FTC Solar, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the FTC Solar Second Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Bill Michalik, Vice President, Investor Relations. Please go ahead, sir.

Thank you, and welcome, everyone, to FTC Solar's second quarter earnings conference call. Prior to today's call, you've likely had opportunity to review our earnings release and supplemental slide presentation. If you've not reviewed these documents, they're available on the Investor Relations section of our website at ftcsolar.com. I'm joined today by FTC Solar's President and Chief Executive Officer, Tony Etteneyer, and Patrick Cook, the company's Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speak only as of the current date. As such, these forward-looking statements include risks, uncertainties, and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings, including our 10Q, for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you would 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 will discuss our executed contracts and unwarded orders, and our definition for this metric is also included in our press release. With that, let me hand it over to Tony.

Thanks, Bill, and good morning, everyone. I'll start with a few highlights from the quarter. First, I'm pleased to report that in spite of continued and worsening pressure on the global logistics costs and material lead times, our second quarter results came in within or above our guidance range on all metrics. This includes revenue of $50.1 million, which was above the high end of the range. We continue to see strong growth in our executed contracts and award orders. which have grown by 385% on a year-to-date basis through August 1st, with an additional $203 million added since our last update from June 1st. This includes adding a new top five EPC vendor to our customer base of contracted projects. When subtracting the amount of revenue included in reported first half revenue, that brings our new balance to $478 million to be delivered between the remainder of 2021 and 2022. Based on average lead times, we have the opportunity to continue to add to our contracted and awarded revenue for expected delivery in 2021 into the fourth quarter of this year. This backlog growth is important evidence of the growing appeal of our products in the marketplace, supported by our approach to limiting the impact to customers during this period of cost and supply uncertainty. We recognized our first revenue on the sale of our SunPath performance software. This was the third contract for our new software and the first for which we have recognized revenue. We continue to be excited about the long-term potential of this offering as a revenue and profitability driver for the company. SunPath can essentially provide additional risk-free revenue to our customers with a high margin profile for us as well. During the quarter, we sold our position in a minority investment, Dimension Energy, for a net payout of approximately $22 million, with the opportunity to receive an additional earn out of up to approximately $14 million based on that company achieving certain performance milestones. And finally, Based on our backlog growth and other progress this year, we see significant growth in the second half of the year, driven by Q4 with volume deliveries above one gigawatt in that quarter, with improvement in our profitability. I'll now discuss the current environment in more detail. We discussed last quarter the impacts of the global increases in the cost of logistics and commodities, including key inputs to trackers and solar arrays we're having on the industry. Specifically, we discussed that these factors are causing developers to take a closer look at uncontracted projects to reevaluate their construction timelines, and that certain developers were pushing out timelines by a quarter or two. Since our last update in early June, steel pricing has continued to remain elevated. Solar module pricing has remained elevated. and the global logistics environment has continued to deteriorate, with freight increasing another 40 percent into July and spiking further into August. We believe solar developers remain in a similar posture of reevaluation on those uncontracted pipeline projects. We've seen reports estimating that about 15 percent or more of projects are being delayed, which seems consistent with what we have observed in the market. In spite of these project delays, as I mentioned earlier, FTC Solar continues to see continued strong long-term demand growth in orders, which will show up much more meaningfully in revenue for us starting in Q4 and into 2022. To update our positioning and the actions we've taken in this environment, first, we continue to have a strong balance sheet, which allows us to withstand these short-term market dislocations. while working with our customers to minimize impact to project economics and develop innovative logistics solutions to provide them with price certainty. In addition to having a debt-free business, we added $181 million in cash as a part of the IPO, as well as another $22 million in liquidity from the sale of our stake in Dimension Energy in Q2. Second, we shared some of the logistics cost increases with our customers while largely absorbing the impacts in an unprecedented market. The additional impact to us in Q2 was approximately 10 million, with another 12 to 15 million expected in Q3. Our transition to alternate logistics methods for international shipment will begin to be realized in Q4. Providing our customers with price certainty reducing our overall cost structure, and eliminating unexpected price escalations during project execution. Third, regarding steel, given the tightness of supply in the market, we mentioned last quarter that we had contracted for the majority of our anticipated second half steel needs. At this point, our current contracted and awarded projects for 2021 delivery can more than utilize this capacity. And while steel lead times have extended, the relationships we have with our expanded supplier base has enabled us to secure the entirety of our new project requirements at the time of project contract, as we've done in the past, without the need for additional forward steel contracts. Fourth, we see opportunity for revenue acceleration of our SunPath software product, as increased site production is even more important to project economics in today's environment. The software can significantly increase overall project profitability and mitigate upfront cost increases, helping us and our customers improve margin. And finally, we continue to remain on track on our cost reduction roadmap that is expected to yield results in the second half of this year. This roadmap, in addition to procurement and volume manufacturing initiatives, includes our design to value initiative that identifies opportunities to either reduce materials needed to produce our tracker systems or optimize the design to reduce manufacturing costs. We believe this initiative can help to further mitigate unfavorable logistics impacts. While commodities and logistics are in the midst of a near-term dislocation, we believe the long-term demand for solar energy and trackers continues to increase, supported by many powerful growth drivers, including government policy. In summary, I believe the underlying fundamentals of the business are incredibly strong. We're in a growth market with a differentiated offering and seeing rapid customer adoption of our solutions. Our contracted and awarded orders are increasing at triple digit rates, and we are gaining new customers. And we have an asset-light model with a strong balance sheet. We are really executing as a business with one primary negative driver, the current logistics environment, masking some of that performance. We've developed a solution for that, which has been implemented during the fourth quarter. And as Patrick will discuss, we believe we are well positioned to significantly outpace overall market growth again in 2021. With that, I'll turn it over to Patrick.