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.

Thanks, Sean, and good morning, everyone. I'll provide some additional detail on the third quarter performance and outlook. And as a reminder, our year-over-year comparisons reflect a significant amount of growth in our personnel and corporate infrastructure ahead of becoming a public company, which occurred in the second quarter of this year. These items make the year-over-year comparisons a bit less meaningful. Beginning with the results for the third quarter. Total revenue was $53 million, which was below our target range due to shift in production timing and the resulting revenue recognition between quarters. This revenue level represents an increase of 5.8% compared to the prior quarter on slightly higher product volume and higher ASP and a decrease of approximately 11% compared to the third quarter of 2020 on lower product volumes. Gap gross loss was 2%. $8 million compared to $16.1 million in the prior quarter, driven primarily by lower stock-based compensation relative to our first quarter as a public company, and lower logistics expense on fewer deliveries and compared to a profit of $2.9 million in the prior year period, with the difference driven primarily by a strong ramp-up in employee count and other overhead expenses to support the company's growth trajectory. Logistics impact of $6 million in the third quarter was lower than the $12 to $15 million indicated in the company's guidance, with a portion of that shifting into the fourth quarter along with a shift in production. Gap operating expense was $14.7 million. On a non-gap basis, excluding stock-based compensation and certain other expenses, Operating expenses were $8.4 million, better than the company's guidance range due to cost controls and timing between quarters, which compares to $5 million in the year-ago quarter. The year-over-year increase was driven primarily by the necessary growth in staffing and other public company preparations. GAAP net loss was $22.9 million, or 24 cents per share, compared to a loss of $52.4 million, or 61 cents per share, in the prior quarter, and compared to a net loss of $2.8 million, or 4 cents a share, in the year-ago quarter. An adjusted EBITDA loss, which excludes the $5.4 million impact of stock-based compensation, certain consulting and legal fees, and other non-cash items, was $16.1 million. This was also better than the midpoint of the company's guidance range due to lower operating and shipping expenses. This result compares to an adjusted EBITDA loss of $16.7 million in the prior quarter and $2.1 million in the year-ago quarter. We ended the quarter with $141 million in cash and no debt. Our strong liquidity position continues to differentiate us in the marketplace. gives customers and other stakeholders meaningful confidence in our ability to invest in our growth and positions us well to weather any short-term uncertainties. With that, let's turn to our outlook. Looking ahead, we expect to see strong sequential growth in revenue in the fourth quarter. However, due to an abrupt delay of customer purchase order decisions from the fourth quarter into 2022, driven primarily by module procurement uncertainty, and related regulatory factors that Sean discussed earlier, our revenue expectations for the fourth quarter are now lower than our previous target, as anticipated revenue pushes into subsequent periods. Specifically, we had more than $80 million worth of projects pushed from Q4 into 2022. It's important to note that we see this as a delay, not a loss in the business. It's important to note overall, we continue to see strong demand for our project with our overall project pipeline and contract and awarded orders continuing to grow. With the implementation of bulk break shipping beginning in the fourth quarter, as well as the second quarter of our design to value initiative, we expect to see continued improvement in profitability relative to the third quarter. So for the fourth quarter, we currently expect continued progress, including revenue between $70 and $80 million, representing a growth of 30% to 50% over the prior quarter, non-GAAP operating expense between $9 and $10 million, and adjusted EBITDA loss of $12.5 and $16.5 million, assuming an approximate $3 to $5 million negative impact due to logistics. This outlook would result in full-year revenue between $239 and $249 million, representing annual growth of 27 to 33%. And without the negative impact to logistics or the revenue push-out, we believe we would have been on track to be close to break-even in the fourth quarter. With that, I'll turn the call over to the operator, and we're happy to take any questions you may have. Operator?

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Cashie Harrison with Piper Sandler. Your line is now open.

Cashie Harrison Good morning, everyone, and thank you for taking my questions. On the contracted awarded orders for 2022, how much of the $692 million is associated with 2022, and then how much is associated with 2023?

This is Bill. We've got more than $350 million that's currently set for 2022, and we do have beyond that 2022, given the additional contract as well that we talked about.

Got it. And then I wanted to dig a little bit more into the longer-term agreement that you guys outlined earlier. Can you provide some color on how much capital you're providing to the developer on the longer-term arrangement? How to think about the direct return associated with that capital? How are the ASPs on these longer-dated arrangements structured? Maybe talk us through some some procurement as well. We're just trying to understand the structure of these new agreements because I think they're a little bit different than what you've done in the past.

So, Kashi, this is Sean Hunkler. So let me take a stab at that, and then I'll ask Patrick to comment as well. So I'm really excited about this long-term agreement because it really – locks us into an additional 1.7 gigawatt with this top-tier developer. And if you think about it, it's going to be for us, 30 million is the fund size that we're setting up for this purpose. And if you think about the ASPs and such, so each individual project will have its own agreement. And so just like we announced that we've got two projects underway at about 200 megawatts, we'll have additional projects over the next three to four years to get to the full 1.7. And then we'll have the opportunity, you know, if we both decide things are going well, to extend the agreement further. So I'm really excited about the opportunity it presents.

Patrick? I think the one thing I'd add, Kashi, is as it relates to the contracts themselves that make up the 1.7 gigawatts, you know, these projects are going to be negotiated on an individual basis as the product is needed. So we're not fixing price today for a project that is, you know, one, two, and three years out. We're going to price those projects similar to what we do with any other project that we have at the time in which the PO is signed. Got it, got it, got it. Okay.

And then, you know, you talked to, thanks for all the color, all the market color, really appreciate it. You know, we've now seen projects, you know, get shipped, slip from 21 into 2022. You know, when you think about 2022, you know, how do you think about the risk of project further delays into 2023? And do you think that, you know, the Build Back Better plan may actually unintentionally end up driving project delays? as well into 2023, just given the ITC extension.

So that's a great question, Kashi. We're hopeful that things will stabilize a bit, that having a resolution on ADCDD, having the legislation passed, we're hopeful that that will cause a little bit more stability. Obviously, as we discussed, there's been a lot of chaos and uncertainty with all these factors that have caused projects to push forward into 2022. And, you know, I guess you could say there is some risk that it would have, you know, the reverse effect and because of the ITC push some projects. But I think on balance, just having some decisions made on some of these open issues will lend itself to having some more stability in the outlook for projects. And so that's our hope is that things stabilize a bit, that we see a decision on some of these topics, and that will help us moving forward with our customer base.

That makes sense. And then just the last one for me, you know, I was wondering maybe for Patrick, if you could just provide us with an update on the path to profitability. You know, you indicated you would have been, I think you said you would have been there in Q4 if not for the project delays. And so, you know, are we thinking profitability in Q2 of next year, Q3? Just any commentary at all would be very helpful. And that's it for me. Thank you.

No, thanks for the question. You know, we're not guiding to 2022 kind of profitability now. But what I will say is, you know, as it looks at the, you know, kind of the three main factors of our cost roadmap initiative, the design, the value, the high volume manufacturing, and the expansion of our supply contract base. Those continue to remain on track into Q3 and through Q4, timing and magnitude all holding. We're continuing to see those efforts muted by the increased logistics and increased steel costs, but We are extremely excited about what those are going to afford for us in the future when logistics and steel really revert back to what we've seen in the traditional three- to five-year averages, so no change there.

Thank you. Our next question comes from Philip Shin with Roth Capital Partners. Your line is open.

Hey guys, thanks for taking my questions. First one is, I think you guys talked about 80 million from Q4 getting pushed into 2022. Can you help us understand how much of that might be in Q1 versus Q2 versus possibly the back half? And, you know, do you expect all these projects to ultimately get done or is there a chance that some of these projects get canceled?

So the, the, slip we're seeing or the push we're seeing is somewhere in the range of, you know, 60, 90 days. So we're looking at Q1, Q2 for things that are pushed into next year, Phil. So that's basically how it is now. The good news is that, you know, frankly, we're talking about pushes, right? We're not talking about projects that are getting canceled. We're not talking about projects that are being lost. This is simply a shift. And we're seeing a shift and You know, we've talked to many customers over the past several weeks face-to-face. And so with all the uncertainty and chaos, we're seeing it happen. But, again, it's not a cancellation, which is the good news.

Great. Yep, that indeed is good news. As it relates to 22, I know you haven't issued official guidance, but just think back to the IPO and what your view on 22 revenue was and EBITDA was back then. and then now reflect on your view of 22 now revenue and EBITDA. Given the wins that you've had, offset in part by the increased costs and delays, are you incrementally more positive or negative relative to that kind of prior view? Thanks.

Phil, this is Sean Hunkler again. So, you know, frankly speaking, I've had – face-to-face meetings with roughly a dozen or so customers in my first five to six weeks. And one thing that's been just incredibly impressive to me is how much our customers like the product and really appreciate how our team stands behind the product in terms of assisting them to achieve things like the manufacturability benefit of our product. and the constructability benefit of our product. I'm feeling optimistic based on what I'm hearing for our customers. We talked about the opportunity now is up over 68 gigawatts. While I haven't yet turned my attention specifically to the plan for 22, I have to tell you that I have an overall high level of optimism about the future of our business.

Yeah, Phil, the one thing I'd add to that is if you think about the contract and awarded, you know, we booked $267 million of additional backlog this quarter in an extremely difficult environment. So the highest amount of revenue booked in our history in an extremely difficult environment, you know, we're very optimistic on, you know, the future adoption rate of the FTC solar tracker.

Great. Thank you both. And one last one for me. As it relates to the reconciliation bill, let's say it gets passed as is and we have the domestic content, IPC adder. You talked about having U.S. steel relationships from 2019. What is the timing of when you could actually secure U.S. steel for the vast majority of your customers or projects? Could you do it as early as first half 22 or would it be more likely back half 22 or perhaps even 2023?

So we have, as you mentioned, Phil, we've had deep relationships with U.S. steel suppliers dating back to 2019. In fact, last week our COO was on the road meeting with some of those U.S. steel suppliers. We have really good relationships, and we have a lot of parts for the product that we are able to source today from U.S., steel sources. And in terms of the overall domestic content, you know, I believe by the midpoint of next year, we'll be able to source the vast majority of the parts we need for building the product in the U.S. under domestic content.

Great. Thanks, Sean. Sure. Thank you for the question, Phil.

Our next question comes from Mahit Mando with Credit Suisse. Your line is open.

Hey, good morning, and thanks for taking questions as well. Let me just want a quick clarification on the push out here. I just want to clarify, is it just one customer where you're seeing this big push out for 60 to 90 days, or is it multiple projects, multiple customers?

It's this overall concern about the uncertainty around Items like the MRO, polysilicon pricing, ADCVD is pretty much out there in the industry, and we've seen multiple customers that have basically chosen to pause or push out projects, again, not canceling, but just just pausing or pushing out. And that being said, you know, we also have customers that are moving forward. And so we've got a lot of things going on, you know, project-wise in the U.S., and as we spoke about on the international front, also some significant wins there as well. So while we are seeing, you know, the push-out as a common theme among several of our customers, you know, we're also seeing customers moving forward. And so we're, you know, I guess... I'd say, you know, it's a mixed bag. We're seeing both.

Gotcha. And then to the extent you can kind of quantify this, could you talk about how much of these push-outs are related to shipping-related issues versus the more domestic issues in the U.S. related to the tariffs, WRO, and then more on the module side? And then what I'm trying to get is to understand when could you expect... the customers to come back once all these near-term issues are solved, and then maybe just wait for the shipping conditions to improve?

So I'd say it's a bit of a mixed bag, right? Because we have kind of referred to the current situation as a bit chaotic, right? Because you have so many factors, this perfect storm of the commodity price issues continuing, logistics continuing, costs being at record high levels, 5X higher than they were in the past. You have all these other externalities like ADCVD, MRO, and it's hard to kind of segregate how many are related to each of those individual factors, frankly. So I really wouldn't be able to even hazard a guess there because when we talk to customers, we typically are talking about the whole, you know, the overall market and the overall situation. So it would be tough for me to estimate kind of what percentage is due to logistics, what percentage is due to the ADCVD, et cetera. So it's just this sort of mixed bag of things right now. And as we mentioned before, you know, we're hoping that, you know, The decision on ADCVD will come out this month. We're hoping that things will stabilize a little bit in terms of the power situation in China that's impacting polysilicon. And so we're hoping moving into next year there's a little bit more stability in some of these factors.

And on the module front, as Sean talked about, when we talk to our customers, there are projects that we have where our customers are just waiting for the decision on ADCVD so they can go procure the modules for those projects. And once they have clarity around that, that is a green light for that project to go ahead and go forth. So, you know, we expect after the ADCVD decision for customers to come back to the table once they have the ability or are known to purchase modules.

Karen, I appreciate that color there. It's difficult to put a number to that. And just last one for me, just on the working capital approach. improve this quarter. How should we think about that in Q4 and Q1? Thanks.

Yeah, from a working capital perspective, obviously we continue to focus on liquidity for the company. So with improvement, with more known with our customers, we have better payment terms. With our contract manufacturers, we can continue to grow and have payment history with them. We're able to kind of continue to expand those contracts that working capital need, but really a huge focus for us. As we've kind of reiterated at every earnings call that we've had, our liquidity, we believe, provides us with a differentiator in the marketplace, and having that strong balance sheet allows us and affords us to do different things, but also allows us to weather any kind of short-term dislocation storms without having to go out to the market in times where capital may not be as favorable. And we can continue to run our business and really focus on creating the long-term value for the shareholders rather than trying to raise capital.

And, you know, Mahit, this is Sean. I would add to that that, you know, the competitive advantage of a strong balance sheet really manifested itself this quarter in in the deal that we struck for the 1.7 gigawatts. It's the strength of our balance sheet that allows us to do things like that that we think provide a competitive advantage in access to additional projects.

Got it. Thanks.

Thanks, Mahit.

Thank you. Our next question comes from Ad Hoc Bellacourt with Bank of America Securities. Your line is open.

Thank you. Good morning, and thank you so much for taking my question. I just wanted to understand one thing that you mentioned about the revenue shift between third quarter and fourth quarter, and it may be semantics, but you mentioned that some of that was due to production shift. So does it mean any production hiccup at your end, or was it more to do with the customer choosing to defer the orders?

From a production – no, it was not a customer-driven event. It was a production event at the contract manufacturer. So there was no delay or cancellation from the customer's perspective. It was really just a push from Q3 to Q4. Yeah, so basically steel.

Got it. Understood. And presumably that won't be impacting a full quarter?

Correct. That revenue was pushed and will be recognized in Q4. Got it.

Thank you. And then just, you know, was also curious about your South Africa and Australia projects. You know, what's the expected timeline for those projects and how do we unit economics for those projects compared to your U.S. projects?

So those projects are underway. We've had multiple calls with the EPC and developer in both Australia and in South Africa, and we're really excited about those projects moving forward. In particular, the South Africa project is Agrisolar, and it's related to a local university there. So it's really a new area for us, and And we believe it's going to lead to some other more significant projects as well in South Africa. As you know, we've been in Australia for some time working on projects, and so we're really excited about the increase in the size of some of the more recent projects that have been awarded. But, yeah, we continue to be excited about the opportunities for FTC solar in the international market.

Got it. Thank you. With respect to shipping and logistics costs, you mentioned that compared to the $12 to $15 million that you were expecting in third quarter, the actions were $6 million, and then fourth quarter, you're expecting lesser impact. So, could you just elaborate a bit more? I know some of it is due to break bulk, but exactly what were the initiatives that led to that reduction?

Right. So, for Q3, we guided to the $12 to $15 million of logistics impact in which we saw a $6 million impact We saw about a $3 million to $5 million impact just due to timing and some of the delays of logistics of that push into Q4. So it was really just a push of the cost from Q3 to Q4. You know, we expect a good majority of our freight to be on bulk freight shipping or is on, not expect to be. with a limited amount on container-based freight. And that's consistent with what we've discussed in previous earnings calls with Q1 and Q2 being on the bulk break shipping method rather than the container-based freight. And we're really excited about the opportunity of that. because it gives us and our customers price certainty on the logistics front, whether it takes away the variability and having to discuss additional logistics costs to our customers and to the street.

Great. Thank you. And last one from me, and then I'll pass it on. Just with respect to the Design to Value initiative, you mentioned that it's been showing results in third quarter and will also continue to improve. So I'm curious when you think about fourth quarter and gross profit, particularly for the product part, not the services which has the logistics impact, should we be expecting positive gross margins there? What kind of range do you have in mind there?

So we're really happy with the results we've seen from the DTV, or Design to Value, initiative. We saw several million dollars of benefit in the previous quarter, and we expect to see benefit in the coming quarter. And so we expect to see continued progress in gross margin. And frankly speaking, I think we'll see, I'm very optimistic about next year as well. But we're seeing very good results from that initiative in terms of looking at every aspect of the product and every opportunity that we have to engineer it and engineer out costs, but also engineer a better product. So we're seeing really good results from DTV that are indeed helping us from a gross margin perspective.

Got it. Thank you.

Thank you.

Thank you. Thank you. Our next question comes from Pavia Molchot with Raymond James. Your line is open.

Thanks for taking the question. At a time when input costs are obviously a problem for everybody, I thought I would ask about the status of the software solution and what you're seeing in terms of customer uptake and willingness to pay extra for that.

So thanks very much, Pavel. That's a great question. This is Sean Humphler again. So as we mentioned in the discussion earlier, We're very excited about the fact that we've signed our fourth contract on the SunPath software solution. You know, the SunPath software solution is great for the customer because it will allow them to build the project as they plan and see additional yield, or it allows them to actually build a smaller project and achieve what's been targeted for output by using the added enhanced efficiency from SunPath software solution. And so we're seeing a lot of interest in the market in terms of SunPath. We have other ideas as well for future software offerings in addition to SunPath. We think this is a great growth area for the company. It's really a win-win because it offers an advantage to our customers, but it's also great for FTC Solar in the future. And we see this as a continuing growing area for the company.

Right. Following up on 22, again, recognizing you're not giving formal guidance at this stage, but is it fair to say that the geographic mix of your sales next year will be more international than what perhaps you would have expected, let's say, six months ago, given some of the policy variables in the U.S. that are not manifesting themselves overseas.

Paul, we see a great opportunity internationally, and we believe, thinking ahead, that you'll definitely see a significantly high growth rate because we're obviously starting with a relatively low base in terms of international projects this year, but definitely you'll see an increase in our international projects and And we're very excited, as we mentioned, in what's going on in Australia, what's going on in South Africa. So that's absolutely a fact. And you're right. And those projects are not necessarily subject to some of the challenges that we face in North America. That being said, though, the... The vast majority of our projects today are here in the U.S. And, you know, next year that's probably going to be the same way, you know, in terms of the vast majority being here. But you'll see, I think, a significant increase percentage-wise in what we're doing internationally as well. And there's a lot of good momentum in both Australia and South Africa, but there's also some good momentum and the team is doing a great job in the Middle East as well. And I expect some good things happening there, too. Very good. Thank you, guys. Thanks, Babel. Thanks for your questions.

Thank you. Our next question comes from Moses Sutton with Barclays. Your line is open.

Hi. Thanks for taking my questions. On the large 1.7 gigawatt multi-year agreement, how are you quantifying the expected ASP for bookings purposes before you know what the ASP will be? Are you Are you sort of using the first projects and then just using that to price it for the booking purpose?

So what we're doing in terms of the – like we said, we've booked 200 megawatts of those. As we look outward for the ASP, you know, we're taking a degradated view. Obviously, we expect the – ASPs to come down with logistics and steel prices as those things start to fall. So when we assessed the value of that, took a degraded approach based on a forward-looking view of where ASPs will be.

Great. That makes a lot of sense. And then on that idea of where ASPs are next year, any chance you can quantify for us how much has been pushed through for, let's say, the bookings that are launched next year versus legacy ASPs, call it six months ago, even anything directional or percentage-based, cents per watt, anything?

So clearly, you know, logistics are still a challenge. We're using the break-bulk method, as Patrick talked about, and that's starting to yield some great results for us as a way to combat logistics. We also are working very closely in the U.S., to see what combination of rail and trucking makes the most sense for domestic products. We're trying to do our very best to optimize our performance given the challenges. In steel, you see that internationally, if you look at some of the metrics associated with steel pricing, steel pricing seems to be turning. from its peak internationally. It's still going up in the U.S., so it's going up at a decreased rate from where it was before. So, you know, we're hopeful that next year we'll see some more stability and more normalized performance from these factors that contribute to our costs. But it's hard to predict, but, you know, we're We're doing everything we can by expanding the number of steel suppliers we have. We're looking closely with logistics. What's the landed cost of steel to a project in the U.S.? And where does it make the most sense to source from? But it's hard to predict exactly what's going to happen next year. But hopefully some of the signs we're seeing will lead to some more normal circumstance in those areas. Thanks.

And just to reframe that one a bit, How has pricing actually changed in Connector? That's really what I'm getting at. So, you know, we've moved into this new environment over the recent months, especially since the IPO. We've heard about some competitors raising prices. Just curious on, you know, where Nextor's bookings are on a per watt basis, on a unit basis, relative to what your pricing was six to nine months ago.

Yeah, I mean, from a pricing perspective, ASPs obviously have increased with the cost of logistics and the cost of steel. I think it's a good reminder, you know, we're bidding projects out, you know, six or nine months specifically into 2022 with indicative pricing. And based on how we engage with the customer, you know, we are changing the price of that project or cost of that project on a week-to-week basis. So we're not locking in price there. six or nine months into the future. You know, we're giving indicative bids and pricing, and as the market changes, are able to update our price accordingly so that we're not held on underwater projects. Great, great. And last one for me.

Any chance you could share how many megawatts what just Australia project is?

Yeah, Australia project is above 40 megawatts.

Excellent. Thank you.

Thank you. Thanks, Moses. As a reminder, to ask a question, that's star one. Our next question comes from Jeff Osborne with Cowan & Company. Your line is open.

Thanks for squeezing me in. A couple questions, one maybe following up on Moses' question around pricing. Can you give us a sense of perspective of the $350 million bill that you referenced for 22 that's in the backlog? How much of that has fixed pricing that you've locked down versus the flexible approach that you just alluded to?

Most of it, you know, our customers are very understanding of this difficult market. So for the most part with our customers, you know, we're working through this and using a model that helps us, you know, recognize the dynamic situation and how pricing continues to increase. So So most of our customers are quite, you know, attuned with the situation and are working with us.

Right. And if you think about it, it kind of goes back to the comment I made for Moses is, you know, for the projects that are fixed, those are with, you know, really kind of signed purchase orders and anything else would be available to be moved.

Got it. And then two other ones on the abrupt pushouts that you referenced. I'm just curious, is it projects that were already under construction that are just pausing midway, or is this all sort of new development that maybe folks hadn't locked in panels or experiencing issues and just procuring them?

For the most part, these are projects that are not yet underway that are being pushed out. Projects where the panels have been secured, those continue to progress, and the type of projects that are getting pushed out are basically projects that haven't yet begun construction.

Makes sense. The last question, I probably missed this, but the $30 million that you're committing is associated with the 1.7 gigawatts. It was unclear to me, how are you going to actually recoup that capital back? Is it as they take delivery, they're sort of overpaying and, in essence, rewarding you back for providing that development capital to begin with?

That's correct. Structurally, you know, we get a lien on the project. They're using it for kind of middle to late stage development prior to construction, and our capital gets taken out with construction financing. So these are all projects that have a PPA, have interconnection, have land associated with them, and, you know, we're kind of coming in and providing some of that middle to late stage capital. for the project and ultimately get taken out with construction financing. So very kind of short duration if you think about kind of the cycle times of these projects.

Got it. That's helpful. That's all I have. Thank you.

Thank you.

Thank you, Jeff. And I'm currently showing no further questions at this time. I'd like to turn the call back over to management for any closing comments.

Great. This is Sean Hunkler again, and I'd like to say thank you all for joining us today in your interest in FTC Solar. I'm very excited about the long-term prospects of FTC Solar and the progress we're making, including the significant growth in demand for our trackers in the marketplace, as evidenced by our backlog, our international expansion, and our cost reduction program that is just getting started. I look forward to keeping you all updated on our progress in the quarters ahead. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a wonderful day.