Q4 2021 FTC Solar Inc Earnings Call

March 15, 2022

Good day, and thank you for standing by welcome to the FTC solar fourth quarter and full year 2021 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 will need to press star one on your telephone please be advised today's.

Conference May be recorded if you require any further assistance. Please press star then zero.

I'd now like to hand, the conference over to your host today.

Phil Michelle It Vice President Investor Relations. Please go ahead.

Yeah.

Thank you and welcome everyone to FCC FTC soldiers fourth quarter and full year 2021 earnings conference call.

Prior to today's call you'd likely had opportunity to review our earnings release supplemental financial information and slide presentation, which are posted earlier today. If you have not reviewed these documents. They are available on the Investor Relations section of our website at FTC solar Dot com.

I'm joined today by Shawn Hall, FTC soldiers, President and Chief Executive Officer, and Patrick Cooke, The company's Chief Financial 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 speak only as of the current date. 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.

Assume no obligation to update such information, except as required by law.

As you would expect we will be discussing 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.

Nearest applicable GAAP measure.

In addition, we will discuss our executed contract and awarded orders and our definition for this metric is also included in our press release with that I'll turn the call over to Sean.

Thanks, Bill and good morning, everyone. We covered a lot of ground in our business update call in January So we'll keep our prepared remarks today relatively brief I'll start with a few fourth quarter and other recent business highlights.

First our fourth quarter revenue grew approximately 92% sequentially and 130% year over year. This was significantly ahead of the top end of our guidance range as we had some pull forward of revenue than previously expected in Q1.

Even though revenue was above the range and gross margin saw a strong improvement we've recorded a $3 million reduction to revenue and margin related to a reserve for a potential customer credit. This caused our adjusted EBITDA to come in at the lower end of the range where want to normalize for this reserve and the increment.

It'll impact from logistics of about $1 $8 million, our non-GAAP gross margin in the quarter would have been in the negative two 5% range, which puts our performance on target to achieve our profitability goals in 2022.

Regarding Sun path, we have added three more contracts since our last earnings call, bringing our total to seven.

We also recently launched a new turnkey D G offering targeted at the profitable sub 20 megawatt segment of the market. This is a growing market with favorable pricing and margin with average PPA prices that are two times that of larger systems based on a significant amount of customer feedback we listen.

And acted and have worked over recent months to develop an offering that will address market needs and specific customer pain points, while maintaining all of the benefits of an FTC solar system.

We have an EPC partner lined up and have already won our first two projects. We believe this business can achieve higher than our average target margin profile and can represent a meaningful portion of our overall portfolio by 2024.

During our business update call, we presented our financial outlook for 2022, which at the midpoint would represent annual revenue growth of about 62%. We believe this would be much faster than market growth and reflects the continued strong customer growth and interest in our solutions and finally in addition.

With those highlights this morning, we announced our intent to acquire strategic tracker company, which will accelerate our international expansion and be accretive to our shareholders.

So why are we doing an acquisition I would point you to four main takeaways first it accelerates our international expansion plans, where it adds to our growth in particular is in China, The Middle East Southeast Asia and Africa. These regions are expected to be significant for tracker sales in fact, the home market of China is it.

Expect it to be the largest market for tracker installations outside the U S by 2030, and a top two market outside the U S. Over the next 10 years with the <unk> and new ADC BD as overhangs on the U S market. We believe now is the time to bolster our international growth activities, we are seeing progress from our organic.

Growth actions in various regions as I mentioned earlier, but these organic efforts typically take about 18 months from boots on the ground. So first project wins the company is well positioned to generate revenue now.

We're positioned in strong growth markets with current orders and a large pipeline in markets, where we don't have a sales presence. So it is fully additive to FTC's business Sir.

Second it provides complementary technology that increases our total addressable market. The company produces one P trackers for low cost markets, which complements our Voyager <unk> tracker, while we believe our two P. Tracker is a best in class solution and has achieved rapid adoption we.

Realized at two P may not always be the best solution for every market our site.

Pending acquisition would strengthen our product portfolio allow us to be technology, agnostic and low cost international markets and position us to analyze each project site and determined the best FTC solar solution in any market in which we offer both in addition, our Voyager <unk> Prada.

<unk> is designed to be fully differentiated and its ease of construction and reduced labor hours, which is most advantageous in high labor cost markets. The target companies trackers are designed and optimized for low labor cost markets, giving us more options and more targeted markets.

Third.

Strengthens our capabilities in several key areas, including engineering logistics supply chain and sales for example, we expect to see significant synergies and product IP and knowhow, allowing us to improve process and designed to bring the best products to market.

The acquisition gives us an opportunity to leverage relationships infrastructure and technology across the full platform around the world and the founders have deep expertise in renewables in operations and strong relationships with important suppliers customers and other key stakeholders in their market they're combine.

Experiences include leadership positions with JA solar Harry on solar Cypress semiconductor Mckinsey and Smith and.

And finally, the acquisition enhances our growth and profit opportunities and will be accretive to our shareholders. It will enhance our economies of scale and leverage with key logistics and steel suppliers.

The company is in faster growing markets and we believe is positioned to outpace market growth and we will have the opportunity to accelerate organic growth by applying best sales and technology efforts across the full base of our business.

The proposed acquisition is each X tracker, a Shanghai, China based supplier of one P. Tracker systems for mid 2019, there tracker launched last year with what we believe to be orders of approximately $12 million in China and about 20 Gigawatts of total pipeline opportunities.

The acquisition is right in our wheelhouse and has important attributes that make it both strategically and financially attractive Theyre tracker system is designed with a low steel content and is well suited for today's prevalent large format modules and can go just about anywhere the large scale Chinese epc's operate.

<unk> has a strong team with direct tracker market engineering expertise and deep connections in the market, including within China, The Middle East and Africa.

<unk> for the acquisition consists of $4 3 million in cash and approximately one 4 million shares. This represents an attractive multiple of approximately three times 2023 EBITDA. The sellers will also be eligible for an earn out of approximately one 6 million shares based.

On meeting certain performance metrics overall, we estimate the transaction can generate $59 million in revenue and $4 million of EBITDA accretion in 2023, and $67 million in revenue and $7 million of EBITDA accretion in 2024.

We're excited about the acquisition and the strategic and financial benefits. We expect it will bring to FTC solar they have an impressive and growing pipeline, our strong team and business model and culture that fits ours. We believe they have strong growth opportunities, we expect to complete the acquisition in the second quarter and we will.

Sure to update you on our progress.

Looking back on the full year 2021, the FTC solar team has achieved much I'm very proud of our work, including growing total revenue by 44%, increasing top 15 developer and EPC penetration from 40% each to 47% and 60% respectively.

Completing our initial public offering in April further strengthening our balance sheet.

Winning our first projects in certain key international markets, including our first two projects in Africa, and our largest project to date in Australia at 88 megawatts tripling, our international pipeline to more than 26 gigawatts, excluding the proposed acquisition launching our innovative sunpass performance.

Software and securing several initial contracts, reducing the steel content and cost of our trackers for future projects by more than 20% and finally, bringing smart accomplish an innovative new talent into the organization, while retaining our top performers.

In 2021, we delivered strong growth, while investing for future growth enhancing our position with customers expanding into new innovative products and new markets, while strengthening our team as we lay the groundwork to capture the significant opportunities we see ahead.

While 2021 was the perfect storm relative to costs, we've taken significant actions controlling what we can control and are making significant cost and margin improvements. The long term market outlook remains incredibly strong and I believe FTC solar is uniquely positioned to continue to outpace the market.

In the U S and we will continue to see increasing traction internationally.

FTC solar has a solution that is differentiated in the marketplace and increasingly recognized by customers along with new higher margin offerings launch and we believe we are poised for significant growth and margin improvement ahead, while we've made good progress I'm, even more excited about where we will go from here.

Finally, one leadership update before I turn it over to Patrick as you know Patrick has been with the FTC virtually since the beginning of the company and it's been a very strong leader in driving the company's growth. In addition to being our first CFO and building out our finance accounting and it infrastructure from the <unk>.

Round up through to becoming a public company. He has been a key driver in nearly every aspect of the company's growth.

In fact quite a few of the customer relationships, we have and projects in our pipeline have come from Patrick I am pleased to announce that Patrick will be taking on a new and expanded role as our chief commercial officer, overseeing sales sales engineering legal and capital markets activities.

I am very excited to have Patrick in this new expanded role and see him as a key partners we move forward.

As Patrick moves into this new role I am pleased to announce that Phelps Morris will succeed Patrick as our new CFO Phelps brings more than 20 years of experience in global finance operations, including Treasury capital markets mergers and acquisitions risk management and Investor Relations. He most.

Recently served as senior Vice President and Treasurer of True-blue accompany with $2 2 billion in revenue, where he was responsible for strategy and execution of Treasury and finance related functions. He was previously with NMC electronic materials and Sunedison from 2009 to 2016.

Where he served in multiple roles, including leading the Treasury and Investor relations functions earlier in his career. He served in various positions for the Dow chemical company as well as rolls with Duff and Phelps credit rating company and Scutter temporary investments Patrick is there anything you would like to add.

Thanks, Sean and good morning, everyone. Let me just add that I am pleased to be taking on this new role and to have the opportunity to continue serving FTC solar and its shareholders in new ways I will continue to be very closely aligned with the finance team as well as the Investor community and then committed to ensure that we have a smooth transition.

While this means there will be changes to my scope of responsibility there'll be no change in my effort and dedication to assist Sean and the executive leadership team to meet our near term and long term objectives. I am also excited to welcome Phil to the team I've had the opportunity to work with them in the past I believe he'll make a great addition to FTC solar.

With that let's dive into my prepared remarks, which will cover additional detail regarding our fourth quarter and full year performance and our outlook.

And as a reminder, our year over year comparisons reflect the significant amount of growth in our personnel and corporate infrastructure ahead of becoming a public company, which occurred in the second quarter of last year. These items make the year over year comparisons a bit less meaningful.

Beginning with the results for the fourth quarter total revenue was $101 $7 million, which was above our target range due to accelerated production and product delivery pulling forward revenue. We had initially anticipated in Q1.

Revenue level represents an increase of 92% compared to the prior quarter driven by higher product volume and an increase of 130% year over year on higher volume and Asps.

GAAP gross loss was $8 6 million or eight 4% of sales compared to $8 million or 15, 2% of sales in the prior quarter. This strong improvement in margin quarter over quarter and was actually muted by the reserve for potential customer credit that Sean mentioned that was a $3 billion.

<unk> to revenue and margin.

The results for this quarter compares to a gross loss of $4 $8 million in the prior year period with the difference driven primarily by logistics impact in 2021, and a strong ramp up in our employee count and other overhead expenses to support the company's growth trajectory.

GAAP operating expenses were $15 million on a non-GAAP basis, excluding stock based compensation and certain other expenses operating expenses were $9 million at the low end of the company's guidance range, which compares to $6 2 million in the year ago quarter the year over year increase.

Driven primarily by necessary growth in staffing and other public company preparations.

GAAP net loss was $23 $9 million or 25 per share compared to a loss of $22 9 million or 24, a share in the prior quarter and compared to a net loss of $9 $7 million or 15 cents a share in the year ago quarter.

Adjusted EBITDA loss, which excludes $3 2 million of stock based compensation expense certain consulting and legal fees severance and other items was $16 $4 million. This was at the low end of our guidance range due primarily to the $3 million Reserve mentioned previously.

This result compares to an adjusted EBITDA of $16 1 million in the prior quarter and $10 9 million in the year ago quarter.

Our contracted and awarded orders as of March 14th where $606 million with the expected delivery dates in 2022 and beyond as a reminder, we can continue to add to our contracted and awarded revenue for expected delivery in 2022 into the fourth quarter of this year and still recognize revenue.

Following a seasonally slow holiday period, and the headwind of withholding release order our bidding activity has increased significantly we look forward to resolution on W. Aro and remain incredibly bullish on the long term growth opportunity in the U S.

I'd also like to add that I share sean's excitement about the proposed acquisition, it's a great opportunity for us to further accelerate our growth as well as profitability.

The definitive agreement for the transaction was signed yesterday with the consideration consisting of $4 $3 million in cash, which will be funded with cash on hand, the issuance of approximately $1 4 million shares plus a potential earn out of approximately $1 6 million shares upon the achievement of certain performance metrics, we expect the <unk>.

Transaction to generate $4 million of EBITDA accretion in 2023 and $7 million in 2024, and we anticipate the integration cost to be approximately $250000, which primarily is composed of legal and administrative activities and limited to 2022.

We expect the transaction to close in the second quarter of 2022 subject to satisfaction of customary closing conditions and parameters due diligence.

With that let's turn to our outlook as Sean mentioned, we presented our financial targets for 2022 during our business update call in January despite pulling about $25 million in revenue into Q4 of 2021, we continue to feel comfortable with those targets, which call for a revenue of 415 to 406.

<unk> million dollars.

At the midpoint would represent a 62% annual growth year over our 21 results.

And we expect that we will outpace the overall market along with this revenue we are targeting 11% to 14% non-GAAP gross margin.

non-GAAP operating expenses between 49 and $54 million and.

And adjusted EBITDA between negative four and positive $11 million.

Our targets for the first quarter, which reflects the pull forward in revenue into Q4 call for revenue between 55 and $65 million.

Targeting non-GAAP gross margin of negative seven.

Thats the breakeven non-GAAP operating expenses of $12 million to $13 million and adjusted EBITDA loss between $13 5 million and $17 5 million.

With that I'll turn it over to the operator for any questions operator.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And our first question comes from the line of Jonathan Schaffer with colleagues Securities. Your line is open. Please go ahead.

Hi, guys congratulations on the results.

The pull forward from 2022 into Q1.

This fourth quarter I'm, just curious is there anything specific that was sort of driving that in terms of.

Maybe modules being released earlier than expected or.

What changed in terms of your prior expectations to what really unfolded in the fourth quarter. The allowed are enabled by <unk>.

Significant pull forward in revenues.

So thanks for the question Donovan.

Really.

Yes, I would say several factors one is the.

Working with the suppliers and some customers requesting additional progress on certain projects and so we were able to support that with capacity that was readily available.

The capacity itself.

<unk> is a bit of a sign of what's going on in the market.

Some areas the steel demand is softening there they seem to be building only as many automobiles as they can get semiconductor components. It seems like in some markets.

Like in the China real estate market for second and third homes things are slowing a little bit. So so there was definitely more capacity available and working with our suppliers and then again some customers that wanted some.

Some additional progress on projects that we were able to support.

Okay.

And actually I'm curious because I know with module imports.

There is some challenge there.

Kind of knowing what type of modules you might be able to get.

What sort of EPC developers EPC sometimes.

<unk> in some cases or just reworking things to see what working with what's available in terms of versus necessarily what.

Originally planning for.

Has that been a factor at all in terms of maybe.

<unk> originally was going to use one cut their tracker, maybe switches to your tracker, just because the modules that happens to arrive or better suited.

To your tracker design.

Anything like that.

Factor.

Or even on the steel side changing the steel prices swishing things up.

So it's been interesting.

As we talked about in the update in January .

There is a bit of choppiness in the market regarding module supply.

And as you know the big the Big factor behind that is the <unk> and then more recently the.

The new version of ADC, BD, and we've seen some interesting things we've seen.

Requests for bids where they're using multiple modules on a project typically in the past you'd see a single module for any particular project.

We have seen the modules changed from from what was originally requested in and we've seen a change order to change the modules to redesign for a different module of course, our trackers you know as module agnostic and so we can accommodate any module.

I haven't seen anyone make a change in the tracker choice typically when they contract.

They've kind of worked through all of that already.

But the module Choppiness continues until until <unk> is fully resolved.

That being said there are some positive signs.

Of additional module flow opening up.

But frankly, we just were.

Look.

Looking in anticipation of wri getting completely resolved and until then it'll be I think they'll just continue to be some choppiness in module supply.

Okay, and then just one last question and I'll get back in the queue.

With the the reserve for credit for the customer.

You talked about.

I know.

Something I've really kind of honed into and taken interest in these.

You guys have this very unique approach to damping.

You had the white paper that you put out last week.

And I'll ask.

Pleased to see.

See that in terms of just my own sort of interest but the.

I also know that because of the kind of unique and novel approach I think it was back in 2019 or 2020, you guys had.

You did it sort of a customer credit or a retrofit of some kind because the uniqueness.

Have you dancing approach put.

An unusual amount of sort of strain on the damper bracket and so some of those brackets, where had broken and you had to go back and kind of retrofit them.

So as the as the $3 million credit related to something along those lines, where there's sort of some.

Bit of a learning.

Learning curve around this kind of unique and novel approach or is that or is there something different there just any kind of elaboration would be great.

Hey, well Donovan thanks for noticing the white paper, we're really proud of the IP that we have and the unique damper system. We have that provides us with great performance in high wind environments and so we.

Being being excited about that and excited.

Perfect.

Paper, the $3 million that we referenced.

Yes.

Simply a small matter of payment discussion between us and our customer so no no.

No relation whatsoever to the technology or <unk>.

Any kind of a warranty issue or anything like that it's just a small payment issue that we're working through with the customer.

Okay, that's great fantastic wells.

Well, congratulations again on the quarter and I'll jump back in the queue.

Thank you guys.

Thank you. Thank you.

Thank you and our next question comes from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.

Good morning, all congrats on the revenue pool and thanks for taking the questions.

So my first question is on the <unk> acquisition.

I was just wondering if you could talk about.

Slide specifically.

Quickly what drives your confidence in going from $10 million of revenues and $20 million to $59 million of revenues in 2003 is that what's driving that confidence.

So we did extensive due diligence we have some since the beginning our company.

<unk> has had an M&A function.

<unk> always out looking at potential opportunities and so when when this one came about we gave it to the team to do some really extensive due diligence. So when you look into the pipeline.

<unk> had connections made to their customer base. The founders of this particular company or folks that we trust because many many of the folks in our company have worked with him in the past and so through the due diligence and review of the pipeline.

We believe this is a very credible plan that they put forth in that.

With the support of the strong balance sheet of FTC, we can achieve I don't know Patrick you any any further comment on that yeah. No I mean, I think from our perspective, just the level of granularity and transparency that the <unk> team allowed through kind of a due diligence process and engaging with their customer base and their supply base.

This gave us kind of an inside view on what their overall pipeline and their deep relationships with the customers and partnerships.

And then also with.

The ability to kind of scale within FTC allows them to go meet these production targets for the customer. So it's really just a combination of those items.

And really kind of centered around the transparency of which we got through the due diligence process.

Got it.

And then maybe switching switching gears to the base business.

On the contracted and awarded.

6 million it was lower than the 692 disclosed last time, what's driving that decline and then how much of the.

What portion of that 606.

And for 2022.

Yes.

I'm sorry, you broke up there at the end do you mind repeating that the last piece of your question Kashi.

Apologies I set out what piece of the 606.

For delivery in 2002, I think last time, you indicated with $350 million. So I wanted to get an update on that number.

Yes, so we since we've guided to 2022 and we continue to reaffirm the guidance.

Basically the $4 15 to $4 60.

So essentially since we are providing the guidance we were really just focused on that particular revenue number for the year.

Got it and the driver of the decline.

In the six months from six two to 606 was the driver there.

Yes, I mean, I think it's really kind of relates to what we're seeing is project push outs in terms of execution as it relates to just overall module availability I mean, I think the good news what we're seeing.

No cancellations.

We're not seeing that FTC's Louie.

Losing projects just decisions are getting made in the overall macro.

Environment, and we're seeing a lot of momentum in terms of our overall pipeline our sales engineering teams really working over time with our customers.

Bidding two or three different module.

Module suppliers in order to once the module supply gets turned back on to be effectively turn the purchase order.

Start ultimately executing so that's really kind of the driver but are.

Our bidding activity remains high and we arent seeing.

Losing projects in the first quarter, it's really just tied to project decision pushout.

Just a little bit of the ongoing.

The choppiness in the module supply caused by primarily <unk> and as I mentioned, we are seeing some positive signs.

In terms of certain flows being approved and modules from certain suppliers coming back in.

But but still until it's completely resolved I think youll see this this level of choppiness.

Got it got it and then maybe maybe just a last one for me.

Following the.

The invasion of Ukraine.

We've seen U S steel prices or at least the forward curves move up here.

Just.

But they're still below last year and so im just curious how.

Current or recent steel prices are tracking relative.

Relative to your expectations.

That were incorporated in the full year 2022 guidance. Thank you.

So we are.

Okay at this point with the with our steel pricing remember most of our steel is sourced internationally, though we are we are prepared in the event that.

Some version of build back better comes about that requires U S content, we will be able to support that as well, but we see the.

International pricing is still in line with our expectations with the plan for the year.

The other thing is that we've really added to some expertise to the team and particularly in the areas of steel and logistics and that's helping us as well in terms of managing with our steel suppliers and finally, the fact that we have.

Enough scale and volume now to really matter to those suppliers is helping as well, but but we're still aligned with expectations and Kashi. The one thing I think it's important to note is how we bid our projects. We're refreshing our project bids inside of every two weeks and not take the steel exposure on ourselves and really working to pass that off to the.

Our customers so that allows us in these kind of commodity fluctuation pricing to make sure that we're able to kind of ultimately maintain the margin by having that transparent.

Our relationship with our with our customers.

Got it thank you.

Thank you for your questions.

Thank you and our next question comes from the line.

<unk> with Raymond James Your line is open. Please go ahead.

Yes, thanks for taking the question.

The revenue that you expect to get from.

The new acquisition, what's the geographic mix of that so I imagine it's much more international.

Versus your legacy business that correct.

Yes, that's exactly right Paul so as as you know.

Our international expansion has been driven by the boots on the ground strategy and so as this opportunity came about and we looked at it we felt that while our.

Ganic approaches has yielded results we thought this this approach with.

Help us to accelerate in the international markets and so we talked in the announcement about the opportunity in middle East and China and Africa. One of the good things about this acquisition is the relationship that the founders have with some of the large Chinese EPC.

And as you know a lot of the business outside China and certain markets like Africa like Middle East are driven by those <unk>. So so we're really excited about not only opportunity in China, but the opportunity outside China and this is all all pretty much international business for us.

Yes in that context.

Yes.

Cannot help by at kind of the.

The obvious political.

Dynamic here.

This will now be owned by by an American company.

Shiny project developers be comfortable purchasing from.

Effectively a U S equipment supplier.

So we.

As a consequence of this transaction, we will have people in China dealing with the Chinese Gpcs and we've done some due diligence in that area and we feel very comfortable that in fact.

The association with us is going to be a positive.

It will help.

Enhanced the quality reputation for example, the engineering reputation et cetera, which are all really important factors and frankly on the ground.

Still.

A U S company is not necessarily a negative in the China business environment.

Okay fair enough. Thank you guys.

Thank you.

Thank you and our next question comes from the line of Matt <unk> with Credit Suisse. Your line is open. Please go ahead.

Hey, good morning, Thanks for taking our questions.

Can you just talk more about the ethics track that acquisition.

How much of the business, you're kind of expecting in 'twenty to 'twenty four comes from the Chinese markets versus other markets.

And this should we consider this a similar EBITDA margin business like the core business.

Yes.

It should it should definitely be considered a similar EBITDA.

Performing business, then as the current business and the expectations that we have for the current business.

It's a mix in terms of the pipeline. So so they have a pretty well distributed pipeline that includes China that includes Africa that includes the middle East and so we're expecting a fairly robust mix across those markets.

So that's what we've included in the guidance that we're providing in terms of both the revenue contribution and EBITDA contribution.

We expect it to continue to grow over time.

Got it.

More than half is China.

China.

I think thats, a fair assumption roughly half and half.

Got you.

Does this product helps a bit.

DG market push also.

The DG project is going to be the first to be perfectly.

So our focus today in the DG market is.

As with our Voyager <unk> product. So we will continue to.

With the focus that we announced in January in terms of the DG market with our Voyager <unk> product in the long run.

Citing that we'll have this portfolio of multiple products, but for now we will.

Keep the focus we'll focus our Voyager <unk> product and in terms of our plans for DG.

Gotcha.

That's helpful. And then just sneak one last one from me just more on the macro side.

So a lot of macro.

Thank you.

Since the last two months doesn't follow suit when we first spoke about.

Our real issue is kind of in the industry.

Those.

Issues or challenges.

Changed and are you expecting any accelerated.

The solution for the <unk> issues in the industry.

On top of that you.

<unk> seen kind of seeing any worries around the cycle.

Say convention investigation against the Southeast Asian manufacturers.

So we.

We see progress on W. Borrow.

But frankly, we need to see complete resolution for the for the module supply to get back to normal because even even with some of the module flows released in module flowing back into the country for the module manufacturers to have confidence to startup factories again, I think I think you will need to see.

More open environment in terms of the flow.

So we're optimistic that these issues with W. Rowe will get resolved.

The timing of course is not clear to us or not is no clearer to us than it is to anyone else, but we've seen some positive signs lately and that's the good news.

On 80 CVD.

Fact that.

Commerce ask for some more time on this latest version of ADC Vd.

I'll have to see.

In the short term will all hear whether theyre going to do the investigation or not.

We've heard opinions that run the gamut from.

They will not investigate because of the additional uncertainty and will cause in the module supply.

Particularly in the current market, where there is still the <unk> overhang and then we've heard on the other hand that.

There is there is there are reasons for the investigation that will continue so we're watching it very very closely and.

Hope to hope to see it resolved positively over the next couple of weeks.

Thank you that's very helpful.

Sorry.

That's all from my side. Thanks for your question.

Yes. Thank you. Thank you.

Thank you and our next question comes from the line of Philip Shen with Roth Capital Partners. Your line is open. Please go ahead.

Hi, everyone. Thanks for taking my questions.

Was wondering if we could dig into the apex acquisition, just a bit more.

How long does the process take who will.

Did you consider in your M&A process and how are you thinking about the risks of diving deeper into China, while the world is decoupling and do you expect that some of the offer.

A one P tracker in the U S. Thanks.

Yeah. So so we looked at multiple different opportunities.

Obviously I can't name names the names, but our M&A activity has been active since since the beginning.

We've all.

We're always open to looking at opportunities obviously, its got to fit within the.

The culture of our company and the criteria that we set for such activities.

<unk> frankly speaking is a fantastic fit for us and in.

<unk>. The fact that the founders are people that we have experience with and frankly have a pretty deep trust.

<unk> has really been helpful to us.

So it was something that we did over.

Over a period of months in terms of doing the due diligence and now we've been able to sign the definitive agreement, we're really excited about that and as we mentioned we hope to close the transaction in Q2.

In terms of the <unk> tracker so today.

It's our intention to continue the focus that we have observed Voyager <unk> product in the North American market and for the one P tracker, that's coming with <unk> to be focused on on those markets that <unk> has good contacts that are that are helping us by expanding our international presence.

One day market of <unk> in the U S.

We'd say urban.

We will just have to look at the opportunity and as we learn more about.

The <unk> tracker.

That situation is certain to evolve but for now we're going to very much remain focused on those international markets for the <unk> tracker in the North American as well as some of the international markets.

Where you've seen our focus in the past for the Voyager Tupi.

Thanks, Sean.

Our checks suggest a substantial amount of.

Megawatts or gigawatts are being installed.

Without modules.

<unk>.

What percentage of your deliveries do you think.

This year are going to be for projects that don't have the module as yet.

Do you expect that trend by quarter and what do you see that I had thanks.

Yes. So so there are some some some unique things going on in the current market given people's uncertainty.

We've seen we mentioned we've seen projects now with multiple modules, we've seen projects, where the modules change.

And then Youre right. We have seen people who are doing projects that maybe don't have the module with 100% certainty, which is unique from the past, but I would say that's still a bit the minority of things that most most projects.

The customers have a have a sense of which model they are going to use.

Yes.

Alright.

How are you.

Delivering.

Truckers to projects without modules at all where they expect to take delivery of the modules in some future period that maybe it's still uncertain.

Yes, Bill this is Patrick.

From that perspective, if there are developers that have line of sight to modules, but it's out in the call it distant future. They do feel comfort around placing the order for the tracker.

At that point so the answer is yes to your question.

Okay. Thanks, Patrick.

And then as it relates to.

Your quarterly.

Guidance.

For all that detail it's super helpful.

The transition from Q1 to two we're seeing a jump in margins.

Can you talk about the risks around going from.

Call it the mid point zero percent.

Margin in Q1 to 12% one point in Q2, and how conservative that Lucas. Thanks.

So we were just.

As we mentioned before we reaffirm the guidance for 2022 and are providing the quarterly guidance for the first quarter. So the we're not refreshing the indicative numbers that we had given previously.

Like I said, we've reaffirmed the guidance the annual guidance.

And so as I as I think about it.

<unk>.

<unk> talked before Phil about.

The top to bottom program, we have in the company to drive gross margin improvement and so we have all aspects of gross margin are being focused on value pricing, reducing the steel content, reducing the steel cost reducing the logistics cost optimizing the logistics cost. So there is.

There's a there's a huge effort across the company with multiple elements to drive the improved gross margin performance and so I would say risks come with each of those right.

In terms of the engineering work, we are doing to reduce steel content. The negotiations were doing to establish msas with steel providers. The work that's going on in.

In terms of.

In terms of logistics the risks are also.

The externality so.

One risk is that WMO persists and does not yet resolved.

Another risk would be that ADC BD becomes.

A substantial issue in terms of driving uncertainty.

Of course, there is we're also dealing with the tragedy of a war right now too and so all of these all of these external factors as well that bring risk to our to our plan, but we are absolutely absolutely laser focused on all the things we can control.

We'll.

And that's that's the engineering work the procurement work the logistics work, we're just absolutely razor laser focused on.

On achieving the objectives for our plan.

Great. Thanks for the color, Sean I'll pass it on.

Thank you and our next.

Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.

Hey, guys, it's Dan.

Alex on for Julien.

Two quick ones for me.

Given the significant pull forward on revenue you guys had here in Q4, which looks to modestly reverse a little bit in Q1, I mean should we expect any further spillover into Q2.

And I guess.

Any sort of perspective.

Challenges you might see on.

Margin pressure there.

The first question and then I have a follow up on that.

Yes, so I think.

Obviously, we feel good about the guidance that we've provided for Q1, so I think.

It's absolutely our expectation you'll be in the range that we've just given for <unk>.

For each of the parameters for Q1, so I don't think were expecting.

Our revenue surprise, so to speak or any spillover.

So does that address your concern or question.

I was really asking about I guess, given that you had a sizeable pull forward roughly like $25 million or so I guess versus your guide.

Midpoint lowered a little bit into Q1, obviously not to the same degree, though I guess theres really ask more about Q2.

I guess prospectively Q3, as well if that makes any sense.

Yes.

At this point no I don't have any.

No I don't have a concern that thats going to happen in the out quarters.

Got it I appreciate it and then just one more I know we've talked a lot about the.

The acquisition here.

Yes.

Apex tracker.

Projects that <unk> been involved in I mean, it seems like there is.

Sort of a decent base of <unk>.

Closure there.

At utility scale ground, Mount and even some some agriculture takes it looks like so kind of curious there I mean as far as synergies takeaways that you might have out.

What theyre doing and the size of the projects that they are doing what do you think that you can take from their technology and how they are applied.

<unk> I guess your legacy U S business. If you will that's all for me. Thanks.

Yes, so we've done as part of the due diligence.

Done a deep dive on their engineering team their IP portfolio and looked at projects.

Projects, either constructed or under construction and so we've really been impressed by the quality of their engineering team and they seem to take a <unk> approach similar to the approach we took with the Voyager <unk> were.

Sure.

A group of Engineers got together, who had who had a lot of developer experience as well and said what is the how do we build.

The best one P tracker that solves the customers' issues and so we've really been impressed by the quality of engineering work and we think that that.

Having that team of engineers added to our team of engineers that we can yes, we will see additional opportunities to both improve their <unk>, but also to improve the Voyager <unk> working together as one company. So yes.

I would tell you that we're really jazzed about the quality of engineering that we've seen there and the quality of IP and we think theres definitely opportunities for us to work very closely together.

Thanks.

Yes, Thanks Bill.

Thank you and we have a follow up question from the line of Jonathan Schaffer with Colliers Securities. Your line is open. Please go ahead.

Hi, guys. Thanks for letting me get another follow up in here so.

<unk> steel efficiency increase.

That was a 20% increase in.

2008, 2021 over the course of the year, and then assume that sort of translates into.

'twenty, taking 20% of the steel out of the design correct me, if I'm wrong on that but.

I'm curious because I did watch.

Yes.

Webinar in September with PV magazine kind of going through all the details on.

What you're doing again at this kind of extreme damping approach and how that allows you to ex deal out of it.

It kind of gives a sense of where youre at in the process. Because there is the initial wind tunnel testing and then you've got workers actually out in the field standing on ladders kind of like shaking.

Taking the modules to collect some data points on stiffness.

Parameters there so youre in this kind of almost want to call. It like maybe a last phase or something where you are youre collecting all of those nodes and all those data points.

The mechanics of the structure and then to say based on that.

Can we take out even more so I'm curious do you have is there like any kind of a rule of thumb or bracketing or something a sense of how much more realistically steel you could actually take out of course, obviously couldnt take another <unk> <unk>.

50% out or.

If there is diminishing returns maybe even taking another 20% out could be challenging so I'm just kind of curious.

If there is any sort of sense of what's what are realistic expectations about getting more steel out.

So donovan.

It's really an interesting area. There are a lot of people in the company like myself with a deep semiconductor background in and as you know semiconductor is all about continuous improvement and in the company. We actually have an R&D facility, we call solar tax thats outside.

Syed.

Close to the Denver Airport as part of our.

Overall, R&D Science Park, there and so we're actively doing experiments looking at every component in the Voyager <unk> system to look for opportunities to optimize and further reduce the steel content. We also have a lab here in Austin that we're able to do.

<unk> on each individual component.

So as we look at making improvements in the system as we look at reducing the steel content. We can make certain that we're not doing anything that affects the overall quality of the system and so it's continuous improvement effort that will never cease that we'll continue to to remove steel.

Over time out of the out of the Voyager <unk> system. It's just it's just a continuous engineering improvement effort and then ultimately you could you could see that we would ultimately have.

Rather the design of new new version of the product so to speak eventually over time and basically have an overall product roadmap to look at improvements in revenue from one version to the next but it's just an overall continuous improvement effort I think if you all.

Also go back to the.

The Investor update we did in January Theres, some materials, there to that talk a little bit about the continuous improvement and reduction of the steel content.

It's an ongoing effort and.

We will always look to see where there's opportunities to improve the product where there are opportunities to to remove steel content.

It's a really great approach.

Thank you.

I'll sneak in one I'll be a little greedy here.

Sneak in one last question if possible.

The U S.

<unk> for a long time has really been seen as something that.

Could do very well in the United States as we move to more constrained sites.

It sort of fewer piles shorter rows.

Being able to.

Accommodate more uneven terrain.

And so historically that was kind of an important thing.

To say why why would anyone go to <unk> I know <unk> also really wanted to be competitive even in sort of the.

The Big fly open sites and Theres. The Samson project in Texas is kind of a one to point to where you had a win there.

In the current.

Pipeline and your backlog and kind of where you're at now and going forward do.

Do you see are you having the majority of your success in places, where you really playing to the strengths like the Carolinas or.

Places, where you have to drill rock or this challenging plays or soils are.

River bed.

Concerning sites or are you getting a lot of projects.

So more or even more than maybe you would've expected and big flat land in Texas, or California or elsewhere, just curious what's going on there if there's been changes.

Surprises in one direction or another if it's kind of in line with how it's been.

In the past year or two.

Yes.

There are quite a few advantages to the Voyager <unk> system and the basic construct ability, meaning the reduction in component count versus competition.

The reduction in DC cost with the four string architecture.

The man hours per megawatt in terms of the construct ability advantage and those are all things that apply on all different sites and Thats why exactly like you said there there are flat on her side, where we do quite well, but then there are also there is a whole another set of advantages for the <unk>.

For example on.

On slope sites right. We can we can accommodate like a 17, 5% great.

There is also the benefit.

On sites that are difficult terrain, where we have a much lower foundation count and that those apply as well. So we've seen success and continue to see success on both flat sites as well as sites with with odd terrain or I guess, I would say more challenging terrain and certainly it seems like.

The percentage of sites with with the more challenging terrain is is increasing over time.

Thanks.

Okay, great. Thank you guys.

Yes, thanks, Jonathan.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to management for any further remarks.

Thanks, very much operator, and thanks to all of you for participating on our earnings call today and thanks.

Yes.

I remain extremely excited about the future of FTC solar and in particular the acquisition of <unk> tracker, I think it's really going to help to accelerate our international growth.

Super excited about that as well so thank you again for your time and thank you for your interest.

Take care.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

[music].

Good day, and thank you for standing by welcome to the F. T C solar fourth quarter and full year 2021 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 one on your telephone please be.

Advised that today's conference may be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today.

Phil Michelle It Vice President Investor Relations. Please go ahead.

Okay.

Thank you and welcome everyone to FCC FTC soldiers fourth quarter and full year 2021 earnings conference call.

Prior to today's call you've likely had opportunity to review our earnings release supplemental financial information and slide presentation, which are posted earlier today, if you've not reviewed these documents. They are available on the Investor Relations section of our website at FTC solar Dot com.

I'm joined today by Sean Hoffler, FTC soldiers, President and Chief Executive Officer, and Patrick Cooke Company's Chief Financial Officer.

No obligation to update such information, except as required by law.

Nearest applicable GAAP measure.

And Additionally, we will discuss our executed contract and awarded orders and our definition for this metric is also included in our press release with that I'll turn the call over to Sean.

Earnings call, bringing our total to seven.

We also recently launched a new turnkey DG offerings targeted at the profitable sub 20 megawatt segment of the market. This is a growing market with favorable pricing and margin with average PPA prices that are two times that of larger systems based on a significant amount of customer feedback we listen.

And acted and have worked over recent months to develop an offering that will address market needs and specific customer pain points, while maintaining all of the benefits of an FTC solar system.

To those highlights this morning, we announced our intent to acquire strategic tracker company, which will accelerate our international expansion and be accretive to our shareholders.

Expected to be the largest market for tracker installations outside the U S by 2030, and a top two market outside the U S. Over the next 10 years with the <unk> and new ADC Vd as overhangs on the U S market. We believe now is the time to bolster our international growth activities, we are seeing progress from our organic.

Our position in strong growth markets with current orders and a large pipeline in markets, where we don't have a sales presence. So it is fully additive to FTC's business.

Second it provides complementary technology that increases our total addressable market. The company produces one P trackers for low cost market, which complements our Voyager <unk> tracker, while we believe our two tracker is a best in class solution and has achieved rapid adoption we.

Realized at two P may not always be the best solutions for every market our site the pending acquisition would strengthen our product portfolio allow us to be technology, agnostic and low cost international market and position us to analyze each project site and determined the best FTC solar.

<unk> in any market in which we offer both in addition, our Voyager <unk> product is designed to be fully differentiated and its ease of construction and reduced labor hours, which is most advantageous in high labor cost markets. The target companies trackers are designed and optimized for low labor.

Cost markets, giving us more options and more targeted markets.

Third it strengthens our capabilities in several key areas, including engineering logistics supply chain and sales. For example, we expect to see significant synergies and product IP and knowhow, allowing us to improve process and designed to bring the best products to market the acquisition.

US an opportunity to leverage relationships infrastructure and technology across the full platform around the world and the founders have deep expertise in renewables in operations and strong relationships with important suppliers customers and other key stakeholders in their market their combined experiences.

<unk> leadership positions with JA solar Harry on solar Cypress semiconductor Mackenzie and Smith and.

The proposed acquisition is each X tracker, a Shanghai, China based supplier of one P. Tracker systems formed in 2019, there tracker launched last year with what we believe to be orders of approximately $12 million in China and about 20 Gigawatts of total pipeline opportunities.

<unk> has a strong team with direct tracker market engineering expertise and deep connections in the market, including within China, The Middle East and Africa.

Consideration for the acquisition consists of $4 3 million in cash and approximately one 4 million shares. This represents an attractive multiple of approximately three times 2023 EBITDA. The sellers will also be eligible for an earn out of approximately one 6 million shares.

Just on meeting certain performance metrics overall, we estimate the transaction can generate $59 million in revenue and $4 million of EBITDA accretion in 2023, and $67 million in revenue and $7 million of EBITDA accretion in 2024.

We're excited about the acquisition and the strategic and financial benefits. We expect it will bring to FTC solar they have an impressive and growing pipeline of strong team and business model and culture that fits ours. We believe they have strong growth opportunities, we expect to complete the acquisition in the second quarter and we will.

Be sure to update you on our progress.

Looking back on the full year 2021, the FTC solar team has achieved much I am very proud of our work, including growing total revenue by 44%.

Increasing top 15 developer and EPC penetration from 40% each to 47% and 60% respectively.

Completing our initial public offering in April further strengthening our balance sheet, winning our first projects in certain key international markets, including our first two projects in Africa, and our largest project to date in Australia at 88 megawatts tripling, our international pipeline to more than 26 Gigawatts.

Excluding the proposed acquisition launching our innovative sunpass performance software and securing several initial contracts, reducing the steel content and cost of our trackers for future projects by more than 20% and finally, bringing smart accomplish an innovative new talent at the end of the organization.

Asian, while retaining our top performers.

In the U S and we will continue to see increasing traction internationally.

<unk> solar has a solution that is differentiated in the marketplace and increasingly recognized by customers along with new higher margin offerings launched and we believe we are poised for significant growth and margin improvement ahead, while we've made good progress I'm, even more excited about where we'll go from here.

Finally, one leadership update before I turn it over to Patrick as you know Patrick has been with FTC virtually since the beginning of the company and it's been a very strong leader in driving the company's growth. In addition to being our first CFO and building out our finance accounting and it infrastructure from the <unk>.

Ground up through to becoming a public company. He has been a key driver in nearly every aspect of the company's growth.

I am very excited to have Patrick in this new expanded role and see him as a key partners we move forward.

Recently served as senior Vice President and Treasurer of true Blue accompany with $2 2 billion in revenue, where he was responsible for strategy and execution of Treasury and finance related functions. He was previously with MMC electronic materials and Sunedison from 2009 and 2016.

<unk> already shared in multiple roles, including meeting the Treasury and Investor Relations functions earlier in his career. He served in various positions for the Dow chemical company as well as rolls with Duff and Phelps credit rating company and Scutter temporary investments Patrick is there anything you would like to add.

Thanks, Sean and good morning, everyone. Let me just add that I am pleased to be taking on this new role and to have the opportunity to continue serving FTC solar and its shareholders in new ways.

We'll continue to be very closely aligned with our finance team as well as the Investor community and then committed to ensure that we have a smooth transition. While this means there will be changes to my scope of responsibility there'll be no change in my effort and dedication to assist Sean and the executive leadership team to meet our near term and long term objectives.

Im also excited to welcome Phil to the team I've had the opportunity to work with them in the past I believe he'll make a great addition to FTC solar.

So with that let's dive into my prepared remarks, which will cover additional detail regarding our fourth quarter and full year performance and our outlook.

And as a reminder, our year over year comparisons reflect a significant amount of growth in our personnel and corporate infrastructure ahead of becoming a public company, which occurred in the second quarter of last year. These items make the year over year comparisons a bit less meaningful.

This revenue level represents an increase of 92% compared to the prior quarter driven by higher product volume and an increase of 130% year over year on higher volume and Asps.

GAAP gross loss was $8 6 million or eight 4% of sales compared to $8 million or 15, 2% of sales in the prior quarter. This strong improvement in margin quarter over quarter and was actually muted by the reserved for potential customer credit that Sean mentioned that was up $3 million reduction.

<unk> to revenue and margin.

The results for this quarter compares to a gross loss of $4 8 million in the prior year period with the difference driven primarily by logistics impact in 2021, and a strong ramp up in our employee count and other overhead expenses to support the company's growth trajectory.

Was driven primarily by necessary growth in staffing and other public company preparations.

Adjusted EBITDA loss, which excludes $3 2 million of stock based compensation expense certain consulting and legal fees severance and other items was $16 $4 million. This was at the low end of the guidance range due primarily to the $3 million Reserve mentioned previously.

This result compares to an adjusted EBITDA of $16 1 million in the prior quarter and $10 $9 million in the year ago quarter.

Our contracted and awarded orders as of March 14th where $606 million with the.

<unk> delivery dates in 2022 and beyond as a reminder, we can continue to add to our contract and awarded revenue for expected delivery in 2022 into the fourth quarter of this year and still recognize revenue.

Following a seasonally slow holiday period, and the headwind with Holden release order our bidding activity has increased significantly we look forward to resolution on W. Aro and remain incredibly bullish on the long term growth opportunity in the U S.

I'd also like to add that I share shops excitement about the proposed acquisition, it's a great opportunity for us to further accelerate our growth as well as profitability.

Affinitive agreement for the transaction was signed yesterday with the consideration consisting of $4 $3 million in cash, which will be funded with cash on hand, the issuance of approximately $1 4 million shares plus a potential earn out of approximately $1 6 million shares upon the achievement of certain performance metrics, we expect the transat.

Actions to generate $4 million of EBITDA accretion in 2023 and $7 million in 2024, and we anticipate the integration cost to be approximately $250000, which primarily is composed of legal and administrative activities and limited to 2022, we expect the transaction to close in the.

Quarter of 2022 subject to satisfaction of customary closing conditions and parameters due diligence.

<unk>.

Which at the midpoint would represent a 62% annual growth year over our 21 results and.

And we expect that we will outpace the overall market along with this revenue we are targeting 11% to 14% non-GAAP gross margin.

non-GAAP operating expenses between 49, and $54 million and adjusted EBITDA between negative four and positive $11 million.

Our targets for the first quarter, which reflects the pull forward in revenue into Q4 call for revenue between 55 and $65 million targeting non-GAAP gross margin of negative 7%.

That's a breakeven non-GAAP operating expenses of $12 million to $13 million and adjusted EBITDA loss between $13 5 million and $17 5 million.

With that I'll turn it over to the operator for any questions operator.

Okay.

And our first question comes from the line of Jonathan Schaffer with colleagues Securities. Your line is open. Please go ahead.

Hi, guys congratulations on the results.

With the pull forward from 2022 into Q1.

This fourth quarter I'm, just curious is there anything specific that was sort of driving that in terms of.

Maybe modules being released earlier than expected or.

What changed in terms of your prior expectations to what really unfolded in the fourth quarter. The allowed are enabled by.

Significant pull forward in revenues.

So thanks for the question Donovan.

It really is I.

I guess I would say several factors one is the <unk>.

Working with the suppliers and some customers requesting additional progress on certain projects and so we were able to support that with capacity that was readily available.

The capacity itself.

As a bit of a sign of what's going on in the market that in some areas. The steel demand is softening there they seem to be building only as many automobiles as they can get semiconductor components. It seems like in some markets.

Mike in the China real estate market for second and third homes things are slowing a little bit. So so there is definitely more capacity available and working with our suppliers and then again some customers that wanted some.

Some additional progress on projects that we were able to support.

Okay.

And actually I'm curious because I know with module imports.

There is some challenge there.

Kind of knowing what type of modules that you might be able to get.

What sort of EPC developers EPC sometimes.

<unk> in some cases are just reworking things to see what <unk>.

Working with what's available in terms of versus necessarily.

Originally planning for.

Has that been a factor at all in terms of maybe a pre.

<unk> originally was going to use one type of tracker, maybe switches to your tracker just because the modules that happens to arrive are better suited.

To your tracker design I mean is there anything like that kind of a factor.

Or even on the steel side changing the steel prices swishing things up.

So it's been interesting.

As we talked about in the update in January .

There is a bit of choppiness in the market regarding module supply.

And as you know the big the Big factor behind that is the <unk> and then more recently the.

The new version of ADC, BD, and we've seen some interesting things we've seen.

Requests for bids where they're using multiple modules on a project typically in the past you would see a single module for any particular project.

We have seen the modules change from from what was originally requested.

And we've seen a change order to change the modules to redesigned for a different module of course, our trackers you know as module agnostic and so we can accommodate any module.

I haven't seen anyone.

A change in the tracker choice you know typically when they contract they've they've kind of worked through all of that already but the module Choppiness continues until until <unk> is fully resolved.

That being said there are some positive signs.

Of additional module flow opening up.

But frankly, we just were.

We are.

Looking in anticipation of wri getting.

<unk> resolved and until then it'll be I think they will just continue to be some choppiness in and module supply.

Okay, and then just one last question and I'll get back in the queue.

With the the reserve for credit for the customer.

You talked about.

I know.

It's something I've really kind of honed into and taken interest in as these.

You guys Thats very unique approach to damping.

You had the white paper that you put out last week.

And I'll ask.

Pleased to see that in terms of just my own sort of interest but the.

I also know that because of the kind of unique and novel approach I think it was back in 2019 or 2020, you guys had.

You did a sort of a customer credit or a retrofit of some kind because the uniqueness of your damping approach put.

An unusual amount of sort of strain on the damper bracket and so some of those brackets, where had broken and you had to go back and kind of retrofit.

So as the as the $3 million credit related to something along those lines, where there's sort of some.

A bit of a.

Learning curve around this kind of unique and novel approach or is there something different there just any kind of elaboration would be great.

Hey, well Donovan, thanks for noticing the white paper.

We're really proud of the IP that we have and the unique damper system. We have that provides us with great performance in high wind environments and so we.

Being being excited about that and excited.

Yes.

Paper.

The $3 million that we referenced.

Yes.

Simply a small matter of payment discussion between us and our customer so no no.

No relation whatsoever to the technology or <unk>.

Any kind of a warranty issue or anything like that it's just a small payment issue that we're working through with the customer.

Okay, that's great fantastic well, congratulations again on the quarter and I'll jump back in the queue.

Thank you guys.

Thank you. Thank you.

Thank you and our next question comes from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.

Good morning, Congrats on the revenue pool and thanks for taking the questions.

So my first question is on the <unk> acquisition.

I was just wondering if you could talk about.

Slide specifically.

Specifically what drives your confidence in going from.

$10 million of revenues in 'twenty two.

$59 million of revenues in 2003 is that what's driving that confidence.

So we did extensive due diligence we have some.

Since the beginning our company.

Has had an M&A function.

That's always out looking at potential opportunities and so when when this one came about we gave it to the team to do some really extensive due diligence. So when you look into the pipeline.

We had connections made to their customer base. The founders of this particular company or folks that we trust because many many of the folks in our company have worked with him in the past and so through the due diligence and review of the pipeline.

We believe this is a <unk>.

Very credible plan that they put forth in that.

<unk> gave us kind of an inside view on what their overall pipeline and their deep relationships with the customers and partnerships.

And then also with <unk>.

Ability to kind of scale within FTC allows them to go meet these production targets for the customer. So it's really just a combination of those items.

And really kind of centered around the transparency with regard to the due diligence process.

Sure.

Got it.

And then maybe switching switching gears to the base business.

On the contracted and awarded.

Clinical 6 million.

Was lower than the 692 disclosed last time, what's driving that decline and then how much of the.

What portion of that 606.

And for 2022.

Yes.

I'm sorry, you broke up there at the end do you mind repeating that last in the last piece of your question Kashi.

Apologies I set out what piece of the 606.

For delivery in 2002, I think last time, you indicated with $350 million. So I wanted to get an update on that number.

Yes, so we since we've guided to 2022 and we continue to reaffirm the guidance.

The basically the $4 15 to $4 60.

So essentially since we are providing the guidance we were really just focused on that particular revenue number for the year.

Got it and the driver of the decline in.

In the six from 692% to 606 was the driver there.

Yes, I mean, I think it's really kind of relates to what we're seeing is project.

Push outs in terms of execution as it relates to just overall module availability I mean, I think the good news what we're seeing.

No cancellations.

Not seeing that FTC's.

Losing projects just decisions are getting made in the overall macro.

Environment, and we're seeing a lot of momentum in terms of our overall pipeline. Our sales engineering team is really working over time with our customers.

Bidding two or three different module.

Module suppliers in order to once the module supply gets turned back on to be effectively turned the purchase order and start ultimately executing so that's really kind of the driver, but our bidding activity remains high and we arent seeing.

TC losing projects in the first quarter is really just tied to project decision pushout. It just.

Just a little bit of the ongoing.

The choppiness in the module supply caused by primarily <unk> and as I mentioned, we are seeing some positive signs and.

In terms of certain flows being approved and modules from certain suppliers coming back in.

But still until it's completely resolved I think youll see this this level of choppiness.

Got it got it and then maybe maybe just a last one for me.

<unk>.

Following the.

The invasion of Ukraine.

We've seen U S steel prices or at least the forward curves move up here.

But they're still below last year and so im just curious how.

Current or recent steel prices are tracking.

Relative to your expectation.

That were incorporated in the full year 2022 guidance. Thank you.

So we are.

Okay at this point with our steel pricing remember most of our steel is sourced internationally, though we are we are prepared in the event that <unk>.

Some version of build back better comes about that requires U S content, we will be able to support that as well, but we see the.

International pricing is still in line with our expectations with the plan for the year.

Enough scale and volume now to really matter to those suppliers is helping us as well, but but we're still aligned with expectations and in Kashi. The one thing I think it's important to note is how we bid our projects we're refreshing our project bids.

Side of every two weeks and not take the steel exposure on ourselves and really working to pass that off to the customers. So that allows us in these kind of commodity fluctuation pricing to make sure that we're able to kind of ultimately maintain the margin by having that transparent.

Our relationship with our with our customers.

Got it thank you.

Thank you for your questions.

Thank you and our next question comes from the line of <unk>.

<unk> <unk> with Raymond James Your line is open. Please go ahead.

Yes, thanks for taking the question.

The revenue that you expect to get from.

The new acquisition, what's the geographic mix of that so I imagine it's much more international.

Versus your legacy business that correct.

Yes, that's exactly right Bob also as as you know.

Our international expansion has been driven by the boots on the ground strategy and so as this opportunity came about and we looked at it we felt that.

Our organic approach has yielded results. We thought this this approach will help us to accelerate in international markets and so we talked in the announcement about the opportunity in middle East and China and Africa, one of the good things about this acquisition.

One is the relationship that the founders have with some of the large Chinese EPC and as you know a lot of the business outside China and certain markets like Africa like Middle East are driven by those <unk>. So so we're really excited about not only opportunity in China, but the opportunity outside China.

This is all all pretty much international business for us.

Yes.

In that context.

Cannot held by <unk>.

The obvious political dynamic here.

This will now be owned by by an American company.

Chinese project developers be comfortable purchasing.

Effectively a U S equipment supplier.

So we.

As a consequence of this transaction, we will have people in China dealing with the Chinese <unk> and we've done some due diligence.

That area and we feel very comfortable that in fact.

The association with us is going to be a positive.

It'll help.

And enhance the quality reputation for example, the engineering reputation et cetera, which are all really important factors and frankly on the ground.

Still.

The company is not necessarily a negative in the China business environment.

Okay fair enough. Thank you guys.

Thank you.

Thank you and our next question comes from the line of Matt <unk> with Credit Suisse. Your line is open. Please go ahead.

Hey, good morning, Thanks for taking our questions.

Can you just talk more about the ethics tracker acquisition.

Ed.

How much of the business, you're kind of expecting in 'twenty three 'twenty four comes from the Chinese markets versus other markets.

This should we consider this a similar EBITDA margin business like the core business. Thanks.

Yes.

It should it should definitely be considered a similar EBITDA.

Performing business, then as the current business and the expectations that we have for the current business.

And so that's what we've included in the guidance that we're providing in terms of both the revenue contribution and EBITDA contribution.

We expect it to continue to grow over time.

Got it.

More than half is China.

So China.

I think thats, a fair assumption roughly half and half.

Got you that's helpful.

Does this product has the DG market push also.

D. G protein is going to be the fifth to be perfectly.

So our focus today in the DG market is.

As with our Voyager <unk> product so.

We will continue to.

With the focus that we announced in January in terms of the DG market with our Voyager <unk> product in the long run.

Exciting that we'll have this portfolio of multiple products, but for now we will keep the focus we'll focus our Voyager <unk> product in <unk> and.

In terms of our plans for DG.

Gotcha.

It's helpful. And then just sneak one last one from me just more on the macro side.

So a lot of macro data.

Since the last two months doesn't follow suit.

Spoke about <unk>.

The issue is kind of in the industry.

<unk>.

Issues or challenges.

<unk> changed and are you expecting any accelerated.

The resolution for the <unk> issues in the industry.

On top of that you've got.

Are you seeing kind of seeing any worries around b and C.

I could mention investigation against the Southeast Asian manufacturers.

So we.

We see progress on <unk>.

A more open environment in terms of the flow.

So we're optimistic that these issues with W. Rowe will get resolved.

The timing of course is is not clear to us or not is no clearer to us than it is to anyone else, but we've seen some positive signs lately and that's that's the good news.

On 80 CVD.

Fact that.

Commerce asked for some more time on this latest version of ADC Vd will have to see.

In the short term will all hear whether theyre going to do the investigation or not.

We've heard opinions that run the gamut from.

They will not investigate because of the additional uncertainty and will cause in the module supply.

Particularly in the current market, where there is still the <unk> overhang and then we've heard on the other hand that.

There is there is there are reasons for the investigation that will continue so we're watching it very very closely and.

Hope to hope to see it resolved positively over the next couple of weeks.

Thank you that's very helpful.

Sorry.

That's all from my side. Thanks for your question.

Yes. Thank you. Thank you.

Thank you and our next question comes from the line of Philip Shen with Roth Capital Partners. Your line is open. Please go ahead.

Everyone. Thanks for taking my questions.

Was wondering if we could dig into the apex acquisition, just a bit more.

How long does the process take who else do you consider in your M&A process and how are you thinking about the risks of diving deeper into China, while the world is decoupling and do you expect that someday offer.

And a warranty tracker in the U S. Thanks.

Yes, so so we looked at multiple different opportunities.

Obviously I can't name names the names, but our M&A activity has been active since since the beginning.

We've all.

Always open to looking at opportunities obviously, its got to fit within.

The culture of our company and the criteria that we set for such activities.

<unk> frankly speaking is a fantastic fit for us and in particular, the fact that the founders are people that we have experience with and frankly have a have a pretty deep trust.

In has really been helpful to us.

And so it was something that we get over.

In terms of the <unk> tracker. So today it is.

Our intention to continue the focus that we have observed Voyager <unk> product in the North American market and for the one P tracker, that's coming with <unk> to be focused on on those markets that <unk> has good contacts that are that are helping us by expanding our international presence.

One day market of <unk> in the U S.

We'd say Herman.

We'll just have to look at the opportunity and as we learn more about.

The <unk> tracker.

That situation is certain to evolve but for now we're going to very much remain focused on those international markets for the <unk> tracker and the North American as well as some of the international markets where.

Where you've seen our focus in the past for the Voyager Tupi.

Thanks, Sean.

Our check suggest a substantial amount of.

Megawatts or gigawatts are being installed.

Without modules.

<unk>.

What percentage of your deliveries do you think.

This year are going to be for projects that don't have the module as yet.

Do you expect that to trend by quarter and what do you see there. Thanks.

Yes.

There are some some some.

Some unique things going on in the current market given people's uncertainty.

We've seen we mentioned we've seen projects now with multiple modules, we've seen projects, where the modules change.

The customers have a have a sense of which model they are going to use.

Yes.

Alright.

Are you.

Delivering.

Truckers.

With that module is at all where they expect to take delivery of the modules in some future period that maybe still uncertain.

Yes, Bill this is Patrick.

From that perspective, if there are developers that have line of sight to modules.

Out in the call it distant future they do feel comfort around placing the order for the tracker.

At that point so the answer is yes to your question.

Okay. Thanks, Patrick.

And then as it relates to.

Your quarterly.

Guidance.

Thanks for all that detail it's super helpful.

The transition from Q1 to two we're seeing a jump in margins.

Can you talk about the risks around going from.

Call it the mid point zero percent.

In Q1 to the 12% one point in Q2, and how conservative that that Lucas. Thanks.

So we were just.

As we mentioned before we reaffirm the guidance for 2022 and are providing the quarterly guidance for the first quarter. So we're not refreshing the indicative numbers that we had given previously.

Like I said, we've reaffirmed the guidance the annual guidance.

And so as I as I think about it.

<unk>.

<unk> talked before Phil about.

There's a there's a huge effort across the company with multiple elements to drive the improved gross margin performance and so I would say risks come with each of those right and in terms of the engineering work, we are doing to reduce steel content. The negotiations were doing to establish MSA.

As with steel providers.

The work that's going on in.

In terms of.

In terms of logistics the risks are also.

The externality so.

One risk is that WMO persists and does not yet resolved.

Another risk would be that ADC BD becomes.

A substantial issue in terms of driving uncertainty.

Of course, there is we're also dealing with the tragedy of a war right now too and so all of these all of these external factors as well that bring risk to our to our plan, but we're absolutely absolutely laser focused on all the things we can control.

We'll.

And that's that's the engineering work the procurement work the logistics work, we're just absolutely razor laser focused on.

On achieving the objectives for our plan.

Great. Thanks for the color, Sean I'll pass it on.

Thank you and our next.

Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.

Hey, guys.

Alex on for Julien.

Two quick ones for me.

Given the significant pull forward on revenue you guys had here in Q4, which looks to modestly reverse a little bit in Q1, I mean should we expect any further spillover into Q2.

And I guess any.

Any sort of perspective.

Challenges you might see on margin pressure there.

The first question and then I have a follow up on that.

Yes, so I think yes.

Obviously, we feel good about the guidance that we've provided for Q1, so I think.

It's absolutely our expectation to be in the range that we've just given for for each of the parameters for Q1. So I don't think were expecting.

Our revenue surprise, so to speak or any spillover.

So does that address your concern or question.

I was really asking about I guess.

Given that you had a sizeable pull forward roughly like $25 million or so I guess versus your guide mid.

<unk> lowered a little bit into Q1, obviously not to the same degree, though I guess I was really asking more about Q2.

Or I guess prospectively Q3, as well if that makes any sense.

Yes.

Hi.

At this point no I don't have any.

No I don't have a concern that thats going to happen in the out quarters.

Got it I appreciate it and then just one more I know we've talked a lot about.

The acquisition here.

Just glancing at apex tracker and kind of the projects that <unk> been involved in I mean, it seems like there is.

A decent base of exposure there.

At utility scale ground, Mount and even some some aggregate tax it looks like so kind of curious there I mean as far as synergies and takeaways that you might have out.

What theyre doing in the thousands of projects that Theyre doing.

What do you think that you can take from their technology and how they are applied into I guess your legacy U S business. If you will that's all for me. Thanks.

Yes, so we've done as part of the due diligence.

We've done a deep dive on their engineering team their IP portfolio and looked at.

A group of Engineers got together, who had who had a lot of developer experience as well and said what is the how do we build.

The best one P tracker that solves the customers' issues and so we've really been impressed by the quality of engineering work and we think that that.

Having that team of engineers added to our team of engineers that we can yes.

We'll see additional opportunities to both improve their <unk>, but also to improve the Voyager <unk> working together as one company. So yes.

Thanks.

Thanks Bill.

Thank you and we have a follow up question from the line of Jonathan Schaffer with Colliers Securities. Your line is open. Please go ahead.

Hi, guys. Thanks for letting me get another follow up in here so.

There is still efficiency increase.

The 20% increase in.

22021 over the course of the year I'm going to assume that sort of translates into.

'twenty, taking 20% of the steel out of the design correct me, if I'm wrong on that but.

I'm curious because I did watch the <unk>.

Webinar in September with PV magazine kind of going through all the details on.

What you're doing again at this kind of extreme damping approach and how that allows it to X deal out of it.

It kind of gives a sense of where youre at in the process because there's the initial wind tunnel testing and then you've got workers actually out in the field standing on ladders kind of like shaking.

Taking the modules to collect some data points on stiffness.

Different parameters. So yes, you're in this kind of almost want to call. It like maybe the last phase or something where you're you're collecting all those nodes and all those data points.

The mechanics of the structure and then to say based on that.

Can we take out even more steel. So I'm curious do you have is there like any kind of a rule of thumb or bracketing or something a sense of how much more realistically steel you could actually take out of course, obviously couldnt take another <unk>.

50% out or.

There's diminishing returns maybe even taking another 20% out can be challenging so I'm just kind of curious.

If there is any sort of sense of what's what are realistic expectations about getting more steel out.

So Jonathan.

It's really an interesting area. There are a lot of people in the company like myself with a deep semiconductor background.

And as you know semiconductor is all about continuous improvement and in the company, we actually have an R&D facility.

We call solar tax thats outside or close to the Denver Airport as part of <unk>.

It's on each individual component.

So as we look at making improvements in the system as we look at reducing the steel content. We can make certain that we're not doing anything that affects the overall quality of the system and so it's continuous improvement efforts that will never see that will continue to to remove steel.

Over time out of the <unk>.

Out of the Voyager <unk> system. It's just it's just a continuous engineering improvement effort and then ultimately you could you could see that we would ultimately have.

Rather the design of new new version of the product so to speak eventually over time and basically have an overall product roadmap to to look at improvements in and then revenue from one version to the next but it's just an overall continuous improvement effort I think if you all.

Also go back to the.

The Investor update we did in January Theres, some materials, there to that talk a little bit about the continuous improvement and reduction of the steel content, but it's it's an ongoing effort and.

We will always look to see where there's opportunities to improve the product where there are opportunities to remove steel content.

It's a really great approach.

Thank you.

I'll sneak in one I'll be a little greedy here sneak in one last question if possible.

The U S.

<unk> for a long time has really been seen as something that.

Could do very well in the United States as we move to more constrained sites.

Fewer piles shorter rows being.

Being able to.

Accommodate more uneven terrain.

And so historically that was kind of an important thing.

To say why why would anyone go to <unk> I know <unk> also really wanted to be competitive even in sort of the.

The Big fly open sites and there is the Samsung project in Texas is kind of one to point to where you had a win there but in the current.

Pipeline and your backlog and kind of where you're at now and going forward.

Do you see are you having the majority of your success in places, where you really playing to our strengths like the Carolinas or.

Places, where you have to drill rock or this challenging plays or soils are.

River bed.

Concerning sites or are you getting a lot of projects.

So more or even more than maybe you would've expected and big flat land in Texas, or California or elsewhere, just curious what's going on there if there's been changes.

Surprises in one direction or another if it's kind of in line with how it's been.

In the past year or two.

Yes. So there are quite a few advantages to the Voyager <unk> system and the basic construct ability, meaning the reduction in component count versus competition.

The reduction in DC cost with the four string architecture.

The man hours per megawatt in terms of the construct ability advantage and those are all things that apply.

On all different sites and Thats why exactly like you said there there are.

Her side, where we do quite well, but then there are also there is a whole another set of advantages for the two P system. For example on on slope sites right. We can we can accommodate like a 17, 5% grade.

There's also the benefit.

On sites that are difficult terrain, where we have a much lower foundation count and that those apply as well. So we've seen success and continue to see success on boats flat sites as well as sites with with odd terrain or I guess, I would say more challenging terrain and certainly it seems like.

The percentage of sites with with the more challenging terrain is increasing over time.

Thanks.

Okay, great. Thank you guys.

Yes, thanks, Jonathan.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to management for any further remarks.

Thanks, very much operator, and thanks to all of you for participating on our earnings call today and thanks.

Yes.

I remain extremely excited about the future of FTC solar and in particular the acquisition of <unk> tracker, I think it's really going to help to accelerate our international growth.

I'm Super excited about that as well so thank you again for your time and thank you for your interest.

Take care.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q4 2021 FTC Solar Inc Earnings Call

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