Q4 2022 FTC Solar Inc Earnings Call

Speaker 2: Thank.

Speaker 3: Good day and thank you for standing by. Welcome to the FTC Solar Earning Conference call. At this time, all participants in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker 3: To ask the questions during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hands raised.

Speaker 3: To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would like to turn the conference over now to your speaker for today, Bill Misielek.

Speaker 3: questions, please press star one one again. Please be advised that today's conference call is being recorded. I would like to turn the conference over now to your speaker for today Bill, Michellek. You may go ahead.

Speaker 4: Thank you and welcome everyone to FCC Solar's fourth quarter 2022 earnings conference call. Before today's call, you've likely had opportunity to review our earnings release, supplemental financial information and slide presentation which were posted earlier today.

Speaker 4: If you've not reviewed these documents, they're available on the investor relations section of our website at fpcsolar.com. I'm joined today by Shawn Hunkler, FPC Solar's President and Chief Executive Officer, Delph Morris, the company's Chief Financial Officer, and Patrick Cook, the company's Chief Commercial Officer. Before we begin, I remind everyone that today's discussion contains four looking statements based on our assumptions and beliefs.

Speaker 4: We assume no obligation updates such information except as required by law. As you'd expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issue this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll discuss our executed contract and awarded orders, and our definition of the metric is often included in our press release. With that, I'll turn it over to Sean.

Speaker 5: Thanks Bill and good morning everyone. As I reflect on my first full calendar year as CEO in 2022, I am proud of how the team navigated many external challenges. The year began with historically high logistics and steel costs, followed by a rather challenging regulatory market in the U.S., which as you know has historically represented the primary source of our revenue.

Speaker 5: The team has responded well to the challenges, utilizing the downturn to focus on what we can control, improve our competitive positioning, and emerge as a stronger company. As we close out the year, I believe we're on a significantly improving trajectory. We delivered fourth quarter results that showed significant improvement and exceeded the midpoint of our guidance on all metrics. We also continued our operational improvements.

Speaker 5: which I'll discuss in more detail, one of which includes improving our international exposure, which will allow us to take advantage of near-term opportunities while we wait to unlock our full backlog when the Weeger Force Labor Prevention Act or UFLPA can strengthen fully resolved.

Speaker 5: and continue to improve.

Speaker 5: They have likely never looked better. According to the IEA, renewables are set to become the primary energy source for electricity generation globally in 2027, accounting for about 40% of total electricity output and overtaking coal. Despite higher module pricing, utility scale solar is the lowest cost source of new electricity generation.

Speaker 5: including renewable portfolio standards and the current ITC, corporate awareness and technological improvements is only further enhanced by current high fossil fuel pricing discussions of energy security in many countries and the recent passage of IRA in the US. So we have an incredibly positive market backdrop and tailwinds for long-term global growth.

Speaker 5: to one remaining issue in UFLPA. In the fourth quarter and more recently, we have seen some early signs and reports of improvement. These include positive trends in trade and board data, market reports of small model shipments being released from customs, some model supply agreements being inked.

Speaker 5: and optimism from some that we are getting closer to a more substantial improvement in the back half of the year. There have also been several announcements about new module capacity outside of China, which is an excellent sign of for module availability in 2024 and beyond. Overall, we are hopeful that we will see more substantial improvement in module flow later this year.

Speaker 5: But as we'll discuss, we don't need to wait for UFLPA resolution to achieve improving financial performance. From a supply chain and procurement standpoint, we started 2022 at historically high prices for steel and logistics, but have since seen improvement in both.

Speaker 5: Steel is now well off its highs and logistics is essentially back to historical norms. Given the improvement in logistics, we have fully transitioned back to containerized shipping from the break bulk solution we had implemented to weather the high and uncertain market conditions.

Speaker 5: With that market regulatory and supply chain backdrop, I'll turn now to our operational improvements. As I mentioned on recent calls, we have not stood idle through the market uncertainty and have used the time to focus on what we can control to best position ourselves for the coming recovery. One area of significant focus.

Speaker 5: has been on improving our cost in gross margin profile. In the first nine months of the year, we maximized our design to value initiative, allowing us to take more than 20% of the steel content out of our tracker systems. This helped us create a product cost structure that will enable double digit gross margins on future projects. We also launched the Distributed Generation Business, which has a high margin profile, and will be a positive addition to the business. We have received great interest with initial orders and a robust pipeline. In the fourth quarter, we continued our cost reduction focus, and launched our design to manufacturing efforts, which aimed to ensure that our products are not only designed for constructability, efficiency, and effectiveness.

Speaker 5: but are also cost-effective to manufacture. As it relates to our product portfolio, in the first part of the year, we were quite busy with the development of innovative new products that resulted in new product announcements during the back half of the year. In the third quarter, we announced a differentiated new one-piece tracker solution called Pioneer, which significantly expands our ability to serve new markets both in the US and worldwide. This gives us more opportunities to win projects whether it is a preference or benefit for one piece. Customer and beauty have them for our new product.

Speaker 5: has been strong and as you know we launched Pioneer along with a 500 megawatt agreement from a top EPC. Our pipeline for Pioneer is growing nicely and we continue to anticipate first deliveries in the second half of the year. In the fourth quarter we announced the introduction of a new cost-effective first solar module solution for our 2P product which filled a gap in our offering. We have already received orders for this solution and are recognizing revenue.

Speaker 5: Combined, these new product introductions expand our addressable market while also serving the bolster of the non-UFLPA portion of our backlog as we continue to grow revenue. In terms of geography, we entered 2022 as very much a US-focused company in terms of revenue. However, the investments we've been making to expand our international footprint started to bear fruit early in the year. We have since received awards in four new countries bringing the total to 10 countries with projects outside of the US.

Speaker 5: We also recorded our largest project in Australia today at 128 megawatts. Just today we announced that we added $240 billion in backlog since early November . Of that amount more than 80% is from international locations, including two more projects in Australia putting us at more than 25 in that country so far. We believe our new one-piece tracker will significantly enhance our ability to further grow internationally. International growth is a key focus for us.

Speaker 5: particularly with the current regulatory challenges in the US. I'm quite pleased to see our continued growth in pipeline and conversion the backlog. We also recently announced the US manufacturing joint venture utilizing domestic steel to strengthen and bolster our domestic supply chain. With the passage of the Inflation Reduction Act, customers are now asking for quotes with US local content, including projects for delivery in the latter half of this year. While we still await additional details from the government on the mechanics of the IRA.

Speaker 5: We believe that JV will be instrumental in helping us support our customers needs in the future. For this JV, we partnered with a known existing supplier. The facility located near Houston, Texas will initially be focused on torque tubes and is expected to begin operation around mid-year. Turning to Pipeline, in 2022, we saw robust growth and several new record levels, including the international portion of the pipeline, which more than doubled in the first nine months of the year. Today, we have again achieved new record levels in total pipeline with the international portion now up 150% relative to the start of 2022.

Speaker 5: International now represents an increasing majority of our pipeline. And as you can see from our near-term project awards, it's expected to make up a growing portion of our revenue base going forward, further diversifying our revenue and reducing exposure to projects subject to UF LPA review. And finally, with our continued focus on expanding current customer relationships and forming new ones, our backlog has continued to grow nicely, despite the constraints in the market in the U.S. As I mentioned, since our last earnings call in November , we have added 240 million-

Speaker 5: Our performance did improve as expected, and we came in ahead of the midpoint of our guidance on all metrics. This includes revenue that grew 58% sequentially off the low Q3 base and non-gaft growth smart and then improved from close to negative 50% to approaching break even at negative 3.4%.

Speaker 5: Nine-gap operating expenses in the quarter were at the low or better end of our guidance range, resulting in adjusted EBITDAQ also coming in better than the midpoint. We are excited to see the results of our DTV and other initiatives begin to show through in a meaningful way in our results. And we see that continuing. So closing out on 2022, we have utilized the downturn significantly improve our competitive positioning across nearly all aspects of our business. We now have a strong product cost structure on current and future projects, which puts us on track for double digit gross margins as our revenue run rate recovers. We have a more comprehensive product line that expands our addressable market in the US and internationally. We are growing and diversifying in new markets and are positioned with a strength and supply chain. And we have a record backlog and pipeline that shows that customer adoption globally and these are eventually developing our financial signed

Speaker 5: is increasing as we look ahead to a market that is not only poised to recover, but is poised with powerful long-term tailwinds. As we look ahead to 2023, our focus is solidly on execution, supporting our customers worldwide, continuing to build on our progress, and demonstrating the capabilities for our improved business. We believe we can continue to show margin improvement, even in a depressed volume environment, followed by much more significant improvement as module availability and volumes improve in the US. With that, I will turn the call over to Phelps. Thanks, Sean, and good morning, everyone. As a follow-up to Sean's comments,

Speaker 5: last quarter of attacking non-UFLPA impact your project is beginning to benefit the company.

Speaker 5: While we saw a nice sequence of growth in revenue, UFLPA's constrained our near-term ability can further backlog into revenue with a bulk of our backlog, roughly two-thirds, remaining subject to UFLPA. Now on the plus side, our non-UFLPA backlog doubled quarter of a quarter and now represents a third of our total backlog. Next, our gap gross loss for the quarter was $1.9 million or $7.3% of revenue compared to $9.5 million or $57.

Speaker 5: The other companies do the following. First, the legacy low-margin products we discussed in paracord are completed during Q3. Second, the new products we now deliver from our team's efforts on the DKV front coupled with a more normalized supply chain cost in both deal and shipping.

Speaker 5: The team is excited to see the early fruits of our labor starting to show an results. On a year over your basis we delivered improvement to non-gaft roast loss by $6.5 million, even in the face of significantly lower revenue in Q4, 2022 versus the prior period in 2021. $26.2 million this year versus $101.7 million last year. The improvements were driven primarily by improved track or logistics direct margins.

Speaker 5: Our Gap operating expenses were $17.9 million. On a non-Gap basis, excluding the stock-based compensation, charges so as you read the FCX legal settlement, and certain other expenses are operating expenses with $10 million compared to $9 million in the year-goal quarter. This was at the lower end of our guidance range.

Speaker 5: The slight year of year increase was driven by an increase in the R&D expenses as well as the absence of creds that we had in the year ago quarter. We continue to keep a keen eye on expenses as we manage through this period. To that end, we've executed a targeted headcount reduction during the quarter, representing approximately 8% of our labor force. In addition, we continue to keep a close eye on our non-labor spend. Next, Gatnell losses $20.5 million or $0.20 cents per share compared to the loss of $25.6 million or $0.25 cents per share in the prior quarter, and compared to a net loss of $23.9 million in the year ago quarter. Collectively, results from our improved margins and careful management of operating expense.

Speaker 5: We continue to hold no debt on the balance sheet, have an undrawn credit revolver, as well as a $100 million ATM program which we have not accessed today.

Speaker 5: With that, let's turn our focus to the outlook. Based upon our current view, we continue to expect sequential revenue growth in the first quarter. We also expect growth margins continue to show improvement quarter to quarter and cross into the positive territory. Specifically, our targets for the first quarter call for the following. Revenue between $36.40 million, representing $37.53% growth off of the Q4 2022 results. Non-Gap growth margin between $0.7 and $3.2 million or between 2 and 8% of revenue. Non-Gap operating expenses between $10 and $11 million and finally adjusted EBITDA loss between $10.3 and $6.8 million.

Speaker 5: And for the second quarter, we expected to see further operational improvements. Overall, we continue to believe that green is in place for a very strong industry to recover in long-term growth. The rate of recovery in our largest market, the US, will largely be determined by the pace of improvement for the importation of modules. Once improvements do occur at scale, we believe FTC solar is increasingly well-positioned competitively to capitalize on that growth with a lower cost structure and an innovative product line, a record pipeline, and more than a billion dollars in backlog. With that, we conclude our prepared remarks and I will turn it over to the operator for any questions. Operator? Thank you.

Speaker 3: One moment while we prepare ourselves for the Q&A session. Again, if you would like to ask a question, please press star 11 on your telephone. Our first question will be coming from Philip. Chen, of Roth, your line is open. Thank you.

Speaker 6: Hey guys, thanks for taking the questions. One to start with, your recent bookings. I was wondering if you might build a share. How much of the 240 is 1p versus 2p? And also, can you talk through how much of the 240 you expect to be delivered in 2023? And then for the 1.2 billion overall, what percentage of that do you also expect in 2023 versus maybe 2024 or later? Thanks guys. Yeah, hey Phil, this is Sean. Thanks for the questions. So we're excited about the progress we're making on non-UFLPA. And as you described in the most recent bookings.

Speaker 5: So let me turn it over to Patrick and let him provide a little bit of color on the mix. Yeah, in terms of kind of one P and two P fill, we didn't give specific numbers in terms of the revenue split, but it will be a mix between our one-in-portrait tracker and our R2-in-portrait tracker. In terms of just overall revenue, kind of next on the non-UFLPA, we do expect to start recognizing revenue for those projects in the non-UFLPA impacted areas in the near term, and it's not pumping that's kind of a long-aided out. So we do expect to start recognizing revenue on that 240.

Speaker 6: in the near term. Great. And looking ahead, can you talk about what you expect in terms of the bookings momentum? You've had a really nice run here in spite of the U.S. LPA module constraints. Would you expect, you know, as we get into Q2 and 3, that the bookings momentum sustained, given the inflation reduction act and your international success there? Thanks. We really, we are very excited about the bookings momentum. And, you know, frankly speaking,

Speaker 5: Again, Patrick Cook, our chief commercial officer is here, and I'll let him provide a little more color. Yeah, Phil, the way I think about that is you look kind of in the US, right? Our product portfolio set, we've got the first solar solution, we've got our 2P, and we have our one important solutions. We feel like we have a pretty sound portfolio set to go into.

Speaker 5: same trajectory and trend that we've had in the US back in 2019 where you start getting into two, three, four, five different customers. You grow the share of wallet, you grow the footprint, and now you've got a backlog and pipeline that's dependable for upcoming revenue. So we're certainly excited about the momentum that we're seeing in the bookings, the customer excitement around.

Speaker 6: IRA in the U.S. is certainly extremely high and we're looking forward to be able to capture on that as well based on our customer relationships and the customer service that we bring to our customers both in the U.S. and internationally. One last one if I may in terms of the Torque Tube subsidy. We put out there recently that it seems like for this year the Torque Tube manufacturers may secure between 30 and 40% of that subsidy and then you guys should be able to get the balance of that. And then over the coming four or five years that decrements maybe by 5 to 10% a year until we get to about 10% a year or 5. Does that resonate with you guys in the IRA agreements that you guys are structuring here in the U.S.?

Speaker 5: So what degree does that match and resonate with you guys? And if not, what kind of structures are you guys looking at? So we are hearing similar things. And so I would say that indeed it does resonate with us and what we've heard so far. And then what our expectations are for our joint venture. So I'd say, yeah, we're somewhat aligned. I mean, we're waiting to see what the final regs all say, but your view of things is similar to our own.

Speaker 6: to specific on some of these dynamics that help working around the U.S. LPA. But I'm curious, if we can talk maybe in terms of broader trends or minority, majority of sort of next. So if I think about.

Speaker 6: the maybe call like three vectors that give you the flexibility to kind of work around the UFLPA. And so I think of those three vectors as, you know, first, you know, having a better solution now that pairs the first solar panels is fun for solar and the second one would be the international sales. And the third one that, you know, maybe kind of, you know, overlaps in some ways is having the one P product now because, you know, maybe that's part of what enables a certain amount of international sales. So, you know, it's too much to answer in one question, but you know, you can imagine we could make like a three by a...

Speaker 6: of course that's probably not a factor in Q4 sales. But just between those three vectors, first solar, having a first solar optimized product and international sales and kind of one P versus 2P, are you leaning more heavily on some of this and the other is something like international, but

Speaker 5: and greater than 50% less than 50% anything high level there just to help us flush out trends and key drivers. Sure, Donald, and thanks for the question. I think those three vectors that you identified for solar, international growth and the 1P product adding that to our portfolio are all critical. Because as we've said before, we really have tried to pivot the company and not be focused on, hey, when will UFLPA end? But what are the things we can control? How can we improve the company and drive the company's success independent of UFLPA? So all three of these vectors are critical. So as you know, we're shipping for revenue with a first solar voyage or 2P solution. And as far as the 1P product goes, we're going to ship it in the back half of the year.

Speaker 5: And it's our intention after we ship the initial crystalline based product that we will have a first solar solution as well for the one P or excuse me pioneer product. And then international, like Patrick said, international takes some time. But if you think about sort of a two-year period, we're in really good shape in many countries and we talked about some of the great growth we've seen in Australia where we really invested over time and Cameron and the team are doing a phenomenal job. We just announced our largest project ever in Australia. And so all three of those vectors are very critical to us. Obviously we're not guiding for the year and so it's hard for me to give you any special.

Speaker 5: ultimately expanding internationally. And we're seeing that kind of in the back or in the kind of the front half of the year. You see kind of sequential growth, what we delivered in Q4 and our guide ultimately in Q1. So we're seeing adoption of our different product portfolios and ultimately our expansion internationally. And that is a portion of our overall growth in spite of what's going on in the overall market in UFLPA, which is why we talked about...

Speaker 5: on our last earnings call that Q3, we believe, was our historical lows and we're going to springboard from that and I think you're seeing that with our revenue growth as well as kind of our gross margin expansion as well in those products and geographies. Okay, great. And then as a follow up, you know, I know you have a, you have a with a Q3 trough and still kind of early in coming back from that, you know, you're at a lower revenue number. And so, you know, the guidance for...

T1, 2020 has a healthy range there, maybe in percentage terms, maybe it's not much in absolute terms. But I'm curious what if the range, I guess first would just be whether that range really just comes down to project timing. That seems like it's probably quite likely the situation, but just confirmation there. And then kind of related to that, if it is just around project timing, it is that that will leave potential for sort of significant, outside for 2023, like generally, and maybe circling around to kind of UF LTA.

We're talking a lot about working around that, but there's always the hypothetical possibility of some meaningful resolution that tensions are high between the US and China, but with everything going on with Ukraine. Some people are interested in picking a fight with China, some people aren't. And so there may be parties that be that try to come to the bargaining table and reach some kind of agreements or accords or understandings or whatever. So if the US, given the range for the first quarter, and if the US LPA, we're kind of poof, magically sort of resolved.

with the whole UFLPA, the actual exposed part of your backlog. With that exposed part, just come online quickly and you get a really big pop or super positive performance, or is that all, would that continue at a normal trajectory anyway because of, for other reasons, if projects were canceled or postponed or have to file for a permit extension, so on and so forth? So, Donovan, thanks for the question. So if you look at our guide, the revenue guide is like, I believe, 36 to 40 million. So we tried to provide a reasonable range for what we think we're going to achieve and not a wide range. So we feel, if you look at our guide, we're going to be able to see if we can get a wide range of the same amount of money.

Obviously, sitting here today, we feel good about the guidance we're providing for Q1. And as we said before, we're looking at UFLPA if something does happen. And we're hearing what I would call some positive signals from UFLPA in terms of shipments. But if there's something big happens like you described that UFLPA opens up and indeed modules are in the US and available for projects, because those would really have to be the modules that are being held today. But once the factories come back up and modules start flowing again, yeah, that's certainly an opportunity for us. Because we have built into our plan that we, you know, that UFLPA will persist at some level. And, you know, frankly speaking, yeah, there would be I would, you know, I would believe there would be some upside, depending on what level of modules that, you know, UFLPA solution put into the US market. I don't know if else if you want to. Yeah, no, hey, Don of itself. Yeah. So as Sean talked about when we talked about guidance in terms of Q1, it is a relatively near range. We're feeling very good about the bookies we've had in Q4.

Obviously, at your point, we're a project-based business for supporting projects. If there's a delay of time in the individual products that I can delay for revenue recognition. The other thing that we're really excited about for this course is the guide in terms of the gross margin range. It's 2-8% to the positive territory, which what you're seeing here is really a lot of the work in the legacy products that we had last year in Robolf.

and we're starting to see the new projects take advantage of the DTV initiatives, etc. And so that we think is a very important thing for us on the margin side, but you're exactly correct. I mean, the ramp of the revenue on a quarter of our quarter basis will be continued upon projects. And really the people that we've had in our backlog, how quickly they can get modules that can be the really the pivot point for us to recognize revenue as quickly as possible and maybe patch going to add on to that. Yeah, I think the one thing to down into focus on is just the growth kind of sequentially, you know, the last two earnings calls of the our backlog that's not subject to UFLPA review. You know, we talked about what we were able to achieve in kind of the in our Q3 earnings call. Obviously we grew backlog by another $240 million.

backlog with international projects, for solar projects, or certain developers are getting crystalline modules and availability in the US, and that's going to represent that as well.

Okay, fantastic. Well, thank you guys. I'll take the rest of my questions offline. Thanks, Thomas. Thanks, Jonathan. Thank you. One moment while we prepare for the next question.

The next question will be coming from Jeff Osborne of Power when your line is open. The next question will be coming from Jeff Osborne of Power.

Good morning, just a couple questions. I had one clarification for a comment that Patrick made. You made a reference to two years from an international presence to revenue. Was that from a sales perspective or were you trying to say one of the things added to backlog? It takes two years to record revenue on that.

So sorry Jeff, so appreciate the clarifying question. That's when I say two years, really, when you put the boots on the ground and enter a new geography from time to ultimately revenue, because it takes time to build the relationships, get certified, build everything around the product portfolio and backlog. So we've been in these geographies for two-plus years now, and we're seeing the benefits of that. Once we get the PO, it's really pretty quick to revenue. So...

No, not a month from Kyoto revenue for these international organizations. In some of the international locations, it's going to be shorter than that. Okay, good to hear. One word we've got. One word we've got a footprint already. So if you look at Australia, for example, where we've done 25 projects, you get a purchase order, you're recognizing revenue in accordance with kind of our early times. So you're talking about a period of weeks to a few months. Got it. That's helpful. And then with the JV, how do we think about CAPEX for for 2023? Is there any capital that you're committing to that or is that all three or third party in the use scenario? Yeah, yeah, in terms of context, I just think mid to low millions of dollars. It's not a massive capital.

the best 2P tracker product out there. And we continue to hear from our customers. And there's a lot of excitement as well, given the availability of first-solar modules that we now have a first-solar solution. People also are excited about the expansion of our product portfolio to include now a 1P product as well. I'm sorry, Patrick, I didn't mean to.

I think Sean's exactly right. I mean, I think if you could break it down, I think one is the constructability advantage and especially in kind of inflationary environment, high labor cost rates and shortage of labor, that value gets exacerbated. And customers really look at ways to shave cost and shave labor and certainly the construction times with our 2P solution ultimately does that. You know, the other part that we hear a lot is customer service. If you look at kind of our legacy team, we do have the mindset of a developer in our ability to engage with our developers, NEPCs and kind of bring that mindset to the tracker. We're viewed as more than just kind of a racking partner. We're really viewed as a strategic partner and someone who...

helps bring solutions to the table. And if I hear more often than not, why we win projects, it's really kind of centered around customer service. And obviously you've got to have a competitive price and we're able to compete against all of our competitors. And obviously with our gross margin guide, you can see that we're able to do that properly as well. Perfect, that's all I have. Thank you. Thanks, Joe. Thank you. One moment while we prepare for the next question.

Our next question is coming from Pavel, what's up, Raymond James, Alana's open. Thanks for taking the question on the alpha steel joint venture just to clarify, will this be contributing to revenue or is it purely going to reduce your cost of goods? What, how does the accounting work on that?

Yeah, so thanks for the question. So from my current perspective, we've been working with the auditors. We do not anticipate we'll be consolidating the results on our books. So we have a 45% interest in the joint venture. And so it won't be contributed to revenue on the top line. Okay, so you will be minority interest, essentially. That's correct. Right? Okay, that's clear. Yeah, that's fine.

Yeah, kind of zooming out for a moment when when you guys went public two years ago One of the statistics that you were highlighting was 75% of utility scale projects in the United States were using trackers But outside the US it was the mirror image only one quarter

How have those numbers changed in the past two years, given everything that's happened? Yeah, I mean, I think we've seen the adoption of trackers in kind of continued progress, especially in the regions that we operate. Typically, when more sophisticated capital gets deployed in those regions, you see ways for the developers to maximize their IRR, you know, us.

you know, you've seen kind of, we talked about it, the IPO, roughly 25%. I mean, I think that the 2023 numbers are somewhere in the low to mid-30s, so we are seeing ultimately kind of forecast and forecasted kind of sequential growth. And in trackers, we expect that they continue to improve as the markets outside of the US become more and more sophisticated and are focused on IRRs and returns.

Thank you. Thank you. The next question will be coming from Cassie Harrison of pipe where your line is open.

Good morning, everybody, and thank you for taking the questions. So first one for me, great to see Gross margins with the positive and Q1 at your cost reduction initiatives manifest in the numbers. If you're able to generate 5% Gross margins at just under $40 million. $40 million.

I was wondering if you could speak to where your gross margins would be at a $100 million quarterly run rate. And then maybe if you could give us a sensitivity on where gross margins go if you roll in the manufacturing credit. So thanks for the question.

I think our belief is still that we can achieve the gross margins that we're discussed back at the time of the IPO. So that still remains our objective as a company to get to the 20 and ultimately 20 plus percent gross margins. Yeah, I mean, I think the other way to think about it is we want to go ahead and see a radical.

Again, we anticipate these would improve over time as the revenue base grows as you're really going to get some operating leverage on the business and amortize some of that overhead and cost, overhead, etc. Gotcha. Do you have any sort of comment on where Gross Martin's could go with the manufacturing credits from the 45X?

Yeah, so we're now building the baseline. We think it's going to be upside as Sean alluded to. We're hearing different sharing of the pools right now. We think the manufacturing JV was really critical to provide and service or culture was a massive content. We do think there'll be some benefit coming back to us. Would that be in said until we finalize some of the IRA benefits? I think it's a little bit uncertain at this point.

Yeah, and you know, the 12 to 18% that felt mentioned there, that does not include any benefit. Yeah, that was pretty, that's pre-IRA. So, you know, we expect some benefit not forecasting any benefit in, but any benefit would ultimately be accreted to the bottom line. So that's 12 to 18% this mass includes that. Okay, fair enough. And then I was looking at the guidance section of the earnings release.

the revenue trajectory entering the second quarter.

So, you know, we're not guiding beyond the first quarter, obviously. And so I would just say, you know, the qualitative guidance we provided is that we feel good given the work that the team has done, given the international success, the product portfolio that now includes the 1P, the product portfolio.

new operational improvements, right? I think the way you want to think about that is, as Sean said, there's a lot of uncertainty as you go out in the future quarters. That's why we're not getting this full year at this point. But we do think Q3 last year was a low, and we'll continue to build revenue off the revenue base on a quarter or a quarter basis. It would be our expectation. Absolutely. That's...

Yeah, I feel very optimistic about that given where we are and the great work the team is down. Gotcha. Fair enough. And if I could just maybe sneak one more in. Apologies if you may have alluded to this a little bit earlier. But did you give us a sense of the commercial operational date of the 400 million of non-USLPA projects? I'm just trying to get a sense of, you know, you know.

what the timeline is for that 400 million to be harvested since it's not restricted by UFLPA restrictions. I'll leave it there. Yeah, we didn't, we didn't specifically call out, you know, kind of quarter by quarter when the UFL, non-UFLPA items are going to be recognized. I mean, I think kind of the expectation is you look at non-UFLPA, whether it's domestic or international, the cycle time to revenue is obviously much shorter because the projects have not modelled in their intermoving board and kind of a courtance of what we would call a normal course business.

So, you know, these are projects that are, you know, kind of nearing PL, and will be recognized over the, you know, kind of coming quarters sequentially. And one low qualify, I mean, some of those backlog wins would be over multi-year though, right? So there are 2023 as well, some 2020 for deliveries. Got it. Helpful. Thank you. Thanks. Thanks for questions. Thank you.

Thank you one moment while we prepare for the next question. The next question from Mohit. Mandro of Credit Suisse. Your line is open. Hey, morning. Mahi Manra from Belgium. Hello, my name is Mohit. I'm a member of the Department of Justice. I just want to know in the previous question, how much of that 400 is in the beyond 23? We're not guiding the breakdown of 23 versus 23.

projects that are subject to UFLPA review. Gotcha. The other part now. Yes. How's it going? I was going to say with the Multi-Project Awards, what's nice is it gives you a good base and good kind of ability to forecast, you know, shorten a long-term revenue basis. So we're excited about these Multi-Project, Multi.

customer award wins because it does build us a nice baseline for revenue and revenue growth for us to be able to feel comfortable about what we're talking about externally as well. And Steve prices have gone up almost six up to six equals and since the loads we saw in December at least in the US.

How does that impact the discussions you have with customers, either for future orders or existing bookings? Did this thing understand the impact on pricing and margin for you guys in that? So we have quite a few lessons learned from the past year when we dealt with the historic highs and in those steel and logistics. And while you're right that as of late some of the steel pricing has gone up but we continue to provide quotes to our customers.

that have a limited window of time because we want to prevent any sort of surprises with our customer base, which they like about the approach we've taken. So we basically manage it the same way we manage it before, which is to give quotes that have a limited shelf life. And then how should we think about price-igging?

data to see us as seed prices are man low. Do you expect pricing to come down to the hill or pricing, prices are going to be stable like now on the sand. We continue to watch the market very, very closely. There are so many factors of play right now. If, for example, a positive outcome happens for UFLPA and suddenly there's a significant increase in demand for trackers driven by Chris.

regardless of where the pricing goes, that will continue to be able to have a good margin outcome for our shareholders.

Thanks. And just one last one from me. I'll proceed there. Like since there's a limited market for the non-UFLPA projects. Does that increase competition in that non-UFLPA RFPs and how should we think about the margins for those projects versus. This is.

on a normalized margins for the USLP out of the regular projects. So we never, ever underestimate the competition, but frankly, we're really happy with the way the sales team has been able to win projects.

going up against some pretty stiff competition. But frankly speaking, we feel really good about the manufacturability advantage that we offer our customers. There's more to it than the price. And many of our customers recognize that and give us value for that manufacturability when we go head to head against the competition.

The thing I did is I think that's informed by everything Sean said about the Q1 margin guy that we have of positive two to positive 8% Yeah, that's also me. Thanks for the big rest of the time. Thank you. Thank you. Thank you one moment while we prepare for the next question.

me in here, appreciate it. Just wanted to ask on the backlog. I mean, it's pretty wild, right? If we look at what you guys are guiding to in one queue, I mean, even on a sort of growing rate through the year or annualized, the level of backlog or line of sight however you want to think about it is really long versus what we would see from your peers. Just wanted to ask because I know you guys include the sort of a combination there between being contracted and awarded.

What portion of that is not contracted currently. And I guess if it's sort of you're out of verbal or there's negotiation of terms still to come. What's to prevent somebody from, I guess, adjusting or walking from those contracts that it's currently. Thanks.

Well, I mean, I think the way we look at the contract and award it, obviously, these are projects that are at times multi-project awards, kind of PO dates over multiple quarters in multiple years. And so as we look at the UFLP, non-UFLPA, the 400s,

You know, as Felt has talked about as well as myself, you know, there's a portion of that that's going to be recognized in 2023 and there's a portion of that that's going to be recognized ultimately in 2024 as well based on project delivery schedules. But if you think about from the customer's perspective.

They're looking to simplify their overall supply chain. And so going out and having these kind of onesy and toosy type negotiations, they're really looking at, you know, I've got three to five to seven projects that I want to go out and kind of glum together in a portfolio more approach. And certainly we've been approached by those customers that want to look at kind of these multi-project awards and there are certain benefits.

in doing that. Yeah, that's super helpful. And then just one more, I wanted to ask just on the cash piece, you know, congrats the Gross margins trending back into positive or territory. It's a very welcome sign, but realize you know, you're still going to be a negative cash. It looks like on an even out base at least in the first quarter. What do you think about cash on balance sheet? You know, and I know you have, I guess, the...

$4.4 million. If you think about the cash usage for the year, most of that was actually in Q1, right? We are pretty neutral, but last three quarters of the year. You are correct, the revolver, cabinet will go back to 125 at the end of Q1. But overall, you know, where we're thinking that cash should be relatively neutral for the quarter, there will be some potential timing that could pull some...

pull some cash in that you have every quarter or push cash out. But overall we feel good from that perspective. And again, getting the term in terms of getting an improved margin profile, etc. We think that's going to help alleviate some of the potential cash uses going forward.

Thank you guys, we'll take the rest off one. Okay, thanks. Thank you. Well, thanks. And that concludes the Q&A session for today. I would like to turn the call back over to the management for any closing remarks. Thanks everyone for joining today. We believe we ended 2022 on an improving trajectory in that we're well positioned for the future. Thank you.

We have a lowered cost structure, innovative product line, a record pipeline, and very strong backlog at 1.2 billion. And we're looking for good revenue growth in Q1, along with continued margin improvement. Thanks again, and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you all for joining and enjoy the rest of your day. To raise and lower your hand during Q&A you can dial star 11.

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Good day and thank you for standing by. Welcome to the FTC Solar Earning Conference call. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question and answer session. Thank you.

To ask the questions on the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your questions, please press star 1-1 again.

Please be advised that today's conference call is being recorded. I would like to turn the conference over now to your speaker for today, Bill, the Schileck. You may go ahead. Thank you and welcome everyone to STC Soul. There's 4th quarter 2022 earnings conference call. Before today's call, you've likely had opportunity to review our earnings release, supplemental financial information and flight presentation, which we posted earlier today.

If you've not reviewed these documents, they're available on the Investor Relations section of our website at ftcsolar.com. I'm joined today by Sean Hunkler, FTC Solar's President and Chief Executive Officer, Delph Morris, the Company Chief Financial Officer, and Patrick Cook, the Company Chief Commercial Officer. Before we begin, I remind everyone that today's discussion states for looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date.

As such, these four looking statements include risks and uncertainties and actual results and events could differ materially from our current expectations. Please refer to our first release and other SEC filings for more information on the specific risk factors. We assume no obligation updates such information except is required by law. As you'd expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issues this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll discuss our executed contract and awarded orders.

and our definition of the metric is often included in our press release. But I'll turn it over to Sean. Thanks Bill and good morning everyone. As I reflect on my first full calendar year as CEO in 2022, I am proud of how the team navigated many external challenges. The year began with historically high logistics and steel costs.

followed by a rather challenging regulatory market in the US, which as you know has historically represented the primary source of our revenue. The team has responded well to the challenges, utilizing the downturn to focus on what we can control, improve our competitive positioning, and emerges a stronger company. As we close out the year, I believe we're on a significantly improving trajectory. We delivered four quarter results to show significant improvement and exceeded the midpoint of our guidance on all metrics.

We also continued our operational improvements, which I'll discuss in more detail. One of which includes improving our international exposure, which will allow us to take advantage of near-term opportunities while we wait to unlock our full backlog when the Weeger Force Labor Prevention Act or UFLPA constraint fully resolves. Today I'll briefly walk through the market and operational improvement categories we've been discussing to summarize what we accomplished during the first nine months of the year, and how we closed out the year on a solid trajectory in Q4.

Starting at the market level, and perhaps the one constant during the year, the long-term demand trends look great and continue to improve. They have likely never looked better. According to the IEA, renewables are set to become the primary energy source for electricity generation globally in 2027.

accounting for about 40% of total electricity output and overtaking coal. The spite higher module pricing utility scale solar is the lowest cost source of new electricity generation in most countries worldwide and accounts for more than 60% of all renewable capacity expansion. The low cost to install coupled with additional long-term demand drivers for solar that include existing government policies including renewable portfolio standards and the current ITC.

Corporate awareness and technological improvements is only further enhanced by current high fossil fuel pricing, discussions of energy security in many countries, and the recent passage of IRA in the U.S.

So, we have an incredibly positive market backstroke until when for long-term global growth. The one gating item required to unlock the potential within the US market, which represents much of our backlog, remains solar module availability. Looking at the US regulatory landscape,

During the first nine months of 2022, we saw ADCVD and WRO concerns transition to one remaining issue in UFLPA. In the fourth quarter and more recently, we have seen some early signs or reports of improvement. These include positive trends in trade import data, market reports of small model shipments being released from customs.

some module supply agreements being aimed, and optimism from some that we are getting closer to a more substantial improvement in the back half of the year. There have also been several announcements about new module capacity outside of China, which is an excellent China for module availability in 2024 and beyond.

Overall, we're hopeful that we'll see more substantial improvement in Module Flow later this year. But as we'll discuss, we don't need to wait for UFLPA resolution to achieve improving financial performance.

From a supply chain and procurement standpoint, we started 2022 at historically high prices for steel and logistics, but have since seen improvement in both.

Steel is now well off its highs and logistics is essentially back to historical norms. Given the improvement in logistics, we have fully transitioned back to containerized shipping from the break bulk solution we had implemented to weather the high and uncertain market conditions.

With that market regulatory and supply chain backdrop, I'll turn now to our operational improvements. As I mentioned on recent calls, we have not stood idle through the market uncertainty and have used the time to focus on what we can control to best position ourselves for the coming recovery.

One area of significant focus has been on improving our cost in gross margin profile. In the first nine months of the year, we maximized our Designed Value Initiative, allowing us to take more than 20% of the steel content out of our tracker systems. This helped us create a product cost structure that will enable double digit gross margins on future projects.

We also launched the Distributed Generation Business, which has a high margin profile and will be a positive addition to the business. We have received great interest with initial orders and a robust pipeline. In the fourth quarter, we continued our cost reduction focus and launched our design-demand manufacturing efforts, which aimed to ensure that our products are not only designed for constructability.

In the third quarter, we announced a differentiated new one-piece tracker solution called Pioneer.

which significantly expands our ability to serve new markets both in the US and worldwide. This gives us more opportunities to win projects whether it's a preference or benefit for one fee. Customer enthusiasm for our new product has been strong and as you know we launched Pioneer along with a 500 megawatt agreement from a top EPC. Our pipeline for Pioneer is growing nicely and we continue to anticipate first deliveries in the second half of the year.

In the fourth quarter, we announced the introduction of a new cost-effective first solar module solution for our 2P product, which filled a gap in our offering. We have already received orders for this solution and are recognizing revenue. Combined, these new product introductions expand our addressable market while also serving the bolster of the non-UF-LPA portion of our backlog as we continue to grow revenue.

In terms of geography, we entered 2022 is very much a US-focused company in terms of revenue. However, the investments we've been making to expand our international footprint started to bear fruit early in the year. We have since received awards in four new countries bringing the total to 10 countries with projects outside of the US. We also recorded our largest project in Australia today at 128 MW. on our website.

Just today we announced that we added $240 billion dollars of backlog since early November . Of that amount more than 80 percent is from international locations, including two more projects in Australia, putting us at more than 25 in that country so far. We believe our new 1P tracker will significantly enhance our ability.

to further grow internationally. International growth is a key focus for us, particularly with a current regulatory challenges in the US. I'm quite pleased to see our continued growth in pipeline and conversion the backlog.

We also recently announced the U.S. manufacturing joint venture utilizing domestic steel to strengthen and bolster our domestic supply chain. With the passage of the Inflation Reduction Act, customers are now asking for quotes with U.S. local content, including projects for delivery in the latter half of this year.

While we still await additional details from the government on the mechanics of the IRA, we believe this JV will be instrumental in helping us support our customers' needs in the future.

For this JD, we partnered with a known existing supplier. The facility located near Houston, Texas, will initially be focused on torque tubes and is expected to begin operation around mid-year.

Turning to Pipeline, in 2022 we saw robust growth in several new record levels, including the international portion of the pipeline which more than doubled in the first nine months of the year. Today we have again achieved new record levels in total pipeline with the international portion now up 150% relative to the start of 2022.

International now represents an increasing majority of our pipeline. And as you can see from our near-term project awards, it's expected to make up a growing portion of our revenue base going forward, further diversifying our revenue and reducing exposure to projects subject to UF LPA review. And finally, with our continued focus on expanding current customer relationships and forming new ones.

Our backlog has continued to grow nicely despite the constraints in the market in the US. As I mentioned, since our last earnings call in November , we have added 240 million in backlog, bringing the total above the billion dollar mark for the first time at 1.2 billion.

The collective results of these initiatives have led to improved financial performance as we closed the year. As we progressed through the year working on these initiatives we completed Shiplands of our legacy lower margin products in Q3 and reached what we believe was a revenue and margin low point in that quarter.

from which we expect the she improvement going forward. In Q4, our performance did improve as expected, and we came in ahead of the midpoint of our guidance on all metrics.

This includes revenue that grew 58 percent sequentially off the low Q3 base and non-gap growth margin that improved from close to negative 50 percent to approaching break even at negative 3.4 percent. Non-gap operating expenses in the quarter were at the low or better end of our guidance range.

across nearly all aspects of our business. We now have a strong product cost structure on current and future projects, which puts us on track for double digit gross margins as our revenue run rate recovers. We have a more comprehensive product line that expands our addressable market in the US and internationally. We are growing and diversifying in new markets and are positioned with a strengthened supply chain. We are growing and diversifying in new markets and are becoming more and more.

Our focus is solidly on execution, supporting our customers worldwide, continuing to build on our progress, and demonstrating capabilities for our improved business. We believe we can continue to show margin improvement, even in a depressed, volume environment, followed by much more significant improvement as model availability and volumes improve in the US.

Our focus is solidly on execution, supporting our customers worldwide, continuing to build on our progress, and demonstrating capabilities for our improved business. We believe we can continue to show margin improvement, even in a depressed, volume environment, followed by much more significant improvement as model availability and volumes improve in the US. With that, I will turn the call over to Phelps.

Thanks, Sean. Again, morning, everyone. As a follow-up to Sean's comments, I'd like to provide some additional color on the fourth quarter performance and outlook. So let's begin with the discussion of the fourth quarter. Overall, I'm happy to share that we deliver results that were better than the midpoint of our guidance trends on all metrics for the quarter. First, revenue is $26.2 million. While a year-over-year base, this revenue is down 74%, it did represent a 58% increase versus the prior quarter as we begin to build some momentum moving out from the losing Q3.

We are starting to see new production types of both international products as well as non-UFLPA projects moving forward. We believe this is a sign that the strategy we discussed last quarter of attacking non-UFLPA impactive projects is beginning to benefit the company. While we saw nice sequential growth in revenue, UFLPA's constrained our near-term ability can further backlog into revenue with a bulk of our backlogs, roughly two-thirds, remaining subject to UFLPA. Now on the plus side, our non-UFLPA backbone doubled quarter of a quarter now represents a third of our total backlog. Next, our gap gross loss.

For the quarter was $1.9 million or $7.3% of revenue compared to $9.5 million or $57.4% of revenue in the prior quarter. On a NAMGAF basis, the gross loss was $0.9 million or $3.4% of revenue coming above the midpoint of the guidance range. Compared to our Q3 2022 NAMGAF loss of $8.2 million or $49.8% of revenue, we are able to deliver an impressive 46-point improvement quarter over quarter. We are able to accomplish this due to the following.

First, the legacy low-margin products we discussed in paracord are completed during Q3. Second, the new products we now deliver from our team's efforts on the DTV front coupled with a more normalized supply chain cost in both deal and shipping. The team is excited to see the early fruits of our labor starting to show an early result.

On a year over your basis, we delivered an improvement to non-gaft growth loss by $6.5 million, even in the face of significantly lower revenue in Q4 2022 versus the prior period in 2021. $26.2 million this year versus $101.7 million last year.

The improvements were germed primarily by improved track or logistics direct margins. Our gap operating expenses were $17.9 million. On a non-gap basis, excluding the stock-based compensation, charges associated with the FDX legal settlement, and certain other expenses are operating expenses with $10 million, compared to $9 million in a year-goal quarter.

during primarily by improved track or logistics direct margins. Our gap operating expenses were $17.9 million. On a non-gap basis, excluding the stock based compensation, charges associated with the FCX legal settlement, and certain other expenses are operating expenses with $10 million, compared to $9 million in the year-goal quarter. This was at the lower end of our guidance range.

The slight year of year increase was driven by an increase in the R&D expenses as well as the absence of credence that we had in the year ago quarter. We continue to keep a keen eye on expenses as we manage through this period. To that end, we executed a targeted headcount reduction during the quarter, representing approximately 8% of our labor force.

In addition, we continue to keep a close eye on our non-labor spend. Next, Gatnell losses $20.5 million or $20 cents per share compared to the loss of $25.6 million or $25 cents per share in the prior quarter and compared to a net loss of $23.9 million in the year-go quarter. Collectively, results from our improved margins and careful management of operating expense and overheads flow down to our adjusted evadot results.

For the quarter, the adjusted EBITDA loss was excluded to approximately $9.1 million, including stock-based compensation expense, certain consulting and legal fees, severance and other non-cash items was $11 million better than the midpoint of our guidance range of $12.3 million. The results represent improvement of $6.7 million compared to an adjusted EBITDA loss of $17.7 million in the prior quarter.

and compares to $16.4 million in the year-goal quarter. Finally, regarding liquidity, we ended the quarter with a modest use of cash and ended with $44.4 million. In addition, we continue to hold no debt on the balance sheet, have an undrawn credit revolver, as well as a $100 million ATM program which we have not accessed today. With that, let's turn our focus to the outlook. Based upon our current view, we continue to expect sequential revenue growth in the first quarter.

We also expect growth margins continue to show improvement quarter to quarter and cross into the positive territory. Specifically, our targets for the first quarter call for the following. Revenue between $36 and $40 million, representing $37 to 53% growth off of the Q4 2022 results. 9GAP growth margin between $0.7 and $3.2 million or between 2 and 8%.

turn grow up.

The rate of recovery in our largest market, the US, will largely be determined by the pace of improvement for the importation of modules.

Once improvements do occur at scale, we believe FTC solar is increasingly well-positioned competitively to capitalize on that growth with a lower cost structure, an innovative product line, a record pipeline, and more than a billion dollars in backlog. With that, we conclude our prepared remarks and I will turn it over to the operator for any questions.

Operator? Thank you. One moment while we prepare ourselves for the Q&A session. Again, if you would like to ask a question, please press star 11 on your telephone. Thank you very much.

Our first question will be coming from Philip Chen of Roth. Your line is open. Hey guys, thanks for taking the questions. I wanted to start with your recent bookings. I was wondering if you might be able to share how much of the 240 is 1p versus 2p? Okay.

And also, can you talk through how much of the 240 you expect to be delivered in 2023? And then for the 1.2 billion overall, what percentage of that do you also expect in 2023 versus maybe 2024 or later? Thanks, guys. Yeah, hey Phil, this is Sean. Thanks for the question. So we're excited about the progress we're making.

split, but it will be a mix between kind of our one-in-portrait tracker and our two-in-portrait tracker. And in terms of just kind of overall revenue kind of next on the non-UFLPA, you know, we do expect to start recognizing revenue for those projects in the non-UFLPA impacted areas in the near term. And it's not pumping, that's kind of elongated out.

would you expect as we get into Q2 and 3 that the bookings momentum sustained given the Inflation of Reduction Act and your International Success there.

We really are very excited about the bookings momentum and frankly speaking I think we've done a lot of work internationally as we mentioned in the remarks. We've also put a lot of focus on our product portfolio and enhancing our product portfolio now having a...

a first solar solution for our Voyager 2P and developing our 1P pioneer product. So for the back half of the year, we're expecting continued momentum. In addition, we're hopeful that there'll be some form of relief on UFLPA, though we're certainly not counting on it, but we're hopeful that that would also add to the momentum that we're seeing for the back half of the year. Again, Patrick Cook, our Chief Commercial Officer is here and I'll let him provide a little more color. Yeah, Phil, the way I think about that is you look kind of in the U.S., right?

we had in the US back in 2019 where you start getting into two, three, four, five different customers. You grow the share of wallet, you grow the footprint, and now you've got a backlog and pipeline that's dependable for upcoming revenue. So we're certainly excited about the momentum that we're seeing in the bookings. The customer excitement around IRA in the US is certainly extremely high and we're looking forward to

The tour tube manufacturers may secure between 30 and 40% of that subsidy, and then you guys should be able to get the balance of that. And then over the coming four or five years, that decrements maybe by 5 to 10% a year until we get to about 10% a year or five.

Does that resonate with you guys in the IRA agreements that you guys are structuring here in the US? So what degree does that match and resonate with you guys? And if not, what kind of structures are you guys looking at? So we are hearing similar things and so I would say that in the...

Great, okay. Thanks very much. Keep up the bookings momentum and I'll pass it on. Thank you, Bill.

Thank you. One moment while we prepare for the next question. Our next question will be coming from Donna Ben Schaefer of Northland Capples. Your line is open. Hey guys, thanks for taking the questions.

So I'm going to kind of follow up on Phil's question here and try and I know you guys probably don't want to get too specific on some of these dynamics that help working around the U.S. LPA. But I'm curious, you know, if we can talk maybe in terms of like...

maybe call like three vectors that give you the flexibility to kind of work around the UF LPA. And so I think of those three vectors as, you know, first, you know, having a better solution now that pairs the first solar panels is fun.

first solar and the second one would be the international sales. And the third one that maybe overlaps in some ways is having the 1P product now, because maybe that's part of what enables a certain amount of international sales. So it's too much to answer in one question, but you can imagine we could make a 2x3 matrix or a table or something and say, you know.

We're first solar panels, you know, more than 50% or less than 50% of sales in the fourth quarter or in the backlog or in the pipeline. Our international sales, above the 50% or below the 50% mark, fourth quarter, backlog, pipeline, whatever. You're kind of comfortable talking about tending with one P.

majority 1p, minority 1p, it sounds like the 1p won't be coming out or will be deployed till second half of 23. So of course that's probably not a factor in Q4 sales. But just between those three vectors, first solar, having a first solar optimized product, and international sales, and kind of 1p versus 2p is...

Are you leading more heavily on some of those? And the other is, some are going to be international, but, and kind of, you know, greater than 50% less than 50% anything kind of high level there just to help us flush out kind of trends and key drivers. Sure, sure, Donovan. Thanks for the question. I think those three vectors that you identified for solar international growth and the one P product adding that to our portfolio are all critical because as we've said before, where we really have tried to pivot the company and and not be focused on, you know, hey, when will UF LPA end? But what are the things we can control? How can we improve the company and drive the company's success independent of UF LPA?

invested over time and Cameron and the team are doing a phenomenal job. We just announced our largest project ever in Australia. And so all three of those vectors are very critical to us. We're not, you know, obviously we're not guiding for the year and so it's hard for me to give you any specificity on the three vectors. Maybe I'll ask Patrick to provide a little bit more color.

But those three vectors are all critical to our strategy to basically grow the company and have the company drive success independent of UFLPA. Yeah, Donna, I think the way I look at it, you know, kind of around the Q4 and beyond, I mean, obviously we've had international wins. We talked about kind of the first solar solution. So you're seeing kind of the historical kind of growth off the Q3, you know, we said lows in relation to us adding those kind of additional product portfolio and then as well as

kind of ultimately expanding internationally. And we're seeing that kind of in the back, or in the kind of the front half of the year, you see kind of sequential growth, what we delivered in Q4 and our guide ultimately in Q1. So we're seeing adoption of our different product portfolios and ultimately our expansion internationally. And that is a portion of our overall growth in spite of what's going on in the overall market in U.S. LPA, which is why we talked about on our last earnings call that Q3, we believe, was our historical lows. And we're going to springboard from that. And I think you're seeing that with our revenue growth as well as kind of our growth margin expansion as well in those products and geographies. Okay, great. And then as a follow-up, you know, I know you're at a...

with the Q3 trough and still kind of early in coming back from that. You know, you're at a lower revenue number. And so, you know, the guidance for T1, 2020 has a healthy range there, maybe in percentage terms, maybe it's not as much an absolute terms. You know, but I'm curious what it's the range, I guess, first would just be whether that range really just kind of down to project timing. That seems like it's probably quite likely the situation, but just confirmation there. And then kind of related to that, if it is just around project timing, it does that leave potential for sort of significant outside for 2023, like generally, and maybe circling around to kind of UF LTA. We're talking a lot about working around that, but you know, there's always sort of the...

hypothetical possibility of some meaningful resolution. You know, tensions are high between the US and China, but with everything going on with Ukraine, like we're not really, you know, some people are interested in picking a fight with China, some people aren't. And so, you know, there may be parties that be that try to come to the bargaining table and reach some kinds of agreements or accords or understandings or whatever. So, you know, if the US, given the range for the first quarter, and if the US LPA, you know, we're kind of poofed, imaginably sort of resolved, would the whole US LPA, the actual exposed part of your backlog, would that exposed part sort of just come online quickly and you'd get a really big like...

You know, pop or super positive performance, or is that all, would that continue at a normal trajectory anyway because of for other reasons or if projects work canceled or postponed or have to, you know, file for a permit extension, don't want to so forth.

So, Donovan, thanks for the question. So if you look at our guide, the revenue guide is like, I believe, 36 to 40 million. So we tried to provide a reasonable range for what we think we're going to achieve and not a wide range. So we feel, obviously, sitting here today, we feel good about the guidance we're providing for Q1. And as we said before, we're looking at UFLPA, if something does happen, and we're hearing what I would call some positive signals from UFLPA in terms of...

some upside, depending on what level of modules that you know a UFLPA solution put into the U.S. market. I don't know if else if you want to. Yeah, no, hey, Donna, it's self-sale. Yeah, so as Shawn talked about, when we talked about guidance in terms of Q1, it is a relatively narrow range. We're feeling very good about the bookies we've had in Q4. Obviously, to your point, we're a project-based business, we're supporting projects. If there's a delay of timing to any individual products that I can delay for revenue recognition, the other thing that we're really excited about for this course is the guidance in terms of the gross margin range.

You know, it's 2-8% in the positive territory, which, you know, what you're seeing here is really a lot of the work in the legacy products that we had last year in Robolf, and we're starting to see the new products take advantage of the DTV initiatives, et cetera. And so that, we think, is a very important thing for us on the margin side, but you're exactly correct. I mean, the ramp of the revenue on a quarter of our quarter basis will be continued upon projects, and really the people that we've had in our backlog, how quickly they can get modules, it can be that.

really the pivot point for us to recognize revenue as quickly as possible and maybe patch going to add on to that. Yeah, I think the one thing too down to the focus on is just the growth kind of sequentially, you know, the last two earnings calls of the our backlog that's not subject to UFLPA review. You know, we talked about what we were able to achieve in kind of the Q3 earnings call. Obviously, we grew backlogged by another $240 million and the vast majority of that is not subject to UFLPA review. And so what we talked about is those have a shorter cycle time to revenue. So we've grown our backlog to kind of historical highs or record highs, but the vast, we're getting a majority of the last two quarters that have come from non-UFLPA related zones. And so that time in cycle of the revenue is ultimately faster because you're not subject to when or the availability of modules. Right. So if you look at the the total backlog and aggregate one third of it is now.

that from a sales perspective or were you trying to say one something to add it to backlog? It takes two years to record revenue on that.

So sorry Jeff, so appreciate the clarifying question. That's when I say two years, really, when you put the boots on the ground and enter a new geography from time to ultimately revenue, it takes time to build the relationships, get certified, build everything around the product portfolio and backlog. So we've been in these geographies for two-plus years now, and we're seeing the benefits of that. Once we get the PO, it's really pretty quick to revenue. So...

No, not a month from Kyoto revenue for these international organizations. In some of the international locations, it's going to be shorter than that. Okay, good to hear. And then we've got a footprint already. Right, so if you look at Australia, for example, where we've done 25 projects, you know, you get a purchase order, you're recognizing revenue in accordance with kind of our lean times. So you're talking about a, you know, a period of weeks to a few months. Got it. That's helpful. And then with the JV, how do we think about CAPEX for 2023? Is there any capital that you're committing to that? Or is that all three or third party in the use scenario? So in the partnership, we are making a...

at the current time and then we have the ability in future phases if we wanted to that we could add additional capacity at the existing location.

And then the last one I had is just if you could give us a context with the nice backlog growth, you know What why you feel you're winning obviously you've had designed a value It's great to see the margin guidance, but is it you know something around Labor rates and install time or is it price is it availability just any context would be helpful Yeah, okay So we'd be we continue to see very positive feedback on the constructability aspect

And we really do feel like we have the best 2P tracker product out there. And we continue to hear from our customers. And there's a lot of excitement as well given the availability of first solar modules that we now have a first solar solution. People also are excited about the expansion of our product portfolio to include now a 1P product as well. I'm sorry, Patrick, I didn't mean to. I think it's challenging exactly right. I mean, I think if you could break it down, I think one is the constructability advantage. And especially in kind of inflationary environment, high labor, cost rates, and shortage of labor, you know, that.

that value gets exacerbated. And customers really look at ways to shave costs and shave labor, and certainly the construction times with our 2P solution ultimately does that. The other part that we hear a lot is customer service. If you look at our legacy team, we do have the mindset of a developer in our ability to engage with our developers, NEPCs, and bring that mindset to the tracker. We're viewed as more than just a racking partner. We're really viewed as a strategic partner and someone who helps bring solutions to the table. If I hear more often than not, why we win projects, it's really centered around customer service. And obviously you've got to have a competitive.

competitive price and we're able to compete against all of our competitors. And obviously with our gross margin guide you can see that we're able to do that profitable as well. Perfect, that's all I have. Thank you. Thanks, Joe. Thank you. One moment while we prepare for the next question. Our next question is coming from Pavel Watchoval of Raymond James, Jeline is open. Thanks for taking the question. On the Alpha Steel Joint Venture just to clarify.

Will this be contributing to revenue or is it purely going to reduce your cost of goods? Well, how does the accounting work on that? Yeah, so thanks for the question. So from my accounting perspective, you know, we've been working with the lotters. We do not anticipate. We'll be consolidating the results on our books. So we have a 45% interest in the joint venture. And so it won't be contributed to revenue on the top line. Okay, so you will be minority interest, essentially. That's correct. Right? Okay, okay, that's clear. Yeah, that's correct. Yeah, kind of zooming out for a moment when when you guys went public.

Two years ago, one of the statistics that you were highlighting was 75% of utility scale projects in the United States were using trackers, but outside the US it was the mere image, only one quarter. How have those numbers changed in the past two years given everything that's happened?

Yeah, I mean, I think we've seen the adoption of trackers and kind of continued progress, especially in the regions that we operate. Typically, when more sophisticated capital gets deployed in those regions, you see ways for the developers to maximize their IRR. Australia is a good example. We've seen more and more trackers ultimately get picked up there. You know, places in Africa, for example, where we want a number of projects to date that's traditionally been a fixed tilt market. And we've seen more and more growth and adoption.

growth and adoption there. I mean, I think you know, you've seen kind of, we talked about it, the IPO, you know, roughly 25 percent. I mean, I think that the 2023 numbers are, you know, somewhere in the low to mid 30. So we are seeing ultimately kind of forecast and forecast and kind of sequential growth and trackers. We expect that they continue to improve as the markets outside of the US become more and more sophisticated and are focused on IRRs and returns. Got it. Thanks very much. Thanks. Thanks. Thank you. One moment while we prepare for the next question.

The next question will be coming from Cassie Harrison. A pipe of your line is open. Good morning, everybody, and thank you for taking the questions. So first one for me, great to see Gross margins with the positive and Q1 at your cost reduction initiatives manifest in the numbers. If you're able to generate 5% gross margins at just under $40 million, I was wondering if you could speak to where your gross margins would be at a $100 million quarterly run rate. And then maybe if you could give us a sensitivity on where gross margins go if you roll in the manufacturing credit.

So thanks for the question. I think our belief is still that we can achieve the gross margins that were discussed back at the time of the IPO. So that still remains our objective as a company to get to the 20 and ultimately 20 plus percent gross margins. Yeah, I mean, I think the other way to think about it, if you want to go ahead and see a radical, just go back to where I think those are Q2 deck, cashing in terms of, you know, we are showing kind of at different revenue ranges, a 12 to 18 percent at $150 million. That's a good, good area, just to at least put a pin in and start thinking about that. You're obviously this is really good results at this low revenue base.

Again, we anticipate these would improve over time as the revenue base grows as you're really to get some operating leverage on the business and amortize them that overhead and cost, overhead, etc. Gotcha. Do you have any sort of comment on where gross margins could go with the manufacturing credits from the 45X? Yeah, so we're not going to build into baseline. We think it's going to be upside as Sean alluded to. We're hearing different sharing of tools right now. We think the manufacturing JV was really critical to provide and service our customers with the domestic content. We do think they'll be some benefit coming back to us. Would that be in said until we finalize some of the IRA benefits? I think it's a little bit uncertain at this point. Yeah, and the 12 to 18% that felt mentioned there, that does not include any benefit from that. That was pre-IRA. We expect some benefit not forecasting any benefit in but in...

the product portfolio that now includes the 1P, the product portfolio that now includes for a solar solution. So we feel good about the positive trajectory we're on, but we're really not, at this point, given the overall market situation, we're not guiding beyond Q1. Yeah, and I just, as I said, when we talk about continued operational improvements, right?

that given where we are and the great work the team has done. Gotcha. Fair enough. And if I could just maybe sneak one more in. Apologies if you may have alluded to this a little bit earlier. But did you give us a sense of the commercial operational date of the 400 million of non-USLPA projects. I'm just trying to get a sense of what the timeline is for that 400 million.

to be harvested since it's not restricted by UFLP restrictions. I'll leave it there. Yeah, we didn't specifically call out kind of a quarter by quarter when the UF- non-UFLP items are going to be recognized. I mean, I think kind of the expectation is you look at non-UFLP whether it's domestic or international. The cycle time, the revenue is obviously much shorter because these projects have modules in their intermoving board and kind of a quarter of what we would call a normal course business. So, you know, these are projects that are, you know, kind of nearing P.O.

and we'll be recognized over the coming quarters sequentially. And one little qualify. I mean, some of those backlog wins would be over multi-year though, right? So there are 2023 as well, some 2024 deliveries. Got it. Helpful. Thank you. Thanks. Thanks for questions. Thank you one moment while we prepare for the next question.

The next question from Mohie. Mandro of Credit Suisse, your line is open. Okay, morning, Mahi Mandro from Belgium, here. Just following on the previous question, how much of that 400 is in the beyond 23? Okay.

We're not guiding the breakdown of 23 versus 24. I guess the way I would look at it is there are projects that are going to be delivered over multiple quarters. So purchase orders that you receive in 2023, you're going to recognize in Q2, Q3, Q4, and ultimately some could spill into 2024 as well, just based on project size and ultimate delivery schedule. But the way we're looking at these is they're going to be shorter times to revenue than what we've seen kind of historically on modules that are projects that are subject to UFLPA review.

Yeah, I was going to say with the Multi-Project Awards, what's nice is it gives you a good base and good kind of ability to forecast, you know, shorten a long-term revenue basis. So we're excited about these Multi-Project, Multi-Customer Award wins because it does build us a nice baseline for revenue and revenue growth for us to be able to feel comfortable about what we're talking about externally as well. And steel prices have gone up almost straight up 60% since the loads we saw in December .

our customers that have a limited window of time because we want to prevent any sort of surprises with our customer base, which they like about the approach we've taken. So we basically manage it the same way we manage it before, which is to give quotes that have a limited shelf life. And then how should we think about price-igging?

Data to CS has seed prices remain low. Do you expect pricing to come down to the hill or is pricing price in resident stable like now? So we continue to watch the market very, very closely. There are so many factors of play right now. If, for example, a positive outcome happens for UFLPA and suddenly there's a significant increase in demand for trackers driven by a crystal and module supply with the resolution of UFLPA. There are so many geopolitical issues and things going on. It's hard to predict exactly what's going on, but we continue to have our DTV or design to value and our design to manufacture ability initiatives to continue to have a cost-down road map. So we can, you know, regardless of where the price integration goes that will continue to be able to...

to have a good margin outcome for our shareholders. Thanks. And then just one last one from me. I presume that since there's a limited market for the non-UFLPA projects, does that increase competition in that non-UFLPA RFPs? And how should we think about the margins for those projects with us on a normal-like margins for the UFLPA to regular projects? So we never, ever underestimate the competition, but frankly, we're really happy with the way the sales team has been able to win projects going up against some pretty stiff competition. But frankly speaking, we feel really good about manufacturability, advantage that we offer our customers. There's more to it than the price.

And many of our customers recognize that and give us value for that manufacturer ability when we go ahead to head against the competition. The thing I'd add is I think that's informed by everything Sean said about the Q1 margin guy that we have of positive to to positive 8%. Yeah, that's also me. Thanks for the good.

recognize that and give us value for that manufacturer ability when we go head-to-head against the competition. The thing I'd add is I think that's informed by everything Sean said about the Q1 margin guy that we have of positive two to positive eight percent. That's also me. Thank you. Thank you.

Thank you, one moment while we prepare for the next question. The next question is coming from Alex. Several of thanks to America. Your line is open. Hey guys, thanks for squeezing me in here. Appreciate it. Just wanted to ask on the backlog. I mean, it's pretty wild. If we look at what you guys are guiding to in one queue, I mean, even on a sort of growing rate through the year or annualize. The level of backlog or line of sight, however you want to think about it is really long versus what we would see from your peers. Just wanted to ask because I know you guys include the sort of a combination there between contracted and awarded.

What portion of that is not contracted currently? And I guess if it's sort of you're out of verbal or there's negotiation of terms still to come, what's to prevent somebody from, I guess, adjusting or walking from those contracts that it's currently? Well, I mean, I think the way we look at the contract and award it, obviously these are projects that...

and there's a portion of that that's going to be recognized ultimately in 2024 as well based on project delivery schedules. But if you think about from the customer's perspective, they're looking to simplify their overall supply chain. And so going out and having these kind of onesy and twosy type negotiations, they're really looking at

You know, I've got three to five to seven projects that I want to go out and kind of glum together in a portfolio more approach. And certainly we've been approached by those customers that want to look at kind of these multi-project awards and there are certain benefits in doing that. That's super helpful. And then just one more, I wanted to ask just on the cash piece, you know, congrats to Bruce Martins trending back into positive or territory. It's a very welcome sign, but realize you know, you're still.

going to be a negative cash it looks like on an even-off basis at least in the first quarter. What do you think about cash on balance sheet? You know, and I know you have, I guess, the debt covenant terms extended the first quarter. What do we think about there just as far as your liquidity base? Anything that has to happen there, I know working capital looks like it's relatively drawn. Just anything we should be watching on the debt covenant versus cash in one queue specifically. That would be a double thanks. No, I mean, you know, so cash it had $44.4 million. If you think about the cash usage for the year, most of that was actually in queue one, right? We were pretty neutral last three quarters of the year.

You are correct, the revolver or cabinet will go back to 125 at the end of Q1. But overall, we're thinking that cash should be relatively neutral for the quarter. There will be some potential timing that could pull some cash in that you have every quarter or push cash out. But overall, we feel good from that perspective. And again, getting the term in terms of getting an improved margin profile, etc. We think that's going to help alleviate some of the potential cash you should go in for. Got it. Thank you guys. We'll take your rest out.

or cabinet will go back to 125 at the end of Q1. But overall, we're thinking that cash should be relatively neutral for the quarter. There will be some potential timing that we could pull some cash in that you have every quarter or push cash out. But overall, we feel good from that perspective. And again, getting the term in terms of getting an improved margin profile, et cetera, we think that's gonna help alleviate some of the potential cash you should go in for. Got it. Thanks, guys. We'll take your rest out, Lynn. Okay. Thanks.

Thank you. Well, thank you. And that concludes the Q&A session for today. I would like to turn the call back over to the management for any closing remarks. Thanks everyone for joining today. We believe we ended 2022 on an improving trajectory in that we're well positioned for the future. We have a lower cost structure, innovative product line, a record pipeline, and very strong backlog at 1.2 billion. And we're looking for good revenue growth in Q1, along with continued margin improvement. Thanks again, and we look forward to speaking with you next quarter. This concludes today's conference call. Thank you all for joining. Enjoy the rest of your day. Thank you.