FTC Solar, Inc.

Thank you for standing by, and welcome to the FTC Solar fourth quarter 2023 earnings conference call. All participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. Please be advised that today's call is being recorded. I will now turn the conference over to your host, Mr. Bill Michalik, Vice President, Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to FTC Solar's fourth quarter 2023 earnings conference call. Before today's call, you may have reviewed our earnings release and supplemental financial information, which were posted earlier today. If you've not reviewed these documents, they're available on the investor relations section of our website at ftcsolar.com. I'm joined today by Imad Shatila, a member of the board of directors and a company founder, Kathy Bainan, the company's chief financial officer, and Patrick Cook, the company's chief commercial officer. Before we begin, I remind everyone that today's discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date. As such, these forward-looking statements include risks 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. This is 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 afternoon includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll discuss our backlog and our definition of this metric included in our press release. With that, I'll turn the call over to Ahmad.

Thanks, Bill, and good afternoon, everyone. I'm joining the call today as the representative of the board as the company progresses through this interim period prior to announcing our next CEO. As discussed on last call, I've been helping facilitate communication between management and the board and monitoring key growth activities and initiatives during this interim period. On today's call, I'll touch on some of the recent progress the team has made and address the CEO search before turning it over to Cathy to review the financials. At a high level, I'd summarize the key takeaways from this call in the following way. One, fourth quarter financial results were in line with our targets. Two, following an 18-month stretch with limited purchase orders, which has led to depressed revenue levels, the company has seen an acceleration in closing purchase orders, which improves visibility and lays the foundation for a second-half revenue recovery. And three, the company is progressing well and improving efficiencies and lowering the break-even revenue level. Based on the management team's current outlook, the company expects to grow revenue in 2024 and transition into profitability on a quarterly basis in the second half of the year. So what are some of the issues the company has faced and what progress has been made recently? First, and most importantly, the company has seen an acceleration of contracted projects or signed purchase orders. From January 2022 through June 2023, while we continued to grow our contracted and awarded projects largely through project awards, we had depressed levels of contracted projects and slower rate of conversion from awarded to contracted projects. That has led to current depressed revenue levels, which we now expect to trough here in the first half of 2024. More recently, the company has been laser focused on customers, spending as much time with them as possible in a cross-functional effort to improve engagement and best support the full range of customer needs. Aside from intense customer focus, the company has also been enhancing its product portfolio. The combination of these efforts has resulted in a significant increase in the rate of contracted projects, about 50 million per month over the past eight months. And it has been accelerating every quarter. This includes greater success in converting previously awarded projects into contracted projects with purchase orders. The sustained booking success we've seen now is the foundation for the revenue recovery that will start in earnest in the second half of this year. Frankly, That rate should be many times larger than $50 million per month, and that's how we're driving it. But we're heading in the right direction and rebuilding. Based on the success, contracted projects are now approximately $415 million of the total backlog. On the backlog, the board has reviewed and is comfortable with the company's $1.7 billion in backlog. However, it has been heavily skewed towards awarded versus contracted historically. resulting in less visibility as to when such awarded but uncontracted projects will convert to purchase orders and revenue. As noted, we have made significant progress recently on having a higher percentage of the backlog be attributable to contracted projects. Backlog also continues to be heavily skewed towards US and 2P projects. The US currently represents 80% of backlog. In terms of technology, about 72% of backlog is 2P, and the remaining 18% being either 1P or a combination of 1P and 2P. The majority of projects added over the last two quarters have been 1P, helping to diversify backlog. Second, the market for 2P trackers have recovered, and we have our strongest and most comprehensive product portfolio to date. In 2022, amid the module shortage, there was about 80% drop in the market for 2P trackers. as more scarce modules were largely allocated to relatively easier project sites, which tended to be 1P. With module availability improved, we're seeing a more normalized market for 2P with a very good pipeline activity. We're also seeing a ramp in interest in our 1P Pioneer tracker, which was certified in the third quarter of last year. Pioneer brings to 1P much of what customers have loved about our 2P technologies. When the company added a 1P tracker alongside our 2P solution and software, we thought of our ability to be truly solution-oriented partner for our customers, and that we could truly be technology agnostic and optimize each individual project site to maximize the benefit to our customers. We now have several examples of projects or portfolios of projects that we have won that have combined both 1P and 2P technologies with many more in the pipelines. Third, we are improving business processes. As Shaker noted on the November call, that while the company has become more efficient and lowered product costs, there were opportunities to accelerate decision making, close gaps within the product portfolio faster, and increase customer interaction. The company, under the leadership of Cathy, Sasan, and Patrick, has been diligently focused on improving business processes across the board. emphasizing customer engagement, customer satisfaction, and purchase orders. Customer visits have increased tenfold and broadened across functions to accelerate the feedback loop on quality, product roadmap, and future needs, and enhance overall customer experience. This is augmented by a newly formed customer advisory board to which we've appointed renewable expert Anthony Carroll as chairman. We've also implemented a net promoter score system to help us better measure and drive engagement in such an action. Fourth, we continue to further improve our cost roadmap to enable higher sustainable long-term gross margins. The company's cost roadmap has historically been hampered by high steel content due to the shift to large format modules, which was exacerbated during the steel price dislocation in 2021. The company has made great strides in optimizing steel content and bringing manufacturing costs in line with those of its leading competitors. This has helped us significantly improve average new product project margins, which has started to show through our financials. In addition, we expect continued cost improvements over the next 18 months as the company continues to work on its design to value and design to manufacturing initiatives, supported by rigorous process and excellent engineering team. We are confident that these improvements and strength of our average new project margins will enable greater than 20% gross margin in the future as our revenue level scales. And finally, our breakeven cost has been greatly improved. Our breakeven revenue level has historically been well over 100 million per quarter. We've now brought that down to what we believe to be approximately 50 to 60 million going forward, depending whether or not we pay a bonus. This reduction has been driven by higher direct margins as well as a reduction in keen focus on OPEX and overhead costs. Our operating expenses in Q4, for example, were the lowest level in nearly two years as we have focused on operational efficiency while maintaining or increasing investment in key areas that support growth and pipeline conversion like a strengthened sales team. So overall, while the near-term depressed revenue level is disappointing, I believe the company is making good progress in repositioning for a strong recovery. The company has an expanding portfolio of excellent tracker solutions that are well regarded in the industry. Customer engagement is the top priority. We're already seeing an improvement in purchase orders that are the foundation for our revenue growth in the future. The market for 2P trackers is improving. We are improving our systems and process across the board, including pricing. We have a product cost structure to enable 20% plus long-term gross margin and company cost structure, which has been reduced to enable quarterly profitability in 2024. We have a lot of things going for us. With a great team, it's really just a matter of getting revenue level up to see the profitability and cash flow potential to start to show through. And the last topic for me is just a quick update on the set of CEO search. As Shaker outlined on the November call, we want to be very deliberate in our approach. We did not want to disrupt the progress on key initiatives of the company and wanted to take our time to find the right CEO. That said, we have started the process and have seen a great deal of interest. The board is focusing the process on highly qualified candidates, both within the industry and adjacent industries, to identify a CEO capable of leading the company for a long tenure. We have a short list of excellent candidates. The board will plan to name a successor at the appropriate time when the process has concluded. With that, I'll turn it over to Kathy.