Unidentified Analyst: That is very helpful. Thank you, Kevin.
Operator: Our next question comes from Julien Dumoulin-Smith with Bank of America. Please state your question.
Julien Dumoulin-Smith: Hey guys. Thanks for the time. Congratulations for everything. Hey, just coming back to domestic content, I just want to really square this away. I mean, just what exactly incremental do you need? I mean, obviously, you’re doing a lot already here. Just in terms of clarity, specifics, and guidelines, again, I know you guys are probably in the mix in discussing these items here, but specifically as we see preliminary and final? And also, are you expecting kind of a little bit of an air pocket in the backlog as you think about that being kind of pent-up demand realized after finalized guidelines here? Is that the commentary as you think about that?
Kevin Hostetler: Julien, I think the demand we’ve seen so far is really non-IRA-related. So, we haven’t yet seen that big pickup. So, we don’t really consider that we have an air pocket in our current backlog. That current backlog is all the steady demand that we’ve seen, the steady increases, setting aside any expected increases we’ll see from IRA. And then to answer that — the first part of your question specifically is we’re looking at the definition, there’s two critical aspects we continue to wait on. The first is the definition of what will be considered domestic content. Again, there’s multiple definitions floating around with Treasury that they have to decide upon finally, and give the industry. And one would include being able to import steel from China, for example, roll it in the US and call it domestic.
The other says that the steel must be from melt to coke in the US, right? And those are two radically different positions. In the position that it would have to be pure US steel, we have a decidedly strong competitive advantage because we have worked on that US supply chain for many, many years and we have deep relationships, some of which we’ve talked publicly about in the past versus others in the industry who continue to bring steel in from offshore and have two rolling mills in the US and are calling that made in USA, right? So, depending upon that definition, we’ll either be at worst case on par; at best case, we’ll have a decided competitive advantage in the market. So, we’re waiting on that. And again, that has implications in terms of market share, in terms pricing power, all of the above.
And that’s why we’re trying to be very, very cautious until we have more clarity around that. And then the second element we continue to wait for is really further clarification around the torque tube and structural fastener final definitions. We know what the torque tube definition is, that’s pretty well defined and we’ve already communicated that’s between 0.15 and 0.17. So, call it 15% of the tracker cost is the benefit there and we’ve talked openly about that being shared at some point between our suppliers, ourselves, and to a degree to our customers as well. We feel really good about that. And it really comes down into the definition of what all gets included into structural fasteners. And as that definition becomes more clear, there’s some really, if for example, the clamps and clamping systems are covered under that definition, that would be very, very meaningful to us as an organization because we manufacture a large proportion of those in our own factory in Albuquerque, New Mexico.
So, these small nuances of words can have huge swings in terms of the overall ability to get at those credits and the quantum of those credits and we just don’t have enough clarity to go to the market today and say what we think they’re going to be.
Julien Dumoulin-Smith: Got it. Excellent. And just on the international side, the trajectory here you guys in Brazil, it seems nice. The time of the deal, it seemed like you got it a little bit more flattish in the FTI in Brazil specifically. And how you think about that outlook and the compounding first prospects there across the various geographies just to quantify perhaps qualitative comments on the call a little bit more?
Kevin Hostetler: Yes. So, in Brazil, over the last year, what shifted first in Brazil was less of the larger utility scale programs and much more than distributed generation programs. And that had to do with two things. Obviously, we had a great competitor come into Brazil and work really well. That’s one part. And the second part was the funding from the national banks in Brazil who really support a lot of the green initiatives kind of pulled back waiting for this presidential election. Almost immediately after the presidential election, we started to see a lot of those utility scale programs go forward. And I’m quite pleased that our outlook in Brazil was very strong for this year and it’s a very good mix of both utility scale and distributed generation products, but we’re very bullish on the growth that we see coming in Brazil this year.
Julien Dumoulin-Smith: Awesome, guys. Congrats again. See you soon.
Kevin Hostetler: Thanks.
Operator: Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Please state your question.
Maheep Mandloi: Hey, good evening. Thanks for taking the questions and congratulations on the quarter here. Two questions. First, on the OpEx, if I look at the high end of the range somewhat implies around 7% OpEx as — versus your revenues. I’m just trying to see like to get to that high teens EBITDA margin, which you guys talked about in the past, could we expect to hit that 25%-plus gross margin in 2024? Or just trying to understand, like, on the OpEx end, how we think about leverage going forward here? Thanks.
Nipul Patel: Hey, Maheep. It’s Nipul. So, as discussed in the prepared remarks, there’s investments that we need to make here in 2023. And as margins continue to steady at the baseline low-20s and potentially increase from there as we get more clarity on the IRA, in 2024, we feel like we’ll get the operating expense leverage that this business can absolutely operate under. So, that’s where we think that we’ll get back into the higher EBITDA ranges in 2024 and beyond.
