Q4 2023 FTC Solar Inc Earnings Call
[music].
Okay.
Thank you for standing by and welcome to the F. T C solar fourth quarter 2023 earnings conference call.
All participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question at that time. Please press star one on your telephone.
Please be advised that today's call is being recorded.
I would now like to turn the conference host Mr. Bill Michelle <unk>, Vice President Investor Relations. Please go ahead.
Thank you and welcome everyone to the FTC soldiers fourth quarter 2023 earnings conference call.
For today's call you may have reviewed our earnings release and supplemental financial information, which are posted earlier today.
It is not reviewed these documents they are available on the Investor Relations section of our website at <unk> Dot com.
I'm joined today by <unk>, a member of the board of Directors and our company founder Cathy <unk>, The Companys, Chief Financial Officer, and Patrick Company's Chief Commercial officer before.
Before we begin I remind everyone that today's discussion contains forward looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date as such these forward looking statements include risks and uncertainties and actual results and events could differ materially from our current expectations.
Please refer to our press release and other SEC filings for more information on the specific risk factors, we assume no obligation to update such information discussed.
As required by law.
As you'd expect will discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issued this afternoon includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we will discuss our backlog and our definition of this metric.
And in our press release with that I'll turn the call over to Juan.
Thanks, Bill and good afternoon, everyone.
I'm joining the call today as the representative of the board as the company progresses through this interim period prior to announcing our next CEO.
As discussed on last call I've been helping facilitate communication between management and the board.
<unk> monitoring key growth activities and initiatives during this interim period.
On today's call I'll touch on some of the recent progress the team has made and address the CEO search before turning it over to Cathy to review the financials.
At a high level I'd summarize the key takeaways from this call in the following way.
One fourth quarter financial results were in line with our targets.
Two following an 18 month stretch with limited purchase orders.
Which has led to depressed revenue levels. The company has seen an acceleration in clothing purchase orders, which improves visibility and lays the foundation for our second half revenue recovery.
And three the company is progressing well and improving efficiencies and lowering the breakeven revenue level.
Based on the management team's current outlook the company expects to grow revenue in 2024 and transition into profitability on a quarterly basis in the second half of the year.
So what are some of the issues. The company has faced and what progress has been made recently.
And most importantly, the company has seen an acceleration of contracted projects or signed purchase orders.
From January of 2022 through June 2023, while we continue to grow our contracted and awarded projects largely through project Awards, we had depressed levels of contracted projects and slower rate of conversion from award to contract with.
That has led to current depressed revenue levels, which we now expect the trough here in the first half of 2024.
More recently the company has been laser focused on customers spending as much time with them as possible in a cross functional effort to improve engagement and best support the full range of customer needs.
Aside from intense customer focus the company has also been enhancing its product portfolio.
The combination of these efforts has resulted in a significant increase in the rate of contracted projects about $50 million per month over the past eight months.
And it has been accelerating every quarter.
This includes greater success in converting previously awarded projects into contracted projects with purchase orders.
Sustained bookings success. We've seen now is the foundation for the revenue recovery that will start in earnest in the second half of this year.
Frankly that rates should be many times larger than $50 million per month, and that's how we were driving it.
But we're heading in the right direction and rebuilding.
Based on the success of contracted projects are now approximately $415 million.
The total backlog.
On the backlog.
The board has reviewed and is comfortable with the company's $1 7 billion in backlog. However, it has been heavily skewed towards award versus contracted historically.
<unk> and less visibility as to when such awarded and contracted projects will convert to purchase orders and revenue.
As noted we have made significant progress recently on having a higher percentage of the backlog to be attributable to contracted projects.
Backlog also continues to be heavily skewed towards the U S and two key projects.
<unk> currently represents 80% of backlog in terms of technology about 72% of backlog is <unk> and the remaining 18% being either <unk> or a combination of <unk>.
The majority of projects added over the last two quarters had been <unk>, helping to diversified backlog.
Second the market for Tupi trackers have recovered and half and we have our strongest and most comprehensive product portfolio to date.
In 2022 amid the module shortage there was about 80% drop in the market for to be trackers as more scarce modules were largely allocated to relatively easier project sites with tended to be lumpy.
With module availability improved we're seeing a more normalized market for <unk> with a very good pipeline activity.
We're also seeing a ramp and interest in our <unk> by near tracker, which was certified in the third quarter of last year.
<unk> brings to <unk> much of what customers have loved about our <unk> technology.
When the company added won't be they won't be tracker, alongside our <unk> solution and software we started our ability to be truly solution oriented partner for our customers and.
And that we could truly be technology agnostic and optimize each individual project site to maximize the benefits of our customers.
Now have several examples of projects or portfolios of projects that we have won a combined both <unk> technologies with many more in the pipeline.
Third we are improving business processes.
As <unk> noted on the November call that while the company has become more efficient and lowered product cost there are opportunities to accelerate decision making.
<unk> gaps within the product with 40 of faster and increase customer interaction.
The company under the leadership of Kathy <unk> and Patrick has been diligently focused on improving business processes across the board emphasizing customer engagement customer satisfaction and purchase orders.
Customer visits have increased tenfold and broadened across functions to accelerate the feedback loop on quality product roadmap and future needs and enhance overall customer experience.
This is augmented by newly formed customer advisory board to which we've appointed renewable experts Anthony Carroll as chairman.
We've also implemented a net promoter score system to help us better measure and drive engagement and satisfaction.
Fourth we continue to further improve our cost roadmap to enable higher sustainable long term gross margin. The company's cost roadmap has historically been hampered by high steel content due to the shift to large format modules, which was exacerbated during the steel price dislocation in 2021.
The company has made great strides in optimizing steel content and bringing manufacturing costs in line with those of our leading competitors.
This has helped us significantly improve average new product project margins, which has started to show through our financials.
In addition, we expect continued cost improvements over the next 18 months as the company continues to work on its design to value and design for manufacturing initiatives.
Supported by a rigorous process and excellent engineering team we.
We are confident that these improvements and strength of our average new project margins will enable greater than 20% gross margin in the future as our revenue level of scale.
And finally, our breakeven costs had been greatly improved.
Our breakeven revenue level has historically been over well over $100 million per quarter.
We've now brought that down to what we believe to be approximately $50 million to $60 million going forward, depending whether or not we pay a bonus this.
This reduction has been driven by a higher direct margins as well as a reduction and keen focus on opex and overhead costs.
Our operating expenses in Q4 for example, where the lowest level in nearly two years as we have focused on operational efficiency, while maintaining or increasing investment in key areas that support growth and pipeline conversion like a strengthened sales team.
So overall, while the near term depressed revenue levels, a disappointing I believe the company is making good progress in repositioning for a strong recovery.
The company has an expanding portfolio of excellent striker solutions that are well regarded in the industry.
Customer engagement is a top priority, we're always already seeing an improvement in purchase orders that are the foundation for our revenue growth in the future.
The market for to be trackers is improving we are improving our systems and process across the board including pricing.
We have a product cost structure to enable 20% plus long term gross margin and company cost structure, which has been reduced to enable quarterly profitability in 2024.
We have a lot of things going for us with a great team.
Really just a matter of getting revenue level up to see the profitability and cash flow potential to start to show through.
And the last topic for me is just a quick update on the status of the CEO search.
As Shaker outlined on the November call, we want to be very deliberate in our approach we did not want to disrupt the progress on key initiatives of the company and wanted to take our time to find the right CEO.
That said, we have started the process and have seen great deal of interest.
Board is focusing the process on highly qualified candidates both within the industry and adjacent industries to identify yield April leading the company.
For a long tenure.
We have a short list of excellent candidates the board with plan to name a successor at the appropriate time when the process has concluded with that I'll turn it over to Kathy.
Good afternoon, everyone I'll provide some additional color on our fourth quarter performance in our outlets.
Beginning with the discussion of the fourth quarter revenue came in at $23 2 million.
This is at the midpoint of our target range.
The new level represents a decrease of 24, 1% relative to last quarter and 11, 5% at the.
The year ago quarter.
GAAP gross profit was <unk> 7 million or 3% of revenue compared to gross profit of $3 4 million.
Our 11, 1% of revenue in the prior quarter.
On a non-GAAP basis gross profit was $1 1 million or four 8% of revenue.
While down sequentially from a normalized nine 5% in Q3 on lower revenue and profit for the fourth quarter margin represents our fourth consecutive quarter of positive gross margin and was towards the high end of our guidance range.
We continue to believe that we have significant margin upside when our revenue level recovery.
Our GAAP operating expenses were $12 4 million on a non-GAAP basis, excluding stock based compensation and certain other costs operating expenses were $10 8 million.
This includes a $3 1 million credit loss provision relating to specific customer count that was not included in our guidance.
Excluding this charge our non-GAAP operating expenses would have been $7 8 million.
Hello are better than our guidance range and representing the lowest level in more than two years.
It is across the company, while continuing to invest strategically in areas to support growth.
That normalized $7 8 million compared to a normalized $9 2 million.
Our quarter end $10 million in the year ago quarter.
GAAP net loss was $11 2 million or <unk>.
<unk> per share compared to a loss of $16 9 million or 14 cents per share in the prior quarter and a net loss of $20 9 million.
<unk> per share in the year ago quarter.
Adjusted EBITDA loss, which excludes approximately $1 $1 million equally stock based compensation expense and other noncash items was $10 $1 million.
Compared to losses of $9 7 million in the prior quarter and $11 million in the year ahead of plan.
Excluding the $3 $1 million charge adjusted EBITDA loss would have been $7 million.
Other than the midpoint of our guidance.
To touch briefly on annual results full year 2023 revenue was $127 million.
Presenting a three 2% increase versus 2010.
The increase was primarily attributable to higher product volume and ASP.
Partially offset by a decline in logistics revenue.
GAAP gross profit was $8 3 million or six 5% of revenues compared to gross loss of $27 2 million or negative <unk> 22, 1% of revenue in the prior year.
On a non-GAAP basis gross profit was $10 6 million.
Or eight 4% of revenue compared to a gross loss of $23 3 million up 89% of revenue in the prior year.
The company and product cost reduction efforts, including our design to value initiatives to improve our margin as the primary driver.
Year over year improvement.
GAAP operating expenses were $59 1 million on a non-GAAP basis, Opex was $23 9 million.
Okay.
Currently $7 $4 million in credit loss provision.
Excluding this amount our operating expenses would have been $36 5 million.
This compares to $41 $5 million on a similar basis in the prior year.
GAAP net loss of $53 million compared to $99 $6 million in 2022 adjusted.
Adjusted EBIT loss, which excludes stock based compensation expense and other noncash items was $34 1 million compared to a loss of $66 4 million in 2020.
Yes.
Finally regarding liquidity, we ended the quarter with $25 $2 million in cash on the balance sheet.
Receivables are about five times, our payable and based on expected timing of payments and deposits, we expect tax to be about flat sequentially in Q1.
We continue to hold no debt on the balance sheet and have about $65 million remaining under the ATM program at the end of the quarter.
As previewed on our last call we did not utilize the ATM in Q4 and we don't.
We don't plan to utilize it in Q1.
With all of these are factors in the expected customer deposit people tightly managed.
And supplier payments.
Our backlog has now grown to $1 7 billion with approximately $213 million added since November eight.
With that let us turn our focus to the outlet.
Based on our current VM, we expect first quarter revenues to be down sequentially and represented trough in revenues for the year.
Typically our target targets for the first quarter offer the following.
Revenue between $10 million and $15 million.
non-GAAP gross loss between $3 $8 million and $1 $8 million or between negative <unk>, 8% and 12% of revenue.
As you might expect the percentage ranges bearing more greatly at these lower revenue levels.
non-GAAP operating expenses between 8 million and $8 9 million and finally, adjusted EBITDA loss between $12 6 million and $9 8 million.
Beyond Q1, we expect to see sequential revenue growth for the remainder of the year with revenue being weighted towards the second half of the.
We expect to be approximately breakeven on an adjusted EBITDA basis in the third quarter before many squarely profitable in the fourth quarter.
With that we conclude our prepared remarks, and I'll turn it over to the operator for any questions operator.
Thank you again, ladies and gentlemen, if you like to ask a question. Please press star one on your telephone.
Again to ask a question. Please press star one one.
One moment for your first question.
Our first question comes from a lot of Philip Shen of Roth. Your line is open.
Everyone. Thanks for taking my questions.
A couple of years ago, your business customer wins and momentum were rising pretty quickly.
And oligopolistic markets I believe the Genco and longyi.
Module use opioids attention has really hurt you guys.
These module vendors have been cleared and our shipping actively into the U S and have been for some time.
Why haven't you been able to ramp your revenues with them, where they're a previously awarded orders for example that you ended up losing to others.
Can you give us some color on whats happening as these guys ramp up although.
On your side, you are not able to ramp up as quickly. Thanks.
So thanks for the question I mean, I think we.
We haven't seen any material contract cancellation really first and foremost.
The second part is we're seeing the ramp back in <unk>.
What these contracts and the more of the orders that are moving from our backlog into our.
And revenue ramp system, quite frankly, a little bit slower than what.
Everybody was expecting.
Okay. Thanks, Patrick.
Shifting over to <unk>.
I think you guys said of the $1 7 billion of backlog.
Maybe $450 million ish roughly that number is.
Contracted.
Can you kind of correct that figure and then also how much is expected to be delivered in 2004. So if you just look at the contracted volumes how much is set up for 2004.
Yes, So let me clarify the $1 7 billion to $415 million of the $1. Seven has has purchase orders some of those have defined schedules and some of those schedules are working through with the customers.
We're not giving quarterly guidance.
Breakdown of guidance on where that 415, both are going to play.
Play out.
Right can you give it by year, though if not quarterly like how much of that 415, and 24 versus 25 or beyond.
Yes, we're not giving the full year guidance, but that those are starting to move and if you look at kind of how we have laid it out we continue in our Q1 guidance says.
You got a view that we're lending to breakeven in Q3 and that will be profitable in Q4. So I think if you kind of model that out that gives you a baseline.
Baseline of what's coming through in 'twenty, four and Nebraska will be coming on beyond that.
Okay Alright.
I see the sequential growth I, just we just don't know what is the rate of growth.
So.
Tough to.
I guess with the breakeven and profitability in Q4 that helps.
Execution has been tough I know.
Some of our recent checks suggest you may need to win back the trust of <unk>.
Customers like how do you go about doing that.
I know, it's one step at a time and execution improvement but.
Have you guys thought through.
Or can you communicate what that plan might be thanks.
Yes. Thank you Phil This is Ahmad Youre correct.
We had missteps in the past that's why we are where we are.
But the team has done an amazing job over the last eight months actually the prior even the prior management teams. They really have worked very hard to correct a lot of issues in the past.
And by having intense external focus.
Upgrading the quality system.
Improving our cost roadmap broadening our portfolio. So the sales teams when they go and meet customers. They have more than just to be to sell and even in the two P product there was not enough variety in it what we're finding.
And that portfolio, you've got improved a lot over the last couple of years and we continue to improve it now and because of that.
We're able to really booked $50 million a month, that's a significant number like $150 million a quarter.
And that's how that's how the team is correcting itself.
Okay. Thank you for the color.
Patrick Kathy I'll pass it on.
Thank you.
Thank you one moment please.
Yes.
Our next question comes from the line of prevail.
<unk>.
And James Your line is open.
Yes, thanks for taking the question so you've clearly been taking.
Right a bit up corporate cost.
Out of the system that Q1 run rate of between eight and 9 million in non-GAAP operating expenses.
Is that the kind of a steady stage for for the rest of the year.
Or does it have further room to decline.
Decline.
I'll start with <unk> and Kathy you can add the answer is this is the run rate we might be increases in the second half of the year, a little bit although we really.
The team is trying to invest in sales and engineering I think we've got a lot of the overhead things that we didn't need.
As much.
But you can expect a better run rate on it might increase a little bit in the second half of the year, because we want to add more sales people, we want to add more engineering.
Yeah, and I would just add onto that.
We have we have really worked on that diligently and we do keep a very.
<unk> laser focused on our operating expenses and to continue to drive it right, though we control the things we can control and so we've really now is that we have improved our processes and systems to really continue that control and have that monitoring.
Patrick.
Peter from review upon us.
Yes.
Mhm.
You mentioned that.
Yeah.
Bulk of the backlog and new additions are domestic.
Go back a few years, you were making a strong effort to diversify into Australia.
Now parts of Africa, and so forth.
Given the amount of head count that you've cut are you able to.
To play in these overseas geographies.
The answer is yes puzzle.
Absolutely we can some of the overhead we cut this because we learned that we don't need it.
And we might need to add a little bit more salespeople more effective salespeople in various regions.
Let me go back also to your prior question.
We cut opex, because it's not because we want to be company that are smaller in revenue, we're trying to be efficient.
We're not going to scale the company to be a $30 million a quarter company. We do not believe that we are booking at $50 million a month.
We recognize that we cannot be $50 million in revenue months soon but.
As long as we continue that trend and it's accelerating actually in Q3 Q4 is better than Q3, and so far in Q1 is better than Q4.
One data revenue can expand so we actually want to set the company for nice growth on high profitability, while being efficient.
We have enough resources to be in the $50 million to $75 million booking a month I think if we want to grow to 150, then we might add more people and expand internationally more aggressively.
I hope that gives you some color.
Yes, and then maybe just following up on on the International aspect last August you announced.
No good sized deal with.
A developer in Italy, and Spain, and I think the plan was to start delivering late 'twenty, three and kind of continue through 'twenty four.
Is that timetable still correct.
Yes.
For most projects.
The announcement, we did with <unk> at 350.
A megawatt portfolio.
We're looking still the majority of that revenue to be delivered.
In 2024, but we said into 2025, we saw a couple of project delays.
Small nature in.
In 2023, but.
Largely the portfolio is still intact.
Alright, thanks very much.
Thank you. Thank you that's helpful.
Our next question comes from the line of Jeff Osborne of TD Cowen Your line is open.
Hey, good evening, a couple of questions on my side I was wondering.
If you could just address.
And looking back.
The awarded backlog conversion into the contracted under the prior management team as you diagnose why that was the challenge is there a way of framing that.
Yes, Jeff first of all I want to thank the prime management team to really growing the business to that level.
I think a lot of it has to do that we needed everyone to be on the road also to help customers move the award that were contracted.
And adding more salespeople.
Getting stuff done internally and that's what it is really it's a lot of blocking and tackling.
And I think we learned our lessons and now we're going to intensify that activity Jeff.
Good to hear and then you made some comments that I just wanted to tie in into the financials as well, but you made reference to using more steel than your peers and then a 12 to 18 months sort of design to value and redesign of the portfolio to use less steel if I heard you right to get to the 20% gross.
Level.
Is the comment about the $50 million to $60 million in revenue in the third quarter.
Depending on the bonus payment schedule does that assume that you hit a 20% gross margin or do you hit 20% after that 18 months.
Time period.
Casino.
We do not hit 20% gross margin in Q3, because we have absorption issues.
So the way I look at it as a direct margin and the answer is we are in a good path already at this moment, we are competitive on steel content.
Maybe with a little bit better scale, we can negotiate better with steel manufacturers I think maybe that's an area. We can improve our some of our logistics and supply chain networks in certain international areas, we can improve.
I think to get to 20% gross margin, we need more than $53 million how much Kathy do you think we need to be like $100 million a quarter yes.
Yeah, I would say we need to be at.
$105 million a quarter.
And we'll get to 20% gross margin, yes $105 million okay.
Got it thanks for being precise last question is just as it relates to the Iranians there any credits assumed in the guidance for Q1 or how do we think about that for the outlook for the year.
Now, we have not assumed that credit and into our guidance.
We are utilizing our facility at outlets.
So we have capacity.
Yes.
Manufacturing domestic content and provide that to our customers as needed.
But we have not put that into our.
<unk> forecast.
Yes.
Perfect Thats all I had thank you Kathy.
Thank you. Thank you Jeff. Thank you one moment please.
Our next question comes from the line of Donovan Schafer Northland Capital markets. Your line is open.
Yes.
Hey, guys. Thanks for taking my questions.
First I just wanted to clarify what's your comment around youre being at a rate.
You have a monthly run rate I guess, right now booking $15 million per month.
Adding that to the backlog do those do you mean, just $15 million that goes into that bucket.
Bucket.
Purchase orders thats or contracted or is it some of that does that include awards or projects that go into the awarded bucket.
And if it is not one or the other can you give any kind of rough.
If it's not 100% one 100% of the other can you give some rough sense of what kind of a mix we're talking there.
Yes, it's 100%.
Purchase orders contracted.
Awards, it is higher than that.
Okay fantastic Okay.
And then for.
For accounts receivable.
I think in the past.
So that's come down a bit but not a lot just on a quarter over quarter basis.
And given the fairly low level of revenues in Q3, and Q4 I would have.
I expected it to maybe come down a bit more and I think in the past.
Maybe you can talk about improving those collections is a way of providing some of the nearer term funding. So just wondering if we can get an update there. It looks like there was I think Kathy mentioned that some of that was written down but are there other amounts.
The accounts receivable that are past 90 days or it could be coming under pressure for additional write downs, just just any updates or clarification there would be helpful.
Yeah sure that Tom It now I'm not anticipating any other write downs in the accounts receivable balance.
Okay.
And then just.
Further she talking about Q1 is the trough on the Q3 call.
Thank you.
I look back at the transcript.
Patrick you made the comment that you were expecting to improve revenue performance in the first quarter.
And obviously with the guidance that has come out.
It Hasnt played out as expected so what is it that gives.
Gives you that.
What gives you confidence this time around I guess that Q1 will be the trough and that youll see that youll see that additional.
Growth in Q2, Q3 that gets you to the to the breakeven.
What do you see now that's different.
Thank you.
None of them. This is a month again.
What we see is a more contracted than before.
What we see I mean, let me make a statement about.
Infrastructure projects by default they are never on time.
But we do not want to use that excuse our our problem is where smaller company and because of that we get.
We've got a lot of a lot of whiplash, because we're smaller in subscale.
And as we increase our bookings every all the time and get to hopefully a $150 million of months, then our forecasting will become much much better. So that's our issue, but what's happened since last time, because we have a lot more contracted.
Before so we are more confidence right now.
Then the last time that we did the forecast.
Okay. Thank you that's helpful. All right I'll take the rest of my questions offline.
Thank you gentlemen.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star 111 moment.
Our next question comes from the line Amit Dayal of H C. Wainwright Your line is open.
Thank you good afternoon, everyone. Most of my questions have been asked but I just wanted to touch on the backlog.
Number one on the <unk>.
Footnotes in the press release.
You indicate some of the backlog is.
Global.
Just wanted to understand what the extent of.
On the backlog and that number is.
From the wearable side of things.
And what are the triggers that you convert this backlog into contracted partners.
Yes, we didn't break it out by.
What verbal and what's not I mean, I think the disclosure we put in here was really more tied to the purchase orders.
$15 million of the $1 seven.
<unk> orders associated with it.
The way, we look at kind of the rest of the backlog.
Is.
Through.
<unk> or not.
Over a hurdle agreements in which we check with their customers.
Quarterly basis to make sure these projects progressing a lot of us.
Candidly working with the customers to define the delivery schedule if theyre getting.
Some of these projects, we talked about in previous quarters.
Our.
2025.
MTBE type projects that are out into the future as well, so theres a little bit of Mexican breakdown as it relates to that.
Okay. Thank you for that.
And then maybe just last one for me.
Well as you sort of get into a recovery phase revenue start climbing etc.
2015, the Lim plus levels.
How do you see with respect to your working capital situation to sort of need that level of demand.
Two balance sheet looks like right now.
Yes, I think that where we.
We're managing our working capital and I think we have sufficient working capital certainly ramps that we have.
We see in the back half of the year.
We really look at managing the cash.
Yes.
We have moved that and we look at the fact that we have online with people.
You manage that.
Our project.
Look at from a cash flow.
That's a positive.
Obviously some of that deposit.
Customer.
It really helps us to manage through the Buckingham.
Alright, guys. Thank you that's all I have I appreciate it.
Thank you thank.
Thank you I'm showing no further questions at this time, ladies and gentlemen. This does conclude today's conference. Thank you. All participating you may now disconnect have a great day.
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