Good day, everyone, and thank you for being here. Welcome to the FTC Solar Second Quarter 2023 Earnings Conference Call. At this time, I would like to hand the conference over to Mr. Bill Michalek, Vice President of Investor Relations. Please proceed, sir.

Thank you, and welcome, everyone, to FTC Solar's Second Quarter 2023 Earnings Conference Call. Before today's call, you may have reviewed our earnings release, supplemental financial information and slide presentation, which are posted earlier today. If you've not reviewed these documents, they are available on the Investor Relations section of our website at ftcsolar.com. I'm joined today by Sean Hunkler, FTC Solar's President and Chief Executive Officer; Phelps Morris, the company's Chief Financial Officer; and Patrick Cook, the company's Chief Commercial Officer. Before we begin, I remind everyone that today's discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date. As such, these forward-looking statements include risks and uncertainties and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you'd expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issued this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll discuss our backlog and our definition of this metric is also included in our press release. With that, I'll turn the call over to Sean.

Thank you, Bill, and good morning, everyone. Our earnings announcement today includes a mix of near-term disappointment with project delays impacting revenue as well as some very positive developments including a number of significant project wins here in the past few weeks, which will boost our performance as we head into 2024. Getting right into it, our revenue for the second quarter came in at $32.4 million, which was below our guidance range of $42.5 million to $52.5 million. For the third quarter, we now expect to see revenue in the $24 million to $34 million range, which, while we didn't have a public guidance number out there, I can tell you is significantly below our prior internal expectations. The second quarter shortfall is largely related to contracted revenue being pushed between quarters. Specifically, projects from one customer were delayed to allow for additional planning and review around domestic content as these projects are looking to take advantage of those incentives in the Inflation Reduction Act or IRA. The review has now been completed and the approach finalized, but it had the effect of pushing revenue from Q2 to Q4. As it relates to our third quarter expectations, our bidding activity remains very high and we have won a fair amount of new business, but the timing of many projects going to purchase order has been slower or pushed out by customers, whether due to domestic content clarity, module availability or delays in permitting, interconnection or other issues. Unfortunately, given our current revenue run rate, a small handful of projects can have an outsized impact on our results. That will improve as we get back to scale, but it's a problem we need to manage now. The good news is that we have seen a significant uptick in project activity and wins in the last few weeks, including several notable projects, which should position us for a meaningful improvement as we head into 2024. As a result of visibility around these projects, we now expect that we'll return to revenue growth in the fourth quarter and be on an accelerating path as we enter the new year. We expect the fourth quarter will be our highest revenue quarter in 2023. While the cadence of our revenue growth is different than we may have hoped a quarter ago, we have a number of bright spots in our business that give us a great deal of confidence in our future. One, we believe our manufacturing cost is now in line with our leading competitors. We are more competitive than ever and we will get better with scale. Two, our average new project margins puts us on track to achieve the gross margin targets we provided in the past. This includes our target of achieving a gross margin of 12% to 18% at the $150 million quarterly run rate and a 20-plus percent margin over the longer term. Even with lower revenue in the second quarter, we saw gross margin expand another 90 basis points. We're set up for a strong margin expansion as revenue grows. We're confident in our cost structure and we have a lot of margin leverage. But obviously, the level of revenue, which drives cost absorption is a key driver of the actual performance. Three, we are now actively in the market with our 1P solution. We believe the 1P market has done better during this time of restricted module availability and we didn't have a solution until more recently. We now have a solution and a growing 1P pipeline. And with the recently received UL certification, we're focused on converting that pipeline to awards. In fact, we just won our largest 1P award to date at 140-plus megawatts. So we are on our way. That 140 megawatts is part of an overall 1 gigawatt award that we received in the last few weeks, which includes supplying a large multi-technology renewables project in the Pacific Northwest. Four, we continue to grow our international business and are gaining traction in new regions. A couple of examples over the past few weeks include a new 120-megawatt award in South Africa. We also won a new 300 megawatt award from multiple projects in Italy and Spain, including utility-scale agrivoltaic projects. These will be our first projects in these countries as we continue to expand in Europe and broaden our served market. We have now been awarded projects in a dozen countries outside the U.S. And with the recent addition of our 1P Pioneer solution, we believe we'll be even better positioned to continue to grow our international business as well as our business overall. Five, our backlog has now grown to $1.6 billion with $259 million added since May 10. The recent project awards I've mentioned, among others, have helped us grow backlog to this new level. Most of these new multi-project awards include projects that we expect will have near-term purchase order dates and, in some cases, begin initial production on the first projects during the fourth quarter of this year, with final projects expected to run through the end of 2025. The majority of the remainder of our backlog is 2P, which we expect will be increasingly constructed as module availability improves. The continued growth of our backlog and the recent additions of certain projects that we expect will include more near-term start dates allows us to continue to be cautiously optimistic about 2024 and gives us a nice foundation for future growth. And then sixth, and finally, we continue to control our operating expenses. You'll notice that our Q2 OpEx came in better than we had guided and that, along with the improved margins allowed us to keep adjusted EBITDA flat quarter-over-quarter despite the lower revenue. We'll continue to control costs and look for efficiencies in many places. However, we will invest more in sales and engineering to support growth and pipeline conversion. So in summary, while our cadence of revenue recovery is slower than we would have hoped a quarter ago, we have seen an exceptional spate of wins in the past few weeks, which gives us confidence in a return to growth in the fourth quarter and into 2024. Our international expansion continues, and our newly certified 1P offering will only enhance that growth over time. We are positioned with a product cost structure that will enable our run of gross margin expansion to resume and reach new highs along with that revenue growth, and we will keep a cap on operating expenses while investing for future growth. With that, I'll turn it over to Phelps.

Thanks, Sean, and good morning, everyone. I'll provide some additional color on our second quarter performance and our outlook. So let's begin with the second quarter. As Sean mentioned, product delays in the quarter resulted in revenue coming in below our guidance range of $32.4 million. This level represents a decline of 20.9% relative to the last quarter and an increase of 5.3% relative to the year ago quarter. As we move on to gross profit, as you would expect, the delay in revenue also slowed down and caused margin to come in below our expectations. However, with project margins continuing to improve, we are still able to expand our gross margin percentage relative to the last quarter even on lower revenue. Specifically, our GAAP gross profit was $2.2 million or 6.8% of revenue compared to $2 million or 5% of revenue in the prior quarter. On a non-GAAP basis, gross profit was $2.6 million or 8.2% of revenue compared to a non-GAAP gross profit of $3 million or 7.3% in the prior quarter. This represents a 90 basis point improvement quarter-over-quarter on the non-GAAP gross margin, our second quarter of positive margin since our IPO and a 58 percentage point improvement over the past three quarters. On a year-over-year basis, we delivered improvement to the non-GAAP gross profit of $8 million on less than $2 million increase in revenue. The improvements were driven primarily by improved track or direct margins helped by our product cost reduction efforts. Moving to OpEx. Our GAAP operating expenses was $12.6 million, on a non-GAAP basis, excluding stock-based compensation and certain other expenses. Our operating expense was $9.7 million compared to $12.4 million in the year ago quarter. This was below or better than our guidance range. The year-over-year improvement was driven primarily by lower R&D and personnel-related expenses. Next, GAAP net loss was $10.4 million or $0.09 per share compared to the loss of $11.8 million or $0.11 per share in the prior quarter and compared to a net loss of $25.7 million in the year ago quarter. Our adjusted EBITDA loss, which excludes approximately $3.2 million, including stock-based compensation expense and certain other noncash items was $7.2 million, which was just above the low end of our guidance range. The result was approximately flat versus the prior quarter and represented an improvement of $10.5 million compared to an adjusted EBITDA loss of $17.7 million in the year ago quarter. Finally, regarding liquidity, we had an operational use of cash for the quarter, offset by usage of the ATM facility for which we received $15.2 million of cash within the quarter. In aggregate, we ended the quarter with $33.8 million of cash on the balance sheet. We continue to hold note down on the balance sheet. We have an undrawn credit revolver as well as $76 million remaining under the ATM program at quarter end. So with that, let's turn our focus to the outlook. Based upon our current view, which includes the project delay Sean's mentioned, we expect the third quarter revenue to be flat to down relative to the second quarter. Our gross margin performance will be based on how revenue comes in. If the revenue is down, the lower cost absorption will lead to margins coming in lower sequentially. However, if revenue is flat or slightly up, then we could see margins come in higher than the second quarter. We expect this to be followed in the fourth quarter by a resumption in revenue growth and margin expansion as the recent project wins are expected to begin production. Specifically, our targets for the third quarter call for the following: first, revenue between $24 million and $34 million. Next, non-GAAP gross margins between $0.7 million and $3.1 million or between 3% and 9% of revenue. Next, non-GAAP operating expenses between $10 million and $11 million, and finally, adjusted EBITDA loss between $10.3 million and $6.9 million. Looking forward, the recent uptick in project wins gives us increased confidence that the revenue ramp expected in the fourth quarter should continue into 2024. So in closing, the actions we've taken to strengthen the company, broadening our product offerings, refocusing our sales efforts and improving our cost structure will benefit greatly moving forward. These efforts coupled with $1.6 billion in backlog will position us to not only grow but to grow profitably.

Our first question or comment comes from Donovan Schafer from Northland Capital Markets.

I want to start by asking about the backlog. It seems like every time we meet, you are either just coming from customer meetings or heading out to meet more customers. It’s evident that you are working hard to generate sales, which is reflected in the increasing backlog. However, when we compare your backlog to some of your peers, it appears significantly large, yet it hasn't translated into financial results yet. I’m curious if you can provide any additional insights on the backlog, considering it hasn't appeared in the financials. Can you offer more assurances on aspects such as how many peers are utilizing the backlog, the prevalence of deposits, or the overall significance of its size? Any additional context to help us understand the strength and potential of the backlog would be appreciated.

Yes, this is Sean. Thank you for the question. I want to provide some insight into the backlog. We are disappointed with our short-term results, but we remain optimistic and excited about the future, and a key reason for that is our backlog. The team has done an excellent job of growing it. Most of our backlog is 2P, and we continue to build on it. We mentioned our 1P addition, a new project with 140 megawatts, which is part of a larger 1-gigawatt project that we are very enthusiastic about. Looking ahead, we believe there is momentum, and we anticipate seeing backlog conversion in 2024. Given this momentum, we are looking forward to 2024. I will now turn it over to Patrick for additional comments.

Thank you for the question, Donovan. I'll address it in two parts. The $259 million we booked this quarter will mainly begin production in the latter half of this year and into 2024. These projects will extend over several quarters, so the time needed to convert the backlog will be relatively brief compared to some previous projects. As Sean mentioned, as the modules are released, more projects are progressing. Our two-part backlog, when discussed with our customers, is anticipated to be unlocked in 2024 as we collaborate with developers. We are seeing progress and are focused on converting those long-standing projects in our backlog, which we are excited about.

Yes, that answers my question. As a follow-up regarding guidance, since you are still a relatively new growing company and Sean hasn't been at the helm for the entire duration, I'm curious about your internal guidance process for deciding what to communicate externally. Has that process been evolving? I'm asking because there's a learning curve involved, especially considering the lower-than-expected Q2 guidance. There's a lot happening in the market, but when something like that occurs, do you reassess your process or procedures to improve your guidance accuracy? Is the process for your third quarter guidance the same as the one used for the second quarter guidance, or are you exploring better ways to refine it?

Donovan, we consider ourselves a learning company. As a relatively new organization, we invest significant time in examining our processes from start to finish. Whenever we identify a defect, it presents an opportunity for further improvement. We take guidance seriously and dedicate substantial time to internal evaluations around it. In Q2, as we mentioned earlier, we experienced some project shifts. Unfortunately, our current foundation is not yet robust enough to withstand these shifts significantly, as our base is still developing. Despite this, we remain highly optimistic about the future and the opportunities ahead.

Yes. The other thing I'd add, Donovan, it relates to the Q2 guidance, obviously, disappointing, but these were projects that we have ultimately purchase orders for. Given kind of the IRA ambiguity, the customer ultimately elected to push those out into Q4. And so these were projects that have orders in hand with the ultimate delivery and revenue recognition that due to the IRA pushed those out two quarters just to make sure that they could take advantage of the added incentive.

Okay. That's very helpful. I'll take the rest of my questions offline.

Our next question or comment comes from the line of Philip Shen from ROTH MKM.

I wanted to explore the outlook further. Could you discuss some of the revenue calculations for Q4? You mentioned that shipments were delayed from Q2 to Q4. Can you also quantify the delays from Q3? How much of that might impact Q4? Should we anticipate Q4 to be significantly above $100 million? I realize you haven't provided specific guidance, but could you give us an estimated range?

Yes. I believe that regarding the shift of projects from Q2 to Q4, many customers are aiming to reach specific completion milestones by the end of the year. Therefore, we do not expect any projects to shift from Q4 to Q1 at this point, as these projects need to take advantage of the incentives available in 2023. Additionally, the partner we are collaborating with has had extra time to refine their incentive structure while still meeting the deadline.

Yes, I think overall, Phil, we're quite comfortable with the 2024 build-out regarding pushouts. When comparing Q3 to Q2, we are seeing some additional delays. Qualitatively, we mentioned that we are not providing Q4 guidance at this moment, but we expect it to be our strongest quarter of the year. There is potential for upside, which largely depends on our manufacturing production capabilities within the quarter. The actual upper limit of Q4 revenue will also be influenced by the timing of the purchase orders we received in Q3, Phil.

And the other part, Phil, if you consider the contracts and awards we received, particularly in South Africa and also in the U.S., Europe, and Spain, these are projects involving either large individual contracts or projects with defined start dates. We will begin recognizing revenue from these in the latter half of this year and this will extend into multiple quarters in 2024.

Our next question or comment comes from the line of Kashy Harrison from Piper Sandler.

I have just one question since my other inquiries have already been addressed. You mentioned that you utilized over $20 million in cash during the second quarter, which was funded through the ATM. Could you share your expectations regarding cash flow from operations in the second half of the year, and also your thoughts on working capital? I'm trying to understand your cash requirements for the latter half of 2023. That's all from me.

It's Phelps. So thanks for the question. I think if you look at Q3, right, the guide is an EBITDA burn for the quarter, but what we see as a potential offset is we anticipate the current forecast to de-leverage some of the AR this quarter with some chunky collections that we're anticipating to come in that will offset some of that. And then in addition, as these new projects hit within the quarter, you're going to get some additional deposits and down payments that would offset some of that potential operational burn as you build up the revenue base.

Thanks for the question.

Our next question or comment comes from the line of Jeff Osborne from TD Cowen.

Can we discuss the linearity in the quarter? Was this issue that arose late in the quarter? Additionally, you mentioned a range of problems regarding module availability, interconnection, permits, and so on. Is there a way to prioritize those issues?

As we mentioned in the remarks, our biggest single issue was the shift of projects related to the domestic content, with the customer finalizing their strategy, which accounted for the majority of the miss.

And was that something that developed late in the quarter versus expectations?

I think yes, it was. So as Patrick mentioned earlier, Jeff, we had the POs. They made a shift in terms of their strategy, mid-quarter when some of the IRA information came out. As a consequence, that's where it pushed out to the later quarters.

Got it. My last question is regarding your comments on the margins, which are helpful at different revenue rates. Can you discuss the overall pricing environment, both domestically and internationally?

From a pricing perspective, given our cost structure, we can effectively price these projects. We're not experiencing a significant decline in prices in the regions where we're currently active. The U.S. market remains strong for us and is helping to improve our margins. We're enthusiastic about the 300 megawatts we're set to work on with RE or 5E across 11 projects, including two large utility projects and some distributed generation, all of which yield healthy margins. We're not facing substantial pricing pressure and are finding that our cost structure allows us to compete and continue growing our margins.

Our next question or comment comes from the line of Julien Dumoulin-Smith from Bank of America.

This is actually Morgan Ren for Julien here. Thanks for the comments this quarter. I guess, if you could kind of elaborate on the gross margin inflection that you're expecting in the fourth quarter, that would be helpful given that this is going to be kind of the record revenue base. I understand that the previous guidance for 2Q that wasn't hit given the revenue issue. I guess, should we expect gross margins maybe in excess of that sort of 2Q type level given the sort of confidence that you have around the 4Q guidance, volume and revenue base?

Yes, Morgan, thank you for your question. Expectations for Q4, as we mentioned earlier, are set to be the highest of the year. As we achieve growth in top line revenue, we gain operating leverage on the business. We continue to see strong project margins individually. Notably, from Q1 to Q2, despite a slight decrease in revenue for Q2, we still managed to increase gross margins by 90 basis points, which serves as a solid indicator of our individual product margins. The variability in our Q3 guidance is primarily influenced by the overhead, which is essentially a stable base not affecting the overall outcome. Regarding Q4 margins, while we haven't provided specific guidance yet, we anticipate that, looking back at the Q2 guidance range with similar revenue levels, margins will reflect our operating leverage on overhead and the project margins we see in the pipeline.

Got it. That's helpful. And then last one for me. In terms of the project pipeline or the backlog that you've outlined, you talked about the split between 1P and 2P, where 2P currently represents the majority of the backlog. However, it seems that the 2P projects are particularly delayed in their ability to close due to concerns about module availability. What's the confidence that the majority of that backlog will proceed, considering most of those projects are linked to 2P projects, which are more severely impacted by the module availability issues you've mentioned?

Yes, thanks, Morgan. This is Patrick. From our perspective, we’ve observed improvements in the module environment during the latter half of the year. We’ve also noticed increased engagement on the defined projects in our backlog as we proceed with final design, engineering, and site design, making them ready to move forward. Activity has picked up to prepare these projects for construction in 2024. In the past, it had been more of a wait-and-see approach due to module availability issues, but with more modules being released, these projects are advancing.

We're definitely seeing strong momentum as we look into 2024 for backlog conversion.

Our next question or comment comes from the line of Graham Price from Raymond James.

Maybe just one more on the quarter-over-quarter margin improvement. You mentioned a number of items on the cost side. Was wondering if ASPs were up quarter-over-quarter and just kind of the relative contribution between that improvement from pricing versus the cost side?

So I would look at it, Graham, that really a lot of it is coming from the cost improvements that we continue to drive. And so the team has been absolutely relentless in taking cost out of both our 2P product as well as our 1P product. And so that has been a major factor in contributing to the margin uplift.

Got it. And then for my follow-up, great to see the expansion in Italy and Spain. Wondering, looking forward, how we should think about the international versus U.S. booking mix and how that's trending?

We are very pleased with the progress we are making internationally. We mentioned the new award in South Africa, and as you noted, we are also seeing ongoing development in Spain, Italy, and Australia. Nevertheless, we are still witnessing significant strength in the U.S. market. Over time, we expect international markets to grow as a percentage of our overall business, but the U.S. will remain a very strong core market for us.

Our next question comes from Sameer Joshi from H.C. Wainwright.

On the G&A front, it seems you have been able to control those costs fairly well. Was there any one-time benefit on a non-GAAP basis that might have been here? Or is this the level we should expect going forward?

Yes. So thanks for the question. No, I mean that's an area that we've obviously been very focused on, the OpEx side. We'll continue to have a focus on OpEx. It's something that we continually review as a management team. But no, those are the areas that we'll continue to keep in check to control the things that we control as there's lumpiness in the business with public starts and project pushouts, but this is the one area that we're going to control and we'll continue to keep an eye on that.

Okay. And just one more. Of the $259 million new orders, what proportion of this was non-U.S. LPA?

All of it is non-U.S. LPA. So of what we booked this quarter, it's either international or the projects have models.

Okay. One of the projects announced today includes a floating solar installation. Can you tell us about your capabilities in that area?

So no, great question. So we will not be providing the floating solar for this particular project. We are going to be providing 1 gigawatt worth of trackers. But this is part of a pretty groundbreaking just generally renewable energy project in the Pacific Northwest, and we're excited to be a part of it. But we are delivering our 1P and 2P tracker in the mode of a gigawatt.

Thank you. I'm sure no additional questions in the queue at this time. I would like to turn the conference back over to management for any closing comments.

Thanks very much, everyone, for joining us. We appreciate your time. And while we do have disappointment with our Q2 results, we are absolutely optimistic about the future and the opportunities out there. So thank you again for your time and we look forward to our next interaction.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.