Q3 2022 FTC Solar Inc Earnings Call

November 9, 2022

Yeah.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yeah.

Hello, Thank you for standing by and welcome to the FTC Solar third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question.

During this session you will need to press star one on your telephone. Please be advised that today's conference maybe recorded I would now like to hand, the conference over to your Speaker today, Bill Michalek, Vice President of Investor Relations. Please go ahead.

Thank you and welcome everyone to <unk> third quarter 2022 earnings conference call.

Prior to today's call and you'd likely had opportunity to review our earnings release, and supplemental financial information and slide presentation, which was posted earlier today.

If you've not reviewed these documents they're available on the Investor Relations section of our website at SEC or dot com and.

I'm joined today by Sean correct, FTC sellers, President and Chief Executive Officer, Phelps Morris, the company's Chief Financial Officer, and Patrick Cooke, The company's Chief commercial 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, we assume 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 contracts and awarded orders collectively referred to as backlog in our <unk>.

Definition of this metric. It's also included in our press release with that I'll turn the call over to Sean.

Thanks, Bill and good morning, everyone starting at the market level.

Weaker forced labor prevention, Acura, <unk> and its rules for module importers and reviews by U S customs and border.

<unk> continues to prevent solar modules from getting into the country and in turn prevents a large portion of projects in the industry for moving forward. This obviously also delays our ability to convert a large portion of our backlog into revenue as youll see when Phelps discusses our Q4 outlook.

While extraordinarily frustrating we are not sitting idle, we are making great strides in our efforts to improve our near and long term positioning and remain optimistic about FTC sores future.

There are four primary takeaways I'd like to leave you with today.

First our total backlog continues to grow nicely and is approaching the $1 billion Mark.

Currently sitting at 961 million. This includes 203 million added since August nine this.

This growth is supported by our efforts to build and strengthen customer relationships add new customers, including top tier developers and EPC companies and accelerate our international expansion or international expansion was adjusted as early stages. When the regulatory issue started here in the U S. We've made great progress on that.

Fronts. We've told you about a number of projects in Australia, and we were recently awarded our largest to date in the country of 128 megawatt hybrid solar project, which is expected to be the largest DC, coupled solar and battery projects in the country.

In addition to Australia. We have also recently been awarded projects in South Africa, Kenya, Malaysia and Thailand.

In addition to our backlog progress our total project pipeline has now reached a new record level at 90 Gigawatts. The international portion of that is more than doubled year to date and now represents the majority of our pipeline.

The second takeaway is that $165 million of the 203 million we've added to backlog in the last three months is not expected to be impacted by U S. <unk>. This gives us confidence that we have seen the lows in terms of revenue in Q3. This backlog includes international projects.

Thin film, our U S crystal and projects for which modules have been secured.

Each of our recent focus actions and accomplishments will also serve to continue to bolster this portion of our backlog as we await resolution of <unk>.

For example, the team has been working hard behind the scenes to work on a cost effective solution for U S infill modules, which we recently made available to customers filling an obvious gap in our offering this gap with the results of our previous decision to focus our R&D teams efforts towards providing solutions for crystalline modules first.

Which in a normalized environment represents the bulk of the overall U S market and that was perhaps a reasonable position with crystal and module group law normally however, more recently that gap in our offering has been more noticeable.

Impacted our ability to convert backlog into revenue and frankly was something we needed to rectify the hedge against a delayed <unk> resolution.

I am pleased to say that while this new solution has only recently been made available we already have multiple project awards in the one hundreds of megawatts for this solution and our backlog editions.

Another example includes the recent announcement of a new one P tracker solution called pioneer having much differentiated new one tracker greatly expands our served market around the world, giving us more opportunities to win projects, where there is a preference or benefit for one P. Our solution offers 18 to 30.

6% fewer foundations than other leading competitor solutions is projected to generate 5% higher energy output than other leading competitor solutions customer enthusiasm for our new product has been strong and in fact, we launched pioneer along with a 500 megawatt order from <unk>.

Top EPC for Morris.

The third takeaway today is around our gross margins, while our current gross margins did not meet our or frankly your expectations. We do believe we are making significant progress behind the scenes as we shared with you at the time of our Q2 earnings announcement. We believe we are on track to deliver gross margins between 12 and 18.

<unk> percent as revenue gets to the $150 million quarterly revenue run rate that is enabled by one our design to value initiatives, which we had previously discussed with EBIT length and has allowed us to take more than 20% of the cost out of our tracker systems, providing our product cost structure to enable double.

<unk> gross margins on future projects to leveraging expertise brought in house with our <unk> acquisition, including our design to manufacturing efforts, which ensure that our D. TV efforts are also easy and cost effective to manufacture.

And three building out our DG business, which has higher margins and asps.

We've received a lot of interest in our offering since launching earlier this year along with great feedback our DG pipeline is growing very quickly and there are two nice sized portfolios of projects in the Midwest and West coast, which in total will be in the range of 500 megawatts included in our backlog additions this period.

Obviously at our current low revenue run rates the gross margin improvements remain muted, but will be even more apparent as our revenue run rate grows and our R&D team continues to grind out incremental cost improvements.

And the final takeaway I want to leave you with is that our liquidity position is stable. We ended the quarter with $50 million in cash on our balance sheet. In addition, we have no debt and $100 million revolver, which remains undrawn for the fourth quarter, we expect to be approximately cash neutral based on our current forecast and <unk>.

Dissipated collections.

This sets us up nicely as we enter what we expect will be an improving financial position in 2023.

So in closing we believe we have turned the corner in senior loans from which we will grow volumes are still depressed at the moment. Its U S customers try to find solar modules, but the pent up demand represented by our pipeline and backlog is incredibly large and growing the.

The proportion of our backlog that is not expected to be impacted by U S. LTA is improving and will be enhanced by our new U S. Thin film offering our new one P tracker offering and the continued growth of our international business.

We now have a strong product cost structure on future projects, which puts us on track for double digit gross margins as our revenue run rate recovers and our cash position is stable and expected to be flat in Q4, setting us up nicely ahead of expected improvement in 2023, we believe our actions during this industry slowdown.

Have positioned us to show improvement in the near term and to once again outpaced market growth once module availability returns to normal with significantly enhanced profitability.

With that I will turn the call over to <unk> to provide more detail.

Thanks, Sean and good morning, everyone as a follow up to Sean's comment I'd like to provide some additional color on our third quarter performance and our outlook.

So let's begin with the results of the third quarter our results for the quarter were in line with guidance ranges revenue was $16 6 million at the lower end of the range with the depressed level, reflecting the lower demand environment in the U S. Amidst the <unk> related module constraints that Shawn talked about.

This revenue level represents a decrease of 46, 1% compared to the prior quarter and a decrease of 69% year over year, driven by lower volume and partially offset by a higher asps.

GAAP gross loss was $9 5 million or 57, 4% of revenue compared to $6 5 million or 21, 2% of revenue in the prior quarter.

non-GAAP gross loss was $8 2 million or <unk> 49, 8% of revenue. The margin percentage is also towards the lower end of the range on the lower revenue level.

The result for this quarter compares to a non-GAAP gross loss of $7 $7 million in the prior year period with the difference primarily driven by the lower product revenue, partially offset by improved logistic margins.

Operating expense was $17 2 million on a non-GAAP basis, excluding stock based compensation and certain other expenses operating expenses with $9 $1 million.

Compared to $8 4 million a year ago quarter. This was better than our guidance range due to some cost management activities in the quarter. This relatively small year over year increase was driven by the growth in staffing and other costs related to public company requirements.

GAAP net loss was $25 6 million or <unk> 25 per share compared to a loss of $25 7 million or <unk> 26 per share in the prior quarter and compared to a net loss of $22 9 million or <unk> 24 per share in the year ago quarter adjusted.

Adjusted EBITDA loss, which excludes approximately $7 9 million, including stock.

Stock based compensation expense certain consulting and legal fees severance and other noncash items was $17 7 million.

This result, compared to an adjusted EBITDA loss of $17 7 million in the prior quarter and $16 1 million in the year ago quarter.

As Sean mentioned regarding liquidity, we ended the quarter with $50 million of cash in our balance sheet, no debt and access to our $100 million revolver, which remains Undrawn. In addition, while we did establish a $100 million ATM program during the quarter, we did not tap into it and at the present time, given the stability of our liquidity position, we have no plans to utilize the full.

<unk> in Q4.

With that.

Let's turn to the outlook, we continue to expect the third quarter to represent the low watermark in terms of revenue and margin. We do believe we haven't seen the loads and more growth from here as Sean discussed the actions, we've taken by adding a U S. Thin film module solution, introducing a new <unk> tracker pioneer and our international business will help mitigate the near term impact.

<unk>, which has delayed our ability to convert backlog into revenue, we have roughly $165 million of backlog that includes these products that use thin film projects international products and use products with crystal modules that are not expected to be impacted by <unk> because they are already in hand, which gives us confidence that we have seen the loads.

<unk> side is that over 80% of our backlog is U S based projects scoped with crystalline panels, which had been delayed due to <unk>. This continues to be very frustrating has impacted our ability to convert our backlog into revenue.

Such while we expected revenue growth on a percentage basis from third quarter lows, we do expect revenue for the fourth quarter to be lower than our previous target.

In addition, our gross margin expectation for the fourth quarter also reflects an improvement from the third quarter as we see an improved revenue mix and improved project margins as a result of our internal initiatives.

However, the results are similarly impacted as the overhead cost absorption is still being spread across a relatively low revenue base.

Collectively these factors slow down to adjusted EBITDA offset to a degree by the continued focus on controlling costs that we are implementing considering the module uncertainty in the market.

One item to highlight is a number of our members of our executive leadership team, including Sean Patrick and myself had voluntary elected to take a vast majority of our salaries and stock versus cash subject to a minimum cash requirement to maintain benefits. This began on July one and will continue through the end of 2022. We believe this shows the management team's confidence in <unk>.

Long term prospects of the company once the regulatory headwinds net.

Moving to the specifics of our guidance revenue growth, we are anticipating a 40% to 60% off of Q3 loads to be between 23% and $27 million.

non-GAAP gross loss of $3 5 million to breakeven or a negative 15% to zero as you might expect the percentage ranges very more greatly at these lower revenue levels non-GAAP operating expense between 10 and $11 million.

And adjusted EBITDA loss between $14, five and $10 million.

Finally, while we are still looking for incremental clarity on how much module supply will be available for customers. We expect to see continued sequential revenue improvement in the first quarter of 2023, along with continued margin improvements.

With that we'll conclude our prepared remarks, 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 please standby, while we compile the Q&A roster.

Our first question comes from Philip Shen with Roth Capital Partners You May proceed.

Hey, guys wanted to start off with.

500 megawatt order you had with Morris I was wondering if you could just give us a sense for.

How you guys think you won the business.

I think the <unk> product is.

Still not out there and so you were able to win that business in a nice way to.

Help us understand compared to your peers, how you won that business. Thanks.

Hey, Thanks, Bill appreciate the question.

I would tell you that there is just an amazing amount of customer excitement about the <unk> product and in fact.

A lot of the customers, who know us for our <unk> product. We're involved in looking at our initial designs and thoughts around a one P and we want to make sure that like our <unk> offering that the <unk> offering is really appealing to our customers by solving their problems and as is is got all of the half.

All of the construct ability advantages that are so well known in the Voyager <unk> product and so we've just from the initial launch it reply saw we brought a.

A basically a sample of the product to show people, we've gotten really positive feedback. We've also gotten a lot of positive feedback and our demo site in Colorado, where we.

Had just an endless stream of customers coming through.

It feels like the market really wants an alternative in terms of <unk> and so we're really excited about the.

The first order with <unk>, So I'll turn it over to Patrick also to give a little more color. Thanks, Sean.

John says exactly right, we've been engaged with our customers pretty deeply over the last year and trying to figure out what they want in terms of our products.

That fit their needs obviously, we've got the Voyager solution, which we're incredibly proud of in terms of construct ability but.

I'm really focused on the <unk> based on customer feedback so folks like tomorrow, we've been engaged with for a long time developing that product and ultimately led to that 500 megawatt order of the other thing I articulate to us and it really kind of comes down to customer service.

I think they like how we engage with our customers we bring a developer mindset given most of US came from a developer.

Platform previously and I think that's played well with kind of the account penetration that we've had with some of these top tier epc's and developers in 2022, and we're seeing that momentum carry into 2023 with a growth of our contracted and awarded backlog as well.

Great. Thanks, guys, yes.

Heard a lot about.

Positive customer service as well so kudos.

Kudos there.

In terms of.

Your Q4 guide clearly.

Once disappointed.

We had.

Done some work highlighting that the industry was installing a lot of projects.

With tracker.

But with that modules.

So can you.

We saw order rate did last night.

All right.

As we're looking for but in your case.

It's been a little bit more difficult.

So I was wondering if you could share some color on.

Hmm.

What you think your exposure was to those types of customers, who were building or perhaps were not building projects.

Without module and just any kind of.

Color on the dynamics there would be.

Thanks.

Yeah, absolutely Phil.

We absolutely believe that Q3 is our low point and with the things we've done in terms of the product portfolio, we talked at length about our one P. Pioneer a moment ago, but also you saw the press release I'm sure last night, we announced our first solar offering and we've seen a lot of.

I meant around the first solar offering as well and so I think in our in terms of our product portfolio I think it's greatly enhanced now by both of those developments and in fact the team is just did a fantastic job pivoting when it became apparent <unk> is going.

<unk> along.

And in developing our first solar solution. The team's just done a fantastic job, providing that to the marketing and like we've seen with our one P. Pioneer solution, we're seeing a lot of excitement around the.

Around our first solar Voyager offering as well.

And so again I would just emphasize that we really do believe Q3 is the bottom for us and we think there is tremendous opportunity. In addition, our international portfolio. We continue to see success internationally and we think we will see some continued progress there into into next year.

Great. Thanks, Sean finally in terms of cash consumption was wondering if you could share a little more detail on how much you expect to consume in Q4 and then.

In terms of Q1 and two I was wondering if you could talk through what you see in terms of bookings.

Momentum for Q4 in the first part of next year and also.

What my cash consumption.

In Q1, especially.

The <unk> situation persists.

So yes, no problem I'll comment and then I'll ask <unk> to comment as well Phelps and the team have done a really good job focusing on cash through this period.

And Im really satisfied with the results that we did see last quarter in terms of cash.

Being able to end with roughly $50 million and then and then the untapped revolver as well and no debt.

And so we continue to watch that very carefully and manage it very carefully but I'm pleased with the results. We've seen so far so let me let me turn it over to Phelps to comment a little bit more of a hedge ourselves good to see.

Thanks, John .

As John mentioned, we ended the quarter at about $50 million of cash I think when we look to Q4, we have line of sight between now and the end of year in terms of collections as well as new deposits for Pos being placed in the quarter that we think will be around neutral from a cash flow perspective.

Obviously, you have to collect it and collect the collections and get the actual Pos in but that's going to help us offset some of the operational burden that youll see in the guidance.

So that puts us in a good position obviously the other thing that we put in place that we talked about in the prepared remarks is we did put in place the ATM facility.

Given our current liquidity position, we don't have any desire at the current time to tap into that.

Another area that you should focus on in the balance sheet and just look at our current assets and current liabilities rider. If you look at our current assets. It's it's basically $132 million versus the current liability of $66 million. So if you look at your current ratio of two two times, which is very strong. If you look at your quick ratio, it's about a one nine as well so when you look at the overall.

Balance sheet, you don't have this big imbalance, where your liabilities are in excess of your current liability our current assets and so that's what that's what makes me sleep well at night that.

We have that obviously you'd love to have more cash in an uncertain environment that but we think we're very very good position from a from a balance sheet perspective at the current time and on the bookings perspective, we see a lot of demand kind of going into 2023.

A lot of our customers are engaged with us.

On the <unk> the first solar solution and also our Voyager <unk> seeing that pent up demand and customers are really trying to make sure that they get the capacity that they need to build out their product portfolio and now that we've got several different offering it puts us in a pretty unique position. The other thing we're seeing.

Customer deposits and down payments and liquidity perspective continue to come up so we're able to kind of really anchor our liquidity position in there as well yes.

Add to that as well fill that while we're not we're certainly not guiding Q1, Q2, but but we've really this quarter with the work on <unk> and.

Internationally and then the.

The first solar solution, we've really done a good job to make the company resilience to <unk> for future business and.

And so if you <unk> persists, we think now with our product portfolio we have.

We have certainly more opportunity for next year.

Great. Thanks for all the color guys I'll pass it on.

Okay. So thanks thank.

Thank you one moment for questions.

Our next question comes from Donovan Schafer with Northland Capital markets. You May proceed.

Hey, guys. Thanks for taking the questions.

I have.

Want to start by just asking about this proposal.

From <unk>.

<unk> to the international.

I think construction or building counsel to raise the the design categories from category one to category four for natural disasters and whatnot.

You I think.

Like the tracker design that you guys have.

<unk>.

Because it's taken this ground up approach.

You maybe have relatively less deal on average and can do lower pile in badminton.

Horizontal so we'll see.

Overdamping approach and so theres a lot of positives and elegance of the design in a way that I think could potentially be very favorable vis vis peers for an increase in the design standard but.

It's also you don't have as many.

Megawatts deployed and other things like that that could also potentially.

Two things maybe going the other way. So I'm curious if you can just give any color around that and how you think.

Youre designs Thats fair.

With respect to customer appetite.

<unk> and <unk>.

Of an increase in the standards if that were to transpire.

Yes, Jonathan this is Shawn thanks for the question, Yes, we believe our design is indeed quite robust, but we are watching that situation very very carefully in terms of the actions that FEMA may or may not take so let me, let me turn it over to Patrick to provide a little bit more color yes.

Thanks, Rob I mean from a design perspective, we believe we have a very robust solution and we've been watching the FEMA situation pretty closely we think it's going to end somewhere a little bit less draconian and what's been what's ultimately out there but in any event. The system that we've designed as it currently stands won't see a material change in any sort of.

The outcome that we that we have.

<unk> that we've built.

Set to withstand these these design wind speeds and you'll be able to act accordingly, without a material change in our product.

Okay. That's helpful.

And then for the thin film the new products have been largely for solar.

Panels.

I was I was under the impression and maybe I'm misremembering. This.

Fines clarify what certainty kind of in my notes, but.

I feel pretty confident.

I think I asked about this.

Back when this issue kind of erosion.

Remember I went out to the demonstration side you guys have in Colorado.

I thought at that time, you guys you already were able to accommodate thin film our first solar modules.

On the at least the two P tracker version at that time.

<unk>.

So is the thin film capabilities now just applying to the <unk>.

Kind of missing something there or is there just sort of a nuance where it could accommodate.

Send it home before but it wasn't and is ideal of away and so this is the more sort of optimize their ideal upgrades for doing thin film just any any clarification there would be helpful.

So we did have some small number of projects that we had bid on on the past and in terms of thin film, but what we're excited about is we've really.

Work on the system through the <unk> initiatives and now can accommodate the six and six plus modules from first solar and really feel good about that.

The way it's come together in terms of the still being able to see the advantages of the Voyager system in terms of putting panels onto the system with the lowest amount of man hours and so.

So this is our version of the system that accommodates the.

Six and six plus modules.

Okay.

So quick follow up on that is.

First solar I think is notoriously had so much of its capacity booked out.

For for two years or so into the future and so.

In terms of the impact near term or 2023 from having this ability to ascend. The film is it is there sort of a secondary market of.

Customers that are buying and selling.

Buying other people out of their contracts to get their hands on thin film panels because.

Without that you would sort of things.

That there would not be surplus than film around.

Because of that.

And what you expect.

The people, we're talking to are what I would consider primary customers of the modules.

That have agreements to have the modules over the course of the next couple of years, but have not yet determined what tracker system theyre going to use and so now.

Provided another option and we've seen again, just like we've seen with our pioneer.

Pioneer <unk> solution, a lot of interest and excitement among customers that do have first solar modules.

I think the other thing too as it relates to <unk>. Some FX fixed plus I think it opens up a new dynamic for us in terms of our kind of total addressable market, we havent been bidding on those projects.

Date because of the solution now that we've developed it we've seen an influx of bids and that's informed by our contract and awarded we inked several hundred megawatts. Shortly after deployment with some tier one customers, we're continuing to engage with some additional ones and really opening up the market is at.

It relates to first solar to a broad base of AEP season developers that we weren't able to participate in before.

Okay, Great. That's helpful. Yes, I mean, I was able to kind of checkout, you demo unit and everything.

Plus and.

Really like the engineering and the design seems really solid and.

A lot of the.

The ideas from the voyage of tracker seem to carryover while to pioneer.

So.

On the face of it it seems like a really solid product and so.

So hopefully you guys will be able to.

I guess that just squares, what youre, saying about customer interest squares.

First of all.

My understanding from some engineering experience that it seems like a great design.

Hopefully, we will start to see that play out in some of the numbers.

Good luck with everything take care.

Thanks, Jonathan.

Thank you one moment for questions.

Our next question comes from Jeff Osborne with Cowen You May proceed.

Hey, good morning, a couple of questions on my end.

Just to be clear what are their projects in either <unk> or anticipated for <unk> that were impacted by detention.

<unk>.

But it was unclear if you actually have had passengers from the U K we had modeled.

Bifurcation.

Yes, we've definitely seen projects that have shifted right due to the inability of people to get crystalline modules do too.

Seizures, you've related to <unk>.

Is there a way to quantify that just so we could.

As we hopefully hear about releases from detention.

Coming through in the springtime of next year.

Yes, we are.

We're hopeful that that Jeff that we will see relief, but we've really put our emphasis here on the last quarter.

On making ourselves much more robust too.

A lingering <unk> situation by having the one P tracker available, which which allows us to participate in a much larger swath of the market and then also the.

The news that we shared yesterday in terms of our first solar solution and so.

It's hard to.

Quantify exactly.

Not providing numbers related to that but but suffice it to say, we're really working to make the company robust <unk> and frankly whatever may come next.

Another way to think about it Jeff as you just look at our Q4 guidance that we provided at the end of last quarter versus versus what we're providing today. Most of that is <unk> pushed out right and so that's one way to think about the quantification impact on Q4.

<unk> because as John mentioned previously the majority of that projects are all crystalline based projects at modules did not were not being delivered and were impacted.

As a safe assumption to say that those were the retentions, we heard about in the public domain in August here more.

More recently.

Yes, I don't know if you want to quantify on specific customers, but you can make it you can make some assumptions.

Got it and then just two other quick ones is there any risk to the.

The backlog that you have in hand of almost $1 billion is any of that pricing.

Scale are margin dilutive or I'm, just trying to get them to slow down here I'm trying to understand if theres any work through suboptimal.

Priced products or projects relative to the recent bookings.

No great question, Jeff as it relates to the $961 million of backlog and how we price our projects is really refreshing the bids.

Every.

Every 10 to 14 days or every about two weeks. So there is no within that 961, there is no long term fixed price cost agreements that.

Or that are going to come out where.

Commodity prices move or logistics prices move that we get caught.

To the negative downside, so we're able to pass those costs any increase is off to the customer as it relates to the bad there are no fixed dose.

Fixed pricing in any of that 961 full stop.

That's great to hear and then last one I had for you is just as you anticipate the domestic content requirement for next year kicking in is there any sense of guidance you can give us on.

How much of a preliminary snapshot of your supply chain can be procured. Thank you all for that.

60, 70, 80% or more.

And then most of your sales local did that come from the U S will love to hear.

Aluminum steel organization. Thank you.

Yes.

Yes. We are we are excited about the opportunity that presents for tracker and we are absolutely we have been studying options and and so we're very deep into that right now and we feel confident that we'll be able to supply from U S.

Based sources without any issue and we've been bidding we've had a lot of inbound requests from customers that were that are requiring 100% steel content and we've been able to meet the requirements for those bids that are coming up in the short term as well so we feel very confident in our bidding.

To meet those requirements on existing projects as it currently stands.

Thanks, a lot that's all I had thank you.

Okay. Thanks, Jeff Thanks, Jeff.

Thank you one moment for questions.

Our next question comes from Kashi Harrison with Piper Sandler you May proceed.

Okay.

Good morning, and thank you for taking my.

My question.

Just two quick ones from me I'll hit them both at once.

So you are highlighting an order book Thats approaching $1 billion. If we were to be optimistic and just assume panel supply all of a sudden isn't an issue anymore. How much of that order book would convert to revenues in 2023 and then.

Would you have sufficient liquidity.

Just given the working capital requirements.

Growing significantly in a short period of time, which you have.

Sufficient liquidity to deliver on that order book Thank.

Thank you.

So we havent typically broken it out in terms of by year, but.

A significant portion of that backlog is indeed for next year and we feel very comfortable with the work that the team has done in terms of our liquidity that we will not have any working capital issues in terms of meeting that demand if indeed.

The crystal and panel supply.

Is resolved in the short term.

I think one of the big gating items is how quickly some of the developers are going to have from a workforce perspective able to put the projects in the ground, we'll be ready for that and from a working capital perspective, the trend Youre seeing is bigger down payments are being required.

From developers to lock in their <unk>.

Walk in their supply chains, and so thats really going to offset some of the working capital acquired.

It's been up in terms of the.

In terms of the ramp up once <unk> lists.

Got it thank you.

Thank you.

Thank you one moment for questions.

Our next question comes from Mohit <unk> with Credit Suisse. You May proceed.

Hey.

Good morning, Thanks for taking our questions.

Just a clarification on the.

The push outs because of <unk>.

China incentives are there any cancellations in there.

Just trying to think in these higher rate environments of project developers.

Cancel the fan case, the beta is extending beyond the southern BJ.

Any thoughts on that.

Yes.

It's really frankly, a matter of push outs and not not real cancellation. So so the impact of <unk> is basically.

It has been for projects to shift right and not for them to effectively be cancelled, yes, I think the other thing I'd add to you see a lot of the developers in 2022 going back and renegotiating the ppas for higher rates I mean solar generation source is still one of the most cost effective ways to deploy energy.

In the U S needs needs energy. So these projects economics still fundamentally work because of the rising PPA prices, which are great. But also we're seeing commodity and logistics pricing continuing to fall. So if the project economics on these projects still work its really just the timing of the crystal and modules and when Theyre going to arrive in the U.

Yes.

Got it and then these push outs gift.

To give clarification on the cost adjusted every few.

But on the pricing is it firm pricing or the pricing of those suggest so just wanted to see if there's any upside to margins.

<unk> Nextgen and still shipping costs are much lower than today.

So we're locking in the purchase orders at the time of at the time of with our contract manufacturer. The timely received those purchase orders leading up to their we're refreshing the bids to our to our customers that reflect the latest.

Logistics and steel pricing to ensure that we maintain our margins. We are not fixing projects are fixing contracts to a long term date that isn't tied to some form of index. We're locking in pricing every two weeks.

Got it and then.

Expectation is to get back to that.

12% to 18%.

Margin.

Good.

As soon as <unk>.

Yes, we in the projects that we have in the backlog, we definitely can reaffirm the margin outlook.

Based on the projects that we see in the backlog so absolutely as the as the base revenue grows over time, we do certainly expect to return to that level.

I think you see that in the margin improvement for Q4, even on a relatively low base you can see the margin improvement from Q3 to Q4.

Got it got it I appreciate the color thanks for taking my questions.

Thanks.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Our next question comes from Julien Dumoulin Smith with Bank of America You May proceed.

Hey, good morning team. Thank you very much just wanted to follow up on a couple of questions here.

Just looking at the cash Gen you talk about being in that neutral position here relative to the negative you bet can you talk about a little bit of what's driving that and especially as you roll forward here into the first quarter given the.

The revolving credit facility here that extends through March 31, just talk a little bit about the cash and then maybe from there as you think about cash Jed you talk about gross margins getting to this mid teens range with $150 million run rate based on what you understand on the backlog today, what's the timeline to get to that mid teens I know that.

Was a hypothetical asked about silicone oil availability was today, what that backlog realization would be but maybe ask slightly differently when under sort of status quo context.

Realizing that backlog such that you get the 150.

Run rate.

Yes.

Thanks for the question Julien I'll start off on the cash Alright, I think theres two factors are going to drive and offset some of the potential operational burn in Q4, one of them is deposits as we've talked about earlier in the call.

We're expecting to get higher upfront deposits once a place for future projects. So if we got a place in Q4, though put 25 20 to 20 plus percent down for delivery and revenue Youll start to see in Q1 as an example in addition, we have line of sight on collections that we have if you look at the AAR that we have outstanding is about 62 million.

Our sales could be $3 million in going with those collections come in you can offset some of the operational burden to get to that neutral relatively neutral area that we're targeting for Q4 year on.

Year end.

And with this is Shawn so with regard to the margin question. So clearly we're not we're not guiding for next year, but we are reaffirming our gross margin outlook.

And so I absolutely feel positive based on what we see in the backlog today that we have lots of opportunity to achieve it next year.

Got it when you say next year it just to make sure.

The that's sort of the exit of <unk>.

'twenty three or at some point next year, and then maybe maybe to clarify that even further.

The 165 billion outside of.

U S LTA.

Thats all for solar panels right.

So.

The backlog addition for the quarter, we said was $203 million and of that $165 million is basically what I would call <unk> resilient and so thats in some cases its first solar in some cases, it's international and in some cases, it's crystal and projects for which.

Modules have been secured.

And they have an in country currently it is not subject to any sort of attainment.

Got it and Thats what gives you the confidence to say you get to that $1 50 run rate at some point next year just to make sure I'm tying those two statements together.

We're not guiding anything for next year, but absolutely we feel good about the gross margin numbers and we're basically just reaffirming the numbers that we provided.

Radical $150 million revenue per quarter run rate.

Got it but it is not specifically next year. Okay excellent guys. Thank you I appreciate your patience.

Thank you and thank you.

Thank you I would now like to turn the call back over to management for any closing remarks.

Hey, Thanks, very much I appreciate everybody's participation in the call Im.

Really excited about the progress our team has made in terms of our product offering the first solar offering that we issued a press release regarding yesterday in our new <unk> pioneer that we recently introduced <unk> plus I'm also excited about the progress the team has made on the non U.

Backlog of $165 million out of it the $203 million and I feel confident in Q3 being our bottom and im absolutely optimistic about the future for the company and the opportunity that we have moving forward. So thank you all for your participation today.

Thank you and im not showing any thank.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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The conference will begin shortly to raise Johan during Q&A you can dial one one.

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The conference will begin shortly to raise Johan during Q&A you can dial one one.

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The phone please be advised that today's conference maybe recorded I would now like to hand, the conference over to your speaker today Ms. Charlotte.

Vice President of Investor Relations. Please go ahead.

Thank you and welcome everyone to FTC Solaris third quarter 2022 earnings conference call.

Prior to today's call you've likely had opportunity to review our earnings release, and supplemental financial information and slide presentation, which was posted earlier today.

If you have not reviewed these documents they are available on the Investor Relations section of our website at FCC solar Dot com.

And today by Sean <unk>, President and Chief Executive Officer.

<unk>, the company's Chief Financial Officer, and Patrick Cooke, the company's Chief commercial officer.

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 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.

The obligation to update such information, except as required by law.

As you'd 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.

Additional discuss are executed contracts and awarded orders.

They referred to as backlog and our definition of 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 Star.

Starting at the market level, the weaker forced labor Prevention Act or <unk> and its rules for module importers and reviews by U S customs and border patrol.

I'm pleased to prevent solar module from getting into the country and in turn prevents a large portion of projects in the industry for moving forward.

This obviously also delays our ability to convert a large portion of our backlog into revenue.

As Youll see when Phelps discusses our Q4 outlook.

Extraordinarily frustrating we are not sitting idle, we are making great strides in our efforts to improve our near and long term positioning and remain optimistic about FTC source future.

There are four primary takeaways I'd like to leave you with today.

First our total backlog continues to grow nicely and is approaching the $1 billion Mark.

Only sitting at 961 million. This includes 203 million added since August nine this.

This growth is supported by our efforts to build and strengthen customer relationships add new customers, including top tier developers and EPC companies and accelerate our international expansion or international expansion was adjusted in its early stages. When the regulatory issues started here in the U S. We've made great progress on that.

We've told you about a number of projects in Australia, and we were recently awarded our largest to date and the concrete 128 megawatt hybrid solar project, which is expected to be the largest DC, coupled solar and battery projects in the country.

In addition to Australia. We have also recently been awarded projects in South Africa, Kenya, Malaysia and Thailand.

In addition to our backlog progress our total project pipeline has now reached a new record level at 90 Gigawatts. The international portion of that as more than doubled year to date and now represents the majority of our pipeline.

The second takeaway is that $165 million of the 203 million we've added to backlog in the last three months is not expected to be impacted by U S. <unk>.

This gives us confidence that we have seen the lows in terms of revenue in Q3. This backlog includes international projects U S. Thin film our U S crystal and projects for which modules have been secured.

Much of our recent focus actions and accomplishments will also serve to continue to bolster this portion of our backlog as we await resolution of <unk>.

For example, the team has been working hard behind the scenes to work on a cost effective solution for U S income modules, which we recently made available to customers filling an obvious gap in our offering this gap with the results of our previous decision to focus our R&D teams efforts towards providing solutions for crystalline modules first.

Which in a normalized environment represents the bulk of the overall U S market.

That was perhaps a reasonable position with crystal and modules were flowing normally however, more recently that gap in our offering has been more noticeable.

Has impacted our ability to convert backlog into revenue and frankly was something we needed to rectify the hedge against a delayed <unk> resolution I.

I am pleased to say that while this new solution has only recently been made available we already have multiple project awards in the hundreds of megawatts for this solution and our backlog additions.

6% fewer foundations than other leading competitor solutions is projected to generate 5% higher energy output than other leading competitor solutions customer enthusiasm for our new products has been strong and in fact, we launched pioneer along with a 500 megawatt order from <unk>.

Top EPC for Morris.

<unk> percent as revenue gets to the $150 million quarterly revenue run rate that is enabled by one our design to value initiatives, which we have previously discussed with EBIT length and has allowed us to take more than 40% of the cost out of our tracker systems, providing our product cost structure to enable double dip.

And three building out our DG business, which has higher margins and asps.

We received a lot of interest in our offering since launching earlier this year along with great feedback our DG pipeline is growing very quickly and there are two nice sized portfolios of projects in the Midwest and West coast, which in total will be in the range of 500 megawatts included in our backlog additions this period.

Dissipated collections.

This sets us up nicely as we enter what we expect will be improving financial position in 2023.

The proportion of our backlog that is not expected to be impacted by U S. LTA is improving and will be enhanced by our new <unk> offering our new one P tracker offering and the continued growth of our international business.

Have positioned us to show improvement in the near term and to once again outpaced market growth once module availability returns to normal with significantly enhanced profitability.

With that I will turn the call over to <unk> to provide more detail.

Thanks, Sean and good morning, everyone as a follow up to Sean's comment I'd like to provide some additional color on our third quarter performance and our outlook.

So let's begin with the results of the third quarter. Our results for the quarter was in line with guidance ranges revenue was $16 6 million or <unk>.

At the lower end of the range with a depressed level, reflecting the lower demand environment in the U S. Amidst the <unk> related module constraints that Shawn talked about.

This revenue level represents a decrease of 46, 1% compared to the prior quarter and a decrease of 69% year over year, driven by lower volume and partially offset by a higher asps.

GAAP gross loss was $9 5 million or 57, 4% of revenue compared to $6 5 million or 21, 2% of revenue in the prior quarter non.

non-GAAP gross loss was $8 2 million or <unk> 49, 8% of revenue. The margin percentage is also towards the lower end of the range on the lower revenue level.

The result for this quarter compares to a non-GAAP gross loss of $7 7 million in the prior year period with the difference primarily driven by the lower product revenue, partially offset by improved logistics margins.

GAAP operating expense was $17 $2 million on a non-GAAP basis, excluding stock based compensation and certain other expenses operating expenses with $9 1 million.

GAAP net loss was $25 6 million or <unk> 25 per share compared to a loss of <unk> $25 7 million or <unk> 26 per share in the prior quarter and compared to a net loss of $22 9 million or <unk> 24 per share in the year ago quarter adjusted.

Adjusted EBITDA loss, which excludes approximately $7 $9 million, including stock based compensation expense certain consulting and legal fees severance and other noncash items was $17 7 million.

This result, compared to an adjusted EBITDA loss of $17 7 million in the prior quarter and $16 1 million in the year ago quarter.

<unk> in Q4.

With that let's turn to the outlook, we continue to expect the third quarter to represent the low watermark in terms of revenue and margin. We do believe we haven't seen the lows in more growth from here as Sean discussed the actions, we've taken by adding a U S. Thin film module solution, introducing a new <unk> tracker pioneer and our international business.

Will help mitigate the near term impact of UF, LTA, which has delayed our ability to convert backlog into revenue.

We have roughly $165 million of backlog that includes these products. The U S infill projects international products and use products with crystal modules that are not expected to be impacted by <unk> because they are already in hand, which gives us confidence that we have seen the loads.

The flip side is that over 80% of our backlog is U S based projects scoped with crystalline panels, which had been delayed due to <unk>. This continues to be very frustrating has impacted our ability to convert our backlog into revenue.

As such while we expected revenue growth on a percentage basis from third quarter lows, we do expect revenue for the fourth quarter to be lower than our previous target.

In addition, our gross margin expectations for the fourth quarter also reflects an improvement from the third quarter as we see an improved revenue mix and improved project margins are the results of our internal initiatives. However, the results are similarly impacted as the overhead cost absorption is still being spread across some relatively low revenue base.

Collectively these factors slow down to adjusted EBITDA offset to a degree by the continued focus on controlling costs that we are implementing considering the module uncertainty in the market.

One item to highlight is a number of our members of our executive leadership team, including Sean Patrick and myself had voluntary elected to take advanced majority of our salaries and stock versus cash subject to a minimum cash requirement to maintain benefits. This began on July one and will continue through the end of 2022. We believe this shows the management team's confidence in the long term.

The company once the regulatory headwinds net.

Moving to the specifics of our guidance.

Revenue growth, we're anticipating a 40% to 60% off of Q3 loads to be between 23% and $27 million non.

Finally, while we are still looking for incremental clarity on how much module supply will be available to customers. We expect to see continued sequential revenue improvement in the first quarter of 2023, along with continued margin improvements.

With that we'll conclude our prepared remarks, and I'll turn it over to 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 please standby, while we compile the Q&A roster.

Our first question comes from Philip Shen with Roth Capital Partners You May proceed.

Hey, guys wanted to start off with the 500 megawatt order you had with for Morris was wondering if you could just give us a sense for.

How you guys think you won the business.

I think the <unk> product is.

Still not out there and so you were able to win that business in a nice way to.

Help us understand compared to your peers, how you won that business. Thanks.

Hey, Thanks, Bill appreciate the question.

I would tell you that there is just an amazing amount of customer excitement about the <unk> product and in fact.

A lot of the customers, who know us for our <unk> product. We are involved in looking at our initial designs and thoughts around a one P and we want to make sure that like our <unk> offering that the <unk> offering is really appealing to our customers by solving their problems and as is is got all of the half.

All of the construct ability advantages that are so well known in the Voyager <unk> product and so we've just from the initial launch at reply sure we brought a.

A basically a sample of the product to show people, we've gotten really positive feedback. We've also gotten a lot of positive feedback and our demo site in Colorado.

Had just an endless stream of customers coming through.

It feels like the market really wants an alternative in terms of <unk> and so we're really excited about the.

The first order with <unk>, So I'll turn it over to Patrick also to give a little more color. Thanks, Sean.

John Thats exactly right, we've been engaged with our customers pretty deeply over the last year and trying to figure out what they want in terms of our products.

That fit their needs obviously, we've got the Voyager solution, which we're incredibly proud of in terms of construct ability but.

I'm really focused on the <unk> based on customer feedback so folks like tomorrow, we'd been engagement for a long time developing that product and ultimately led to that 500 megawatt order of the other thing I articulate to us and it really kind of comes down to customer service.

They like how we engage with our customers we bring a developer mindset given most of US came from a developer.

Great. Thanks, guys, yes.

Heard a lot about.

Positive customer service as well so kudos.

Kudos there.

In terms of.

Your Q4 guide clearly.

One's disappointed.

We had.

Done some work highlighting that the industry was installing a lot of projects.

With tracker.

But without modules.

So can you.

We saw order rate did last night.

All right.

As we're looking for but in your case.

It's been a little more difficult.

So I was wondering if you could share some color on.

What you think your exposure was to those types of customers, who were building or perhaps were not building projects.

Without module and just any kind of color.

Color on the dynamics there would be great.

Thanks.

Yeah, absolutely Phil.

Around the first solar offering as well and so I think in our in terms of our product portfolio I think it's greatly enhancing our buy both of those developments in and track. The team is just.

Fantastic job pivoting when it became apparent <unk> is going.

Continue along.

And in developing our first solar solution. The team's just done a fantastic job, providing that to the marketing and like we've seen with our <unk> pioneer solution, we're seeing a lot of excitement around the.

Around our first solar Voyager offering as well and so again I would just emphasize that we really do believe Q3 is the bottom for us and we think there's tremendous opportunity. In addition, our international portfolio. We continue to see success internationally and we think we will see some.

Continued progress there into into next year.

Great. Thanks, Sean finally in terms of cash consumption was wondering if you could share a little more detail on how much you expect to consume in Q4 and then.

In terms of Q1 and two I was wondering if you could talk through what you see in terms of bookings.

Momentum for Q4 in the first part of next year and also.

What my cash consumption.

In Q1, especially.

The <unk> situation persists.

So yes, no problem I'll comment and then I'll ask <unk> to comment as well Phelps and the team have done a really good job focusing on cash through this period.

And I am really satisfied with the results that we did see last quarter in terms of cash.

Being able to end with roughly $50 million and then and then the untapped revolver as well and no debt.

Obviously, you have to collect or collect the collections and get the actual Pos in but that's going to help us offset some of the operational burden that youll see in the guidance.

So that puts us in a good position obviously the other thing that we put in place that we talked about in the prepared remarks is we did put in place the ATM facility, but given our current liquidity position. We don't have any desire to turn time to tap into that.

Another area that you should focus on in the balance sheet and just look at our current assets and current liabilities rider. If you look at the current assets. It's it's basically $132 million versus their current liability of $66 million. So if you look at your current ratio of two two times over which is very strong. If you look at your quick ratio. It's about a one nine as well so when you look at the overall <unk>.

Balance sheet, you don't have this big imbalance, where your liabilities are in excess of your current liability our current assets and so that's what that's what makes me sleep well at night that.

We have that obviously you'd love to have more cash in an uncertain environment that but we think we're very very good position from a from balance sheet perspective at the current time and on the bookings perspective, we see a lot of demand kind of going into 2023.

You know a lot of our customers are engaged with us.

On the <unk> the first solar solution and also our Voyager <unk> seeing that pent up demand customers are really trying to make sure that they get the capacity that they need to build out their product portfolio and now that we've got several different offering and puts us in a pretty unique position. The other thing we're seeing.

Customer deposits and down payments to the liquidity perspective continue to come up so we're able to kind of really anchor our liquidity position in there as well, yes, and I would add to that as well fill that while we're not we're certainly not guiding Q1, Q2, but but we've really this quarter with the work on <unk> and <unk>.

Internationally and then the.

The first solar solution, we've really done a good job to make the company resilience to <unk> for future business and.

And so if you <unk> persists, we think now with our product portfolio we have.

We have certainly more opportunity for next year.

Great. Thanks for all the color guys I'll pass it on.

Okay. So thanks.

One moment for questions.

Our next question comes from Donovan Schafer with Northland Capital markets. You May proceed.

Hey, guys. Thanks for taking the questions.

I have.

I want to start by just asking about this proposal.

From FEMA to the international.

I think construction or building counsel to raise the.

The design categories from category, one to category four four international disasters and whatnot.

<unk>.

Think.

Like the tracker design that you guys have.

Because it's taken this ground up approach.

You maybe have relatively less deal on average and can do lower pile in badminton.

Horizontal so with the Overdamping approach and so theres a lot of positives and elegance of the design in a way that I think.

Essentially it would be very favorable vis vis <unk>.

Here's for an increase in the design standard but.

It's also you don't have as many.

Megawatts deployed and other things like that so I could also potentially.

Two things maybe going the other way. So I'm curious if you can just give any color around that and how you think.

Your designs Thats fair.

With respect to customer appetite.

In light of an increase in the standards if that were to transpire.

The outcome that we that we have.

<unk> that we've built.

Set to withstand these these design wind speeds and you'll be able to act accordingly, without a material change in our product.

Okay. That's helpful.

And then for the thin film new product for thin film largely for solar.

Panels.

I was I was under the impression and maybe I'm misremembering. This.

Fines clarify what certainty kind of in my notes.

I feel pretty confident.

I think I asked about this.

Back when this issue kind of erosion.

Remember I went out to the demonstration side you guys have in Colorado.

At that time, you guys you already were able to accommodate thin film our first solar modules.

On the at least the two P tracker version at that time.

<unk>.

So is the thin film capabilities now just applying to the <unk> format.

Kind of missing something there or is there just sort of a nuance where it could accommodate.

Send it home before but it wasn't as ideal of away and so this is the more sort of optimized or ideal upgrades. We're doing thin film just any any clarification there would be helpful.

So we did have some small number of projects that we had bid on on the past and in terms of thin film, but what we're excited about is we really.

Work on the system through the <unk> initiatives and now can accommodate the six and six plus modules from first solar and really feel good about that.

The way it's come together in terms of the still being able to see the advantages of the Voyager system in terms of putting panels onto the system with the lowest amount of man hours and so.

So this is our version of the system that accommodates the.

Six and six plus modules.

Okay.

So quick follow up on that is.

First solar I think is notoriously had so much of its capacity booked out.

For for two years or so into the future and so.

In terms of the impact near term or in 2023 from having this ability to send the film is it is there sort of a secondary market of.

Customers that are buying and selling.

Buying other people out of their contracts to get their hands on thin film panels.

Without that you would sort of thing.

That there would not be surplus than film around but.

Is that what you expect.

The people, we're talking to are what I would consider primary customers of the modules.

That have agreements to have the modules over the course of the next couple of years, but have not yet determined what tracker system theyre going to use and so now.

Provided another option and we've seen again, just like we've seen with our pioneer.

Pioneer one P solution, a lot of interest and excitement among customers that do have first solar modules.

I think the other thing too as it relates to FX and FX fixed plus I think it opens up a new dynamic for us in terms of our kind of total addressable market, we had been bidding on those projects.

It relates to first solar to a broad base of AEP season developers that we weren't able to participate in before.

Okay, Great. That's helpful. Yes, I mean, yes, I was able to kind of check out your demo unit and everything.

Plus and.

Really like the engineering and the design seems really solid and.

A lot of the.

The ideas from the voyage of tracker seem to carryover.

So the pioneer.

So.

On the face of it it seems like a really solid product and so.

Hopefully you guys will be able to.

I guess that just squares, what youre, saying about customer interest squares.

First of all.

My understanding from some engineering experience that it seems like a great design.

Hopefully, we will start to see that play out in some of the numbers.

Good luck with everything take care. Thanks.

Thanks, Jonathan.

Thank you one moment for questions.

Our next question comes from Jeff Osborne with Cowen You May proceed.

Hey, good morning, a couple of questions on my end.

Just to be clear what are their projects in either <unk> or anticipated for <unk> that were impacted by detentions from U F LTA mention.

You mentioned it several times, but it was unclear if you actually have had passengers from the U K we had modeled.

Defense applications.

Yes, we've definitely seen projects that have shifted right due to the inability of people to get crystal and modules due to <unk>.

Seizures.

<unk>.

Is there a way to quantify that just so we could.

As we hopefully hear about releases from detention.

That coming through in the springtime of next year.

Yes, we are.

We're hopeful that that Jeff that we will see relief, but we've really put our emphasis here on the last quarter on.

On making ourselves much more robust to a.

Lingering <unk> situation by having the one P tracker available, which which allows us to participate in a much larger swath of the market and then also the.

The news that we shared yesterday in terms of our first solar solution and so yes.

Yes.

It's hard to quantify exactly and we're not providing numbers related to that but but suffice it to say, we're really working to make the company robust <unk> and frankly whatever may come next.

Another way to think about it Jeff is used will get our Q4 guidance that we provided at the end of last quarter versus versus what we're providing today. Most of that is <unk> pushed out right and so that's one way to think about the quantification impact on Q4 was <unk> because as John mentioned previously the majority of that projects were all Chris.

Land based projects at modules did not were not being delivered and were impacted.

Is it safe assumption to say that those were the detention we heard about in the public domain in August here.

There's more reason.

Yes.

Now if we want to quantify on specific customers, but you can make it you can make some assumptions.

Got it and then just two other quick ones is there any risk to.

The backlog that you have in hand is almost $1 billion is any of that pricing.

Is it scale or margin dilutive, what I'm, just trying to get them all the slowdown here I'm trying to understand if theres any work through suboptimal.

Price products or projects relative to the recent bookings.

No great question, Jeff as it relates to the $961 million of backlog and how we price our projects is really refreshing the bids.

<unk>.

Every 10 to 14 days or every about two weeks. So there is no within that 961, there is no long term fixed price cost agreements that.

Or that are going to come out where commodity.

Commodity prices move or logistics prices move that we get caught.

To the negative downside, so we're able to pass those cost any increase is off to the customer as it relates to the bad there are no fixed dose.

Fixed pricing in any of that 961 full stop.

That's great to hear and then last one I had for you is just as you anticipate the domestic content requirement for next year kicking in is there any sense of guidance you can give us on.

How much of a preliminary snapshot of your supply chain can be procured from the EU.

Is that 60 70, 80% for MRV.

And then most of these fields locally and myself will be awesome love to hear it.

Long long steel sales organization.

Yes.

Yes. We are we are excited about the opportunity that <unk> presents for tracker and we are absolutely we have been studying options and and so we're very deep into that right now and we feel confident that we'll be able to supply from U S.

Based sources without any issue and we've been bidding we've had a lot of inbound requests from customers that were that are requiring kind of a 100% steel content and we've been able to meet the requirements for those bids that are coming up in the short term as well so we feel very confident in our bidding.

To meet those requirements on existing projects as it currently stands.

Thanks, a lot that's all I had thank you.

Okay. Thanks, Jeff Thanks, Jeff.

Thank you one moment for questions.

Our next question comes from Kashi Harrison with Piper Sandler you May proceed.

Okay.

Good morning, and thank you for taking my questions. Just two quick ones from me I'll hit them both at once.

Would you have sufficient liquidity.

Just given the working capital requirements of growing significantly in a short period of time, which you have some significant and sufficient liquidity to deliver on that order book.

Thank you.

So we havent typically broken it out in terms of by year, but.

A a.

The crystal and panel supply.

Is resolved in the short term, yes, I mean, I think I think one of the big gating items is how quickly some of the developers are going to have from a workforce perspective able to put the projects in the ground, we will be ready for that.

I'm, a working capital perspective, the trend Youre seeing is bigger down payments are being required.

From developers to lock in their.

Walk in their supply chains, and so thats really going to offset some of the working capital required but as we've said.

It's been up in terms of the.

In terms of the ramp up once <unk> lifts.

Got it thank you.

Thank you.

Thank you one moment for questions.

Our next question comes from Rohit <unk> with Credit Suisse. You May proceed.

Hey.

Good morning, Thanks for taking our questions.

Just a clarification on the.

The push outs because of <unk>.

Trying to incentives are there any cancellations in there.

Just trying to think in these higher rate environment of project developers.

Mike canceled if in case, the beta is extending beyond that period.

Any thoughts on that.

Yes.

It's really frankly, a matter of push outs and not not real cancellation. So so.

The impact of <unk> is basically.

It has been for projects to shift right and not for them to effectively be cancelled, yes, I think the other thing I would add too you see a lot of the developers in 2022 going back and renegotiating the ppas for higher rates I mean solar generation source is still one of the most cost effective ways to deploy energy.

In the U S needs needs energy.

Project economics still fundamentally work because of the rising PPA prices, which are great. But also we're seeing commodity and logistics pricing continue to fall. So if the project economics on these projects still work its really just the timing of the crystal and modules and when Theyre going to arrive in the U S.

Got it and then these push outs.

To give clarification on the Costa adjusted every few.

But on the pricing is it firm pricing or the pricing is on suggests so just wanted to see if there's any upside to margins.

<unk> Nextgen and still shipping costs are much lower than today.

So we are locking in the purchase orders at the time of at the time of with our contract manufacturer of the time, we receive those purchase orders leading up to their we're refreshing the bids to our to our customers that reflect the latest.

Logistics and steel pricing to ensure that we maintain our margins. We are not fixing projects are fixing contracts to a long term date that isn't tied to some form of index. We are locking in pricing every two weeks.

Got it and then.

Expectation is to get back to that.

12% to 18%.

Margin.

Good.

As soon as CFO Pierre clears up.

Yes, we in the projects that we have in the backlog, we definitely can reaffirm the margin outlook.

Based on the projects that we see in the backlog so absolutely as the as the base revenue grows over time, we do certainly expect to return to that level.

I think you see that in the margin improvement for Q4, even on a relatively low base you can see the margin improvement from Q3 to Q4.

Got it okay I appreciate the color thanks for taking my questions.

Thanks.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Our next question comes from Julien Dumoulin Smith with Bank of America You May proceed.

Hey, good morning team. Thank you very much just wanted to follow up with a couple of questions here.

Just looking at the.

Cash Gen you talk about being in that neutral position here relative to the negative you bet can you talk about a little bit of what's driving that and especially as you roll forward here into the first quarter given the.

The revolving credit facility here that extends through March 31, just talk a little bit about the cash and then maybe from there as you think about cash Gen. You talk about gross margins getting to this mid teens range with the $150 million run rate based on what you understand on the backlog today, what's the timeline to get to that mid teens I know that.

He was a hypothetical asked about silicon oil availability was today, what that backlog realization would be but maybe ask slightly differently when under sort of status quo context.

Realizing that backlog such that you get the 150.

Run rate.

Yes.

Thanks for the question dealing I'll start off on the cash Alright, I think theres two factors are going to drive and offset some of the potential operational burn in Q4, one of them is deposits as we've talked about earlier in the call.

We're expecting to get higher upfront deposits once a place for future projects. So if we got a place in Q4, though put 25 20 to plenty of 20 plus percent down for delivery and revenue Youll start to see in Q1 as an example in addition, we have line of sight on collections that we have if you look at the ASR that we have outstanding is about 62 million.

Our sales continue $3 million and as long as those collections come in you can offset some of the operational burden to get to that neutral relatively neutral area that we're targeting for Q4 year on.

Year end.

And this is Shawn so with regard to the margin question. So clearly we're not we're not guiding for next year, but we are reaffirming our gross margin outlook.

And so I absolutely feel positive based on what we see in the backlog today that we have lots of opportunity to achieve it next year.

Okay.

Got it when you say next year it just to make sure.

The that's sort of the exit of <unk>.

'twenty three or at some point next year, and then maybe maybe to clarify that even further.

The 165 billion outside of <unk>.

U S LTA.

Thats all for solar panels right.

So the.

Cured.

And they have an in country currently it is not subject to any sort of detainment.

Got it and Thats what gives you the confidence to say you get to that $1 50 run rate at some point next year just to make sure I'm tying those two statements together.

We're not guiding anything for next year, but.

Absolutely we feel good about the gross margin numbers and we're basically just reaffirming the numbers that we provided.

On a theoretical $150 million revenue per quarter run rate.

Got it but it is not specific next year. Okay excellent guys. Thank you I appreciate your patience.

Thank you and thank you.

Thank you I would now like to turn the call back over to management for any closing remarks.

Hey, Thanks, very much I appreciate everybody's participation in the call.

Really excited about the progress our team has made in terms of our product offering the first solar offering that we issued a press release regarding yesterday and our new one Pete pioneer that we recently introduced <unk> plus I'm also excited about the progress. The team has made on the non <unk> backlog of 106.

<unk> 5 million out of it the $203 million and I feel confident in Q3 being our bottom and im absolutely optimistic about the future for the company and the opportunity that we have moving forward. So thank you all for your participation today.

Thank you and I'm not showing any.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 FTC Solar Inc Earnings Call

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