Shoals Technologies Group, Inc.

Good afternoon and welcome to Shoals Technologies Group second quarter 2021 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Megan Peets, General Counsel for Shoals Technologies Group. Thank you. You may begin your presentation.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me are CEO Jason Whitaker, CFO Philip Burton, and SVP of EV Solutions, Jeff Tonar. On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's press release regarding second quarter earnings. and the comments made during this conference call, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.scholes.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Jason.

Thank you very much, Megan, and good afternoon, everyone. I'll start off by giving an overview of the current solar market landscape and the opportunities that it's creating for Schultz. I'll then discuss the progress Schultz is making on three of its core growth initiatives, converting the industry to BLA, growing wallet share with new complementary products, and entering the EV charging equipment market. As most of you know, 2020 was a record year for Shoals, both in terms of revenues and profits. That momentum continued in Q1 and now it came in Q2. Revenues and adjusted EBITDA for Q2 were up 38% and 34% respectively. Our second quarter results were driven by continued growth in our system solutions business. That growth was a result of sustained strong demand for utility scale solar. as well as market share gains. Increasingly, customers are seeing the value that our combiners ecosystem provides, and we are converting customers to BLA in a much shorter period of time than it took us in the past. In our core U.S. solar business, we're seeing increasing levels of demand as the build-out of new projects accelerates. The acceleration is being driven by continued declines in the LCOE of solar, which makes it more competitive with other sources of generation, the growing corporate utility commitments to source energy from renewable resources, the two-year extension of the solar ITC that was passed in December of 2020, the IRS expansion of the continuity safe harbor to 2025 in June, and the normalization of permitting processes as states reopen from the pandemic. According to many industry analysts, the effect of all that has been to increase the size of the addressable market over the next three years by 30%. That's a huge increase in the size of the market and aligns with what we've been seeing in the marketplace and hearing from our customers. It's also important to highlight that the acceleration of the solar market does more than just increase our addressable market. We find it is also indirectly leading customers to choose our solution versus conventional EVOS. The reason for that is as activity levels grow, labor rates rise and labor availability falls. And many of our EPC customers are telling us they're having difficulty staffing jobs. The opportunity right now is that big. And because our combined EGO system installs much faster than conventional EVOS and does not require skilled labor, we can be the difference between our customers being able to take an incremental job versus letting it go to a competitor because they don't have the crews available to do the work. So to give some perspective for how strong demand is for our products currently, our quoting activity has more than doubled from what we were seeing last year. Average project size measured in dollars has increased 62% versus last year, which is very favorable to us because we have certain fixed costs that are the same regardless of the job size. So as the job gets bigger, we get more leverage on those costs. More leverage on our fixed costs usually translates into higher job margins. The growing demand for our solutions is reflected in our total backlog in awarded orders, which was $200.5 million as of June 30, 2021, an increase of 63% versus the same period last year. And to put that in perspective, that's more than our total revenues last year. So now turning to our progress on our growth initiatives. We're continuing to take share with our combined-as-you-go systems, and we're converting EPCs and developers to our system faster than ever before. To provide some context for how much we've accelerated the customer conversion process, when we went public in January, there were four major EPCs that used our system for most or all of their projects, and another 10 that were in transition, meaning that they had placed an order that is included in our backlog and awarded orders. Winning over those first four EPCs took years. Contrast that with the last six months, where we completed conversion of an additional five EPCs. We're getting faster at winning new customers. More importantly, the amount of time it is taking for sales prospects to place their first order is compressing. Since our IPO in January, we identified 32 new prospects. During the first and second quarters, nine of them placed orders, successfully converting from prospect to an order in less than 90 days. And that is an extremely short period of time for an EPC or developer to move to a new system that has different means and methods. And we think it underscores the tremendous strength and differentiation of our product offering. It's also worth highlighting that some of these new customers we are winning are international. While we're seeing tremendous performance from our core combined as you go products, we are not standing still. We remain focused on expanding our wallet share with new products including our recently introduced IV curve benchmarking and wire management solutions. IV curve benchmarking systems give owners unparalleled insight into the performance of their products, all the way down to the string level. And we believe that will be a valuable tool for owners to improve production and lower O&M costs. Our wire management solutions are an improvement on conventional wire ties that have a high rate of failure in the field. and will be a high-volume, high-margin product for us. Both of these new products are currently being field tested with customers, and we're on track to generate revenues from both in Q4 of this year. And finally, we're progressing steadily on our expansion into EV charging equipment, which we are confident will be an attractive new leg for us and further accelerate our growth. On our last quarterly earnings call, our SVP of EV Solutions, Jeff Tolnar, spoke in detail about the opportunity that we see for Shoals and EV charging. Installation is nearly half of the cost of deployment. As a reference for a solar project, it's about 30%. The reasons for high cost installation revolve around a lot of the very same issues encountered in solar. The need for trenching, complex interconnections, home run tabling, and the need for expensive skilled labor. Together, those characteristics make EV charging market ripe for innovation. And the innovation it needs are at exactly the areas where Shoals has unique expertise and manufacturing capabilities. To capitalize on this immense opportunity, we're currently developing four new product families for the EV charging market, which we believe will reduce the insulation cost of a charging deployment by 20 to 30%. One, skid solutions that package the key components required for an EV charging station in the factory with the objective of reducing the amount of labor required in the field and increasing quality. Two, raceways that allow wire to be run above ground rather than in an underground conduit. Three, EVBLA that eliminates home runs from each dispenser and offers benefits similar to our solar billet, including a 75% reduction in wire runs, and four prefabricated skids for DC or high-power chargers, and AC skids with either two or four dispensers. Charging skid solutions minimize placement time and increase quality while reducing cabling and cost. Importantly, each of our product families can be used individually or in concert with one another. We will encourage customers to purchase a complete system, which will be a value multiplier. But we design each product to stand on its own if customers want to purchase only certain components. We expect to introduce our first offerings for EV charging in the fourth quarter of 2021. Specifically, our phase one products, the head solutions and the quad chargers are already in advanced development. And we expect to have our first units deployed with customers in Q4. Our Phase II products, Raceways and EVBLA, are being developed now, and we expect to have our first units deployed with customers in the first quarter of next year. We currently expect full commercial launch of all products will occur in the second quarter of 2022. And I'll wrap up by saying that we're very excited about what we see ahead for our core solar business and our new EV charging business. I'll now turn it over to Phil. We'll discuss second quarter and first six months financial results.