Shoals Technologies Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 12 speakers on the call.

Operator

Good afternoon, and welcome to the Shoals Technologies Group First Quarter 2024 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q and A. At this time, I would like to turn the conference over to Megan Piecy, Chief Legal Officer for Shoals Technology Group. Thank you. You may begin.

Speaker 1

Thank you, operator, and thank you everyone for joining us today. Hosting the call with me are CEO, Brandon Moss CFO, Dominic Bartos and our new Vice President of Finance and Investor Relations, Matt Trachtenberg. On this call, management will be making projections or other forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including guidance for the Q2 and full year 2024, are not guarantees of performance or results. Actual results could differ materially from our forward looking statements if any of our assumptions are incorrect or because of other factors.

Speaker 1

These factors include, among other things, the risk factors described in our filings with the Securities and Exchange Commission, including economic, market and industry conditions, defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, failure to accurately estimate the potential losses related to such matter and failure to recover those losses from the manufacturer decreased demand for our product policy and regulatory changes supply chain disruptions and availability and price of our components and materials. Although we may indicate and believe that the assumptions underlying the forward looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and therefore, there can be no assurance that the results contemplated in the forward looking statements will be realized. We caution that any forward looking statements included in this discussion is made as of the date of this discussion and we do not undertake any duty to update any forward looking statements. Today's presentation also includes references to non GAAP financial measures. You should refer to the information contained in the company's Q1 press release for definitional information and reconciliations of historical non GAAP measures to comparable GAAP financial measures.

Speaker 1

With that, let me turn the call over to Shoulda's CEO, Brandon Mas.

Speaker 2

Thank you, Megan, and good afternoon, everyone. I want to start by welcoming Matt Trachtenberg, our new Vice President of Finance and Investor Relations. Matt will be leading our IR efforts and is looking forward to meeting all of you. Turning to our agenda. I'll begin with a discussion of some key macro trends regarding energy demand and solar power markets, both domestically and internationally.

Speaker 2

I'll then shift focus to discuss some specific Shoals business updates, including backlog and awarded orders, shrink back warranty remediation and our ongoing ITC intellectual property litigation. I'll also provide additional insight as to where Shoals fits into the timeline of a solar plant construction project, particularly our revenue recognition as related to a solar plant's commercial operation date. Finally, I'll discuss revenue contributions from our adjacent product areas of battery energy storage systems and e mobility before handing the call over to Dominic, who will review our financial results for the quarter and our outlook for the remainder of 2024. Before I talk about what we see going forward in the solar industry, I'd like to take a moment to reflect on what our industry has achieved and Scholl's role in it. According to the Energy Information Administration or EIA, solar power represented the single greatest source of new generation capacity in 2023.

Speaker 2

Solar energy accounted for 4% of power production in the United States last year and is expected to account for 6% 7% in 2024 2025, respectively. That is extraordinary when you consider the size of the power market in the U. S. Solar power generation is also leading all forms of renewable energy in terms of new capacity being added to power grids globally. In the U.

Speaker 2

S, solar has represented more than 50% of all utility scales renewable generation capacity added to the grid from 2020 through 2023. We are very proud of the role Shoals has played in enabling the industry's growth. Our products make it possible to build faster with less labor at lower cost and higher reliability in competing solutions. As significant as growth has been in solar over the past 5 years, we see the potential for continued attractive growth in the future. Our optimism is underpinned by 2 tailwinds the industry did not have in past years, accelerating load growth and rising power prices.

Speaker 2

Over the past 5 years, total electricity demand in the U. S. Grew by only 0.1%. Over the next 5 years, utility filings or FERC show load growing at 4.7%. That significant growth is driven by a combination of data centers, reshoring of manufacturing, electric vehicles and increased weather volatility, requiring more heating and cooling.

Speaker 2

Meeting all the new demand will require more generation capacity and we expect solar to get more than its fair share of that. At the same time, as demand is increasing solar power prices, The average price paid by commercial and industrial customers for electricity increased by 20% from 2020 to 2023 and has continued to increase despite very low gas prices. The primary driver is higher transmission and distribution charges, which is why we don't think power prices are likely to come down in the future. Higher power prices benefit solar because solar cannot only reduce cost, but also give commercial and industrial users more certainty they need to accurately forecast their costs. We believe that the long term fundamentals underpinning solar growth remain in place and are arguably better today than they have been historically.

Speaker 2

However, our industry is currently impacted by 2 key issues in the near term: the speed at which utilities and regulators connect new projects to the grid and the availability of key equipment. Over 1 half of all solar projects in development have been delayed 6 months or more according to the EIA. Within our business, we are experiencing reduced revenue in the near to midterm due to solar project delays that have pushed projects out from the first half of twenty twenty four. Permitting issues, higher financing costs, extended equipment lead times, particularly for transformers and switch gears and long interconnection queues continue to stifle industry growth. These construction delays will impact our results in the near term, but we expect this trend to reverse over time.

Speaker 2

Our experience mirrors the projections of the major industry analysts and consultants. They see installations of new solar capacity in 2025 as flat when compared to 2024 with potentially approximately 28 gigawatts of new solar generation added to the grid in the base case. The capacity expected to come online in 2025 will drive our 2024 revenue given we typically produce and begin recognizing revenue approximately 13 months before a solar project achieves commercial operation date and is counted in the installed capacity figures tracked by regulators and industry analysts. I'll share more information about this relationship later. One area we do not see major project delays is the community, commercial and industrial market.

Speaker 2

The CC and I market is roughly 10% of the size of the utility scale market, but is expected to grow at a faster rate than utility scale solar, in part because these projects get interconnected faster and use more widely available equipment. We are increasing our focus on the CC and I market and we believe the addressable market for our products is 1.5 to 2 gigawatts of community solar projects and approximately 2 gigawatts for commercial and industrial projects. The CC and I market represents another growth opportunity for Shoals. We will move quickly to bring the best product set to market for our customers. With that said, initial customer response has been very positive and we expect to show progress in these areas in late 2024 with potentially more significant revenue coming in 2025.

Speaker 2

Turning to the international market, dollars 77,900,000 of our backlog and awarded orders at the end of the quarter is for projects outside of the U. S. With the most significant portion coming from projects in Africa. Our project wins in Africa represent the largest order book that we have ever had outside of the U. S.

Speaker 2

We will continue to focus on select international markets for growth, Latin America, Australia, certain Southern European countries, Africa and the Middle East are all desirable for a number of reasons. Collectively, these regions have an estimated addressable market of 63 gigawatts in 2025. To summarize our perspectives on the market, first, we believe the fundamentals underlying continued long term growth in solar remain in place driven by accelerating low growth and persistently higher power prices. 2nd, we believe the near term headwinds creating project delays will give way to longer term sustainable growth as utilities, regulators and equipment suppliers adjust to greater demand for generation capacity. 3rd, we believe that because our products make it possible to build faster with less labor at lower cost and higher reliability than competing solutions, they are extraordinarily valuable to our customers, particularly in the current environment.

Speaker 2

4th, we see the CC and I market as less exposed to the issues that have delayed many utility scale projects and it will be a key focus area for us going forward. 5th, we see strong growth outside of the U. S, particularly in the MENA region and are positioning ourselves to take advantage of that growth. Turning now to Shoals specific business updates. I would like to start by reminding everyone where Shoals products fit into the construction timeline of a new utility scale solar plant.

Speaker 2

To provide more color, we've included additional charts in our quarterly slide presentation available on our website. One important point I want to expand on is the timing of the sale of our products as it relates to a project being completed and energized. Because Shoals manufactures the EBOS solution that installed after the structural balance of systems is in place, we typically deliver our products in the middle of a solar field construction timeline. As a result, we are recognizing revenue for projects well in advance of it being connected to the grid, energized and counted towards market size calculations. EPCs on the other hand are recognizing revenues throughout the build cycle.

Speaker 2

To further illustrate that timing, we have included a chart in our quarterly materials that shows the revenue recognition of our top 20 projects in 2023, only one which went live that year. The remainder is scheduled to go live in 2024 or 2025. Therefore, our 2023 revenue was predominantly tied to the 2024 market figures. Revenue this year will be driven by projects that are expected to be energized in 2025. This information is provided to assist you in modeling our growth against future market expectations.

Speaker 2

At the end of the Q1, backlog and awarded orders were $615,200,000 driven by the addition of $75,000,000 of awarded orders. This may be further broken down to backlog where purchase orders have been received of $196,200,000 and awarded orders of $419,000,000 Of the total $615,200,000 of BLAO, dollars 484,200,000 have projected shipment dates in the next four quarters. It is important to note that we achieved record quote volumes during the quarter. Further, our pipeline is at at record levels and continues to grow. While the near term landscape is challenging, we remain optimistic about the opportunity ahead.

Speaker 2

Shifting our attention to our remediation efforts related to shrink back on wire purchase from Prismium, a former vendor, our potential range of exposure has not changed this quarter. Since our last update, we have become aware of only one additional site displaying shrink back. We continue to work with our customers to remediate known issues and further address challenges and opportunities. In terms of the legal proceedings against Prismian, we are working the process and expect written discovery and depositions to be completed by early next year. We are pursuing legal action against Prismian as we seek compensatory and punitive damages, recovery of all costs and expenses incurred by us in connection with the identification, repair and replacement of the defective wire and other legal and equitable relief.

Speaker 2

With regards to our ITC intellectual property litigation, we completed the ITC trial in Washington, D. C. In March. We expect to hear the court's initial ruling in July, full ITC commission review in November and final resolution following a potential presidential review in January of 2025. We feel strongly about accomplishing our goal of preventing the importation of products that infringe on our BLA solution and look forward to the initial ruling in July.

Speaker 2

Additionally, we intend to pursue remedies or damages in District Court following the final resolution. Now that I have completed 3 quarters in my role with Shoals, I want to provide you with an update on priorities I laid out from my 1st year. As Shoals continued its evolution from a small founder led company to a rapidly growing public company last year, I needed to assess the talent, organizational structure and operating cadence. Positive changes have been made. Over the last 9 months, we have refined and redeployed our corporate strategy.

Speaker 2

We hired and onboarded key talent and critical functions. In addition, we implemented an enhanced operating model with a regular cadence and more robust analytics as Shoals continues to build a more data driven culture. While it's hard to immediately see the impact of those changes from the outside, they have made our organization significantly stronger in ways that I am confident will drive better results for our shareholders. Additionally, I have assessed the status of Scholes product portfolio, go to market strategy, business development capabilities and sales team in conjunction with our strategic growth plans. I will now provide some of my initial takeaways.

Speaker 2

Consistent with our comments over the last several quarters, the predominance of our growth has been driven by the domestic utility scale solar industry. This quarter is no different as less than 1% of our revenue was derived from the international solar, domestic e mobility and energy storage solutions. International solar is beginning to show signs of more consistent growth. I fully intend to maintain a strong focus on capturing market share in our targeted regions. I described the target regions earlier and we will continue to implement our international strategy.

Speaker 2

Our eMobility product offering, which utilizes our big lead assembly trunk bus system provides value to fleet operators that need multiple charging stations in close proximity to each other. Some of our initial customers were impacted by higher interest rates, reduced consumer spending and availability of battery energy delivery vehicles last year. As a result, revenues in 2023 declined significantly from our launch in 2022 and they remain at low levels. We will continue to review the entire platform and prioritize investment in businesses that we believe will create value for our shareholders. Our battery energy storage system revenue was also de minimis this quarter.

Speaker 2

While the solar industry is experiencing higher attach rates of storage solutions, we do not currently have a complete plug and play product offering that is desired by most customers. We remain very interested in this market, but we'll likely have to modify our product offering and go to market strategy to maximize our growth potential in this area. So for now, we continue to expect the majority of our revenue to be directly linked to solar eBOS solutions. Our core offering is for the domestic utility scale solar market, but we are the market leader and will provide the vast majority of our revenue this year. Importantly, we believe that there is still significant opportunity to grow with the market as well as benefit from further increases to our market share.

Speaker 2

As part of my broader business review, we have realigned our sales force to go after what we would describe as low hanging fruit that we expect to benefit the company in coming quarters. In addition to domestic utility scale solar, we are seeing tangible opportunity an international and CC and I markets near to medium term. And over the longer term, we do expect to leverage BLA into other applications as we've previously discussed. With that, I'll now turn it over to Dominic, who will discuss our Q1 financial results and outlook for the year. Dominic?

Speaker 3

Thanks, Brandon, and good afternoon to everyone on the call. Turning to our results. 1st quarter net revenue declined 14% to $90,800,000 versus the same period in 2023. The decline in sales was driven by project push outs, which resulted in lower demand for our products in domestic utility scale solar projects and by fewer days of production resulting in lower sales volumes. Gross profit decreased to $36,500,000 compared to $48,300,000 in the prior year period.

Speaker 3

Gross profit as a percentage of net revenue was 40.2% compared to 45.9% in the prior year period, primarily due to higher labor costs and lower fixed cost absorption. During the quarter, similar to the Q4 of 2023, we did not incur wire installation shrink back warranty liability expenses and our cost of goods sold. So there was no adjustment to GAAP gross profit necessary during the period. Further, as Brandon mentioned, based on our current knowledge and assumptions, the remediation range remains at $59,700,000 at the low end $184,900,000 at the high end. During the quarter, we spent $3,700,000 in cash as we ramped up remediation efforts and had a remaining warranty liability on our balance sheet of $51,200,000 related to the shrink back matter as of March 31.

Speaker 3

The current portion of the remaining liability is now $31,100,000 As a reminder, this represents the amount of cash we estimate we will consume during the next 4 quarters as we continue remediation efforts and does not reflect any potential recovery from Prismian. Shifting to general and administrative expenses for the Q1, we incurred $22,800,000 of G and A expense compared to $20,000,000 during the same period in the prior year. The year over year increase in general and administrative expenses was primarily related to legal fees for the patent infringement and wire insulation shrink back matters and planned increases in payroll expenses due to higher headcount supporting growth, all of which was partially offset by lower stock based compensation. Approximately $850,000 of G and A expense was specifically related to the wire insulation shrinkback litigation. Net income was $4,800,000 in the Q1 compared to $17,000,000 during the same period in the prior year.

Speaker 3

Adjusted EBITDA in the Q1 was $20,500,000 compared to $38,100,000 in the prior year period. Adjusted EBITDA margin was 22.5% compared to 36.3% a year ago, largely a result of lower gross margin. Adjusted net income was $12,600,000 in the Q1 compared to $25,300,000 in the prior year period. Cash flow from operations was $12,900,000 while capital expenditures were $2,500,000 Our balance sheet remains very strong and we ended the quarter with net debt to adjusted EBITDA of 1 time, which is down from 2x a year ago and a significant improvement from the 4.4x as of Q1 2022. During the quarter, we amended and extended our revolving credit facility for 5 years and retired our term loan.

Speaker 3

The new revolving credit facility has been upsized from $150,000,000 to $200,000,000 and carries a lower interest rate compared to the old term loan. We appreciate the support of our new and existing bank partners. Equally important to our strong cash flow generation is how that capital is allocated. As I've shared with you on past calls, our focus will remain on driving sustainable long term organic growth. However, other opportunities that create shareholder value may present themselves and we are in regular discussion with our board.

Speaker 3

Those may include inorganic opportunities that expand our presence in underrepresented markets or broaden our offering to existing customers. Another might be repurchasing our own shares given what we believe may be a disconnect between our current valuation and the long term value we are creating. Our commitment is that we will deploy our capital to the activities that generate the highest return for shareholders. Turning to backlog. As of March 31, 2024, we had $615,200,000 in backlog and awarded orders, an increase of 17% year over year as the company added $75,000,000 in orders during the period.

Speaker 3

As we discussed last quarter, some of orders have longer lead times than domestic orders, and we are also winning domestic jobs that extend beyond our historical revenue cycle of 9 to 13 months to revenue from those awarded orders. As of March 31, approximately $204,400,000 of our backlog and awarded orders had delivery dates beyond 2024. Turning now to the outlook. Given the current headwinds in the utility scale solar market, some of our customers have experienced project delays. As a result of the current macro uncertainty, we will continue to provide quarterly guidance for the remainder of the year.

Speaker 3

Based on current business conditions, business trends and other factors, for the quarter ending June 30, 2024, the company expects revenue to be in the range of $85,000,000 to $95,000,000 and adjusted EBITDA to be in the range of $20,000,000 to $25,000,000 Based on current business conditions, business trends and other factors for the full year 2024, the company now expects revenue to be in the range of $440,000,000 to $490,000,000 This change is reflective of the industry delays we are experiencing and sharing with you today. Our goal is to provide you with a reasonable and achievable range given the uncertainty we believe exists. I want to stress that we believe these changes reflect the timing of our revenues, not lost projects. We expect most projects that have been delayed from 2024 to be completed in 2025. Adjusted EBITDA is now expected to be in the range of $130,000,000 to $150,000,000 adjusted net income to be in the range of 80 $5,000,000 to $100,000,000 cash flow from operations to be in the range of $100,000,000 to $115,000,000 capital expenditures to be in the range of $15,000,000 to $20,000,000 interest expense to be in the range of $15,000,000 to $20,000,000 And with that, I'll turn it back over to Brandon for closing remarks.

Speaker 2

Thanks, Dominic. I would like to close by thanking all of our customers for their confidence in Shoals, our employees for enabling us to effectively serve our customers and our shareholders for their continued support. I'm excited about the long term macro trends that will drive the solar market for years to come. And I am even more excited about Schulz competitive position in the marketplace. We are an innovation leader with strong product development capability and an outstanding customer list.

Speaker 2

As we move past this period of volatility, we expect to continue our industry leading growth driven by further market share gains in the domestic utility scale market, expand our presence in the CC and I market and extend our leading position into key international markets. Over the last 9 months, I've heard a consistent message from our customers that they want to expand their relationship with Shoals. They've provided candid feedback on how we can be more flexible and responsive, and that's extremely encouraging because it's entirely within our control and influence. As a result, we've made meaningful changes to our sales structure which we believe will improve our flexibility and increase touch points with each customer. Ensuring that doing business with Shoals is as simple and efficient as possible is top of mind for all of us and we believe you'll begin to see the benefits over time.

Speaker 2

And finally, as conditions improve, we expect Shoals will be well positioned to produce strong profitability and cash flow driven by our capital light model. To that end, we will continue to make investments in talent and our operational footprint that will position us for many years to come. Thoughtful and disciplined capital allocation is a key strategic imperative going forward. And as Dominic mentioned, may include types of activities you haven't seen from us before. Remaining flexible yet opportunistic while operating within a framework that prioritizes shareholder returns will allow us to create value and reward investors.

Speaker 2

And with that, we thank you for your time today. Operator, we can now open the line for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. You may reenter the queue by pressing star 1. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Mark Strouse with JPMorgan Chase.

Operator

Please proceed with your question.

Speaker 4

Yes, good afternoon. Thank you very much for taking my questions. I wanted to start with just a general question on the visibility that you have into the second half ramp. And then more specifically, if you've sensitized that guidance at all for a potential ADCVD case, I mean, projects that you're baking into the second half of this year guidance that are using panels that may be subject to tariffs if Commerce determines to take that case up? And I have a quick follow-up.

Speaker 4

Thank you.

Speaker 2

Mark, hope you're well. Good question. I think, look, on the second half guidance, absolutely, we've got visibility to every project, and we've taken into account the potential delays. So the information that we've got now, I think we feel good about our guidance. And the areas where we can control and really influence, I think we're executing quite well.

Speaker 2

Our goal is really to put something out there that's reasonable and achievable. And I think we've done that with this guide. As it relates specifically to panels, look, we hear the same information that you hear, I'm sure. There is maybe upwards 12 to 18 months worth of panel inventory on the ground in the U. S.

Speaker 2

Do realize that some of those may be subject to tariffs, but we are not anticipating a significant amount of disruption from the ruling at this point in the back half.

Speaker 4

Okay. Okay. Thanks, Brandon. And then quick follow-up. I fully appreciate projects are getting delayed generally.

Speaker 4

But when you look at the orders that are occurring within the industry, over the last quarter, over the last two quarters. Can you just kind of talk about what you're seeing with your market share of those orders?

Speaker 2

Yes, maybe to touch, a lot to unpack there. I'll touch on market share first. Look, remind you and everybody really, we grew 50% last year. Our 2023 numbers relate to 2024 CODs. So we're doing a 50% growth rate on a year that is expected to grow at 26% if that happens.

Speaker 2

Since IPO, look, we've outpaced the market by 2x. And our goal is to always outpace the market. We'll continue to do that. We've got opportunity, as I've noted in the past, to grow wallet share. So where I feel very strong about growing market share, there is opportunities to continue to grow wallet share with existing large EPC customers.

Speaker 2

And I mentioned in the prepared remarks that, hey, we've reorganized the sales team to go after what we believe some low hanging fruit and we'll do just that. So I feel very strongly about our market share and I feel very strongly about our ability to continue to grow and take wallet share with larger EPCs. As it relates to the delays, I think most importantly to remind everybody these projects are delayed, they're not lost. We follow the Form 860 data from the EIA very closely, both for new projects and historic projects. And about half of the projects in that data set are delayed 6 months or more.

Speaker 2

If you look specifically at Shoals projects, 37% of our projects have been pushed out by at least 1 month. And maybe the most important number is that 20% of the projects that were in our awarded order bucket at the end of the year last year have been pushed out of 2024 into 2025. And that number equates to about $50,000,000 worth of projects that have pushed to the right. So a significant number, obviously. But again, we track these projects.

Speaker 2

We're tight with our customers, the EPCs. And again, we feel like these projects are not lost. They're just delayed and pushed them to 2025.

Operator

Our next question comes from Philip Shen with Roth. Please proceed with your question.

Speaker 5

Hey guys, thanks for taking my questions. Brandon, you just talked about how the ADCVD case could impact your 2024 guide and how conservative it is and how you have good line of sight there. I was wondering if you could talk about how that case could impact bookings in Q2 and Q3. So while the 24 is conservative, to what degree do you think this could slow down bookings? What do you think the trend of bookings could be in Q2 and Q3 overall as well?

Speaker 5

Thanks.

Speaker 2

Phil, just to clarify, you're talking Q2 bookings 2024 related to the module inventory.

Speaker 5

Yes. And I know you talked about the quoting activity is high, but are you seeing we saw for the modules, the buyers and sellers basically come to a pause because of this case. And so are you seeing that pause maybe impact in your conversations with customers as well?

Speaker 2

We're not. Module pricing, module availability is not something that is bubbling up from our customers at this point. So not a significant concern at this point. It's possible, Phil, that folks have procured modules for these projects already, for projects that we have not received yet in a backlog or awarded order. So look, of all the things that we hear in terms of delays via interconnections, site permitting, equipment availability, modules has not bubbled up to a concern at this point.

Speaker 5

Great. Thanks for the color. Shifting to a few housekeeping questions here. I was wondering if you might be able to give us a little bit of the cadence of Q3 versus Q4 revenue after you factor in Q1 and Q2. It's roughly $140 ish million per quarter or do you think it kind of ramps up from Q2 to Q3?

Speaker 5

And then we have a larger Q4. And then finally, Brandon, you talked about the progress you're making in the C and I segment. And you could see we could see some developments and impact by year end of this year. Is there any way you can quantify that? Thanks.

Speaker 3

So Phil, this is Dominic. Let me take the pacing first. Yes, we've adjusted the annual and we're going to provide quarterly guidance. We have not given specifics yet to 34. At this point in time, I think the expectation would be that it's relatively even, but we have not given anything very specific yet.

Speaker 3

So appreciate your patience on that one. And I'll let Brandon answer things about the CC and I space.

Speaker 2

Bill, great question about CC and I. We're excited about this space. I think it is fantastic timing for us to not only have the ability to capture more share, but the changes that are being that are happening really via load growth, particularly in the U. S, the substantial growth that's going on with data center builds, primarily due to AI. I think that's going to drive a lot of distributed generation in the future, which fits well with this CC and I product portfolio.

Speaker 2

Look, I would think for 2024, we are moving very fast. We're very excited about the opportunity in front of us to get the product set right. We have developed a specific team to begin cultivating the market in the CC and I space. And the team is out in the market again working on the right product set and creating relationships with potential new EPCs that Shoals has not been business with in the past. And I've been engaged in some of those conversations personally.

Speaker 2

I think you're going to see some traction in the back end of 2024. But the meaningful progress will be made in the 2025 timeline because again, we've got to put together a new product set and have a new team focused on it. The product set specifically, just to be clear, not a huge departure from what we do today. We're just it's the same basic core products, just working for our optimal product set to bring to market. So we again are very excited about it.

Speaker 2

Thanks, Phil.

Operator

Our next question comes from Andrew Kaoru with Morgan Stanley. Please proceed with your question.

Speaker 6

Great. Thanks so much for taking the question. I do have another just follow-up question here on the bookings number and backlog. I mean, totally understand that there's a lot of strong tailwinds here related to renewable energy demand, whether it be data centers or onshoring of manufacturing. But if I just look at the Q1 bookings number, it looked relatively light compared to kind of the Q1 of last year or even the currently in their pipeline online?

Speaker 6

Or is it is there anything else underlying that softness this quarter? And then I have one follow-up. Thank you.

Speaker 2

Yes, thanks. Great question. Yes, love to talk through this a bit. So total backlog and awarded orders has mentioned $615,000,000 which is a nice increase over the Q1 of last year. What I do want to point out is that our project awards were consistent with past quarters.

Speaker 2

What was unusual for us is we have had some projects that in at least one case were canceled and a handful of projects that pushed back into our sales funnel. So you can think of that number being around $60,000,000 So I think if you take that $60,000,000 and you add it to our net new bookings, which were at $75,000,000 you'd see that we've got kind of a normalized quarter of project inflow into our BLAO pipeline. So not abnormal. What was abnormal is having some things shift back up in the funnel and then in one at least one instance project canceled. The good news is the things that the project that moved back up into the funnel, we feel very good about our opportunity to go after that business again, whether it's with the same EPC or a different EPC.

Speaker 2

Also, I would love to point out, from a quote standpoint, again, we are seeing record quote volume and that is both on the number of quotes and the total dollars of quotes. So the inbound demand is certainly very strong and I think again we're in a volatile time. I look at this as being a transitory period of volatility and excited about the growth ahead.

Speaker 6

Understood. That's really helpful. And one follow-up, really helpful disclosures in the deck as it relates to kind of shipments and rev rec versus COD. I know you're not providing 2025 guidance, but I'm just going to take a crack at a question here anyway. If you look at just Wood Mackenzie SCIA forecast for 2026 growth, it's implying relatively soft growth.

Speaker 6

Is that a proper way to think about your 2025 top line growth? I know there's potentially some market share opportunities at play as well. But if there's any additional context you can provide in terms of how we should be thinking about a normalized growth rate beyond 2024, that'd be super helpful. Thank you.

Speaker 3

Sure, Andrew. Yes, you're right. You said at the beginning, we haven't discussed 'twenty five or 'twenty six guidance yet. We're very excited to be sharing more information at our Analyst Day in early September. But there's a couple of things I want to point out.

Speaker 3

Some of the projects that we've talked about in 2024 are pushing into 2025. Assuming those projects are still going forward, that would be a natural growth year over year that you'd expect to see on top of something that we're going to get organically. And the other thing is the growth that we see in the CC and I space in international is not reflected in the domestic utility scale solar pieces. So we have other growth pillars to go on. We look forward to sharing more with you in our September Analyst Day.

Operator

Our next question comes from Brian Lee with Goldman Sachs. Please proceed with your question.

Speaker 7

Hey, guys. Good afternoon. Thanks for taking the questions. Real quickly, just on Andrew's question. Brandon, I wasn't following totally.

Speaker 7

The $60,000,000 that you referenced, which was inflow, it sounded like that was an order which you had, but then went back into the sales funnel and then it was an order you had, but then the project got canceled, all that happened within the quarter. So you would have had $135,000,000 of net orders. I just wanted to understand what that $60,000,000 is referencing?

Speaker 2

Yes, Brian. Happy to clarify. Yes, so we're talking about a handful of projects here, not just one project. So yes, I mean, in the quarter, we had a project cancel and we had a handful of projects that would have been included in our backlog and awarded orders number that we moved back into the sales funnel, which is very unusual for us because of questions about the project. So that equated to about $60,000,000 If you think of our net new backlog and awarded orders that we talked about was $75,000,000 So yes, so you're right with the math there, dollars 60 plus to 75

Speaker 6

Okay. That's helpful.

Speaker 7

I just wanted to clarify that. And then maybe just one more math question and I'll pass it on. I think you said $204,000,000 of your backlog and awarded orders is for beyond 2024 delivery. So if my math is right, that means there's about $400,000,000 plus, which presumably is for 2024 delivery and you just did $90,000,000 of revenue in Q1 and the midpoint of guidance is $465,000,000 So are you assuming more of that 4 $10,000,000 or so that's remaining for 'twenty four deliveries doesn't actually play out in 'twenty four? And I guess the secondary question to that would also be, are you not assuming any go get revenue, which I know you get pretty much some tens of 1,000,000 of dollars of go get revenue every year.

Speaker 7

But just be curious if you could reconcile that a little bit. Thank you.

Speaker 3

So Brian, this is Dominic. Let me handle that one. You're absolutely right about the math. And at the end of the quarter, that was the math that would indicate that, hey, you should have about $500,000,000 right of revenue in the year. In April, there was additional project pushes.

Speaker 3

So we referenced $50,000,000 worth of projects that pushed from the year, it didn't all happen in Q1. Some of that has happened through April as well. So the number is a little bit south of that $410,000,000 that's left in the awarded orders and backlog status. And as we go through the year, the amount of time to book and bill in these projects starts to decrease. And so we're now looking at things that we can really add towards the tail end of Q3 and into Q4.

Speaker 3

But we believe that there's some projects will still likely move. We'll continue to backfill and replace those projects as we did. We added $135,000,000 worth of new projects because $60,000,000 of them actually pushed out. It makes the numbers look lower in Q1. So we're just trying to give you a very realistic guidance range that we believe is comfortable and achievable, and we intend to deliver on those numbers.

Operator

Our next question comes from Maheep Mandlo with Mizuho. Please proceed with your question.

Speaker 8

Hey, good evening. Thanks for taking the questions. Yes, just question on the push outs. Could you talk about the nature of them? Are these looking for months or quarters of push outs into the next year?

Speaker 8

And as you kind of like think about 25% to 26% growth versus some of the forecast out there, Could you talk about any other levels which you have either international sales or increasing the wallet per water per project or any other levels for you guys here? Thanks.

Speaker 2

Maheep, thanks. Yes, as mentioned, look, 37% of our projects is shifted at least by a month. And as mentioned, we pushed $50,000,000 worth of projects out of the year into 2025. So, some substantial project pushes and that is obviously impacting our number more than anything this year. As it relates to 2025 and 26, again, we're not going to comment or guide on that, but certainly, we're driving an international strategy.

Speaker 2

As we mentioned, there's 63 gigawatts of available market opportunity out into 2025 for us. We're really pleased with our approach and progress really in the international space. As we've mentioned in prior calls, we've got about $78,000,000 of orders on the books to ship internationally. So we're excited about that opportunity and obviously excited about the CCI opportunity that we talked about before. Having said that, as we move out into 2025 and 2026, I understand the WoodMac data that base case is probably not as exciting as we've seen in prior years as it relates to the solar market.

Speaker 2

But what we are very excited about is the load growth in the United States. We've had a period of about 5 years of no load growth in the U. S. And we're entering a period where we've got a projected 4.7% load growth. We've seen some exciting things in the news recently.

Speaker 2

You guys have probably all seen the Brookfield, Microsoft deal that was announced 10.5 gigs. If you've listened to the Quanta earnings call, they're mentioning the boom in data centers and customers coming at them with 100 gigawatt opportunities. The data center space alone, we look at over the next 4 years, that load growth potentially doubling from 70 to close to 100 and 40 gigawatts. So we are excited about the future in the U. S.

Speaker 2

That that load growth is going to bring the solar generation space. The limiting factor on all this growth is labor and Shoals is uniquely well positioned to solve that problem for folks. So, I know the forecasts are tough and the WoodMac information and others, but we really are excited about what we're seeing in the broader macro area around power demand.

Speaker 8

Thanks for that detail today. And then maybe just like one small one on just on new backlog or new bookings. Given you talked about your backlog is mostly for COD next year or rev rec is for COD next year. Our bookings mostly for late 2025, 2020 6 now or how do you think about that here? Thanks.

Speaker 2

Dominik was mentioning, we've got some opportunity here still for book and bill that will impact 2024 or could impact 2024. But yes, you're right. I mean, the vast majority of our projects and I think we put some materials or I know we put some materials out in the deck that shows the difference between project COD and our rev rec. So, on average, it's about 13 months, but you've got some outliers, there, that stretch out as far as 2 years.

Operator

Our next question comes from Jordan Neeby with Truist Securities. Please proceed with your question.

Speaker 9

Afternoon, all. Appreciate all the details. Maybe and you might have hit a hit on this and I may have missed it, but maybe can you just talk about any change in the competitive environment on the EBUS side, if there's been any and how you see that evolving?

Speaker 2

Jordan, thanks for the question. Look, no dynamic changes in the competitive market. We still believe that our best opportunity for growth is to really replace the traditional install methods of home runs to monitor boxes and doing field installs. We still are huge advocates, obviously, that we've got the best solution in the marketplace. We've got the best technology.

Speaker 2

We have the best IP, which we are obviously in the process of protecting. So still all good news on the competitive landscape as far as things go here at Shoals.

Speaker 9

Appreciate that. And maybe just as a follow-up, as it relates to kind of the sales side of things, as you kind of look to go more into the international market, I know that's been an initiative for a while now. And also with the CC and I side of things, just curious if you think the sales organization is right sized right now or does that kind of need to scale up as well?

Speaker 2

Yes. I think, look, we've changed a lot of things around here related to our commercial organization and call it the last 6 months, not just the sales organization specifically. We're making investments in our marketing function. We're making investments in our product line management function. But as it relates specifically to the commercial organization and sales, yes, we've made some investments.

Speaker 2

We've hired a GM of our international business, who is now leading that effort for us cross functionally from a manufacturing ops standpoint and even from a product standpoint as well. We have put in place a dedicated TCI team. Again, little different sales cycle there and potentially could be even different go to market structure than we have historically participated in the utility scale space. So, we're excited about those investments. Even on our core utility scale side, where again, we're market leaders.

Speaker 2

We have changed our sales organization to a pod structure. And our goal is to increase touch points with our customers and not just the touch points of our salespeople, but the different functions that interact and engage with these large EPCs. Could be something as simple as is legal. When we sign up a deal with an EPC, there's a contract. And so we're trying to give our customers great touch points with our entire organization and then also see familiar faces each and every time they transact business.

Operator

Our next question comes from Christine Cho with Barclays. Please proceed with your question.

Speaker 10

Good evening. Thank you for all the color today. I just wanted to touch on Slide 15 here. The slide where it delineates the projects that are on schedule delayed 6 months or delayed less than 6 months. And in 2023, we see these projects increasingly become more delayed more than 6 months.

Speaker 10

So just trying to clarify what that meant exactly for you. Did that mean that in 2023 customers took delivery of your product and are delayed getting the project to the finish line or was it the other way around and that because projects were delayed, they weren't taking delivery of your products until they had better line of sight. And ultimately, I'm just trying to, I guess, on the slide prior to that, the 50% revenue growth in 2023, but only having 26% year over year growth in utility scale installations in 20 24. I guess, that could be market share gains, but I'm also, I guess, trying to figure out how much of that was your customers taking delivery of the product maybe a little earlier than they normally would have?

Speaker 3

So Christine, this is Dominic Cade. Let me answer a couple of those. On the slide deck, when we look at the project delays, we took all the EIA data from Form 860. You're right that it has been a trend that has been growing with projects being delayed. What we see also by the way is all new projects that are being added into the funnel at EIA on Form 860s on their initial reports, they may have a COD target date to 2026 or 2027.

Speaker 3

They're naturally going to be on time. So what we have seen is an increase in projects that are being delayed and we've seen the push outs. It really started manifesting itself for us largely in Q4 because there was a lot of growth coming in that was just kind of masking some of the delays that we were seeing. In no case are we aware of any customers agreeing to take product early. Our products are shipped over a period of weeks to the sites where they're installed directly on sites in construction.

Speaker 3

So if a project is being delayed and construction is being halted or they have a permitting issue, we're being told to delay for 30, 60 or 90 days, that length of time is going to increase and we're just going to have to wait for our revenue recognition until they're ready to receive product. We have seen the length of time from the time we've initially quoted something to the time a purchase order comes in and revenue is recognized increase over the past 6 months. We have probably added a full quarter of visibility now and it's lengthening as these projects are sitting out there longer. So the project delays we believe are very real. We're experiencing them here and we just tried to show the color of how that is manifesting itself with some public data.

Speaker 10

Okay. Thank you for that. And then just wanted to go back to your earlier comments about some of your bookings and projects getting canceled and pushed back into the funnel. Can you just talk exactly about what drove that? I understood that like if they got to awarded orders and things like that, that's so much time and energy had been spent getting to that point that it was very rare to have something canceled.

Speaker 10

So just more color on that would be helpful.

Speaker 2

Yes. You're exactly right, Christine. It has been very rare that something like this has happened, unprecedented really for what we've seen historically at Shoals. We had one order cancel, as I mentioned, And that was with a fantastic customer, quite honestly. So it's something that we've not seen in the past.

Speaker 2

Again, as a reminder, when we talk about an awarded order, we are in a position where we've got a verbal agreement and we're 70% through the design process with a customer. And so if the customer is moving forward with the project, we've got that order with the customer. So in these very few cases that we've seen, the site, the project, either was pushed back or canceled or we have had a situation where the EPC did not move forward with the project for a variety of reasons. So again, unprecedented for us, not something we've experienced in the past. But I do want to make sure that everybody understands that our inbound order flow, again was normal and consistent with what we've seen in the past.

Operator

Our next question comes from Donovan Shafer with Northland Capital Markets. Please proceed with your question.

Speaker 11

Hey guys, thanks for taking the questions. So, first I want to ask with just having the slowdown that you're seeing right now and that resulting in lower fixed cost absorption and some maybe lower utilization at your facilities and whatnot. My question is, are you is there a material portion of your resources that you are able to redirect in some way on the other initiatives? Like if you have a sales folks that are well versed and have contacts on the U. S, maybe you're not able to kind of pivot them temporarily to focusing on international, maybe you are.

Speaker 11

I'm just kind of curious if sometimes there give you a silver lining sometimes, right, If something like this gives you an opportunity to throw more at other things or people you already have under your roof,

Speaker 4

Is that something you're able

Speaker 11

to do or the skill sets quite specialized and geographically focused?

Speaker 3

Sure. There's a couple of things, Donovan. I think that this is Dominic, by the way. Yes, thanks for that question. From a cost of goods sales standpoint, we had ramped up and we're ramping up significantly in Q4 to be prepared for the business.

Speaker 3

And so some of our gross margin, we had some labor ready on the floor that we don't want to whip soft for a short term scenario. And similarly with our salaried sales force and our salaried team members, we don't want to be that abrupt and swing quarter to quarter based on short term results. Brandon, would you like to add a little bit more to that?

Speaker 2

Yes. Donovan, most importantly, look, we're looking at these project delays and the turbulence that we have in the market is short term. In no way shape or form are we cutting back resources to serve our utility scale, our core of core customers here domestically. In fact, we're doing the opposite. We're increasing domestically.

Speaker 2

In fact, we're doing the opposite. We're increasing touch points. We're increasing visibility with our customers. So again, as Dominic alluded to, I think in the plant, you're always looking for ways where you can shift labor and spread your absorption a little bit. But with our salaried staff, again, we're pedaled down and focused on growth mode and focused on this low growth that is coming.

Speaker 11

Okay. And then as a follow-up,

Speaker 2

the last questioner

Speaker 11

pointed out the things on timing the 50% growth in 2023 compared to the installed capacity growth, 24% and things like that. And there's kind of a lot of moving parts, but what I'd like to get is kind of strip as much away as possible and kind of directly as possible to kind of ask the question around market share where if we took to make it apples to apples and took like the core offering like let's call it BLA or combiner boxes, like the things that people use out in the field to connect the whole like a 1000000 panels into some bank of inverters to collect all of that. That set of apparatus, stripped down to kind of its core. Is your position still that your market share from the time of the IPO has increased, held the same or decreased and specifically just the U. S, if we just talk about that?

Speaker 11

Just trying to get the estimate there.

Speaker 2

I think you said it very well. We made some comments in our prepared remarks of what sales outside of our core domestic utility scale solar was in 'twenty three and what it represented in the Q1 of 2024. So I think you could classify virtually all of these sales to related to domestic utility scale solar. There has been some instances where we've written some large projects internationally over the course of the period that is outlined on Page 14. But on the aggregate, the vast majority of the sales have come from U.

Speaker 2

S. Domestic solar. So I think the comp of 40% growth over a period of 20% growth is correlated.

Operator

We have reached the end of our question and answer session. I would now like to turn the floor back over to Brandon Moss for concluding comments.

Speaker 2

Yes. I'd just like to thank all of you for joining us today and for the thoughtful questions. And Dominic, Matt and I look forward to seeing all of you in person really at upcoming conferences. So thanks for the time today. Appreciate all the questions.

Operator

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

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Earnings Conference Call
Shoals Technologies Group Q1 2024
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