Q4 2024 Shoals Technologies Group Inc Earnings Call
<unk> not be considered guarantees of performance or results those risks and uncertainties are listed for interested investors in our most recent SEC filings actual results could differ materially from our forward looking statements.
This presentation also includes references to non-GAAP financial measures.
You should refer to the information contained in the company's fourth quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures.
Please note that the slides you see here are available for download from the investor relations section of our website at investors.scholls.com With that, let me turn the call over to Brandon
Brandon: Thank you, Matt, and good morning, everyone. I'll begin by sharing some thoughts on the most recent quarter and full year 2024.
Brandon: We'll discuss the current market and demand environment for U.S. utility-scale solar. I'll spend some time on the strategic framework we apply to key initiatives here at Shoals, including market penetration, customer diversification, new market entry, and new product development.
Brandon: I'll then provide an update on our ongoing litigation. Dominic will dive deeper into the fourth quarter results and provide our outlook on the first quarter and full year 2025. We'll close it out with questions from our analysts.
Dominic: We executed well in the fourth quarter, delivering revenue of $107 million at the high end of our expected range.
Dominic: Bookings were also strong in the period with $145 million in new projects.
Dominic: This resulted in total backlog in awarded orders, or BLAO, of $635 million and a book-to-bill of $1.4.
Dominic: As of December 31st, 2024, approximately $440 million of that DLAO has shipment dates in the upcoming four quarters. I'll talk more in a few minutes about how that impacts our 2025 forecast.
Dominic: Adjusted gross profit percentage in the quarter was softer than expected at 37.6%, driven by the competitive environment and product mix. This was slightly offset by the impact of productivity improvements we've begun to implement.
Dominic: Pricing is a strategic lever we've always used to respond to shifting market conditions and the value our solutions provide to our customers.
Dominic: In addition, like many industries, we leverage price to engage with customers who may have adopted alternative solutions in the past to secure long-term agreements, or as we enter new market segments or geographies.
Dominic: The impact of those price actions are expected to lessen over time as we continue to move customers up the value continuum.
Dominic: In addition, we expect ongoing productivity initiatives that we are aggressively pursuing to begin to take hold.
Dominic: We continue to believe that adjusted gross profit percentage at or above 40% is appropriate in the long term.
Dominic: In addition to price, scale and product mix always play a role in our margins.
Dominic: and both of those items are expected to be favorable in future periods. And finally, adjusted EBITDA in the fourth quarter was $26.4 million, or 24.7% of revenue.
Dominic: 2024 was marked by external forces that created widespread project delays within our industry, driving uncertainty and volatility for many companies.
Dominic: A rapidly shifting political stage, labor and equipment availability, and regulatory and permitting delays all contributed to that challenging backdrop.
Dominic: In that type of environment, the best course of action is to remain close to your customers, focus on what you can control or influence, and prepare for the market to return to a more normalized state.
Dominic: And while we're still early in the year, we believe U.S. utility-scale solar will improve in 2025.
Dominic: 2024 also brought many exciting improvements across the number of fronts it shows. We introduced more than a dozen new products that solve real business problems our customers are facing. We're building successful businesses in new market segments like CC&I Invest, and we're winning projects in international markets.
Dominic: We added multiple members to our management team, bringing experience and process to the company to drive results, meaningful progress on our strategic initiatives. We entered 2025 in a position of commercial, operational, and financial strength.
Dominic: Appear on our awarded orders examples include.
Dominic: Our new best combined and recombined us provide UL certification that offer simplicity labor savings and reduced install times.
Dominic: Long tailed BLA allows for clustering of load break disconnects, which provides a lower O&M costs.
Dominic: Many BLA used in north South configurations enables unobstructed access between rows perfect for stacked tracker configurations over long distances and is well suited for project maintenance.
Dominic: Our <unk> solutions will enhance the efficiency cost effectiveness and scalability of solar projects. This innovative solution will lead the next generation of utility scale solar architectures.
Dominic: I'm very pleased by how quickly we've moved on developing these new products, which will provide benefits for both EPC and developers.
Dominic: Turning to the numbers.
Dominic: Full year revenue totaled $399 million and 18, 4% decline from 2023, driven by the project delays we've spoken about at length.
Dominic: Wood Mackenzie reported that a staggering 53 gigawatts of pipeline projects experienced some form of delay in 2020 for.
Dominic: That disruption was impossible to avoid but we use the year to turn our attention to improving both commercial and operational processes that will benefit us for years to come.
Dominic: Adjusted gross profit percentage for the full year was 39% a decrease from the prior year driven by product mix lower volume and the competitive environment, partially offset by favorable labor trends in the second half of the year.
Dominic: As we've seen over the past two months the federal regulatory dynamic is prone to rapid changes in course, which requires us to be flexible in our planning and approach how's.
Dominic: However, we believe the outlook for U S utility scale solar is improving.
Dominic: This is supported by both the conversations with our customers and the strength we've seen in our 2025 book of business.
Dominic: Customers are moving ahead with projects and while project timelines remains somewhat fluid and are still dependent on labor availability equipment and permitting we believe the calendar to be firmer than 2024.
Dominic: We have spent an enormous amount of time talking with customers to understand what variables have risk and how timelines could change because of this we have a greater degree of confidence and customer time lines as we look out over this year.
Dominic: We continue to focus on the strong underlying fundamentals driving demand for solar we believe load growth could exceed many of the prevailing forecast driven by onshoring and data center demand.
Dominic: Solar has the lowest level of <unk> cost of energy and the fastest deployment time. The energy is needed and we believe solar is uniquely positioned to meet those needs over the next decade.
Dominic: At our Investor event in September we shared with you our strategic framework for growth and diversification. It's the framework, we apply to all decisions we make at Shoals.
Dominic: First to further penetrate the U S utility scale solar market by deploying a new highly engaged sales model to portions of the market we have historically not pursued.
Dominic: Second to developed international markets by offering localized products to meet customer needs in targeted geographies.
Dominic: Third accelerate product development, enabling expansion into adjacent markets that can benefit from our capabilities and scale, including C&I and OEM applications.
Dominic: Fourth to diversify our presence in high growth markets that leverage our expertise and relationships, including best and datacenter infrastructure.
Dominic: I want to spend some time this morning sharing results for these initiatives.
Dominic: First within our core business, we quoted over $2 5 billion of projects in 2020 for many of those with multiple Epc's and we continue to see progress diversifying our order book.
Dominic: This is evidenced by more than 10% of our 2020 for revenue coming from customers, who purchased less than $1 million combined in 2023, we expect this trend to continue in 2025.
Dominic: Our strategy to win more projects outside of the U S was accelerated last year. When we introduced a broad new product offering designed to meet international needs. As a result, I'm pleased to announce more than $8 million of new international projects or one in the fourth quarter, including Australia and Chile.
Dominic: We ended the year with approximately $86 million of international backlog and awarded orders and expect about $15 million of this to convert to revenue in 2025.
Dominic: Commercial community and industrial is an opportunity that most closely leverages, our existing products and relationships.
Dominic: These projects often smaller than utility scale, sometimes sold through distribution requiring more standardized offering from shoals.
Dominic: We quoted almost $40 million of projects in 2024 and recognized almost $10 million in revenue. We continue to be excited about this opportunity.
Dominic: We're also pleased by the continued growth of our OEM business alignment with a leading module manufacturer in the U S has positioned us well and the growth in the partnership enables us to support the re shoring of domestic supply chain for the U S solar industry.
Dominic: We will report additional commercial wins as they come in 2025.
Dominic: Battery energy storage systems is a market in which we participated in while we have offered combined and recombine hers to select customers a new standardized product offering was introduced in 2024, we've quoted more than $30 million of projects. During the year. We've also hired an industry veteran to lead our commercial.
Dominic: Efforts. This is a space to watch it shows so stay tuned for some exciting commercial wins this year.
Dominic: The strategic framework, we presented to you here are protecting our core business, expanding our presence into new and attractive markets and developing new products for high growth applications is taking shape as anticipated.
Speaker Change: Before I hand, it to Dominic I want to spend a minute on the subject of our ITC case against voltage as you've likely seen there've been a few developments since the beginning of the year.
Speaker Change: First we filed a new case with the ITC on January nine which was subsequently instituted or accepted by the court. This new case applies to two new patents $3 75, and $3 76, which we believe provide additional protection for our BLA product line.
Speaker Change: This new cases independent of the outcome of the $1 53 case you have been following since 2023, the second development, which occurred on January 15th was that the ITC did not uphold the alj's initial determination. This was a surprise and very disappointing to us we take our IP very seriously and we believe we're <unk>.
Speaker Change: Correct and asking the court to revisit their findings as a result, we have appealed that decision with the federal court of Appeals.
Speaker Change: We believe that it is in our shareholders employees and the industry's best interest to ensure a fair and level playing field through the protection in defense of IP.
Speaker Change: This is not a quick process, but a necessary one in the meantime, we will continue to compete with our innovative products quality and best in class service.
Speaker Change: In summary, while I'm proud of how we navigated a challenging 2024 I'm most excited about how we're positioned for 2025.
Speaker Change: We entered the year with a solid order book, a more diversified customer list expanded offerings keys to a new state of the art factory and an energized and experienced leadership team.
Speaker Change: While markets will fluctuate the fundamentals of our business remain very sound.
Speaker Change: 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 fourth quarter financial results in more detail our outlook for 2025 Dom.
Dominic: Thanks, Brendan and good morning to everyone on the call.
Dominic: Turning to our fourth quarter financial results net revenue declined 18.0% to $107.0 million year over year, but increased four 7% sequentially from the prior quarter.
Dominic: The year over year decline in net revenue was driven by softer market demand, resulting from customers shifting project schedules as Brandon discussed earlier.
Dominic: Gross profit decreased to $42 million compared to $55 4 million in the prior year period.
This resulted in GAAP gross profit percentage of 37, 6% compared to 42, 5% in the prior year period.
Dominic: General and administrative expenses were 21 $5 million flat on a year over year basis.
Dominic: We're very focused on controlling expenses and believe we are allocating resources in a responsible and thoughtful manner.
Dominic: Approximately $2 8 million of G&A expense was specifically related to the ongoing wire insulation Street back litigation.
Dominic: Net income was $7 8 million compared to net income of $16 6 million during the prior year period.
Dominic: Adjusted net income was $14 1 million compared to $21 3 million in the prior year period.
Dominic: Adjusted EBITDA was $26 4 million.
Dominic: Compared to $39 1 million.
Dominic: Prior year period.
Dominic: Adjusted EBITDA margin was 24, 7% compared to 30.0% a year ago, driven largely by lower sales and the adjusted gross profit percentage decline.
Dominic: During the fourth quarter, we spent $13 $1 million for wire insulation shrink back remediation and had a remaining warranty liability on our balance sheet of $39 9 million as of December 31.
Dominic: The current portion of the remaining liability related to street back is now $28 4 million.
As a reminder, this represents the amount of cash we estimate we will consume during the next four quarters. As we continued remediation efforts. This does not reflect any potential litigation recovery or increased reserves, if our assumptions are not a facts change.
Dominic: Our legal case against <unk> is progressing and we expect written discovery and depositions to be completed by mid 2025.
Dominic: Cash flow from operations in the fourth quarter was 14.0 million.
Dominic: Capital expenditures were $1 5 million.
Dominic: Approximately $4 million of Capex that we anticipated spending in 2024 has been deferred to 2025.
Dominic: Our balance sheet remains very strong and we ended the quarter with cash and equivalents of $23 $5 million and net debt to adjusted EBITDA of one two times.
Dominic: Optimizing our balance sheet is crucial to maximizing financial flexibility and long term growth.
Dominic: 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: With regards to capital allocation, we did not purchase any shares in the fourth quarter under our share repurchase program.
Dominic: We have $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: Backlog and awarded orders ended the fourth quarter at $634 7 million.
Dominic: A sequential increase of $38 million.
Dominic: As of December 31, $439 $3 million of our backlog and awarded orders have planned delivery dates in the coming four quarters with the remaining $195 $4 million beyond that.
Dominic: While we cannot control the regulatory environment or the availability of electrical equipment needed to complete solar field, we can work to ensure customers get the quality products they need through shoals in a timely manner, we can manage our costs responsibly.
Dominic: Turning to guidance.
Dominic: The process, we used to determine the potential range of outcomes for 2025 was commensurate with the amount of volatility we've seen in our business over the past year.
Dominic: We've implemented several more layers and connection points between shoals, and our customers to better understand the moving parts of each project.
Dominic: That has provided a greater level of insight, allowing us to better gauge the timing risk of each project, we see in 2025.
Dominic: Embedded in the process of constructing guidance, our two main assumptions first the degree to which projects which are currently in our 2025 backlog and awarded orders will be delayed.
Dominic: And second what amount of book and turn business will be secured during the year.
Dominic: Let's talk to both of those.
Dominic: I don't need to remind you that 2024 brought an enormous amount of project movement within and out of the year.
Dominic: For Shoals, it meant $130 million of expected 2024 revenue pushed out almost 25% of the expected revenue for the year.
Dominic: Those delays occurred across the customer spectrum.
Dominic: So while we are more constructive on 2025, we have not assumed the project timelines fully returned to a normalized pattern.
Note that each and every year, we would expect projects to shift on our calendar that is a part of our business is largely driven by our customers' needs.
Dominic: Variability happens.
Dominic: However, as normally happens at a significantly lower rate than what occurred last year.
Dominic: Our assumption is that some delays will occur in 2025 less in 'twenty, 'twenty, four but more than historical norms.
Dominic: Book and turn business is a relatively stable part of our year as well. It has consistently provided 10% to 20% of the full year number in 2024 was no exception.
Dominic: Remember these are projects that are in some stage within our pipeline on December 31, we've quoted them designed the project at least in part and discuss timing, but they have not fully satisfy the requirements to move into our awarded orders bucket.
Dominic: As we examined our year end pipeline, we believe that our book and turn business will account for a similar portion of our full year number in 2025.
Dominic: Finally, the net impact of both project delays and book and turn business allow us to arrive at an appropriate range of outcomes in summary, our guidance range assumes that book and term business will largely offset potential project delays in 2025.
Dominic: If project delays occur in a more normalized pattern, we would expect results toward the higher end of the range.
Dominic: Turning now to the outlook.
Dominic: Before we offer numbers I want to call out an unusual seasonal pattern, we see in 2025, our first quarter and first half will be lighter than we would normally expect resulting in a heavier second half.
Dominic: We expect roughly 40% of revenue in the first half of the year and 60% in the second half.
Dominic: This is compared to the more normal pattern of 45% to 55%.
Dominic: This will also require a higher level of working capital investment in the first half as we ramp up the business for the second half of the year.
Dominic: Based on what I, just walked through for the quarter ending March 31, 2025, the company expects revenue.
Dominic: Revenue to be in the range of 70 million to $80 million and adjusted EBITDA to be in the range of 10 million to $15 million.
Dominic: For the full year 2025, the company expects revenue to be in the range of $410 million to $450 million.
Dominic: And adjusted EBITDA to be in the range of $100 million to $115 million.
In addition for the full year cash flow from operations to be in the range of 30 million to $45 million.
Dominic: Capital expenditures to be in the range of $25 million to $35 million and.
Dominic: And interest expense to be in the range of 8 million to $12 million.
Dominic: To offer you more color on Capex, we anticipate elevated investments as we complete the build out of our new facility and make strategic investments to drive efficiencies.
Dominic: Capital spend levels are expected to normalize in 2026.
Dominic: With that I'll turn it back over to Brendan for closing remarks.
Brendan: Thank you Dominic we believe we're turning the corner into a year with improved fundamentals.
Brendan: Feedback we are hearing from our customers is exceptionally good and while we never want to get comfortable the meaningful changes we've put into motion over the last 18 months are showing promise.
Brendan: We're optimistic about 2025, and we remain focused on protecting our core business expanding our geographic reach diversifying our order book and delivering new and innovative products into attractive growth markets. It's a good time to be at Shoals.
Brendan: Want to thank our shareholders and our customers for their continued trust and our employees for their hard work dedication.
Brendan: Operator, we're now ready to take questions.
Speaker Change: Thank you of course, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: To withdraw your question. Please press star followed by two of the patch will ask a question. Please ensure you're on mute locally.
Speaker Change: Reminded that star followed by one on your telephone keypad now.
Andrew: Our first question comes from Andrew <unk> of Morgan Stanley Andrew Your line is open. Please go ahead.
Andrew: Alright, thanks, so much and good morning, guys. Thanks for taking the question.
Andrew: Maybe just to start on.
Andrew: The pricing dynamics that you alluded to the competition can you just give us more complex around where youre seeing the most pricing pressure and then maybe how much you're having to lower prices to remain competitive.
Andrew: Clearly a voltage issue or is this more widespread across the peer group.
Andrew: Andrew I'll start with that good morning, and then maybe let let domenic jump in.
Speaker Change: Look I mean, I think the pricing environment, there's always ebbs and flows related to market dynamics and.
Speaker Change: This past year has been theres been really no different as we've talked about.
Speaker Change: In previous quarters, we are opening our aperture and really trying to.
Speaker Change: Entice new customers that have not been part of our customer portfolio here over the past couple of years.
Speaker Change: <unk> products and.
Speaker Change: That may be.
Speaker Change: By offering.
Speaker Change: Some pricing to do that to those customers we have.
Speaker Change: We've worked with customers to secure long term agreements and we've offered some pricing to do that and I think there's also a mix component here some of new customers or re engagement with customers.
Speaker Change: Not full solutions customers today.
Speaker Change: And we are starting our relationship with them with components products.
Speaker Change: Which does have a mix impact.
Speaker Change: Look while we don't specifically guide to gross margin I still expect this business to perform.
Speaker Change: The 40% range in the long term Dom anything to add Paul I think you've covered it all I was going to say similarly that we do have some mix of customers certainly played a part in the fourth quarter and we certainly had a mix over the entire year as you can see in our 10-K for example customer a is it was 26 four.
Speaker Change: Our percent of our revenue stream in 2024 compared to 36, 3% in the prior year. So we've definitely had some mix definitely has some diversification of the portfolio and that certainly had a bearing on the pricing environment.
Speaker Change: Okay got it that makes sense. It's helpful. Thank you and medium I just my follow up would be.
Speaker Change: I think Brandon you alluded to the fact that you are having more in depth conversations with some of your customers to ensure greater visibility into the delivery schedule for some of these projects can you maybe just add more context around exactly what youre doing.
Speaker Change: To gain that greater visibility and I think you also mentioned youre assuming.
Slightly less project push outs in 2025 relative to 2024.
Speaker Change: What gives you the confidence that things will improve this year. Thank you.
Andrea: Thanks Andrea.
Andrea: First and foremost just talking with our customers both on the EPC side and.
Andrea: Investors and owners.
Andrea: And quite honestly.
Andrea: Our peers I think everybody feels good about the market dynamics in 2025 that things are improving versus 2024.
Andrea: As we said in the opening comments.
Andrea: Wouldn't call them normalized yet, but I think there is certainly improving and that gives us.
Andrea: Some optimism as im cautious optimism, but optimism for 2025.
Andrea: Specifically to your question around.
Andrea: What we're doing.
Andrea: Like probably most most customers are most companies in our industry, we've got a CRM tool and we're trying to populate that CRM tool.
Andrea: With as much data as possible to make us as educated around particular products as the projects as we can be and.
We track.
Andrea: But the different components of the projects. We've we track obviously the owners of the projects and we feel.
Andrea: Much better about our information and our ability to understand.
Andrea: Construction schedules than ever before so.
Andrea: I am excited about the quality of our order book I'm excited about the diversity of our order book.
Andrea: Going into 2025.
Charlie: Thanks, Andrew Charlie next question. Please.
Speaker Change: Of course, our next question comes from Mark Strouse of Jpmorgan Mark. Your line is open. Please go ahead.
Charlie: Yes.
Mark Strouse: Yes, good morning, everybody, thanks for taking our questions.
Mark Strouse: Can you talk about the overall bidding activity since the ITT reversal in January.
Mark Strouse: I think you said on the last call that following the favorable ruling we received in late August early September.
Mark Strouse: There were some new epc's.
Mark Strouse: Signed up for your product.
Mark Strouse: Can you talk about what Youre seeing there are those new customers.
Mark Strouse: Reversing course, now or is the pricing environment or is that part of keeping them in your networks. Thank you.
Yes, Mark Thanks for the question.
Mark Strouse: Obviously can't talk about specifics of current quarter.
Mark Strouse: But.
Mark Strouse: Would say our order book.
Mark Strouse: It has.
Ben been strong, particularly in the fourth quarter.
Mark Strouse: As we talked about last quarter, we felt like we would have a very strong bookings quarter. In Q4, we did with the 114 book to Bill.
Mark Strouse: We're seeing greater quality in our order book.
Mark Strouse: What's very exciting is look we've got a long sales cycle.
Mark Strouse: You are well aware of.
Mark Strouse: The processes and strategies that we've implemented over a year ago are now really starting to take shape.
Mark Strouse: And our order book is a strong and diverse as it's ever been.
Mark Strouse: We talked about tackling that.
Mark Strouse: That 30% of the markets.
Mark Strouse: That we werent quoting in our Investor day back in September and we're making good progress there 10% of our sales in 2024 came from customers that did less than $1 million. So I know, we talked last quarter about attracting some new customers.
Mark Strouse: We are seeing no no change.
Mark Strouse: To that progress.
Again are just really excited about the diversity and quality of the order book.
Speaker Change: Okay. Good to hear and then a quick follow up for Dominic.
Speaker Change: Just a bit more color on the cash from operations guidance for 2020. It sounds like part of that is just driven by a more backend loaded year and so kind of the excuse me.
Speaker Change: The timing of those receivables turning into cash might be delayed into 2026.
Speaker Change: First of all is that right and then second is there anything else that you would add to that.
Speaker Change: Yes, no I think Mark you fundamentally answered your own question, which is great for me. It makes it easy so I appreciate that but yes, it's due to timing.
Speaker Change: As we've been kind of looking at the quarterly pacing and Thats why I wanted to call out in my prepared remarks, the pacing because with a lighter first half.
Speaker Change: And as we ramp up significantly for a second.
Speaker Change: Latter part of Q2 into Q3.
Speaker Change: Our timing it will consume working capital and that pushes cash collections on the receivables side and particularly into the back half of the year. Likewise on the inventories we frontload as we're ordering materials to make sure that we're prepared for all of that production and so those are the kinds of dynamics that will impact us first half of the year is.
Speaker Change: Going to be more challenging thats why I wanted to give some guidance to that and.
Speaker Change: And then second half of the year is fine and we still have a very good strong book of business and positive cash flow again this year.
Mark Strouse: Thanks, Mark Thank you.
Speaker Change: Thank you. Our next question comes from Philip Shen of Roth Capital Partners. Your line is open. Please go ahead.
Philip Shen: Hey, guys. Thanks for taking the questions.
Philip Shen: You guys talked a bit about pricing just now wanted to chicken on the margins I know you Havent provided guidance essentially for Q1.
Philip Shen: The year Brandon you did just mention that.
Philip Shen: 40% is a long term target.
Philip Shen: So I was wondering if you could kind of bracket, what the near term targets might be for 25 and what.
Philip Shen: What the cadence of margins might be should we expect a bit of a dip in Q1 with the lower volume and then should that ramp through the year or do we.
Philip Shen: See margins, maybe staying stable through the year. Thanks.
Philip Shen: Yes, Phil I'll go and take that question. This is Dominic so once again, you really put in some of the elements of the answer yes. When revenue is going to be at a lower level of Q1 is the lowest level of the year as we expect the margins would be more pressured there as you lose leverage and some of the mix becomes.
Philip Shen: Little bit skewed towards some of our lesser margin driving businesses such as OEM.
Philip Shen: In the case of the pacing of it and while we don't specifically guide to the gross margin.
Philip Shen: Line item, we do think that that will be improving throughout the year as we go towards the back half.
Philip Shen: I really believe based on our mix based on the projects that we've quoted that we'll do everything we can to get right back to 40%. This year, but we do have a couple of things going on we are moving our facilities. This year that will probably cause some inefficiencies and disruptions we're going to work very closely to mitigate that so im not sure that I would guide.
Philip Shen: 40% fully this year, but we do everything we can to get there.
Speaker Change: Thanks, Dominic second.
Speaker Change: Second question here.
Speaker Change: A bit of a follow up on bidding activity, but it's more tied to the voltage section 337 cases, a reversal that was a big surprise for everybody wanted to understand.
Speaker Change: What has the activity been like.
Speaker Change: Post.
Speaker Change: Reversal have you had to move a little more on pricing.
Speaker Change: Or what have you been able to do to kind of offset some of the.
Speaker Change: Adverse impacts from that.
Speaker Change: Yeah.
Speaker Change: Phil It's Brandon I'll take that again.
Speaker Change: Can't comment specifically on current quarter Bud.
Speaker Change: Look we are continuing as we always have to compete.
Speaker Change: On quality and service.
Speaker Change: Our customer engagement is better than ever before.
Speaker Change: And again really honing in on that quality piece.
Speaker Change: And talking to our larger customers. They are very pleased with our execution on side it projects and the quality and durability of our of our of our products. So.
No changes in the commercial activity.
Speaker Change: As you know we've now.
Speaker Change: And.
Speaker Change: The case has been accepted by the ITC around our two new patents to $3 75, and the $3 76.
Speaker Change: We're very pleased with and obviously we have.
Speaker Change: Recently filed appeal of the $1 53 case in the federal courts. So.
Speaker Change: We'll keep keep.
Speaker Change: <unk> progressing on the IP protection front as we should.
Speaker Change: Thanks Bill.
Speaker Change: Thank you. Our next question comes from Brian Lee of Goldman Sachs. Brian. Your line is open. Please proceed.
Brian Lee: Hey, guys.
Brian Lee: Thanks for taking the questions.
Brian Lee: First one on the guidance.
Brian Lee: Yes, I know.
Brian Lee: Giving us the cadence first half second half skew I might have missed this but.
Brian Lee: Can you talk to some of the specific drivers is it is it a big customer or is it just lumpier projects.
Brian Lee: Q half versus one that skew because I would've thought I guess coming into this year given.
Brian Lee: What you're outlining is $130 million and pushed out from last year that it would have been sprinkled into the early part of the year. So they might actually dampened the normal seasonality coming into this year.
Brian Lee: But then I guess I also look at the.
Brian Lee: The skew to awarded orders versus backlog at higher than normal heading into this year. So is this.
Brian Lee: This customer issue of project issue. This maybe a lack of visibility based on the backlog slash awarded orders and they are just trying to understand the second half first half skew a bit.
Brian Lee: Yes. This is Dominic let me, Brian let me take some of that because I think one thing that we've seen throughout 2024 is a bit of a declining backlog figure. If you go back and look at what we've released each quarter. There was some declines in backlog. So it's a natural reduction of business that was happening in 2020.
Brian Lee: Four and its winter projects. This is a normal seasonality for the first quarter to be lighter than the rest of the quarters of the year.
Brian Lee: So as we looked at the project push outs, we have a lot of the timing. We do know that projects are more skewed towards the middle to back half of the year.
Brian Lee: It's not limited to one particular customer.
Looked at every project and every single project in our pipeline we've looked at the materials on site request.
Brian Lee: And we try to validate as much information as we can about the status of those projects moving forward. So I think it's an unusual seasonality. This year I think that once we have a more.
Brian Lee: Solid kind of expectation of when theyre going to land across the board on projects.
Brian Lee: I think that theres going to be a more predictable pattern and $26 27, I do believe that some projects were held up a little bit during the election cycle and that's why the order didn't come through as quickly. So it is it is a bit of an unusual year for us that's why I called it out just trying to provide as much transparency as we can.
Speaker Change: Okay Fair enough and then just maybe one follow up on that.
Speaker Change: The margins here I mean, if you back into the second half EBITDA margins are going to be back kind of low mid thirty's, which is pretty pretty healthy for you guys. I mean, it would imply you should be back to you.
Speaker Change: 40% gross margin at some point, whether it's <unk> the numbers are right.
Speaker Change: How much of that is just all through volume leverage out of that how much of that is some of the new products new mix, helping Mike.
Speaker Change: Youre seeing traction on some of those new efforts Brandon.
Speaker Change: Brandon maybe can you speak to sort of the margin dynamics of some of that new revenue opportunity starts to translate to the P&L.
Brandon: Yes, sure I'll chime in and then let Dominic respond as well.
Speaker Change: I think youre exactly right on the volumes that we're seeing in the back half of the year.
Speaker Change: That's going to generate significant operating leverage for us and.
Operating profits will improve as a result of that.
Speaker Change: So that is that is that is the main driver.
Speaker Change: As it relates to the new new new products and new markets.
Speaker Change: Youre absolutely right I mean, we've got a we've got a really good strong traction.
Speaker Change: In our.
Speaker Change: Call. It adjacent business units that we have put a greater focus on launching and back.
Speaker Change: Back in 2024.
Speaker Change: If you think about R. R.
Speaker Change: Our diversification from a geographic standpoint.
Speaker Change: Beginning to see some green shoots on the international front, we booked two nice projects in the fourth quarter, one in Australia and one in Chile.
Speaker Change: See that our backlog and awarded orders has increased to $86 million.
Speaker Change: Well aware of that we have had a consistent backlog.
Speaker Change: There we will recognize revenue in 2025 internationally, we expect.
Speaker Change: Projects will start flowing here very shortly.
Brian Lee: Brian when I think about the products and market saw very excited about that.
Speaker Change: The C&I C&I business.
Speaker Change: We told you we'd begin recognizing revenue in the fourth quarter. We did we recognized approximately $10 million in revenue last year as it relates to product mix that CNI business as a as a good business for us as we've we've communicated in the past. So we're excited about that OEM business.
Speaker Change: And it drives great operating profit for us, we're very excited to be aligned with the largest module manufacturer in the U S and as those products begin to get re shored, we will.
Speaker Change: We will continue to grow with them and.
Speaker Change: Maybe maybe most exciting for US is our best product category, which also.
Speaker Change: Will be accretive to margins, we launched a suite of products last year.
Speaker Change: <unk> have been significant.
Speaker Change: We've got some exciting developments there I think youll hear from US hopefully in the next couple of weeks about about a couple of those so.
Speaker Change: I think I think net net it's a.
Speaker Change: The mix up on the on those.
Speaker Change: On those new new market opportunities for us anything that I just wanted to add the emphasis on the product mix at Brandon just mentioned because.
Speaker Change: We even saw in 2024 with the OEM business being a larger percentage of our overall revenue and it certainly will be in the first quarter as well when we land the projects with the full <unk> solutions are particularly a full BLA solutions and those grow in magnitude towards the back half the product mix becomes.
Speaker Change: Very favorable to us from a margin standpoint, too. So yeah, it's really everything that Brandon mentioned, we are getting traction in those areas, which are meeting our targets and we're going to continue to drive that mix as much as we can to the full solutions.
Brian Lee: Thanks, Brian.
Speaker Change: Charlie.
Speaker Change: Thank you. Our next question comes from Colin Rusch Oppenheimer. Colin Your line is open. Please go ahead.
Speaker Change: Thanks, so much guidance.
Speaker Change: The detailed conversations you've had with your customers can you talk a little bit about the labor dynamics, particularly skilled labor dynamics.
Speaker Change: UPC customers are talking about right now in light of some of the changes in immigration policy.
Speaker Change: Yes.
Speaker Change: It's a great question. This is Brandon I think that.
Speaker Change: As we've talked about all year.
Speaker Change: Labor probably for our EPC customers.
Speaker Change: As as big of a challenge.
Speaker Change: Not more than supply chain.
Speaker Change: <unk>.
Speaker Change: So.
There is no sign of that improving obviously the immigration policy, we will have.
Speaker Change: Have an impact on that.
Speaker Change: But I don't think we see this improving.
Speaker Change: In 2025, we get a lot I asked a lot about project.
Speaker Change: Pull forward and that labor dynamic is the bottleneck.
Speaker Change: I think as you continue to see.
Speaker Change: The explosive growth driven by AI in the data center space that is pulling from the same labor pool.
Speaker Change: What I would say, maybe a change that I hear from our EPC customers is around project planning.
Speaker Change: They are getting.
Speaker Change: Really strategic about how and where they take projects geographically.
Speaker Change: And if they can package those projects.
Speaker Change: Sequentially, whether it is a renewables project or a data center project, where they can keep that labor intact in a in a specific geography, I am hearing more and more of that so.
Speaker Change: Theyre, having the new more preplanning probably than ever before.
Speaker Change: To solve for that issue. So great. Great question, if I could just add one thing that that we are hearing is that many of the advanced cards are full they have scheduled projects, they're going into their capacity and maybe that is the labor issue that we're talking about but are.
Speaker Change: Many of our customers are planned and fully booked for 2025.
Speaker Change: That's super helpful. Guys. Thank you and then in terms of this book and turn business, it's actually pretty wide range.
Speaker Change: Impacting the overall guidance.
What are you guys watching for in terms of that activity and how can we think about that.
Impacting numbers along the year.
Speaker Change: Seems like there's a lot of Optionality for you. If there is some quicker turn business that shows up this year.
Speaker Change: Yes, so we're very confident in being able to secure the book and turn business and Thats why in my prepared remarks, I kind of laid out that these are not new projects is showing up on our radar. We've known about these projects. We know about the timelines we've designed them in part.
Speaker Change: And we just havent met all the qualifications if they don't have noticed to proceed where that's not going to be put into our awarded orders category things like that so as we look at book in turn we're very confident that we will be able to secure jobs that are not in the current year and awarded orders and backlog kind of pie in the pipeline just outside of what.
Speaker Change: We've disclosed.
Speaker Change: And so yes, there is a bit of a wide range, but I would say, it's not really being driven as much by the book in turn concerns as it is the unpredictability of project delays. We do think 25 is going to be better than last year, we do have.
Speaker Change: Good cautious optimism about these projects are moving forward is slated and if fewer projects.
Speaker Change: Push out than expected I think you can see from our year end number that or we wouldn't start skewing above the mid point of our guidance range towards the high end of that range. So I think that's where I would say, if there's any conservatism, which I do.
Speaker Change: Don't like using that word, but if there is and the fact that we're still in a politically unstable environment with trade and we just have to make sure. These projects hold to their schedules and then we'll be really solid shape.
Speaker Change: Okay.
Carl: Thanks Carl.
Speaker Change: Thank you. Our next question comes from Kashi Harrison of Piper Sandler Kashi. Your line is open. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Speaker Change: So with 24 in the books.
Speaker Change: Just kind of looking back at the numbers. It's now clear that your your biggest customer was the main driver of revenue pulled back and so it was that all entirely project delay driven with that customer reallocating focus to other sectors.
Speaker Change: Was there something in the type of projects that are first of all I'm just curious on what drives that view that.
Speaker Change: Since it's all made such a big revenue contributor, but that will be different in 25 than it was in 'twenty four and I have a follow up.
Speaker Change: Sure Kashi, so, yes, and Thats one of the reasons why I wanted to call that out I think it's important to note that none of our customers had been immune to the developer delays in projects.
Speaker Change: It's not always our customers decisions about whether or not they're going to go forward on a particular timeline, sometimes those things are handed.
Speaker Change: And in many cases folks, we're still absorbing and building out projects. One thing I think is very important to recognize is that just because we are done with the project doesn't mean, our EPC is are there still engaged in the project they still have to drive it through all the way to <unk> and so many of them.
Speaker Change: The inability to take on more work.
Speaker Change: It is just a factor of the business, sometimes there's ebbs and flows sometimes customers will have more business and others.
Speaker Change: I think in this particular case it also impacted our mix somewhat we did have a pullback in our full solutions.
Speaker Change: No.
Speaker Change: Ebbs and flows we're very confident in the book of business, we do have some good.
Speaker Change: Agreements in place to drive additional volume and we're excited about the prospects in the pipeline brandon's or anything else that you want to add to that.
Speaker Change: Dominic I think you hit it hit it on the head.
Speaker Change: Excited about.
Speaker Change: Our project pipeline more than anything here in 2025.
Speaker Change: Got it and then just.
Speaker Change: A follow up for 2025 guidance really just just two housekeeping questions.
Speaker Change: One can you talk about any implications of tariffs on how you how you contemplated the impact of tariffs on your numbers and then two if you is there a way to think about what.
If we want to assume that the pushout environment is flat year on year.
Speaker Change: He doesn't get better.
Speaker Change: Would that put us at the low end of guidance would be be below the low end of guidance I'm just trying to think through the sensitivity. If we want to be more aggressive on push outs that you are how we should be thinking about 25. Thank you.
Speaker Change: Let me, let me maybe comment on the on the tariff environment first cash.
Speaker Change: Look just maybe as a reminder to everybody we are a domestic manufacturer and we leverage a mostly domestic supply chain. So.
Speaker Change: At our customer's request, we will import.
Speaker Change: New products from time to time to incorporate in our products.
Speaker Change: And we're working with suppliers and customers to mitigate any tariff exposure that we've got we've got.
Speaker Change: By and large.
Speaker Change: Domestic products.
Speaker Change: In domestic alternatives for products.
Speaker Change: For our bill of materials. So we feel like we'll be able to weather a tariff storm probably better than anybody.
Speaker Change: As it relates to project push outs in guidance Dom you want to maybe take that yes, that's the natural and Thats why we have the range I mean, if if project delays.
Speaker Change: Our significantly back towards where they were in 24, then yes. It would be at the lower end of our guide.
Speaker Change: If you want to be more bullish.
Speaker Change: We also listened to some peers that publicly release and we listened to their book of business because some of them are a little bit.
Speaker Change: Foretelling for what we might see.
Speaker Change: And we are optimistic or I am going to be cautiously optimistic.
For the year, but we're optimistic that the push outs will not be as severe in.
Speaker Change: <unk> 24, but you are right in the way you think about it if project push outs are a little bit heavier than the lower end. If there are lighter than that at the end of the upper end of our guidance range.
Speaker Change: Thanks, Scott. Thank you. Our next question comes from Julian maybe both Jeffrey Julien. Your line is open. Please go ahead.
Speaker Change: Julien Your line is open. Please proceed with your question.
Charlie: Charlie lets go to the next analyst will come back to Julian.
Charlie: Of course, our next question comes from <unk> Satish of Wells Fargo. Your line is open. Please go ahead.
Charlie: Okay.
Speaker Change: Thanks, Good morning, so it looks like Youre about 69% of your backlog and awarded orders will convert to revenue over the next 12 months, so thats a bit lower than the 76% ratio that you achieved in Q3.
Speaker Change: So I'm just trying to understand what's driving that is that I guess due to further elongation of project cycles or is it more of the international bookings that have a longer revenue conversion.
Speaker Change: Cycle and then when we think about the bookings in 2025.
Speaker Change: Do you expect that metric to improve from the 69% you're currently at or remain the same.
Speaker Change: Yes, so a great great questions I mean, there is a number of things in there.
Speaker Change: Projects that we've seen as Brandon mentioned internationally, we are going to start driving international revenue, we know that some of those projects have been on the books for a while and yes. Some of those over the past six months may have slid out of 25% to 26.
Speaker Change: <unk> stopped talking to our customers. So our book of business now does reflect if projects were delayed.
Speaker Change: We found out about a delay in Q4, if it was pushed out of the year that would happen.
Speaker Change: We do expect a little bit.
Speaker Change: The project pipeline that we're seeing we are being asked to quote projects now that are out further in the future.
Speaker Change: That is a key dynamic of the pipeline because I think we're really trying to get the visibility further out.
Speaker Change: As we've talked about before we have.
Speaker Change: We typically lead.
Speaker Change: CODI dates.
Speaker Change: Live now by over a year when we do the work and Thats something that has gone from probably eight or nine months.
Speaker Change: Preceding cod's in 2021 up to over 13 months now and 2024 and so timelines are elongated so that also impacts our pipeline and our quotes and we're quoting and were being awarded some business that was actually out in 2026 right. Now. So it is going to fall outside yes, we're quoting certainly for 'twenty seven I don't know if ive got awarded.
Speaker Change: Orders for 27, yet, but we're certainly quoting business and we've been awarded business for 2026.
Speaker Change: Just the nature of the timelines in the space right now.
Yeah.
Speaker Change: Got it that's helpful and then.
Speaker Change: Just wondering if you could talk about any early feedback to the <unk> product from customers.
Speaker Change: How does the adoption going there.
Speaker Change: Yes on <unk> still still early in the process pilot site underway.
Speaker Change: But early in the process as a reminder, that does require regulatory approval before we can broadly commercialize that we are leading the industry forward. We believe it's better for developers in the long term to have to cave.
Speaker Change: We are partnered with some very good names in the space as well to bring this product set to bear in the market.
Speaker Change: So we're very excited about it but it does require regulatory approval to move up from the 500 volt standard.
Speaker Change: Thanks, Tony.
Speaker Change: Wondering if we can if we can bring Julian back on.
Speaker Change: Of course Julien Your line is open. Please proceed with your question.
Hudson: Hudson It sounds like for Julien.
Hudson: Yes.
Hudson: Hello, Yes.
Hudson: Yes, we can hear you.
Hudson: Perfect you guys can hear me okay.
Hudson: Perfect Yeah apologies for that I'm not sure what happened to the types.
Speaker Change: Thanks for taking my question.
Speaker Change: Just wanted to touch on two things actually one the midpoint of the revenue guide kind of implied that 8% year over year growth and I know that you guys don't necessarily talk about 2020 six yet, but how do we think about that close to 18% CAGR.
Speaker Change: Outlook that you guys have shed.
Speaker Change: In your Investor day.
Speaker Change: Sure and as I, probably said at Investor Day, we do expect to ramp to get to that number as some of our new product offerings really begin to take hold I think I've tried to describe that some of the growth pillars, we're going to come from outside the domestic utility scale solar space directly and those are going to take some time to ramp so the midpoint guide at 8%.
Speaker Change: Actually for US is very good now keep in mind. We also ended two.
Speaker Change: 2024, better than what we suggested at analyst day, we beat some of the internal forecast and expectations at that time.
Speaker Change: So we're on the track for the revenue growth that we outlined in our analyst day.
Speaker Change: Perfect and then my second question was just on the international piece I know you guys talked about Australia and Chile.
Speaker Change: Other markets that you guys are exploring and then specifically how does.
Speaker Change: The margin cadence play out in the other international markets, giving.
Speaker Change: Just keeping in mind that 30%.
Speaker Change: EBITDA margin that you have talked about in terms of outlook.
Speaker Change: Yes, as we've described in the past we are focused markets.
Speaker Change: Those are Australia.
Speaker Change: Latin America.
Speaker Change: Southern European countries.
Speaker Change: Got some development opportunities and TSA as we signed an Mou to begin penetrating those markets. So.
Speaker Change: Look we're excited to see that call it organic growth in two of the focus markets that we've identified.
As it relates to margin profile that is going to depend on the location.
Speaker Change: And it's going to depend on the products that we sell whether it's a full solution or a component product and it may.
Speaker Change: It may change.
Speaker Change: Pending on where we manufacture that product, whether it's export or weather.
Speaker Change: We use some in country manufacturing.
Speaker Change: Surely lets squeeze in one last question from nimble if thats okay.
Speaker Change: Of course as you say our final question comes from Tim <unk> of Bank of America simple. Your line is open. Please go ahead.
Tim: Thanks, So much for taking my question I wanted to talk a little bit on.
Tim: On the tariffs initially brought up do you anticipate this will likely change the competitive landscape.
Tim: And also in terms of the ITC right I know you are appealing.
Tim: The process.
Tim: Do you assign what probability would you assign to a favorable outcome here and do you have a timeline around that by chance.
Tim: Yes, maybe just start with the tariff landscape.
Tim: Look as a domestic manufacturer.
Tim: Tariffs.
Tim: Can help us.
Tim: Directly I think it may cause cause a blip for the market in total but can help us directly.
Tim: The tariffs that are currently on the table as probably everybody is aware of 10% for China, and then a potential 25.
Tim: For Mexico and Canada.
Tim: We do have competitors.
Tim: And some primary competitors and <unk>.
Tim: In China and in Mexico.
Tim: No.
Tim: Would certainly benefit us direct directly.
Tim: Those were imposed.
Tim: As far as the second question goes.
The ITC timeline is again, it's always sort of 12 two.
Tim: <unk>.
Tim: To 18 months for the new case and will be very similar for.
Tim: The appeal of appeal of the $1 53 and.
Tim: In terms of probability I'm, not going to assign a probability to it.
Tim: Either of those cases at this time.
Speaker Change: Thanks Nimble we appreciate the question and thanks to all of our analysts apologies, if we werent able to get to your questions. Because that's all the time, we have today I do want to note before we let you go that we have a very active.
IR calendar in March, which we announced last week and the press release. It can be found on our IR website. So please join us at one of those events.
Speaker Change: We'd love to spend some time with you. If we can help you further in any way reach out to us investors at Shoals Dot com with any questions.
Speaker Change: Thanks, everybody for joining us today have a great day.
Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.