Good day, and thank you for standing by. Welcome to the FTC Solar First Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President, Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to FTC Solar's First Quarter 2024 Earnings Conference Call. Before today's call, you may have reviewed our earnings release and supplemental financial information, 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 Ahmad Chatila, a member of the Board of Directors and the company founder; Cathy Behnen, 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 will 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 Ahmad.

Thanks, Bill, and good morning, everyone. It's been a relatively short time since our last call. So our remarks today will be fairly brief. The key takeaways from my perspective are: One, first quarter financial results were in line with the targets we provided; two, the company continues to focus on advancing key initiatives that will support future growth and profitability; and three, we continue to target being breakeven on an adjusted EBITDA basis in the third quarter and crossing into profitability in the fourth quarter. Last quarter, we reviewed some of the issues that the company has faced and the progress that has been made recently, I'll briefly review those and note some additional progress. First, we discussed how the company has seen an acceleration of contracted projects or signed purchase orders from what has been about $6 million per month in 2022 and early 2023 to about $50 million per month for the past 10 months. Our bookings remain healthy and the sustained booking success we've seen lays the foundation for revenue recovery that will start in the second half of the year. We remain laser-focused on customers spending as much time with them as possible in a cross-functional effort to improve engagement and best support the full range of customer needs with a robust product roadmap. We also continue to enhance our product portfolio, and we recently awarded our first purchase order for a high wind version of our Pioneer 1P tracker. Our contracted and awarded total increased by $70 million to $1.8 billion, with contracted projects representing approximately $485 million of the total. Second, the market for 2P trackers has improved, and we have our strongest and most comprehensive product portfolio to date. With module availability improved from where it was, we've seen a more normalized market for 2P with good pipeline activity. With strong 1P and 2P solutions, along with software, we can be truly technology-agnostic and optimize each individual project site to maximize the benefits for our customers. While most of our new awards are 1P, we now have several examples of project awards that combine 1P and 2P technologies with more in the pipeline. Third, we continue to improve business processes. Customer visits, which had increased tenfold remain elevated with a broad cross-functional approach to accelerate the feedback loop on quality, product roadmap and future needs and enhance overall customer experience. And we continue to roll out our Net Promoter Score system to help us better measure and drive engagement and satisfaction. Fourth, we continue to further improve our cost roadmap to enable higher sustainable long-term gross margins. After making great strides reducing steel content and bringing manufacturing costs in line with those of our leading competitors, we continue to further optimize our design to value and design to manufacturing initiatives and expect cost improvements to continue over the next 15 months. We are confident that these improvements and the strength of our average new project margin will enable greater than 20% gross margin in the future as our revenue levels scale. And finally, our breakeven cost has greatly improved, driven by higher direct margins as well as a reduction and keen focus on operating expenses and overhead costs, including adding incremental labor in low-cost countries. Our breakeven revenue level has historically been well over $100 million per quarter. Last quarter, we discussed how we have now brought that down to approximately $50 million to $60 million depending on whether or not we pay a bonus. Our margins on new U.S. bookings, which are higher than international have been very healthy and may enable us to achieve adjusted EBITDA breakeven below $50 million. So that's the latest on our key profitability initiatives. As it relates to the CEO search, we have been very deliberate in our approach to finding the right candidate and not wanting to disrupt progress on key initiatives. We continue to focus on candidates with significant industry knowledge, and we have seen strong interest. I expect we could be in a position to make an announcement on or before our next earnings call in August. So in summary, we continue to make good progress in positioning the company for a healthy recovery. We have a strong and expanding product portfolio that is well regarded in the industry and can optimize our customers' project portfolios. Customer engagement is the top priority, and we continue to see healthy bookings. The market for 2P trackers is improving, and we are improving our systems and processes across the board, including pricing. We have a product cost structure to enable 20%-plus long-term gross margins and a company cost structure, which has been reduced to enable quarterly profitability in 2024. As revenue levels improve, the profitability and cash flow potential of the business can show through. With that, I'll turn it over to Cathy.

Thanks, Ahmad, and good morning, everyone. I'll provide some additional color on our first quarter performance and our outlook. Beginning with a discussion of the first quarter, revenue came in at $12.6 million, which was at the midpoint of our target range. This revenue level represents a decrease of 45.7% compared to the prior quarter and a decrease of 69.2% compared to the quarter last year on both lower product and logistics volumes. GAAP gross loss was $2.1 million or 16.7% of revenue compared to gross profit of $0.7 million or 3% of revenue in the prior quarter. On a non-GAAP basis, gross loss was $1.7 million or 13.7% of revenue towards a higher or better end of our target range. This compares to a gross profit of $1.1 million or positive 4.8% in the prior quarter. While our project margins remain healthy and our costs are much improved, as represented by our last four consecutive quarters of positive margin, the revenue level in the first quarter was not high enough to absorb the indirect costs. We continue to believe that we have significant margin upside when our revenue level recovers. Our GAAP operating expenses were $10.4 million. On a non-GAAP basis, excluding stock-based compensation and certain other costs, operating expenses were $8.7 million, which includes a $0.7 million credit loss provision relating to a specific customer account that was not included in our guidance ranges. Excluding this charge, our non-GAAP operating expenses would have been $8.1 million at the better end of our guidance range and representing some of the lowest levels in more than two years as we have found efficiencies across the company while continuing to invest to support growth. That normalized $8.1 million would compare to a normalized $7.8 million in the prior quarter and $10.1 million in the year-ago quarter. GAAP net loss was $8.8 million or $0.07 per share compared to a loss of $11.2 million or $0.09 per share in the prior quarter and a net loss of $11.8 million or $0.11 per share in the year-ago quarter. Adjusted EBITDA loss, which excludes an approximate $1.9 million net benefit from an earn-out on a previously sold investment less stock-based compensation expense and other noncash items was $10.7 million, compared to losses of $10.1 million in the prior quarter and $7.2 million in the year-ago quarter. Even including the $0.7 million charge, adjusted EBITDA loss was better than the midpoint of our guidance range. Finally, regarding liquidity, we ended the quarter with $60 million in cash and restricted cash on the balance sheet. Our receivables ended the quarter at about 3.5 times our payables and subsequent to the end of the quarter, we received payment on $9 million in outstanding receivables that we were previously expecting by the end of the first quarter. We currently expect to end the second quarter with about $20 million to $25 million in cash. We continue to hold no debt on the balance sheet and have about $65 million remaining under the ATM program at the end of the quarter. As previewed on the last call, we did not utilize the ATM in Q4 or Q1, and we similarly don't plan to utilize it in Q2. With all of those factors, we are actively managing customer deposits and supplier payments. Our backlog is $1.8 billion, and as Ahmad mentioned, the contracted portion of that is $485 million. With that, let us turn our focus to the outlook. Our targets for the second quarter call were the following: Revenue between $10.5 million and $15.5 million, which at the midpoint would represent slight sequential growth from the first quarter. Along with this revenue level, we expect non-GAAP gross loss between $3.1 million and $1.1 million or between negative 29.5% and 7.1% of revenue. As you might expect, the percentage ranges varied greatly at these lower revenue levels. Non-GAAP operating expenses between $8.6 million and $9.2 million and finally, adjusted EBITDA loss between $12.6 million and $9.8 million. We continue to expect revenue to be weighted toward the second half of the year with the company being approximately breakeven on an adjusted EBITDA basis in the third quarter before moving squarely profitable in the fourth quarter. With that, we conclude our prepared remarks, and I will turn it over to the operator for any questions.

Our first question is from Philip Shen with ROTH MKM.

First one is on the back half. You talked about hitting breakeven in Q3 and then profitability in Q4. As it relates to the Southeast Asia AD/CVD and the challenges that might come from that. To what degree is there a risk from those projects that you need to hit in Q3 and Q4 that they could get delayed by the new tariffs?

Thank you, Phil. Patrick, can you give a color on what we see in the market on AD/CVD?

Yes. I mean I think holistically, it's too early to assess some of the potential impacts. Customers are assessing and doing some scenario playing. So it hasn't been fully kind of better or taken up yet. But I will say the projects that we have in the back half of the year have been really focused on getting their security around the modules, and we've been working with them, and they've got clarity and line of sight on the modules. And so we hope that little to no impact for those projects.

In terms of the bookings, I believe there were approximately $118 million of bookings. You mentioned $35 million of U.S. bookings being debooked, and I think Shoals had some debookings or cancellations as well. I assume that your $118 million is a net bookings figure. I was wondering if you've experienced any similar debookings, considering the existing challenges beyond AD/CVD, as well as long lead time high-voltage equipment and interconnection queues.

Thank you for this question again. Cathy, why don't you give some color?

We are providing net booking numbers, but we don't really disclose that information in detail. However, we have never experienced any substantial withdrawals of contracts. Occasionally, there may be minor ones, but we have not seen any significant dropouts from our backlog.

Our next question will come from the line of Pavel Molchanov with Raymond James.

Let's zoom in on Q3 when you anticipate EBITDA approaching breakeven, what kind of gross margin does that assume?

Ahmad responded to Pavel by saying that it would be around 16% to 17%, something in that range. They can find that information and provide it later, but he believes it will be within that range.

And same thing for Q4 with positive EBITDA. Is that going to be the kind of 20% number that you have targeted?

I think it will be lower by a little bit. It might touch 20%, but I believe it will be below 20%.

Okay. Geographic mix, you just talked about some of the risks in the U.S. in terms of protectionism. What's the roadmap for continuing to expand your footprint in Australia and Latin America?

Yes. I will get Patrick to answer that.

Yes. No. So thanks for the question, Pavel. Obviously, our business has predominantly been in the U.S., but we have seen and continue to grow our pipeline and backlog in areas such as Australia, South Africa, Europe, and Latin America, and we expect that to grow in the back half of the year as well and contribute to the overall revenue for the back half of the year.

And of the $1.8 billion total backlog, how much is international?

Patrick?

Yes, Pavel, we haven't broken out the domestic versus international. Obviously, the majority of our pipeline and backlog is in the U.S., but we are seeing the international piece as we've planted flags and grown our team footprint out there, that's been a growing portion of the backlog, and we expect it to grow in the future as well.

And our next question is going to come from the line of Sameer Joshi with H.C. Wainwright.

Just a little bit on the backlog. I know you are not giving the geographic breakdown, but do you have 1P versus 2P breakdown there?

Patrick, why don't you give some color on the backlog? Give a little bit of geographic, although we don't show exact numbers in 1P 2P, as well color.

The majority of our backlog is based in the U.S., with additional contributions from Australia, South Africa, and Europe, which is our most recent market entry. Our contracting awards have been skewed towards 2P due to it being established for a longer time. As Ahmad mentioned earlier, we are witnessing a recovery in the 2P market. However, many of the recent bookings are linked to our 1P system, driven by enthusiasm around constructability and the overall 1P market. Consequently, more new projects have been contracted using our 1P system.

Understood. On your path towards improving gross margins over the last several quarters and going forward, is the focus more on lowering the fixed costs? Or are you trying to control the contribution margin of each additional unit produced or is the gross margin being driven also by some kind of a mix, either geographic or 1P, 2P?

Thank you, Sameer. There are two approaches. One is to manage overhead costs without necessarily reducing them and to be cautious about how we increase those costs as volumes grow, particularly in areas like field services. However, the primary driver of our gross margin improvement is achieved through reducing unit costs, including materials, value-added manufacturing, and logistics.

Great. And then just one last question. In the income statement, there is a $4.1 million gain from disposal of investment. Can you tell us what it is?

Cathy?

Yes. We previously had an investment in a subsidiary that we disposed of back in 2021. And we had an earn-out on that. And as that earn-out gets earned, and we recognize the revenue at that point in time.

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

Just a couple of quick ones. I was wondering if you could categorize either Patrick or Ahmad, the growth in the second half. I assume that those in the U.S., would you say it's with larger developers, smaller developers? Any context would be helpful.

Thank you, Jeff. This is Ahmad. So it is in the U.S. it is with smaller developers. I mean, just to give you some color, our stock price being where it is, we are not as successful yet in penetrating Tier 1 accounts. And that's something that I think will change as we breakeven in Q3 and become profitable in Q4, so that's the color on the growth.

That's helpful. Just going back six, nine months ago, Patrick and the team were a bit maybe overly specific, but I think there was reference to like the Cat Creek project in Idaho and then some agri photovoltaics in Italy and some potential projects in Spain. I was just wondering if you could update us on where those stand. And then specifically in Italy, I think the government is looking to possibly shut down the agri PV sector as a whole. And so I wasn't sure if there's any notable backlog in that vertical, just given that, that was a focus of the prior...

So Jeff, I will give you color on Europe, and then Patrick can talk about Cat Creek. Look, the Italian potential business is not material to the company. I would say that Spain is going to become very interesting for us internationally, especially with expanding our team and adding senior executives. So we're going to see some nice progress in the next 12 months. And Patrick, why don't you give color on Cat Creek?

Yes. As it relates to the Cat Creek project, obviously, it's one that we're really excited about and just as a lot of other projects have seen, there's been some kind of inherent yet small delays that are going on with that project. But we expect it to start here in the short term and really kind of carry into the back half of the year and into 2025.

Great. And then two other just rapid-fire ones. Ahmad, how do you define high wind? Is it 120 or 140 miles an hour?

I define it as 135 and 150.

Got it. That's helpful. And then is there a bias to pay bonuses in Q3 or Q4? Or have you accrued for either period?

I'll get Cathy to answer that.

No, we have not accrued for either period at this point in time, but we do anticipate that there would be an opportunity to pay bonuses in Q4.

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

So just a few ones for me. Could you, first off, remind us on the definition of the contracted backlog? And then can you also give us a sense of what proportion of this backlog, you would say, is fully derisked from a permitting perspective, interconnection, financing, high-voltage, critical equipment panels. Just trying to make sure that the customers have what they need to move forward with these projects.

All right. Patrick, why don't you answer this question?

Yes. Our definition of backlog has remained consistent since the IPO, including signed purchase orders, letters of intent, and verbal awards, which we detailed in our filings. Regarding derisking, we currently have $485 million in signed purchase orders out of the $1.8 billion total backlog. However, we are not providing guidance on individual projects regarding financing and inverters. Once a purchase order is signed, projects progress according to their established timelines. While there is industry discussion about high voltage equipment and lead times, none of our projects have been affected so far. I want to revisit a previous point about modules. We have communicated with our customers about the second-half projects, and many have already secured modules, whether through inventory or arrangements with First Solar or other suppliers for shipment. At this moment, we have no updates from customers about potential impacts in 2025 due to AD/CVD or high-voltage equipment, but for the remainder of this year, everything is on track.

And I'm showing no further questions, and I'd like to hand it back to management for any further or closing remarks.

Bill?

Great. Well, thanks, everyone, for joining today. We look forward to giving you an update next quarter and thanks for joining.

This concludes today's conference call. Thank you for participating. You may now disconnect.