Q3 2024 Shoals Technologies Group Inc Earnings Call
Yeah.
Speaker Change: Hello, and welcome to the show's technologies Group, Inc. Third quarter 2020, full adding skull.
Alex: My name is Alex and I'll be coordinating the call today.
Alex: You'd like to ask a question once the presentation has finished please press star followed by one on your telephone keypad.
Alex: If I had to release your question you May press Star one might say.
Alex: I'll now hand, the actual facts.
Alex: But to begin please go thank you Alex and thank you everyone for joining us today hosting the call with me is our CEO branded mass and our CFO Domenic burritos.
Alex: 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, which should not be considered guarantees of performance or results.
Alex: Actual results could differ materially from our forward looking statement.
Alex: Risk factors include among other things those described in our filings with the Securities and Exchange Commission, including economic market and industry conditions project delays the effects of competitive dynamics volume discounts and other customer mix in our key markets defects or performance problems.
Alex: In our products or their parts, including those related to the wire insulation shrink back matter.
Alex: Failure to accurately estimate the potential losses related to such matter and failure to recover those losses from the manufacturer.
Alex: Decreased demand for our products policy and regulatory changes supply chain disruptions and availability and price of our components and materials today's.
Alex: <unk> also includes references to non-GAAP financial measures.
Alex: Refer to the information contained in the Companys third quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.
Alex: Please note that the slides you see here are available for download from the Investor Relations section of our website at investors Dot Shoals Dot com.
Brendan: With that let me turn the call over to Brendan.
Brendan: Thank you, Matt and good morning, everyone I'll begin by sharing some thoughts on the current events that we're all navigating and provide some color on markets we operate in.
Brendan: I will then spend some time discussing the progress, we're making with customers new products and growth opportunities.
Brendan: Dominik will then review of our financial results for the quarter and provide our outlook on the remainder of 'twenty 'twenty four.
Speaker Change: Like many of you I'm pleased that the election uncertainty is behind us.
Speaker Change: While we've seen recent volatility and solar equities, we believe the outlook for U S utility scale solar remains bright while some have expressed concern the new administration will not policies not harm the domestic solar industry. It is important to remember that there are almost a half a million jobs tied to solar and storage.
Speaker Change: Those jobs are on both Red and Blue States and have support from both parties in fact, almost three times more clean energy investment occurred in Republican Congressional districts, then in Democratic District since the IRA was enacted.
Speaker Change: Of the top 10 congressional districts that have attracted the most clean energy investments nine are led by Republican lawmakers. The IRA has not only advance clean energy, but has had meaningful impact on the local and national economy, regardless of political affiliation.
Speaker Change: While we may see some elements of the clean energy tax credits look different in the coming four years, we believe solar will farewell.
Speaker Change: Recall that shows does not receive any forty-five ex credits and employs over 1000 people across the U S.
Speaker Change: As a member of the solar Energy Industries Association, we're proud of the bipartisan work we've done to advance the solar industry in America.
Speaker Change: In our opinion the clean energy transition is more important now than ever before and is crucial to meeting the increasing need for more power both in the U S and globally.
Speaker Change: While nuclear power will play a role in future energy needs the extended timelines and costs associated with nuclear projects reinforce our belief in solar is positioned as the most efficient near term solution for addressing immediate power needs.
Speaker Change: The recent FERC ruling rejecting the Amazon and Tyler agreement is talent.
Speaker Change: We continue to believe that solar is positioned to deliver the power we need today, and we will help our customers deploy it as quickly and efficiently as possible there will always be macro headwinds of some form to navigate this much we know, but we remain focused on creating value for our customers and shareholders over the long term.
Speaker Change: And from where I'm standing Theres a lot to celebrate.
Speaker Change: In the near term as we've shared with you all year the timing of when projects are awarded to the EPC by developers and in turn to us by the EPC has been lengthening delays or a current reality for us and others and are seen across project size geography, and choice of panel or tracker.
Speaker Change: In addition, they are independent of the depth and scope of our relationship with the EPC, we remain close to our customers and that colors in turn offer here to you.
Speaker Change: In some cases, the developers renegotiating the PPA given the ever shifting financial assumptions and others permitting has taken longer than planned and some the projects place and the interconnection queue remains too distant to continue construction or financing without adjustment and yet and others rapidly increasing labor cost ever.
Speaker Change: Acquired another review of the project's economics.
Speaker Change: These projects are not cancel and neither our agreements with customers related to these projects.
Speaker Change: The industry is at a unique point on one hand, our power needs are off the charts fueled by AI onshoring and volatile weather on.
Speaker Change: On the other Ham solar is among the lowest L. Coa and quickest time to deploy but is currently challenged by regulatory and supply chain issues.
Speaker Change: There are more than 2600 gigawatts of generation and storage capacity actively seeking grid interconnection. It has increased eight fold in the last decade and is now more than twice. The total installed capacity of the existing U S power plant fleet.
Speaker Change: Solar battery storage and wind accounted for 95% of the active capacity in the Q at the end of 2023.
Speaker Change: Simply put it's been a clear bottleneck, but I am confident these issues will ease in time based.
Speaker Change: Based on EIA data as of July of this year, only 40% of utility scale solar projects are on schedule and 60% are delayed that.
Speaker Change: That is 10 percentage points higher than the same time last year and double our percentage of 2022.
Speaker Change: We do not believe these delays will continue in the long term and so we remain flexible and stay close to our customers.
Speaker Change: This quarter was very busy for us.
Speaker Change: Revenue came in within our guided range at $102.2 million driven by our team's solid execution in.
Speaker Change: In August shows received a favorable initial determination from the ITC regarding our patent infringement case against voltage.
Speaker Change: We view this victory is an extremely poor to step in protecting our intellectual property.
Speaker Change: The target date for completion of the ITC investigation is scheduled for late December and final resolution following a potential presidential review in February 2025.
Speaker Change: As previously stated we plan on pursuing damages and our pending district Court case.
We are also committed to ensuring a new expanded BLA patent portfolio, where seems to save level of protection.
Speaker Change: In September we held our first Investor day, which is available for replay on our website.
Speaker Change: We presented a comprehensive strategy and product roadmap are key growth opportunities introduced lots of new faces on our leadership team and shared our three year financial objectives. We continue to believe our strategy is sound and we will win in the marketplace and the operational improvements will drive increase shareholder value.
Speaker Change: We also came away from customer conversations that are a plus in September increasingly optimistic most agree that the industry is poised for growth again and that if some of the transitory issues can be alleviated current industry forecasts could prove conservative.
Speaker Change: Our compelling value proposition, new innovative products and investment in our commercial organization are beginning to deliver results as evidenced by our updated revenue guidance, which is near the high end of our prior outlook.
Speaker Change: We are improving our relationships with existing customers, establishing relationships with new customers and increasing the agility and flexibility in how we deliver our products.
Speaker Change: The proof points appear not only in the 70% of the market. We've traditionally addressed but in the incremental 30 that we are now pursuing we built a strong and experienced team that is purely focused on taking exceptional care of our customers. It is exciting to watch and even more encouraging to hear the feedback.
We've quoted almost $2 billion worth of projects. This year alone. Following the initial ITC ruling we signed up for new EPC customers.
Speaker Change: In 2023, a record revenue year, there were four top 10 <unk> in the U S that combined contributed less than $1 million of revenue to shoals.
Speaker Change: Those same four customers have driven more than $25 million of revenue. This year, so far and have a combined four gigawatts in backlog and awarded orders.
Speaker Change: And we've shipped our first project to the new very large EPC, we signed an MSA with earlier this year they have potential to be one of our largest customers going forward.
Speaker Change: We are very pleased with the quality and diversity of our order book wallet share amongst our largest customers remained steady as evidenced by the 12 gigawatt MSA. We signed this summer it's worth noting that no portion of that 12 gigawatt MSA is in our backlog.
Speaker Change: The investments we've made in our commercial plan are yielding results and I'm very proud of the progress that we've made.
Speaker Change: Some of the success, we are seeing on the commercial front is driven by a renewed commitment to product innovation to K V is a great example, this is an advanced electrical system designed to increase the voltage in solar projects to 2000 volts.
Speaker Change: Improving the efficiency sustainability and cost effectiveness of solar installations.
Speaker Change: <unk> is uniquely positioned to drive this change previous transitions to higher voltage had been a game changer, especially for utility scale solar because they've dramatically reduce the cost per watt of energy production and we expect the transition to two kv to have a similar impact.
Speaker Change: We have an exciting pilot plan with industry leaders like GE or Nova and we're looking forward to showing customers how to cave can change their business.
Speaker Change: One of the growth initiatives, we presented at our Investor Day in September was C. CNI.
Speaker Change: This market is approximately 10% of the size of the utility scale solar in the U S, but growing at an attractive pace. Additionally.
Speaker Change: Additionally, we believe it leverages, our current strengths and application expertise and utilizes many of our current products and manufacturing capabilities.
Speaker Change: Our value proposition is compelling to these customers as well so we believe it's a natural fit.
Speaker Change: Our focus on the CNI market and the investments made to address this opportunity in 2024 have been significant we built an experienced commercial and product development team to focus specifically on this market.
Speaker Change: In 2024, so far we've quoted 64 projects and have already begun shipping product.
Speaker Change: We've also signed an agreement with one of the largest distributors in the space and.
Speaker Change: In summary, we're stepping on the gas and while we're proud of how far we've come so quickly I'm, even more excited about what 2025 will bring.
Speaker Change: Battery energy storage solutions is another exciting opportunity and one we're investing in heavily we've hired an experienced industry veteran to lead the business unit increased our marketing efforts and heard very positive feedback from customers on the new standardized configurations, we introduced at our a plus.
Speaker Change: We understand where we fit in the market and we believe that we have the right products today recombined in disconnects.
Speaker Change: The market is expected to experience significant growth in the coming years to more than double in size by 2027, we've.
Speaker Change: We believe our strategy is sound and our core value proposition is compelling.
I look forward to sharing more project wins as this business builds momentum through 2025.
Speaker Change: In summary, there are always going to be market disruptions or macro issues to navigate and today is no different.
Speaker Change: We recognize there are numerous and often conflicting views on the state of the sector within our economy. However markets have historically overestimated the impact of macro disruptions on the downside and under appreciate the abilities of good companies to navigate those challenges.
Speaker Change: <unk> is a high quality company with a marquee customer list and leading market share in attractive markets with an experienced team.
Speaker Change: I am very confident in where we are and the direction we're headed.
Speaker Change: With that I'll now turn it over to Dominic who will discuss our third quarter financial results and our outlook for the remainder of the year Dominic.
Dominic: Thanks, Brendan and good morning to everyone on the call.
Dominic: Turning to our financial results third quarter net revenue declined 23, 9% to $102 $2 million year over year, but increased two 9% sequentially.
Dominic: The year over year decline in net revenue was largely driven by project delays, which we've been discussing all year and to a lesser extent the competitive dynamics volume discounts and customer mix.
Dominic: Gross profit increased to $25 $4 million compared to $14 $2 million in the prior year period.
We recorded a $13 $3 million charge related to wire insulation shrink back remediation in the current period. This resulted in GAAP gross profit percentage of 24, 8% compared to 10, 5% in the prior year period I'll provide more detail on this in a moment.
Dominic: Adjusted gross profit percentage, which excludes the effect of that warranty charge was 37, 9% largely driven by higher labor costs, some nonrecurring operational charges volume discounts and to a lesser degree lower fixed cost absorption.
Dominic: We continue to target, 42% adjusted gross profit percentage over the longer term.
Dominic: Adjusted EBITDA was $24 5 million compared to $48.0 million in the prior year period.
Dominic: Adjusted EBITDA margin was 24.0% compared to 35, 8% a year ago, driven largely by lower sales and adjusted gross profit percentage.
Dominic: General and administrative expenses were $18 7 million compared to $22 6 million during the prior year period.
Dominic: The year over year decrease in G&A expense was primarily related to lower stock based and incentive compensation.
Dominic: Approximately $2 3 million of G&A expense was specifically related to the ongoing wire insulation shrink back litigation.
Dominic: Net loss was zero point $3 million compared to net loss of $9 8 million during the prior year period.
Dominic: Adjusted net income was $13 9 million compared to $33 $4 million in the prior year period.
As I mentioned earlier I'd like to provide some additional color on the status of our warranty remediation we've been working hard on identifying and remediated shrink back of the Prisma and wire we've spoken to you about.
Dominic: And while the pace of new sites requesting inspection has fallen to one or two per quarter. We have gained a better understanding of the resources time and expense required to remediate the problem harnesses, while minimizing disruption to these operating sites in the field.
Dominic: Due to the performance variability of the prism in wire in the field together with these other variables we feel it prudent to continue providing a range.
Dominic: As inspections occur we've noted that some sites exhibit shrink back while others do not.
Dominic: At this point in the process based on additional information obtained in the quarter, we are able to tighten the potential range of outcomes.
Dominic: We now believe the likely range is $73 million on the low end to $160 million on the high end and we continue to track to the low end of that range.
It is important to note that the increase in the low and this quarter is a function of a higher estimated cost per site requirement remediation not a higher quantity of sites.
Dominic: We anticipate completing remediation of the identified sites known to US at this time in mid 2025.
Dominic: <unk> had been supportive of our plans and are pleased with our efforts.
Dominic: During the quarter, we spent $6 $3 million in cash for that remediation and had a remaining shrink back warranty liability on our balance sheet of $53.0 million as of September 30.
Dominic: The current portion of the remaining liability related to shrink back is now $33.0 million.
Dominic: As a reminder, this represents the amount of cash we estimate we will consume during the next four quarters as we continue remediation efforts there.
Dominic: It does not reflect any potential recovery from parisien or increased reserves, if our assumptions our knowledge of facts change.
Dominic: We expect this figure will be more than covered by our projected free cash flow over the same period.
Dominic: Our legal case against Parisien is progressing as planned and we expect written discovery and depositions to be completed by mid 2025.
Dominic: Cash flow from operations in the third quarter was $15 7 million, while capital expenditures were $2 4 million.
Dominic: Approximately $5 million of Capex that we anticipated spending in 2024 will now occur in 2025. This is purely a function of timing around the planned move to our new consolidated factory next year.
Dominic: This change in timing will be reflected in our revised 2020 for Capex guidance I'll provide today and 2025 guidance, we will provide on our fourth quarter call in February.
Dominic: Our balance sheet remains very strong and we ended the quarter with net debt to adjusted EBITDA of one two times.
Dominic: Optimizing our balance sheet is crucial to maximizing financial flexibility and long term growth by carefully managing our assets and liabilities. We believe we can ensure efficient use of capital reduce costs and position the company to seize new opportunities as they arise.
Dominic: Turning to our share repurchase program. The initial $25 million accelerated share repurchase was funded in the second quarter of this year.
60% or approximately $2 2 million of the total shares repurchased were delivered in Q2.
Dominic: The remaining 40% or approximately $1 7 million shares were delivered during the third quarter as is normal practice with an ASR.
Dominic: There is $125 million currently remaining under the share repurchase authorization, we will continue to evaluate the cash deployment opportunities that we believe yield the highest returns for shareholders.
Dominic: While we continue to believe our shares are trading below their intrinsic value given the current market uncertainties, we value the flexibility that our current liquidity provides.
Dominic: Backlog and awarded orders ended the third quarter at $596 $6 million, a sequential decline of $46 million largely a function of the timing of projects awarded to customers.
Dominic: However, we have seen notable strength in the fourth quarter, so far adding almost $60 million of new projects to award orders as of last week.
Dominic: As of September 30th approximately $455 $2 million of our backlog and awarded orders have planned delivery dates in the coming four quarters with the remaining $141 $4 million beyond that.
Dominic: We are coming up on the end of 2024 and are cautiously optimistic as we look ahead to 2025.
Dominic: While we cannot control the regulatory environment or the availability of electrical equipment needed to complete solar fields. We can work to ensure our customers get the quality products they need from shoals in a timely manner and to manage our costs responsibly.
Dominic: Turning now to our outlook based on current business conditions business trends and other factors for the quarter ending December 31, 2024, the company expects fourth quarter revenue to be in the range of $97 million to $107 million <unk>.
Dominic: Adjusted EBITDA to be in the range of $23 million to $28 million.
Dominic: Those figures imply that for the full year 2024, the company now expects revenue to be in the range of $390 million to $400 million.
Dominic: And adjusted EBITDA to be in the range of $96 million to $101 million.
Dominic: In addition, adjusted net income to be in the range of $58 million to $62 million cash flow from operations to be in the range of 70 million to $80 million capital expenditures to be in the range of $8 million to $12 million and interest expense to be in the range of $12 million to <unk>.
Dominic: $16 million with that I'll turn it back over to Brandon for closing remarks Brandon.
Dominic: Dominic I want to close by offering some additional color on the environment, we're navigating in the transformation taking place at Shoals.
Brandon: We believe we are at the cusp of a meaningful investment cycle within the clean energy sector. Our long term financial model incorporates the wood Mackenzie outlook of conservative growth in the U S utility scale solar market, which we believe is realistic and achievable at the same time, we cannot ignore the potential <unk>.
Brandon: <unk> shortfall, we expect over the next decade or fail to recognize the favorable position solar then to address it we've detailed at length the processes capabilities and strategies. We've deployed that will help ensure we continue to win in the marketplace, we've identified attractive market segments geographies and new.
Brandon: <unk> that will enable us to leverage our strengths and diversify our portfolio.
Brandon: We've seen incredible traction with existing customers signed msas with multiple new Epc's and are winning back wallet share with others.
Brandon: Our product innovation engine is running on all cylinders and we're releasing exciting new products. We are building a world class team of seasoned business leaders and are streamlining operations in our new facility that will allow us to optimize our footprint to become lean and agile.
Brandon: The transformation, we've been talking about with you is beginning to change the look and feel of shoals in ways that customers investors and employees are noticing.
Brandon: In closing 2024 was a challenging year for shoals and others in the industry. However, given our momentum and supported by our backlog and awarded orders. We believe we will return to growth in the upcoming year.
Brandon: I want to thank all of our shareholders and customers for their continued trust and our employees for their hard work and dedication operator, we're now ready to take questions.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star followed by one on the telephone keypad.
Speaker Change: Maybe a question you May press star followed by two.
Speaker Change: Our first question for today comes from Brian Lee of Goldman Sachs. Your line is now open. Please go ahead.
Speaker Change: Hey, guys. Good morning, Thanks for taking the questions.
Speaker Change: Just one on the the ITC decision I, just kind of had maybe a little bit of a clarification or housekeeping question.
Speaker Change: My understanding was that there was a deadline for review.
Speaker Change: <unk>, which is the suite maybe today have you heard any updates there and if there are no updates does that effectively mean, there will be no review and the initial ruling is going to be largely representative of the final ruling maybe walk us through that a bit and then also if I have the timing right and I had a follow up thanks.
Speaker Change: Brian Hey, Thank you for the call good morning.
Brian: I think youre right on the timing, it's it's either today or tomorrow, if I recall correctly on the deadline for review.
Brian: Look I think there is there is in these cases, there's issues that come up from a review from time to time at all.
Brian: Should lead to any assumptions on how the case will turn out. So if there is something that is reviewed it as it is a common occurrence.
Brian: What we're looking for is that final determination that comes at the end of December.
Brian: And to your question have we heard anything about potential items up for review, we have not at this point having.
Brian: Having said all that look we still remain excited about the initial determination.
Brian: It was a win win for Shoals and.
Brian: Yeah look I think probably as importantly, we plan to protect our new BLA patent portfolio as we did the last one and we'll continue to pursue this this case in the district court following the final outcome of the ITC.
Speaker Change: Okay Fair enough. That's helpful. And then just a question on bookings.
Speaker Change: A bit softer this quarter, but then Dominic I appreciate that commentary around what bookings strength youre seeing at the start of this quarter.
Speaker Change: Can you I know, it's lumpy, but can you give us a sense of that run rate relative to where you were during the third quarter. It would seem like the better competitive landscape the election out of the way in some of these new opportunities of customer you are talking about you should see some meaningful.
Speaker Change: Strength in bookings activity with some of those headwinds out of the way and it based on the comments you made about the early start to Q4 may be you are indicating that but just any sense of.
Speaker Change: How sustained do you think the bookings momentum could be here in Q4, and maybe a comp to where you were at this point last quarter. Thanks, guys.
Speaker Change: Yeah, Brian Thanks for that yes, we've seen some good strength as we started the quarter I think as I mentioned in my remarks, we think Theres. Some timing there were some just folks holding out as you mentioned on some of the order processing.
Speaker Change: We have a very very healthy pipeline, we've had quoting activity hit record levels.
Speaker Change: Some of the projects that are coming back online and coming through now from a reward standpoint are represented in both 2025 revenue and some are already for 2026. So we haven't guided to where the quarter is going to land. We just wanted to say this isn't the first time, we've seen this I think a year ago, we had a dip and we said hey, there's some timing issues going on.
Speaker Change: But we're very pleased with the commercial gains that we've had the customer engagement that we've had some of the new customers since the ITC initial determination that we've had so I'm very very pleased with where we stand right now with our bookings.
Speaker Change: Okay.
Speaker Change: Alright, Thanks, guys appreciate it.
Speaker Change: Yeah.
Thank you.
Speaker Change: Our next question comes from Mark Strouse of Jpmorgan.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Yeah. Good morning, Thank you very much for taking our questions. Dominic just just one question for me.
Speaker Change: The gross margins and <unk> came in slightly below your target range of 40% to 45%.
Speaker Change: You mentioned a few things.
Speaker Change: I think that the nonrecurring operational items there might've been some other things can you just give us a bit more color on exactly what those were.
Speaker Change: How to think about gross margin going forward. Thank you.
Speaker Change: Sure absolutely. So as you know we've talked about some of the labor challenges when you're trying to have a volatile revenue plan coming in and out and how we've managed labor. We did run some elevated labor in the period. We also had some more unusual items that hit in the period split supply chain things.
Speaker Change: Some factors that impacted our efficiency on the floor.
Speaker Change: We had some expedited freight to make sure we had materials coming in at the right time, and when you're airfreight heavy materials.
Speaker Change: Because there was just a snafu with some supply chain issues. It has an impact within the within the period.
Speaker Change: So I think the margin in and of itself.
Speaker Change: There are always going to be operational things. It just seemed like we had a few that were all coming in against US in Q3, I do not characterize them as long term issues. Our guide for the long term remains solid we believe that the 40% to 45% target range is absolutely solid for us.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Next question, Alex I'll take the rest off.
Speaker Change: Thank you. Our next question comes from Philip Shen of Roth Capital Partners. Your line is now open. Please go ahead.
Philip Shen: Well thanks for taking my questions here I wanted to follow up on the bookings are a threat.
Philip Shen: So was wondering with the commercial success Youre having.
Philip Shen: Yes.
Philip Shen: We see book to Bill.
Speaker Change: At one or one to one in Q4 do you see potential for that.
Speaker Change: With the election or.
Speaker Change: Oh, sorry, I'll, just pause there I'll I'll take.
Speaker Change: Let's start with the next one.
Speaker Change: Yeah, no absolutely I am encouraged where we are in the quarter, we'd like to get that book to bill back over one so that's absolutely our target.
Speaker Change: Maybe just a just a job board adopt next.
Speaker Change: And to give a little bit more color about our bookings and commercial activity.
Speaker Change: <unk>, what we've talked about over the course of the last couple of quarters. The investment we've made in our commercial organization.
Speaker Change: We've got it across sales product management marketing and that that's beginning to pay dividends for us.
Speaker Change: And it's coming through in the results right. We've quoted $2 billion worth of projects, that's basically 50% year over year a lot of those project quotes.
Speaker Change: Due to our flexibility and new innovations that we're bringing to market, which is really I need to say.
Speaker Change: We've talked a lot about the past few quarters.
Speaker Change: <unk>.
Speaker Change: And talking about our wallet share.
Speaker Change: We had four EPC is that in 2023 to less than a combined million dollars with us.
Speaker Change: $25 million year to date with <unk>, we've got four gigs in our backlog and awarded orders.
Speaker Change: We've seen <unk> as Dominic mentioned since the ITC ruling.
Become customers, which is fantastic we started shipping our new large EPC that we talked about earlier in the year.
Speaker Change: We've launched a project with them, that's now being deployed which is great.
Speaker Change: Look we still have things going with our top customers in our historical top customers.
None of the 12 Gigawatts.
Speaker Change: That we talked about earlier this year and our new MSA is in our backlog today. So we feel really good about the progress we're making on the commercial side of the business and we are moving so.
I expect strong bookings.
Speaker Change: Yeah.
Speaker Change: Great Brendan thanks for the color.
Speaker Change: Shifting over to the election results.
Speaker Change: No.
Speaker Change: The auction is over.
Speaker Change: We're likely in for a red sweep and that could result in uncertainty around the IRA and the incentives there.
Speaker Change: Including the ITC.
Speaker Change: So.
Speaker Change: Our checks suggest that could be these changes could result in a positive activity.
Speaker Change: In U S utility scale solar and 25 I know, it's really early it's we're just a week out but have you had those conversations yet with customers.
Speaker Change: What's your sense in terms of the risk.
Speaker Change: And slowdowns and push outs.
Speaker Change: For this new kind.
Speaker Change: And a headwind potentially thanks.
Speaker Change: Yes.
Speaker Change: That's a great question, probably goes without saying.
Speaker Change: We here in Portland, Tennessee, still love the solar market.
Speaker Change: We're excited about it.
Speaker Change: There has been.
Speaker Change: Varying degrees of.
Speaker Change: Of of opinions on how things will play out I lean back.
Speaker Change: Just on the power needs here.
Speaker Change: Specifically in the U S or saying, 3% to 5%.
Speaker Change: Load growth over the course of the next five years that that may be an understated number.
Speaker Change: That's roughly a 1000 terawatt hours.
Speaker Change: Power.
Speaker Change: That is going to be concerned with data center, datacenters, considering probably 10% to 15% of that.
A lot of lot of conversation around nuclear Youre, probably more so the last 60 days and before.
Speaker Change: Obviously that generation source has its place on the grid.
Speaker Change: I think it's probably worth pointing out that that those plants won't be generating the new generation probably doesn't come online for five to seven years.
Speaker Change: And I think we saw some things play out there with the Amazon and talent situation here in the last couple of weeks.
Speaker Change: So look we think solar still being.
Speaker Change: Lowest L Coa.
Speaker Change: Quickest to deploy and we've got projects that are that are ready to go nationwide, which is exciting so.
Speaker Change: I think the new administrative administration is going to be supportive of that I think there's a recognition that that you know.
Speaker Change: U S has to dominate on the journey II front end.
Speaker Change: And we've got to have power to do that.
Speaker Change: A lot of investments as you know in Red States I live in one of those Georgia, where we've seen substantial investments you've got.
Speaker Change: Now you've got some strong governors in Red states that are that.
Speaker Change: That have been supportive of it.
Speaker Change: The renewables industry and.
Speaker Change: And also in Congress as well with nine out of 10 top invested areas being Republican Congressman so.
Speaker Change: I'm excited about the new administration that I hope.
Speaker Change: The theories about a pull forward or acceleration in supporting solar in U S manufacturing holds true.
Speaker Change: Thanks, Bill Alex next question please.
Thank you. Our next question comes from Matt Kashi Harrison of Piper Sandler.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Good morning, everyone and thanks for taking my questions.
Speaker Change: So first one for me on Slide 16, you talk about $445 million of backlog scheduled to ship within the next 12 months.
Speaker Change: What are some of the parameters that underpin that statement just given.
Speaker Change: The lower contracted backlog in Q3.
Speaker Change: The delays that we've seen all throughout 2024, just trying to understand.
Speaker Change: The confidence in that $445 million.
Speaker Change: So actually as Dominic yes, so of the $4 55, you are right that some of that $4 55 in the next few quarters, which takes us through three quarters of 2025 include delayed projects from 2024 that we had talked about earlier in the year. So.
It's not necessarily a forecast of our revenue, we're not necessarily calling our shot for 25, but it is based on our our book of business right now, which I think over the past year has gotten healthier I think there were some delays I think projects that were on the fringe may have we have may have told you about earlier quarters that we pushed some back in.
Speaker Change: The pipeline so I think our our book of business is healthy.
Speaker Change: <unk> had good momentum this quarter, thus far the next four quarters are based on project timelines and delivery dates expected by the customers and we remain closer to those customers than ever. So I really believe that the health of the of our book of business is very strong.
Speaker Change: And did you sorry.
Speaker Change: Oh, sorry, Greg.
Speaker Change: Sorry go ahead Kashi.
Speaker Change: Yes sure.
Speaker Change: Just my follow up question.
Speaker Change: I think last quarter you.
Speaker Change: You you highlighted Brandon that your top 10 across tumors represented 61% of your backlog at all or did orders.
Speaker Change: Can you give us a sense of what that top 10 books.
Speaker Change: Books.
Speaker Change: Right now thank you.
Speaker Change: Yes, great Great question.
Speaker Change: At this point I don't want to get into the details of the specifics of that backlog.
Speaker Change: And the way it.
Speaker Change: It is a sorted amongst customers.
Speaker Change: The only thing that I would point out as I think about our backlog and awarded orders, it's becoming healthier as Dominic said and more diverse.
Speaker Change: Again, it laying on the statement that I made earlier that we are really focused on wallet share of customer like we've talked about all year and we're starting to see the dividends of that being paid with again $25 million of revenue.
Speaker Change: For top tenant Epc's.
Speaker Change: Going through already this year with four gigawatts of backlog and awarded order. So we're excited about our order book.
Quality and diversity of that.
Speaker Change: If I could add just one thing there is a delay right now at the Edgar site with FCC's. Our Q is not available to you, but in the first nine months of the year customer as concentration has now reduced to about 30% from last year third running 34 to 35.
So I think the diversity that Brandon was talking about.
Speaker Change: Manifesting itself in our revenue recognition as well so I just wanted to point that out that the Q in our 8-K have been filed and accepted but they're just not published on the Edgar Dot Gov website, yet theres an issue on their ends technically I just want to put that out there. Thanks.
Speaker Change: Thanks, Kathy Alex next question please.
Speaker Change: Thank you. Our next question comes from Christine Cho of Barclays. Your line is now open. Please go ahead.
Christine Cho: Good morning. Thank you for taking my question, Adam just on a follow up about that backlog on that floor of 55.
Christine Cho: That's right.
Christine Cho: Projects are delayed.
Speaker Change: Thank you I guess the question of how long, it's going to be delayed or do you actually have firm our timelines from the customers.
Speaker Change: How much it's gonna be displayed and you talked about how there's no cancellations, but that was another thing I wanted to ask like sort of you know.
Speaker Change: Is there any.
Speaker Change: I guess, what's the.
Speaker Change: From a customer standpoint, and laser like indefinitely delay or like at what point do they actually cancel.
Speaker Change: Yes, Christine good question, it's Brandon maybe I'll take the first part of that.
Speaker Change: We do not use our discretion in how we're pacing.
Speaker Change: <unk> been awarded orders out or the Central Award day, we're actually sitting down with our top customers.
Speaker Change: Weaker basis, and we'd go through their construction schedule. So many of our top customers will share that schedule with us from baton Theyre, putting pylon.
Speaker Change: At the time that they're putting modules on tracker. So we've got a great understanding of of those dates and timing and we all of that through our CRM, which drives these backlog and awarded order number so while not totally perfect. We feel pretty good about that information and we've been getting better and better and more more rigorous.
Speaker Change: Around it as the year has gone.
Dominic: Dominic maybe you want to hit the second the second part of that.
Dominic: I was prepared to do the first one I'm sorry, what was the what was the second part Christian I'll be happy to.
Dominic: Yeah.
Speaker Change: The cat like indefinitely postponing versus the cancellation.
Speaker Change: So actually happen yeah, I apologize for forgetting that I was all focused on the first part.
Speaker Change: So we.
Speaker Change: We have backlog, we actually have a contract and as you know we've had one cancellation in the past year I think it was we talked about in Q1 that was actually a cancellation with one of our top customers. It was beyond their control and we work with them on your cancellation fees et cetera, how to reapply some things if we could.
Speaker Change: With awarded orders those are we do not have the contract yet and so those can be delayed for a while we've had some of our European projects are international projects I should say that actually they've had delays were still on the slate for the award we just don't control when those projects are going to go forward. So.
Speaker Change: We don't control that we don't consider it something that we would remove unless we think the project has lost funding. If we hear that the EPC is now not able to do the work because they have a conflict. We did move some projects like that up back into pipeline to rebid with other epc's.
Speaker Change: That does happen occasionally with awarded orders, but not with backlog.
Speaker Change: That was the move back up the pipeline was Q2 I believe that we did that but again talking about our order book Kristine, we feel very strongly about the quality of it and.
Speaker Change: And I guess, just just to reiterate I know you've all heard Beth.
Speaker Change: These projects delay they push out shows is not losing projects, they're just they're just slower to deploy than then.
Speaker Change: We had originally schedule due to the.
Speaker Change: The plethora of different.
Speaker Change: Situations that we've talked about all year due to high interest rates renegotiating PPE ppas and it could be even a pcs.
Speaker Change: Renegotiate and construction costs.
Speaker Change: Our developers so so we feel great about our order book moving forward.
Speaker Change: Thanks, Christine Alex next question please.
Speaker Change: Thank you. Our next question comes from Jordan Levy of <unk> Securities. Your line is now open. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thanks for taking my questions.
Speaker Change: A quick one on bad debt.
Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Project timing and like you said Theres a lot of complex dynamics here, but just on a high level and kind of a normalized environment how far out typically.
Speaker Change: Typically book project for the following year and at what point would you still be booking incremental orders for 2025 delivery.
Speaker Change: Jordan you, we lost sort of the first part of that question, but I think I've got it so.
Speaker Change: Yeah look we're booking orders out.
Speaker Change: Into 2026.
Speaker Change: Right now so projects in the project.
Speaker Change: Cycle as we've talked about has elongated all year, where it used to be closer to a nine to 12 is stretched out probably more on an average standpoint to 13 14 months now so.
Speaker Change: While things are elongated that's bad it does give us better visibility for the long term, which is which is ultimately a good thing for the business.
Speaker Change: <unk>.
Speaker Change: As far as our book and turn business.
Speaker Change: We can usually book in turn things within I'd say nine to 12 months is probably typical yes.
Speaker Change: Yes, there's always some of that now when we give guidance for 25 at the end of the year in February we will really have a really solid idea of the first couple of quarters, because the book and turn business with lead times, we'll really be back half generated but it is still possible up through the first half of the year to book things that would be delivered.
Speaker Change: In 2025, that's part of the business that's happened what happens with us every year.
Speaker Change: In fact, the as we talked about last time on our quarterly guidance, we anticipated booking some additional business in the year that will in fact play out that way and we did have some projects push out the way we guided so we anticipated both sides of that equation happening and that's really how we're seeing it play out this year. So we can still book additional 2020.
Speaker Change: Five projects I'd say through the first half of 'twenty five.
Speaker Change: Also important to point out or talking about quality scale right now.
Speaker Change: For our CNI business, its a quicker turn business.
Speaker Change: And as that becomes more impactful to two shows overall revenue.
Speaker Change: We've got the ability.
Speaker Change: To generate some quicker book and term business.
Speaker Change: You talked about in the remarks of quoted 64 projects and we're starting to see some revenue flow through 2024.
Speaker Change: Which is great and you know.
Speaker Change: Confident that will accelerate in 2025.
Speaker Change: Gordon do you have a follow up.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Quick one appreciate that on the international side of things I know, Gary and the team and all of you have worked hard to get a new product set there super jumper and trench BLA and that sort of thing I just wanted to see if we could get any color on how customers are responding post the rollout of some of those products.
Speaker Change: Yes, Jordan we have seen.
Speaker Change: Substantial quoting activity post in our solar when we've launched.
Speaker Change: Those products are.
Speaker Change: Which has been very exciting for us.
Speaker Change: Sure.
Speaker Change: Again, we're in a we're in a long sales cycle business.
Speaker Change: So no no huge wins to report yet as it relates to the new products on the international front, but we are seeing.
Speaker Change: I would say pretty drastically increasing ordering activity.
Speaker Change: Which is a positive sign for us so so more to come on international I like our strategy and the direction. We'll go on there.
Jordan: Thanks Jordan.
Speaker Change: Alex.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from Andrew.
Speaker Change: Of Morgan Stanley your.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Thanks, Good morning, guys and thanks for taking the question most of my questions have been answered, but maybe just one quick follow up on on the margin question.
Speaker Change: Slide you mentioned volume driven discounting is one of the drivers for the lower gross margin in the corner. Obviously, you guys have been focused with regaining wallet share with him here with some of your top EPC can you just discuss a little bit more about how you're approaching pricing in some of these volume driven discounts on a go forward basis.
Speaker Change: And maybe what that means for margin recovery in the fourth quarter of 2024, and then into 2020. Thank you.
Speaker Change: Sure. So as we've talked about and I think we reiterated at our Investor day pricing is always a discussion and we always look at the volume of business and historically, we had not had these master supply agreements in place.
Speaker Change: So historically, while we may have been negotiating pricing differently based on an EPC and the volume that they provided we now have.
Msas in place have very scripted.
Speaker Change: Volume arrangements for some of them not all but some do and so in the in the case as that becomes more significant we will increased disclosures around that in the future because it's now something that we can calculate there is very specific accounting guidance for that so as we look at those things I want to make sure that we're very clear that.
We do want to have partnerships when we sign a 12 and a half gigawatt deal you certainly want to make sure that you reflect that with your top customers and so as those things become a more significant to drive topline growth there might be some percentages associated with that on the on the discount side. So it's nothing unusual for us it's not a.
Speaker Change: New thing is just now that it's <unk>.
Speaker Change: <unk> been memorialized in Msas, it will become something that we will disclose more about probably in 25 Andrew.
Speaker Change: Just to jump on that a little bit I do want to reiterate our third quarter gross margin.
Speaker Change: Being at 37, 9%, we did have some nonrecurring issues in there and some other things as Dominic outlined.
Speaker Change: Our Q4 guidance and I know, we don't we don't guide to gross margin, but it does reflect a higher higher EBITDA margins, which which would lead you to believe that we're going to drive some.
Speaker Change: Some higher margins on the gross margin side. So we do not think at 37 nine as they go forward or acceptable margin for us havent guided to that in Q4 and are confident we can get it back to the range that we've been discussing.
Speaker Change: <unk> seen all year, the 40, 45 or 42% range.
Speaker Change: Thanks, Andrew.
Speaker Change: Alex.
Speaker Change: Thank you our next question comes from.
Speaker Change: <unk> of Wells Fargo.
Your line Sir Please go ahead.
Speaker Change: Thanks, Good morning, maybe.
Speaker Change: Maybe just going back to slide 16, it looks like you expect a 76% in the quarter, but to convert to revenue in the next 12 months, which is which is actually up from last quarter. When I think the metric was 72%.
I guess, what's driving that improvement and then just given the current macro backdrop do you think we could see this metric hold steady or continue to improve into Q4.
Speaker Change: Yes, so a couple of things on that one as we mentioned some of the projects that we thought were being kind of delayed indefinitely were pushed back out of our awarded order book. The order book, We believe is healthy.
Speaker Change: Really the healthiest, it's been in a few quarters simply because there was some shake out in 2024 for everybody in the industry. So the improvements I would say.
A couple of things are driving that we believe that some of the delays that we saw earlier in the year that we now have the customers. Good timelines. So we have good expectations of when some of those awards and when purchase orders will be coming through for those materials.
Speaker Change: And I believe that the market now that the election is behind us and Ppas that had to be renegotiated have been renegotiated those customers that have come to us with projects such as following our victory at the ITC.
Speaker Change: Those are projects that were probably already on the books and they need to have the materials. So we feel very confident in.
Speaker Change: In that timeline of our order book right now.
Speaker Change: Got it that's helpful and maybe just staying on this.
Speaker Change: This concept here of revenue conversion cycles as you kind of look out over the next few years when you compare.
International utility scale see CNI batteries.
Speaker Change: What are the revenue conversion cycle for each of these verticals look like compared to your traditional domestic utility scale market and do you think overall you could see.
Speaker Change: That that percentage of the amount of the order book the converts to revenue in the next 12 months do you think that could kind of skew up or down.
Over the next few years based on the verticals Youre entering.
Speaker Change: Yes.
Speaker Change: Few things about that I think at our Investor Day, We did talk about some of the ramp and as we target our 12 months to 18% growth over time not all of these.
Speaker Change: Verticals will grow at the same speed and revenue conversion cycles are certainly a factor in that as Brandon mentioned <unk> has a relatively shorter conversion cycle. We can find out about projects. We can build a product we can recognize revenue in a shorter timeline. Some of the things internationally, we have proven to take longer than our U S. Utah.
Speaker Change: <unk> scaled base. So we factor that in because we still have some awarded orders that have had delays even longer than we've seen here in the U S. I don't believe things are getting worse for us from a utility scale standpoint, when we look at projects that when C. O D. We're still averaging about 13 months lead time in front of Wynn.
Speaker Change: Project goes.
Speaker Change: I think our customers in the construction side, they figured out timelines about when to really maximize their efficiency and use of cash when they build these things and they now know how to place orders with us. So we're not seeing anything worse in that standpoint.
Speaker Change: And I think with battery energy storage those are relatively quick turnarounds, we can get those cabinets those are combining and disconnects.
Speaker Change: Turned around a relatively quickly and so I think it really varies on the vertical we're excited about all of our growth verticals, but the revenue cycles are certainly not getting any worse at this point.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Alex.
Speaker Change: Thank you our next.
Speaker Change: Next question comes from Jay <unk> of Guggenheim Partners.
Speaker Change: Please go ahead.
Speaker Change: Thank you good morning, two two questions firstly looking at the redesigned voltage product, which was excluded from the ITC.
Speaker Change: Thank you for your patent portfolio a number of times. This morning might we expect that you begin to look at your other options for addressing the competitive outcomes with that redesign voltage product and I do have it.
Speaker Change: Joe will totally tip, our hand, there, but you know like we've said we will continue to.
To protect our patent portfolio, we feel very strongly about our two new patents related to the BLA product line.
Speaker Change: So more to come there.
Speaker Change: Okay.
Speaker Change: Great. Thank you and then just returning entered this revenue conversion.
Speaker Change: These bookings conversion question given.
How how timelines are stretched out and how hard it's been to predict timing, obviously, C&I and whatnot to a separate issue, but why why would it make sense in your 2025 outlook to build in any book and ship.
Speaker Change: Just given the way the business looks in two.
Speaker Change: 24 and utility data.
Joe would you like to come present to our board of directors I can get a good plan approved for next year.
Speaker Change: Seriously, though that's a great question.
Speaker Change: Thank you.
Speaker Change: Seriously that's a great question, we do look at what's been happening and as we work with our customers.
Speaker Change: We are starting to have even tighter integration on construction timelines as we've talked about the master supply agreements that we've signed with some very large <unk> they share a very detailed aspects and so we can really look at projects that they are bidding on that they hope to move forward with in the back half of the year.
Speaker Change: And if we feel like they have a great shot at winning those those projects and they do get awarded order, we should be able to count on that we know the percentages of the business that we're going to get so yeah. It's always risky as I mentioned before I think it was last time.
Speaker Change: This is the first year, where our revenue for the year is going to be below the backlog and awarded orders that we started the year with.
Speaker Change: Usually we can target getting another 10% lift or something on top of what the backlog and awarded order book is at the end of the year. So we're going to look at that we are very sensitive to the dynamics facing our customers, but we're also very confident in our relationships with them that we would have confidence to put those jobs into our back half if they win those jobs.
Alex let's see if we can squeeze in one last question.
Speaker Change: Yeah.
Speaker Change: Thank you our final question for today comes from Colin Rusch of Oppenheimer. Your.
Speaker Change: Please go ahead, thanks, so much.
Speaker Change: Thanks, So much for squeezing me in guys now can you talk a little bit about the competitive environment at separate from voltage any competitors that youre seeing start to emerge in any needs from your customers thinking about second sources or alternate solutions for what you guys provide.
Speaker Change: Yes.
Speaker Change: Great Great question.
Speaker Change: We've seen really some exciting engagement between our commercial team and customers who are working hand in hand with them to try to.
Speaker Change: Really improve deployments.
Speaker Change: Around a boss theres been sort of a.
Speaker Change: I guess.
Speaker Change: A restart of of our voice of customer efforts here in the last year or so to speak and what we're seeing.
Speaker Change: We're starting to see the benefits of that so.
Speaker Change: Youll see some new products from us probably over the course or some of the next year some adaptation of products as a result of that.
We talked about the <unk> product in the prepared remarks, that's an exciting new.
Speaker Change: Our new.
Speaker Change: New product line for us.
Speaker Change: But we're really focused on customer.
Dynamics in making sure that we're meeting their needs not only on the specific product side, but we have gotten much more flexible around the packaging and how we kit products to deliver them onsite too to make us more competitive by unlocking additional value for our customers. So that's all.
Speaker Change: Our focus in terms of the broader competitive landscape.
Speaker Change: We're always going to have competition.
Speaker Change: We command a great share of the marketplace people understand that there will always be nipping at our heels, but but I like what we're doing specifically in this space right now.
To maintain and continue to grow our share.
Speaker Change: We are at the top of the Alex so much guys.
Speaker Change: Thank you.
Speaker Change: At the top of the hour. That's all the time that we have for questions. Today I want to note that we do have a very active investor relations calendar through the end of the year can be found on our IR website. So please join us for one of those events you can we'd love to meet with you. If we can help you further please reach out to the Investor relations team at investors at Shoals Dot com with any questions. Thanks.
Speaker Change: Everybody for joining us today have a great day.
Speaker Change: Thanks, Paul.
Speaker Change: Thank you all for joining today's call you may now disconnect your lines.
Speaker Change: Have a great day thanks.
Speaker Change: Thanks Al.
Speaker Change: Thank you all for joining today's call you may now.