Q4 2022 Shoals Technologies Group Inc Earnings Call
Good afternoon, and welcome to shows Technologies Group fourth quarter 2022 earnings Conference call.
This call is being recorded and we have allocated one hour for prepared remarks and Q&A at.
At this time I would like to turn the conference over to Megan <unk>, Chief Legal officer officials technologies.
Thank you you may begin.
Thank you operator, and thank you everyone for joining us Nate hosting the call with me are CEO , Jason Baker, President, Jeff <unk> and CFO Dominic Paradis.
This call management will be making projections or other forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.
Did you listen to and consider these comments you should understand that these statements, including the guidance regarding full year 2023 are not guarantees of performance or results.
Actual results could differ materially from our forward looking statements if any of our assumptions are incorrect or because of other factors. These factors include among other things the risk factors described in our filings with the Securities Exchange Commission as well as economic and market took a stupid decreased demand for our products I'll, let the regulatory changes industry condition current macroeconomic.
Kind of like event.
Gene disruption and availability and price of our components and materials.
Although we may indicate and believes that the assumptions underlying the forward looking statements are reasonable any of the assumptions.
Accurate or incorrect and therefore, there can be no assurance that the results contemplated in the forward looking statements will be realized.
We caution that any forward looking statements included in this discussion is made as of.
The date of this discussion and do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the Companys fourth quarter press release.
All information and reconciliations of historical non-GAAP measures to the comparable financial measures.
That let me turn the elimination.
Thank you very much and good afternoon, everyone.
Before I make my formal remarks, I would like to thank our employees customers vendors and shareholders, who have each played a role in the tremendous success that shell's achieved over the past several years.
Well, the actual contribution and support we.
We would not have the company that we're doing today.
I'll start off with some key highlights from our fourth quarter and full year results and then discuss the progress on our CEO transition.
Knowing that I'll turn it over to Jeff who will provide an update on our business growth initiatives current market conditions and operational focus areas for this year.
Dominic will then wrap up with an overview of our financial results for the fourth quarter and outlook for 2023 before we open the lines for questions.
Shall set new records for revenue gross profit adjusted EBITDA and adjusted net income in both the fourth quarter and full year.
Compared to the prior year periods fourth quarter and full year revenue grew 97% and 3% respectively.
The increase in revenue was driven by growing demand for solar in EV and continued share gains by our products.
The strength of demand for our product is underscored by the fact that shows annual revenue growth has increased each year since we've been public despite having more than doubled revenue over the past three years.
Versus the same period last year.
Fourth quarter gross margin increased more than 950 basis points to 42, 7%.
And adjusted EBITDA margin increased approximately 840 basis points to 31, 8%.
The margin expansion, we achieved in the fourth quarter was the result of greater leverage on fixed cost driven by higher sales volumes and increased proportion of revenues attributable to our combined as you go solutions.
Now turning to an update on our CEO transition.
And November shows announced that I'll be stepping down from my role as CEO of this year for health reasons.
My last day with the company will be March 15th.
As previously announced the company has appointed <unk> President, Jeff <unk> interim CEO .
Jeff was previously SVP of EV solutions and led the successful launch of our <unk> solutions business.
Prior to Shoals, Jeff held senior management positions with Fortune 100 companies and co founded Earl led several startups, including Green launch, which was acquired by shell.
In his new role as President Jeff is responsible for global sales product development engineering and operations.
He and his team are accountable for ensuring the operational milestones required to achieve the company's strategic goals are met.
The board is currently working with Spencer Stuart several highly qualified candidates.
And in Kansas like the permanent CEO following completion of an extensive search and vetting process.
With that update I'll turn it over to Jeff.
Thank you, Jason and good afternoon, everyone. It's a pleasure to be with you all today.
I'll start with a review of our performance of our core combined as you go solutions in the quarter, then discuss the status of our new product introductions for 2023.
Following that I'll provide an update on our international expansion efforts review conditions in our core solar and <unk> markets and then close with an overview of some new operational initiatives that we are implementing.
System solutions revenue grew 150% in the fourth quarter of 2022 versus the fourth quarter of 2021, reflecting strong growth in U S utility scale solar demand and continued share gains by our products.
During the quarter, we converted three additional APC and developers to our combined as you go system.
Bringing the total number of BLA customers 36, with an additional 14 in transition.
We believe that the majority of EPC and developers in the U S will be using our system in 2023.
Our new wire management product line contributed to growth in the quarter.
Our wire management products attach rate to BLA has continued to grow as customers increasingly recognize the de install faster and are more reliable than conventional solutions.
We recently surpassed 800 megawatts of deliveries for projects using our eclipse and we expect continued growth throughout 2023.
Our battery storage products also contributed to growth as we began shipments during the fourth quarter for the one gigawatt DC storage project award at the shelf in the third quarter of 2022.
More solar projects are incorporating battery storage and our sales team is actively quoting battery storage products for our solar customers.
We recently added dedicated sales resources for energy storage, which we believe will help drive higher sales volumes.
Our team also plans to launch an E mobility energy storage offering in the second half of this year.
Our EV solutions business grew significantly in the fourth quarter as our team continued to fulfill orders received in Q3 for Q4 deliveries.
The primary end uses for those orders where fleet and school bus electrification.
As our EV business is still early in its evolution growth may be uneven an outsized contribution in certain quarters, and smaller contribution and others, depending on when we receive orders and ship products.
Turning to our new product introductions planned for 2023.
We expect to generate revenues from our new high capacity plug and play wire harness and BLA to that over this year.
UL certification of the high capacity plug and play harnesses was delayed slightly while development of the high capacity connectors is progressing.
We are now expecting prototypes to be deployed mid 2023, with UL certification and full market launch to follow later in the year.
We recently began quoting our BLA to dot a bundled solution and expect to record our first revenues in the second quarter.
BLA to that combines our BLA with all the components required to attach the BLA to the racking system, including wire management support wire and tension X systems to create a single integrated offering.
This comprehensive solution further reduces the amount of installation labor required in the field and enables EPC and developers to procure all of their E blast components from Shoals.
Other than shelves and at least one other vendor.
Because BLA to that all includes additional components. It has a higher average selling price than BLA.
We believe migrating customers to the BLA to that or bundle will enable us to grow revenue through both increased volume and higher asps.
We're making progress on our international expansion with quoting volume continuing to grow led by Latin America, Australia and EMEA activity.
We are evaluating regional production of fulfillment options as quote and order volumes approaching critical mass.
Notably the 53 megawatt project, we were awarded in Honduras in the third quarter of 2020 to receive the renewable energy deal of the year by the export import bank of the United States.
Moving to an overview of solar and EV market conditions overall solar market conditions are favorable both for the industry as a whole and for <unk> specifically.
We are beginning to see early benefits from the inflation reduction act in the form of increasing demand for both solar and storage offerings.
Funds from the 2021 infrastructure Bill are generating significant demand for EV charging products.
We see increasing quote volume related to on the go fast charging solutions, which is largely driven by the flow of infrastructure build funds.
At the same time, the combination of persistent wage inflation and the prevailing wage provision of the eye array is driving the cost of field labor hire.
Rising labor cost caused our customers to seek solutions that install faster and do not require skilled labor.
The environment is nearly ideal for our products given their demonstrated ability to reduce the number of labor hours required to install a solar project.
I'll wrap up by speaking about some of the operational initiatives that we're working on.
One of my jobs as President of Shoals is to ensure that we have the people processes and systems in place to support our continued growth.
We have already built an organization capable of supporting $500 million of annual revenue.
Our focus now is building an organization that can support the next $500 million and take us to $1 billion a year in revenue.
To do that I'm working with our leaders to let met three initiatives.
Increasing the efficiency of our manufacturing operations.
<unk> our sales infrastructure.
And focusing our new product development efforts.
We are increasing the efficiency of our manufacturing operations by deploying production automation and carefully reviewing every step in our manufacturing process, establishing process level kpis and using that data to identify areas, where we can increase throughput or reduce waste.
We saw early dividends from our efforts when we achieved record levels of daily production in the fourth quarter.
We are confident that by driving deeper automation and process efficiencies that we will be well positioned to replicate the success. We've achieved in our existing plants should we decided to open new manufacturing facilities and other locations.
We are strengthening our sales infrastructure in two key ways.
First our new CRO, Ben let's see it was building a sales operation team with systems to help us better assess when to add new sales resources and how to deploy them more efficiently.
Our sales team is already delivering record revenue per account manager.
But we see the potential to grow revenues, even faster by adding salespeople and growing markets and specific segments.
Operations will provide the information we need to make those decisions faster.
Second we are building a dedicated customer care organization focused on shoals installed and growing customer base.
Their goal is not only to ensure our customers are satisfied with our product well beyond initial installation.
But also to identify opportunities to sell replacements or upgrades for existing installations.
We are focusing our innovation and new product development by embracing agile concepts, including engineering velocity <unk>.
Implementing agile principles with results driven kpis will improve predictability of new product development timelines, while continuing to drive the innovation that shows is known for.
I'm thrilled to be president of Shoals, and very excited about our future.
Now I'll turn it over to Dominic <unk>, who will discuss fourth quarter 2022 financial results.
Thanks, Jeff and good afternoon to everyone on the call.
Fourth quarter revenue grew 97% versus the prior year period to $94 $7 million. The higher sales volume was primarily driven by increased demand for our solar solutions, but also benefited from EV charging solutions that were launched earlier in the year.
Just some solutions revenue increased 150% year over year and represented 86% of total revenue versus 68% in the prior year period, reflecting continued market share gains for our solar combined as you go system.
Gross profit increased 154% to $44 million compared to $15 9 million in the prior year period.
Most profit as a percentage of net revenue grew more than 950 basis points to 42, 7% compared to 33, 1% in the prior year period, driven primarily by increased leverage on fixed costs and a higher proportion of revenue from system solutions.
Fourth quarter general and administrative expenses were $14 $9 million compared to $11.0 million during the same period in the prior year.
The year over year increase in general and administrative expenses was largely driven by higher payroll expense in connection with incentive compensation and planned new hires.
Net income was $118 $3 million in the fourth quarter compared to a net loss of $2 2 million in the prior year period.
Net income benefited significantly from the $110 $9 million noncash gain we recorded in the quarter in connection with the termination of the tax receivable agreement or TRA that shows had with Oaktree and our founder Solan.
Over its life, the TRA could've required us to make more than $500 million in cash payments to oaktree and Mr. Solan, So terminating the agreement eliminated the significant future liability for the company.
Adjusted EBITDA increased 167% to $30 1 million compared to $11 $3 million in the prior year period.
Adjusted EBITDA margin increased by approximately 840 basis points year over year to 31, 8%, reflecting the impact of higher gross margins, partially offset by the higher general and administrative expenses I discussed earlier.
Adjusted net income grew to $25.0 million in the fourth quarter compared to zero point $9 million in the prior year period.
During the quarter, we generated cash from operations of $34 million, which allowed us to reduce the amount of debt outstanding under our revolver we.
We expect our cash generation to continue improving as investments in working capital and capital expenditures moderate and we are no longer subject to cash distributions are restrictions associated with the TRA.
As of December 31, 2022, we had $428 $6 million in backlog and awarded orders an increase of 43% year over year, and a decrease of 9% quarter over quarter.
The consecutive quarterly decline was the result of slower conversion of pipeline projects into awarded orders and higher than expected shipment volume we had in the quarter.
Following the slower pace of customer activity during the holidays, our backlog and awarded orders rose to all time record levels in the first few weeks of January .
Turning now to our full year outlook.
Just on current market conditions and input from our customers, we expect 'twenty to 'twenty three revenue to be in the range of $470 million to $510 million up 44% to 56% year over year.
We expect adjusted EBITDA to be in the range of $140 million to a $155 million and adjusted net income to be in the range of $87 million to $97 million.
For the full year 2023, we are targeting gross margins in the 40% range consistent with full year 2022, although gross margin may be higher or lower in any given quarter due to product mix in that particular period.
We will continue to invest in SG&A in 2023 to position ourselves for scalable long term growth.
This will include investments in talent to support our growth initiatives as well as the continued build out of our HR finance and customer care teams as we scale.
We anticipate SG&A will grow roughly $1 million per quarter sequentially throughout 2023, starting with a larger step up in the first quarter due to higher stock based compensation.
As you're likely aware, we do not provide quarterly guidance that said I want to provide a bit more information to help set expectations around pace in 2023.
Similar to our 2022 results, we expect the majority of our revenue will be generated in the second half of 2023 four.
For 2023, we expect that approximately 40% of our revenue adjusted EBITDA and adjusted net income will be generated in the first half of the year with the remaining 60% in the second half.
We anticipate that quarterly year over year revenue growth will roughly fall in line with the annual growth rate implied by our outlook.
Full year 2023 interest expense is expected to increase to $22 million to $26 million as a result of higher interest rates.
Finally, we expect capital expenditures for the full year in the range of $8 million to $12 million.
Now back to Jason for closing remarks.
Thanks, Amit.
I'd like to close again by thanking all of our customers for their confidence and shows our employees for enabling us to effectively serve our customers and our shareholders for their continuous support.
As we move on from our record performance in 2022.
Could not be more excited about the opportunity ahead.
Furthermore, beyond our still growing core be only products, we've only started to penetrate the opportunity for our new solar and EV products.
With a product line building demand is increasing as we expand our global reach.
Importantly, we believe we've only starting to realize the full power of the <unk> platform.
I'm incredibly proud of what <unk> has accomplished over the past several years and then I will leave the company commercially.
Operationally and financially stronger than it has ever been.
There is no question that the future is extremely bright.
And with that thank you everyone. I appreciate your time today, we'll now open the line for questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
Using a speakerphone please pick up your handset before pressing any key.
Draw. Your question. Please press Star then two.
Pause for a moment as colleagues joined the queue.
The first question comes from Mohit <unk> of Credit Suisse. Please go ahead.
Hi, This is David Benjamin for me Bentley.
Congrats on the quarter guys.
Wondering if there's any additional upside and the potential revenue guidance should <unk> results faster than expected.
So this is dominic thanks, David in terms of our guidance, we're very comfortable with the guidance range that we've given in terms of our backlog of awarded or awarded orders and ability to drive that revenue number.
We've talked about before we haven't seen a significant delay of panels and projects associated with our revenues. So we're holding firm to the guidance that we've issued today.
Okay, Great and one more question about margins can you talk a little bit about the ramp up in your manufacturing facility and talk about kind of what we could expect for long term margins.
Fully ramped.
Yes, so from a margin perspective, you know, we we actually got to a production capacity that we built out ready to get about a $500 million number as you see implied in our guidance for this year. We are looking at facilities to take us to another level and really expand further and look at geographic diversity.
And things like that but.
But what we've said and guided to we haven't used to really long term guidance, but we do believe a 40% gross margin is achievable and we like having a 30% EBITA margin and so we will keep that in mind as we continue to look for additional facilities.
Thanks very much.
The next question comes from Philip Shen of Roth M. P M East.
Go ahead.
Hey, guys. Thanks for taking my questions.
I think you mentioned in your prepared remarks that you reach record backlog in the first few weeks of January I was wondering if you could talk.
Talk about what those bookings looked like.
And importantly, also how do you expect the bookings to trend.
You know it seems like.
Yeah, there was a big you know them.
Push in the first part of the year and perhaps you could talk about the drivers of that.
Activity in and ultimately if you can even share with that record backlog number is I think that would be fantastic.
Hi, Phil Thanks.
Yes.
We won't share the specific numbers from January and February what I think is really important to note is when you look at where we wound up the year last year or 28, we had a book to Bill of one three that's consistent with prior years and then we also had the additional.
Shipping and outflows of product and fourth quarter that was an upside that that was a positive.
And some of the orders that we were expecting to convert from pipeline to water water shifted into the first couple of weeks of January .
So.
Just by having those couple of weeks, we'd be having a very different discussion about this and that trend has also continued throughout 'twenty three so far six weeks and so we feel very strongly.
The products that we have in the market adoption of those.
Great. Thanks, Dominic and so when you think about your guidance for the year what percentage of that do you think is covered in the backlog that you have currently it sounds like it could be as high as you know 80, 590%, but wanted to get a feel for that and then would you expect.
Vast majority of that backlog to be recognized.
This year and then perhaps also one more if I may what percentage of that backlog do you think.
I think.
Maybe the prior question was asking about it but if you can share what percentage might be impacted by U S. L. P. A if any thanks.
So let me unpack a little bit of that so I mean.
The main thing is that the guidance.
The range that we've issued is really takes into consideration the $428 million of backlog at the end of at the end of December 31 2022 the.
The main thing is that we've said before is typically a nine to 12 month window to really turn that Oh awarded orders and backlog into revenue and we don't see that changing at all it's really consistent theres always a little bit of a bell curve with that but we fully expect to realize that for 28 in the year. So there are some things that we still have <unk>.
We haven't issued the exact breakdown of what percentage is yet to be found we do believe that we'll be able to secure some additional orders that we have visibility to but.
But you know as we go forward in the year, if we don't secure those orders here in the next few months the likelihood of being able to really get those into this year might be more and more limited. So at this point in time, we're very comfortable with the revenue range that we've guided to.
The U F. L. P. A panel as we've said last year in previous quarters, we haven't seen a significant impact on our business projects have gone forward with our installations and ordering our products, even if panels were slightly delayed.
At this point I'm not aware of panels being refused I think they were just delays I think and even in Q4, we saw some more panels being released.
At this point in time, you know, there's really no separation no variation from the guidance that we've given we think that we've got good line of sight to all of those things and are very comfortable with the range that we provided.
Great. Thanks, Dominic one last one here as it relates to be L. A 2.0 could you share a little more color in terms of you know what percentage of your overall sales.
Sales in 'twenty three do you think it could be 2.0 and.
Now that you're taking orders and so forth can you talk about maybe the price premium that to point out might be getting over.
The original BLA.
Yeah. Thanks, Thanks for the question Phil.
We're pretty excited about BLA, two that are being launched and quoting globally at this point.
As mentioned, we expect first revenues in second quarter.
Remember the product itself is a bundled solution.
So the increase in Asps will depend upon what portions of the bundle are selected by the customer base, we do expect a 10% to 20% ASP based.
Based on the <unk>.
Portions of the kit that are taken by the customer base.
And.
We're just we're excited about the quoting volume.
Even out of the gates and we expect that to continue throughout the year.
Okay. Thanks, Joe.
Jason here real quick one thing I want to add.
So when you look at the BLA to point out kind of pointing back to the combination of both Jeff Dominick Sandoz.
Backlog and awarded orders that we'd closed out and at the end of 2022.
It doesn't really represent what I would call BLA to point out because we just recently started quoting out that product as Jeff stated at the beginning of this year. So specific on the question about 2023.
That particular range is based upon exactly what the book looks like at the end of this predict at the end of last year Phil.
Okay, Thanks, Jason and best wishes to you and then thank you, Jeff and Dominic as well I'll pass it on.
Thanks Man.
The next question comes from Jordan Levy of <unk> Securities. Please go ahead.
Good afternoon, all and thanks for taking my questions.
Maybe just to start out by getting your thoughts on the EV solutions business and the ramp there as you move that segment through 'twenty. Three I know you mentioned in your remarks, there could be some lumpiness in that segment, but just wanted to kind of get your broad thoughts about contributions from that and also how customer demand has been trending there.
Yes, Thanks Jordan.
That's my baby, so I'm pretty excited about that we remain very excited about the mobility of EV charging business.
It's.
Yes.
It's been a focus area for us in the past year, we launched products last year and very excited about the uptake that we've seen it certainly bolstered by the 2021 infrastructure Bill.
You recall, we mentioned that there is close to $7 $5 billion being poured into the E mobility business.
Itself and primarily corridor charging in school bus electrification.
And we.
We're seeing upticks in quote volumes for both of those.
And we're also seeing our primary offering being adopted by the fleets, which are some of the initial.
Evolutionary areas of electrification as well so we feel very excited about where we're at.
As mentioned, it's still early it's still early post launch so with any new business any new product offering it's going to be a bit lumpy to begin with as we get more certainty and more predictability in our forecasting then we may release a bit more details.
That's great. Thanks, and then just as a quick follow up on the wire harness rollout I think you mentioned last quarter.
That BLA 2.0 products are really complementary so just curious if kind of the extension on first sales for wire harness the new wire harness product has any impact on appeal or to point out.
It really doesn't affect the wire the wire management system is a subset of the bundle.
And what's nice about our our wire management system as it can be sold as a standalone or it can be sold as the bundled kit. So it gives us quite a bit of optionality in our NR deployments.
Great. Thanks, so much for taking my questions.
Yes.
The next question comes from Brett <unk> of Morningstar. Please go ahead.
Yeah, Hi, Thanks for taking my question I, just wanted to ask about international here in 2023, and your thoughts on potentially expanding manufacturing.
Your manufacturing abilities.
Essentially abroad.
Mhm.
Yeah as I mentioned.
<unk>.
We're very excited about where we're at with international.
We're getting increasing quoting volumes in Latin America, Australia and EMEA.
And with that we have to start looking at how we can best fulfill those orders and serve our customers.
As part of the.
The focus on growth and as I mentioned in my remarks, our goal is to take us to the next $500 million and that is by being able to fulfill orders where the customers are so we are saying they are starting to take a look at that and as you would expect the pipeline is growing further.
Through the quotes they will then transition to awarded orders in backlog and then into revenue. So that all has to be timed appropriately.
But.
Just to reiterate really excited about where we're at with international and.
The markets that I mentioned.
Okay, and then on the domestic solar side.
Can you just update us on your customer mix between.
Historically, it's been EPC heavy.
Any any headway you've been able to make.
With developers.
Specifically.
Yeah, our primary customer base is the EPC domestically.
We've got nine of the top 10, <unk> added that we're proud to call our customers.
And working on.
On growing that as well we are expanding our interface directly with developers and one other trend that we're seeing as more and more apc's want to lock up capacity is entering into long term msas.
It gives us more certainty and Ed.
And order flow throughout the years.
Okay.
That's great Thanks, Jeff and best of luck Jason.
Thank you.
The next question comes from Colin Rusch of Oppenheimer. Please go ahead.
Thanks, So much guys could you just give us a sense of two things just the overall quotation activity outside.
The U S and then the close rates that you're looking at so far in the awards have been made.
Yeah, we haven't released the specific close rates, but what I, what I did mention in the prepared remarks is.
That we're seeing quoting volumes of greater than 50% year over year.
So the the number of quotes and the volume related to those quotes continues to grow.
I don't have specifics that we've released and we have not released our close rates.
And then.
That's helpful with these new customers that you've got and how many of those folks are moving into.
You know the EV space in terms of execution on that so is there any crossover in terms of what you're selling to for that E V.
E V offering.
Stern Apple's offering.
It's interesting most of the Epc's are exploring that as an option.
And what we're seeing in the E mobility market now that most of those decisions are being made directly by the charge point operators and that's been our primary go to market focus in the EV space.
As the EPC is then start to migrate over and expand their business into E. Mobility, then we'll be prepared there as well I call them. Our base accounts, we haven't seen as much crossover right now.
They're focused in on growing the domestic solar market.
Okay. That's super helpful. Thanks, So much guys.
Mhm.
The next question comes from Brian Lee of Goldman Sachs.
Go ahead.
Hey, guys. Good afternoon, thanks for taking the questions.
Jason Best wishes.
I'll Echo others' sentiments as well I hope the best for you going forward I guess I might have missed this I jumped on a little late but you guys last quarter, you broke out the backlog piece versus the awarded orders piece.
It looks like in your K you filed it you did break it out so backlog grew modestly sequentially and awarded orders also grew modestly I guess I would've expected given the big jump in awarded orders last quarter.
Relative to backlog.
That maybe some of that converted a bit more aggressively this quarter. So can you maybe just talk high level about what youre seeing with respect to traditional backlog conversion. If there is anything changing in the near to medium term then.
Now it is my presumption wrong that you know a big uptick in awarded orders should have translated into maybe a bigger uptick in the actual backlog a quarter following.
And I had some follow ups. Thanks.
Yeah I appreciate the question, Brian and I've heard Jason say, a number of times that backlog into water daughters.
May go up or down quarter to quarter, but the trend continues to be up.
And that's what we're saying, we're saying a timing of when the water daughters come in and then what Dominic had mentioned is that we've seen a very robust first few weeks of January and through January and now into week six.
What I can attribute it to is it looking back is timing.
Excited about where we're at this year.
Don't have any cautionary flags on our side about the product adoption.
Hi, Bryan Thank Brian if I could just add.
Sure the things I'd like to throw in there real quick Dominic and please jump in if I if I'm not.
Adding exactly what youre going to but one of the things that Dominic mentioned in his prepared remarks, Brian you. Matt most of that is that literally just a couple of weeks into the new year, we were already at record levels from backlog and awards orders perspective. So.
So obviously a little bit of a time shift there may be some.
Companies out there partners out there a little bit longer of a Christmas holiday Im not too sure, but the other thing I want to point out obviously is that we had yet again another record quarter covering not only a almost a $100 million of revenue drop that particular quarter as well so very excited about where we ended the year in.
Also even more excited about.
What transpired just a few weeks into the new year.
Anything else you want to add there.
Yes that was really the only other thing I was going to say is that in Q3, when we achieved the $470 million there was a little bit of kind of some delays in the first half of the year. So we saw a run up so it is a little bit lumpy, but we're very pleased with the trajectory and ultimately you were very pleased to issue the guidance that we have today for the strong growth.
For 2023.
Okay, Great. That's super helpful and I guess, we'll look forward to the Q1 number I'm just given what you're seeing in January that's great.
And then a question just on the model itself, because and we've had discussions about this in the past.
The the revenue great growth has been great.
For as long as we've covered you several years.
Thank you.
Okay.
This would be like the second or third year in a row, though where your revenue growth because basically matching.
In your targeted EBITDA and earnings growth.
Last year our.
Revenue growth was a little bit faster than actually EPS and EBITDA growth and you had talked about putting in some investments for some of these new areas that you're targeting in the market.
Any comments just around 23.
Operating leverage in the model and then where there might be some opportunities for you to eventually get to a point, where you're starting to see more leverage you know earnings or EBIT growth well ahead of your good revenue. Good thanks guys.
Sure. So so Brian I guess I guess, how good is good enough right.
Look we do have some margin expansion baked in if you just look at our midpoint of guidance, we have probably 150 basis points of margin expansion and as I've stated before our real objective right. Now is to continue to drive the top line growth and we have some investments that we're going to continue to make as I said in my prepared remarks, we still have to build out to be a law.
Large accelerated filer and the finance organization, we still have human resources capabilities that we're building to really become a scalable much larger organization with customer care investments and sales investments that we're making to drive growth.
There's a number of things that I've guided to historically I would say that we're looking to drive the top line. We are looking for margin expansion. There are many expenses in the SG&A space that will be leveraged.
But fundamentally I'm not looking to really drive margins to EBITDA margin of 40% in rapid fashion, because I think we have too much opportunity to drive growth.
Our guidance does incorporate margin expansion and we're very pleased with that and so you know.
There is a number of things that I think you know from opportunities in the future there will be but we're still at that point, where we're trying to keep our eye on the prize as Jeff mentioned, how do we get to that next $500 million. So that's that's really all until we have an analyst day to give multiyear guidance. That's the best I can tell you right now I'm not looking to <unk>.
Back up on margins I'm always looking for modest expansion, but we have investments that we want to continue to make.
Okay makes sense thanks, guys.
Thanks, Brian .
The next question comes from Jeff Osborne with Cowen <unk> Company. Please go ahead.
Hey, good evening I just had three quick ones. So you can keep your answers brief team there but.
International side, you alluded a couple of times to preparing for the next $500 million of growth can you talk about how long it would take to build a new facility and how much it would cost.
And it takes from.
Six months to nine months typically and that's on the lower end of the spectrum.
Hi.
You signed the lease and begin to outfit it.
I won't specifically address cost I'll, let domenic talk about that if he wishes to but overall the the real question is what is going to be produced in that facility. If it has a final assembly and testing done faster.
Is it safe to say the Capex guidance for the year does not include any new locations and that is more maintenance capex.
No I would say the guidance that we've issued does include unproductive time and capex to pick up another facility.
We're gonna go organically find a site say for sake of argument in Texas or something.
We haven't released and discuss where that may be but the guidance does contemplate that we would have some perhaps unproductive time are the.
The Capex guidance also does include a step up in capital of which would start being spent this year to start outfitting the machinery and the racking necessary to get the facility production ready. So I would say that our guidance. This year is all encompassing.
With the exception of you know obviously it doesn't include anything if we're going to go and acquire a facility overseas or something that's not in that number.
Got it it's helpful. Dominic just two other quick ones on the <unk>.
Market share I know the final statistics from wood Mackenzie aren't out, but I think you were at 36% in 'twenty. One do you have any back the envelope figures you could share for 'twenty, two or what your expectations would be.
Yeah, Jeff we use the wood Mackenzie data for our market share calculations as we.
If you recall last year that does come out in second quarter.
We based our our release based on that data, we expect the same to happen. This year. So the 22 data.
We're expecting to release after the wood Mackenzie numbers come out mid year.
Got it.
But based on.
Based on our incremental APC growth and the overall numbers, we do expect.
Some good news on the share gain side.
It seems so just.
Just another question following up on Brian's comments about margin.
You guided to 40 ish percent gross margin you, obviously had very strong results here in <unk> I'm trying to understand with all the new products that you have launching and assuming battery and EV grow as well maybe faster than they did last year are the newer things may be dilutive.
The gross margins or at least what you just printed in Q4 and accretive on the EBIT side is that the right way to think about it or is the in and around 40% target.
You know more.
Bigger range around that in terms of multiple hundreds of basis points of potential upside or downside depending on mix.
Yeah, We haven't released product line margins. There's a couple of things I think generically I'd want to say that one as I just mentioned the fact that we may be getting some additional.
Unproductive capacity this year and that would be a drain on Cogs anytime you launch a new facility you have to incur the expenses as they are incurred you recognize them as incurred.
So there could be some some additional investments there.
We evaluate the labor markets and our utilization of labor hourly wage labor, we want to stay competitive. We obviously are growing we want to be able to get the talent that we need so there may be some investments that we're doing there.
There are some things that we've gone from health insurance to become more competitive so in the Grand scheme of things the 40% range as what you know new products, that's kind of the minimums that we look for some of our product lines are higher than that and there are some things that are lower but we want to make sure that we're always targeting around that 40% Mark if that makes sense to you.
That's perfect Amit thanks for the details.
You got it.
Your next question comes from Martin Malloy of Johnson Rice. Please go ahead.
Good afternoon.
I was hoping maybe you could refresh us in terms of freshness in terms of capital allocation you, all obviously going to be generating a lot of free cash flow here.
Sure. So our first priority as we look at capital allocation as we have we still have at the end of the year I believe $48 million of revolver are left.
With interest rates climbing we are looking at what that would look like for US. We are generating some cash there are opportunities that we will be discussing with our board about the best utilization of that cash as we generate it.
Problem to have I'm thrilled that we're gonna be in that position.
The term loan didn't have a prepayment associated with it a penalty associated with it does expire this year. So there's always the opportunity to do some things there as well, but our leverage ratio is really improving over time as well so.
I'm looking for ways to drive additional growth in the business okay.
Uh huh.
Right.
No I'm sorry go ahead.
I just can say you know as we have discussions about the best use of that cash flow.
I'll, let you know, but at this point in time, we're just pleased to have that in our guidance.
Great. Thank you.
My pleasure.
The next question comes from Kashi Harrison of Piper Sandler.
Go ahead.
Good afternoon, and thanks for taking the questions I was wondering if you could just provide us with an update on the progress with the EV charging business.
Can you speak to your receptive receptiveness from the market and then maybe some color on how much of the 2023 revenues associated with the EV charging business.
Uh-huh high cachet, yes, thank you for asking.
The adoption has been.
Strong our primary market segments, our fleet and school bus electrification.
We're seeing a definite uptick in the national electric vehicle infrastructure funds coming from the infrastructure Bill that would be for a corridor fast charging.
And the quoting volume there has greatly increased.
Haven't released the specific financials yet.
As we're waiting for them to be a substantial and predictable before we do that but overall I am excited to say that were deployed in more than 15 states in the U S.
With large numbers of projects. So overall customer demand is exceeding expectations and we're seeing continued growth.
Yeah.
Thanks for the color there, Jeff and then maybe a follow up to Martin's earlier question.
Don can you speak to your expectations on working capital for 2023.
Looking at 'twenty, one it looks like 34 million use of cash of 20 to 38 million use of cash so does that any sort of color on how to think about working capital for 'twenty three it would be great. Thank you.
Sure. So one of the things that I've said and I said last quarter for sure was that we had an opportunity to optimize some of these things and I think you saw some progress made in Q4 as we started in fact inventories did come back down from their peaks from earlier in the year.
Made a huge dent in the receivables and we've implemented new things. We've also share talking about some of our customer deposits. So we believe working capital, yes, Theres always investments when you're a growth company and Youre going from 300 million to you know call. It 490 500, whatever it in our guidance range, there, there's going to be investments required for work.
<unk> capital.
But I believe that we have seen the worst of our inefficiencies will continue to manage inventories effectively with the sales growth will continue to manage our D. P. O as we change some vendor agreements that we've also talked about last quarter.
So I would say there'll be modest I think if you look at your models from a DSO D. P. O inventory turns you should see some modest improvement in all those categories in 'twenty three versus 22.
Got it thank you.
You're welcome.
The next question comes from Donovan Schafer of Northland Capital markets. Please go ahead.
Hey, guys. Thanks for taking the questions.
First I want to ask so I think it was on the third quarter call. When you guys were.
Our reported some.
Demonstrable success on the east side, but I believe you also said at that point in time, you did not have the drive over raceway available, yet or sort of fully certified and so on so I guess my question would be.
It is the drive of our Raceway now available.
And if not when do you expect that to be available.
Okay.
Okay. Thanks, Todd about the Drybulk Raceway is certified the UL standards and available and being quoted.
In fact, I believe theres a product shipping.
This quarter.
So excited about that one.
Yeah.
Thank you.
This concludes the question and answer session and today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Thanks, everybody.
Thank you.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Yeah.