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spk03: 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.
spk04: 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.
spk11: 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.
spk08: Thank you, Jason. For the second quarter, revenues increased 38% versus the prior year period to $59.7 million, driven by a 52% year-over-year increase in our system solutions revenues, which was partially offset by an expected decline in components revenues. The growth in system solution revenues reflects strong demand for a combine-as-you-go system. The declining component revenue was consistent with the expected change in certain customers' order timing relative to last year and the conversion of our other customers from components to system solutions. The sale of system solutions represented 86% of revenues versus 73% in the prior year period. Prices across our product lines during the second quarter were comparable to the prior year. Cost margin in the second quarter increased by over 500 basis points versus the prior year period to 43.8% as a result of higher portion of our revenue coming from combined as you go system solutions. Purchasing efficiencies from increased volumes, improved materials planning, which reduced logistics costs, enhancements to product design to lower manufacturing costs, and other manufacturing efficiencies resulting from higher production volumes. Second quarter general and administrative expenses were $10 million compared to $9.3 million in the prior year period. This was driven by a planned increase in payroll expense due to higher headcounts to support our growth and product initiatives, new public company costs, and public offering expenses partially offset by a decrease in equity-based compensation. Adjusted EBITDA for the second quarter was $20.6 million, up 34% from $15.4 million in the prior year period, with adjusted EBITDA margin decreasing approximately 90 basis points year-over-year to 34.5%. Adjusted net income was $14.7 million in the second quarter, compared to $13.1 million during the same period in the prior year, increasing 12% primarily due to increased system solutions revenue, partially offset by an increase in interest expense. We see the adjusted EBITDA and adjusted net income reconciliation table in our second quarter press release for a bridge to our GAAP results. Now turning to our results for the first six months of 2021. Revenues grew to 105.3 million compared to 84.2 million in the prior year period, an increase of 25% driven by a 55% year-over-year increase in system solution revenues, partially offset by a decline in components revenue. This reflects strong demand for Shoal's combined as you go system for the first six months of 2021. we derived 80% of revenues from system solutions versus 65% in the prior year period. Prices are across our product lines during the first half of 2021 were comparable to the prior year period. Gross margin in the first half of the year increased by 590 basis points versus the prior year period to 42.7% as a result of a higher portion of revenue coming from combined as you go system solutions purchasing efficiencies from increased volume, improved materials planning, which reduced logistics costs, enhancements to product design that lowered manufacturing costs, and other manufacturing efficiencies resulting from higher production volumes. General and administrative expenses were $16.8 million for the first six months of 2021, compared to $11.9 million for the prior year period. This was driven primarily by new public company costs, and public offering expenses, planned increased payroll expenses due to higher headcounts to support our growth and product initiatives, partially offset by a decrease in equity-based compensation. Adjusted EBITDA for the first half of 2021 was $34.7 million, up 26% from $27.5 million in the prior year period, with adjusted EBITDA margin increasing more than 30 basis points year-over-year to 33%. Adjusted net income for the first six months of 2021 was $23.4 million, compared to $22.1 million for the prior year period. Please see the adjusted EBITDA and adjusted net income reconciliation tables in our second quarter press release for abridged road gas results. As of June 30, 2021, we had backlog and awarded orders of $200.5 million, an increase of 63% year-over-year and 11% versus March 31, 2021. The increase in backlog and awarded orders reflects continued robust demand for Shoals products from our customers. Turning to our outlook for 2021, based on current market conditions and input from our customers and team, we are reaffirming our previous guidance and expect 2021 revenue to be in the range of $230 million to $240 million, up 31% to 37% year-over-year. We expect adjusted EBITDA to be in the range of $75 million to $80 million, and adjusted net income to be in the range of $47 million to $51 million. As we noted last quarter, we expect year-over-year revenue growth to increase in subsequent quarters, Specifically, we currently expect the second half of the year to be Q4 weighted, with Q3 to be comparable to up modestly on a sequential basis from Q2. And from a margin perspective, as previously communicated, the mix related to gross margin expansion that we saw this quarter may not reoccur next quarter when we expect to have a greater percentage of component sales. Before I turn it back over to Jason, I wanted to make a couple of comments regarding the growing pain the solar market is currently experiencing. The ones we hear about the most are price of commodities, potential for project delays given supply chain disruption, and shipping costs. Now, while we're not immune to what happens in the market, we set our business up in a way that these issues have a minimal impact on us. First, when we quote a price, we match that price against the quote for key inputs from our suppliers, and will only honor that quote for seven days. That means we are not caught in a position where we promise the price to a customer, but then have the cost of the inputs for that order increase on us and change our margin profile. We essentially lock both sides of the ledger when the order gets signed. We've been doing things that way since before the current inflation in commodity prices, and it has served us very well in this environment. And with respect to project delays, we're aware of some in the market but we're not seeing them materially impact shoulders. And the reason for that is that most of our customers are already in construction or about to start construction when they sign a contract with us. That means it is very unlikely that it will cause a delay or cancel a project. And I think a good analogy here is once you start a new skyscraper, even if the real estate market changes, you're still going to order the windows and finish that project. And we're essentially the windows guys. And lastly, as it relates to shipping, we're seeing increases in costs like many other players in the silver industry. But in our case, shipping is not a big component of our cost structure. And the reason for that is that our products are fairly lightweight and packed very densely. So we have a lot of options for how we get products to the customer. Also, on the supplier side of things, most of our suppliers are located in North America. So we don't have the challenges with overseeing shipping that some of our peers are experiencing right now. Jason, back to you.
spk11: I'd like to close by thanking all of our customers for their commitment to Shoals, our employees for their contributions to our company's success, and our shareholders for their continuous support. And with that, thank you, everyone, and I really appreciate your time today. I would now like to ask the operator to open the line for questions.
spk03: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation symbol indicate your line is in a question queue. You might press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. one moment while we poll for questions. Our first question comes from Maheep Manmohi with Credit Suisse. You may proceed with your question.
spk00: Hey, good evening. Thanks for taking your questions and thanks for the clarifications or updates on product delays and supply challenges. Really helpful. Here's a question on Q3 margins. If you could talk about what's driving that weakness It's just mixed shift, and how should we think about that in Q4 or next year?
spk11: Hey, Mahith, this is Jason here. Good to speak with you. So I think the easiest way to cover that is point you back to, you know, the updated investor deck that's out on our website where we really talk about our BLA and how it's gaining share. So, you know, kind of looking at that, when you look at those new prospects that we're moving into in transition, You know, sometimes when we're working with those clients as we're moving them over to our full system BLA solution, the opportunity presents itself to offer that more component-based offering while we're moving towards that. And when that happens, we're obviously going to capitalize on that. So it's really just a function of, you know, a mix shift between the full system solution and more of that component-based offering in this particular quarter. So as we continue to go forward, we expect our margin profile to continue to decline or to increase. I'm sorry. But you're going to have some ebbs and flows along the way, depending upon the mix shift, whether it's more of a component-based mix or that full system solution.
spk00: Got it. And then maybe if we can just talk about the backlog here. a good indicator of your growth later this year or next year. But if we could talk about how much of that backlog is for 2021 versus 22 or later years, and what are the different buckets of whether components or BLA or maybe other new products in that backlog today?
spk11: Great question. So we're not providing any type of guidance on the specific products as far as components. versus system solutions. And when you look at the backlog itself, you know, going back to the same investor deck where we talk about the timing and the visibility that we have. So, you know, we have excellent visibility, you know, over that 12 to 18 month period, you know, with a large portion of that backlog, you know, obviously taking place, you know, over that next, you know, six to 12 months, but we've not provided any exact breakdown between 2021 and 2022.
spk00: And just one last one for me, and I'll jump back in the queue here. For that EV charger market, you had a lot of details in the slide diagram, the market opportunity. But maybe one thing you could highlight is just who's the buyer here or who is the target customer? I know we've been talking about the EPC companies in the past, but has anything changed recently? What are you seeing on the buyer side for EV chargers?
spk11: Maybe I'll turn that one over to Jeff.
spk09: Yeah, I'm sorry. Your question broke up a bit for me. Can you restate, please?
spk00: Yeah, sure, Jeff. I was wondering who's the incremental customer here for those EV charger projects for you here, and I think you said you're going to expect new orders sometime next year, right? Mm-hmm.
spk09: That's right. We spent a large part of Q2 on customer outreach, and that continues to go extremely well. We're having multiple on-site visits starting in August and continuing throughout the duration of the year. We do expect those to materialize into first orders in fourth quarter, as stated. We're continuing to work with our cornerstone customers in the EV space, much like we did when we deployed our BLA solution in solar energy. And in the presentation posted on the IR site, we updated the assumptions for EV charging around the benefits of the infrastructure plan. We do expect the infrastructure plan to help us with customer outreach and growth.
spk00: All right. I'll take the rest offline. Thank you.
spk03: We would ask for one question and one follow-up. Our next question comes from the line of Philip Shen with Roth Capital Partners. You may proceed with your question.
spk05: Hey, guys. Thanks for taking my questions. The first one is on margins. Just as a follow-up to Mahib's question there in Q4, can you give us a sense for what the cadence of what that might be, Q4 and maybe even Q1 of 2022? Do you think, uh, we see, um, some improvement there or, or, uh, uh, you know, perhaps, uh, it kind of stabilizes at the Q3 level and it goes sideways. So, uh, sorry to harp on this a little bit more, but I was just curious if you might be able to comment on that. I know you're not providing official guidance. Thanks.
spk08: Phil, I can take that. This is, uh, uh, battling a cold, so I apologize. Uh, but, uh, As we've stated before, we expect our margins to continue to increase, our gross margins, as we go forward. But there's going to be bounces up and down. But the trend will be positive. So we do not think, by that comment, we do not think that the Q3 bounce is a permanent number at all. But rather, we will continue to see the improvement as we progress. One is more people switch to BLA. And as we roll out the new products, which we all have hurdles, which match our current margin profile.
spk05: Great. Thank you, Phil. And then as it relates to your domestic versus international mix, I was wondering if you could comment on what you think that mix might be for maybe Q4 of this year or maybe full year 21. And then by the end of 22, what do you think that mix can shift to? Thanks.
spk11: Hey, Phil, this is Jason. Good to speak with you again. So I guess the easiest way to really address that is kind of pointing back to the BLA share gains that we talked about. And I think when you look at the time that we went public, we had 11 particular customers that were prospects. And when you look at that number now, that number significantly increased to north of 30. But what's more important is we now have 11 customers in the international market in that exact same state. So very excited about, you know, the outreach and the effort that the sales team's putting forward. But at this time, we're not providing any exact specifics on what the breakout is between North America and international.
spk05: Okay, great. Thank you, Jason. I'll pass it on.
spk03: Our next question comes from the line of Brian Lee with Goldman Sachs. Can we proceed with your question?
spk01: Hey, guys. Good afternoon. Thanks for taking the questions. Maybe first off, just on the demand environment heading through the second half, and I know you're reiterating guidance here. It sounds like the backlog and awarded orders are up a ton, so things are trending in a very positive direction. But can you maybe give a bit more color around kind of what you're seeing real-time in the demand environment where – you know, let's say lead times are for your products. How does that compare to historical or what you consider average lead time? Just in general, I'm wondering if you've seen any, you know, push outs or project timing issues related to inflationary pressure that some of your customers may be seeing across parts of the solar supply chain.
spk11: Hey, Brian, this is Jason here. I'll take those. Looking at the backlog, one of the things that really drives that would be your inputs. We constantly monitor inputs based on the market dynamics on a daily basis. If there were any type of significant shift that would affect operations, we're very comfortable being able to flex that from one particular vendor to another. And then going, you know, specifically, you know, about, you know, projects themselves, you know, as we've talked about before, we can see, you know, some project movement on, you know, quarter to quarter. But, you know, as we've discussed in reiterating guidance, you know, we're not really seeing any material, you know, changes overall. And more importantly, we've yet to see any particular projects canceled.
spk01: All right. That's great to hear. And then maybe one just kind of on the model for Phil, and not to get too bogged down in the minutia, but if I just take the midpoint of guidance for revenue, EBITDA, and the adjusted net income for the year, it seems like second half versus first half revenue and EBITDA are pretty similar, sort of in that 20%, 25%. up uh half on half range but then the adjusted net income is a little bit lower than that uh sort of in the low teens is there anything with respect to 3q4q um uh that would be flowing through differently below the line and impacting uh your net income growth in the second half relative to ebitda growth uh well the big issue there uh
spk08: I'm trying to think exactly what you're saying. But our driver there, as we mentioned, adjusted net income and adjusted EBITDA will probably be slightly lower this year because as we're ramping up expenses, the overhead expenses for all these growth initiatives that we've got, There'll be that slight step down, but then there'll be a positive as we go forward. We'll be able to lever those as we go into next year as we start, as Jeff mentioned, seeing the revenue from these initiatives and both EV, international, all of those and new products. So that was kind of that step down, which has been mentioned throughout the year as we looked in our forecast for the year. But we should see the overall margin continue to improve, as we stated before, as well as adjusted EBITDA and adjusted net income in the longer run.
spk01: All right, fair enough. Maybe it's a tax or interest item. I can take that offline. Appreciate the follow-ups, guys. Thanks.
spk03: Our next question comes from the line of Colin Roosh with Openheimer. You may proceed with your question.
spk10: Thanks so much, guys. You know, with the new bookings that you had during the quarter, if you break out, how much of that was from new customers and how much of that was repeat customers that you've got in the portfolio already?
spk11: Yeah, hey, Colin, Jason here. Good to speak with you again. So we've not provided any particular specifics, you know, on the exact breakout of that outside of just pointing out the fact that the number of customers that we were able to convert in such a short period, you know, from being, you know, in prospects directly to in transition, you know, within that 90-day period, you know, in this particular quarter and roughly over the first six months, you know, since we've went public.
spk10: Okay. I may have pressed into that a little bit offline, but the second question is really about pricing. If you guys think about pricing the product and rising labor rates and the efficiency that you offer your customers, how do you think about offering up pricing here and potentially raising price and capturing a little bit more margin as you go forward?
spk11: Well, I think, Colin, really we're in what I would consider to be the growth sector, more specifically company as a whole, but more specifically with the BLA and combined as you go product line. So we price that product on par with what I would consider to be more of the conventional solutions that are out there, and that's the methodology that we utilize.
spk10: Okay. Thanks, guys.
spk03: Our next question comes from the line of Mark Strauss with JPMorgan. You may proceed with your question.
spk06: Yeah, good afternoon. Thank you very much for taking our questions. So you've obviously seen some quite impressive acceleration in your business since the IPO. I'm just curious if you can touch on the competitive environment, if the IPO and your results have actually invited new competitors potentially.
spk11: Hey, Mark, Jason here. Good speaking with you again. Yeah, from a competitive landscape perspective, you know, we obviously keep a very healthy paranoia and keep your eyes and ears to the ground and monitoring what's going on. But, you know, really from a competitive landscape perspective, I would say it's, you know, it's very similar to what we saw, you know, at the time of going public.
spk06: Okay, thanks. And then just maybe... not right out of the gate with the EV charging stations, but just over time, how do you think about your pricing power and your margins in that business, just given that the installation cost is higher than it is for the core solar business?
spk11: Yeah, from a margin profile, go ahead, Jeff, please.
spk09: Go ahead. Yeah, I was going to say we price very similarly to how we do with solar, next best alternative pricing. So as our solutions and as the NBA, next best alternative, increases over time, we're going to have flexibility from that regard. We're always looking to optimize margin, and Phil's very adamant about that, and we'll continue to do that. So as our solutions become more broadly deployed in the market, we expect that our NBA comparatives will yield very solid margins comparable to what we see in solar.
spk06: Perfect. Okay. I'll take the rest offline. Thank you.
spk03: Our next question comes from the line of Joseph Osha with Guggenheim Securities. You may proceed with your question.
spk08: Hello, everyone. Thanks for all the great answers. Just one question for me.
spk02: You refer in the updated slide deck again to this incremental $0.03 per watt for storage-attached systems. I'm just wondering if you can comment on how the mix is evolving in terms of storage versus not in your business. Thanks.
spk11: Hey, Joseph. Jason speaking. You know, when you look at storage, you know, I'm happy to say that the tax rate of storage of projects is increasing, you know, drastically, which is very exciting. And you look at that three cents of incremental spend, you know, that really – it changes somewhat depending on whether you're talking about an AC-coupled or a DC-coupled solution, which there's both out in the particular marketplace – But when you look at that attach rate, you know, again, pointing back to that, you know, very exciting. And especially when you consider the fact that as we continue to bring in new customers, we grow our core solar business, you know, it's a natural progression to be able to support our partners in the market that are moving into that storage or are supporting storage on top of solar.
spk08: Can you – I wasn't going to ask a follow-up, but now I am. Can you comment a bit on the difference between your value for AC Coupled and DC Coupled?
spk11: Yeah, it really depends upon where the product itself. It's a very similar product. It just really depends upon where the product is located, you know, whether it be located specifically like inner container or outer container, but it's a very similar product offering.
spk08: Okay. Thank you very much.
spk03: Our next question comes from the line of Cashew Harrison with Piper Sandler. You may proceed with your question.
spk07: Good afternoon, and thank you for taking my questions. And my first question is on just the market commentary. You know, as you indicated, you're closer to the construction side of the equation, which is why your 2021 guidance is unchanged. But, you know, a lot of, you know, projects for 2022 have not yet started construction. And so I was just curious, what are your customers indicating to you, you know, in terms of the potential for delays into 2023? Has that entered the discussion at all? Or does it seem as if, you know, even the 2022 project projects will remain on track.
spk11: Yeah, Jason speaking. I've not had any, you know, intimate conversation regarding, you know, 2023 outside of just, you know, very strong demand, you know, for the particular product itself, you know, kind of pointing back to our growth and our backlog and awarded orders and the number of projects that we have. You know, I think it's really just an exercise in optimization based upon all of the, you know, items that are out there just waiting on the dust to settle. When you talk about the Biden infrastructure plan, you know, the potential, you know, further extension of the IPC, possibly even increase in rate, you know, as well as the potential removal of the tariffs for panels coming in North America. Those are really the key things that everybody's kind of watching and seeing, again, you know, how that falls, you know, just to make sure that they have done their proper diligence and optimization for each one of these projects.
spk07: Thanks for that. And then my follow up is maybe a quick question for Phil on just the modeling question. So Q1 and Q2 looked like working capital represented a use of cash. I was just wondering if you could help us think through working capital entering the second half of the year. Would you expect the full year working capital to be relatively flat or would you expect working capital for 2021 to represent a use? use of cash?
spk08: Well, from a dollar standpoint, it will obviously use cash. From a day standpoint, we think we can do better or the same. The issue is one of the things we're doing, and I think it's very prudent, is that as is the market has seen a lot of these uh supply chain issues and that and we're constantly doing it is work on second suppliers and those type of things and we've got them we're very very comfortable with it uh but things like that might be a little bit uh you might give longer days or something or shorter days i guess for payables but receivables the same thing as you get new customers for that first order but uh No, we expect day's working capital to be very consistent or improved.
spk03: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad one moment while we pull for questions. Our next question comes from the line of Moses Sutton. You may proceed with your question.
spk12: Hi, thanks for taking my question. I may have missed it. Can you provide how much international revenue is in 2021 guidance, maybe roughly? How much is in backlog and which countries are you finding greater traction? Thanks.
spk11: Hey, Moses, this is Jason speaking. So we're not providing any specific breakdown information. You know, when you look at the international versus the domestic market. But again, you know, very excited about, you know, where things are, what the team's accomplished. You know, the EU is obviously an important reason. That's part of the reason why we actually utilize that area as our first movement and where our team itself is staffed. And then that's outside of Australia. And then, of course, LATAM that we have. And when you look at, you know, at the backlog and awarded orders, you know, obviously we're building up our pipeline as we're moving into other areas and continuing to have conversations with customers that we've served, you know, already in North America and happy about where we are when you look at the pipeline as well as the backlog and award orders that we've achieved.
spk12: Thanks. That's very helpful. Any thoughts on potential M&A internationally, some small companies that can, you know, sort of jumpstart your presence in certain markets?
spk11: Yeah, I mean, from an M&A perspective in general, you know, obviously we'll take a look at anything that we feel like adds real value. You know, when you look at M&A, there's nothing really noteworthy to speak of, you know, internationally. You know, maybe something that we take a very hard look at, you know, on down the road, you know, as we elect, you know, further expand our manufacturing and see if there's an area that's more conducive in one region or another that might give us some local content requirements. But nothing worth mentioning right now, Moses.
spk12: Makes sense. Thank you.
spk03: Our next question comes to the line of Jeff Osborne with Cowan & Company. You may proceed with your question.
spk09: Good afternoon. I wanted to go back to your analogy of the skyscrapers and windows analogy and being late cycle in the construction process. I think one of your slides in your investor deck talks about as you become more strategic with your EPC vendors, you know, getting preliminary engineering drawings and designs and, you know, doing a design layout in conjunction with the pricing. So can you talk about, you know, what you're seeing at the front of the sales funnel that is, you know, well before the pre-construction process?
spk11: So when you look at, you know, the sales funnel or the sales pipeline, Jeff, you know, Sales pipeline remains very strong, you know, continues to grow and accelerate. And, again, very excited about, you know, what we've seen. And it just further supports, you know, that backlog and award orders, you know, that we have and the growth that, you know, the sales team has been able to go out and generate in our markets.
spk09: Got it. My second question was just I think with this quarter's results, I believe you're probably in the history of publicly traded solar, if not the highest, one of the highest reported gross margins. Just given the broad 10% inflation that you're seeing on utility scale solar with the price of steel as well as panels and labor rates that you alluded to, do you have any concerns that your EPC vendors or developers will flag that as, hey, I'm taking pain in this other area of cost, maybe you should as well?
spk11: So when you look at gross margin perspective, Jeff, from that standpoint, obviously we go through and we optimize that particular site. So when you compare that specifically, that full system BLA solution, which has the higher margin profiles we've talked about, You know, an alternative of going back to that, like a conventional home run solution would be more costly than that particular product itself. You know, so from that standpoint, I mean, obviously, you know, every time you talk to someone, regardless of what markets you're in, you know, you always talk about price. But we've not seen any additional pressure from that perspective, you know, given the market conditions that you just mentioned.
spk09: That's great to hear. Thank you. That's all I have.
spk03: Ladies and gentlemen, this concludes today's question and answer session. This also concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.
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