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spk06: Good day, and thank you for standing by. Welcome to the FTC Solar First Quarter 2022 Earnings Conference Call. At this time, our participants are on 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. Please be advised this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today. Bill Michalik, Vice President, Investor Relations. You may begin.
spk00: Thank you, and welcome, everyone, to FTC Solar's first quarter 2022 earnings conference call. Prior to today's call, you've likely had an opportunity to review our earnings release, supplemental financial information, and slide presentation, which were posted earlier today. If you've not yet reviewed these documents, they're available on the Investor Relations section of our website at fdcsolar.com. I'm joined today by Sean Hunkler, FTC Solar's president and chief executive officer, Phelps Morris, the company's chief financial officer, and Patrick Cook, chief commercial officer. Before we begin, I remind everyone that today's discussion includes 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 risk and uncertainties and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you'd expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issued this morning includes 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, I'll turn it over to Sean.
spk10: Thanks, Bill, and good morning, everyone. Before I go into our highlights, I thought I'd address the topic on everyone's mind in our industry, and that's the current market environment with ADCVD. Since our last update in mid-March, steel and freight are both off their highs, although still elevated. But those aren't the main drivers in the industry. Module availability is the key limiting factor to solar industry growth in the U.S. in the near term. customers were already facing supply limitations due to WRO, which had the effect of significantly limiting imports as producers either limited or stopped shipments and idled production as they worked to provide sufficient documentation to avoid detention at the ports. As WRO was appearing to show signs of improvement, the new ADCVD investigation, launched on March 25th, with its risk of significant retroactive tariffs, has now compounded customers' difficulties in procuring modules. Module makers would appear even less likely to restart production and unlikely to ship modules at all without buyers agreeing to absorb any potential tariff. This issue with module availability has made the near-term environment increasingly uncertain. As customers work to get line of sight on modules, construction timelines and decisions on new projects continue to get pushed out in time. So, while we have a lot of business in contracted and awarded, much of the construction has been delayed. This particularly impacts our second quarter profitability, as most of the revenue that remains for Q2 is based on old contracts and higher steel content product that doesn't benefit from our significant advances with our design-to-value initiatives. So, with that backdrop of the environment, I'd like to note that there are several bright spots from our standpoint. We have made nice progress on our bookings with contracted and awarded now at $664 million with $112 million added in the past two months and no cancellations. The vast majority of our contracted and awarded moving forward will be at an attractive margin profile relative to historical. And I'll touch on that more in a moment. We have been able to grow our international business organically, and almost half our recent bookings have been international. Our pipeline is at record levels. This includes strong growth in international pipeline, which has grown more than 20% this year alone, and now stands at more than 32 gigawatts. And this excludes our pending acquisition of HX trackers. We're excited about the addition of HX and believe it will enhance our growth and profit opportunities moving forward with incremental pipeline, complimentary 1P technology, and other benefits. We expect to close on that transaction in the current quarter and expect to see tangible progress on bookings as we progress through the year. Overall, there continues to be healthy activity in the U.S. with active bidding and developers working to find new sources of module supply. I think this really underscores what an incredible amount of demand is out there and how well the market could do if ADCBD is resolved. In the near term, we'll continue to focus on what we can control. That includes executing incredibly well on the projects we have in flight while continuing to deepen and broaden our customer relationships. Accelerating our international efforts, which includes smoothly integrating HX Tracker with and supporting their growth as we capitalize on our expanded addressable market. Building our DG business, which has higher margins, and for which we have already been awarded 12 projects since our January business update call. Improving our operational efficiency, which includes automating processes and controlling costs to be most efficient, and continuing to drive our gross margin initiatives, including our Design to Value product cost reduction programs, and strategic R&D efforts. Our design to value initiative has already driven significant cost out of our tracker. We've seen steel reductions roughly in the 20% range with additional reductions expected through year end. Along with improved logistics costs and more disciplined pricing, the new projects we've been winning now have significantly higher product margins. As our lower margin legacy projects complete, and the newer projects begin, it will have a meaningful impact on our margins and results. As an illustration, on the left side of this table, we show what an average margin profile of our legacy projects, or those generally ordered prior to Q4, looks like at revenue levels of $100 and $150 million. And in fact, last quarter, When we provided Q4 results, we mentioned that excluding a credit reserve and incremental logistics expense, we would have been in the negative 2.8% range. On the right side of the chart, it shows an illustration of average new projects and what the gross margin would look like. The vast majority, or more than 600 million, of our contracted and awarded takes advantage of our latest DTV advances. And if there is one silver lining in projects being delayed, it's that we can continuously update those projects as we continue to drive progress in our cost reduction. So essentially, projects can become more profitable than originally designed. Overall, we believe we're well-positioned to make significant progress toward our stated long-term gross margins in the 20-plus percent range. when project activity normalizes post ADCBD. So in conclusion, we believe the regulatory issues will be a near-term bump in a long-term road of strong growth. We have record pipeline, are winning new business, are accelerating internationally and in DG, and have higher margin business poised to replace legacy projects. With the differentiated product, strong customer adoption, significant cost reduction initiatives and operational improvements, I believe FTC Solar is controlling what it can control and positioning itself incredibly well for the future. We significantly outgrew the overall market in the past few years and plan to be even more efficient and effective as we get increased visibility on the externalities or regulatory factors impacting the industry. With that, I'm pleased to turn the call over to our CFO, Phelps Morris. Thanks, Sean, and good morning, everyone. As a follow-up to Sean's comments, I'd like to provide some additional detail on the first quarter performance and our outlook. Beginning with the first quarter, normalizing the effects for the credit reserve, our results for the quarter were generally in line with our expectations. Adjusted EBITDA would have been a midpoint of our guidance range, and non-GAAP gross margin revenue coming in at the low end. Specifically, first quarter revenue was $49.6 million, which includes a reserve associated with a potential customer credit that resulted in a $5 million reduction to our first quarter revenue and gross margin. Exclusive of this reserve, revenue was just shy of the low end of our target range. The difference relative to the midpoint of the range was slightly lower than the expected production in the quarter, as well as a bit of logistics revenue being pushed to the second quarter. This revenue level represents a decrease of 51% compared to the prior quarter on lower volume and a lower ASP and a decrease 25% year-over-year driven by the inclusion of the reserve and lower volume. GAAP gross loss was $9.3 million or 18.7% of revenue compared to $8.6 million or 8.4% of revenue in the prior quarter. Non-GAAP gross loss was $8.8 million or 17.8% of revenue. Excluding the negative impact of the $5 million credit reserve, the improvement in dollars quarter over quarter was due to a reduction in warranty expense as well as improved product cost and logistics margin. The margin percentage declined on a lower sequential revenue level, which leads to less absorption of overhead costs. The results for this quarter compares to a gross profit of $0.1 million in the prior year period, with the difference driven primarily by the reserve and reduced production volume versus the prior year, and an increase in employee count and other overhead expenses to support the company's growth. GAAP operating expense was $18.5 million. On a non-GAAP basis, excluding stock-based compensation and certain other expenses, operating expense was $11.2 million, which compares to $6.9 million in the year-ago quarter. The year-over-year increase was driven primarily by the necessary growth in staffing and other costs associated with being a public company. GAAP net loss was $27.8 million, or $0.28 per share, compared to a loss of $23.9 million, or $0.25 per share in the prior quarter, and compared to a net loss of $7.4 million, or $0.11 per share in the year-ago quarter. Adjusted EBITDA loss, which excludes $7.8 million of stock-based compensation, certain consulting and legal fees, severance, and other non-cash items was $20 million. Net of the reserve, this was just above the midpoint of our guidance range. This result compares to an adjusted EBITDA loss of $16.4 million in the prior quarter and $6.7 million in the year-ago quarter. As Sean mentioned, the ATX transaction remains on track to close in the current quarter. We anticipate integration costs will be approximately $0.3 million, which is primarily composed of legal administrative activities and limited to 2022. With that, let's turn to our outlooks. In light of the near-term regulatory uncertainties in the U.S. solar market associated with ADCBD and WRO, the company is withdrawing its prior annual guidance for the full year 2022 and instead is moving back to provide quarterly guidance and some qualitative discussion beyond that. Our revenue outlook for the second quarter of 2022 reflects this current U.S. uncertainty as our customers have delayed products until they're unable to secure modules. Our gross margin outlook is expected to step back given the lower revenue base of absorbing our overhead costs and, more importantly, the delay of newer, higher-margin products that Sean spoke about previously. Unfortunately, as these projects have pushed, it has left the quarter largely with lower-margin legacy projects in Q2. These factors slow down to adjusted EBITDA, offset to agree by certain expense reduction initiatives we're implementing as we wait resolution of ADCBD and WRO industry impacts. Specifically, our targets for the second quarter call for revenue between $30 and $35 million, non-GAAP gross margin of negative 29% to negative 19%, non-GAAP operating expense between $10 and $11 million, and finally, adjusted EBITDA loss between $19.7 and $16.7 million. While regulatory factors remain the largest wild card for the remainder of 2022, we do see some light as we move to the back half of the year as the lower-margin projects will largely roll off in Q3 and newer, higher-margin products begin delivery. In addition, we've seen great growth in our international pipeline, which will remain a focus for us given the near-term U.S. uncertainties. Finally, we continue to make good progress in our bookings with contracted and warning now standing at $664 million with $112 million added in the past two months. As Sean mentioned, one of the silver linings of the ADCVD delays is products being pushed will allow us to take advantage of further advances and become more profitable than may have been previously designed. We believe that the vast majority, over $600 million of the $664 million in contract and award, will take advantage of our latest DTV initiatives. This should further aid us down the road towards a previously stated long-term growth margin target of 20-plus percent. Based on these factors and what we see today, we believe that revenue in the second half of the year will grow versus the first half, our gross margins will improve, and our non-GAAP operating expenses will decline in the second half relative to the first. It should be noted that all outlook figures and commentary exclude the pending acquisition of HFs. In addition, should there be favorable resolution to the current regulatory issues impacting the U.S. module of supply, including ADCBD and WRO, In the near term, we believe we'll be well-positioned to quickly respond to the pent-up customer demand we're seeing in the U.S. In closing, while we're experiencing some short-term headwinds in the U.S. industry, we remain incredibly bullish on the long-term growth and outlook for the global solar markets. With that, we'll conclude our prepared remarks, and I'll turn it over to the operator for any questions. Operator?
spk06: Thank you. As a reminder to ask a question, you'll need to press star 1 on your telephone to withdraw your questions. Press the pound key. Please stand by. We'll compile the Q&A roster. And once again, that is star one if you would like to ask a question. And our first question comes from Philip Sheen from Roth Capital. Your line is now open.
spk01: Hi, everyone. Thanks for taking my questions. Good job on the strong bookings there. Looks like half was international. Wanted to see if you expect that trend to continue. So When you think about bookings in Q2 and Q3, can you talk about how they're evolving? Do you expect this line or level to maintain? And then do you also expect that international mix to sustain being international? Thanks.
spk10: Hey, Phillip. This is Sean. Thanks for the question. Yeah, we are extremely excited about the progress we've made with international projects. You know, as we mentioned, The pipeline is now half, 32 gigawatts of international projects, and that doesn't include the HX acquisition, which we think will obviously add to that, and we expect to close here by the end of the quarter. Yeah, we expect this trend to continue. We've had lots of progress. You know, we mentioned three countries with new projects that we hadn't, you know, countries that we hadn't participated in before, and we definitely expect those trends to continue. We see a lot of excitement about the Voyager 2P tracker system internationally, and we definitely expect the international opportunities to continue to grow.
spk01: Thanks, Sean. Shifting back to the U.S. here, when you look at your Q2 guide, can you talk about how many of those projects that you're serving in Q2 are being installed without modules? And then what do you expect that mix to be in Q3 and Q4? I have heard of, you know, projects for you guys being installed with all the tracker but with no modules. Just wanted to get a sense for how pervasive that might be. Thanks.
spk09: Yeah, Phil, this is Patrick. I mean, for all the projects that we have in Q2, those are legacy projects that were really in flight and ultimately being delivered in Q4 and Q1 of this year with the vast majority of those being finalized deliveries here in Q2 and those models associated with them.
spk01: Okay. Thanks, Patrick. And then as it relates to working capital, it looks like you guys consumed some cash with the AR line increasing meaningfully to 240 days. with our calculation from about less than 100 in Q4. I'm guessing some of that's seasonal, but I was wondering if you could talk through how you expect working capital, you know, cash consumption to trend in the coming quarters, and with the $49 million on balance sheets, just talk through, you know, liquidity and what you see there. Thanks.
spk09: Yeah, thanks for the question, Phil.
spk10: So as you mentioned, we ended the quarter with a cash balance of $49 million, but we also had $100 million in the undrawn revolver and $130 million in receivables. And timing-wise, we just ended up with a bunch of receivables at the end of the quarter. Since then, we've made a fair amount of progress in terms of collections of the receivables, and we definitely expect Q2 to end with a higher cash balance.
spk09: So we definitely expect to see some good progress there and are seeing it in the quarter as the receivables are being paid.
spk01: Great. Thank you, Sean. That will be it for me, and I'll pass it on. Thanks.
spk06: And thank you. And our next question comes from Mahit Mandilowi from Credits, Please. Your line is not open. Okay.
spk03: Hey, good morning, and how are you guys doing? Can you hear me? Yeah. Perfect. Thanks for the question. So one just on following up on Phil's question on international stuff. So can you just talk about like the ASPs or gross margins in these markets? How should we think about them versus probably what we're seeing in the U.S. markets today? Yeah.
spk10: So we're seeing, you know, as we mentioned, you know, we're seeing great progress and interest in the Voyager 2P system internationally. Now with three new countries added to the mix and basically half the pipeline. Generally speaking, you know, we've said in the past that internationally the margins are not quite at the level but are improving over time. And so, you know, frankly speaking, the margins we're seeing with these projects internationally are good margins. And we think, you know, as we model going forward, we expect to see continued progress in those margins across the year. And part of that is the continued growth in international projects.
spk03: Gotcha. That makes sense. And then just on the backlog and the bookings, it's good to see the growth here. But in terms of your customer checks or conversations, are you seeing any cancellations this month or just trying to understand what's happening with customers? Are they just delaying it into 2023 or is any of getting embroiled into force majeures, for example?
spk10: So, you know, even despite ADCD, one of our highlights is that the contracted and awarded has actually grown over the past two months by $112 million, and now we're up to $664 million. Now, the majority of that, of course, is in 2023. So we are seeing, you know, this tendency to push projects out into the next year. with the expectation that ADCDD is resolved and that module supply is resolved. But we're not really seeing any cancellations. So it's not, you know, no one's canceling. They just tend to push, and the buildup is significant for a strong, strong year in 2023. But again, you know, we are seeing some shift right, but not really any cancellations.
spk03: And just one last one from me. In terms of the gross margins here, to get back to your target or even those high-team kind of gross margins, what scale do you think we need? Is it like the prior Q3, Q4 run rate, or do you expect a faster catch-up with that just given these cost reductions? Just any clarity on that would be helpful. Thanks.
spk10: So let me comment a little bit and then I'm going to ask folks, Morris our CFO to comment as well. So we tried in slide six with the presentation to give you just a little bit of indicative information because frankly we feel really good about the things we can control like the steel content of the system, like the relationships we're building with the suppliers in those steel and logistics. Unfortunately, a lot of that progress is getting masked because of ADCD and the fact that most of the projects we're doing today, as we've got it in the current quarter, are legacy projects, which don't have the benefit of the significant reduction in steel content. We talked about 20% steel content reduction. We're still making great progress. That's what we've done in the past couple quarters, and we're still making great great progress this year.
spk09: And so we try to indicate how, as the mix shifts, as ADC-CDD rolls off and we get to a more normal environment and new projects roll on, that we'll see a lot of opportunity and we're definitely seeing improved gross margins.
spk10: And we just wanted to give you, for a couple different revenue levels, what we think are indicative numbers for the gross margins out in the second half of the year.
spk09: So I don't know, Phelps, if you want to add a little to that.
spk10: Yeah, no, thanks, Sean. I mean, I think Sean hit it on the head there in terms of where the margins are. So the new projects we are signing up today are at a higher level. What we did on slide six is really just show an illustration of where we think the margins are going to be here on a go-forward basis.
spk09: Clearly, if you look at the Q2 guide on a lower revenue target of $30 to $35 million, there's an overhead burden there that's going to bring that down. But as we get up to the higher levels, as we exit the year with the new products that are taking advantage of the DTV initiatives, as well as the improved logistics environment, as well as field content, that's where we're going to exit with the margins that we shared there on slide six. Thanks, Josh.
spk06: Thanks. Thank you. And our next question comes from Paul, I'm sorry, Pavel Markuchinovich from Raymond James. Your line is now open.
spk07: Thanks for taking the question. Last year, 75% of the modules installed in the United States came from Southeast Asia. If those modules are not making their way into the U.S. market this year because of the ADCVD risk, where are they going, and will that diverted supply to other parts of the world accelerate installations outside the U.S.? ?
spk10: Good question. Many of those Southeast Asian countries have factories that specifically build for the North American market. That's our understanding.
spk09: In checking with folks we know in the model business, many of those factories have in fact been idle.
spk10: They're sourcing projects going on in Europe and other parts of Asia.
spk09: out of other factories. Obviously, some of those manufacturers are building in China. Part of resolving ADCDD is getting to a point where those folks have confidence to start those factories back up again and fill the supply chain back up, including the logistics of getting those models from Southeast Asia to North America.
spk07: Right. So what would it take for those fabs to be reactivated and simply deliver their product elsewhere?
spk10: Yeah, I think the, you know, that would be, you know, the model makers have to have the right level of motivation to operate those factories and ship to other places. You know, the good news is, I've spent a lot of time in wafer cell and module factories, and once they make a decision to start back up, it's pretty straightforward. As long as they can get the workforce back in place, the re-qualification and start-up time is not that great. I think those factories could either start up for other markets if that's what the manufacturers decided, you know, if ADCBD goes away, I think they could pretty quickly start back up again and backfill the supply chain for North American projects.
spk09: So I think it's just a matter of, you know, ADCBD going away, and then I think the supply chain could fill up pretty fast after that. You know, again, it's not super high-tech manufacturing to build modules and the components for modules, and so I think they could all start up pretty quickly.
spk07: Okay, maybe just moving to steel, Shanghai futures down about 20% from six months ago. Is that, has that worked its way through the value chain to where you're seeing lower bill of materials in your manufacturing?
spk10: So, you know, Talk a little bit about steel.
spk09: You know, the factors we're seeing right now in terms of the steel market in general is just the unfortunate war that's going on in Ukraine right now has had some impact in the steel supply chain, and that's causing some disruptions and not necessarily the cost down that China has had hoped for in the past. But, you know, we're watching the market very, very closely. You know, one of the advantages for us with the HX acquisition is HX basically sources 100% out of China. And so we have relationships in China, but HX has some strong and deep relationships with some of the same suppliers, but also with different suppliers. So we think that will help us really take advantage of the Chinese supply chain, you know, if in need, that ends up being where the low-cost steel is available. So we see that as a particular advantage. But, you know, we're watching it very, very closely. Okay. Thanks very much.
spk07: Thank you.
spk06: Thank you. And our next question. One moment, please. One second. Justin? Robert? You're live, sir. And our next question comes from Julian DeMolen Smith from Bank of America. Your line is now open.
spk11: Hey, Sean and team, can you guys hear me okay?
spk10: Yeah, yeah. Obviously there are some technical issues on the line, but you're coming through loud and clear, Julian.
spk11: Excellent. Thank you again for the time and the opportunity. Well done on the backlog here. In fact, actually, since we're talking about it, can you talk a little bit about sort of European opportunities, given the obvious developments there relative to emerging markets focus that we've seen, some of the latest awards? Geographically, where are you thinking some of these international awards could continue to trend, especially given the focus that you have here on growing international backlog while the U.S. takes time to recover?
spk10: We certainly see the opportunities in Europe, for sure. We see opportunities in Southeast Asia, in Africa, and pretty much all around the globe where we have boots on the ground. In addition, because of the HX acquisition, we think it's going to help really open up the market in China as well. And it's also going to help us in other markets to have a really high quality 1P tracker from HX as well. So we're really, frankly speaking, we're excited about the opportunities around the globe. The new opportunities that we talked about came from Southeast Asia, came from Africa. And as I mentioned before, our pipeline is up to 64 gigawatts and half that now is international. 20% growth internationally so far this year, and we're really quite excited about that.
spk08: Let me also have Patrick Cook, our Chief Commercial Officer, comment. Thanks, Julian. From our perspective, what we're seeing, I'd say in the last three to four months, definitely an uptick in activity in the European market, and You know, we've had a team on the ground there for about a year developing relationships and partnerships with folks in that region, similar to what we did in Southeast Asia, Sub-Saharan Africa, and Australia. And so we've definitely seen an uptick in the level of activity in terms of bidding in that region. And, you know, we hope to be able to take advantage of that activity in terms of project wins because we've had those relationships with the EPCs and developers.
spk11: Got it. Excellent, team. Thank you. And then maybe can we talk a little bit about just the EBITDA trend here and balance sheet a little bit further? Just how are you thinking about the cash burn rate? Obviously, in the quarter, you saw some working capital outflow contribute alongside EBITDA burn. Can you talk about how you see that trending in 2Q and 3Q? Obviously, you're talking about an improvement here in the third quarter timeframe here, obviously pulling back guidance in the context of having a little bit less clarity in the near term. So, I appreciate the opacity to the situation, but how do you think about sort of managing the liquidity side of this? You know, obviously 2Q with an EBITDA burn. How do you think about AR in 2Q, and how do you think about the levers that you have if you think about 3Q even?
spk10: So we're definitely seeing progress in AR. You know, I mentioned before at the end of Q1, you know, we had $130 million in receivables, and we've made really good progress. in terms of collections on those receivables. And definitely we'll see a continued improvement in cash. And so, you know, honestly speaking, I feel good about the improvement we made even so far in the current quarter. And, you know, I expect it to continue. In addition, you know, we also have the $100 million revolver. You know, it's completely undrawn. And so we have that as well. And, again, I feel good about the progress we've made in terms of cash and will continue to make. Let me let our CFO, Phelps Morris, comment on that as well. Yeah, hey, Julian. It's Phelps. Good to chat with you again. Yeah, so as Sean mentioned, right, we had some timing issues at the end of Q1. where a number of invoices were due. We've done a really good job on collecting those as we've moved in this quarter. We do anticipate for this quarter in Q2 that we will be a net increase in terms of cash, despite the, you know, guide in terms of the negative EBITDA. So, you know, as we talked about with the kind of the second half just ranges in terms of margins. We do anticipate margins to increase sequentially throughout the year. And so we do have multiple levers, as Vaughn mentioned, an untapped revolver, et cetera, that will help us manage through any liquidity issues. So the other thing, too, I would add, Julian, is, you know, obviously we have a lot of focus on OPEX and COGS overhead right now. So on spend, you know, given the ADCVD environments, We're managing that very, very carefully and, you know, in areas like discretionary spending and others and just putting a really, really tight look on that. However, we also recognize, you know, the need to continue to invest. You know, we see a lot of opportunity in the long term in this business. And so while in the current ADCBD climate, we need to carefully manage our spend and We also want to, you know, there are areas where we continue to invest, like the DTB initiatives for reducing steel content, like continuing to grow and develop our supply chain, to automate processes and things like that. So we're striking a balance there, recognizing, you know, the current ADCBD environment.
spk11: Excellent, Tim. Thank you so much. Best of luck here.
spk06: Thanks. Thanks. Thank you. And our next question comes from Donovan Schaefer from Northland Capital. Your line is now open.
spk05: Hi, guys. Thank you for taking the questions. So I first want to ask about, you know, these international projects. That's really cool to see, and it's something, you know, I think it's challenging because I think of companies who have been successful in the United States, as often being very focused on reducing man hours per megawatt, and that's such a key part of what makes the product attractive in high-wage markets like the U.S., and then that doesn't always necessarily translate well into lower-wage markets. It's very interesting to me because, correct me if I'm wrong on this, but I think of South Africa, Kenya, I think it was Indonesia or maybe it was Malaysia. I'm sorry, I've drawn a blank. But I think of them as being lower wage markets. So I'm curious if there are certain attributes, you know, maybe if it's something to do with the 2P aspect, maybe that plays well with, you know, agriculture or something. You know, are there certain attributes given that these, again, correct me if I'm wrong, are lower wage markets, Given that, what are some of the other attributes that make the, you know, the Voyager tracker appealing in these cases?
spk08: Yeah, Donovan, hey, it's Patrick. I mean, I think the biggest attribute that you see, obviously, you know, man hours per megawatt and continuing to drive that down is a big focus for us, especially in the high labor cost countries. But given our ability to navigate varied terrain challenge sites in terms of undulation and slope tolerance and, We've been able to participate at very healthy margins, indicative to what we showed on page six in these international markets for these types of projects. But with the acquisition of HX, we're also going to be able to compete in these lower wage markets where a one-piece solution fits a little bit better on a more flat, less constrained site. But because of our ability to adapt to kind of the rugged terrain, it's allowed us to participate in some of these projects at very high and healthy margins.
spk05: And can you comment on the size of these projects? I mean, neither, and without, you know, everybody kind of likes to, you know, bring down a mammoth and have some giant project. But, you know, there's also strength. I mean, I know your design architecture also plays well to these kind of odd-shaped lots, DG, you know, more DG projects. type stuff or fragmented acreage or whatnot. So, you know, in these international markets or some of these projects you've had, are they kind of larger or smaller or fragmented or, you know, what's kind of the nature of them from a size standpoint?
spk10: Hey, Donovan, this is Sean. Thanks for the question. So, yeah, the three new countries we mentioned, those three projects total 350 megawatts. And frankly, there's one very large project and two smaller projects. You know, the thing we experience time and time again in these countries is that once someone, you know, looks at the Voyager system and chooses to use it, they, you know, that one project seems to be the tipping point where they actually experience the great benefits of the project, whether it's on the the terrain-challenged environments, irregularly shaped lots, or just the sheer constructability advantage that we have. But it seems that, you know, in these markets, once they use it once, they keep coming back for it. We're really excited, you know, in particular that these three new projects in new countries totaling 350 megawatts.
spk05: Hope that answers your question. That does, that does. And then... My last question is just, you know, we're really, obviously, everyone's very focused on the ADCBD, you know, aux and solar case. But, you know, it also, we joke about this being the solar coaster, and, you know, one thing hits you and you get back up, and then another thing comes around the corner and you get hit with something else. And so I'm trying to kind of just look ahead, you know, a few, you know, Say we get past ADCVD or there's some resolution there or even not. We also have the Uyghur Forced Labor Prevention Act that at this point is just a little over a month away in terms of when that goes into effect. Of course, there's also everything with Congress about whether we could get extension of the tax credits. So if we could look beyond ADCVD, what are you starting to hear how are people starting to plan around implementation of the uyghur forced labor prevention act in june and then you know has anyone begun talking about possibility of more safe harbor purchases at the end of this year if congress isn't able to do anything extending tax credits i mean that's kind of an extreme downside scenario but then that could also, even in that extreme downside scenario, you know, maybe you get a bunch of cash coming in the door at the end of the year. If you can comment on any of that, that would be great.
spk10: Sure, sure. So obviously, you know, we've been dealing with the WRO in terms of the panel supply. And the WRO, you know, tied back to that one particular polysilicon plant, again, with the forced labor issues. So, frankly, because of that, it feels like the supply chain has had time to prepare a bit for the forced labor act that you mentioned. And so, you know, we're optimistic that because of the work that the suppliers have done on WRO, that that won't necessarily be a big dip in the solar coaster, so to speak. You know, in terms of the long run, though, Donovan, I've got to tell you, I am super optimistic When I talk to the customer base, whether it's EPCs or investors, you know, energy companies, there's a lot of optimism. And people really do believe that the North American market is going to be a 75 gigawatt a year market. And we are doing everything we need to do as a company to be prepared for that. You know, the great work that we're doing in terms of DTV and reducing steel content the great work we're doing to strengthen our supply chain during this period, to strengthen our business processes within the company. You know, I feel really good about the long-term outlook and about the great work that the team at FTC Solar is doing to be prepared to really take advantage of that. And, you know, we'll get through this, ADCBD. And, you know, I can say that with certainty that, you know, that – It will pass. And what I tell the team every day is let's focus on the things we control that are going to make us a stronger, better company so that when it does pass, we are absolutely poised, absolutely poised to be that tracker of choice for our customers.
spk05: Okay, great. Thank you very much. I'll take the rest offline. Thank you, guys.
spk04: Thanks, Matt.
spk06: Thank you. And if you have a question that is star one, again, if you'd like to ask a question that is star one, and our next question comes from Cassie Harrison from Piper Sandler. Your line is now open.
spk02: Good morning, everybody, and thank you for taking the questions. So my first one, first off, thanks for the sensitivity surrounding margins on slide six. I was wondering if you'd maybe just help us widen out that sensitivity a bit. you know, if you brought the bottom end of that range to $50 million and you took the top end of that range to $200 million, can you maybe help us think through how those gross margins would evolve under those cases, under $50 and $200 million?
spk10: So, you know, we wanted to, given the whole ADCD situation, we thought it was really important to convey that how the delay in projects, the shift in projects is affecting us. It's basically the law of averages. And so the projects that we're dealing with are legacy projects that frankly won't roll off generally until about Q3. And those projects come with the higher seal content and lower margins. And so we wanted to kind of look forward to We wanted to show how we ended up in fourth quarter. Obviously, in the chart, it's kind of a bit of a proof point. And then really give you some indication at different revenue levels. So we didn't, frankly, Kashi, we didn't do a model with sensitivity analysis down to zero and up to 300. We just tried to give a couple of numbers to give you some indicative range of where we thought we would end up. And we're definitely seeing new projects in that range in terms of gross margins. And we feel really good that as ADCBD rolls off and the majority of projects shift from legacy projects to the new projects, that we can definitely, you know, we'll definitely see improved strength in the gross margin. We definitely still see a trajectory to get to the original planned gross margins over 20%. And, yeah, And so that's kind of the principle behind the slide. And so it wasn't intended to be precise every different revenue level, but just, again, give you some indication because we feel really good about the work that the team has done, and we feel really good about the long-term outlook on gross margin. Yeah, the caution is itself. The other thing I mentioned on there just directionally is revenue go up, obviously you intend to get operating leverage on your overheads. and vice versa, right? So the lower revenue levels, the overhead burden will be higher on a relative basis.
spk08: So, you know, when you think of modeling that out, I just put that into consider that as you model that out. The other part I put, Pashi, is, I mean, we took the subset, you know, Phelps mentioned in his remarks that, you know, north of $600 million of the contract and rewarded fit the profile that we showed on slide six. And so that's how we have a PO or that we've been ultimately awarded. So that's why we feel very confident in the fact that these legacy projects are rolling off because we have purchase orders at these types of margins for projects on a go-forward basis.
spk02: That's very helpful commentary, and I do appreciate the illustration here. My next question actually dovetails into your last comment, Patrick, and I was wondering if you could just maybe help us with the split in your executed and awarded. Specifically, I'm trying to understand what proportion falls into the executed or signed PO bucket and what proportion falls into the awarded bucket.
spk08: Yeah, Kashi, we haven't publicly disclosed kind of the ultimate breakout of what's contracted versus what's awarded.
spk02: Okay. And then maybe just a final one for me. It looked like there was a big jump in service revenues in 1Q. Can you maybe walk us through what's driving, what drove that big uptake? Was there like a one-time item and you would expect the services to come to trend down from there? Or is that indicative of, you know, the break-bulk shipping approach that you guys had talked about in prior quarters? Thank you.
spk08: Yeah, Kashi, great question. Really, that's more tied to the logistics revenue associated with kind of that particular quarter. So we recognize more logistics revenue in that particular quarter. It really kind of comes down to timing. As you recall, the materials revenue is ultimately caught in the total revenue line, while logistics revenues, along with our software revenue, are kind of broken out in the services piece. So that will fluctuate with, you know, as logistics revenue ultimately gets recognized.
spk02: Got it.
spk06: Thank you. And thank you. And I am showing no further questions. I would now like to turn the call back over to management for closing remarks.
spk10: Hey, well, thanks, everyone, for joining us today. You know, while there's uncertainty in the U.S. market right now, we continue to feel good about many factors under our control. This includes driving our cost reduction roadmap, advancing our strong R&D pipeline, accelerating our international focus, and reducing expenses in an uncertain environment. We also remain very well positioned with a well-regarded product set, strong customer adoption, and record pipeline levels. We look forward to continuing to update you on our progress. Thanks very much for joining.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
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