Q1 2023 Shoals Technologies Group Inc Earnings Call
Good afternoon, and welcome to Shoals Technologies group first quarter 2023 earnings conference call.
Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.
At this time I would like to turn the conference over to Megan peaks, if legal officer for Schultz Technologies group.
You may begin.
Thank you operator, and thank you everyone for joining us today hosting the call with me are interim CEO and President, Jeff Turner and C. F L. Dominic BARDA on.
On 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.
As you listen 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 risk factors described in our filings.
The Securities and Exchange Commission, as well as economic and market circumstances decreased demand for our products policy and regulatory changes.
Preconditions.
Macroeconomic events.
By chain disruptions and availability and price of our components and material.
Although we may indicate an believes that the assumptions underlying the forward looking statements are reasonable.
Any of the assumptions could prove inaccurate 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.
Refer to the information contained in the company's first quarter press release for the definition of information reconciliation of historical non-GAAP measures to the comparable financial measures with that let me turn the call over to John .
Thank you very much Meghan and good afternoon, everyone. She also had a fantastic first quarter and I'd like to express my gratitude to our employees partners and especially our customers for their support and contributions to our success.
I'll start with some key highlights from our first quarter results followed by an update on new product introductions other growth initiatives and an overview of our pending patent infringement complaint filed last Thursday, I'll, then review current solar market conditions and wrap up with a brief update on the CEO search before turning it over to Don.
Nick who will provide an overview of our financial results for the first quarter and updated outlook for 2023.
Joel set new records for revenue gross profit adjusted EBITDA and adjusted net income in the first quarter.
Compared to the prior year period first quarter revenue grew 55%.
Driven by increased demand for solar E bus generally and our combined as you go system solution specifically.
We also achieved new highs for monthly and weekly production demonstrating our ability to continue scaling for growth.
First quarter gross margin grew more than 720 basis points to 45, 9% and adjusted EBITDA margin expanded more than 1000 basis points to 34, 4%.
The margin growth, we achieved in the first quarter was driven by a higher mix of system solutions revenue.
Greater leverage on fixed costs and enhanced operating efficiency, resulting from the operational initiatives, we discussed last quarter.
Demand for shoulder products remains very strong and we ended the quarter with record backlog and awarded orders of $527 5 million, an increase of 75% year over year in fact during the quarter. We also saw an acceleration in quoting activity with both quotes submit.
And quoted values hitting new records.
Solar related close increased 56% year over year, and 57% quarter over quarter.
There's some solutions revenue nearly doubled growing 95% compared to a year ago.
Reflecting strong growth in U S utility scale solar demand and continued share gains by our products.
During the quarter, we converted six additional if he sees and developers to our combined as you go system.
Bringing the total number of customers to 42 with an additional 15 in transition.
New product introductions planned for 2023 remain on track.
In first quarter, we began quoting our BLA plus solution, formerly known as BLA to that all.
And expect to record first revenues in the second quarter. In fact, we recently started building backlog would be away plus after winning a 120 megawatt contract to supply our best in class B L. A bus system solution.
Utility scale solar project in Western Australia.
Our I V curve benchmark offering is progressing as indicated after fourth quarter earnings with commercial launch plan late in the second quarter and first revenue is expected before year end.
Our high capacity plug and play harnesses and high capacity connectors are tracking with.
With UL certification and full market launch to occur in the second half of 2023.
We further advanced our international expansion efforts in the first quarter with global quoting activity growing for our entire solutions offerings.
<unk> recently released wire management and BLA plus.
The contract to supply our BLA plus solution to the project in Australia is a significant international wins and we anticipate many more similar projects to come.
Turning to our EV business order flow and deliveries of our EZ system solution continued in the first quarter with scaled production underway.
We recently announced a strategic partnership with Brookfield renewables to introduce an innovative charging as a service or cash solution.
Which eliminates a large upfront payments associated with traditional installations of EV sharpen charging infrastructure.
Enable streamline deployment of charging network for fleets.
Retail multi unit dwellings, and other large commercial properties.
The Cas offering will lower the entry barrier to the EV charging space by making infrastructure deployments less costly and more efficient.
And ultimately accelerate development of EV charging in clean energy infrastructure across the U S.
That will take a moment to briefly discuss the patent infringement complaints recently filed by shows with the U S International Trade Commission or ITC.
Against two of our foreign based competitors.
We ask the ITC to investigate the alleged infringement and bar importation of the alleged infringing products into the United States.
Over the last 27 years Sholtis invested millions of dollars developing our innovative <unk> solutions that significantly increased installation efficiency and safety.
Improving system performance and reliability for the utility scale solar storage and EV charging markets.
Our strong patent portfolio limits competitors' ability to develop products that can replicate these benefits.
While we welcome healthy competition.
We will take vigorous action to stop infringement of our patents, which are an important part of our competitive moat.
As a U S based company with design and manufacturing in Tennessee, Alabama, and California, We hope the ITC will protect our IP and support domestic manufacturing and job creation by banning the import of what we believe are infringing products from entering the U S market.
Moving to current solar market conditions.
Overall solar market conditions remain favorable for the industry as a whole and for Shoals specifically.
Project visibility continues to be very strong.
<unk> remains the lowest cost of energy and the fastest to deploy which supports our long term growth outlook.
In addition, while there is always potential for projects to move quarter to quarter, we're not seeing any noticeable impact due to U S. L. P. A.
Finally, I want to provide a brief update on the CEO search.
Over the last several months the board working closely with Spencer Stuart undertook a comprehensive CEO search and is in the final stages of the vetting process.
I'll now turn it over to Dominic <unk>, who will discuss first quarter 2023 financial results.
Thanks, Jeff and good afternoon to everyone on the call.
First quarter revenue grew 55% versus the prior year period to $105 $1 million.
Similar to prior quarters, our higher sales volume was primarily driven by strong demand for our combined as you go he boss system solutions, which comprised 87% of our revenue versus 69% in the prior year period.
Gross profit increased 84% to $48 3 million compared to $26 $3 million in the prior year period.
<unk> profit as a percentage of net revenue grew more than 720 basis points to 45, 9% compared to 38, 7% in the prior year period.
The increase was driven primarily by a higher proportion of revenue from the company's combined as you go system solutions, which carry a higher margin than our other products as well as increased leverage on fixed costs and efficiencies gained in operations, which Jeff mentioned earlier.
First quarter general and administrative expenses were $20 million compared to $13 $9 million during the same period in the prior year.
Year over year increase in general and administrative expenses was primarily the result of higher noncash stock based compensation and increases in payroll expense due to higher head count supporting growth and new product initiatives.
I would like to call out that approximately $2 $4 million of the year over year increase in G&A expense was related to stock based compensation for our prior CEO transition.
Net income was $17.0 million in the first quarter compared to $4 $6 million in the prior year period.
Adjusted EBITDA increased 119% to $36 $1 million compared to $16 $5 million in the prior year period.
Adjusted EBITDA margin increased over 1000 basis points year over year to 34, 4%, reflecting the impact of higher gross margins and leverage on G&A expense.
Adjusted net income grew 163% to $23 $8 million in the first quarter compared to $9.0 million in the prior year period.
During the quarter, we generated cash from operations of $9 $9 million.
We expect our cash generation to continue improving this year driven by higher levels of profitability and moderating investments in working cap.
As of March 31, 2023, we had $527 $5 million in backlog and awarded orders an increase of 75% year over year and 23% sequentially.
The growth in backlog and awarded orders reflects continued robust demand for our solar products, including the recently introduced BLA plus.
Turning now to our full year outlook.
Based on current market conditions and input from our customers we are raising our outlook as follows.
We now expect 2023 revenue to be in the range of 480 million to $510 million up 47% to 56% year over year.
We expect adjusted EBITDA to be in the range of 145 million to $160 million.
Adjusted net income to be in the range of 92 million to $102 million.
Our revised outlook is supported by strong visibility on the back of our exceptional first quarter results and record backlog and awarded orders.
We continue to expect full year 2023 interest expense to be in the range of $22 million to $26 million.
Finally, we continue to expect capital expenditures for the full year in the range of 8 million to $12 million.
Now back to Jeff for closing remarks.
Thanks Dominic.
I'd like to close by again 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.
Momentum is incredibly strong following phenomenal results in 2022, and the first quarter of 2023.
With continued robust demand for solar.
Except for new products and sales initiatives and increasing operational efficiency I'm incredibly optimistic about what we can achieve in the coming quarters and could not be more excited about the opportunity ahead.
And with that thank you everyone. I. Appreciate your time today, we will now open the line for questions.
Thank you Leland.
Now begin the question 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.
If you are using a speakerphone please pick up your handset before pressing any key.
To withdraw your question. Please press Star then two.
The first question comes from Philip Shen with Roth and KN. Please go ahead.
Hey, guys. Thanks for taking my questions Congrats on the strong results.
First question is on your backlog and awarded orders was wondering if you might be able to share the mix for the quarter. And then also can you talk about the bookings trend that you've seen.
Since March.
March so how is the momentum been in April and then finally, we noticed a small updates and the release around your backlog and awarded orders.
Was there a change in your disclosures where methodology. Thanks.
Hey, Phil This Dominic let me, let me start with that one and I'll kind of go in reverse order.
So first of all legalize.
Eagle eyes here I think you've noticed that we have a little bit of a change as we align some of our earnings release more with FCC our guidance with regards to disclosures, but we did not have a change in our methodology. It's just incremental disclosures that are in the press release now I think he probably soft footnote also with a non-GAAP .
As yours and things that we've now started doing about the the reason we're doing that is because backlog and awarded orders are such an important part of our business kind of an indicator of the health of the business in future revenues.
And as a reminder, we do expect the vast majority of backlog awarded orders to ultimately become a revenue and typically a nine to 12 month window.
With the trends we are not talking about anything in second quarter at this point in time, Phil So, but we were pleased to think as you saw from where we were from the last quarter's release from year end to now we've talked about achieving record levels early in January and it did continue throughout the quarters, we built to the 527.
Point $5 million that we ended on March 31, and with regards to the mix.
I believe we've got our Q filed out there now I'll have to come back to you on that one as I as I look for that information I just don't have it right in front of me at the various buckets. So if you can give me a minute I'll try to find that wasn't going to your other question.
Okay, great. Thanks, Dominic great job on the margins as well. So I think you guys had close to 46%.
And.
What should we expect in terms of margins for Q2 and beyond is this the new run rate.
Yeah. So so yeah, we're very pleased with the margin and I think as you recall, Phil you've been following the company for a long time and you recall last year. There were some challenges that we had in the first half of the year with regards to gross margin and so I'd really characterize it as kind of the normal level that we would.
Spec to shoot a based on this level of mix in fact, if you go back to 2021, when we had a similar mix of system solutions revenue and components you saw very comparable mid forty's margin.
Now there are some planned investments and I've guided to some things that we are making in the Cogs side, we still have some investments that we're making against that.
So I'd be cautious to say that there is a you know a guidance that we're going to give quarterly going forward about what gross margins are but we do expect a very healthy mix of our product system solutions versus components going forward and overall you know we did a as you saw in our guidance range. We've now lifted the total EBITDA.
And accordingly, as well with 250 basis point improvement in our EBITDA margin. So yeah, we're very pleased on Jeff and the team operationally, we achieved some of our operational efficiencies are a little bit ahead of schedule and so with that we wanted to pass that along and raise the guidance for the full year.
Great great.
Great job again I'll pass it on thanks stomach.
You got it thank you.
The next question comes from Mark Strouse with JP Morgan.
Please go ahead.
Yeah.
Yes, good afternoon, thanks for taking our questions.
So kind of following up on Phil's question there on the backlog so the historical conversion nine to 12 months out or so.
Sitting here in early May should we assume that kind of going forward. Your you're filling in for 2020 for now or is there still potential that you could sneak in some some deliveries in 'twenty three.
Oh, Yeah, that's definitely definitely be the ladder, yeah. We believe that we are in a position to still fill.
Fill out the back half of the year and that's one of the things that why we say, it's typically a nine to 12 month. There are I think in the past we've characterized it as a kind of turn and burn.
Deals that we can get done pretty quickly.
And you know with with the mid year guidance range, when we come up to the second quarter earnings release at that point in time, we will feel like we can tighten the revenue projections, even further but at this point in time, we still have the opportunity to get some deals done in 'twenty to 'twenty three.
Okay. That's helpful. Thank you and then just.
Following up on your commentary on the the ITC case understand you're probably limited in how much you can say there but.
Any color you can give investors as far as kind of what a potential.
<unk> kind of bookends for that might look like.
And then just a more general kind of update on the competitive environment would be helpful. Thank you.
Yeah, Mark Thanks for the question this is Jeff.
As you mentioned, we are in active litigation, so I'm somewhat limited on what I can say.
What I will emphasize is that we.
He has spent a significant amount of time and financial resources of the company over the years built.
Building, our IP and much of our IP is foundational to our product sets.
And to the market.
We are still predominantly a domestic solar company.
That is recently expanded internationally.
And the competition that we're seeing as our foreign based competitors coming into the domestic market and we hope that the ITC will protect our our our I T and continue to support domestic manufacturing and job creation.
Competition in General I would say is actually very similar to what we saw during the IPO. We we continue to look at the marketplace. We continue to look at.
Tissue in their respective regions in which we operate and our.
Overall, we feel that our solution speaks for itself in our results speak for themselves as far as our competitive viability.
I'll take the rest offline. Thank you.
If I could jump in real quickly just to answer Phil's question on mix.
It was about $300 million of awarded orders and 227 in the house of the backlog.
And the next question comes from Andrew Berg Cocoa with Morgan Stanley . Please go ahead.
Great. Thanks, so much for taking the question here just one quick follow up on the last question around the patent portfolio can you just remind us what the duration how much.
How much time do you have left.
For some of those key patents expire if you were to win this ITC case.
Yes. Good good question, Andrew and I think I'll have to get back to you on the specific time duration, but I do believe it is a close to a decade of longer run time on those foundational patents. So it's a fairly substantial amount of time, but we'll get back to you on specific timeframes.
Great. Thank you and maybe just one quick follow up on the battery storage side, but what are you seeing there in terms of backlog growth and bookings growth and opportunity.
Attaching solar with our with the battery storage.
Yeah.
Yes, a few things in there one is we've seen an increase in attached storage in the in the solar deployments in which we participate.
That's one the second is we are producing to the one gigawatt order we received late last year.
And we've added staff in the storage part of our our business.
And our increasing quotes and overall proposal activity.
As new purchase orders come in.
So we're really encouraged about the direction that setting I'm, Phil Schultz has a strong position to differentiate in that market as well as the others were in.
Great. Thank you.
The next question comes from Mickey <unk> with credit Suisse.
Please go ahead.
Good evening and thanks for taking our questions here.
Question on new products via lip gloss and others.
You have to think about are the asps and margins for those vessels.
Got it.
And.
Is there any upside in your contract backlog to convert some of the DNA to be an a plus our other contracts.
Yeah, Hi, this is Jessica.
<unk> plus is oh on target with the numbers that I presented at the end of fourth quarter, which I believe is 10% to 20% incremental ASP due to the overall.
Mix of offerings with it within that bundled solution.
The sales to date have met that target the.
The margins are consistent with what we've grown to enjoy with BLA.
So you won't see any any erosion from.
From that perspective.
On.
And as far as the timing and upside go projects that are already in backlog in our water daughter I are for our traditional BLA, the quoting activity, which began earlier this year.
Includes includes BLA plus add our traditional BLA.
Thank you.
Just finally awarded orders.
And the pipeline.
For you what's the duration.
Revenue recognition has been done and they're willing to trade in 'twenty four 'twenty five and just wanted to understand your comments on U S packaging bookcases I mean should we see.
All of the new bookings to Seattle to be.
Oh interesting, but it isn't as accretive musically.
Musically Cecilia.
So I'll go first on the on the revenue recognition piece because typically as we've talked about our once something is awarded orders we see about a nine to 12 month period of time on average when something becomes awarded before it's actually recognized as revenue.
And for US with revenue ASC 606, we have revenue recognition that allows us to look at the contract by contract, but mainly when we complete production in our facilities for most contracts some contracts. That's when we actually ship products. So it's about a nine to 12 month for what we talk about backlog and awarded orders.
So the $300 million of awarded orders at the end of March you would typically start that nine to 12 month window now as we've talked about I think with Mark's question. It was also he can some of that can come in earlier, yes. It can and in fact following announced when like we just had with our patent infringement, we might have customers coming to us and say hey.
Can can you do something for us yet this year. So it is always possible to.
To accelerate assuming that we can get the materials to do the work.
With regards to you know where we're quoting now then the majority of the combined backlog and awarded orders is still going to be recognized in 2023, because you know, we just put in $105 million quarter, and we're guiding to 480 to 510 million of revenue. So the vast majority for exam.
The backlog is expected to be fully drained as we replenish the backlog because those are contractual items that were ready to go with.
So overtime, we are booking further out into the future, but we're as Jeff mentioned in his remarks, our quoting activity for the pipeline is up significantly as well. So we are that's why we can feel very confident that the solar industry is doing very well and for sure specifically, we're very pleased with.
Our sales activities.
Yeah, Dominic if I can add one more point mohit.
If you look at slide 34 in the deck, which is.
The slide we've used for a while that that gives a nice a pictorial view, but I would add as Dominic said, our time durations are really a curve.
Some projects and project types come in much quicker in some come out a little bit further based on the planning stages of the E. P C.
Okay.
Got it.
The rest are all fun right.
Congratulations on the corner.
Thanks, Mike.
The next question comes from Brian Lee with Goldman Sachs.
Please go ahead.
Hey, guys. Good afternoon kudos on the nice execution here.
Maybe first question for you Dominic you.
You mentioned, some cogs investment that you're going to be making here over the next few quarters and so just based on kind of how your changing guidance for the year. It does seem like you know margins, maybe downtick a little bit here going forward can you elaborate a bit more on what those cogs investments are going to be and then.
Can you maybe quantify a bit into the 100 basis point drag as a 200 basis point drag and in what timeframe do you kind of recapture that.
Sure. So so a couple of things one is we've talked about them as we look at our facilities and the need to look at the future. We're planning on growth you know, we haven't really come back to you in the and the broader community yet about what multiple you know three year plan looks like from this point, where in the third year of the eye.
P O materials, so we've talked about the need for facilities well, it's very likely that much like last year in the first quarter. We had some unproductive new facility costs up in the Cogs line that we may be having some of that in the back half of this year as we look at facilities, we look at where we are in Portland and our.
<unk>, we're looking for capacity to make sure that we can meet demand going forward. So that would be one that would impact caused cogs, we have to recognize that expense as it's incurred theres no full amortization of it with the rent or anything like that Theres, a few things from a timing standpoint internally that we're making investments so it with our own team and wages.
Just the normal cycle, so from a sand standpoint, it didn't happen in Q1 as it was planned to happen in Q2. So those are some things that are being invested in we haven't given guidance specifically to what the margin is going to be but you're right to infer that there's gonna be unexpected slight dip.
Klein in the gross margin side of the business in the back half.
Okay Fair enough I appreciate that color and then I guess.
You alluded to the three to five year growth plan. You you guys are investing for that and I would assume a lot of that has to do with as much solar, but but non solar the battery storage the EV charging and so forth.
Is there any sense you can provide whether it's you know backlog and awarded orders or some of the accelerated quoting activity you mentioned on the pipeline sort of what percentage mix, you're seeing in terms of first solar versus non solar just as we try to get a better handle of what that non solar growth opportunity and what the.
Timeframe is going to look like for that.
Any metrics around that would be super helpful.
So I'll go to Brian I would say.
Oh go ahead go ahead go ahead.
Well I always get a design that's going to say that.
Okay.
[laughter].
All yours Dominic.
Okay at this time I am getting at.
And with that let me go first and then you can jump right in a couple of things. One is the domestic solar industry has kind of exceeded expectations that we laid out for us a couple of years ago.
And we are very pleased with the relationships the adoption of our products and services with our with our customers and so we're very pleased with the growth levels that we've seen.
And so I think that since the predominance of it has grown it has outpaced expectations are for the past three years.
That we want to make sure that we give the appropriate level of attention and dedication to that aspect of the business with regards to some of the others are going to let Jeff talk about some of the multiyear strategies that are underway with our chief product development officer, and other things there so Jeff I'll turn it over to you now.
Yeah, Thanks, Dominic and Brian .
A couple of things I would mention one is that domestic solar is still the predominant driver of our business as you would expect considering the domestic growth in solar is as a whole we've looked at the different analyst firms that are projecting growth over the over the coming three to five years domestic is still planned to be strong growth.
Sure.
We launched four incremental growth pillars at our IPO, we still believe that those four growth pillars, our foundational they're all launched and they are all progressing.
Our goal is to continue to drive them into a broader towards mass mass or growth segment of their development curve.
As we continue to look at additional incremental offerings that we were also excited to be able to announce with our strategic plan.
And I've been asked in the past who is doing the big thinking and it really is a it's a broader function within shows we have a chief product officer, John Haas, who came in with US from the connect T V acquisition, John as the Chief product Officer, leading the initiative, but really we look at anybody that faces the customer.
The market as the inception of ideas and then our engineering team that turns doves into offering.
So overall, we feel very very good about the future of the business and.
As domestic solar continues to grow we have we think we've got some great growth pillars to complement that.
Okay. Thanks, guys I'll take it offline.
Thanks.
The next question comes from Jordan Levy with Jewish Securities.
Please go ahead.
Maybe just a quick follow up on the last question on non solar just wanted to see if we could get a little more detail on how you're thinking about the Brookfield partnership in terms of whatever you might be able to say there and any sense of timing for that over the next few quarters.
Mhm, yeah, Thanks, Jordan I'm really excited about that one.
Brookfield as you know is a it is a very strong company domestically, but also internationally.
We're partnering with Brookfield renewables.
They won't be the counterparty for us so it shows will sell it solutions to Brookfield and then it will be an open ecosystem offering.
But be bundled into charging as a service.
So the team if you will will go to property owners will go to.
City charge point operators fleets fleet operators.
And then if they desire to shift rather than spend capital upfront and have operating expense to be the driving deployment method for their charging systems than Brookfield has the means to be able to do that.
When I said open ecosystem that involves.
The OEM charging companies that we want to partner with and pull into this ecosystem and also EPC partners.
So we believe that it's going to have a very strong presence in the market and it will we will start to impact the market. This year.
Appreciate that and maybe a follow up more on the solar segment side.
Wanted to get your thoughts around how the international expansion efforts are going and if that's playing out kind of according to your expectations and how you're thinking about that market as it stands today versus domestic.
Yeah, I would say consistent with R. R.
Report in fourth quarter, our market focuses are.
Certain countries in Europe .
Australia Latin America.
We've continued to hone in our product offerings, where we feel we have a right to win with certain offerings.
The quoting activity is progressing.
The order flow is starting to occur.
Got it.
There's still a tremendous market from the solar standpoint, so we still believe that it's the right market for us and we've got a right to play.
I I do intend to add resources. This year. So that we can further expand and as I also mentioned last quarter. We are starting to look at facilities. So that we can fulfill customer orders when they occur.
Thanks, so much.
Mhm.
The next question comes from Colin Rusch with Oppenheimer.
Please go ahead.
Thanks, So much guys now with the EV charging solution can you talk a little bit about what you're seeing from a from a project slow perspective now how many of these products are being gate gate kept by funds are out of the I R. J, a or you know any of the Irish tax treatments that folks are waiting for clarity on any color you can provide on that is helpful.
Yeah, I would say to date.
I would say the I R. A is not driving much from a from the EV charging world. It's still the infrastructure funds that are the primary drivers on school bus electrification and then Debbie grants that's the corridor charge in across the country. We're seeing a significant amount of not just quoting activity with project flow in there.
Two areas and then fleets still continue to be a very strong segment as they start to then determine how they're going to electrify their fleets away from either compressed natural gas or diesel.
Those are the primary drivers, though in the segments.
Okay. That's helpful. And then you know given the the shortness of our skilled electricians.
Working on infrastructure projects right now can you talk a little bit about how you're approaching pricing and how much no price or some power you think you have here.
Yeah.
Yeah, I don't I don't know that I would couple pricing with labor shortages. So we work really closely with our EPC partners that they've got visibility into their project teams are in 12 to 18 months, sometimes two year windows. They know what their capacity is and they know what team sizes they need.
Get pulled in really early on a project cycle.
As Dominic mentioned nine to 12 months from the time, we get into water to water.
It's even longer than that from the time, we are providing a firm quotes to customers. So.
By the time the E. P. C is higher they began ramping their crews and then shows gets involved so what what I would say is E. P. CS come first in a project and then Shell's comes thereafter, and then panel availability and other macro factors that we tend to talk about our are quite a ways down the roads. So the E. P season the developer.
I have learned quite well know how to negotiate on.
The.
Some of the headwinds that they saw last year with U F. L. P. A and some of the other macro events are they're getting are quite good at filling out the right paperwork. They can show the documentation is correct choosing the right panel providers and so on.
Okay. Thanks, so much faster.
The next question comes from Kashi Harrison with Piper Sandler.
Please go ahead.
Good afternoon, everyone and thanks for taking the questions.
So first one from me, Jeff you indicated that solar quotes were up 56% year over year, and I think 57% quarter over quarter.
Would you say those quotes are indicative of the U S market growth or are your quotes that much higher because of your current solar E. Baas offering now covers I think 2.4 cents per watt versus two cents of work last year.
Yeah, the the quoting activity as global that's first.
It includes some of the additional projects that were launched.
From a volumetric standpoint, there there is some upside in the average quoted price.
But it's also important to note that the number of quotes has also increased at similar levels. So it's really it's really both kashi.
Okay Fair enough and then and then maybe just.
Taking a look at slide 25 of your Investor deck.
So the current Baas offering is now 2.4 cents per watt that's up from the last act.
And you show that you're still targeting about 1.1 cents per watt and so that one point in one sense is that the I V curve benchmarking and high capacity plug and play that gets you there or are there additional products that will be launched next year that gets you to the balance up to to.
So all of that Pie chart.
It's the former it's the two products that we've announced that are in flight and we feel we can get the lion's share of that.
Targeted product category.
Now remember too, though that there's going to be an adoption curve for each of them.
One thing I really like about IV trace is that can be deployed in existing fields, it's not just a new growth opportunity.
Got it thanks for that that's it for me. Thank you.
The next question comes from Jonathan Schaffer with Northland capital markets.
Please go ahead.
Hey, guys. Thanks for taking my questions and congratulations on the quarter.
I wanted to start off so I was at the ACG Expo last week, Yeah, clean energy fleet stuff and you guys had a boost there and it was really really great I got to see one of your sales reps do a fantastic job of consultant came out basically to the booth and said I've got a problem I'm trying to do.
Charging and a parking structure here in California.
And I can't touch the concrete because it's pre stressed or sorry, pretension rebar and when its pretension to rebar, which apparently is a big deal or common in areas prone to seismic activity.
It's not the trend seems even you know very expensive. It's that are at least based on this particular consultant its I'm not even an option. So and then you have these you know with Australia. The there you talk about being hard rock and that you know I know, it's already a pain as it is drill into rock when you got to drive the pilot.
Let alone I could only imagine trenching.
So I'm wondering how often does it come up are there other things kind of off the radar, maybe we haven't thought of yet where whether it's on the EV charging side on the or on the solar side, where it's not even about choosing between options, but we're really not entrenched solution is for all intents and purposes, the only option.
Hmm.
Just anything you can elaborate on there that I realized I missed this thing on the concrete side I'd be curious to learn about anything else.
Yeah, I Love your question Donovan, and if you're looking for Ted consult our sales team happy to have you do that.
They they are it was a great event last week and we were we were really thrilled with the the way the market respond at the Shoals.
One quick one you brought up specifically as a retrofit where we believe that is one of our strengths are and until we got UL certification and the third quarter last year.
We really didn't start to push that as much because we needed to be if you will behind the fence, but now that we have UL search that's picking up quite a bit of momentum.
And that's mostly cities and states.
Type of opportunities are there.
Driving that now Theres also a property owners that are coming around.
When you look at the different opportunities fundamentally what shoals doesn't deliver electronics, whether it's AC power or D. C power, we do it and very efficient and effective ways and we do it above ground.
So whenever you think of a solution that requires an electrons in it it has a some kinds of inhibition of digging or mounting in in a landfill or whatever the case may be chosen as a perfect opportunity whenever there's a one for many a that's a big lead assembly, our trunk and our.
Cap off of that shows has an opportunity. So it is a what we we do focus on solar we're focusing on E V, but remember too that everything we create we look at other markets and Adjacencies that we might gain so you're you're spot on Donovan and also considered endangered species, because we're not trenching and <unk>.
Underground.
We're also helping to protect the environment in that way.
The next question comes from Vikram bakery with Citigroup.
Please go ahead.
Good afternoon, everyone apologies if I missed this can you quantify in any way the impact of lower raw material costs on the gross margin how much of that was perhaps you're doing to maintain prices versus better negotiated contracts. It seems other drivers up gross margins as you talk.
About the operating leverage and higher efficiency at all sustainable I was wondering how much of the contribution came from lower raw material costs and helps us taking a look backwards.
Yeah, we didn't disclose we don't disclose the breakdown of the various components of our cost of goods sold but we did make some comments last year about some specific challenges with regard to raw materials input into how that was a negative drain on the margins last year and we had to intentionally.
And change the pricing model to recover from that so there were some gains and so when we talk about a disclosure of quote pricing, which is it's very hard to say pricing in our environment because.
All of our solutions, our bespoke and custom for the customer. So it's very difficult to say here's a SKU that was sold at a dollar last year and a $1 10 this year.
So we did take some corrective actions there, but we haven't disclosed anything with the specifics regarding our materials on.
The last half of the year and we did talk about some opportunities we had to purchase a wire.
At a discounted price, but at this point in time I would suggest that we've gone through that wire because we typically don't stockpile lots of wire, we typically buy.
When a backlog of job on a purchase order comes through is typically when we secure our materials. So if there was no one time lift or the specific lift for materials, we really look at the cost of replacing our raw materials and price value based off of that to maintain our margins.
Mr. <unk>. Thank you and then you talked about acceleration in quoting activity. It has been in Austin I'm, sorry multiple times.
How much of the activity I was wondering is happening ahead, all domestic one thing a clarification and I was wondering if we'll see a step change in backlog once the guidance is reduced.
And just.
On a related note you guys filed an application seeking clarification on 45 X tried. It's also if you can talk about how meaningful that can be and what the expectations are from there.
Yeah, I'll I'll hit the quoting comment and perhaps Dominic can hit the Rex credits comment or question are they.
Vikram as you as you mentioned the quoting volume increased.
We haven't broken out specifically for what purposes.
In general what I would say is when you when you look at our quoting volume increase it's now a combination of domestic plus international plus new product offerings. So at those additive factors are by default going to add to the overall quoting value and our goal is to continue.
To win business so.
So oh, that's the direction that we hope to continue on.
And with regards to credits associated with the IRA whats going on from a production standpoint, there's very little that we'd be doing too to qualified directly for for any sorts of credits. We're not you know in that space are custom.
However, wood would receive lots of benefit and that's where all our all of you of a rising tide raises all boats is great for the industry, that's great for our folks to pursue those credits and therefore, our solar projects have a better return for our customers and their owners.
The next question comes from Joseph Osha with Guggenheim Partners.
Go ahead.
Oh, hi, Thanks, just to follow up on that previous question. There there had been some discussion earlier that you might find a way to wedge your manufacturing operations into some sort of crevices in language on the 14th buybacks are direct credits or you're telling us at this point that that's.
That's no longer a y grade option.
Until we get very specific guidance the expectation is still the way we understand it is that most of what the credits will apply for or for the customers purchasing our goods. There are some things that we're talking about for example, when I talked about expanding your capacity there are very specific capital expenditures that would qualify.
But it's not like we're going to go off and build a new building in fact I think buildings are expressly written out of the credits. So we are very capital light. So that's what I'm, saying the vast majority of the credits aren't gonna be direct benefit to US. Yes. There are some that can help us. They will look for every possible angle of course, we will.
But most of the credit seem to be for the for the customers themselves and that's where they're looking for the Mr content qualifying to the maximum credits.
Sure. Okay. Thanks, and then an unrelated follow up you know.
I heard you F. L. P. A come up a little bit ago I'm. Just wondering if you can share any updated feedback youre getting from Yuriy Pcs are about how how panel the panel clearance environment is thank you.
Yeah. So so far I think thanks for the question Joe.
We've not seen an impact on our projects are from U P. L. U S. L. P. A.
It's still a significant issue in the market needs to continue to monitor that but I would say so far that the the operators that are making the panel decisions have done a very nice job in filling out the proper supporting materials and I'm, making sure that the documentation is completed on time and as expected and then also making the right.
Panel decision in anticipation of that issue.
So and also where like I said, we're so far ahead of when the panels to get deployed.
In all likelihood they've already made I alternate arrangements, which then we can accommodate in our design because we are panel if not agnostic.
The next question comes from Christine Cho with Barclays.
Please go ahead.
Thank you for taking my question.
In your presentation. It seems that your timeline of getting a little long car from when you get you know why they would order to epos I don't know if I'm, just reading too much into it but before I left till 11 months now it's eight to 13 months could you just talk about what's driving that and if you see risk for this getting extended and I'm guessing this time.
Your line is for you know solar in the U S. So is this time I understand for your non solar product in international as well or is it longer shorter.
Yeah, Christine Theres, a few things that I'll point out and thanks for thanks for the question on what we tried to do in this in this version of the deck as it is try to expand the range because it really is a range. The larger projects stay 500 megawatts gigawatt projects are going to be longer in duration.
Our complex designs, they take longer and there's just more of a time cycle. The smaller projects tend to be much more rapid that we can turn more quickly.
When you look at international projects, they tend to be on the smaller cycle size or our cycle times.
So it is a blend it's a mix it's hard to capture encapsulate. It all into one page we've tried to do that while providing a range, but not having a range that's a.
It kind of silly because it's so broad.
I don't know that I'd read too much into it Christine.
And I'm happy to discuss further offline if you still have more questions.
Okay and then.
It also looks like it gives us final quote seven days before the P. L, which is when it comes to purchase order and goes into backlog.
Does that move around much between awarded order to purchase order M. D event and awarded order doesn't convert like usually it's everything.
Yeah, the quotes well it will move around they'll move around because of commodities they'll move around because of design.
I won't put a percentage on it.
Because there are some that get larger some get smaller but.
They when you look at the Grand picture or the total scale of things. They they always tend to center around a center point.
The predominance of the orders that are awarded orders do become backlog.
And we've we've always treated them as a bundled view because when we get awarded that's when we start doing a lot of detailed work arm in arm with the EPC.
Abstentious time and effort spent with the EPC to finalize that design and if they were to change direction and not proceed. It's a lot of wasted time and effort for them. So.
We've always traded a water to water is something that is incredibly important in our cycle and that's why we report it as such and then the final P. O two the final quote.
Seven days after the final close of that allows us to better better understand and quote for the commodities that data that's N and along with the final design is that helpful.
The next question comes from Brett <unk> with Morningstar.
Go ahead.
Hi, Thank you.
Just with respect to your 2023 sales guidance can you give any color in terms of what percentage is coming from repeat more existing customers versus new customers.
No I don't think we've guided that way I know historically, we report out your kind of customer mix and we are expanding the number of E. P. C customers all the time.
So I would characterize it as the vast majority of our business is repeat known but we're continuing to add smaller E. P. C's Ah originally I think you saw where we targeted the top 10 and got nine out of the top 10, and then it was a top 15 top 20 them. So I would characterize it generally speaking.
Is it you know folks coming back and continuing to buy for their for the next projects.
Okay. Thanks, Dominic and then just on the BLA plus product and the adoption curve that you expect there when.
When would you expect that to sort of be the the majority of them in sort of overtake the existing be L. A in terms of new customers.
So what I would say is that every solar projects needs. The components that are provided in the BLA plus bundle, it's a matter of whether those customers procure those from shows or not we feel our bundle has a strong position and I couldn't merit that that conversion, but I.
I'd also say that BLA plus is not a cannibalistic product to BLA.
So it really could be that a BLA continues for a long duration of time, if an EPC is very comfortable with the method.
Method of of hanging the wires, the messenger wire detention and kits in the wire hangers.
I've already got a comfort there that it may take longer.
If they don't have a solution that they feel meets their needs and they are looking for one one company to procure from their shelves has the answer so in short it's going to take some time.
We expect to see some near term wins to follow on from the one that we just announced and as we start to announce those when they get further traction will provide more visibility.
The next question comes from Derek Soderberg with Cantor Fitzgerald. Please go ahead.
Yeah, Hey, guys I'll keep it to one here, Jeff I believe you mentioned that order flow starting to occur internationally I'm curious, what's working for you guys there.
And then you know what are the challenges that might have held you guys back internationally in terms of growth before and what are you doing different that that might be helping thanks.
Yeah. Thanks, Eric.
What's working is the breadth of our portfolio.
If if you recall, we've got our <unk>.
Opponents solutions, which just shows that it's been in the market with for a very very long time domestically, but then we also have the full system solution.
And in the different range of deployment opportunities in the markets, where we've chosen to enter Europe Latam Australia.
Some of those projects sit components business better than a full system solution. So the fact that we better understand those markets now we've been in market for 12 months to 18 months, we've got feet on the street deployed on.
Now now we're really understanding what parts of our portfolio, our best to compete and win in their respective markets. So I would say that's what we've learned.
And that's why we're starting to see more orders materialize.
Got it thanks guys.
Well that concludes the question answer session and today's conference call. You may disconnect your lines. Thank.
Thank you for participating and have a pleasant day.
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