FTC Solar Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 7 speakers on the call.

Operator

Thank you for standing by. At this time, I would like to welcome everyone to FTC Solar Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I would now like to turn the conference over to Bill Myshallek, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and welcome, everyone, to STP Solar's Q2 2024 Earnings Conference Call. Before today's call, you may have reviewed our earnings release and supplemental financial information, which were posted earlier today. If you've not reviewed these documents, they're available on the Investor Relations section of our website at ftcsolar.com. I'm joined today by Amaj Thila, a member of our Board of Directors and the company founder Jan Brandt, the company's incoming CEO Kathy Behnan, the company's Chief Financial Officer and Patrick Cook, the company's Head of Capital Markets and Business Development. Before we begin, I remind everyone that today's discussion includes forward looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date.

Speaker 1

As such, these forward looking statements include risks and uncertainties, and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you'd expect, we'll discuss both GAAP and non GAAP financial measures today. Please note that the earnings release issued this morning includes a full reconciliation of each non GAAP financial measure to the nearest applicable GAAP measure.

Speaker 1

In addition, we'll discuss our backlog and our definition of this metric is also included in our press release. With that, I'll turn the call over to Omar.

Speaker 2

Thanks, Bill, and good morning, everyone. As you likely seen, we recently announced that Jan Brand has been named the new CEO of FTC Solar and will start on August 19. Jan is an exceptional leader with great depth of experience in the solar industry. From running all operations for a downstream solar company to CEO for solar racking company, a Board member of SIA to being CFO and CTO in a leading edge storage company that he helped grow very significantly to profitability, just to name a few. He has excellent hands on experience and a wealth of relationships throughout the industry.

Speaker 2

We're looking forward to having him on board and know he'll make an immediate impact. While he hasn't officially started yet and I believe he's traveling overseas, we're fortunate that he was able to dive into this call to say a few words to this group. So let me turn it over to Jan. Jan?

Speaker 3

Thanks, Ahmad. I appreciate the generous introduction and the opportunity to drop in and say hello to everyone. So first, good morning to all of you. I'm excited to be speaking with you even before I started my new capacity. I think you'll find that I like to move quickly and I'm not always big on formalities.

Speaker 3

As Ahmad mentioned, I've been in the solar industry for nearly 2 decades now. I've been in different roles and had varying mandates, whether it is as a developer, supplier or industry advocate, but always while maintaining a consistency and perspective for building relationships and helping to foster the long term growth of the solar industry. I've been familiar with FTC Solar since its founding and take notice when they came to market with their 2P offering. When you break into a new market with long term entrenched players, you need to have something unique and value added to get noticed. FTC quickly secured its spot as a leading provider in that market segment.

Speaker 3

Even from my perch, I would hear anecdotes about the technology, the constructability and the relationship the company has with its customers. Now leveraging the technology strength into the 1P segment, I hear similar feedback from the market about the opportunity ahead for FTC. I know many professionals across the industry, whether from my various operating roles, my position on the Board of CEO or through the newsletter that I've run with thousands of readers. Based on my conversation, the company has developed a strong brand in the industry that far exceeds its current financial footprint. Yes, the company at OnePound itself as a 2P leader in an increasingly 1P market, but the company has nicely filled product gaps and has the broadest and most comprehensive offering to date.

Speaker 3

So I see a company with excellent technology, a top tier brand, relationships with top developers and EPCs in the industry and a clear path to continue improvements in product and overall cost efficiency. I installed a Chief of Staff here nearly 3 weeks ago, who has been doing some legwork to help ensure the smooth as possible transition and help me be as impactful as possible on day 1 at FTC. And I'm looking forward to getting started. I believe the company has the opportunity to be a leader in the market and can enable success for EPCs and asset owners. I'm genuinely excited about the team, the technology and the position of the company in this great industry.

Speaker 3

And I couldn't be more pleased to take on the CEO role. I'm very much looking forward to working closely with all of you in a very transparent way, and we'll look to demonstrate this company's capability. Thanks again. Ahmad, I'll turn it back to you.

Speaker 2

Thanks, Jan. I appreciate you joining us early and from the road. We're very much looking forward to having you on board. Turning to the results, I'll make a few overarching comments and then turn it over to Kathy to review the financials. At a high level, there are 3 main takeaways for me this quarter.

Speaker 2

1, our 2nd quarter financial results were in line with the targets we provided. 2, we continue to remain well positioned for growth and profitability and continue to make further enhancements across the business that will pay dividends in the future. And 3, our business as well positioned as it is, is still currently sub scale in revenue and therefore impacted to a greater degree by customer project delays. While we still expect a better second half relative to the first half, our second half results will unfortunately be lower than our prior expectations. So let me start with that last point.

Speaker 2

We have seen project delays from customers relating primarily to interconnection and financing, specifically 3 large projects that we are expecting to start construction as new now moved to Q4 start date. Project delays in the construction business are common, and we have seen these types of issues throughout the industry in recent quarters. When you're at scale, you have layers of overlapping projects and more opportunities for compensating adjustments. Unfortunately, we're just not there yet and the delays have more of an impact. In our case, it looks like a delay of more than a quarter, which will cause 1 our Q3 to be relatively flat again sequentially, which the start of the revenue recovery to the 4th quarter and our goal of achieving breakeven into 2025.

Speaker 2

While the delays are certainly disappointing, I do believe we are positioned quite well for a strong recovery, including particularly strong margin growth as revenue ramps. For the past 2 quarters, I've told you about the progress we've made with our key initiatives to set the business up for growth and profitability. This included accelerating our bookings rate, improving our product cost roadmap, improving business processes and lowering our breakeven revenue level. I won't rehash those points, but we will just add a few brief comments. On sales and products, as it stands today, we have more than $500,000,000 in signed purchase orders, which lays the groundwork for a revenue recovery that we continue to expect to begin in the second half of the year.

Speaker 2

Specifically, as I mentioned, the 4th quarter, While new additions to purchase orders were not as robust since our last call, we continue to add projects and have new projects in our pipeline. Our customer engagement remains high, and we are strategically adding sales resources to capture more opportunity, particularly internationally to capture the market growth there as well as in the U. S. Since our last call, we have announced that we hired tractor industry veteran and former CEO of STI Northern, Alberto Schpeira, to lead our international sales efforts. Alberto is an exceptional leader who has been focused on enhancing our international presence and growing our pipeline.

Speaker 2

We're very excited that she's working on. We also announced that FCC Solar Board Member, Tamra Mullen, stepped down from the Board to lead our North America sales efforts. Tamra is a great talent, and we're very pleased to have her take on this new role. I've already talked about Junon and his great customer relationship, which would be another incredible addition to our capabilities. Our product portfolio is as broad as it has ever been across 1P and 2P configurations with thin film and high wind solutions and software with additional products on the way.

Speaker 2

We can now be truly technology agnostic and optimize each individual project by its core customers. Regarding COGS, we believe our product costs are in line with leading competitors and we continue to execute on opportunities to drive further reductions. We're in a good place from that perspective and our direct margin today can enable much higher long term gross margin. Last year, this started to show through even at $30,000,000 quarterly run rate, we were entering the double digit margin range. And finally, our breakeven costs have been greatly improved driven by the higher direct margins as well as reduction and keen focus on OpEx and overhead costs, while continuing to invest strategically in areas like this.

Speaker 2

We brought our breakeven revenue level down from what has historically been over $100,000,000 per quarter down to $50,000,000 to $60,000,000 range or potentially less depending on regional mix and whether we pay a bonus. So in summary, while we are disappointed to see project delays, we remain well positioned for a healthy recovery. We have a strong product portfolio that is well regarded in the industry and can optimize our customers' project portfolios. Customer engagement is a top priority and we're strategically investing in our sales capabilities to drive additional bookings with a number of great talent positions in the U. S.

Speaker 2

And internationally, not the least of which is an exceptional new CEO starting in just over a week. Our product cost structure is in good place and can enable 20% long term gross margin and we have a company cost structure that has been reduced to enable quarterly profitability in the $50,000,000 range. As the revenue levels improve, the profitability and cash flow potential of the business can show through. With that, I'll turn it over to Kathy. Kathy?

Speaker 4

Thanks, Iman, and good morning, everyone. I'll provide some additional color on our Q2 performance and our outlook. Beginning with the discussion of the Q2, revenue came in at $11,400,000 which was within our target range, although below the midpoint. This revenue level represents a decrease of 9.2% compared to the prior quarter and a decrease of 64.7% compared to the year earlier quarter on both lower product and logistics volumes. GAAP gross loss was $2,300,000 or 20.5 percent of revenue compared to gross loss of 2 better than the midpoint of our guidance range.

Speaker 4

This compares to a gross better than the midpoint of our guidance range. This compares to a gross loss of $1,700,000 or 13.7 percent in the prior quarter. While our project margins remain healthy and our costs are much improved, the revenue level in the second quarter was not high enough to absorb the indirect costs. We continue to believe that we have significant margin upside when our revenue levels recover. GAAP operating expenses were $9,600,000 On a non GAAP basis, excluding stock based compensation and certain other costs, operating expenses were $8,300,000 This represents the lowest level in more than 3 years as we have found efficiencies across the company while continuing to invest to support growth.

Speaker 4

This result compares to non GAAP operating expenses of $8,700,000 in the prior quarter and $9,700,000 in the year ago quarter. GAAP net loss was $12,200,000 or $0.10 per share compared to a loss of $8,800,000 or $0.07 per share in the prior quarter and a net loss of $10,400,000 or $0.09 per share in the year ago quarter. Adjusted EBITDA loss, which excludes an approximate $1,800,000 net loss from stock based compensation expense and other non cash items was $10,500,000 also better than the midpoint of our guidance range. This compares to losses of $10,700,000 in the prior quarter and 7 point $2,000,000 in the year ago quarter. Finally, regarding liquidity, we ended the quarter with $10,800,000 in cash and restricted cash on the balance sheet.

Speaker 4

Based on our current forecast, we expect cash to grow by the end of the quarter through a combination of deposits and collections. We continue to hold no debt on the balance sheet and have about 65 $1,000,000 remaining under the ATM program at the end of the quarter. We have not utilized the ATM in the past few quarters and don't currently have plans to utilize it. With all of those factors, we are actively managing customer deposits and supplier payments. As Ahmad mentioned, the contracted portion of our backlog Our targets for the Q3 call for the following: revenue between $9,000,000 $11,000,000 which would be flat to slightly down from the 2nd quarter.

Speaker 4

Along with this revenue level, we expect non GAAP gross loss between $4,300,000 $1,500,000 or between negative 47.8 percent 13.5 percent of revenue. As you might expect, the percentage range is very more greatly at these lower revenue levels. Non GAAP operating expenses between $9,300,000 $10,000,000 and finally adjusted EBITDA loss between $14,700,000 11,000,000 dollars For the Q4, we expect revenue to more than double relative to the Q3. With that, we conclude our prepared remarks and I will turn it over to the operator for questions. Operator?

Operator

Your first question comes from the line of Philip Shen with Roth Capital Markets. Your line is open.

Speaker 5

Hi, this is Matt Ingram on for Phil. For the contracted portion so that you need to see to release more of the backlog sooner? And then secondly, how do you expect bookings to trend over the next few quarters? And then I have a follow-up.

Speaker 2

Kathy?

Speaker 4

Thanks, Matt. This is Kathy. Thanks for the question. So in terms of the $500,000,000 of contracted purchase orders, we've given the guidance for Q1 and talked about it growing in Q4 and we're not giving guidance yet into 2025. But those projects the catalyst for those projects is just is really just customer execution, right?

Speaker 4

Those projects are all lined up and ready to go. And it's customer execution as they move those through, then those will move through our revenue numbers.

Speaker 5

And then how do you expect bookings to trend going forward?

Speaker 4

Well, we've had okay, Steve.

Speaker 5

Go ahead, Kathy. Go ahead.

Speaker 4

Well, I just want to say that we've had the addition really an addition of really strong sales team. Maude talked about the fact that we've added Alberto for the international market and we've added Tamara for the U. S. Market. And then in addition of having Jan join us as the CEO with really great relationships in the industry, we really expect to see continued acceleration of the bookings.

Speaker 5

Okay, great. Thanks for the color there. And then, we know that these interconnection and permitting challenges have been impacting industry and pushing projects to the right. But have you seen any impact from the new Southeast Asia AD CBD causing module availability constraints and adding an additional headwind on top of the rest of the headwinds that are out there right now?

Speaker 2

Yes, this is Ahmad. We hear a lot about it, but we have not seen it specifically on our project, although we hear a lot about the industry wide issues. But on our current projects, we have not seen this issue to surface

Speaker 5

yet. Okay. Thank you. I'll pass it along. Thank you.

Operator

Next question comes from the line of Pavel Molchanov with Raymond James. Your line is open.

Speaker 6

Yes, thanks for taking the question. So appreciate the fact that you're not giving guidance for 20 25, but you said that EBITDA should be should turn positive in 2025. So what revenue and gross margin run rate is that predicated on?

Speaker 2

We need revenue to be between $50,000,000 $60,000,000 per quarter, Pavel. And our current expenses between operating expense as well as overhead is in the $14,000,000 range without bonuses and around $16,000,000 $17,000,000 range with bonuses. So at $50,000,000 we breakeven without bonuses, at $60,000,000 we breakeven with bonuses.

Speaker 6

Okay. Okay. That's helpful. In Q4 of this year, do you expect gross margin to be positive?

Speaker 2

Kathy?

Speaker 4

Yes. We aren't providing that guidance. But if you kind of look at how we've been progressing and we've been talking about the strong project margins that we have, as the revenue grows, you definitely see increases in our gross margin. So you'll see improvements as that revenue grows quarter to quarter.

Speaker 6

Okay. And then, Kathy, as you were talking about the balance sheet, you mentioned that you have no plans to pull on the ATM program. But when we look at cash $10,800,000 and if EBITDA is a negative, call it negative 10%, wouldn't you need to bring in some fresh capital this quarter potentially?

Speaker 4

When we look at our forecast and timing of deposits and cash collections on receipts and so forth, the way our projects are set up, we get down payments on the projects and how we have the timing of our payments to our vendors, we don't need to fund the projects through the balance sheet. So that's how we see it playing out based on the forecast that we're looking at now. I mean, we're always we have not replaced the revolver yet, but we do. We are in discussions on opportunities like that, but that's not how we have this forecasted.

Speaker 6

So in other words, the working you had a benefit from working capital in Q2, which was nice to see. Do you anticipate more inflows from working cash inflows from working capital in the second half of the year?

Speaker 4

Yes, we can.

Speaker 6

All right. Thanks very much.

Speaker 4

Thank you for your questions.

Operator

We have our last question comes from the line of Donovan Schafer with Northland Capital Markets. Your line is open.

Speaker 1

Operator, is there another question?

Operator

There are no further questions at this time. This concludes today's conference call. You may now disconnect.

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