Andrew Percoco: Great. Thanks so much for taking the questions. So I guess, and apologies, if I’m belaboring something that’s already been answered multiple times here, but my first question would just be on the pricing environment and what you’re seeing from competitors understanding that you’ve already dropped your price or planning to drop your price this year and it’s already embedded in your guidance and you’re not sacrificing margin at this point, but what are you seeing from your competitors in response to what you’re doing on price? Is it a rational market or is it an environment where pricing continues to get more fierce?
Kevin Hostetler: So, look, this is an industry that price really matters. We’ve said that many times and between certainly the top few of us in the market, we can use price to take an order off each other on a routine basis if you choose to. So what you’re seeing is still somewhat rational behavior, but I will tell you of our larger competitors, certainly some targeted price reductions that maybe that they’re putting in place in order to either regain market share or to preserve one or two key orders that they had hoped to win historically. And that’s really just nothing new. So I wouldn’t say it’s a changed behavior. It’s more acute these days, but we feel that our current pricing strategy and our win rate is really sustainable. We feel good about it. And as Kurt said a couple of times now, the fact is in our guide, we’ve left some room for the back half to use some of our 45x savings to pursue additional programs should we need to use price to do that.
Andrew Percoco: Got it. Understood. Okay. And then my follow-up question is just on capital allocation priorities as you continue to generate pretty healthy free cash flow. What’s the top priority? Is it continue deleveraging? Or is there any other internal investments that you’re looking at, whether it be inorganic or organic? I’d just love your thoughts on that. thank you.
Kurt Wood: I’ll take that one. This is Kurt. We have priorities, obviously, to continue to de-leverage. That’s the focus of ours. We mentioned on the last call, I believe, or maybe some callbacks that we wanted to get through the first half and there’s going to be a little bit of an inventory ramp as we get ready for the second half growth. We don’t want to dip into the revolver unless we have to share for that, but it’s more of an insurance policy. But our intent is to continue to delever at an aggressive pace. If you recall, last year, we did about $84 million, $77 million of which was now on the term loan B. So we’ll continue to take out — even though we don’t have any maturities during the next two years, we got some — the term loan B would be the next, and it’s got our highest rate. So that’s going to continue to be we’ll be able to take out. How much we can negotiate something else in a very favorable way.
Andrew Percoco: Understood. Thanks so much.
Operator: Thank you. [Operator Instructions] The next question that we have comes from Sophie Karp of KeyBanc Capital Markets. Please go ahead.
Q – Sophie Karp: Hi. Good afternoon. Thank you for taking my questions. But I was wondering if you could get a little bit more granular on the delivery push out, I guess, that you guys are talking about into the second half of this year. And like where the predominant cause of it? I know there is a variety of factors you’ve listed, but just I’m trying to understand if there’s a predominant trend that we should be following here? And what is your degree of confidence that this — the push outs are going to be in the end of the year, but not beyond that, maybe? Thank you.
Kurt Wood: I want to reiterate, we’re not seeing any push outs in the first half. If you recall, when we gave our guidance, we said we’ve taken all that into consideration. And I believe at the time we gave the call, we said it would be just under 30% of our full year revenue coming in the first half. That hasn’t changed from that standpoint. What we see in the push out early into the year still, I know it’s May, but it’s still early for what we have. There are — we did see a project or two move from Q3 to Q4. Still within the realm here. And as we talked about before, we took — when we did guidance, we looked very carefully around projects that we’re waiting in December, and we just artificially in our own mind sitting and customers are signaling they’ll put it in this year.
We put it into next year from that aspect. But obviously, as a CFO, we sleep with one eye open knowing that Q4, as we said on the call, is going to be the largest quarter for us from a revenue standpoint. As far as the reasons for the elongated time frame, not necessary push outs, as we talked about supply chain of critical components, particularly the transformer, we’ve also got people trying to refinance. Obviously, rates are going to come down as expected originally as thought at the end of the year that people were thinking and all the other reasons that Kevin mentioned on the call. But just again, I want to reiterate that what we’re seeing in the first half, that was anticipated and signaled and included in our guidance in the last call.
Q – Sophie Karp: Thank you.
Operator: The next question we have comes from Moses Sutton of BNP Paribas. Please go ahead.
Q – Moses Sutton: Hi. Thanks for squeezing me in. For the 45x credits that were included, can you share like the specific dollar value? I guess put differently, we thought that maybe the $41 million from 4Q would be recognized in 1Q. Just trying to understand the puts and takes of how you recognize 45x credits from the prior period and then the new ones that are generated through COGS over time.
Kurt Wood: Again, I want to reiterate what we talked about on the last call was 45x, we’re going to just give one number going forward, I would say. As we look at it, we never said it was all going to be in Q1 on that. We said it would be recognized over the remaining volume that we have with those contracts going through, and that wasn’t all in Q1. But we’re going to just get one number going forward for simplicity within our guidance on that, and we’ll leave it at that.
Kevin Hostetler: I would just add to that, Kurt, just to make sure we’re clear. There wasn’t a disproportionate amount of that $40 million included in Q1. There was not.
Moses Sutton: Got it. That’s helpful. And I guess just shifting to bookings, $2.1 billion, how do you think of that on an annualized basis, just in general? So it used to be we would think of this as, at some point, that would be like a 1-year reflection, maybe around IPO, that was how it was discussed, but lead times have extended. Is that something that is a proxy for 15 or 18 months? Is there any way to think about that, or it’s just too fluid?
Kurt Wood: I would say it’s too fluid in the near term right now. I would say that we feel good about the amount of visibility we’re beginning to have into next year, and certainly the first half of next year. But I do think it’s too fluid for us to give you that range of conversion. We would typically wait a couple of quarters before we predict that for next year.
Moses Sutton: Great. Thanks again.
Kurt Wood: You got it Moses.
Operator: Thank you. The next question we have comes from Dylan Nassano of Wolfe Research. Please go ahead.
Dylan Nassano: Hey, thanks for taking my question. I just wanted to go back to the conversation that we were having around ASP deflation and kind of the margin profile. So, I mean, I guess, you spoke to being able to kind of, in the past, pass on cost savings to the customers, and you have some 45X dry powder, but I’m just trying to figure out, is there any other flex that’s kind of left in the actual operating cost structure? And when would it make sense to kind of look for those kinds of levers to pull versus, looking at the 45X?
Kevin Hostetler: Yes, I’m not quite sure I understand the question. I could just say, look, we’re going to continue to improve our business and drive for improved operational gearing. Obviously, you don’t get the operational gearing when you have a $150 million quarter. So I think the margin performance that you’ve seen, given the low volume, is a signal that there’s much more operational gearing to be had as the business scales back up. We work really hard on improving the functions within the business and being very mindful of costs, such that we feel this is a business that’s going to have great operational leverage as we scale the business back up.
Kurt Wood: And I would add to that, this is Kurt, is that, look, there’s a couple ways you get that leverage. One is, you know, supplier negotiations and volume. The other is engineering, cost out. An example of that is what Kevin mentioned before on the new H250, where that reduced costs and we rolled it out internationally. And then, maybe there’s a third, which I’d say we put in the script, which was we announced a groundbreaking of our Albuquerque facility, and that’s not to hit the 45X. It’s to meet, cost efficiency and other things that we have. Now, that’s not a 2025 thing. It’ll start hitting in 2026, but we look at as price comes down, what can we do operationally from a design as well as negotiation, as well as just an overall supply chain infrastructure, including what we in-source versus outsource.
Dylan Nassano: Okay. yeah. Makes total sense. Thank you.
Operator: Thank you. The last question we have comes from Jeff Osborne of TD Cowen. Please go ahead.
Jeffrey Osborne: Yeah. Thanks. Good evening. Just maybe a follow-up on Moses’s question. I was hoping you could help me interpret some numbers that are in the 10-Q. I think there’s a reference to a vendor rebate of $57.1 million, of which $45.9 million is in prepaid expenses, and that compares to $44 million last quarter. So as those numbers move around, can you just help us figure out how to interpret them as what was recognized in the quarter, what we should be paying attention to with those numbers that you’re now disclosing?
Kurt Wood: I’ll have to get back to — I’m just trying to get it in my mind without getting into the details of the Q. That might be the 45X credits that we’re talking about that comes back in the form of a vendor rebate.
Jeffrey Osborne: …with the 45X — can you walk us through how that is?
Kurt Wood: Remember how the 45X works. You’ll see, we will recognize it after the P&L, but there’s a couple of different ways that that gets monetized. Some customers will kind of pay you immediately. Some will pay you a quarter in arrears, and some customers will do pay-as-paid, and remember, this is monetized in a tax return. So what will happen at that standpoint is anything we earn in 2024 that’s a pay-as-paid will then not come back to us until they file their corporate tax returns for the 2024 fiscal year, which could be in the fourth quarter of 2025 when they file that. So a variety of different things, but you will see that show up in that line for 45X.
Kevin Hostetler: So Jeff, I just want to make sure we’re clear on that, that that is not indicative of the total 45X benefit that we’re receiving because of the multiple different types of contracts we’ve engaged with our customers. That will be a portion only.
Jeffrey Osborne: Would you say it’s the majority that would flow through that line item or no?
Kevin Hostetler: I don’t think we’re going to give that level of clarity. I think what we’ve tried to provide you is the good guidance of our gross margin and the gross margin with and without 45X. And I think that’s probably the best and quickest way to do the math to get an estimate of the 45X in the quarter.
Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today’s conference. Thank you for joining us. You may now disconnect your lines.
