Shoals Technologies Group, Inc.

Good afternoon, and welcome to Shoals Technologies Group first quarter 2022 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.

Thank you, Operator, and thank you, everyone, for joining us today. Hosting the call with me are CEO Jason Whitaker and interim CFO Kevin Hubbard. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including the guidance regarding full year 2022, are not guarantees of performance or results. Actual results could differ materially from our forward-looking statements if any of our assumptions are incorrect or because of other factors. These factors include, among other things, the risk factors described in our filings with the Securities and Exchange Commission, as well as economic and market circumstances, industry conditions, company performance and financial results, the COVID-19 pandemic, supply chain disruptions, availability and price of our components and materials, project cancellations, decreased demand for our products, and policy and regulatory changes. Although we may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect, and therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. We caution that any forward-looking statement included in this discussion is made as of the date of this discussion and 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 first 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'd like to start off by thanking Phil Garten, who stepped down earlier this month to pursue an opportunity with a private company. We appreciate all of Phil's hard work and his contribution to Shoals. especially in our first year as a public company. We wish Phil all the best in his future endeavors. We're very pleased to have Kevin Hubbard on board as our interim CFO while we search for Phil's successor. Prior to joining us, Kevin was a partner at Ham, Langston, and Brazina LLP since 2017 and previously worked for Shoals on financial reporting. He has served in finance and accounting roles with other public companies, including as interim CFO at SA Exploration Holdings, Incorporated. I'll start off by providing a snapshot of our Q1 performance and progress in our key growth initiatives. Then I'll talk about current conditions in the solar market and how they impact our outlook. And after that, turn it over to Kevin, who will provide an overview of our financial results for the first quarter. Our results for the first quarter were in line with the outlook we provided earlier this year, despite an increasingly challenging environment for solar. Revenues and gross profits were 49% and 40% versus the prior year's quarter, respectively, and represented new records for the company. More importantly, our gross margins increased more than 550 basis points sequentially to 38.7%, underscoring that the lower margins we experienced in the fourth quarter were a temporary phenomenon. Adjusted EBITDA grew at a slower rate than our revenues and gross profit as a result of our continued investment in SG&A to support our growth initiatives. We're investing heavily in people to expand our new product development capabilities, grow our international sales presence, scale up our EV business, and support our new 219,000 square foot manufacturing facility, which became operational a little over a month ago. Components revenue increased 73% year-over-year driven by a combination of battery storage shipments as well as the onboarding of a significant number of new customers who started with component purchases before transitioning to system solutions. System solutions grew 40% year-over-year as a result of continued strong demand for VLA as well as market share gains. The number of EPCs and developers using our system grew by 7 to 25 total. which compares to just four at the time of our IPO last year. We're currently in the process of transitioning an additional 15 customers to our system. And not only are we converting customers to our system solutions at an accelerating rate, our average project size is also increasing. The seven customers we converted in Q1 represent as much as two gigawatts of demand to be delivered this year. The new products that we introduced in late 2021 also contributed to our growth in the quarter. Our wire management solution continues to be very well received by customers. And we now have orders for that product to be used on over 745 megawatts of solar projects. Sales of our energy storage products also contributed to revenue growth in the quarter and backlog in that part of our business continues to grow. Looking ahead, The certification process is underway for BLA 2.0 and high-capacity plug-and-play harnesses, and we continue to expect first shipments of those products to begin in the second half of this year. The former will have a higher average selling price per megawatt than our current product, and the latter will allow us to serve a new and fast-growing application. We're also making strides in our international expansion. During the quarter, we received BLA orders from three new international customers. demonstrating our ability to convert customers outside of the U.S. to BLA. Our European sales team is building backlog in the region now that our products are fully qualified in the EU. Outside of the EU, our recently appointed head of LATAM is starting to meet with customers in the region and build awareness for our products.