Q1 2022 FTC Solar Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the FTC Solar first quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
A question during the session you will need to press star one on your telephone. Please be advised this call is being recorded.
Any further assistance. Please press star Zero I would now like to hand, the conference over to your host today.
Bill.
Skylake, Vice President Investor Relations you may begin.
Thank you and welcome everyone to <unk> first quarter 2022 earnings conference call.
Prior to today's call you'd likely an opportunity to review our earnings release supplemental financial information and slide presentation, which are posted earlier today.
If you've not yet reviewed these documents they're available on the Investor Relations section of our website at FTC solar Dot com.
I'm joined today by Sean Hoffler, FTC sold as President and Chief Executive Officer, Phelps Morris, The company's Chief Financial Officer, and Patrick Cooke, Chief Commercial officer before we begin I remind everyone that today's discussion includes forward looking statements based on our assumptions and beliefs in the current environment.
Only as of the current date.
As such these forward looking statements include risks and uncertainties and actual results and events could differ materially from our current expectations.
Please refer to our press release and other SEC filings for more information on the specific risk factors.
We have no obligation to update such information, except as required by law.
As you would expect we will discuss both GAAP and non-GAAP financial measures. Today. Please note that the earnings release issued this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll 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 it over to Sean.
Thanks, Bill and good morning, everyone.
Sure I go into our highlights I thought I'd address the topic on everyone's mind in our industry and that's the current market environment with ADC CVD.
Since our last update in mid March steel and freight are both off their highs, although still elevated but those are the main drivers in the industry module availability is the key limiting factor to solar industry growth in the U S. In the near term.
Customers were already facing supply limitations due to <unk>, which had the effect of significantly limiting imports as producers either limited or stopped shipments and production as they work to provide sufficient documentation to avoid detention at the porch.
SWR Oh, what's appearing to show signs of improvement the new ADC BD investigation launched on March 25th with its risk of significant retroactive tariffs has now compounded customers difficulties in procuring modules module makers would appear even less likely to restart production and unlikely to ship Moss.
<unk> at all without buyers agreeing to absorb any potential tariff.
This issue with module availability has made the near term environment increasingly uncertain as customers work to get line of sight on modules construction timelines and decisions on new projects continue to get pushed out in time.
So while we have a lot of business and contracted and awarded much of the construction has been delayed this particularly impacts our second quarter profitability as most of the revenue that remains for Q2 is based on old contracts and higher steel content product that doesn't benefit from our significant advance.
As with our design to value initiatives.
So with that backdrop of the environment I would like to note that there are several bright spots from our standpoint.
We have made nice progress on our bookings with contracted and awarded now at $664 million with $112 million added in the past two months and no cancellations. The vast majority of our contracted and awarded moving forward will be at an attractive margin profile relative to <unk>.
Oracle and I'll touch on that more in a moment.
We have been able to grow our international business organically and almost half of our recent bookings have been international or.
Our pipeline is at record levels. This includes strong growth in international pipeline, which has grown more than 20%. This year alone and now stands at more than 32 gigawatt and this excludes our pending acquisition of Ajax tracker.
We're excited about the addition of <unk> and believe it will enhance our growth and profit opportunities moving forward with incremental pipeline complementary <unk> technology and other benefits, we expect to close on that transaction in the current quarter and expect to see tangible progress on bookings as we progress through the year.
Overall, there continues to be healthy activity in the U S with active bidding and developers working to find new sources of module supply.
I think this really underscores what an incredible amount of demand is out there and how well the market could do if ADC BD is resolved.
In the near term, we will continue to focus on what we can control that includes executing incredibly well on the projects we have in flight, while continuing to deepen and broaden our customer relationships accelerating our international efforts, which include smoothly integrating H X tracker and supporting their grow.
<unk> as we capitalize on our expanded addressable market.
Building, our DG business, which has higher margins and for which we have already been awarded 12 projects since our January business update call.
Improving our operational efficiency, which includes automating processes and controlling cost to be most efficient and continuing to drive our gross margin initiatives, including our design to value product cost reduction program and strategic R&D efforts.
Our design to value initiatives as already driven significant cost out of our tracker.
We've seen steel reductions roughly in the 20% range with additional reductions expected for year end.
Along with improved logistics cost and more disciplined pricing the new projects, we've been winning now have significantly higher product margins as our lower margin legacy projects complete and the newer projects begin it will have a meaningful impact on our margins and results.
As an illustration on the left side of this table, we show what an average margin profile of our legacy projects are those generally ordered prior to Q4 looks like at revenue levels of 101 hundred $50 million and in fact last quarter. When we provided Q4.
As a result, we mentioned that excluding our credit reserve and incremental logistics expense, we would have been in the negative two 8% range on.
On the right side of the chart. It shows an illustration of average new projects and what the gross margin would look like.
The vast majority of more than $600 million of our contracted and awarded takes advantage of our latest <unk> advances.
And if there is one silver lining in projects being delayed.
That we can continuously update those projects as we continue to drive progress on our cost reduction so essentially projects can become more profitable than originally designed.
Overall, we believe we're well positioned to make significant progress toward our stated long term gross margins in the 20 plus percent range when project activity Normalizes post ADC BD.
So in conclusion, we believe the regulatory issues will be a near term bump in our long term road of strong growth.
We have record pipeline are winning new business are accelerating internationally and DG and have higher margin business poised to replace legacy projects with a differentiated products strong customer adoption significant cost reduction initiatives and operational improvements I believe.
<unk> FTC solar is controlling what it can control and positioning itself incredibly well for the future we significantly outgrew the overall market in the past few years and plan to be even more efficient and effective as we get increased visibility on the externalities or regulatory factors impact.
The industry.
With that I'm pleased to turn the call over to our CFO .
Morris.
Thanks, Sean and good morning, everyone as a follow up to Sean's comments I'd like to provide some additional detail on our first quarter performance and our outlook.
Beginning with the first quarter.
Normalizing the effects for the credit reserve our results for the quarter were generally in line with our expectations. Adjusted EBITDA would have been a mid point of our guidance range and non-GAAP gross margin revenue coming in at the low end.
Specifically first quarter revenue was $49 6 million, which includes a reserve associated with a potential customer credit that resulted in a $5 million reduction to our first quarter revenue and gross margin.
Exclusive of this reserve revenue was just shy of the low end of our target range. The difference relative to the midpoint of the range was slightly lower than expected production in the quarter as well as a bit of logistics revenue will be pushed to the second quarter.
This revenue level represents a decrease of 51% compared to the prior quarter on lower volume and a lower ASP.
<unk> decreased 25% year over year, driven by the inclusion of the reserve and lower volume.
GAAP gross loss was $9 3 million or 18, 7% of revenue compared to $8 6 million or eight 4% of revenue in the prior quarter.
non-GAAP gross loss was $8 8 million or 17, 8% of revenue.
Excluding the negative impact of the $5 million credit reserve the improvement of $1 quarter over quarter was due to a reduction in warranty expense as well as improved product cost and logistics margin.
The margin percentage declined on a lower sequential revenue level, which leads to less absorption of overhead costs.
Results for this quarter compares to a gross profit of <unk> 1 million in the prior year period with the difference driven primarily by the reserve and reduced production volume versus the prior year and an increase in employee count and other overhead expenses.
To support the company's growth.
GAAP operating expense was $18 5 million on a non-GAAP basis, excluding stock based compensation and certain other expenses operating expense was $11 2 million, which compares to $6 9 million in the year ago quarter. The year over year increase was driven primarily by the necessary growth in staffing and other costs associated with being a public company.
<unk>.
GAAP net loss was $27 8 million or <unk> 28 per share compared to a loss of $23 9 million or <unk> 25 per share in the prior quarter.
And compared to a net loss of $7 4 million or <unk> 11 per share in the year ago quarter.
Adjusted EBITDA loss, which excludes $7 8 million of stock based compensation certain consulting and legal fees severance and other noncash items was $20 million.
Net of the reserve this was just above the midpoint of our guidance range.
This results comparison, adjusted EBITDA loss of $16 4 million in the prior quarter and a $6 7 million in the year ago quarter.
As Sean mentioned, the apex transaction remains on track to close in the current quarter.
We anticipate integration costs to be approximately $3 million, which is primarily composed of legal and administrative activities and limited to 2022.
With that let's turn to our outlook in light of the near term regulatory uncertainties in the U S solar market associated with 80, CVD and <unk>. The company is withdrawing its prior annual guidance for the full year 2022, and instead is moving back to provide quarterly guidance and some qualitative discussion beyond that.
Our revenue outlook for the second quarter of 2022 reflects the current U S uncertainty as our customers have delayed projects until they are unable to secure modules.
Our gross margin outlook is expected step back given the lower revenue base of absorbing our overhead costs and more importantly, the delay of newer higher margin products that Tom spoke about previously unfortunately as these projects that pushed it has left the quarter largely with lower margin legacy projects in Q2.
These factors slowed down to adjusted EBITDA offset to a degree by certain expense reduction additions, we're implementing as we wait resolution of ADC BD W. Aro industry impacts specifically our targets for the second quarter call for revenue between 30% and $35 million non.
non-GAAP gross margin of negative 29% to negative 19%.
non-GAAP operating expense between 10, and $11 million and finally, adjusted EBITDA loss between $19 7 million $16 $7 million.
While regulatory factors remain the largest wildcard for the remainder of 2022, we do see some light as we move to the back half of the year as the lower margin projects will largely roll off in Q3 and newer higher margin products begin delivering in addition, we've seen great growth in our international pipeline, which will remain a focus for us given the near term U S. Uncertainties.
<unk>.
Finally, we continue to make good progress on our bookings with contracted and worried outstanding at $664 million with $112 million added in the past two months.
As Sean mentioned, one of the silver linings of the ADC CVD delays is projects being pushed will allow us to take advantage of further advances and become more profitable than may have been previously designed we believe that the vast majority over $600 million of the $664 million and contracted and awarded we will take advantage of our latest dtb initiatives.
This should further aid us down the road it towards our previously stated long term gross margin target of 25%.
Based on these factors and what we see today, we believe that revenue in the second half of the year will grow versus the first half our gross margins will improve.
And our non-GAAP operating expenses also declined in the second half relative to the FERC.
It should be noted that all outlooks figures and commentary excludes the pending acquisition of HFF.
In addition should there be favorable resolution during the current regulatory issues impacting the U S module supply including <unk>.
In the near term, we believe we'll be well positioned to quickly respond to the pent up customer demand, we're seeing in the U S.
In closing, while we are experiencing some short term headwinds in the U S industry, we remain incredibly bullish on our long term growth outlook for the global solar markets.
That will conclude our prepared remarks, and I'll turn it over the operator for any questions.
Operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby we compile the Q&A roster and once again that is star one if you would like to ask a question and our first question comes from Philip <unk> from Roth.
Capital Your line is now open.
Hi, everyone. Thanks for taking my questions.
Good job on the strong bookings there.
It looks like half was international wanted to see if you expect.
That trend to continue so when you think about bookings in Q2 and three.
Can you talk about how they're evolving do you expect this line level to maintain and then do you also expect international mixed.
Sustained.
International Thanks.
Hey, Philip this is Shawn thanks for the question yes.
Briefly excited about the progress we've made with international projects.
We mentioned.
Pipeline is now 32 Gigawatts of international projects and that doesn't include the <unk> acquisition, which we think will obviously add to that and we expect to close here by the end of the quarter. Yes, we expect this trend to continue.
We've had lots of progress, we mentioned which countries.
Projects that we have.
Countries that we hadn't participated in before and we definitely expect those trends to continue.
See a lot of excitement about the Voyager <unk> tracker system internationally, and we definitely expect the international opportunities continue to grow.
Thanks, Sean.
Shifting back to the U S. Here.
When you look at your Q2 guide can you talk about how many of those projects.
Serving Q2 are being installed without modules.
And then what do you expect that mix to be in Q3 and four.
I have heard of.
Projects for you guys being installed.
With all the tracker, but with no modules just wanted to get a sense for how.
Pervasive that might be thanks.
Those factors I mean for all the all the projects that we have in Q2.
Legacy projects that were really employee.
Currently being delivered in Q4 and Q1 of this year.
Vast majority of those being finalized deliveries here in Q2, and those models associated with them.
Okay. Thanks, Patrick.
And then as it relates to.
<unk>.
Working capital it looks like you guys consume some cash.
With the airline increasing meaningfully to 240 days.
With our calculation from.
Less than 100 in Q4, I'm guessing some of that seasonal but I was wondering if you could talk through how you expect working capital.
Cash consumption to trend in the coming quarters, and with the $49 million on balance sheet, just talked through liquidity and what you see there. Thanks.
Yes. Thanks.
For the question Phil So as you mentioned, we ended the quarter with cash.
Owns a $49 million, but we also have $100 million and the undrawn revolver and $130 million in receivables and timing wise.
Just ended up with a bunch of receivables at the end of the quarter. Since then.
Made a fair amount of progress in terms of collections of receivables and we definitely expect Q2 to end with a with a higher cash balance. So we definitely expect to see some good progress there and are seeing it in the quarter.
As the receivables are being paid.
Great. Thank you Shawn.
That'll be it for me and I'll pass it on.
And thank you and our next question comes from Ms.
<unk> <unk> from credit Suisse.
Your line is now.
Hey, good morning.
Hello can you hear me.
Yes.
Perfect.
Thanks for the question.
One just on <unk> first.
Question on international.
Can you just talk about like the Asps or gross margins in these markets.
How should we think about them versus probably what we're seeing in the U S.
Good day.
So we're seeing.
As we mentioned, we're seeing great progress.
Kristen the way through to the system internationally now with three new countries added to the mix and basically half the pipeline.
Generally speaking we've said in the past that internationally.
Margins are not quite at the level that are what are improving over time and so.
Frankly speaking.
The margins, we're seeing with these projects internationally.
Good margins and returning as we model going forward, we expect to see continued progress in gross margins across the year and part of that is the continued growth and international projects.
Got you that makes sense and then just on the backlog and the bookings so interest savings.
Saving trop two.
But in terms of like your customer.
Yes.
Checks or conversations are you seeing any cancellations. This month just trying to understand.
Happening with customers are they just delaying it into 'twenty two youre getting.
Getting.
Embroiled in to force Majeure is for example.
So anyhow.
Each.
One of our high lines is that the contract is awarded has actually grown over the past few months by $112 million and now we're up to $664 million now the majority of that of course is in 2023.
So we are seeing.
This tendency to push projects out into the next year with the expectation that ADC deals resolved and that module supply.
Is resolved but.
We're not really seeing any cancellations, so it's not no one's canceling.
Just turning to push in.
And the build up a significant four with strong strong year in 2023, but again.
We're seeing some shift right.
But not really any cancellations.
Got you and then just one last one for me in terms of the gross margin too.
To get back to your target or even those high teens kind of gross margins.
Gail do you think we need.
It looks like the prior to Q4 run rate or.
Do you expect to foster gotcha.
Given these cost reductions.
I assume that would be helpful. Thanks.
So let me, let me comment a little bit and then I'm going to ask scopes Morris, our CFO to comment as well so we've tried.
In slide six.
And patients to give you just a little bit of indicative information because frankly, we feel really good about the things we can control like the steel content in the system like the relationships, we're building with the suppliers and move steel and logistics. Unfortunately, a lot of that progress is getting masked because of ADC.
<unk>.
And the fact that most of the projects, we're doing today and as we guided.
In.
In the current quarter, our legacy projects, which don't have the benefit of the significant reduction in steel content, we talked about 40% steel content reduction, we're still making great progress we've done in the <unk>.
Past couple of quarters, and we're still making great great progress this year and so we tried to indicate how as the mix shifts with <unk> ADC.
<unk> ADC CVD rolls off and we get to a more normal environment and new projects that.
You'll see a lot of opportunity and we're definitely seeing improved gross margins and we just wanted to give you.
There are a couple of different revenue levels, what we what we think are indicative numbers.
The gross margins out out in the second half of the year, some hotels that you'd want to add a little to that yeah.
Thanks, Shaun I mean, I think I think some of them hit it on the head.
They are in terms of where the margins are so the new projects. We are signing up today arent iron level. What we did on slide six is really just an illustration of where we think the margins are going to be here on a go forward basis clear.
Clearly if you look at the Q2 guide on a lower revenue target of 30% to $35 million, there's an overhead burden there thats going to bring that down and as we get up to the higher levels as we exit the year with the new products that are taking advantage of the <unk> initiatives as well as we improve logistics environment physical steel content that's what.
We're going to exit.
Martin investments here and there.
Thanks.
Thanks Bill.
Thanks.
Thank you.
And our next question comes from Paul Im sorry.
Mark <unk> from Raymond James Your line is now open.
Yeah. Thanks for taking the question.
Last year.
75% of the modules installed in the United States came from Southeast Asia.
If those modules are not <unk>.
Making their way into the U S market this year.
Of the ADC CVD risk.
Where are they going.
And will that.
<unk>.
Diverted supply to other parts of the world.
Accelerate installations.
Outside the U S.
So good question so.
Many of those South Asian countries.
You said, specifically built for the North American market and Thats, our understanding and in checking with folks we know in the module business. Many of those factories have in fact been idle.
And so they're sourcing.
Projects going on in Europe , and other parts of Asia.
Other factories.
Obviously some of those manufacturers are building in China, and so part of <unk>.
Resolving any CBD is getting to a point, where those folks have confidence to start those factories back up again and fill the supply chain back.
Back up.
<unk>.
The logistics of getting those models in southeast Asia, and North America.
Right.
What would it take for those Fabs too.
It'd be reactivated and simply deliver their products elsewhere.
Yes.
<unk>.
That would be the module makers have to have the right level of motivation to operate those factories and shipped to other places.
The good news is.
I spend a lot of time in wafer cell and module factories and once they make the decision to start back up it's pretty straightforward as long as they can get the workforce back in place.
It is not.
Qualification and startup time is not that great and so I think those factories.
Neither startup for other markets, if that's what the manufacturers decide or.
If <unk> goes away I think it's pretty quick when you start up again.
And backfill the supply chain or North American projects. So I think it's just a matter of.
80, CVD going away and then I think the supply chain can fill up pretty fast after that.
Again it is.
It's not Super high Tech manufacturing to build modules and the components or modules.
I'll start off pretty quickly.
Okay.
Maybe just moving to steel.
Shanghai futures down about 20%.
From six months ago.
Is that.
Has that worked its way through the value chain to where you're seeing lower bill of materials in your manufacturing.
So we talked a little bit about steel.
In fact, what we're seeing right now in terms of the steel market in general.
The unfortunate war, that's going on in Ukraine right now.
And then the steel supply chain in that sense.
<unk>.
That's causing some disruption.
Similarly, the cost down.
Oh sure.
But we're watching the market very very closely.
One of the initiatives for us.
Acquisition.
For Asia.
Basically looking at about 100% out of China.
So we have the relationships in China, but it's essentially between strong relationship in terms of the same suppliers, but also with different suppliers. So we think that will help us really to take advantage of the Chinese supply chain efficiently.
The lowest cost yield of debate.
So we see that again.
But we're watching it carefully.
Hey, thanks very much.
Thank you.
Thank you.
And our next question.
One moment please.
Sure.
One second.
Yes.
Okay.
Got that.
Hi Blair.
You're live Sir.
And.
Our next question comes from Julien.
<unk> Smith from Bank of America.
Your line is now open.
Thanks, Sean and team can you guys hear me okay.
Yes, yes.
Obviously, there are some technical issues on the line, but you are coming through loud and clear Julien.
Excellent. Thank you again for the time and the opportunity well done on the backlog actually since we're talking about it can you talk a little bit about sort of European opportunities given the obvious developments there relative to emerging markets focus that we've seen.
The latest awards geographically where are you thinking some of these international awards could continue to trend, especially given the focus that you have here on <unk>.
International backlog, while the U S that take time to recover.
We certainly we certainly see the opportunities in Europe for sure.
See opportunities in Southeast Asia and Africa.
And pretty much all around the globe, where we have we have boots on the ground. In addition, because of the <unk> acquisition. We think it is going to help really open up the market in China as well.
And it's also going to help us in other markets to have.
A really high quality one P tracker from <unk> as well. So we're really frankly speaking we're excited about the opportunities around the globe.
The new opportunities that we talked about came from from Southeast Asia came from Africa.
And as I mentioned before.
Our pipeline is up 64, gigawatts and half of that now is the international 20% growth internationally. So far this year.
We're really quite excited about that let me. Let me also have Patrick Cooke, our chief commercial officer comment.
Hey, Julien.
Our perspective, what we're seeing.
I'd say the last three to four months definitely an uptick in activity in the European market.
We've had a team on the ground there for about a year developing relationships and partnerships with folks in that region somewhere what we did in South East Asia Sub Saharan Africa, and Australia, So we've definitely seen.
<unk> and the level of activity in terms of bidding in that region.
We hope to be able to take advantage of that activity in terms of project wins, because we've had those relationships with the EPC developers.
<unk>.
Got it excellent. Thank you and then maybe can we talk a little bit about the just the EBITDA trend here and balance sheet a little bit further just how are you thinking about the cash burn rate obviously in the quarter you saw some working capital.
Outflow contribute alongside EBITDA burn can you can you talk about how you see that trending in <unk>. Obviously, you are talking about an improvement here.
In the third quarter timeframe here, obviously pulling back guidance in the context of having a little bit less clarity in the near term. So I appreciate the opacity of the situation, but how are you thinking about sort of managing the liquidity side of this.
Obviously, <unk> with an EBIT of Bern, how do you think about it.
<unk> and how do you think about the levers that you have as you think about <unk>.
So we're definitely.
Seeing progress.
I mentioned before at the end of end of Q1, we had $130 million in receivables and we've made really good progress in terms of collections on those receivables and definitely we will see a continued improvement in cash and so honestly speaking I feel.
Good about the improvement we made EBIT so far in the current quarter and.
I expect it expect it to continue.
In addition, we also have the $100 million revolver.
The undrawn, so we have that as well and and again.
I feel good about the progress we've made in terms of cash and we'll continue to make let me let me, let our CFO fell.
Phelps Morris comment on that as well, yes, Hey, Julien itself good to chat with again, yes. So as John mentioned right. We had some timing issues at the end of Q1, where a number of invoices, where do we have done a really good job on collecting those as we've moved in this quarter. We do anticipate for this quarter in Q2 that we will be we will.
Net increase in terms of cash despite the guide in terms of the negative EBITDA. So.
As we've talked about with the kind of the.
Second half.
Range is in terms of margins, we do anticipate margins to increase sequentially throughout the year.
And so we do have multiple levers as Bowen mentioned, an untapped revolver et cetera that will help us manage through any liquidity issues.
The other thing too I would add Julian is.
Obviously, we have a lot of focus on Opex and Cogs overhead right now so on spend given the <unk> environment.
We're managing that very very carefully and in areas like discretionary spending and others and just putting a really really.
Tight look on that however, we also recognize the need to continue to invest we see a lot of opportunity in the long term in this business and so while in the current ADC BD climate, we need to carefully manage our spend we also want to there are areas, where we continue to invest like the <unk> initiatives are reducing.
She'll content like continuing to grow and develop our supply chain to automate processes and things like that so we're striking a balance there recognizing the current ADC BD environment.
Excellent.
Thank you so much best of luck here.
Thanks, Dave.
Thank you Ed.
And our next question come from Donovan Schafer from Northland Capital. Your line is now open.
Hi, guys. Thank you for taking the questions. So.
First one to ask about these international projects, that's really cool to see and it's something.
I think.
It's challenging because I think of companies who have been successful in the United States is often being very focused on.
Reducing.
Man hours per megawatt and not such a key part of what makes.
The product attractive and higher wage markets like the U S. And then that doesn't always necessarily translate well into lower wage markets.
Interesting to me.
Because correct me if I'm wrong on this but I think of.
South Africa, Kenya.
I think it was Indonesia, Malaysia, I'm, sorry, I'm, drawing a blank but.
I think of them as being lower wage markets.
So I'm curious is there are certain attributes maybe if it's something to do with the two P aspect, maybe that play as well as agriculture or some of that.
Are there certain attributes given that these again correct me, if I'm wrong or lower wage markets given that what are some of the other attributes that make the Voyager tracker appealing in these cases.
Hey, Patrick I mean, I think the biggest attribute that you see obviously man hours per megawatt and continuing to drive that down as a big focus for us, especially in the high labor cost countries, but given our ability to navigate very terrain.
Challenge sites in terms of undulation in slope tolerance.
We've been able to participate at a very healthy margins indicative to what we showed on page six in these international markets for these types of these types of projects, but with the acquisition of <unk>. We're also going to be able to compete in these lower wage markets were.
Our <unk> solution.
So it's a little bit better on a more flat less constrained site, but because of our ability to adapt to kind of the rugged terrain. That's allowed us to participate in some of these projects are very high and healthy margins.
And can you.
Comment on the size of these projects I mean, neither.
And without everybody kind of likes the.
Bring down in Mammoth and have some giant project, but there is also strength I mean, I know yours. Your design architecture also plays well to these kind of odd shipped lots DG more DG type stuff for fragmented acreage or whatnot. So yes in these international markets.
Some of these projects, you've had or the kind of larger or smaller fragmented or.
Whats kind of the nature of them from a size standpoint.
Hey, Jonathan this is Shawn thanks for the question. So yeah. The three new countries. We mentioned those three projects total 350 megawatts and frankly, there is one very large project and two smaller projects.
The thing we experience time and time again in these countries is that one somewhat.
It looks at the Voyager system and chooses to use it.
Hey.
That one project seems to be the tipping point, where they actually experienced the great benefits of the project whether it's on the.
The terrain challenged environment irregularly shaped blocks are just that.
The sheer construct ability advantage that we have but it seems that.
In these markets once they use it once they keep coming back for it.
Really excited in particular that.
Three new projects and new countries totaling 350 megawatts.
Hope that answers your question.
That does that does and then.
My last question is just were really obviously.
<unk> is very focused on the ADC BD.
Ox and solar case, but.
But also we joke about this being the solar coaster and.
One thing too and you get back up and then another thing that comes around the corner and you get hit with something else and so I'm trying to I'm trying to kind of just look ahead.
A few core.
Say, we get past 80, CVD or there is some resolution there.
Or even not we've now we also have the weaker force Labor Prevention Act.
This point is just a little over a month away in terms of when that goes into effect.
Of course, there is also everything with Congress about whether we could get extension of the tax credits.
Im.
So I'm just if we could look beyond <unk> what are you starting to hear how are people starting to plan around.
The limitation of the weaker forced Labor Prevention Act in June and then has the new one began talking about possibility of more safe harbor purchases at the end of this year.
Congress has enabled to do anything extending tax credits I mean, thats kind of an extreme downside scenario, but then that could also even in that extreme downside scenario, maybe you get a bunch of cash coming in.
And the door at the end of the year.
Can you if you can comment on any of that that would be great.
Sure sure. So so obviously, we've been dealing with the <unk> in terms of the panel supply and the W. Aro tied back to that one particular poly silicon plant again with the forced labor issue. So frankly because of that it feels like the supply chain has had time.
To prepare a bit for the forced Labor Act that you mentioned.
So we're optimistic that that because of the work that the suppliers have done on <unk>.
That won't necessarily be a.
A big dip in this cohort coaster speed.
In terms of the long run, though Donovan I've got to tell you I am Super optimistic when I talk to the customer base, whether it's <unk> or investors.
Energy companies.
There is a lot of optimism and people really do believe that the north American market is going to be at 75 gigawatt a year market and we are doing everything we need to do as a company to be prepared for that and the great work that we're doing in terms of D TV and reducing steel content, the great work where do.
To strengthen our supply chain during this period to strengthen our business processes within the company.
Really good about the long term outlook and about the great work that the team in FTC solar is doing to be prepared to really take advantage of that.
We will get through this ADC BD.
And.
I can say that with certainty.
It will pass and.
What I tell the team every day, let's focus on the things we control that are going to make us a stronger better company. So that when it does pass we are absolutely poised absolutely poised to be the tracker choice for our customers.
Sure.
Okay, great. Thank you very much I'll take the rest offline. Thank you guys.
Thanks, Matt.
Thank you and do you have a question that is star one again, if you'd like to ask a question that is star one and our net.
Question comes from Kashi Harrison from Piper Sandler Your line is now open.
Good morning, everybody and thank you for taking the questions.
So my first one first of all thanks for the sensitivity surrounding margins on slide six I was wondering if you could maybe just help us widening widen out that sensitivity a bit.
If you brought up the bottom end of that range to $50 million and you took the top end of that range to $200 million can you maybe help us think through how those gross margins would evolve under those cases under $50 and $200 million.
So so we wanted to.
To give given the whole <unk> situation, we thought it was really important to convey how the delay in projects shifted projects is affecting us.
Basically the law of averages and so the projects that we're dealing with our legacy projects that.
Frankly won't roll off generally until about Q3, and those projects come with the higher steel content and lower margins and so we wanted to kind of look forward. We wanted to show how we ended up in fourth quarter. Obviously in the chart is kind of a bit of a proof point and then really.
Give you some indication at different revenue levels. So we didn't frankly caution we didn't do.
Our model with sensitivity analysis down to zero and up to 300, we just tried to give a couple of numbers to give you some some indicative.
<unk> of where we thought we would end up and we're definitely seeing new projects in those in that range in terms of gross margins and we feel really good.
<unk> ADC BD rolls off and the majority of projects shifts from legacy projects new projects that we can definitely we'll definitely see improved strength in the gross margin, we definitely still see a trajectory to get to the original planned gross margins over 20%.
And so that's that's kind of the.
The principle behind the slide so it wasn't intended to.
To be precise every every different revenue level, but just again give you some.
Indication because we feel really good about the work that the team has done and we feel really good about the long term outlook on gross margin, yes. The.
This helps the other thing I'd mention on there just directionally as revenue go up obviously, you tend to get operating leverage on your overhead and vice versa right. So the lower revenue levels.
Overhead burden will be much be higher on a relative basis. So when you think of modeling that out I'd just put that to.
Consider that as you model that out.
The other part I would put back she is when we took the subset Bob mentioned in his remarks that north of $600 million of the.
Contracts are awarded fits the profile that we showed on slide six and so thats, how we ultimately model thats indicative of what we're seeing on projects that either have a PEO or that we've been ultimately awarded and so thats why we feel very confident in the fact that many of these laws.
The projects are rolling off because we have purchase orders of these types of margins for projects on a go forward basis.
That's very helpful commentary.
I do appreciate it.
The illustration here.
My next question actually dovetails into your last comment.
Hatrick I was wondering if you could just maybe help us with the split in.
In your executed and awarded specifically I'm trying to understand what proportion falls into the executed or assigned <unk> bucket and what proportion falls into the awarded bucket.
Yes, obviously, we havent publicly disclosed kind of the ultimate breakout.
<unk>, what's contracted versus versus whats awarded.
Okay.
And then maybe just a final one for me.
It looked like there was a big jump in service revenues in <unk> can.
Can you maybe walk us through.
What's driving what drove that big uptick was there like a one time item and you would expect the services to come to trend down from there or is that indicative of.
The break bulk shipping approach that you guys had talked about in prior quarters. Thank you.
Yes, great question really thats more tied to the logistics revenue associated with that.
That particular quarter. So we recognize more logistics revenue in that particular quarter. It really kind of comes down to.
As you recall the materials revenue is ultimately.
And the total revenue line.
Revenues, along with our software revenue.
Broken up in the services piece, so that will fluctuate with.
As logistics revenue gets recognized.
<unk>.
Got it thank you.
And thank you and I'm showing no further questions I would now like to turn the call back over to management for closing remarks.
Hey, well, thanks to everyone for joining us today, while there's uncertainty in the U S market right now we continue to feel good about many factors under our control.
This includes driving our cost reduction roadmap advancing our strong R&D pipeline accelerating our international focus in reducing expenses and an uncertain environment.
We also remain very well positioned with a well regarded product set strong customer adoption and record pipeline levels and we look forward to continuing to update you on our progress thanks very much for joining.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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Okay.