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Operator: Good day and thank you for standing by. Welcome to the FTC Solar First Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President, Investor Relations. Please go ahead.

Bill Michalek: Thank you and welcome everyone to FTC Solar’s first quarter 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 Ahmad Chatila, a Member of the Board of Directors and a Company Founder; Cathy Behnen, the company’s Chief Financial Officer; and Patrick Cook, the company’s Chief Commercial Officer. Before we begin, I remind everyone that today’s discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speaks only as of the current date.

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

Ahmad Chatila: Thanks Bill and good morning everyone. It’s been a relatively short time since our last call, so our remarks today will be fairly brief. The key takeaways from my perspective are: one, first quarter financial results were in line with the targets we provided; two, the company continues to focus on advancing key initiatives that will support future growth and profitability; and three, we continue to target being breakeven on an adjusted EBITDA basis in the third quarter and crossing into profitability in the fourth quarter. Last quarter, we reviewed some of the issues that the company has faced and the progress that has been made recently. I’ll briefly review those and note some additional progress. First, we discussed how the company has seen an acceleration of contracted projects or signed purchase orders from what has been about 6 million per month in 2022 and early 2023 to about 50 million per month for the past ten months.

Our bookings remain healthy and the sustained booking success we’ve seen lays the foundation for revenue recovery that will start in the second half of the year. We remain laser focused on customers, spending as much time with them as possible in a cross functional effort to improve engagement and best support the full range of customer needs with a robust product roadmap. We also continue to enhance our product portfolio and we recently awarded our first purchase order for a high wind version of our Pioneer 1P tracker. Our contracted and awarded total increased by 70 million to 1.8 billion, with contracted projects representing approximately 485 million of the total. Second, the market for 2P trackers has improved and we have our strongest and most comprehensive product portfolio to date.

With module availability improved from where it was, we’ve seen a more normalized market for 2P with good pipeline activity. With strong 1P and 2P solutions along with software, we can be truly technology agnostic and optimize each individual project site to maximize the benefit for our customers. While most of our new awards are 1P, we now have several examples of project awards that combine 1P and 2P technologies with more in the pipeline. Third, we continue to improve business processes. Customer visits, which had increased tenfold, remain elevated with a broad cross functional approach to accelerate the feedback loop on quality, product roadmap and future needs and enhance overall customer experience. And we continue to roll out our net promoter score system to help us better measure and drive engagement and satisfaction.

Fourth, we continue to further improve our cost roadmap to enable higher sustainable long-term gross margins. After making great strides, reducing steel content and bringing manufacturing costs in line with those of our leading competitors, we continue to further optimize our design to value and design to manufacturing initiatives and expect cost improvements to continue over the next 15 months. We are confident that these improvements and the strength of our average new project margin will enable greater than 20% gross margins in the future as our revenue levels scales. And finally, our breakeven cost has greatly improved, driven by higher direct margin as well as reduction and keen focus on OpEx and overhead costs, including adding an incremental labor in low cost countries.

Our breakeven revenue level has historically been well over $100 million per quarter. Last quarter we discussed how we have now brought that down to approximately $50 million to $60 million depending on whether or not we pay a bonus. Our margins on new U.S. bookings, which are higher than international, have been very healthy and may enable us to achieve adjusted EBITDA breakeven below $50 million. So that’s the latest on our key profitability initiatives. As it relates to the CEO search, we have been very deliberate in our approach to finding the right candidate and not wanting to disrupt progress on key initiatives. We continue to focus on candidates with significant industry knowledge and we have seen strong interest. I expect we could be in a position to make an announcement on or before our next earnings call in August.

So in summary, we continue to make good progress in positioning the company for a healthy recovery. We have a strong and expanding product portfolio that is well regarded in the industry and can optimize our customers’ project portfolios. Customer engagement is the top priority and we continue to see healthy bookings. The market for 2P trackers is improving and we are improving our systems and processes across the board, including pricing. We have a product cost structure to enable 20% plus long-term gross margins and company cost structure which has been reduced to enable quarterly profitability in 2024. As revenue levels improve, the profitability and cash flows potential of the business can show through. With that, I’ll turn it over to Cathy.

Cathy Behnen: Thanks, Ahmad. And good morning everyone. I will provide some additional color on our first quarter performance and our outlook. Beginning with a discussion of the first quarter, revenue came in at $12.6 million, which was at the midpoint of our target range. This revenue level represents a decrease of 45.7% compared to the prior quarter and a decrease of 69.2% compared to the quarter last year on both lower product and logistics volume. GAAP gross loss was $2.1 million, or 16.7% of revenue, compared to gross profit of $0.7 million, or 3% of revenue in the prior quarter. On a non-GAAP basis, gross loss was $1.7 million or 13.7% of revenue towards a higher or better end of our target range. This compares to a gross profit of $1.1 million or positive 4.8% in the prior quarter.

While our project margins remain healthy and our costs are much improved, as represented by our last four consecutive quarters of positive margin, the revenue level in the first quarter was not high enough to absorb the indirect costs. We continue to believe that we have significant margin upside when our revenue level recovers. Our GAAP operating expenses were $10.4 million. On a non-GAAP basis, excluding stock-based compensation and certain other costs, operating expenses were $8.7 million, which includes a $0.7 million credit loss provision relating to a specific customer account that was not included in our guidance ranges. Excluding this charge, our non-GAAP operating expenses would have been $8.1 million at the better end of our guidance range and representing some of the lowest levels in more than two years as we have found efficiencies across the company, while continuing to invest to support growth.

That normalized $8.1 million would compared to a normalized $7.8 million in the prior quarter and $10.1 million in the year ago quarter. GAAP net loss was $8.8 million or $0.07 per share, compared to a loss of $11.2 million or $0.09 per share in the prior quarter and a net loss of $11.8 million or $0.11 per share in the year ago quarter. Adjusted EBITDA loss, which excludes an approximate $1.9 million net benefit from an earn-out on a previously sold investment less stock-based compensation expense and other noncash items was $10.7 million, compared to losses of $10.1 million in the prior quarter and $7.2 million in the year ago quarter. Even including the $0.7 million charge, adjusted EBITDA loss was better than the midpoint of our guidance range.

Finally, regarding liquidity, we ended the quarter with $60 million in cash and restricted cash on the balance sheet. Our receivables ended the quarter at about 3.5 times our payables. And subsequent to the end of the quarter, we received payment on $9 million in outstanding receivables that we were previously expecting by the end of the first quarter. We currently expect to end the second quarter with about $20 million to $25 million in cash. We continue to hold no debt on the balance sheet and have about $65 million remaining under the ATM program at the end of the quarter. As previewed on the last call, we did not utilize the ATM in Q4 or Q1, and we similarly don’t plan to utilize it in Q2. With all of those factors, we are actively managing customer deposits and supplier payments.

Our backlog is $1.8 billion, and as Ahmad mentioned, the contracted portion of that is $485 million. With that, let us turn our focus to the outlook. Our targets for the second quarter call were the following: revenue between $10.5 million and $15.5 million, which at the midpoint would represent slight, sequential growth from the first quarter. Along with this revenue level, we expect non-GAAP gross loss between $3.1 million and $1.1 million or between negative 29.5% and 7.1% of revenue. As you might expect, the percentage ranges varied greatly at these lower revenue levels. Non-GAAP operating expenses between $8.6 million and $9.2 million. And finally, adjusted EBITDA loss between $12.6 million and $9.8 million. We continue to expect revenue to be weighted toward the second half of the year with the company being approximately breakeven on an adjusted EBITDA basis in the third quarter before moving squarely profitable in the fourth quarter.

With that we conclude our prepared remarks. And I will turn it over to the operator for any questions. Operator?

Operator: Thank you. [Operator Instructions] And our first question is going to come from the line of Philip Shen with ROTH MKM. Your line is open. Please go ahead.

Philip Shen: Hi, everyone. Thanks for taking my questions. First one is on the back half. You talked about hitting breakeven in Q3 and then profitability in Q4 as it relates to the Southeast Asia AD/CVD and the challenges that might come from that. To what degree is there risk from those projects that you need to hit in Q3 and Q4 that they could get delayed by the new tariffs?

Ahmad Chatila: Thank you, Phil. Patrick, can you give a color on what we see in the market on AD/CVD?

Patrick Cook: Yes, I mean, I think, holistically, I think it’s too early to assess, some of the potential impacts customers are assessing and doing some scenario playing. So it hasn’t been fully kind of vetted or taken up yet. But I will say, the projects that we have in the back half of the year, been really focused on getting their security around the modules and we’ve been working with them and they’ve got clarity and line of sight on the modules. And so we hope that little to no impact for those products.

Philip Shen: Great. In terms of the bookings, I think I saw about $118 million of bookings. Can you Array talked about yesterday, $35 million of U.S. bookings getting debooked, I think Shoals had some debookings as well, or cancellations. Is your $118 million, I got to imagine it’s a net bookings number. So, I was curious if you’ve had any projects debook in similar way, given some of the challenges out there beyond AD/CVD, but also with long lead time, high voltage equipment and interconnection queues and so forth? Thanks.

Ahmad Chatila: Thank you for this question again, Cathy, why don’t you give some color?

Cathy Behnen: So, yes, so we are giving, net booking numbers, but we are not – we don’t really break that out, but we are – we have never had any significant contracts pulled out sometimes small ones, but we’ve not had anything significant drop out of our backlog.

Philip Shen: Okay, great. Thanks for taking the questions, guys. I’ll pass it on.

Operator: Thank you. And we’ll move on to our next question. One moment, please. Our next question will come from the line of Pavel Molchanov with Raymond James. Your line is open. Please go ahead.

Pavel Molchanov: Thanks for taking the question. Let’s zoom in on Q3. When you anticipate EBITDA approaching breakeven, what kind of gross margin does that assume?

Ahmad Chatila: Hi, Pavel, this is Ahmad. Let me take through. It will be around 16%, 17%, something like that, in that range. We can dig that up for you and let you know later, but I think it’s going to be in that range bubble.

Pavel Molchanov: And same thing for Q4 with positive EBITDA. Is that going to be the kind of 20% number that you have targeted?

Ahmad Chatila: I cannot – I think it will be lower by a little bit. It might touch 20%, but I think it will be lower than 20%.

Pavel Molchanov: Okay. Geographic mix, you just talked about some of the risks in the U.S. in terms of protectionism. What’s the roadmap for continuing to expand your footprint in Australia and Latin America?

Ahmad Chatila: Yes, I will get Patrick to answer that.

Patrick Cook: Yes, no, so thanks for the question, Pavel. Obviously our business has predominantly been in the U.S., but we are – we have seen and continue to grow our pipeline and backlog in areas such as Australia, South Africa, Europe and Latin America. And we expect that to grow in the back half of the year as well and contribute to the overall revenue for the back half of the year.

Pavel Molchanov: And of the $1.8 billion total backlog, how much is international?

Ahmad Chatila: Patrick?

Patrick Cook: Yes, Pavel. We haven’t broken out the domestic versus international. Obviously, the majority of our pipeline and backlog is in the U.S., but we are seeing the international piece as we’ve planted flags and grown our team footprint out there. That’s been a growing portion of the backlog, and we expect it to grow in the future as well.

Pavel Molchanov: Okay, thanks very much.

Ahmad Chatila: Thank you.

Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Sameer Joshi with H.C. Wainwright. Your line is open. Please go ahead.

Sameer Joshi: Great, thanks. Good morning, everyone.

Ahmad Chatila: Good morning.

Patrick Cook: Just a little bit on the backlog. I know you are not giving the geographic breakdown, but do you have 1P versus 2P breakdown there?

Ahmad Chatila: Patrick, why don’t you give some color on the backlog? Give a little bit of geographic, although we don’t show exact numbers in 1P, 2P as well color.

Patrick Cook: Yes. So I’d say, if you look at the geographic breakdown, the majority of it is in the U.S. And then if you kind of look at what are the sub portions, Australia, South Africa and then also Europe, as we’ve – that was the most recent country that we’ve – or continent that we’ve entered and have been able to expand our backlog and pipeline there. As it relates to the 1P and 2P kind of breakdown, we’ve had the 2P longer. So naturally, our contracting award is going to skew towards the 2P. And as Ahmad said in his opening remarks, we’re seeing a recovery in our two important [ph] market. But a lot of the bookings that we’ve had recently are tied to our 1P and around some of the excitement that they’ve seen constructability and just overall 1P market. So more of the new projects have been signed up with our 1P system.

Sameer Joshi: Understood. Thanks for that. On your path towards improving gross margins over the last several quarters and going forward, is the focus more on lowering the fixed costs? Or are you trying to control the contribution margin of each additional unit produced or is the gross margin being driven also by some kind of a mix, either geographic or 1P, 2P?

Ahmad Chatila: Yes. Let me – I’ll take this one. This is Ahmad. Thank you, Sameer. So the – there’s two ways. One is to control the overhead costs, not reduce it, but control it. And as volumes expand to be careful of how we expand that overhead costs, like services in the field and so on and so forth. But the vast majority of that gross margin improvement comes from unit cost reduction like bill of materials, value-added manufacturing and logistics.

Sameer Joshi: Great. Great. Thanks for that color. And then just one last question. In the income statement, there is a $4.1 million gain from disposal of investment. Can you give us – tell us what it is?

Ahmad Chatila: Cathy?

Cathy Behnen: Yes. We previously had an investment in a subsidiary that we disposed of back in 2021. And we had an earnout on that. And as that earnout gets earned, and we recognize the revenue at that point in time.

Sameer Joshi: Got it. Thanks for that clarification. Thanks for taking my questions and good luck.

Ahmad Chatila: Thank you.

Operator: Thank you. And one moment for our next question. And our next question comes from the line of Jeff Osborne with TD Cowen. Your line is open. Please go ahead.

Jeff Osborne: Thank you. Good morning. Just a couple quick ones. I was wondering if you could categorize either Patrick or Ahmad, the growth in the second half. I assume that those in the U.S., would you say it’s with larger developers, smaller developers? Any context would be helpful.

Ahmad Chatila: Thank you, Jeff. This is Ahmad. So it is in the U.S., it is with smaller developers. I mean, just to give you some color, our stock price being where it is, we are not as successful yet in penetrating Tier 1 accounts. And that’s something that I think will change as we break even in Q3 and become profitable in Q4 so that’s the color on the growth.

Jeff Osborne: That’s helpful. Just going back six months, nine months ago, Patrick and the team were a bit maybe overly specific, but I think there was reference to like the Cat Creek project in Idaho and then some agri-photovoltaics in Italy and some potential projects in Spain. I was just wondering if you could update us on where those stand. And then specifically in Italy, I think the government is looking to possibly shut down the agri-PV sector as a whole. And so I wasn’t sure if there’s any notable backlog in that vertical, just given that, that was a focus of the…

Ahmad Chatila: So Jeff, I will give you color on Europe, and then Patrick can talk about Cat Creek. Look, the Italian potential business is not material to the company. I would say that Spain is going to become very interesting for us and international, especially with expanding our team and adding senior executives. So we’re going to see some nice progress in the next 12 months. And Patrick, why don’t you give color on Cat Creek.

Patrick Cook: As it relates to the Cat Creek project? Obviously, it’s one that we’re really excited about, just as a lot of other projects have seen. There’s been, some kind of inherent yet small delays that are going on with that project. But we expect it to start here in the short term and, really kind of carry the back, carry into the back half of the year and into 2025.

Jeff Osborne: Great. And two other just rapid fire ones that, Ahmad, how do you define high wind? Is that 120 or 140 miles an hour for the award winning?

Ahmad Chatila: I define it as 135 and 150.

Jeff Osborne: Got it. That’s helpful. And then is there a bias to pay bonuses in Q3 or Q4, or have you accrued for either period.

Ahmad Chatila: I’ll get Cathy to answer that.

Cathy Behnen: No, we have not accrued for either period at this point in time, but do anticipate that there will be an opportunity to pay bonuses in Q4.

Jeff Osborne: Got it. Thank you.

Ahmad Chatila: Thank you, Jeff.

Operator: Thank you. And one moment for our next question. [Operator Instructions] And our next question comes from the line of Kashy Harrison with Piper Sandler. Your line is open. Please go ahead.

Kashy Harrison: Good morning, everybody, and thank you for taking my questions. So just a few ones for me. First off, remind us on the definition of the contracted backlog, and then can you also give us a sense of what proportion of this backlog you would say is fully derisked from a permitting perspective, interconnection financing, high voltage critical equipment panels. Just trying to make sure that the customers have what they need to move forward with these projects.

Ahmad Chatila: All right, Patrick, why don’t you answer this question?

Patrick Cook: Yes. So as it relates to our backlog, our contracted and awarded, we haven’t changed the definition since the IPO. So it encompasses signed purchase orders, LOIs, and as well as verbal awards. And I think we’ve spelled that out in our filings. As well as it relates to derisking we have $485 million worth of signed POs, of that $1.8 billion that sits out there today. But we’re not guiding to, on an individual project basis, who’s got financing and inverters. But once you get a signed purchase order, the projects are moving along in accordance with kind of the time that they’ve laid out.

Ahmad Chatila: Yes. And Jeff, sorry. Kashy, let me give you a color as well. While there’s chatter in the industry about the high voltage equipment and the lead times on those, specifically, we have not seen any of our projects being impacted yet with that. And on module, I want to circle back to a prior question. We went through and we talked to all our customers, at least from the second half projects. And to a large extent, a lot of them already have procured modules. They either have an inventory or they have them with First Solar or with someone who is going to be able to ship. So that’s the second half of the year. I cannot tell you about 2025 right now and what’s the impact of AD/CVD or the high-voltage equipment. But from the second half of the year, at this moment in time, we have not heard anything from our customers.

Kashy Harrison: Appreciate the color. That’s all I have. Thank you.

Ahmad Chatila: Thank you.

Operator: Thank you. And I’m showing no further questions, and I’d like to hand it back to management for any further or closing remarks.

Ahmad Chatila: Bill?

Bill Michalek: Great. Well, thanks, everyone, for joining today. We look forward to giving you an update next quarter and thanks for joining.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.