and down in terms of the solar market. You've seen that market has had periods of incredible growth and then some declines. We have a great office there. We've got a really very large team there as well. We're optimistic on Brazil long term. I think in the short term, it's been a little bit shaky as far as the solar industry goes. And then sort of moving more to the Middle East. We have seen some great wins in the Middle East. We feel good about that market. Obviously, energy prices are quite low there, $10 to $20 a megawatt hour. And so that has challenging economics but has incredible long-term growth. If you look at what their -- what they've come out with, KSA is published very high targets of annual gigawatts of installments. And so we think that market is going to be really, really strong, but obviously, it's more challenging given the price of wholesale electricity. And in Europe, we've talked the last couple of quarters of having kind of record quarters in Europe. In general, Europe is trickier for large-scale solar projects. They tend to be smaller projects. They tend to cost a little more to build and there -- so there's many, many projects, but they tend to be on a smaller side, if you compare them to, say, Middle East, Australia, the U.S., but really great work, and we've seen some really nice growth in Europe.

And then maybe piping back to the U.S. Obviously, there's a new administration coming in. And there's -- everyone's got an opinion on the probability of this tax credit or that tax credit that was in the IRI. The way I wanted to ask you about it was, what is your message to the incoming administration? And do you believe you're being heard?

Yes. I think I don't know if we're being heard. I hope so. But I think my message would be that we are all about domestic content or all about energy security. There is an insatiable demand for electricity in North America. And we're probably behind the curve on interconnection. We're behind the curve on long transmission and distribution. And so we've outlined a couple of solutions in the short term. But I just think, if you look at what China has done, they've got 3 terawatts of installed capacity going to 9. The U.S. is 1.25 terawatts installed trying to go to 2. And at the end of the day, compute, decarbonization, EVs, growth in GDP, the demand for electricity is insatiable and the cost of solar is among the lowest cost of energy that's available in the U.S. And so I think it's really -- I don't see a real long term -- I think solar will continue to grow and be a material part of the overall market in the U.S. There could be periods of dislocation. But I mean we grew under Trump the first time. We grew under Obama, grew under Biden. So I think this next administration, I don't see that as like major hit to the industry just because the economics are there. And if you look at the -- we already have tariffs on panels, we already have the highest-cost panels in the world or in the U.S. If you buy panels outside the U.S., they're far, far cheaper. So I'm optimistic that domestic content, local jobs, local manufacturing, energy independence, I mean just think if we could increase solar and use more solar, and use less gas, we could export more gas. And a lot of the Trump Administration is about exporting energy and helping that by exporting energy. So why wouldn't we just double down and go bigger on solar, create more energy independence and then be able to export more energy with the excesses that we may have.

Yes. It's interesting. We were at the EEI Utility Finance Conference, would have been 3 weeks ago, 4 weeks ago. And I asked him the same question, utility after utility, what's your message to the administration? And maybe a group of companies that are generally seen as maybe more conservative historically. Their message was pretty universal, telling the administration, this isn't 2016, this is 2024. We're short of power in this country. If you would like to do onshore manufacturing and have these data centers built here, you don't get to pick and choose. What we're building is largely solar, there's no capability to build a natural gas plant before you get out of office. And so this is what we're going to do, don't mark it up. All you can do is cause a little bit of delays and cause yourself a lot of headaches with power.

Yes. I mean it's so -- our backlog is incredible. If you think about the projects that we've already signed over the next few years, the momentum is there. And I feel the business is really strong, and I do think you're right that the utilities, they want more power, and because solar is the cheapest it has an economic advantage. But it is -- it's not just solar, it's solar plus, and I think that's gas, wind and other forms to firm this up as the cost of batteries continues to come down.

And a question I've been waiting to ask you. Because you've obviously -- you've been at other companies, other industries, you come into solar get project delays happen all the time. Sometimes more than others. Certainly, recently, that's been more often than others, policy changes. How do you think in the CFO role, how do you think about -- how do I manage this? How do I hedge against it? How do I think about working capital needs? How do we think about providing guidance that people can be comfortable with because certainly, Nextracker in time being listed is a much better on guidance than, say, the peer group on average. So just your thoughts on how you think about that going forward?

Well, I mean I think in life, my view is success equals results, minus expectations. So with my wife and my family, I think that's the case, and it's the same thing with the company, is you want to have realistic and achievable results, you also would like to do better than those results. And I think reflecting back on our first quarter of the year, the June quarter, we had a phenomenal quarter, and yet we did see project delays in the second quarter in the September quarter, things were pretty stable. As we sit here today, I think things still seem like they're pretty stable. There are delays. It's taking a long time to get transformers. It's taken a long time to get interconnection. I would say it's not worse now than it was. It's not necessarily improved. And so what we do is we do very detailed reviews and forecast by project very frequently to see what is happening, keep our finger on the pulse of the industry and what's happening. And the things that we can control is when we deliver on time, make our customers happy. Our on-time delivery rates are off the charts. Our customer success and customer set metrics are off the charts. They are super happy. A lot of that comes back to manufacturing because we have domesticated a big chunk of our U.S. manufacturing, we've moved the vast, vast majority of our manufacturing to the U.S. We have over 20 U.S. manufacturing sites and so the lead times have reduced. And so with that, we have better visibility of when we're going to deliver to our customers and we really are hand in glove with our EPC partners on when they want material to arrive, and then be able to adjust, accelerate, if they want to accelerate or push out if they need to push out. And that visibility is, I think, really been helpful and helped us kind of navigate these times of uncertainty. But I would say the high-level message is I would say things are pretty stable on the interconnection delays and whatnot. It has not really changed much in the last quarter or so.

I know we have a very hard out when that clock goes to 0, the recording goes out. So I guess I would say, Chuck, thank you so much for being here today and to the investors on the line, keep your eye out for the invite for a site visit at the R&D center in California with UBS and Nextracker coming.

We'd love to see it. Thank you so much, Jon. We appreciate it. Thank you.