Array (NASDAQ:ARRY) Q2 2024 Earnings Report: Strong Performance Marred by Revised Guidance

In its Q2 2024 earnings report, solar tracking systems manufacturer Array (NASDAQ:ARRY) posted results that exceeded analysts' expectations, but the company's revised full-year guidance has raised concerns.

Array reported revenue of $255.8 million, representing a 49.6% decline year-over-year, yet still managed to surpass Wall Street estimates by 9.2%. The company also reported a non-GAAP profit of $0.20 per share, which was a solid beat compared to analysts' predictions of $0.11 per share.

Despite the positive earnings surprise, Array's revised full-year guidance has cast a shadow over the otherwise strong quarter.

The company lowered its revenue guidance for the year to $950 million at the midpoint, which is 28.3% below previous estimates.

Similarly, Array's EBITDA guidance for the year also came in below expectations, with a midpoint of $197.5 million, significantly short of the $295.6 million anticipated by analysts.

Revenue and Profitability

Array's revenue decline of nearly 50% year-over-year is notable, particularly in the context of its historical growth.

Over the past five years, Array had achieved a commendable annualized revenue growth rate of 23.8%.

However, recent trends have shown a sharp reversal, with a 1.4% annualized decline over the last two years, reflecting the challenges the company is currently facing.

Despite the revenue drop, Array's gross margin improved to 33.6%, up from 29.6% in the same quarter last year, signaling better cost management at the production level.

However, the company's operating margin fell to 15.5%, down 3.5 percentage points year-on-year, suggesting that increased operating expenses, such as sales, marketing, R&D, and administrative costs, are weighing on overall profitability.

Cash Flow and Market Position

Another area of concern is Array's free cash flow, which came in at just $1.83 million for the quarter, a significant 96% drop from the previous quarter.

This decline in cash flow raises questions about the company's ability to generate sufficient cash to fund its operations and future growth initiatives.

Despite these challenges, Array's market position remains solid, with a healthy order book valued at over $2 billion.

The company continues to benefit from strong demand in the utility-scale solar sector, which CEO Kevin Hostetler highlighted as a key growth driver.

However, the company's revised guidance indicates that it may face headwinds in converting this demand into revenue in the near term.

Earnings Per Share

Array's EPS of $0.20 for Q2 2024 was down from $0.26 in the same quarter last year.

While the year-on-year decline is concerning, the fact that the company beat analyst expectations by $0.09 suggests that it is managing its profitability better than anticipated.

Looking ahead, analysts are optimistic that Array's EPS will rebound, projecting a positive EPS of $1.38 over the next 12 months, a significant turnaround from the negative EPS of $0.19 recorded last year.

Conclusion

Array's Q2 2024 earnings report presents a mixed picture. On one hand, the company delivered strong quarterly results, beating both revenue and EPS estimates.

On the other hand, the significant downward revision in full-year revenue and EBITDA guidance has raised concerns about the company's near-term prospects.

While Array's strong order book and improving gross margins are positive indicators, the challenges reflected in its revised guidance and declining cash flow cannot be overlooked.

As the stock traded down 5.7% to $8.50 following the earnings announcement, investors are likely weighing the company's long-term potential against the near-term headwinds.

For those considering an investment in Array, it will be crucial to monitor how the company navigates these challenges and whether it can deliver on its revised guidance in the coming quarters.