FTC Solar, Inc.

Good day and thank you for standing by. Welcome to the FTC Solar Fourth Quarter 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Michalik, Vice President of Investor Relations. Please go ahead.

Thank you and welcome everyone to FTC Solar's fourth quarter 2024 earnings conference call. Before today's call, you may have reviewed our earnings release, slide presentation, 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 Jan Brandt, the company's president and chief executive officer, Kathy Boehnen, the company's chief financial officer, and Patrick Cook, the company's head of capital markets and BD. 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 except as required by law. As you would expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issued this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. With that, I'll turn the call over to Jan.

Thanks, Bill, and good morning, everyone. It's great to speak with you all again here on my second earnings call as CEO of FTC Solar. I'll provide a few updates and commentary and then turn it over to Kathy to review the financials. During the first six months of my tenure, our primary focus has been on shoring up our near-term backlog while also adding some incremental liquidity to the business. We have made very significant progress, including adding many multiples of our current annual revenue run rate to our backlog and signing long-term customer agreements. I'll share more on this progress in a moment, but would like to start by briefly reviewing a few comments I made on the last earnings call. During that call, I shared my 90-day observations on the company. my optimism about the path to success for FTC Solar, built on the foundation of a great team, a complete product set, and a cost structure poised to enable strong margin growth and profitability. To summarize those observations briefly, they include, one, FTC Solar is at a clear inflection point, and adoption of our differentiated 1P technology is on the brink of major deployment by some of the biggest solar IPPs and EPCs in the world.

Two,

Our relationships with the global customer base are in great position. In this moment of the solar market, knowing how to bring a solar project to completion is critical, and our team's collective experience is very well regarded in that way. Three, the FTC Solar 1P Tracker is the latest in this category to come to market. It has features and technology that are clearly differentiated and make it an easier, faster, and safer tracker to install. And four, In 2025, we will see good progress on the conversion of our backlog into revenue, which will support us achieving quarterly profitability this year. So with that brief review of observations and the foundation for my optimism, let me give you an update on the progress we have made to further support our recovery and strong future growth prospects. While I'm pleased to say that we have had a number of recent wins and are building momentum, On our last call, I highlighted a 500 megawatt supply agreement with Strata Clean Energy, a new one gigawatt supply agreement with Dudley Energy, additional detail on a one gigawatt agreement with Sandhills Energy, a $15 million note placement, and a $4.7 million cash earn up on a prior investment. Building on those successes, today we announced or highlighted several additional wins. These include First, we announced today that we have entered into a five-year, five-gigawatt supply arrangement with Recurrent Energy. Recurrent is one of the world's largest and most geographically diversified utility-scale solar developers. The projects are expected to be located in the US, Europe, and Australia, and utilize a combination of our 1P and 2P tracker technologies. It is anticipated that the first project revenue under this arrangement will begin in the second half of 2025. Second, we announced today a new 333-megawatt project award notice from GPG, the power generation subsidiary of multinational energy leader Nattergy, which operates in more than 20 countries with 16 million customers. The project, which is located in Australia, will utilize a 1P Pioneer tracker and is expected to begin tracker production in mid-2025. We announced a new 280 megawatt project award from Rosenden, a top five EPC and the largest employee-owned electrical contractor in the U.S. The project, which is located on the U.S. West Coast, will also utilize our 1P Pioneer solution and is expected to begin track of production in mid-2025. Fourth, on top of those wins, we have also continued to strengthen our positioning and talent, including the appointment last month of solar industry veteran Kent James as chief commercial officer for North America. Kent is someone I've known and worked alongside for nearly 20 years. He's one of the founding members of Primoris Renewables and helped scale the company to what it is today. I know he will drive even stronger engagement with the developer and EPC community and add significant value to our company. We have also seen a significant increase in our bidding run rate, which has recently been nearly double what it was in the second quarter of last year. We're driving up our domestic content capabilities and are already taking orders for 100% domestic content, which we expect to have available in Q3 of this year. On the international front, the large Australia project is a great win, and we expect to see increasing international traction, particularly in Australia and Europe. Our team is also working on a specially designed tracker for the India market, as the market transitions in a big way from fixed till to tracker, and the market opportunity is great. Finally, within the past few weeks, we have received another $3.2 million earn out on our investment in Dimension Energy, and we upsized our note offering, which will bring in up to an additional $10 to $15 million in the coming days. So, as I mentioned during the first six months of my tenure, we have been focused on shoring up our near-term backlog while also adding liquidity. In aggregate, we have added multiples of our current annual revenue run rate to our backlog, signing agreements totaling more than 6.5 gigawatts with Tier 1 accounts along with other awards, added more than $30 million in additional liquidity to our balance sheet, strengthened our sales team with new hires, including Ken James, further strengthened our product offering and capabilities. and increased our commercial traction with bids on many gigawatts of future projects. Ultimately, the opportunity for FTC stems from the combination of our people and product, providing the best value for our customers. We look at the market today that has two extremes to navigate, incredible demand for energy generation built now, and an increasingly stressed labor market for our EPC partners. Tracker installations can make up more than 60% of the labor need on a solar project. So being able to install FTC trackers easier, faster, and safer is incredibly valuable for our construction partners. Easier means you can train new workers to get proficient quickly while reducing the need for specialty tools and equipment. Faster is man-hour savings value right to the bottom line of our partners and the project P&L to get more solar built in the same time span. And every construction site starts and ends with safety, and I'm proud of the role FTC plays to reduce injuries on the job site. We may not be the largest tracker company in the market today, but the demand for our product is increasing, and most conversations I have with existing and prospective customers give me additional optimism. That increasing demand will grow our backlog and bolster our ability to grow as a company. Sustainable growth is a process that doesn't happen overnight. It's rooted in technology and people that provide measurable value for partners, and we have those crucial ingredients. In closing, I believe that FTC Solar is in an incredibly fortunate situation in many respects with products that customers love, a business they enjoy working with, and a cost structure that will enable strong margin growth and profitability, and a compelling 1P product set that opens up to 85% of the market that wasn't available to us before. We believe our revenue bottomed in Q3. We saw growth in Q4 and expect growth in Q1. and have been winning many new awards that will help us ramp our revenue, achieve adjusted EBITDA breakeven, and become a strong and significant competitor in the industry. With that, I'll turn it over to Kathy.

Thanks, Jan, and good morning, everyone. I'll provide some additional color on our fourth quarter performance and our outlook. Beginning with a discussion of the fourth quarter, revenue came in at $13.2 million, which was at the high end of our target range. This revenue level represents an increase of 30.2% compared to the prior quarter and a decrease of 43.1% compared to the year earlier quarter due to lower product volumes. GAAP gross loss was $3.8 million or 29.1% of revenue compared to gross loss of $4.3 million or 42.5% of revenue in the prior quarter. Non-GAAP gross loss was $3.4 million or 25.6% of revenue at about the midpoint of our guidance. The result for this quarter compares to a non-GAAP growth loss of $3.9 million, or 38.3% of revenue in the prior quarter. GAAP operating expenses were $9.6 million on a non-GAAP basis, excluding stock-based compensation and certain other costs. Operating expenses were $7.4 million, down from $10.8 million in the same quarter last year. This represents the lowest level of OPEX since early 2021. as we have found efficiencies across the company while continuing to invest to support growth. This result compares the non-GAAP operating expense of $8.1 million in the prior quarter. GAAP net loss was $12.2 million or 96 cents per diluted share compared to a loss of $15.4 million or $1.21 per diluted share in the prior quarter as adjusted for the reverse split. and compared to a net loss of $11.2 million, or 89 cents per diluted share post-split in the year-ago quarter. Adjusted EBITDA loss, which excludes an approximate $2.4 million from stock-based compensation expense and other non-cash items, was $9.8 million, which was better than our guidance range. This compares to losses of $12.2 million in the prior quarter and $10.1 million in the year-ago quarter. In terms of backlog, Reflecting $67 million in new purchase order additions since November 12, 2024, and $65 million in adjustments to existing projects, the contracted portion of the company's backlog now stands at $502 million. Finally, regarding liquidity, we ended the quarter with $11.2 million in cash on the balance sheet. Subsequent to quarter end, we received a $3.2 million cash earn out relating to our investment in Dimension Energy, And as Jan mentioned, we signed a term sheet to upsize our promissory note offering. As you'll recall, we collected $15 million from the note offering in Q4 and will now receive up to an additional $10 to $15 million here in the near term. On top of those items, we also continue to have about $65 million remaining under the ATM program at the end of the quarter. With that, let us turn our focus to the outlook. Our targets for the first quarter call for the following. Revenue between $18 million and $20 million, which at the midpoint would be up about 44% relative to the fourth quarter. Along with this revenue level, we expect non-GAAP growth loss between $4.8 million and $2.3 million, or between negative 26.6% and 11.7% of revenue. As you might expect, the percentage ranges vary more greatly at these revenue levels. Non-GAAP operating expenses between $7.7 million and $8.4 million, And finally, adjusted EBITDA loss between $13.3 million and $10 million. And as Jan mentioned, we continue to expect to achieve adjusted EBITDA break-even on a quarterly basis in 2025. With that, we conclude our prepared remarks, and I will turn it over to the operator for any questions. Operator?

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Philip Shen with Roth Capital Partners. Your line is open.

Hey, guys. Thanks for taking the questions, and congrats on the strong bookings momentum in this difficult environment. So I wanted to talk through some of that, specifically on recurrence. That's a big five-gigawatt agreement there. I was wondering if you could share what the – Mix of 1P versus 2P is the mix of the geographies. So is it more dominated outside of the US or is it a US centric agreement? And then also you talked about the first project being put in place in the back half of this year. Which geography would that be? And then if you can just speak more about the basis for the win beyond what you said in the prepared remarks, that would be great. Thanks.

All right. Good to talk to you, Phil. Yeah, I mean, look, we're really excited about the partnership with Recurrent. And ultimately, it came down to, to answer the last part of your question first, you know, we do have a really wide product set having, you know, really strong 1P offering now that's latest to market. Really easy to use. And then we have the 2P product that we're one of the few manufacturers in the world that has it. So the ability to do both, I think, was a strong consideration for Recurrent. The 2025 project set, the diversity around where we're going to be building and supplying trackers, like we said, is going to be U.S., Europe, and Australia. U.S. and Europe are likely to go first based on the work we're now doing in terms of engineering and design. And I think you're going to have numbers of projects be greater in Europe just because the project size is smaller. And you're going to have larger, more significant projects here in the U.S. But, you know, obviously from our standpoint, Our goal is to supply the best product we can to wherever Recurrent is developing and deploying capital into these projects. They play a role as a developer and asset owner, so it takes into account all of the value propositions that we're providing. Just the last part of your question. 1P and 2P is really going to be geographically oriented. 2P is a really strong offering still, especially where land density, the power density is important, but you have to have the right sort of environment in terms of wind loads and other technical considerations. So I think you'll have some utilization of 2P in Europe and some parts of the U.S., but predominantly it's going to be 1P, I think, Overall, it'll be in line with where our current sort of pipeline and bid rate is, which is 85%, 90% 1P.

Okay. Thanks, Jan. I appreciate that. Shifting over to the outlook for revenue, you gave an official guide for Q1, and that's sequentially higher versus Q4. I know you don't have an official outlook for Q2 or Q3, but Can you talk about that trajectory, maybe loosely speak through, should we expect Q2 to be flat versus Q1, or should we see a ramp as we go through the year? And if so, what needs to happen and what are the, what needs to happen in order to hit those expectations? And then what are some lines of potential risk? Thanks.

Yeah, we certainly expect the year to be back half-weighted, right? This is a This is a commercial focus of deploying 1P and getting contracts signed. Certainly, we're working with our developer partners in getting the projects to the finish line, going through the engineering. You know, we're very optimistic about continued growth through the year, but I think the way that I would frame it is definitely focus on the second half and waiting from that standpoint. You know, there's definitely a step up in Q1 from the guidance, you know, up 45% sequentially, and we would expect another step up at the back half of the year.

Okay, and then that would suggest Q2 might be more flat versus Q1.

I think I don't want to overpromise for Q2. You know, it could – the way that I would think about FTC is every single project matters. Um, so if, if one project pulls in, uh, it could, it could be up, um, it could be, it could be flat, but you know, the optimism is, is quite strong. Um, you know, we'll, we'll, we'll, we'll focus on the execution side of, of the house, uh, and getting to break even, uh, even to break even by the back half of the year.

Got it. Thank you. And then one more, and then I'll pass it on in terms of your bookings momentum, you know, you have, had a bunch of these agreements since you've joined. So I was wondering if we should expect this kind of train of agreements to continue as we get through the first half of the year.

That's certainly the expectation. Bringing Kent James in, you know, having been one of the founding members of Primoris, you know, we're taking a very, you know, dual approach in both focusing on the value proposition that we're bringing to EPCs, you know, helping them lower their labor burden by making it easier and faster to install, but also, you know, partnering with IPPs like Dunley and Sandhills to help early stage engineering. You know, I think we'll have continued demand of folks to do something on the early stage. You know, these supply arrangements or MSAs or purchase orders are ahead of shipment. I think those are going to be, you know, some of our tactics, but also I think quite a bit of focus like we had, you know, announcing sort of our new contract signings, which is actually showing those projects come to fruition. At a certain moment, like our peers, we'll have the translation of early stage actually becoming projects that will start shipment. We expect that to happen to be a big part of our back half of the year as those projects go through the development process. We're making a lot of traction in our bidding. I think that's always the top of the funnel. Getting our 1P product through approved vendor lists has been a strong, something we've been doing quite a bit over the last six months, you know, in getting products approved by the biggest IPPs and their backers that allows us to bid. And, you know, we're bidding almost double the gigawatts on a monthly basis than we were a year ago. So the top of the funnel is really strong. And I think it shows the appetite for the technical value that our, pioneer trackers bringing to the table.

Great. Okay. Thanks, John. I'll pass it on.

One moment for our next question. Our next question comes from Jeff Osborne with TD Cowan. Your line is open.

Thank you. Good morning. Just a couple of quick ones on my side. Jan, I was wondering if you could quantify the 1P and how much faster you're seeing some of the partners that you've announced today, what the anticipated experience is. I think in the past, you guys had talked about 30% to 40% faster, if my memory is right, but that was under a prior management team. What's the pitch these days?

Yeah, the pitch is... there's a duality, right? You know, and I'll, I'll sort of lay, put all of those on the umbrella that it's, it's also has a safety component to it, which is an important one, obviously for, because no labor is faster if it's not safer, right? So for EPCs particularly, this is of utmost importance. I think overall, when you think about it, you know, the mechanical installation of the tracker represents something like 60% or more, depending on the region, of the overall labor need by an EPC. We see an opportunity, you know, again, that 30 to 40% remains true depending on where the project is. There's also the ability for lower cost labor to be used for particular parts of the installation, like installing our cinch clips, for example. That's a much faster and much easier process that not only is less time, but also less cost. So you could see, you know, three plus cents a watt of benefit by using Pioneer. And, you know, we're certainly working to continuously improve, you know, the process and bring some lean methodology to our process. We have, you know, quite a big team working on the software and productivity side of, you know, how to install our tracker and just getting, you know, even better at that. We're definitely looking to measure man hours per megawatt in a way that has return data to each EPC. The more people use our trackers, the more return data they'll have, and they'll actually start including it in their bids. That's always the leading edge of bringing a new product to market and why it takes a little bit of time sometimes. You know, but as they use it once, people get comfortable with it, and then they start recognizing opportunities to optimize. And that's the stage we'll be in over the next 12 to 18 months is as these EPCs trial a product, the 1P product, they'll, you know, start seeing opportunities to win more work with it.

That's helpful. And just given you're now announcing five-year sort of framework agreements, and broad strokes across multiple geographies, how should investors think about the broader lens of sort of target gross margins for the business? I know you're not giving revenue guidance, but, you know, three, five years ago, people in the industry would say there's sort of a low 20s gross margin prior to the IRA. What do you think FTC's gross margin entitlement is, you know, longer term?

Yeah, I mean, I think without getting specific and just getting sort of qualitative on it, our track on margins is in line with our peers. Obviously, where do we have differentiation that's you know, sort of a headwind for us is, you know, we have a little bit higher logistics costs given that we, you know, don't have the supply chain base in quite as many as our largest peers. So, and then also from a volume standpoint, there's obviously some room to make up on our side. I think the important one is, you know, sort of tying it back to your initial question is, you know, it's not all about CapEx in the long run. The value proposition of Pioneer You know, not just for the installation of our tracker, but, you know, if you take a step back and think about all things automation, my LinkedIn's full of it at this point. You know, it's one of the most automation-friendly trackers both for the installation as well as for O&M. It has the ability to lower costs. As that value proposition, you know, is learned by our partners, both EPCs and IPPs, Um, that's going to give us a little bit of pricing room. Um, but ultimately right now we're, we're competitive. Our gross margins will increase as our volume increases, certainly. Um, and we see ourselves, uh, in line with at scale being able to, uh, be competitive on, you know, with our peers. Lastly, you know, one thing we don't talk a lot about because we talk about hardware mostly, um, our, Our product, SunPath, which is our terrain-based backtracking software, if you were to take a step back, and obviously I have a biased view, but unbiased opinion, it's one of the best backtracking softwares out there. It has obviously row-to-row capabilities. Right now, backtracking software is one of these learned products in the market. You know, we have some peers that see a lot of pricing strength in it. We have some peers that give it away. You know, ultimately, we see SunPath as a huge opportunity for us to either provide value to win more work in high volumes, but also the ability to monetize it as we show real tangible return data to the IPPs as the system is performing. I would say we're quite ahead of a lot of our peers with SunPath. And I wouldn't underestimate the value it brings in the long run to gross margins.

Perfect. And my last question is just in recent weeks, you've seen quite a bit of steel price volatility. How should we think about what transpired for Q1, but also for the next quarter or two? What's your supply chain management is in light of the tariff environment and just price volatility in general, what your exposure is, etc.? ?

Yeah, our exposure is quite limited. Ultimately, as a company, we secure our steel right when sort of the purchase orders are negotiated. So there's really, you know, it's a back-to-back procurement nature. You know, it's probably, you know, at much higher volumes, you have much greater exposure. And there's always the discussion of what can you pass on and what can't you pass on. Uh, the reality is every single cost that increases on a project, whether it's, you know, tariffs or commodity, you know, often those two things are linked. Um, the project itself needs to continue to pencil. So everyone's sort of at the table, uh, you know, figuring out how to keep the project moving forward. Um, you know, the, the, the, the tariffs and, uh, and, and commodity prices, uh, you know, moving in a higher direction, um, is going to increase cost of projects. But from an exposure standpoint, I would say it's zero to limited. You know, we certainly haven't had meetings internally where it's, you know, a great concern to us. We updated with each of our proposals.

Perfect. That's all I have.

Thank you. Thank you. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1 and 1 on your telephone. And I'm not showing any further questions at this time. As such, this does conclude today's presentation. You may now disconnect and have a wonderful day.