Earnings Call Transcript - SHLS Q2 2021

Operator, Operator

Good afternoon, and welcome to Shoals Technologies Group Second Quarter 2021 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Mehgan Peetz, General Counsel for Shoal Technologies Group. Thank you. You may begin your presentation.

Mehgan Peetz, General Counsel

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me are CEO, Jason Whittaker; CFO, Philip Garton; and SVP of EV Solutions, Jeff Toner. On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's press news release regarding second quarter earnings and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.shoal.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Jason.

Jason Whittaker, CEO

Thank you very much, Mehgan, and good afternoon, everyone. I'll start off by giving an overview of the current solar market landscape and the opportunity that it's creating for Shoals. I'll then discuss the progress Shoals is making on three of its core growth initiatives: converting the industry to BLA; growing wallet share with new complementary products; and entering the EV charging equipment market. As most of you know, 2020 was a record year for Shoals, both in terms of revenues and profits. That momentum continued in Q1 and now again in Q2. Revenues and adjusted EBITDA for Q2 were up 38% and 34%, respectively. Our second quarter results were driven by continued growth in our System Solutions business. That growth was a result of sustained strong demand for utility scale solar, as well as market share gains. Increasingly, customers are seeing the value that our combined ecosystem provides, and we are converting customers to BLA in a much shorter period of time than it took us in the past. In our core U.S. Solar business, we're seeing increasing levels of demand as the build-out of new projects accelerates. The acceleration is being driven by continued declines in the LCOE of solar, which makes it more competitive with other sources of generation, the growing corporate and utility commitments to source energy from renewable resources, the two-year extension of the solar ITC that was packed in December of 2020, the IRS expansion of the continuity safe harbor to 2025 in June, and the normalization of permitting processes as states reopen from the pandemic. According to many industry analysts, the effect of all that has been to increase the size of the addressable market over the next three years by 30%. That's a huge increase in the size of the market and aligns with what we've been seeing in the marketplace and hearing from our customers. It's also important to highlight that the acceleration of the solar market does more than just increase our addressable market. We find it is also indirectly leading customers that choose our solution versus conventional EBOS. The reason for that is, as activity levels grow, labor rates rise and labor availability falls. And many of our EPC customers are telling us they're having difficulty staffing jobs. The opportunity right now is that significant. And because our combined as-you-go system installs much faster than conventional EBOS and does not require skilled labor, we can be the difference between our customers being able to take an incremental job versus letting it go to a competitor because they don't have the crews available to do the work. So to give some perspective for how strong demand is for our products currently, our quoting activity has more than doubled from what we were seeing last year. Average project size measured in dollars has increased 62% versus last year, which is very favorable to us because we have certain fixed costs that are the same regardless of the job size. So as the job gets bigger, we get more leverage on those costs. More leverage on our fixed cost usually translates into higher job margins. The growing demand for our solutions is reflected in our total backlog and awarded orders, which was $200.5 million as of June 30, 2021, an increase of 63% versus the same period last year. And to put that in perspective, that's more than our total revenues last year. So now turning to our progress on our growth initiatives. We're continuing to take share with our combined-as-you-go system, and we're converting EPCs and developers to our system faster than ever before. To provide some context for how much we've accelerated the customer conversion process, when we went public in January, there were four major EPCs that used our system for most or all of their projects and another ten that were in transition, meaning that they have placed an order that is included in our backlog and awarded orders. Winning over those first four EPCs took years. Contrast that with the last six months where we completed conversion of an additional five EPCs, and we're getting faster winning new customers. More importantly, the amount of time it is taking for sales prospects to place their first order is compressing. Since our IPO in January, we identified 32 new prospects. During the first and second quarters, none of them placed orders, successfully converting from prospect to an order in less than 90 days. And that is an extremely short period of time for an EPC or developer to move to a new system that has different means and methods. We think it underscores the tremendous strength and differentiation of our product offering. It's also worth highlighting that some of these new customers we are winning are international. While we're seeing tremendous performance from our core combined-as-you-go products, we are not standing still. We remain focused on expanding our wallet share with new products, including our recently introduced IV curve benchmarking and wire management solutions. IV curve benchmarking systems give owners unparalleled insights into the performance of their products, all the way down to the string level. And we believe that will be a valuable tool for owners to improve production and lower O&M costs. Our wire management solutions are an improvement on conventional wire ties that have a high rate of failure in the field, and will be a high-volume, high-margin product for us. Both of these new products are currently being field tested with customers, and we're on track to generate revenues from both in Q4 of this year. And finally, we're progressing steadily on our expansion into EV charging equipment, which we are confident will be an attractive new leg for us and further accelerate our growth. On our last quarterly earnings call, our SVP of EV Solutions, Jeff Toner, spoke in detail about the opportunity that we see for Shoals in EV charging. Installation is nearly half of the cost of deployment. As a reference, for a solar project, it's about 30%. The reasons for high-cost installation revolve around many of the very same issues encountered in solar. The need for trenching, complex interconnections, home-run cabling, and the need for expensive skilled labor. Together, those characteristics make the EV charging market ripe for innovation. And the innovation it needs are exactly the areas where Shoals has unique expertise and manufacturing capabilities. To capitalize on this immense opportunity, we're currently developing four new product families for the EV charging market, which we believe will reduce the installation cost of a charging deployment by 20% to 30%. One, Skid Solutions that package the key components required for an EV charging station in the factory with the objective of reducing the amount of labor required in the field and increasing quality; two, raceway that allow the wire to be run above ground rather than in an underground conduit; three, EV BLA that eliminates home runs from each dispenser and offers benefits similar to our solar BLA, including a 75% reduction in wire runs; and four, prefabricated skids for DC or high-power chargers and AC skids either two or four dispensers. Charging Skid Solutions minimize placement time and increase quality while reducing cabling costs. Importantly, each of our product families can be used individually or in concert with one another. We will encourage customers to purchase a complete system, which will be a value multiplier. But we designed each product to stand on its own if customers want to purchase only certain components. We expect to introduce our first offering for EV charging in the fourth quarter of 2021. Specifically, our Phase 1 products, Skid Solutions and the quad chargers are already in advanced development, and we expect to have our first units deployed with customers in Q4. Our Phase 2 products, Raceways and EV BLA are being developed now, and we expect to have our first units deployed with customers in the first quarter of next year. We currently expect full commercial launch of all products to occur in the second quarter of 2022. And I'll wrap up by saying that we're very excited about what we see ahead for our core solar business and our new EV charging business. I'll now turn it over to Phil, who will discuss second quarter and first six months financial results.

Philip Garton, CFO

Thank you, Jason. For the second quarter, revenues increased 38% versus the prior year period to $59.7 million, driven by a 62% year-over-year increase in our System Solutions revenues, which was partially offset by an expected decline in Components revenues. The growth in System Solution revenue reflects strong demand for our combined-as-you-go system. The declining component revenue was consistent with the expected change in certain customers' order timing relative to last year and the conversion of our other customers from components to system solutions. The sale of system solutions represented 86% of revenue versus 73% in the prior year period. Prices across our product lines during the second quarter were comparable to the prior year. Gross margin in the second quarter increased by over 500 basis points versus the prior year period to 43.8% as a result of a higher portion of our revenue coming from combine-as-you-go system solutions, purchasing efficiencies from increased volumes, improved materials planning, which reduced logistics costs, enhancements to product design, lower manufacturing costs, and other manufacturing efficiencies resulting from higher production volumes. Second quarter general and administrative expenses were $10 million compared to $9.3 million in the prior year period. This was driven by a planned increase in payroll expense due to higher headcount to support our growth and product initiatives, new public company costs and public offering expenses, partially offset by a decrease in equity-based compensation. Adjusted EBITDA for the second quarter was $20.6 million, up 34% from $15.4 million in the prior year period, with adjusted EBITDA margin decreasing approximately 90 basis points year-over-year to 34.5%. Adjusted net income was $14.7 million in the second quarter compared to $13.1 million during the same period in the prior year, increasing 12%, primarily due to increased system solutions revenue partially offset by an increase in interest expense. Please see the adjusted EBITDA and adjusted net income reconciliation tables in our second quarter press release for a bridge to our GAAP results. Now turning to our results for the first six months of 2021. Revenues grew to $105.3 million compared to $84.2 million in the prior year period, an increase of 25%, driven by a 55% year-over-year increase in system solutions revenues, partially offset by a decline in Components revenue. This reflects strong demand for Shoals' combined as-you-go system for the first six months of 2021. We derived 80% of revenues in system solutions versus 65% in the prior year period. Prices across our product lines during the first half of 2021 were comparable to the prior year period. Gross margin in the first half of the year increased by 590 basis points versus the prior year period to 42.7% due to a higher portion of revenue coming from combined as-you-go system solutions, purchasing efficiencies from increased volumes, improved materials planning, which reduced logistics costs, enhancements to product design that lowered manufacturing costs, and other manufacturing efficiencies from higher production volumes. General and administrative expenses were $16.8 million for the first six months of 2021 compared to $11.9 million for the prior year period. This was driven primarily by new public company costs and public offering expenses, planned increase payroll expenses due to higher headcount to support our growth, and product initiatives, partially offset by a decrease in equity-based compensation. Adjusted EBITDA for the first half of 2021 was $34.7 million, up 26% from $27.5 million in the prior year period, with adjusted EBITDA margin increasing more than 30 basis points year-over-year to 33%. Adjusted net income for the first six months of 2021 was $23.4 million compared to $22.1 million for the prior year period. Please see the adjusted EBITDA and adjusted net income reconciliation tables in our second quarter press release for a bridge to our GAAP results. As of June 30, 2021, we had backlog and awarded orders of $200.5 million, an increase of 63% year-over-year and 11% versus March 31, 2021. The increase in backlog and awarded orders reflects continued robust demand for Shoals' products from our customers. Turning to our outlook for 2021, based on current market conditions and input from our customers and team, we are reaffirming our previous guidance and expect 2021 revenue to be in the range of $230 million to $240 million, up 31% to 37% year-over-year. We expect adjusted EBITDA to be in the range of $75 million to $80 million and adjusted net income to be in the range of $47 million to $51 million. As we noted last quarter, we expect year-over-year revenue growth to increase in subsequent quarters. Specifically, we currently expect the second half of the year to be Q4 weighted with Q3 to be comparable to slightly up modestly on a sequential basis from Q2. From a margin perspective, as previously communicated, the mix related to gross margin expansion that we saw this quarter may not recur next quarter, and we expect to have a greater percentage of component sales. Before I turn it back over to Jason, I wanted to make a couple of comments regarding the growing pains the solar market is currently experiencing. The ones we hear about the most are price of commodities, potential project delays given supply chain disruption, and shipping costs. While we're not immune to what happens in the market, we set our business up in a way that these issues have a minimal impact on us. First, when we quote a price we match that price against the quote for key inputs from our suppliers and will only honor that quote for seven days. That means we are not in a position where we promised a price to a customer but then have the cost of the inputs for that order increase on us and change our margin profile. We essentially lock both sides of the ledger when the order gets signed. We've been doing things that way since before the current inflation in commodity prices, and it has served us very well in this environment. With respect to project delays, we're aware of some in the market, but we're not seeing them materially impact Shoals. And the reason for that is that most of our customers are already in construction or about to start construction when they sign a contract with us. That means it is very unlikely to lead to delays that cancel the project. A good analogy here is, once you start a new skyscraper, even if the real estate market changes, you're still going to order the window and finish that project, and we're essentially the windows guy. Lastly, as it relates to shipping, we're seeing increases in costs like many other players in the solar industry. But in our case, shipping is not a big component of our cost structure. The reason for that is that our products are relatively lightweight and packed densely. So we have a lot of options for how we get product to the customer. Additionally, on the supplier side of things, most of our suppliers are located in North America. So we don't have the challenges with overseas shipping that some of our peers are experiencing right now.

Jason Whittaker, CEO

I'd like to close by thanking all of our customers for their commitment to Shoals, our employees for their contributions to our company's success, and our shareholders for their continuous support. And with that, thank you, everyone, and I really appreciate your time today. I would now like to ask the operator to open the line for questions.

Operator, Operator

Our first question comes from line of Maheep Mandloi with Credit Suisse.

Maheep Mandloi, Analyst

Thanks for the clarifications or updates on product delays and supply challenges, really helpful. Maybe just a question on Q3 margins. If you could talk about what's driving that weakness, is it just mix shift? And how should we think about that in Q4 or next year?

Jason Whittaker, CEO

So I think the easiest way to cover that is walking back to the updated investor deck that's out on our website, where we really talk about our BLA and how it's gaining share. So looking at that, when you look at those new prospects that we're transitioning, sometimes when we're working with those clients, there is an opportunity to offer that more component-based offering while we're moving towards that. And when that happens, we're obviously going to capitalize on that. So it's really just a function of a mix shift between the full system solution and more of that component-based offering in this particular quarter. As we continue to go forward, we expect our margin profile to increase, but you're going to have some ebbs and flows along the way, depending on the mix shift, whether it's more of a component-based mix or that full system solution.

Maheep Mandloi, Analyst

Got it. And then maybe if you can just talk about the backlog here, a good indicator of your growth later this year or next year. But if you could talk about how much of that backlog is for 2021 versus '22 or later years? And what are the different buckets of whether the components or BLA or maybe other new products in that backlog today?

Jason Whittaker, CEO

Yes, great question, Maheep. We're not providing any type of guidance on the specific products as far as components versus system solutions. When you look at the backlog itself, we have excellent visibility over that 12- to 18-month period with a large portion of that backlog obviously taking place over the next 6 to 12 months. But we've not provided any exact breakdown between 2021 and 2022.

Maheep Mandloi, Analyst

Got you. And just one last one for me and I'll jump back in the queue here. For that EV charger market, you had a lot of details in the slide deck around the market opportunity. But could you highlight who the buyer here is or who the target customer is? I know you've been talking about the EPC companies in the past, but has anything changed recently? Or what are you seeing on the buyer side for EV chargers?

Jeff Toner, SVP of EV Solutions

Yes, I'm sorry, your question broke up a bit for me. Can you restate, please?

Maheep Mandloi, Analyst

Jeff. Just want to understand who the incremental customer is for those EV charger products? And I think you said you expect new orders sometime next year, right?

Jeff Toner, SVP of EV Solutions

Yes, that's right. We spent a large part of Q2 on customer outreach, and that continues to go extremely well. We're having multiple on-site visits starting in August and continuing throughout the duration of the year. We do expect those to materialize into first orders in the fourth quarter, as stated. We're continuing to work with our cornerstone customers in the EV space, much like we did when we deployed our BLA solution in solar. In the presentation posted on the IR side, we updated the assumptions for EV charging around the benefits of the infrastructure plan. We do expect the infrastructure plan to help us with customer outreach and growth.

Philip Shen, Analyst

The first one is on margins, just as a follow-up to Maheep's question there in Q4. Can you give us a sense of what the cadence might be for Q4 and maybe even Q1 of '22? Do you think we see some improvement there? Or perhaps it stabilizes at the Q3 level and goes sideways? So sorry to harp on this a little bit more, but just curious if you might be able to comment on that. I know you're not providing official guidance.

Philip Garton, CFO

Phil, I can take that. This is Phil. I'm battling a cold, so I apologize. But as we've stated before, we expect our margins to continue to increase, our gross margins, as we go forward. Still, there's going to be bounces up and down, but the trend will be positive. So we do not think that the Q3 balance is a permanent number at all. Rather, we will continue to see the improvement as more people switch to BLA and as we roll out the new products, which we all have hurdles that match our current margin profile.

Philip Shen, Analyst

Great. And then as it relates to your domestic versus international mix, I was wondering if you could comment on what you think that mix might be for maybe Q4 of this year or maybe full year '21? And then by the end of '22, what do you think that mix can shift to?

Jason Whittaker, CEO

Phil, this is Jason. Good to speak with you again. The easiest way to really address that is by pointing back to the BLA share gains we talked about. At the time we went public, we had 11 particular customers that were prospects. That number has significantly increased to over 30%. More importantly, we now have 11 customers in the international market in that exact same state. I'm very excited about the outreach and effort that the sales team is putting forward. But at this time, we’re not providing any exact specifics on what the breakout is between North America and International.

Brian Lee, Analyst

Maybe first off, just on the demand environment heading through the second half. And I know you're reiterating guidance here; it sounds like the backlog is up a lot. So things are trending in a very positive direction. Can you give a bit more color around what you're seeing real-time in the demand environment, where lead times are for your products? How does that compare to historical or what you consider average lead time? Just in general, wondering if you've seen any pushouts or project timing issues related to inflationary pressures that some of your customers may be seeing across parts of the solar supply chain.

Jason Whittaker, CEO

Brian, this is Jason here. Looking at the backlog, one of the things that really drives that is your inputs, right? We constantly monitor inputs based on market dynamics daily. If there were any type of significant shifts that would affect operations, we're very comfortable flexing from one vendor to another. Regarding projects themselves, as we've discussed and reiterated guidance, we're not seeing any material changes overall. More importantly, we didn't have to see any particular projects cancel.

Brian Lee, Analyst

That's great to hear. And then maybe one on the model for Phil, not to get too bogged down in minutia. If I just take the midpoint of guidance for revenue, EBITDA, and adjusted net income for the year, it seems like second half versus first half revenue and EBITDA are pretty similar, sort of in that 20%, 25% up half-on-half range. But then the adjusted net income is a little lower than that, sort of in the low teens. Is there anything with respect to Q3, Q4 that would be flowing through differently below the line and impacting your net income growth in the second half relative to EBITDA growth?

Philip Garton, CFO

The main concern I have is understanding exactly what you're saying. Our primary driver here, as previously indicated, is that adjusted net income and adjusted EBITDA are likely to be slightly lower this year. This is due to the rising expenses associated with our growth initiatives, which will lead to a minor decline. However, as we progress, we anticipate being able to leverage these expenses next year. As Jeff mentioned, we are seeing revenue growth from these initiatives in electric vehicles, international markets, and all of our new products. This projected decline has been discussed throughout the year in relation to our forecasts. Overall, we expect margins to continue improving, along with adjusted EBITDA and adjusted net income in the long term.

Colin Rusch, Analyst

With the new bookings that you had during the quarter, can you break out how much of that was from new customers? And how much of that was repeat customers that you've got in the portfolio already?

Jason Whittaker, CEO

Yes. Colin, Jason here. We haven't provided any particular specifics on that outside of just pointing out the fact that the number of customers we were able to convert in such a short period from being in prospects directly to in transition within that 90-day period in this particular quarter and roughly over the first six months since we went public.

Colin Rusch, Analyst

Okay. May press into that a little bit offline. But the second question is really about pricing. If you think about pricing of the product and rising labor rates and the efficiency that you offer your customers, how are you thinking about offering up pricing here and potentially raising pricing to capture a bit more margin as you go forward?

Jason Whittaker, CEO

Well, I think, Colin, really we're in what I would consider to be the growth sector, more specifically the company as a whole, but more specifically with the BLA and combined as you go product line. So we price that product on par with what I would consider to be more of the digital solutions that are out there, and that's the methodology that we utilize.

Mark Strouse, Analyst

So you've seen some impressive acceleration in your business since the IPO. Just curious if you can touch on the competitive environment if the IPO and your results have invited new competitors potentially?

Jason Whittaker, CEO

Mark, Jason here. Yes, from a competitive landscape perspective, we obviously keep a very healthy paranoia and monitor what's going on. But from the perspective of competitive landscape, I would say it's very similar to what we saw at the time of going public.

Mark Strouse, Analyst

Okay. And then just maybe, not right out of the gate with the EV charging stations, but just over time, how do you think about your pricing power and your margins in that business, given that the installation cost is higher than it is for the core solar business?

Jason Whittaker, CEO

Yes, regarding the margin profile, please continue, Jeff.

Jeff Toner, SVP of EV Solutions

Sorry, go ahead. Yes. As I was going to say, we price very similar to how we do with solar, next best alternative pricing. So as our solutions and as the NBA and expense alternative increases over time, we're going to have flexibility from that regard. We're always looking to optimize margin, and it feels very adamant about that, and we'll continue to do that. As our solutions become more broadly deployed in the market, we expect that our NBA comparatives will yield solid margins comparable to what we see in solar.

Joseph Osha, Analyst

Just one question for me. You refer in the updated slide deck again to this incremental $0.03 per watt for storage attached systems. I'm wondering if you can comment on how the mix is evolving in terms of storage versus not in your business?

Jason Whittaker, CEO

Joseph, Jason here. The attach rate of storage projects is increasing drastically, which is very exciting. The $0.03 of incremental spend changes somewhat depending upon whether you're talking about an AC coupled or a DC-coupled solution, which both are out in the marketplace. When you look at that attach rate, it’s very exciting, and especially when you consider the fact that as we continue to bring in new customers, we grow our core solar business; it's a natural progression to support our partners in the market that are moving into storage or supporting storage on top of solar.

Kashy Harrison, Analyst

And my first question is on just the market commentary. As you indicated, you're closer to the construction side of the equation, which is why your 2021 guidance is unchanged. But a lot of projects for 2022 have not yet started construction. I was just curious, what are your customers indicating to you in terms of the potential for delays into 2023? Has that ended the discussion at all? Or does it seem as if even the 2022 projects will remain on track?

Jason Whittaker, CEO

Yes, Jason speaking. I've not had any intimate conversation regarding 2023, but there is very strong demand for the particular product itself, pointing back to our growth in our backlog and awarded orders and the number of projects we have. I think it's really just an exercise and optimization based on all of the items that are there, just waiting on the dust to settle. When you talk about the Biden infrastructure plan, the potential further extension of the ITC, possibly even an increase in rate, as well as the potential removal of the tariffs for panels coming into North America. Those are really the key things that everybody is watching and seeing how they fall, just to make sure they have done their proper diligence and optimization for each of these projects.

Kashy Harrison, Analyst

And then my follow-up is maybe a quick question for Phil on just the modeling question. So Q1 and Q2 looks like working capital represented a use of cash. I was just wondering if you could help us think through working capital entering the second half of the year. Would you expect the full year working capital to be relatively flat? Or would you expect working capital for 2021 to represent a use of cash?

Philip Garton, CFO

From a cash perspective, we will clearly use funds. However, in terms of days, we believe we can maintain or improve our current performance. One important approach we are taking, which I consider wise, is that amidst various supply chain challenges, we are collaborating with secondary suppliers and similar partners, and we feel confident about it. However, this may lead to some variations in payment terms, either extending or shortening days for payables. Receivables are similarly impacted as we onboard new customers for initial orders. We anticipate that days of working capital will remain steady or even improve.

Operator, Operator

Our next question comes from the line of Moses Sutton with Barclays.

Moses Sutton, Analyst

I may have missed it. Can you provide how much International revenue is in 2021 guidance, maybe roughly, how much is in backlog? And which countries are you finding greater traction?

Jason Whittaker, CEO

Moses, this is Jason speaking. We are not providing any specific breakdown of international versus domestic markets. But we’re very excited about where things are and what the teams have accomplished. The EU is obviously an important region, which is part of the reason why we used that area as our first movement. And that’s outside of Australia and then, of course, LatAm. We're building up our pipeline as we move into other areas and continuing conversations with customers we've served already in North America. We’re happy about our pipeline as well as the backlog and awarded orders that we've achieved.

Moses Sutton, Analyst

That's very helpful. And any thoughts on potential M&A internationally, some small companies that can jumpstart your presence in certain markets?

Jason Whittaker, CEO

Yes. From an M&A perspective in general, we'll consider anything that we feel adds real value. When you examine M&A, there’s nothing noteworthy to speak of internationally right now. However, it's something we may take a hard look at as we expand our manufacturing and see if another location is more conducive for some reason, but nothing worth mentioning right now, Moses.

Operator, Operator

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

Jeff Osborne, Analyst

I wanted to go back to your analogy of the skyscrapers and windows. I think one of your slides in your Investor deck talks about as you become more strategic with your EPC vendors, giving preliminary engineering drawings and designs and doing a design layout in conjunction with the pricing. Can you talk about what you're seeing at the front of the sales funnel that is well before the preconstruction process?

Jason Whittaker, CEO

Yes. When you look at the sales funnel or sales pipeline, Jeff, the sales pipeline remains very strong and continues to grow and accelerate. We’re very excited about what we've seen, and it further supports the backlog and awarded orders we have and the growth the sales team has been able to generate in our market.

Jeff Osborne, Analyst

Got it. My second question was just, I think with this quarter's results, I believe you're probably in the history of publicly traded solar, if not the highest, one of the highest reported gross margins. Just given the broad 10% inflation that you're seeing on utility scale solar with the price of steel as well as panels and labor rates that you alluded to, do you have any concerns that your EPC vendors or developers will flag that as, 'hey, I'm taking pain in this other area of cost, maybe you should as well?'

Jason Whittaker, CEO

So looking at the gross margin perspective, Jeff, we go through and optimize that particular site. When you compare that to the full system BLA solution, which has the higher margin profile that we've discussed, an alternative of going back to a conventional home-run solution would be more costly than our product itself. So we’ve not seen any additional pressure from that perspective, given the market conditions you mentioned.

Operator, Operator

Ladies and gentlemen, this concludes today's question-and-answer session. This also concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.