Q4 2023 Shoals Technologies Group Inc Earnings Call

Good afternoon, and welcome to the show's technologies group fourth 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 Pizza Chief Legal Officer officials technologies group. Thank you you may have.

Operator: Good afternoon, and welcome to the Shoals Technologies Group fourth quarter 2023 Irving conference. 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 Mehgan.

Mehgan: Chief Legal Officer for Shoals Technology. Thank you. You may begin.

Again.

Mehgan Peetz: Thank you operator, and thank you everyone for joining us today hosting the call with me are CEO Brandon.

Mehgan: Thank you, Operator, and thank you, everyone, for joining us today. Hosting the call with me are CEO Brandon Moss and CFO Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including the guidance regarding the first quarter and full year 2024, are not guarantees of performance or results. Actual results could differ materially from our forward-looking statements if any of our assumptions are incorrect or because of other factors. These factors include, among other things, the risk factors described in our filings with the securities and expenses, including economic, market, and industry; defects or performance problems in our products or their parts, including those related to the wire insulation shrink bag matter; failure to accurately estimate the potential losses related to such a matter and failure to recover those losses from Romania.

Dominic Bardos: And CFO Domenic Brighthouse.

Speaker Change: 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.

Speaker Change: You listen and consider these comments you should understand that these statements, including the guidance regarding first quarter and full year 2024 are not guarantees of performance or results.

Speaker Change: Actual results could differ materially from our forward looking statements if any of our assumptions are incorrect or because of other factors. These factors include among other things the risk factors described in our filings with the Securities and Exchange Commission, including economic market and industry conditions, if extra performance problems and our products are there parts, including those related to the wire.

Speaker Change: We shouldn't drink like matter failures to accurately estimate the potential losses related to such matter and failure to recover those losses from the manufacturer decreased demand for our products policy and regulatory changes supply chain disruption and availability and price of our components and material.

Mehgan: [inaudible] Although we may indicate and believe that the assumptions underlying the forward-looking statement are reasonable, any of the assumptions could prove inaccurate or, and therefore, there can be no assurance that the results contemplated in the forward-looking statements will be. We caution that any forward-looking statement included in this discussion is made as of the date of this discussion, and we do not undertake any duty to update any forward-looking statement. Today's presentation also includes references to non-GAAP financials. You should refer to the information contained in the company's fourth-quarter press release for definitional information and Reconciliations of Historical Non-Gap Measures to the Comparable Gap Scenario. With that, let me turn the call over to Shoals' CEO, Brandon Moss. Thank you very much, Meghan, and good afternoon, everyone.

Speaker Change: Although we may indicate and believe that the assumptions underlying the forward looking statements are reasonable.

Speaker Change: Any of these 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.

Speaker Change: We caution that any forward looking statement included in this discussion is made as of the date of this discussion and we do not undertake any duty to update any forward looking statements.

Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the Companys fourth quarter press release product additional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures with that let me turn the call over to show up as CEO Brendan.

Brendan: Thank you very much Meghan and good afternoon, everyone I'll start today's call with some key highlights from the full year 2023 in the fourth quarter.

Brandon Moss: I'll start today's call with some key highlights from the full year 2023 and the fourth quarter. I will follow with an overview of solar market conditions and then discuss our plan to expand and relocate operations to a new facility in Portland, Tennessee. I will then provide an update on the wire insulation shrinkage warranty investigation and remediation, and finally wrap up with a discussion of our strategic priorities before turning it over to Dominic, who will review our financial results and discuss our outlook for 2024. 2023 was another year of tremendous execution for Shoals, with revenue growing approximately 50% for the second consecutive year. In fact, Shoals has grown revenue at a 41% CAGR since 2020, significantly outpacing the industry's growth of 17% over the same period.

Brendan: I will follow with an overview of slower market conditions, and then discuss our plan to expand and relocate operations to a new facility in <unk>.

Brendan: On Tennessee.

Brendan: And then provide an update on the wire insulation shrink back warranty investigation and remediation.

Brendan: Finally wrap up with a discussion of our strategic priorities before turning it over to Dominic <unk>, who will review our financial results and discuss our outlook for 2024.

Dominic Bardos: 2023 was another year of tremendous execution for Shoals with revenue growing approximately 50% for the second consecutive year.

Dominic Bardos: In fact shows has grown revenue at 41% CAGR, that's 'twenty 'twenty significantly outpacing the industry's growth of 17% over the same period.

Brandon Moss: Our ability to drive operational leverage as we grew revenue contributed to full year adjusted gross profit increasing 75% compared to the prior year. Adjusted EBITDA was up 86% year over year, while full year adjusted gross margin and adjusted EBITDA margin both expanded almost 700 basis points compared to the prior year. Notably, with full-year 2023 adjusted EBITDA of $173.4 million, we achieved the high end of our outlook for 2023 adjusted EBITDA, which was raised when we reported third-quarter earnings. And, as Dominic will discuss in greater detail, cash flow from operations was $92 million, up 133% from 2022. We are pleased that Shoals has transitioned into a company with strong cash flow generation. Turning to the fourth quarter highlights.

Dominic Bardos: Our ability to drive operational leverage as we grew revenue contributed a full year adjusted gross profit increasing 75% compared to the prior year.

Dominic Bardos: Adjusted EBITDA was up 86% year over year, while full year adjusted gross margin and adjusted EBITDA margin, both expanded almost 700 basis points compared to the prior year.

Dominic Bardos: Notably with full year 2023, adjusted EBITDA of $173 4 million, we achieved the high end of our outlook for 2023, adjusted EBITDA, which was raised when we reported third quarter earnings.

Dominic Bardos: And as Dominic will discuss in greater detail cash flow from operations was $92 million up 133% from 2022. We were pleased that shows has transitioned into a company with strong cash flow generation.

Dominic Bardos: Turning to fourth quarter highlights shows had another strong quarter with revenue growing 38% year over year to $134 million.

Brandon Moss: Shoals had another strong quarter with revenue growing 38% year over year to $130.4 million; backlog and awarded orders were $631.3 million, up 47% year over year, and approximately flat sequentially, reflecting continued strong demand for our product. The company added over $128 million in orders in the quarter, which was an increase of 147% year over year. Further, our quote volumes remain very strong, growing 154% year over year.

Dominic Bardos: Backlog and awarded orders were $631 $3 million up 47% year over year.

Dominic Bardos: Approximately flat sequentially, reflecting continued strong demand for our products. The company added over $128 million in orders in the quarter, which was an increase of 147% year over year.

Dominic Bardos: Another quote volumes remained very strong growing 154% year over year. In addition, the number of quotes is also growing while the size of the jobs continues to rise.

Brandon Moss: In addition, the number of quotes is also growing while the size of the jobs continues to rise. Subsequent to quarter end, we bolstered our domestic leadership position after entering into a master supply agreement with a new top solar EPC, and international markets continue to develop as a growth driver, representing more than 13% of our backlog and awarded orders. Moving now to the solar market landscape, the long-term fundamentals for solar are incredibly strong. Demand for energy is steadily rising, according to the EIA. Analysts expect U.S. demand for electric power to continue growing through 2050, driven by sustained economic growth and the shift toward electrification. Solar energy offers the lowest levelized cost of energy because it requires zero fuel cost.

Dominic Bardos: Subsequent to quarter end, we bolstered our domestic leadership position after entering into a master supply agreement with a new top solar EPC and international markets continue to develop as a growth driver representing more than 13% of our backlog and awarded orders.

Dominic Bardos: Moving now to the solar market landscape.

Dominic Bardos: The long term fundamentals for solar incredibly strong demand for energy is steadily rising according to the E I E.

Dominic Bardos: Analysts expect U S demand for electric power to continue growing through 'twenty 50, driven by sustained economic growth and the shift towards electrification.

Dominic Bardos: Solar offers the lowest level of loss cost of energy because it requires zero fuel costs. We expect the price of solar will continue decreasing due to reduced cost of solar panels battery storage and additional scale. We believe this trend will drive solar market growth in the coming decades in fact U S solar.

Brandon Moss: We expect the price of solar will continue to decrease due to the reduced cost of solar panels, battery storage, and additional scale. We believe this trend will drive solar market growth in the coming decades. In fact, U.S. solar generation capacity is expected to double by 2030 and nearly double again by 2050. In addition, according to the EIA's short-term energy outlook published in January, solar is expected to be the leading source of new electricity generation over the next two years, with 36 gigawatts of new solar capacity across all solar segments coming online in 2024 and an additional 43 gigawatts in 2025.

Dominic Bardos: <unk> capacity is expected to double by 2030 and nearly double again by 2050.

Dominic Bardos: In addition, according to the EIA short term energy outlook published in January solar is expected to be the leading source of new electricity generation over the next two years with 36 Gigawatts of new solar capacity across all solar segments coming online in 'twenty 'twenty, four and an additional 43 gigawatts in 2025.

Dominic Bardos: This incremental capacity is expected to boost the solar share of total generation.

Brandon Moss: This incremental capacity is expected to boost the solar share of total generation to 6% in 2024 and 7% in 2025, up from 4% in 2023. Shoals is excited to be a leader in the energy transition space with our market-leading solutions and electrical balance of systems. While the long-term solar market outlook is very strong, in our core utility scale segment, project delays have contributed to slowdowns reported by our utility scale peers in Q2 and Q3 of last year. Higher financing costs, extended equipment lead times, particularly for transformers and switchgear, and long interconnection queues are all exacerbating industry weakness. The industry slowdown is significant and will impact our results in the first half of 2024, but we expect this trend to reverse over time. When you look at the EIA data on project delays, there's been a significant increase over the course of the last two years, with delayed projects increasing from 36% in the first quarter of 2022 to 62% in the fourth quarter of 2023. As Dominic will discuss, we're providing first quarter guidance to assist analysts with modeling.

Dominic Bardos: 6% in 2024, and 7% in 2025 up from the 4% in 2023 shows is excited to be a leader in the energy transition space with our market, leading solutions and electrical balance of systems.

Dominic Bardos: While the long term solar market outlook is very strong in our core utility scale segment project delays have contributed to slowdowns reported by our utility scale peers in Q2, and Q3 of last year higher financing costs extended equipment lead times, particularly for Transformers, and switch gear and long interconnection.

Dominic Bardos: Qs are all exacerbating industry weakness the.

Dominic Bardos: The industry slowdown a significant impact to our results in the first half of 'twenty 'twenty four but we expect this trend to reverse over time when.

Dominic Bardos: When you look at the EIA data on project delays, there's been a significant increase over the course of the last two years with delayed projects increasing from 36% in the first quarter of 2022% to 62% in the fourth quarter of 2023 as Dominic will discuss we are providing first quarter guidance to assist analysts with <unk>.

Dominic Bardos: Italy.

Dominic Bardos: While short term hurdles exist, we remain confident in the long term fundamentals the undeniable ongoing shift toward renewables driven by cost competitiveness and sustainability goals creates a significant growth opportunity for the industry.

Brandon Moss: While short-term hurdles exist, we remain confident in the long-term fundamentals. The undeniable ongoing shift toward renewables, driven by cost competitiveness and sustainability goals, creates a significant growth opportunity for the industry. We believe we're well positioned to capitalize on this trend through our focus on utility-scale projects and proactive approach to mitigating near-term challenges. Further, as we discussed on our last call, we see a compelling opportunity in the community scale commercial and industrial segment. Though these projects are smaller than utility scale, they share many of the same challenges, including high labor costs for deployment and supply chain challenges that our technology was developed to address.

Dominic Bardos: We believe we're well positioned to capitalize on this trend through our focus on utility scale projects and proactive approach to mitigating near term challenges.

Dominic Bardos: Further as we discussed on our last call, we see a compelling opportunity in the community scale commercial and industrial segment.

Dominic Bardos: So these projects are smaller than utility scale. They share many of the same challenges, including high labor costs for deployment and supply chain challenges that our technology was developed to address we believe our value proposition will remain attractive even in the context of smaller projects that and we're excited about the department of.

Brandon Moss: We believe our value proposition will remain attractive, even in the context of smaller projects. To that end, we're excited about the Department of Energy's recent pledge to meet the National Community Solar Partnership target of 20 gigawatts of community solar by 2025, which is almost triple today's 7 gigawatts. Though it's still early days, we think this could provide an exciting opportunity to offset the delays and pushouts in the utility scale with projects that have a faster turnaround. We are currently building out focused teams to take advantage of this opportunity. Moving to the international scene, the landscape is evolving. Following COP28, there's been a fresh push for renewables as nations have realized they are not on target to meet emissions goals.

Dominic Bardos: <unk> recent pledge to meet the National community Solar partnership target of 20 Gigawatts of community solar by 2025, which.

Dominic Bardos: Which is almost triple today seven gigawatts. So it's still early days, we think this could provide an exciting opportunity to offset the delays and push outs in utility scale with projects that have a faster turnaround. We are currently building out focused teams to take advantage of this opportunity.

Dominic Bardos: Moving to international the landscape is evolving following top 28, there's been a fresh push for renewables as nations have realized they're not on target to meet emissions goals. This has resulted in some nations tripling their commitments by 2030, while the outlook for global growth in 'twenty 'twenty four is more muted primarily due to China's expected slowdown in it.

Brandon Moss: This has resulted in some nations tripling their commitments by 2030. While the outlook for global growth in 2024 is more muted, primarily due to China's expected slowdown and a stabilizing European market post-energy crisis, we see bright spots. Specifically, the Middle East and Africa are showcasing significant growth potential.

Dominic Bardos: Stabilizing European market post energy crisis, we see bright spots.

Dominic Bardos: Specifically middle East and Africa are showcasing significant growth potential we're actively exploring opportunities in these emerging markets confident that our expertise translates well to new geographies.

Brandon Moss: We're actively exploring opportunities in these emerging markets, confident that our expertise translates well to new geographies. As we have discussed, international markets have the potential to be a major growth driver. In fact, as of year end, international markets represented more than 13 percent of our backlog in awarded orders.

Dominic Bardos: As we have discussed international markets have the potential to be a major growth driver in fact as of year end international represented more than 13% of our backlog and awarded orders. We remain largely focused on specific higher growth markets within Europe Africa, Latin America, and Australia, which combined are more than double the size of the U S. Mark.

Brandon Moss: We remain largely focused on specific higher-growth markets within Europe, Africa, Latin America, and Australia, which combined are more than double the size of the U.S. market and growing at a 9 percent CAGR through 2026. We are pleased to report our sales team is making significant progress recently securing projects in Angola, Colombia, Nigeria, Peru, and Serbia. We expect growth to accelerate as international EPCs begin to appreciate the value proposition of our entire product suite. Looking ahead, we will continue strategically growing our international team and investing to support growth and further customer traction. Turning now to our recent announcement to invest in a new facility in Portland, Tennessee. Over the next five years, Shoals is committed to investing a total of $80 million to expand and centralize our existing manufacturing and distribution operations into a new 638,000 square foot state-of-the-art facility near our existing facility.

Dominic Bardos: Kit and growing at a 9% CAGR through 2026.

Dominic Bardos: We are pleased to report our sales team is making significant progress recently securing projects in Angola, Columbia, Nigeria, Peru in Serbia, we expect growth to accelerate as international E. P. CS begin to appreciate the value proposition of our entire product suite. Looking ahead, we will continue strategically growing our inner.

Dominic Bardos: National team and investing to support growth and further customer traction.

Dominic Bardos: Turning now to our recent announcement to investment in new facility in Portland, Tennessee over the next five years shows is committed to invest a total of $80 million to expand and centralized our existing manufacturing and distribution operations into a new 638000 square foot state of the art facility near our existing facilities.

Dominic Bardos: Since the beginning of last year, we have been focused on increasing production capacity and enhancing operational efficiencies to meet the growing demand for our products.

Brandon Moss: Since the beginning of last year, we have been focused on increasing production capacity and enhancing operational efficiencies to meet the growing demand for our product. We believe that the new plant will allow us to achieve these objectives and marks a critical milestone in our journey. We're confident that it will pave the way for the company's continued long-term growth. We're also thrilled to be investing in our workforce, becoming an employer of choice in the region and further contributing to the thriving economic landscape of Tennessee. We are grateful for the support of Governor Lee and the Tennessee Department of Economic and Community Development and look forward to a strong partnership in the years ahead. It's important to note that while this is our most significant capital investment, once complete, we expect the new plant will ultimately drive operational efficiencies.

Dominic Bardos: We believe that the new plant will allow us to achieve these objectives and more.

Dominic Bardos: A critical milestone in our journey, we're confident that it will pave the way for the company's continued long term growth. We're also thrilled to be investing in our workforce, becoming the employer of choice in the region and further contributing to the thriving economic landscape of Tennessee.

Dominic Bardos: We are grateful for the support of Governor Lee and the Tennessee Department of economic and community development and look forward to a strong partnership in the years ahead. It's important to note that while this is our most significant capital investment once complete we expect the new plant will ultimately drive operational efficiencies. In addition, we are committed to keeping shoals.

Dominic Bardos: Asset light.

Dominic Bardos: I will now provide an update on where we stand with our investigation and remediation of the water installation shrink back warranty issue as disclosed in our third quarter earnings call. We filed a complaint to recover damages caused by the effect of wire that prisma and cables and systems USA LLC sold the shoals between 2020 and approximately 2022.

Dominic Bardos: Through December 31, 2023 shows had already extended $4 $7 million of cash and the identification repair and replacement of defective wire and are seeking full recovery from prisma and for those as well as future expenses related to the issue.

Brandon Moss: In addition, we are committed to keeping Shoals asset light. I will now provide an update on where we stand with our investigation and remediation of the wire insulation shrink-back warranty issue. As disclosed in our third quarter earnings call, we filed a complaint to recover damages caused by defective wire that Prismian Cables and Systems USA LLC sold to Shoals between 2020 and approximately 2022. Through December 31st, 2023, Shoals had already expended $4.7 million of cash in the identification, repair, and replacement of defective wire and is seeking full recovery from Prismian for those as well as future expenses related to the issue. Because of the pending litigation, we are limited to what we can discuss publicly. However, there are some important updates we can provide. First,

Dominic Bardos: Because of the pending litigation we're limited in what we can discuss publicly however, there are some important updates we can provide.

Dominic Bardos: First initial.

Dominic Bardos: Initial water installation shrink back issues were found on at least 20 sites of the approximately 300 sites that have had the effect of prism in red wire.

Dominic Bardos: In addition, after we filed our complaint in customer service notices were issued to those approximately 300 sites. We were informed that approximately 10 incremental sites experienced shrink back.

Dominic Bardos: Second of those approximately 30 sites or sites did not display installation shrink back upon inspection.

Dominic Bardos: In situations, where there was shrink back we're working to remediate the issue as quickly as possible.

Dominic Bardos: Finally, as we continue to analyze all of the incoming information and remediation projections, we have determined that the range of expense. We communicated last quarter is still appropriate Dominic will cover in further detail.

Dominic Bardos: Shoals is committed to quality as we worked to remedy the prisma into effective wire issue. Our top priority is taking care of our customers. We're working to remedy the issue as efficiently as possible and seek to accelerate remediation, where we can as highlighted by our new top E. P. C engagement, we want to emphasize that our underlying business remains very strong.

Brandon Moss: Initial wire insulation shrinkback issues were found on at least 20 sites of the approximately 300 sites that had the defective prismian red wire. In addition, after we filed our complaint and customer service notices were issued to those approximately 300 sites, we were informed that approximately 10 incremental sites experienced shrinkback. Second, of those approximately 30 sites, 4 sites did not display insulation shrink back upon inspection. In situations where there was shrink back, we are working to remediate the issue as quickly as possible. Finally, as we continue to analyze all of the incoming information and remediation projections, we have determined that the range of expense we communicated last quarter is still appropriate, as Dominic will discuss in further detail. Shoals is committed to quality.

Dominic Bardos: All in we expect it to continue to flourish through the resolution of this issue.

Dominic Bardos: Moving to the patent infringement complaints filed by shows with the ITC in May of 2023, the evidentiary hearings scheduled in March with a final ruling expected in November our district Court cases would resume after that time as previously.

Dominic Bardos: As we stated we remain committed to vigorously defending and protecting our intellectual property rights.

Speaker Change: I'll now wrap up by highlighting our strategic priorities for 2024.

Dominic Bardos: We will continue to pursue markets that support global electrification and are impacted by skilled labor needs and supply chain constraints.

Dominic Bardos: Our core competency of engineering prefabricated plug and play solutions at scale align well with market needs by.

Dominic Bardos: By delivering these high value prefabricated solutions, we can protect our margins, while providing a much higher quality product.

Dominic Bardos: So we'll continue to protect and grow our core utility scale solar business. This includes growing share within our domestic solar base and accelerating growth in international markets.

Brandon Moss: As we work to remedy the Prismian defective wire issue, our top priority is taking care of our customers. We are working to remedy the issue as efficiently as possible and seek to accelerate remediation where we can, highlighted by our new top EPC engagement. We want to emphasize that our underlying business remains very strong, and we expect it to continue to flourish through the resolution of this issue. Moving to the patent infringement complaints filed by Shoals with the ITC in May of 2023, the evidentiary hearing is scheduled in March, with a final ruling expected in November.

Dominic Bardos: We also expect to accelerate our diversification into new markets that support electrification. This includes leveraging our very strong balance sheet and cash flows by investing for both organic and inorganic growth in fact, despite accelerating remediation efforts for the effect of Prisma and wire for which we plan to spend $31 1 million and 12.

Dominic Bardos: 24, we still expect to increase our cash from operations by 20%.

Dominic Bardos: As we make these investments we will continue to drive operational excellence and build our organizational capacity to maintain our leadership position in domestic utility scale solar and grow to a leadership position in newer market segments.

Brandon Moss: Our district court cases will resume after that time. As previously stated, we remain committed to vigorously defending and protecting our intellectual property rights. I'll now wrap up by highlighting our strategic priorities for 2024. We will continue to pursue markets that support global electrification and are impacted by skilled labor needs and the supply chain. Our core competency of engineering prefabricated plug and play solutions at scale aligns well with market needs. By delivering these high-value prefabricated solutions, we can protect our margins while providing a much higher quality product. Shoals will continue to protect and grow its core utility-scale solar business.

Dominic Bardos: Both in new markets will require some reinvestment of profits from our core business, which we will do prudently as we strive to generate an attractive return on our investments for our shareholders shows as an innovation leader with strong product development capability, while the industry is going through a period of transition our long term future is bright with record quoting activity and strong order.

Dominic Bardos: As market conditions improve we expect shows will continue to take share and outgrow the market for many years to come I'll now turn it over to Dominic who will discuss fourth quarter 2023 financial results.

Dominic Bardos: Thanks, Brandon and good afternoon to everyone on the call.

Dominic Bardos: Turning to our results fourth quarter net revenue grew 38% to $134 million versus the same period in 2022 or higher sales were driven by increased demand for our products and domestic utility scale solar projects.

Dominic Bardos: Gross profit increased to $55 4 million compared to $44 million in the prior year period.

Brandon Moss: This includes growing share within our domestic solar base and accelerating growth in international markets. We also expect to accelerate our diversification into new markets that support electrification. This includes leveraging our very strong balance sheet and cash flows by investing in both organic and inorganic growth. In fact, despite accelerating remediation efforts for the defective Prismian wire, for which we plan to spend $31.1 million in 2024, we still expect to increase our cash from operations by 20%. As we make these investments, we will continue to drive operational excellence and build our organizational capacity to maintain our leadership position in domestic utility-scale solar and grow to a leadership position in newer market segments. Growth in new markets will require some reinvestment of profits from our core business, which we will do prudently as we strive to generate an attractive return on our investments for our shareholders. Shoals is an innovation leader with a strong product development capability.

Dominic Bardos: Most profit as a percentage of net revenue was 42.5% compared to 42, 7% in the prior year period, primarily due to higher labor costs.

Dominic Bardos: The increase in labor was slightly offset by increased leverage on fixed costs.

Dominic Bardos: During the quarter, we did not incur wire inflation shrink back warranty liability expenses and our cost of goods sold. So there was no adjustment to GAAP gross profit necessary during the period.

Dominic Bardos: I would like to point out that we have added a quarterly reconciliation of 2023 adjusted EBITDA to the appendix of our Investor presentation.

Dominic Bardos: This reconciliation of adjusted EBITDA illustrates the quarterly impact of the shrink back expenses.

Dominic Bardos: As you May recall, we disclosed the Q3 and full year to date impact through Q3 last quarter, but we did not individually break out the elements incurred in the first and second quarters of 2023 I Hope you find this additional information is helpful.

Dominic Bardos: While the industry is going through a period of transition, our long-term future is bright with record-quoting activity and strong orders. As market conditions improve, we expect Shoals will continue to take share and outgrow the market for many years to come. I'll now turn it over to Dominic, who will discuss fourth quarter 2023 financial results. Thanks, Brandon.

Dominic Bardos: Further as Brandon mentioned earlier, we continue to analyze all new information regarding the potential loss related to the defective Brisbane wired.

Dominic Bardos: While we investigated approximately 10 additional sites during the quarter findings were consistent with the assumptions incorporated in the remediation range, we communicated last quarter, which is $59 $7 million at the low end and $184 $9 million at the high end.

Dominic Bardos: And good afternoon to everyone on the call. Turning to our results. Fourth quarter net revenue grew 38% to $130.4 million versus the same period in 2022. Our higher sales were driven by increased demand for our products in domestic utility scale solar. Gross profit increased to $55.4 million compared to $40.4 million in the prior year period. Gross profit as a percentage of net revenue was 42.5% compared to 42.7% in the prior year period, primarily due to higher labor costs. However, the increase in labor was slightly offset by increased leverage on safety.

Dominic Bardos: During the quarter, you will see that we incurred an additional zero point $7 million of litigation expenses associated with this issue in the SG&A section of our income statement.

Dominic Bardos: That is why our adjusted EBIDTA reconciliation indicate zero point $7 million associated with the installation shrink back issue in the fourth quarter.

Dominic Bardos: Also during the quarter, we did expand $1.7 million in cash as we ramped up remediation efforts.

Dominic Bardos: You'll see that the remaining warranty liability on our balance sheet is now $54 $9 million. We believe we are positioned to move faster on our remediation efforts in 2024. So we have reflected a current portion of the remaining liability at $31 $1 million. This represents the amount of cash we estimate we will consume during the next.

Dominic Bardos: During the quarter, we did not incur wire inflation shrink back warranty liability expenses or our cost of goods sold, so there was no adjustment to gap gross profit necessary during the period. I would like to point out that we have added a quarterly reconciliation of 2023 adjusted EBITDA to the appendix of our investor presentation. This reconciliation of adjusted EBITDA illustrates the quarterly impact of the shrink back expenses. As you may recall, we disclosed the Q3 and full year-to-date impact through Q3 last quarter, but we did not individually break out the elements incurred in the first and second quarters of 2023. I hope you find this additional information helpful. Furthermore, as Brandon mentioned earlier, we continue to analyze all new information regarding the potential loss related to the defective Prismian wire. While we investigated approximately 10 additional sites during the quarter, findings were consistent with assumptions incorporated in the remediation range we communicated last quarter, which is $59.7 million at the low end and $184.9 million at the high end.

Dominic Bardos: Four quarters to continue remediation efforts.

Dominic Bardos: Shifting to selling general and administrative expenses for the fourth quarter, we incurred $21.5 million of SG&A expense compared to $14 $9 million during the same period in the prior year.

Dominic Bardos: The year over year increase in general and administrative expenses was primarily related to higher noncash stock based compensation.

Dominic Bardos: Legal fees related to the patent infringement and wire insulation shrink back complaints and planned increases in payroll expense due to higher head count supporting growth.

Dominic Bardos: As I mentioned earlier zero point $7 million of this expense was specifically related to the wire insulation shrink back litigation.

Dominic Bardos: Net income was $16 $6 million in the fourth quarter compared to $118 $3 million during the same period in the prior year.

Dominic Bardos: Prior year period benefited from a $110 $9 million gain on the termination of the tax receivable agreement.

Dominic Bardos: During the quarter, you will see that we incurred an additional $0.7 million of litigation expenses associated with this issue in the SG&A section of our income statement. That is why our adjusted EBITDA reconciliation indicates $0.7 million associated with the insulation shrink-back issue in the fourth quarter. Also, during the quarter, we did expend $1.7 million in cash as we ramped up remediation efforts. You will see that the remaining warranty liability on our balance sheet is now $54.9 million. We believe we are positioned to move faster on remediation efforts in 2024, so we have reflected a current portion of the remaining liability at $31.1 million. This represents the amount of cash we estimate we will consume during the next four quarters to continue remediation efforts.

Dominic Bardos: On a related note we completed the simplification of our legal structure in Q4 transitioning from the prior up sea structure to a traditional C Corp.

Dominic Bardos: Adjusted EBITDA in the fourth quarter increased 30% to $39 1 million compared to $31 million in the prior year period.

Dominic Bardos: Adjusted EBITDA margin was 30% compared to 31, 8% a year ago, reflecting lower gross margin, partially offset by operating expense leverage.

Dominic Bardos: I want to take a moment to clarify that when we raised our outlook for 2023 adjusted EBITDA to 165 million to 175 million during the third quarter earnings. We did so on the basis that year to date, adjusted EBITDA was $134 $3 million.

Dominic Bardos: Shifting to selling general and administrative expenses, for the fourth quarter, we incurred $21.5 million of SG&A expense compared to $14.9 million during the same period in the prior year. The year-over-year increase in general and administrative expenses was primarily related to higher non-cash, stock-based compensation, legal fees related to patent infringement and wire insulation shrink back complaints, and planned increases in peril expense due to higher headcount supporting growth.

Dominic Bardos: Longer range for fourth quarter, adjusted EBITDA of $37 million to $40 $7 million.

Dominic Bardos: Said, another way fourth quarter, adjusted EBITDA of $39 $1 million came in at the high end of the implied fourth quarter range of $37 million to $40 $7 million.

Dominic Bardos: I hope this and the additional detail in the investor deck materials.

Dominic Bardos: Just tying up the numbers.

Dominic Bardos: Adjusted net income was $21 $3 million in the fourth quarter compared to 25.0 a million dollars in the prior year period.

Dominic Bardos: As I mentioned earlier, $0.7 million of this expense was specifically related to the wire insulation shrink back litigation. Net income was $16.6 million in the fourth quarter, compared to $118.3 million during the same period in the prior year, before your period benefited from a $110.9 million gain on the termination of the tax receivable agreement. On a related note, we completed the simplification of our legal structure in Q4, transitioning from the prior up C structure to a traditional C corp. Adjusted EBITDA in the fourth quarter increased 30% to $39.1 million compared to $30.1 million in the prior year period.

Dominic Bardos: Cash flow remained strong in the fourth quarter with $26 $4 million of cash flow from operations offset by $2 $9 million of investment in capital expenditures.

Dominic Bardos: For the full year cash flow from operations grew 133% to $92.0 million.

Dominic Bardos: After capital expenditures of $10 $6 million, we used the majority of the remaining cash to pay down our revolver and term loan facilities.

Dominic Bardos: We are pleased to have continued our trend of improving our leverage ratio again during the period.

Dominic Bardos: As of December 31, 2023, we had $631 $3 million in backlog and awarded orders an increase of 47% year over year as the company added over $128 million in orders during the period.

Dominic Bardos: Adjusted EBITDA margin was 30% compared to 31.8% a year ago, reflecting lower gross margin partially offset by operating expense leverage. I want to take a moment to clarify that when we raised our outlook for 2023 adjusted EBITDA to $165 million to $175 million during the third quarter earnings, we did so on the basis that year-to-date adjusted EBITDA was $134.3 million, implying a range for fourth quarter adjusted EBITDA of $30.7 million to $40.7 million. Said another way, the fourth quarter adjusted EBITDA of $39.1 million came in at the high end of the implied fourth quarter range of $30.7 million to $40.7 million. I hope this and the additional detail in the investor deck materials assist you in tying up the numbers. Adjusted net income was $21.3 million in the fourth quarter compared to $25.0 million in the prior year period. Cash flow remains strong in the fourth quarter with $26.4 million of cash flow from operations, offset by $2.9 million of investment in capital expenditures. For the full year, cash flow from operations grew 133% to $92.0 million.

Dominic Bardos: It's important to note there's some international orders have longer lead times than domestic orders and we are also winning domestic jobs that extend beyond our historical revenue cycle of nine to 13 months to realize revenue from awarded orders.

Dominic Bardos: Approximately $175 million of our backlog and awarded orders at year end have delivery dates beyond 2024.

Speaker Change: Turning now to the outlook.

Dominic Bardos: Given the current headwinds in the utility scale solar market some of our customers have experienced project delays.

Dominic Bardos: As a result of the current slowdown we are providing an outlook for the first quarter to help set expectations, but note that it is not our intent to provide quarterly guidance on an ongoing basis.

Dominic Bardos: Based on current business conditions business trends and other factors for the quarter ending March 31, 2024, the company expects revenue to be in the range of $90 million to $100 million.

Dominic Bardos: Adjusted EBITDA to be in the range of $15 million $20 million.

Dominic Bardos: Based on current business conditions business trends and other factors for the full year 2024, the company expects revenue to be in the range of $480 million to $520 million.

Dominic Bardos: After capital expenditures of $10.6 million, we used the majority of the remaining cash to pay down our revolver and term loan facility. We are pleased to have continued our trend of improving our leverage ratio again during the period. As of December 31, 2023, we had $631.3 million in backlog and awarded orders, an increase of 47% year over year, as the company added over $128 million in orders during the period. It's important to note that some international orders have longer lead times than domestic orders, and we are also winning domestic jobs that extend beyond our historical revenue cycle of nine to 13 months to realize revenue from awarded orders. Approximately $175 million of our backlog and awarded orders at year-end have delivery dates beyond 2024.

Dominic Bardos: Adjusted EBITDA to be in the range of $150 million to $170 million.

Dominic Bardos: Adjusted net income to be in the range of $90 million to $110 million.

Dominic Bardos: Cash flow from operations to be in the range of $100 million to $120 million.

Dominic Bardos: Capital expenditures to be in the range of $15 million to $20 million.

Dominic Bardos: And interest expense to also be in the range of $15 million to $20 million.

Dominic Bardos: Further and thinking about the cadence of the year, we expect second quarter revenue to see modest improvement over the first quarter, but still have an adjusted EBITA declined year over year prior to achieving operating leverage in the second half of the year.

Dominic Bardos: While it is always our goal to grow profitably, we will continue to invest in the business to maintain our leadership position shoals to take advantage of long term opportunities to create shareholder value to that end, we are continuing to invest to scale the business.

Dominic Bardos: Finally, with a significant cash flow, we expect to generate in 2024 and beyond.

Dominic Bardos: Turning now to The Outlook. Given the current headwinds in the utility-scale solar market, some of our customers have experienced project delays. As a result of the current slowdown, we are providing an outlook for the first quarter to help set expectations, but note that it is not our intention to provide quarterly guidance on an ongoing basis. Based on current business conditions, business trends, and other factors, for the quarter ending March 31st, 2024, the company expects revenue to be in the range of $90 million to $100 million, and adjusted EBITDA to be in the range of $15 million to $20 million. Based on current business conditions, business trends, and other factors, for the full year 2024, the company expects revenue to be in the range of $480 million to $520 million, adjusted EBITDA to be in the range of $150 million to $170 million, adjusted net income to be in the range of $90 million to $110 million, and cash flow from operations to be in the range of $100 million to $120 million. Capital expenditures should be in the range of $15 million to $20 million, and interest expense should also be in the range of $15 million to $20 million.

Dominic Bardos: Jos has new balance sheet optionality to further drive shareholder value.

Dominic Bardos: Specifically with 2024 cash flow from operations of 100 million to $120 million up 20% at the midpoint. Our capital deployment will continue to emphasize further deleveraging of the balance sheet and growing the business both organically and inorganically.

Dominic Bardos: With that I'll turn it back over to Brendan for closing remarks.

Brendan: Thanks, Dominic I'd like to close by thanking all of our customers for their confidence and shows our employees for enabling us to effectively serve our customers and our shareholders for their continuous support.

Brendan: And with that thank you everyone. I. Appreciate your time today, we will now open the line for questions.

Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question in queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.

Speaker Change: The Star Keys.

Speaker Change: And one moment please as we.

Speaker Change: Poll for questions.

Speaker Change: Our first question comes from the line of Mark Strouse with Jpmorgan Chase <unk> company. Please.

Mark Wesley Strouse: Please proceed with your question.

Mark Wesley Strouse: Yes. Good evening, Thank you very much for taking our questions.

Mark Wesley Strouse: Wanted to start with the 'twenty 'twenty four guide can you just talk about the visibility that you have into the back end loaded year and they can't delay or I'm. Sorry are there any cancellations are first of all and then the delays that you're seeing or are they kind of.

Speaker Change: Indefinite delays or do you know do you have kind of fixed start dates in mind.

Speaker Change: Mark Hey, it's it's Brendan Thank you for the question.

Brendan: I'll I'll start maybe in reverse order of your questions.

Dominic Bardos: Further, in thinking about the cadence of the year, we expect second quarter revenue to see modest improvement over the first quarter but still have an adjusted EBITDA decline year over year prior to achieving operating leverage in the second half of the year. While it is always our goal to grow profitably, we will continue to invest in the business to maintain our leadership and position Shoals to take advantage of long-term opportunities to create shareholder value. To that end, we are continuing to invest in the business. Finally, with the significant cash flow we expect to generate in 2024 and beyond, Shoals has new balance sheet optionality to further drive shareholder value.

Brendan: Yes look first and foremost want to be.

Brendan: Want to first congratulate the team for a fantastic year revenue up 50% earnings up 86 and another.

Brendan: Significant year improvement in operating cash so fantastic year to build from into 2020 for as far as project delays go look we see an industry wide issue.

Speaker Change: We're seeing it across market, we believe its transitory.

Speaker Change: The issues are the same as we've heard here in recent quarters. The project financing supply chain interconnections are a confusion on.

Brandon Moss: Specifically, with 2024 cash flow from operations of $100 million to $120 million, up 20% at the midpoint, our capital deployment will continue to emphasize further deleveraging of the balance sheet and growing the business both organically and inorganically. With that, I'll turn it back over to Brandon for closing remarks. Thanks, Dominic.

Speaker Change: Because of this we've seen some reductions.

Speaker Change: It's a multi year growth rates and industry publications.

Speaker Change: We've also looked into EIA data, specifically, we're seeing project delays going from 36% in early Q1 of 2022% to 62% in the backend. So really what what is happening for us is you're seeing a longer time from quote to purchase order.

Brandon Moss: I'd like to close by thanking all of our customers for their confidence in Shoals, our employees for enabling us to effectively serve our customers, and our shareholders for their continuous support. And with that, thank you everyone. I appreciate your time today.

Speaker Change:

Speaker Change: Is is what we talked about in the prepared earnings.

Speaker Change: Our order book is still robust, but we did see signs of slowdowns with project push outs in late fourth quarter and in January.

Operator: We will now open the line for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question. You may press start to, if you would like to remove your question, participants using speaker equipment.

Speaker Change: Maybe important to say, we have seen improvement in our quote to order conversion in February.

Speaker Change: It's too soon to call this a definitive recovery.

Speaker Change: But we have seen some improvement in February so to the question not necessary Shirley order cancellations. It is just taking us longer to move from a quote stage to an actual purchase order.

Mark Wesley Strouse: It may be necessary to pick up your handset before, and one moment, please. Our first question comes from the line of Mark Strouse with JPMorgan Chase & Company. Please proceed. Yes, good evening.

Speaker Change: Dominic maybe I'll kick it to you to answer the first part of the question was with regards to the guide you know one of the things that we kind of take pride on us being able to really build a bottoms up guide as we look at our business. In 2023, you know I'm I'm really pleased that the guide that we issued at the beginning of the year, we achieved within that.

Mark Wesley Strouse: Thank you very much for taking our questions. Wanted to start with the 2020 Ford guide. Can you just talk about the visibility that you have into the back end loaded year? In the cancellation, or I'm sorry, are there any cancellations, first of all, and then the delays that you're seeing? Are they kind of indefinite delays? Or do you have kind of fixed start dates in mind? Mark, hey, it's Brandon.

Speaker Change: Range on every metric or exceeded so.

Dominic Bardos: So as we look at our project by project workload some of the push outs that we referred to have perhaps shifted quarters now we normally would have projects move in and out of quarters, but we did see some heavier movement out of Qs one and two are with regards to our backlog and book of business and are awarded orders at the end of the.

Brandon Moss: Thank you for the question. I'll start maybe in reverse order of your questions. I guess, first and foremost, we wanna congratulate the team for a fantastic year. Revenue up 50%, earnings up 86, and another significant year improvement in operating cash. So, a fantastic year to build from into 2024.

Dominic Bardos: The year, we always enter every year with some go get we feel like we have an opportunity to go chase additional revenue, where we can book and build within the year. So we still have an opportunity from a sales standpoint.

Brandon Moss: As far as project delays go, look, we see an industry-wide issue. We're seeing it across markets. We believe it's transitory.

Brandon Moss: The issues are the same as we've heard here in recent quarters, project financing, supply chain interconnections, and IRA confusion. Because of this, we've seen some reductions to multi-year growth rates in industry publications. We've also looked into EIA data specifically; we're seeing project delays going from 36% in early Q1 of 2022 to 62% in the back end. So really, what is happening for us is you're seeing a longer time from quote to purchase order, which we talked about in the prepared earnings. Our order book is still robust.

Dominic Bardos: As Brandon mentioned, we've seen some improvements here recently in the quarter that we wanted to call out where our activity in February was doing really well and so I think the shorter answer would be we do look at our projects. We look at our book of business and we look at those jobs that are available to us in our pipeline that have.

Dominic Bardos: Not yet been awarded we take all that into consideration as we issue our guidance.

Speaker Change: Okay, and then I thought it was helpful thankful. Thank you.

Brandon Moss: But we did see signs of slowdowns with project pushouts in late the fourth quarter and in January. It may be important to say we have seen improvement in our quote to order conversion in February. It's too soon to call this a definitive recovery, but we have seen some improvement in February. So, to the question, not necessarily order cancellations. It is just taking us longer to move from a quote stage to an actual purchase order. Dominic, maybe I'll kick it to you to answer the first part of the question.

Speaker Change: The the order activity kind of speaks for itself, but just wanted to get your latest thoughts on the market share dynamics I mean does this.

Speaker Change: Maybe kind of a temporary pullback in the market here is is it creating any aggressive.

Speaker Change: Aggressive pricing or anything like that from your competitors. Thank you.

Speaker Change: No I appreciate the question.

Speaker Change: The issue was market driven not market share driven our value proposition remains extremely strong and.

Speaker Change: And I think we've we've shown a great example of that by adding another top EPC here. After the first of the year or solutions of being more cost efficient to reduce capital spend.

Dominic Bardos: Yeah, with regard to the guide, one of the things that we kind of take pride in being able to really build a bottoms-up guide as we look at our business. For 2023, I'm really pleased that the guide that we issued at the beginning of the year, we achieved within that range on every metric or exceeded it. So, as we look at our project-by-project workload, some of the pushouts that we've referred to have perhaps shifted quarters. Now, we normally would have projects move in and out of quarters, but we did see some heavier movement out of Qs 1 and 2. With regard to our backlog and book of business and our awarded orders at the end of the year, we always enter every year with some go-getters.

Speaker Change: <unk> operating costs by delivering higher quality and durability after install.

Speaker Change: And Oh, our ability to be more sustainable on projects because we we reduce the need of trenching I think all holds very strong still in the marketplace.

Speaker Change: Our current customer base understands that value proposition and remains committed to us.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.

Brian K. Lee: Hey, guys. Good afternoon, thanks for taking the questions.

Brian K. Lee: Maybe just a quick follow up to marks can.

Brian K. Lee: Can you you know Dominic I'm, Brandon can you quantify them.

Brian K. Lee: What youre seeing it sounded like two quarters first quarter second quarter stuff, you know moving heavier out to the right, but sort of what what's the typical backlog conversion and cycle time prior to this year and then kind of what what Youre seeing out there and many are based.

Dominic Bardos: We feel like we have an opportunity to chase additional revenue where we can book and build within years. So we still have an opportunity from a sales standpoint. As Brandon mentioned, we've seen some improvements here recently in the quarter that we wanted to call out where our activity in February was doing really well. And so I think the shorter answer would be: we do look at our projects, we look at our book of business, and we look at those jobs that are available to us in our pipeline that have not yet been awarded. We take all that into consideration as we issue our. Okay, then I was helpful. I am thankful.

Brian K. Lee: Based on you know, how you're set up guidance for 'twenty four and then.

Brian K. Lee: You also mentioned a book and burn business or get go business I think in the past, it's been like 15% plus or minus each year. So the guidance baseline you have given today that would imply like $75 million or is that different this year in terms of what you're seeing are embedding into into the numbers.

Speaker Change: Sure Brian So yeah, there's a couple of things to unpack in there and I think from the project standpoint, and the timelines is taking them. We have seen an increase I think Brandon mentioned, the EIA data that has project delays that.

Mark Wesley Strouse: I think the order activity kind of speaks for itself, but just want to get your latest thoughts on market share dynamics. I mean, is this maybe a kind of temporary pullback in the market here? Is it creating any aggressive pricing or anything like that from your competitors? Thank you.

Speaker Change: Projects that are out there had a 36% of them in Q1 of 2022, we're experiencing delays that number is up to 62% at the end of the year. So our timeline has extended in the past we would've said awarded orders become revenue within nine to 13 months.

Brandon Moss: No, I appreciate the question. The issue is market driven, not market share driven. Our value proposition remains extremely strong, and I think we've shown a great example of that by adding another top EPC here after the first of the year. Our solutions of being more cost efficient to reduce capital spend, reducing operating costs by delivering higher quality and durability after installation, and our ability to be more sustainable on projects because we reduce the need for trenching. I think all holds very strong still in the marketplace. Our current customer base understands that value proposition and remains committed. Thank you. Thank you. Our next question comes from the line of Brian Lee with Goldman. Hey guys, good afternoon.

Speaker Change: That has definitely we've seen some extension on that.

Speaker Change: The number of days that it takes us to go from the quote to the actual purchase orders and revenue has increased as a result of that so when we look at Q1 and Q2, we wouldn't be admission. He got these awarded orders and the delivery dates were expected to have delivery in the first half of the year.

Speaker Change: And now some of those projects may be in Q2, and Q3 or Q3 and Q4. So we are seeing some push outs of projects. They haven't canceled they're still on the book of business, but there are some delays in there.

Brian K. Lee: Thanks for taking the questions. Maybe just a quick follow-up to Mark's. Can you, you know, Dominic or Brandon, quantify what you're seeing? It sounded like two quarters, right?

Speaker Change: And that's one of the reasons why in the backlog.

Speaker Change: To your question about the go gets you know I don't want to always think about it in terms of a percentage I think there's a fair amount of projects that we can win every year as projects get larger then, yes, and actually that that number will go up but as our denominator. It gets larger it's harder to keep getting 15 or 20% go get every year. So we ended the year.

Brian K. Lee: You know, first quarter, second quarter stuff, you know, moving heavier out to the right, but sort of what's the typical backlog conversion and cycle time prior to this year? And then kind of what you're seeing out there and embedding based on, you know, how you set up guidance for 24. And then, you know, Dominic, you also mentioned the book and burn business or get go business.

Speaker Change: As I mentioned, we have $631 million of backlog of $175 million of that is beyond 2024. So.

Speaker Change: So we do have some go get to go finish out this year and we believe that's one of the reasons why the second half is going to be the opportunity to have the increased lift because our normal sales cycle. It does take some time to secure the job worked with an E. P. CS get it designed and get the purchase orders and get the materials and build it.

Brian K. Lee: I think in the past, it's been like 15%, plus or minus each year. So on the guidance baseline, you know, you're given today, that would imply like $75 million. Or is that different this year in terms of what you're seeing or embedding into the numbers? Sure, Brian.

Speaker Change: So it does take a little bit of time, while we still have the opportunity to do that in the first half and that's why we issued the guy that we did.

Dominic Bardos: So yeah, there's a couple things to unpack here. And I think from the project standpoint and the timelines it's taking, we have seen an increase. I think Brandon mentioned the EIA data that shows project delays. Projects that are out there had 36% of them in Q1 of 2022 were experiencing delays. That number is up to 62% at the end of the year.

Speaker Change: Brian probably also maybe worth mentioning just the international business.

Speaker Change: Backlog and awarded orders growing 13% the cycle times on those projects tend to be longer as well. So I think you've summed it up well of.

Speaker Change: This project push out moving moving to the right approximately two quarters.

Speaker Change: Okay. That's super helpful guys, maybe also on the guidance.

Dominic Bardos: So our timeline has extended. In the past, we would have said awarded orders become revenue within 9 to 13, and that has definitely, we've seen some extension on that. The number of days that it takes us to go from the quote to the actual purchase orders and revenue has increased as a result of that. So when we look at Q1 and Q2, when we initially got these awarded orders and the delivery dates were expected to have delivery in the first half of the year, now some of those projects may be in Q2 and Q3 or Q3 and Q4. So we are seeing some pushouts of projects, but they haven't been canceled.

Speaker Change: Just looking at the EBIT.

Speaker Change: Strip out Q1.

Speaker Change: It seems like the guidance for 2024 implies youll be doing EBIT margins.

Speaker Change: Well, well north of 35%, maybe even 40% range in the second half of the year, Yeah. That's like 500 basis points higher than 2023 levels is that fair first off and then.

Speaker Change: I guess, what's sort of the driver there is it just gross margin expansion isn't the opex leverage maybe speak to some of the drivers in moving parts because it seems like the back half implied margins are quite.

Speaker Change: Quite meaningfully higher than what you saw from <unk> to 'twenty three.

Speaker Change: Yeah. So the operating leverage is first and foremost going to be critical in the first half of the year, we are experiencing with the lower revenue and perhaps even a negative growth year over year in the first half of the year, we are definitely going to be losing some leverage you know we always look at all of our SG&A expense of where the investment is going to be made from from that point.

Dominic Bardos: They're still in the book of business, but there are some delays in there. And that's one of the reasons why in the backlog. To your question about the go-gets, you know, I don't want to always think about it in terms of a percentage. I think there's a fair number of projects that we can win every year. As projects get larger, then, naturally, that number will go up. But as our denominator gets larger, it's harder to keep getting 15 or 20 percent go-gets every year. So, we ended the year, you know, as I mentioned, we had $631 million of backlog. A $175 million of that is beyond 2024, so we do have some go-gets to finish out this year.

Speaker Change: Down the line and so it's a little bit of both.

Speaker Change: We're really gaining leverage there were some unusual I would say SG&A things that we have put into place last year. We completed some projects, we're not going to repeat those things.

Speaker Change: We've simplified our legal structure, we've gone through the filings and the secondary offerings that were necessary in the first half of the year, we're securing where review all of our external spend and look at SG&A to make sure it's as efficient as possible to drive value. So we do believe that the EBITDA margins that we're projecting that are implied for the back.

Dominic Bardos: And we believe that's one of the reasons why the second half is going to be the opportunity to have the increased lift because, in our normal sales cycle, it does take some time to secure the job, work with the EPCs, get it designed, get the purchase orders, get the materials, and build it. So, it does take a little bit of time. We still have the opportunity to do that in the first half, and that's why we have the guide that we have.

Speaker Change: Yeah.

Speaker Change: <unk> are achievable and that's what we're going after.

Speaker Change: Alright, great last one for me if I could squeeze it in.

Speaker Change: Just the the.

Speaker Change: The shrink back issue you took a charge in Q3, sorry, Q2, you took a bigger charge in Q3, and then no charge in Q4.

Dominic Bardos: Brian, it might also be worth mentioning just the international business, the backlog, and award orders growing to 13%. The cycle times on those projects tend to be longer as well. So I think you've summed it up well for this project push out moving to the right by approximately two quarters. Okay, that's super helpful, guys. Maybe also on the guidance, just looking at EBITDA, if we strip out Q1, it seems like the guidance for 2024 implies you'll be doing EBITDA margins, you know, well, well north of 35%, maybe even 40%, in the second half of the year. That's like 500 basis points higher than 2023 levels. Is that fair, first off?

Speaker Change: I guess and you're keeping the overall liability.

Speaker Change: Range unchanged. So how should we interpret that does that mean you.

Speaker Change: Feel like you're you've kind of got this under control, we shouldn't see outside of some of the cash flow that you have to spend to remediate accrual.

Speaker Change: Accruals on the P&L going forward is it is it sort of.

Speaker Change: Ring fenced at this point just based on the results you saw here in the quarter and any.

Speaker Change: Kind of interpretation would be helpful. There, yeah, Brian I would say because of analytic litigation were.

Speaker Change: These limited what we can say here, we are trying to disclose more information here than I think we have in previous quarters.

Brian K. Lee: And then I guess, what's sort of the driver there? Is it just gross margin expansion? Is it OPEX leverage? Maybe speak to some of the drivers and moving parts, because it seems like the BAC Act-compliant margins are quite, you know, quite uniquely higher than what you saw for most of 2023. Yeah, so the operating leverage is first and foremost going to be critical. You know, the first half of the year we are experiencing, with lower revenue and perhaps even, you know, negative growth year over year in the first half of the year, we are definitely going to be losing some leverage. You know, we always look at all of our SG&A expenses and where the investments are going to be made from that point down the line. And so it's a little bit of both. We're really gaining leverage. There were some unusual, I would say, you know, SG&A things that we put into place last year. We completed some projects. We're not going to repeat those things.

Speaker Change: What I think is important to note when we originally.

Speaker Change: <unk> customers are we disclosed approximately 2020 sites out of 300 sites.

Speaker Change: And that had the prisoner and red wire on it we're displaying shrink back.

Speaker Change: Since we notified the customers we've had an additional 10 sites.

Speaker Change: That requires some sort of additional inspection and four of those sites displayed no no evidence of shrink back wire. So we continue to work on our remediate and remediation effort of known sites.

Speaker Change: We're working with customers their timelines and obviously, our internal production timelines and.

Speaker Change: And we've got the opportunity this year to pool, some remediation efforts forward a bit I think as we disclosed in the prepared remarks, we plan to spend $31 $1 million a share on on that remediation efforts.

Speaker Change: So.

Speaker Change: So that's where that's where things stand today and.

Dominic Bardos: We've simplified our legal structure. We've gone through the filings and the secondary offerings that were necessary in the first half of the year. You know, we're securing, reviewing all of our external spend and looking at SG&A to make sure it's as efficient as possible to drive value. So we do believe that the EBITDA margins that we're projecting that are implied for the back half are achievable, and that's what we're going after. All right, great. Last one for me, if I could squeeze it in.

Speaker Change: And the final question that you had about you know where does it reside.

Speaker Change: That's the point, we have assumptions in the remediation range and the results that we have thus far were consistent with those assumptions and that's why there was no charge necessary on the income statement and to your point. It will just play out on the balance sheet. The liability would come down as we spend the cash so that's where we stand at the end of 'twenty three.

Speaker Change: Alright, Thanks, guys I'll pass it on.

Speaker Change: Thanks, Brian.

Speaker Change: Thank you. Our next question comes from the lineup for the Shen with Roth Capital Partners LLC.

Speaker Change: With your question.

Shen: Everyone. Thanks for taking my questions.

Brian K. Lee: Just the shrink back issue, you know, you took a charge in Q3, or sorry, Q2, you took a bigger charge in Q3, and then no charge here in Q4, I guess, and you're keeping the overall liability range unchanged. So how should we interpret that? Does that mean you feel like you've kind of got this under control?

Philip Shen: First one is on the cadence of our quarterly revenue.

Speaker Change: You've given us the Q1 guide you said I think that the Q2.

Speaker Change: Revenue.

Speaker Change: It might be a modest improvement over Q1.

Speaker Change: Do you anticipate Q1 to be the bottom and.

Speaker Change: And do you know right now you expect things to accelerate in the back half.

Speaker Change: And I guess the question. There is do you see these headwinds relieving our being relieved in back half of this year and if so.

Dominic Bardos: We shouldn't see outside of some of the cash flow that you have to spend to remediate accruals on the P&L going forward? Is it sort of more ring-fenced at this point, just based on the results you saw here in the quarter? Any kind of interpretation would be helpful here, in previous quarters. What I think is important to note is that when we originally notified customers, we disclosed that approximately 20, 20 sites out of 300 sites that had the prismium red wire on them were displaying shrink-back. Since we notified the customers, we've had an additional 10 sites. That required some sort of additional inspection, and four of those sites displayed no evidence of shrink-backed wire.

Speaker Change: What's the basis of that thinking and what is the risk that you think that.

Speaker Change: These challenges could extend through into back half or even beyond what's the confidence level that things really improve in the back half. Thanks guys.

Speaker Change: Yeah. So let me, let me start and unpack some of that Phil.

Speaker Change: In terms of our cadence we typically as we've been growing the business have seen about 40% of the revenues occur in the first half of the year, 60% back half is typically as we've been growing and ramping kind of a natural a lot of orders get placed in the first quarter as we mentioned.

Dominic Bardos: So we continue to work on our remediation efforts for known sites. We are working with customers, their timelines, and, obviously, our internal production timelines. And we've got the opportunity this year to pull some remediation efforts forward a bit. I think, as we've disclosed in the prepared remarks, we plan to spend $31.1 million this year on those remediation efforts. So, you know, that's where things stand today. And the final question that you had about, you know, where does it reside? That's the point; we have assumptions in the remediation range, and the results that we have thus far were consistent with those assumptions. And that's why there was no charge necessary on the income statement.

Speaker Change: Some of the signs that we had of slowdown in Q4 and into January we have seen some improvement in quote and order conversion here in February so as we look at the normal pacing of this during the first quarter would naturally be a lower quarter.

Speaker Change: For us so in terms of the bottom of our forecast for the year I think that's a fair characterization from a quarterly revenue perspective.

Speaker Change: Clearly, we expect jobs that continued to close we've seen some push outs that were expected to be in the first half as we've mentioned.

Speaker Change: Move to the back half.

Speaker Change: We do not have any reason to believe those jobs will cancel them. So in terms of prognostication about how the industry recovers.

Dominic Bardos: And to your point, it would just play out on the balance sheet; the liability would come down as we expend the cash. So that's where we stand at the end. All right. Thanks, guys. I'll pass it off.

Speaker Change: There's a number of factors that Brandon mentioned, you know there was some wishful thinking.

Brian K. Lee: Thanks, Brian. Thank you. Our next question comes from the line... Hey, everyone. Thanks for taking my questions. The first one is on the cadence of quarterly revenue. You've given us the Q1 guide.

Speaker Change: Thinking on perhaps some of the interest rates are the financing costs right that folks have to go and chase down some new financing on power purchase agreements.

Philip Shen: You said, I think, that Q2 revenue might be a modest improvement over Q1. Do you anticipate Q1 to be the worst? And right now, you expect things to accelerate in the back half. I guess the question there is, given these headwinds.

Speaker Change: No. The interconnection things I think are pretty much just there people know that I don't think that's driving necessary immediate corrections or slowdown and in this space.

Philip Shen: Thank you all for being here and being relieved in the back half. And if so, what's the basis of that thinking, and what is the risk that you think we are at, that these challenges could extend through into that calf or even beyond, and what is the confidence level that really improved? Yeah, so let me start and unpack some of that, Phil. I think in terms of our cadence, we typically, as we've been growing the business, have seen about 40% of the revenues occur in the first half of the year, and 60% in the second half. Typically, as we've been growing and ramping up, kind of a natural. A lot of orders get placed in the first quarter. As we mentioned, you know, some of the signs that we had of a slowdown in Q4 into January, we've seen some improvement in quote-unquote order conversion here in February.

Speaker Change: With the project delays themselves like I said, there's a number of reasons number of factors, but we are always going to work with our customers on their timelines and if they ask us to push a quarter out that we'll absolutely do that for them.

Dominic Bardos: Great. Thanks Dominic.

Speaker Change: Second topic here is on the new top EPC I was wondering if you could share a little bit more specifically is there any way you can quantify the size of the order what percentage of their business do you think you won.

Speaker Change: And then it sounds like because of the timing.

Speaker Change: It sounds like one that in Q1 this quarter. So is it fair to say that it's not in year end 'twenty three backlog and it wasn't included in the order book or the bookings for Q4 and then.

Speaker Change: Are the MSA terms similar to normal orders and then finally I think that's the last one so I know, it's a lot of questions, but they're all types.

Philip Shen: So as we look at the normal pacing of this, the first quarter would naturally be a lower quarter for us. So in terms of the bottom of our forecast for the year, I think that's a fair characterization from a quarterly revenue perspective. Clearly, we expect jobs to continue to close. We've seen some pushouts that were expected to be in the first half, as we've mentioned, move to the back half.

Speaker Change: And Phil.

Speaker Change: Phil that's that's probably pushing into around that we really can't disclose publicly there's we're very optimistic it is a top V. P. C and I think some of your questions might logically makes sense, we are not in a position to comment specifically about terms about.

Dominic Bardos: We do not have any reason to believe those jobs will be eliminated. So in terms of prognostication about how the industry recovers, there's a number of factors that Brandon mentioned. There was some wishful thinking on perhaps some of the interest rates or the financing costs, right? Did folks have to go and chase down some new financing on power purchase agreements? The interconnection things, I think, are pretty much just there. People know that.

Speaker Change: What was in what's not we just are very pleased that they recognize the quality shows can bring and we're very pleased to be a part of their family going forward and it's worth it.

Speaker Change: As a as imagined last last call are we still believe theres room to grow here in the domestic market, both with new customers and to gain additional wallet share with current customers and this is a this.

Speaker Change: This is great evidence of it we're very excited as a team and a big win for Shoals.

Speaker Change: Great one one fault there from a timing standpoint is it fair to say that this bookings number will be in the Q1 period. When you guys report next.

Philip Shen: I don't think that's driving necessary immediate corrections or slowdowns in the. With the project delays themselves, like I said, there are a number of reasons, a number of factors, but we are always going to work with our customers on their timelines, and if they ask us to push a quarter out, we'll absolutely do that. Great, thanks, Dominic. The second topic here is the new top. I was wondering if you could share a little bit more specifically; is there any way you can quantify the size of the order and what percentage of their business... It sounds like because of the timing, it sounds like he won that in Q1 this quarter.

Speaker Change: So we're not going to comment on the timing of when when those specific projects to go forward with that D. P C.

Speaker Change: Okay. Thanks, guys I'll pass it on alright got it.

Speaker Change: Thank you. Our next question comes from the line of Andrew.

Andrew: Prasad <unk> with Morgan Stanley. Please proceed with your question.

Andrew Salvatore Percoco: Great. Thanks, so much for taking the questions maybe.

Andrew Salvatore Percoco: Maybe just to kind of start out just continuing with the revenue conversation for 2024.

Andrew Salvatore Percoco: Totally understand that you are calling for a back half an inflection in growth.

Philip Shen: Is it fair to say that it's not a year in 23 backlog, and it wasn't including the or the. Yeah, and then, are the MSA terms similar to normal orders? And then, finally, I think that's the last one.

Andrew: But I was just curious if you could elaborate on potential retrofit opportunities I think you had some interesting products that you guys have have highlighted it from time to time in terms of potentially go into existing assets to deploy some of those are some of those products.

Brandon Moss: So I know it's a lot of questions, but they're all tied together. And Phil, that's probably pushing into a realm that we really can't disclose publicly. We're very optimistic. It is a top EPC. And I think some of your questions might logically make sense.

Andrew Salvatore Percoco: What's the opportunity there is it meaningful enough to maybe.

Andrew Salvatore Percoco: Drive additional revenue growth and if you can also maybe elaborate on what youre seeing on the EV charging and battery storage side of the business in terms of what's embedded in the 'twenty 'twenty four guide. Thank you.

Philip Shen: We are not in a position to comment specifically about terms, about what was in, and what's not. We just are very pleased that they recognize the quality Shoals can bring, and we're very pleased to be a part of their family going forward. And it's worth saying, Phil, as I mentioned on last call, we still believe there's room to grow here in the domestic market, both with new customers and to gain additional wallet share with current customers. And this is this is great evidence of it. We're very excited as a team, and it was a big win for Shoals. Great. One, only fault there.

Andrew Salvatore Percoco: Yeah I'll comment on that this is Brian had great great questions I would say on our.

Brian K. Lee: Product base that things have been launched like snapshot in particular that can be deployed.

Brian K. Lee: Post installation, we are still very early launch without product today.

Brian K. Lee: I would not expect.

Brian K. Lee: That to be a huge factor in driving our back half growth is going to come from our core.

Brandon Moss: From a timing standpoint, is it fair to say that this bookings number will be in the Q1 period when? So we're not going to comment on the timing of when those specific projects go forward with that. Got it. Okay. Thanks, guys. I'll pass it on.

Brian Lee: Mainly domestic utility scale solar business.

Brian Lee: As it relates to E V. A lot of strong interest in that product today.

Brian Lee: Last our last call, we announced the partnership with light US we are in the process of deploying that now going well.

Philip Shen: All right. You got it. Thank you, our next question comes from the line, " Great. Thanks so much for taking the questions. Maybe just to kind of start out, just continuing with the revenue conversation for 2024. I totally understand that you're calling for a back half in inflection and growth, but I was just curious if you could elaborate on potential retrofit opportunities. I think you have some interesting products that you guys have highlighted from time to time in terms of potentially going to existing assets to deploy some of those products. What's the opportunity there?

Brian Lee: But again the backend growth of this year will come from our domestic solar business.

Speaker Change: Got it that's Super helpful. And then maybe just as my follow up on the manufacturing expansion can you just maybe remind us where your capacity stands today the utilization rate on some of those facilities and where this additional facility or bringing in in terms of total revenue or or or megawatt number in terms of our total capacity once this.

Brian Lee: Facilities up and running.

Brian Lee: As we disclosed last last quarter.

Brian Lee: We took our production capacity from from 2020 Gigawatts.

Joseph Amil Osha: Is it meaningful enough to maybe drive additional revenue growth? And if you can also maybe elaborate on what you're seeing on the EV charging and battery storage side of the business in terms of what's embedded in the 2024 guide, thank you. Yeah, I'll comment on that. This is Brandon.

Brian Lee: <unk> to approximately 35 with the ability to scale up to 42 this new facility.

Brian Lee: [noise] facility. The reason that that we are investing in it and we are excited about this investment but for for the local area of Portland and our employees.

Brandon Moss: Great questions. I would say on our product base that things have been lost, like Snapshot in particular, that can be deployed post-installation. We are still in a very early stage of launch with that product today, so I would not expect that to be a huge factor in driving our back half growth. It is going to come from our core, mainly domestic utility-scale solar business. As it relates to EV, there is a lot of strong interest in that product today. Last last call, we announced a partnership with Leidos.

Brian Lee: Really to have a purpose built facility, which enables us to consolidate our operations in Tennessee.

Brian Lee: We have three plants today, and the Tennessee area that are within probably five miles apart all of this we'll able enable us to have again a purpose built facility that is self sustaining.

Brian Lee: We have also recently announced the closure of our California location manufacturing location and that production will be moving into this new site. So we'll provide more specific details as we build out this facility in the coming quarters.

Speaker Change: Great. Thank you.

Brandon Moss: We are in the process of deploying that now, and it's going well. But again, the back-end growth of this year will come from our domestic solar. Got it. That's super helpful.

Speaker Change: Thank you. Our next question comes from the line of Jordan Levy with Chewy Securities. Please proceed with your question.

Brian Lee: Yeah.

Jordan Alexander Levy: Afternoon, all Krish did all the detail I think you may have mentioned customer procurement.

Jordan Alexander Levy: One of the challenges driving some delays here I just wanted to get some color on where youre seeing the biggest pain points for customers on procurement and is this consistent across the customer base may be limited.

Joseph Amil Osha: And then maybe, just as a follow-up on the manufacturing expansion, can you just maybe remind us where your capacity stands today, the utilization rate on some of those facilities, and where this additional facility will bring you in terms of total revenue or megawatt numbers in terms of total capacity once this facility is up and running? Yeah, as we disclosed last quarter, we took our production capacity from 20 gigawatts to approximately 35 with the ability to scale up to 42. This new facility, the reason that we are investing in it, and we are excited about this investment both for the local area of Portland and our employees, is really to have a purpose-built facility which enables us to consolidate our operations in Tennessee. We have three plants today in the Tennessee area that are probably within five miles apart.

Jordan Alexander Levy: Select.

Speaker Change: Yeah, I think look.

Speaker Change: Like probably everybody else in the industry as mentioned.

Jordan Alexander Levy: The.

Speaker Change: The supply chain issues.

Jordan Alexander Levy: Mostly centered around Transformers and switch gear products. So we hear that from many customers.

Jordan Alexander Levy: But look we also hear delays due to due to permitting due to labor challenges.

Jordan Alexander Levy: And due to long interconnection queue lead time so.

Jordan Alexander Levy: Again, I think it's an industry wide phenomenon hopefully.

Jordan Alexander Levy: What will solve over the coming quarters.

Jordan Alexander Levy: But a mixed bag across our customer base of what were hearing and why.

Speaker Change: I appreciate that and maybe just as a follow up.

Jordan Alexander Levy: They've been sort of in the <unk>.

Jordan Alexander Levy: Our inventory a year for the industry is strong.

Jordan Alexander Levy: Strong guidance on.

Jordan Alexander Levy: On cash flow and free cash flows.

Brandon Moss: This will enable us to have, again, a purpose-built facility that is self-sustaining. We have also recently announced the closure of our California location and the manufacturing location will be moving into this new site. So we'll provide more specific details as we build out this facility in the coming quarter. Great, thank you. Question time. Afternoon all, I appreciate all the details.

Jordan Alexander Levy: I'm sure part of that you'd like to retain against the warranty potential but just wanted to get your thoughts on utilization of cash flows at this point.

Speaker Change: Yeah. So so a couple of things first and foremost I think you'll see that we've made another quarter improvement in our leverage ratios as we pay down and continue to retire some expensive debt.

Speaker Change: The term loan if you recall had an interest rate north of 11%.

Speaker Change: And at the end of the quarter, you'll see on our balance sheet that we actually started doing a little interest rate arbitrage and utilizing our revolving line of credit to pay down our term loan once the prepayment penalties were gone.

Joseph Amil Osha: I think you mentioned customer procurement as one of the challenges driving some delays here. I just wanted to get some color on where you're seeing the biggest pain points for customers in procurement, and is this consistent across the customer base or maybe limited to a select few? Yeah, I think look, like probably everybody else in the industry, that the supply chain issues mostly center around transformers and switchgear products. So we hear that from many customers. But look, we also hear delays due to permitting, due to labor challenges, and due to long interconnection queue lead times. Again, I think it's an industry-wide phenomenon. Hopefully, this will resolve itself over the coming quarters, but a mixed bag across our customer base of what we're hearing and watching. Appreciate that.

Speaker Change: We have an opportunity to invest in this industry. We are a company that is innovative and well respected in our space and so we'll always be looking for ways to invest and grow the business both organically and inorganically.

Speaker Change: As we mentioned yeah. This this is a year when the revenues are a little softer across the marketplace and we see that and we believe that we're going to continue to generate significant cash flows grow the business have been in a position to invest we are positioning our balance sheet to be flexible and if we see the right opportunity you know for an acquisition that is not.

Speaker Change: Something we're gonna rule out.

Speaker Change: And at this point in time, we do not have a plan for dividends or share repurchase, but we're always talking with our board about those options as well. So right now the priority is probably going to be continuing to invest in the business pay down some debt and be ready to strike if some opportunity comes forward.

Joseph Amil Osha: Maybe just as a follow-up, even sort of in a transitory year for the industry, you have some strong guidance on cash flows and free cash flows. I'm sure a part of that you'd like to retain against the warranty potential, but I just want to get your thoughts on utilization of cash flows at this point. Yeah, so a couple of things. First and foremost, I think you'll see that we've made another quarter of improvement in our leverage ratios as we pay down and continue to retire some expensive debt. The term loan, if you recall, had an interest rate of north of 11%.

Speaker Change: Thanks, so much appreciate it.

Speaker Change: Jordan.

Speaker Change: Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question.

Speaker Change: Yeah.

Joseph Amil Osha: Hello there.

Joseph Amil Osha: Two questions first there's been a lot of talk recently around data centers data center resiliency onsite store and stuff like that I'm wondering looking at that end market, whether you all perceive.

Joseph Amil Osha: Any opportunities and then I have one other question.

Dominic Bardos: And at the end of the quarter, you'll see on our balance sheet that we actually started doing a little interest rate arbitrage and utilizing our revolving line of credit to pay down our term loan once the prepayment penalties were gone. We have an opportunity to invest in this industry. We are a company that is innovative and well-respected in our space, and so we'll always be looking for ways to invest in and grow the business both organically and inorganically.

Speaker Change: Joe Thanks.

Joe: Good to hear from you look I guess first and foremost the growth in data centers.

Joseph Amil Osha: It impacts our business because of power consumption, which is a good thing and I think we'll see consumption grow in the coming years at a faster rate than maybe what was previously.

Joseph Amil Osha: Model.

Joseph Amil Osha: So it's a positive thing for our for our core business in Shoals.

Dominic Bardos: As we mentioned, yeah, this is a year when revenues are a little softer across the marketplace, and we see that. And we believe that we're going to continue to generate significant cash flows, grow the business, and be in a position to invest. We are positioning our balance sheet to be flexible, and if we see the right opportunity for an acquisition, that is not something we're going to rule out. And at this point in time, we do not have a plan for dividends or share repurchase, but we're always talking with our board about those options as well. So right now, the priority is probably going to be to continue to invest in the business, pay down some debt, and be ready to strike if some opportunity comes. Thanks so much.

Joseph Amil Osha: As it relates specific to our interest in data centers.

Joseph Amil Osha: Look.

Joseph Amil Osha: We are interested in markets that enable electrification in data centers would be part of those markets are I believe that we've got a pretty.

Joseph Amil Osha: <unk> unique value proposition to be able to build plug and play systems at scale.

Joseph Amil Osha: And reduce labor costs.

Joseph Amil Osha: In the field also aggregating supply chain issues.

Joseph Amil Osha: So.

Joseph Amil Osha: I do believe that our value proposition translates and like.

Joseph Amil Osha: Like any large markets in the electrification space shows US chose is looking at data centers among others.

Joseph Amil Osha: I appreciate it. You got it, Jordan. Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question. Hello, team.

Speaker Change: Okay, Alright, that's good.

Joseph Amil Osha: And then second question I think as everyone on this call knows there is a placement.

Joseph Amil Osha: Placed in service requirement for module solar module is brought into the country under the tariff moratorium that ends at the end of this year, which may or may not sort of create some pull forward is as developers and owners try and hit that.

Joseph Amil Osha: Two questions. First, there's been a lot of talk recently around data centers, data center resiliency, you know, on-site storage, stuff like that. I'm wondering, looking at that end market, whether you all perceive, you know, any opportunities? And then I have one other question. Joe, thanks.

Joseph Amil Osha: Hit that target I'm wondering as you look at your order book and timing and so forth or are you seeing any evidence that that placed in service requirement is influencing project timing at all thank you.

Brandon Moss: It's good to hear from you. Look, I guess first and foremost, the Growth and Data Center impacts our business because of power consumption, which is a good thing, and I think we'll see consumption grow in the coming years at a faster rate than maybe what was previously modeled. So it's a positive thing for our core business and Shoals. As it relates specifically to our interest in data centers, look, we are interested in markets that enable electrification, and data centers would be part of those markets.

Speaker Change: Look I think that that could have an impact on the growth that we're seeing are in the back half of the year certainly.

Speaker Change: So I think your intuition is is is correct. There. So I my feeling is on the market.

Speaker Change: Hopefully there is not a labor constraint there.

Speaker Change: Is maybe that unfolds.

Speaker Change: If it does you know we offer a unique opportunity to reduce labor costs I think it bodes well for shoals.

Speaker Change: Thank you very much.

Speaker Change: Thank you. Our next question comes from the line of Donovan Schafer with Northland Capital markets. Please proceed with your question.

Joseph Amil Osha: I believe that we've got a pretty unique value proposition to be able to build plug-and-play systems at scale and reduce labor costs in the field, also addressing supply chain issues. So, I do believe that our value proposition translates, and like any large market in the electrification space, Shoals is looking at data centers among us. Okay.

Donovan Due Schafer: Hey, guys. Thanks for taking my questions. So my first question is just kind of I guess.

Donovan Due Schafer: Say, maybe technical but getting at that shrink back the the nature of a shrink back issue is that something where I think like when a new home gets built there's usually like in the first few months that kind of settles or something you might get some cracks, but then it stabilizes like it's shrink back like that we're stuck.

Joseph Amil Osha: That's good. And then, second question, I think, as everyone on this call knows, there's a place in service requirement for solar modules brought into the country under the tariff moratorium that ends at the end of this year, which may or may not sort of create some pull as developers and owners try and hit that target. I'm wondering, as you look at your order book and timing and so forth, are you seeing any evidence that that place in service requirement is affecting project timing at all? Thank you.

Donovan Due Schafer: Stuck it's deployed in the field, maybe it's exposed to the elements or whatever and there's sort of an initial 12 to 24 month period like adjustment and so how do you see the shrink packet shrink back in that first period or or you don't and you're you're basically good for the life of that deployment is that kind of the nature of it or can shrink backed issues you know rear their ugly.

Donovan Due Schafer: Five years 10 years later.

Brandon Moss: Look, I think that could have an impact on the growth that we're seeing in the back half of the year, certainly. So I think your intuition is correct there. So my focus is on the market.

Dominic Bardos: Dominic I'm.

Dominic Bardos: I'm, sorry, Jonathan I think the way that you've explained that as is accurate we think about shrink back occurring after a number a number of thermal cycles. So as you know power on power off and then also there's a climate element that relates to that I think we've out.

Joseph Amil Osha: Hopefully, there's not a labor constraint there, as maybe that unfolds. If it does, you know, we offer a unique opportunity to reduce labor costs. I think it bodes well for Shoals. Thank you very much.

Donovan Due Schafer: Our next question comes from the line of Donovan. Hey guys, thanks for taking the questions. So my first question is just kind of, I guess, say maybe technical but getting at the shrinkage. The nature of a shrink-back issue is that something where, I think like when a new home gets built, there's usually, in the first few months, it kind of settles or something, you might get some cracks, but then it stabilizes.

Dominic Bardos: That really in our complaint so.

Dominic Bardos:

Jonathan: You are you are correct in your assumption there.

Donovan Due Schafer: Okay, and then for the backlog.

Donovan Due Schafer: You know the inner solar in January we're talking to some of your peers are there was yeah. It said because there's this awareness of the long lead time items on Transformers and high.

Donovan Due Schafer: High voltage.

Donovan Due Schafer: Breakers and switch gear.

Donovan Due Schafer: That's in some cases.

Donovan Due Schafer: Companies aren't.

Brandon Moss: Like a shrink-back like that, where the stuff gets deployed in the field, maybe it's exposed to the elements or whatever, and there's sort of an initial 12 to 24 month period of adjustment. And so either you see the shrink-back in that first period, or you don't, and you're basically good for the life of that deployment. Is that kind of the nature of it, or can shrink-back issues rear their ugly heads five years, 10 years later?

Donovan Due Schafer: There are more reluctant to maybe engage with a customer or prospect there trying to kind of win that business.

Donovan Due Schafer: And added into their schedule unless they can get some kind of proof for demonstrated yes.

Donovan Due Schafer: Some kind of an evidence or something from the customer that shows that the customer has done what it needs to do whether it's getting in the queue, we're placing their orders to the right pieces of equipment.

Donovan Due Schafer: Dominic, or I'm sorry, Donovan, I think the way that you've explained that is accurate. We think about shrinking back occurring after a number of thermal cycles. So as, you know, power on, power off. And then also there's a climate element that relates to that. I think we've outlined that really in our complaint. You are correct in your assumption.

Donovan Due Schafer: So in your case for adding orders the backlog when you get a new purchase order and you're adding it to your backlog.

Donovan Due Schafer: Are you is there are you applying some discretion in terms of deciding do we add this to the dock like do we not.

Donovan Due Schafer: Can this customer show us that they've done the things they need to do to get that equipment.

Dominic Bardos: Okay, and then, for the backlog, um... You know, at InterSolar in January, talking to some of your peers, there was, you know, because there's this awareness of the long lead time items on transformers and high voltage breakers and switchgear, that in some cases, companies aren't, you know, They're more reluctant to maybe engage with a customer or a prospect or try to kind of win that business and add it into their schedule, unless they can get some kind of proof or demonstrated, you have some kind of an evidence or something from the customer that shows that the customer has, you know, done what it needs to do, whether it's getting in their key, or placing the orders, to the right pieces of equipment. So in your case for, for adding orders to the backlog, when you get a new purchase order and you're adding it to your backlog, are you, are you applying some discretion in terms of deciding, you know, do we add this to the backlog? Can I, can this customer show us that they've done the things they need to do to get that equipment in time for the project when they expect it to start? Yeah, so Donovan, this is Dominic.

Donovan Due Schafer: In time for the project when they expect it to start.

Speaker Change: Yes, Saddam event as Dominic Yeah, there's a couple of interesting points in there, but fundamentally when we have the purchase order. We're at a point along in the project where the E. P. C has already been selected the P. CS typically our customer record theyre the ones that are working on the build and so they know that they need our products.

Dominic Bardos: Other supply chain elements are coming up it does not impact where we are from the purchase order standpoint, we are delivering our products on the timelines that we work with our with the E. P. CS and if they struggle getting a transformer piece, then or something is going to be delayed for them for a few months to finish the project. That's still generally does not impact us unless the entire project is going to say hey.

Dominic Bardos: We just realized we need to push it a few months can you guys hold your delivery dates for us and that's what we always want to work with the customers, but there are the other components of the solar field typically don't impact us from a purchase order standpoint, because once we have it we now know our delivery schedule.

Dominic Bardos: Thank you. Our next question comes from the line of Colin Rusch Oppenheimer. Please proceed with your question.

Dominic Bardos: Yeah, there's a couple interesting points in there. But fundamentally, when we have the purchase order, we're at a point in the project where the EPC has already been selected. The EPC is typically our customer's record. They're the ones that are working on the build.

Colin William Rusch: Thanks, So much guys could you talk about the opportunity to reduce your Cogs any of the billing materials X X copper at this point.

Colin William Rusch: Scale up are there some meaningful opportunities for you guys in the offing.

Dominic Bardos: And so they know that they need our products. If other supply chain elements are coming up, it does not impact where we are from the purchase order standpoint. We are delivering our products on the timelines that we work with the EPCs, and if they struggle getting a transformer piece in, or something's going to be delayed for them for a few months to finish the project, that still generally does not impact us unless the entire project is going to say, hey, we just realized we need to push it a few months, can you guys hold your delivery dates for us. And that's where we always want to work with the customer. But the other components of the solar field typically don't impact us from a purchase order standpoint because once we have them, we now know our delivery. Our next question comes from the line of Colin. Thanks so much, guys.

Colin William Rusch: Yeah. So so call I appreciate the question on Cogs. We we are actually are always working with our suppliers and when we have visibility to projects going longer terms out it'll gives us the opportunity to negotiate discounts and better pricing.

Colin William Rusch: We do appreciate the Msas that we negotiated with customers like blattner that you've seen us announce because that gives us visibility into the demand and so we can negotiate better pricing.

Colin William Rusch: But we have guided that we believe gross margin for this business long term is that 40% to 45% range not all products carry the same margin we are introducing products in the other jurisdictions and there are some different cost structures with that so.

Colin William Rusch: So we always are looking to be as efficient as possible with cards, but we also want to win business and grow the business. So we believe 40% to 45% is still a good target for Cogs for us I.

Colin William Rusch: Can you talk about the opportunity to reduce your COGS, any of the bill of materials, ex-copper at this point? As you scale up, are there some meaningful opportunities for you guys in the office? Yeah, so Colin, I appreciate the question on COGS.

Speaker Change: I mean gross margin alright excellent rock.

Speaker Change: That's super helpful.

Dominic Bardos: We are actually always working with our suppliers, and when we have visibility to products going longer terms out, it gives us the opportunity to negotiate discounts and better pricing. We do appreciate the MSAs that we negotiate with customers like Blattner, which you've seen us announce, because that gives us visibility into the demand and so we can negotiate better prices. But we have guided that we believe gross margin for this business, long-term, is that 40 to 45% range. Not all products carry the same margin.

Speaker Change: And then obviously you know sometimes these larger MSA agreements are pretty important can you talk a little bit about as you move into some of these international markets, how many customers you're in qualification.

Speaker Change: With that we're testing with that we might be able to see some sort of agreement.

Speaker Change: In the next 12 months with those folks and what you might need to see to commit to an international manufacturing operation.

Speaker Change: Yeah, that's a great question.

Speaker Change: You know I think we are always going to try to pursue.

Speaker Change: Master supply agreements for the reasons that Dominic just disclosed.

Dominic Bardos: We are introducing products in other jurisdictions, and there are some different cost structures for that. So, you know, we always want to be as efficient as possible with COGS, but we also want to win business and grow the business. So we believe 40 to 45% is still a good target for COGS. I mean gross margin. All right, excellent. Wrong side.

Speaker Change: We can't comment to where we stand either internationally or domestic on on those as we've talked about in the past, we intend to and I think you will see us put.

Speaker Change: Some sort of manufacturing or supply chain operations overseas.

Speaker Change: We are in the process of.

Speaker Change: Setting, where where and when that happens.

Speaker Change: Right now so I.

Brandon Moss: That's super helpful. And then obviously, you know, some of these larger MSA agreements are pretty important. Can you talk a little bit about, as you move into some of these international markets, how many customers you're in qualification with or testing with that we might be able to see, you know, some sort of agreement in the next 12 months with those folks and what you might need to see to commit to an international manufacturing operation? Yeah, that's a great question.

Speaker Change: I don't I don't have a particular tipping point for you.

Speaker Change: But what we do know is in order for us to continue to compete we've got to to offer our customers reduce lead times and that would be the reason why we would put manufacturing outside of the United States.

Speaker Change: Thank you. Our next question comes from the line of my heat map with Mizuho. Please proceed with your question.

Speaker Change: Hi, This is David Benjamin on for Mohit. Thanks for squeezing me in here I have a question on mix I'm looking for it looks like.

Brandon Moss: Um, you know, I think we are always going to try to pursue master supply agreements for the reasons that Dominic just disclosed. I probably can't comment on where we stand either internationally or domestically on those. As we've talked about in the past, we intend to, and I think you will see us put some sort of manufacturing or supply chain operations overseas. We are in the process of vetting where and when that happens right now. I don't. I don't have a particular tipping point for you.

David Benjamin: [noise] system components.

David Benjamin: In the second half of 'twenty, three was down a little bit versus the first half.

David Benjamin: You know it was my understanding that.

David Benjamin: We start with components and then customer shifted over to system solutions are should we expect that to go back up to those 85 mid <unk> mid to high <unk> or.

David Benjamin: Can you guys just give us a little color on product mix.

Speaker Change: Yeah. So thanks, David Yeah, the stomach the main thing about mixes.

Speaker Change: We do respond to the projects that are being being awarded to US and then we go in the backlog for some time in some cases of the E. P. CS are passing go theyre going directly to a full system solutions.

Brandon Moss: But what we do know is in order for us to continue to compete, we've got to offer our customers reduced lead times. And that would be the reason why we would put manufacturing outside of the United States. Thank you. Hi, this is David Benjamin for Maheep. Thanks for squeezing me in here.

Speaker Change: Some cases, they might be doing home runs and getting to know the company and the quality of our work before making the switch in some cases components or just can be what they want to do they choose to do the business that way. So the E. P. C mix is going to have a lot to do with how the component and systems mix goes going forward there is a baseline.

David Joseph Benjamin: I have a question on mix looking forward. It looks like, you know, system components in the second half of 23 were down a little bit versus the first half. You know, it was my understanding that we started with components, and then customers shifted over to system solutions. Should we expect that to go back up to those 85, mid to high 80s, or can you guys just give us a little color on product mix? Yeah, so, thanks, David. Yeah, Dominic.

Speaker Change: Line of that business, and then we will shift quarter to quarter.

Speaker Change: But we're always trying to encourage folks to use the full solution because that is the maximum value generation for the customers of our BLA solution is the best in the business and having that solution for the customers is the best value for them. So it's a natural we would love to keep it up in the high eighties, but we havent gotten specifically to what mix is going to be going forward.

Dominic Bardos: The main thing about mix is that we do respond to the projects that are being awarded to us, and we win the backlog for some. In some cases, the EPCs are passing go; they're going directly to full system solutions. In some cases, they might be doing home runs and getting to know the company and the quality of our work before making the switch. In some cases, components are just going to be what they want to do. They choose to do business that way.

Speaker Change: Great. Thanks for the color.

Speaker Change: You got it David.

Speaker Change: Thank you.

Equipment Magazine: Our next question comes from the line of equipment magazine with Citi. Please proceed with your question.

Equipment Magazine: Good afternoon, everyone I was trying to think about longer term impact of the lower guidance you guys talked about.

Equipment Magazine: You had added about $700 million of backlog in 'twenty three it sounded like coating activity hasnt slowed down the industry and continues to project growth longer term you continue to gain market share as indicated by your comments why do you have a flat revenue year. This year due to delays. So is it likely you end up with.

Dominic Bardos: So, the EPC mix is going to have a lot to do with how the component and systems mix goes going forward. There is a baseline for that business, and it will shift quarter to quarter, but we're always trying to encourage folks to use the full solution because that is the maximum value generation for customers. Our BLA solution is the best in the business, and having that solution for customers is the best value for them. So, it's a natural.

Equipment Magazine: Significantly higher backlog at the end of this year and we see a potential step change in revenue next year and.

Speaker Change: And staying on the same topic when I look at the capacity expansions being planned. It appears you are preparing for this the step change when then.

David Joseph Benjamin: We would love to keep it up in the high 80s, but we haven't gotten specifically to what the mix is going to be. Thanks for the questions. You got it, David. All right, the next question comes from the line of Vikram Bagri. Good afternoon, everyone.

Speaker Change: Deliveries catch up with quoting activity and Thats, why youre sort of like progressing towards 42 gigawatts of capacity, which is significant.

Speaker Change: Perhaps allows you to have any generation capacity of $8 million to $900 million on an annual basis.

Speaker Change: It's a busy deliveries could you see in front of you. The reason for our continued expansion.

Vikram Bagri: I was trying to think about the longer-term impact of the longer times you guys talked about. You'd added about $700 million of backlog in 2023. It sounds like coating activity hasn't slowed down; the industry continues to project growth in the longer term. You continue to gain market share, as indicated by your comments, while you have a flat revenue year this year due to delays. So is it likely you will end up with a significantly higher backlog at the end of this year, and do we see a potential step change in revenue next year? And staying on the same topic, when I look at the capacity expansions being planned, it appears you're preparing for this step change when deliveries catch up with coating activity. And that's why you're sort of progressing towards 42 gigawatts of capacity, which is significant, perhaps allows you revenue generation capacity of $800 to $900 million on an annual basis. Yeah, so let me jump in there first, and then I'll have Brandon add some color.

Speaker Change: Yeah. So let me jump in there first and then I'll have Brendan add his color but in.

Speaker Change: In terms of backlog and awarded orders and one of the things that you've noticed this year as we're starting to disclose more and more some of the projects do have longer lead times some of the international projects and some of the domestic visibility that we have is longer and longer. So some of the growth that youre going to see this year may be the jobs are just going to sit in the word order status a bit longer.

Speaker Change: Some of it may be that there is a pent up demand from the market itself and we would see an increase to your hypothesis that you first laid out but with regards to our facility.

Speaker Change: Look we have to be a we keep our employees in mind, we keep our communities in mind in all of our stakeholders and we are set up like a business that grew from $60 million to 500 million in a in a few short years and it's a little bit of a hodgepodge, we have an opportunity to improve the safety have that purpose built facility.

Dominic Bardos: But in terms of backlog and awarded orders, and one of the things that you've noticed this year, as we're starting to disclose more and more, some of the projects do have longer lead times. Some of the international projects and some of the domestic visibility that we have are getting longer and longer. So some of the growth that you're going to see this year may be that jobs are just going to sit in the awarded order status for a bit longer. Some of it may be that there is pent-up demand from the market itself, and we would see an increase to your hypothesis that you first laid out. But with regard to our facility, look, we have to be – we keep our employees in mind. We keep our communities in mind, and all of our stakeholders.

Speaker Change: <unk> to really help us have a state of the art thing and it does not mean that we're going to keep all of our facilities. We have three in the Portland area, we won't need that as.

Speaker Change: As we've now signed up for it so some of the facilities will shuttered, they're not all owned some are owned but we're looking for the maximum efficiency and being an employer of choice in our market and I think the facility.

Speaker Change: The decision that we've made will have benefits across the board, but its not necessarily geared towards any particular event. We do know that we need to get ahead of it it will take time to outfit and we can't just react on a dime if the demand spigot opens up in Q3, we have to take the time to set this thing up right. So Brandon any of them.

Dominic Bardos: And we are set up like a business that grew from $60 million to $500 million in a few short years, and it's a little bit of a hodgepodge. We have an opportunity to improve safety, have that purpose-built facility to really help us have a state-of-the-art thing. But it does not mean that we're going to keep all of our facilities. We have three in the Portland area.

Brandon: Carl you would add but maybe just maybe just to start with your first comment or question.

Speaker Change: Look we remain very excited about our future future and I think I think your inclination around backlog growth is this correct. We are seeing longer time from closer to a purchase order.

Dominic Bardos: We won't need that, as we've now signed a fourth. So some of the facilities will shutter. They're not all owned.

Dominic Bardos: But we're looking for maximum efficiency and being an employer of choice in our market, and I think the facility decision that we've made will have benefits across the board, but it's not necessarily geared toward any particular event. We do know that we need to get ahead of it. It will take time to outfit, and we can't just react on a dime if the demand spigot opens up in Q3. We have to take the time to set this thing up right. So, Brandon, any other calls you would add? Maybe you should start with your first comment or question.

Speaker Change: While saying that our year end backlog and awarded orders again $631 million, 140% up in fourth quarter as we added $128 million in new orders, we are saying our funnel is largest as it's ever been in.

Speaker Change: Volume again up a 154% over last year. So I think it is natural as projects get pushed out and we have slower delivery and revenue recognition of projects you could see an increase in backlog and awarded orders. It's just a natural natural occurrence.

Brandon Moss: Look, we remain very excited about our future, and I think your inclination around backlog growth is correct. We are seeing a longer time from quote to purchase order. While saying that, our year-end backlog in awarded orders is again $631 million, 140% up in the fourth quarter as we added $128 million in new orders. We are seeing our funnel, as large as it's ever been, in quote volume again, up 154% over last year. I think it is natural that as projects get pushed out and we have slower delivery and revenue recognition of projects, you could see an increase in backlog of awarded orders.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Thank you and we have reached the end of the question and answer session I'll now turn the call back over to management for closing remarks.

Speaker Change: I would just like to thank everybody for joining us today, and we look forward to connecting with you all over the coming weeks to have further conversations take care.

Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change: [music].

Vikram Bagri: It's just a natural, you know, a natural. Thank you. Thank you, and we have reached the end of the question and answer session. I would just like to thank everybody for joining us today, and we look forward to connecting with you all over the coming weeks to have further conversations. Take care. This concludes today's conference, and you may disconnect your lines.