Joe Osha: I’m sorry to belabor this, but you said something very interesting there I want to clarify. It’s less, it sounds like, about bank financing being more expensive, since most of these guys have that locked in anyway. It’s more about developer internal IRR hurdle rates. Is that what you’re saying?
Kevin Hostetler: Well, yes, I think it’s both. I think it’s about one developer I spoke to about a week and a half ago who’s challenged with this very dilemma. Right now, it’s also about that developer being able to sell a project at a particular IRR in the future, given other interest rates and other investment alternatives, right?
Joe Osha: Thank you so much.
Operator: Thank you. The next question we have comes from Jon Windham from UBS. Please go ahead.
Jon Windham: Hey, thanks for taking the questions. I just want to talk about the adjustment in revenue. If we exclude the Brazil-related accounting classification, there’s about $118 million pushed off in the next year. We’re more or less maintaining the EBITDA guide, which means basically $21 million of EBITDA that’s not being pushed out. So can you talk a little bit about what’s driving the higher profitability and what you are shipping?
Nipul Patel: Yes. Hey, Jon. Its Nipul. So the higher profitability is continued favorability in logistics costs and material costs that we’re seeing flow through for the balance of the year. We had a couple of projects we talked about that we’re delivering in the back half of the year at the lower challenge margins, especially overseas. Those have been a little bit delayed, and so therefore that’s helped with the pricing, helped with the overall margins. But that’s the reason why we’re keeping the mid to high teens gross margins for the full year.
Jon Windham: Got it. And maybe just a quick follow-up. How much of the project delays do you see as a function of customer selection, or is it a bit more random and certain developers have certain problems with projects? Is there anything you could do due diligence-wise to try to lessen these in the future? Thanks for taking the time.
Kevin Hostetler: No, there’s nothing I could think of that we would do differently. No.
Operator: Thank you. The next question we have comes from Tom Curran from Seaport Global Securities. Please go ahead.
Tom Curran : Hi. Thanks for taking my question. Would you share what non-tracker offerings accounted for as a percentage of 3Q’s top line, and maybe give us an estimate or range for their likely contribution to full year 2023 revenue? And then I guess part two on this topic would be, as I think about the non-tracker side, it seems to consist of four drivers, aftermarket sales, engineering services, smart track monetization, and then better change order capture. Perhaps would you provide us an update on the progress you’re making with each?
Kevin Hostetler: No, Tom. Sorry. I think it’s too premature. We’ve been at it for a few quarters. It’s still going to be lumpy. I think we’re going to end the year very pleased with our overall revenues in that space because, again, it’s been a high quality of revenue for us, but we’re not at this point ready to go and delineate by subsegment or to give you a forecast for the full year 2023.
Tom Curran : Okay. I’ll try. Kevin, could you perhaps maybe just highlight within those four subsegments as I’m categorizing them, are there any that are clearly in the lead right now or that you’re more optimistic about or making more progress with faster than others?
Kevin Hostetler: Look, I think they’re all contributing at a really exciting rate for us. If I think about smart track software, for example, what’s in the order book is five times what’s been deployed to date, right? So that’s an exciting piece for us. The better change order management is really about taking what were profit leaks historically and converting them into positive both revenue and margin. And that’s going really, really well for us. And it’s really about just having the discipline to, as we get changes, to ensure that we’re monetizing those changes. And this is about making sure we’re balanced and fair with our customers. But again, if we have to take back material or dispose of something, that we’re doing that in a more effective way than maybe historically where we may have played too much of a nice guy in the middle, if you will.
We’re doing that. The engineering services are going very well for us. So I think every single one of them are beginning to contribute. But to be clear, what’s driving it is really the fact that we brought in product management. We decided to productize each of those, which meant clearly delineated value propositions, sales literature, content, value selling, training for the sales team, ensuring that they’re quotable up front in the project, going back and looking at how we harvest our installed base, and look at some of the additional O&M services we could do after that. It is a really comprehensive amount of work that’s been done over the last six months to drive that. And I’m just really pleased with the level of traction that we’re getting on all that.
And again, it’s a good quality revenue for us as we go forward.
Tom Curran : Got it. That was some helpful color. And then, Nipul, best of luck. And just as you prepare to pass the baton here, would you refresh us on what was your leverage target as part of the ongoing debt reduction? What were you hoping to get to?
Nipul Patel : Yes. It was in the secured leverage is going to be under one by the end of the year, and the total debt was going to be around 2 to 2.5.
Tom Curran : Got it. Thanks.
Kevin Hostetler: Very much on pace for that. We’re very pleased with the cash flow of the business at this point.
Operator: Thank you, Tom. The next question we have comes from Philip Shen of ROTH MKM. Please go ahead.
Philip Shen : Hi, all. Thanks for taking my questions. I’m jumping on a bit late here. Nipul, it’s been great working with you. Sorry to see you go. I know this may have been addressed from some angles, but wanted to just see if you could talk about any patterns you’re seeing for the pushouts, meaning are you seeing any similarities with the developers? Or are they smaller ones? Are the utility developers typically not impacted? Or have you seen delayed projects even from the larger utility developers? Are there any other patterns as it relates to access to capital? I know you were talking earlier, Kevin, about just making internal decisions requiring a higher return, but just curious if you could see or share any patterns with these customers. Thanks.
Kevin Hostetler: Phil, it’s nothing that we’re willing to give any additional color on at this point. I think it’s suffice to say, it’s been actually fairly broad-based. I don’t think there’s been any customer subsegment that’s been immune to it at this point. I’ll leave it at that.
