FTC Solar, Inc.

Good day, and thank you for standing by. Welcome to the FTC Solar Third Quarter 2021 Earnings Conference Call. At this time, all participants 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'll need to press star 1 on your telephone. As a reminder, the conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Bill Michalak, Vice President of Investor Relations. Please go ahead.

Thank you and welcome everyone to FTC Solar's third quarter 2021 earnings conference call. Prior to today's call, you've likely had opportunity to review the earnings release and supplemental slide presentation, both of which were posted earlier today. If you're not yet, they're available on the investor relations section of our website at ftcsolar.com. I'm joined today by FTC Solar's recently named President and Chief Executive Officer, Sean Hunkler, 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 and uncertainties, and actual results could differ materially from our current expectations. Please refer to our press release and other SEC filings, including our 10-Q, for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you expect, we will provide 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 executed contracts and awarded orders, and our definition for this metric is also included in our press release. With that, it is my pleasure to turn the call over to our CEO, Sean Humphrey.

Thanks, Bill, and good morning, everyone. I'm excited to be speaking with all of you for the first time in my capacity as CEO of FTC Solar. I've had the pleasure of previously working with several members of our board of directors, the management team, and other FTC Solar employees at other companies in the past. Prior to joining, I watched the company's strong growth and progress and admired how it was positioning itself for the future. It's for these reasons that I was so interested and excited to take on this new role. FTC Solar has so much growth potential. I'm also genuinely excited about the role the company plays in supporting the transition to renewable energy. In short, I couldn't be more pleased to join as CEO and spearhead the next phase of our growth and to work with all of you. Over the last six weeks, in addition to spending a lot of time with employees and visiting sites, as well as some suppliers, I've spent quite a bit of time with customers with many face-to-face meetings. It's clear that the long-term demand drivers for solar are in place, and customers love our products. Our bookings reflect that. At the same time, there's also, frankly, a little bit of chaos in the marketplace as developers and suppliers work to navigate things like ADCVD, WRO, polysilicon pricing, commodity pricing, and logistics challenges. This is causing some to have uncertainty and push out project timelines. So we're navigating through this environment in the near term, but hope to see some of the disruption settle as we enter the new year. Overall, I believe we are well positioned, have incredible potential as a company, and are working to position the company for strong long-term growth. We have a lot to cover today, including third quarter results and our outlook. So let me jump right to that. I'll start with a few recent highlights. First, revenue grew approximately 6% sequentially in the quarter. While this was lower than our target range as some tracker production shifted, between the third and fourth quarters, lower operating expense, as well as some corresponding shift in logistics expenses, enabled adjusted EBITDA to come in toward the high end of our guidance range. We are pleased to report that FTC Solar has continued to see strong growth in our executed contracts and awarded orders, which have grown by about 580% on a year-to-date basis through today. with another $267 million added since our last update from August 1. Of note, since June 1, we've added more revenue to our backlog than we've recorded in the entire history of the company to date. That's really a telling statistic and is another proof point of the growing demand for our products in the industry. On the domestic customer side of our business, we've recently reached indicative terms on a transaction to supply trackers to multiple projects being developed by a top tier developer, which represents a meaningful portion of pipeline under development by them. As part of the transaction, FTC intends to make a limited amount of development capital available to some of the projects. Each project will have a separate supply agreement with the total transaction expected to reach 1.7 gigawatts over the next three to four years, with the option to upsize if both sides agree. We've done projects with this developer in the past, but we are proud to report that this represents a healthy expansion of our working relationships. This growth also reflects well on their confidence in FTC Solar, our team, and the good real-world experience they've had with our tracker solutions. We've reached agreement on indicative terms for the transaction and expect to execute the definitive agreement in the near future. In the meantime, we've already entered into binding tracker supply agreements for two projects totaling 200 megawatts under development by this developer. Internationally, We've recently seen additional growth and progress, including three more projects in Australia, including our largest there to date, as well as our first two projects in Africa. Expanding internationally is an important growth driver for FTC Solar, and I know that adding initial international projects this year was one of the milestones mentioned at the time of our IPO. We're pleased to report continued progress on that front. We also sold another contract for our SunPath performance-enhancing software during the quarter. This is the fourth contract sold since launching the product earlier this year. SunPath essentially provides additional risk-free revenue to our customers while also providing FTC Solar with an additional high-margin software sale opportunity. we continue to be excited about the long-term potential of this offering and in software in general as a revenue, profitability, and value creation driver for the company. To wrap up our brief review of highlights, we continue to see strong sequential revenue growth in the fourth quarter of between 30% and 50%, despite the challenges of project delays or push-outs in the industry. Expanding a bit more on the current environment since our last update in mid-August, Fuel pricing has continued to remain elevated. The global logistics environment has continued to deteriorate with freight near record highs. And perhaps the biggest change has been in the module space, where pricing has increased significantly. For example, polysilicon pricing is up 40%. And there has been increasing uncertainty around module availability due to several factors that you are all well aware of, including the introduction of the 80 CBD complaints and WRO enforcement actions. As I alluded at the top of the call, we believe this additional module pricing and availability uncertainty on top of the already elevated commodity and logistics pricing is causing an increasing number of developers to reevaluate their construction timelines for certain projects. Last quarter, we talked about seeing reports indicating that maybe 15% or so of uncontracted project timelines were being pushed out by a quarter or two. Now we're seeing reports estimating that number could be even higher, perhaps 50% or more. We are closely monitoring the ADCVD issue and are hopeful that it will soon be resolved in a manner that limits further disruption for the industry. During all of this, we will not lose sight of the fact that long-term demand drivers for solar remain intact and, in fact, continue to strengthen. For example, in the U.S., we are closely monitoring developments related to the pending Build Back Better Act and the incentives for solar energy therein, including a proposed extension and increase to the ITC. We believe FTC solar is well-positioned to successfully navigate through these near-term market disruptions while continuing to position the company for strong long-term growth and value creation for our stakeholders. For example, in addition to our continued strong backlog growth, Our overall project pipeline, or the total amount of uncontracted projects in the solar energy market to which we have visibility as a potential sale opportunity for our trackers, is now at record levels at more than 68 gigawatts. This is further evidence of the continued and expanding market acceptance and interest in our tracker solutions. We continue to have a strong balance sheet, which allows us to withstand short-term market dislocations. Our transition to break-bulk logistics for international shipment will begin to be realized in the current quarter, providing our customers with price certainty, helping to reduce our overall cost structure, and eliminating unexpected price escalations during project execution. Regarding steel, while lead times have extended, the relationships we have with our expanded supplier base have enabled us to secure the entirety of our new project requirements at the time of the project contract as we have done in the past. As it relates to the U.S., we have had qualified steel supply in the U.S. since 2019 and have and will continue to enhance that positioning in to ensure we're ready to meet any potential requests for higher domestic content should the related legislative provision be passed. And finally, we have a cost reduction roadmap with a long runway that is just beginning to yield results. This includes our design to value initiative, which is sharply focused on improving project margin by reducing manufacturing and materials costs. Initial results from this initiative became evident in Q3 and these improvements are expected to be an increasing contributor to improved profitability in future quarters. The Design to Value initiative is also expected to leverage our emerging R&D pipeline, where I see the potential to accelerate certain opportunities. In summary, while there are a number of external factors impacting the solar market today, the long-term demand drivers for solar are firmly in place. I believe the underlying fundamentals of FTC Solar's business are strong and improving, and I see a great deal of opportunity for business growth and value creation, particularly over the medium to long term. We are well positioned in a growth market with differentiated offerings and are seeing rapid customer adoption of our solutions. We have strong and expanding customer relationships. which is showing up in the new customers we are adding, including in new international markets, as well as in our contracted and awarded orders that have grown rapidly and we believe have outpaced the market. We have a lot of opportunity to continue to operate more efficiently as we scale and take cost out of our products. And we have an asset-light model with a strong balance sheet, which gives us plenty of flexibility and sets us up for strong future cash flows. With that... I'll turn it over to Patrick.