Participants

Bill Michalek; Investor Relations; FTC Solar Inc

Yann Brandt; President, Chief Executive Officer, Director; FTC Solar Inc

Cathy Behnen; Chief Financial Officer; FTC Solar Inc

Phillip Shin; Analyst; Roth Capital Partners

Jeff Osborne; Analyst; TD Cowen

Presentation

Operator

Good day and thank you for standing by. Welcome to the FTC Solar fourth quarter 2024 earnings conference call. (Operator Instructions) Please be advised today's conference is being recorded. I would not like to con over to your speaker today, Bill Michalak, Vice President Investor Relations. Please go ahead.

Bill Michalek

Thank you and welcome everyone to FCC Solar's fourth quarter 2024 earnings conference call. Before today's call, you may have reviewed our earnings release, slide presentation, 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 ftcolar.com. I'm joined today by Yann Brandt, the company's President and Chief Executive Officer; Cathy Beynon, the company's Chief Financial Officer; and Patrick Cook, the company's head of capital markets and BD.
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 except as required by law.
As you would 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.
With that, I'll turn the call over to you Yann.

Yann Brandt

Thanks Bill, and good morning everyone. It's great to speak with you all again here on my second earnings call as CEO of FTC Solar. I'll provide a few updates and commentary and then turn it over to Cathy to review the financials. During the first six months of my tenure, our primary focus has been on shoring up our near-term backlog while also adding some incremental liquidity to the business.
We have made very significant progress, including adding many multiples of our current annual revenue run rate to our backlog. And signing long term customer agreements. I'll share more on this progress in a moment but would like to start by briefly reviewing a few comments I made on the last earnings call.
During that call, I shared my 90-day observations on the company. My optimism about the path to success for FTC Solar, built on the foundation of a great team, a complete product set, and a cost structure poised to enable strong margin growth and profitability.
To summarize those observations briefly, they include. One, FTC Solar is at a clear inflection point, and adoption of our differentiated 1P technology is on the brink of major deployment by some of the biggest solar IPPs and EPCs in the world.
Two, our relationships with the global customer base are in great position. In this moment of the solar market, knowing how to bring a solar project to completion is critical, and our team's collective experience is very well regarded in that way.
Three, the FTC Solar 1P Tracker is the latest in this category to come to market. It has features and technology that are clearly differentiated and make it an easier, faster, and safer tracker to install. And four, in 2025, we will see good progress on the conversion of our backlog into revenue, which will support us achieving quarterly profitability this year.
So with that brief review of observations and the foundation for my optimism, let me give you an update on the progress we have made to further support our recovery and strong future growth prospects. Well, I'm pleased to say that we have had a number of recent wins and are building momentum.
On our last call, I highlighted a 500 megawatt supply agreement with Strata Clean Energy, a new one gigawatt supply agreement with Dunley Energy, additional detail on a one gigawatt agreement with Sandhills Energy, a $15 million no placement, and a $4.7 million dollar cash earn up on a prior investment.
Building on those successes, today we announced or highlighted several additional wins. These include, first, we announced today that we have entered into a five year, five gigawatt supply arrangement with Recurrent Energy. Recurrent is one of the world's largest and most geographically diversified utility scale solar developers.
The projects are expected to be located in the US, Europe, and Australia and utilize a combination of our 1P and 2P tracker technologies. It is anticipated that the first project revenue under this arrangement will begin in the second half of 2025.
Second, we announced today a new 333 megawatt project award notice from GPG, the power generation subsidiary of multinational Energy Leader Nanergy, which operates in more than 20 countries with 16 million customers.
The project, which is located in Australia, will utilize a 1P Pioneer tracker and is expected to begin tracker production in mid-2025. Third, We announced a new 280 megawatt project award from Rosendon, a top five EPC and the largest employee owned electrical contractor in the US. The project, which is located on the US West Coast, will also utilize our 1P Pioneer solution and is expected to begin tracker production in mid 2025.
Fourth, on top of those swings, we have also continued to strengthen our positioning and talent, including the appointment last month of solar industry veteran Ken James, as Chief Commercial Officer for North America.
Kent is someone I've known and worked alongside for nearly 20 years. He's one of the founding members of Primoris Renewables and helped scale the company to what it is today. I know he will drive even stronger engagement with the developer and EPC community and add significant value to our company.
We have also seen a significant increase in our bidding run rate, which has recently been nearly double what it was in the second quarter of last year. We're driving up our domestic content capabilities and already taking orders for 100% domestic content, which we expect to have available in Q3 of this year.
On the international front, the large Australia project is a great win, and we expect to see increasing international traction, particularly in Australia and Europe. Our team is also working on a specially designed tracker for the India market as the market transitions in a big way from fixed tilt to tracker, and the market opportunity is great.
Finally, within the past few weeks, we have received another $3.2 million earnout on our investment in Dimension Energy and we upsized our note offering, which will bring in up to an additional $10 to $15 million in the coming days.
So as I mentioned during the first six months of my tenure, we have been focused on shoring up our near-term backlog while also adding liquidity. In aggregate, we have added multiples of our current annual revenue run rate to our backlog, signing agreements totaling more than 6.5 gigawatts with tier one accounts along with other awards, added more than $30 million in additional liquidity to our balance sheet, strengthened our sales team with new hires, including Ken James, further strengthened our product offering and capabilities and increased our commercial traction with bids on many gigawatts of future projects.
Ultimately, the opportunity for FTC stems from the combination of our people and product, providing the best value for our customers. We look at the market today that has two extremes to navigate incredible demand for energy generation built now and an increasingly stressed labor market for our EPC partners.
Tracker installations can make up more than 60% of the labor need on a solar project. So being able to install FTC trackers easier, faster, and safer is incredibly valuable for our construction partners. Easier means you can train new workers to get proficient quickly while reducing the need for specialty tools and equipment.
Faster is man hour savings value right to the bottom line of our partners and the project P&L to get more solar built in the same time stamp. And every construction site starts and ends with safety, and I'm proud of the role FTC plays to reduce injuries on the job site.
We may not be the largest tracker company in the market today, but the demand for our product is increasing, and most conversations I have with existing and prospective customers give me additional optimism.
That increasing demand will grow our backlog and bolster our ability to grow as a company. Sustainable growth is a process that doesn't happen overnight. It's rooted in technology and people that provide measurable value for partners, and we have those crucial ingredients.
In closing, I believe that FTC Solar is in an incredibly fortunate situation in many respects with products that customers love, a business they enjoy working with and a cost structure that will enable strong margin growth and profitability.
And a compelling 1P product set that opens up to 85% of the market that wasn't available to us before. We believe our revenue bottom in Q3. We saw growth in Q4 and expect growth in Q1 and have been winning many new awards that will help us ramp our revenue, achieve adjusted EBITDA break even, and become a strong and significant competitor in the industry.
With that, I'll turn it over to Cathy.

Cathy Behnen

Thanks, Yann and good morning everyone. I'll provide some additional color on our fourth quarter performance and our outlook. Beginning with a discussion of the fourth quarter, revenue came in at $13.2 million which was at the high end of our target range. This revenue level represents an increase of 30.2% compared to the prior quarter and a decrease of 43.1% compared to the year earlier quarter due to lower product volumes.
GAAP gross loss was $3.8 million or 29.1% of revenue, compared to gross loss of $4.3 million or 42.5% of revenue in the prior quarter. Non-GAAP gross loss was $3.4 million or 25.6% of revenue at about the midpoint of our guidance. The result for this quarter compares to a non-gap gross loss of $3.9 million or 38.3% of revenue in the prior quarter.
GAAP operating expenses were $9.6 million on a non-GAAP basis, excluding stock-based compensation and certain other costs. Operating expenses were $7.4 million down from $10.8 million in the same quarter last year. This represents the lowest level of OpEx since early 2021, as we have found efficiencies across the company while continuing to invest to support growth. This result compares to non-GAAP operating expense of $8.1 million in the prior quarter.
GAAP net loss was $12.2 million or $0.96 per diluted share compared to a loss of $15.4 million or $1.21 per diluted share in the prior quarter as adjusted for the reverse split. And compared to a net loss of $11.2 million or $0.89 per diluted share post split in the year ago quarter.
Adjusted EBITDA a loss, which excludes an approximate $2.4 million from stock-based compensation expense and other non-cash items, was $9.8 million which was better than our guidance range. This compares to losses of $12.2 million in the prior quarter and $10.1 million in the year ago quarter.
In terms of backlog reflecting $67 million in new purchase order additions since November 12, 2024 and $65 million in adjustments to existing projects, the contracted portion of the company's backlog now stands at $502 million. Finally, regarding liquidity, we ended the quarter with $11.2 million in cash on the balance sheet.
Subsequent to quarter end, we received a $3.2 million cash earnout relating to our investment in dimension energy, and as Yann mentioned, we signed a term sheet to upsize our promissory note offering. As you'll recall, we collected $15 million from the note offering in Q4 and will now receive up to an additional $10 to $15 million here in the near term.
On top of those items, we also continue to have about $65 million remaining under the ATM program at the end of the quarter. With that, let us turn our focus to the outlook. Our targets for the first quarter call for the following.
Revenue between $18 million and $20 million, which at the midpoint would be up about 44% relative to the fourth quarter. Along with this revenue level, we expect non-GAAP gross loss between $4.8 million and $2.3 million or between negative 26.6% and 11.7% of revenue. As you might expect, the percentage ranges vary more greatly at these revenue levels.
Non-GAAP operating expenses between $7.7 million and $8.4 million and finally adjusted EBITDA loss between $13.3 million and $10 million. And as Yann mentioned, we continue to expect to achieve adjusted EBITDA break even on a quarterly basis in 2025.
With that, we conclude our prepared remarks, and I will turn it over to the operator for any questions. Operator.

Question and Answer Session

Operator

(Operator Instructions)
Phillip Shin, Roth Capital Partners.

Phillip Shin

Hey guys, thanks for taking the questions and congrats on the strong bookings momentum in this difficult environment. So wanted to talk through some of that specifically on recurrence. That's a big, five gigawatt agreement there. Was wondering if you could share what the mix of 1P versus 2p is, the mix of the geographies.
So is it more dominated outside of the US or is it a US centric agreement? And then also you talked about the first project being put in place in the back half of this year. Which geography would that be? And then if you can just speak more about the basis for the win beyond what you said in the prepared remarks, that would be great. Thanks.

Yann Brandt

Alright, good to talk to you, Phil. Yeah, I mean, look, we're really excited about the partnership with, recurrent and ultimately it came down to answer the last part of your question first. We do have really wide product set having, really strong 1P offering now that's latest to market, really easy to use, and then we have the 2P product that, we're one of the few manufacturers in the world that has it. So the ability to do both, I think was a strong consideration for recurrent.
The 2025 project set, the diversity around where we're going to be building and supplying trackers like we said, is going to be US, Europe, and Australia. US and Europe are likely to go first, based on the work we're now doing and in terms of engineering and design.
And I think you're going to have numbers of projects be greater in Europe just because the project size is smaller, and you're going to have larger, more significant projects here in the US, but, obviously from our standpoint, our preference is -- our goal is to supply the best products we can to wherever recurrent is developing and deploying -- deploying capital into these projects, they play a role as a developer and asset owner, so it takes into account all of the value propositions that we're providing.
Just the last part of your question, 1P and 2P is really going to be geographically oriented, 2P is a really strong, offering still, especially where land density, the power density, is important, but you have to have. The right, environment in terms of wind loads and other technical considerations.
So I think you'll have some utilization of 2P in Europe and some parts of the US, but predominantly it's going to be 1P. I think overall it'll be in line with where our current pipeline and bid rate is, which is 85%, 90% 1P.

Phillip Shin

Okay, thanks John. I appreciate that shifting over to the outlook for revenue, you gave an official guide for Q1, and that's sequentially higher, versus Q4. I know you don't have an official outlook for Q2 or Q3, but can you talk about that trajectory, maybe loosely speak through, should we expect Q2 to be flat versus Q1, or should we see a ramp as we go through the year and if so what needs to happen and what are the -- what needs to happen in order to hit those expectations and then, what are some lines of, potential risk? Thanks.

Yann Brandt

Yeah, we certainly expect the year to be back half weighted, right? This is a commercial focus of deploying o 1P and getting contracts signed, certainly we're working with our developer partners and getting the projects to the finish line, going through the engineering.
We're very optimistic about continued growth through the year, but I think the way that I would frame it is definitely focus on the second half and waiting from that standpoint, there's definitely a step up in Q1 from the guidance, up 45% sequentially, and we would expect another step up at the back half of the year.

Phillip Shin

Okay, and then that would suggest Q2 might be more flat versus Q1.

Yann Brandt

I think I don't want to overpromise for Q2. It could -- the way that I would think about FTC is every single project matters so if one project pulls in, it could be up, it could be flat, but the optimism is quite strong. We'll focus on the execution side of the house and getting to break even -- EBITDA break even by the back half of the year.

Phillip Shin

Got it thank you. And then one more and then I'll pass it on in terms of your bookings momentum, you have had a bunch of these, agreements since you've joined so I was wondering if we should expect this train of agreements to continue as we get through the first half of the year.

Yann Brandt

That’s certainly the expectation, bringing Ken James in, having been one of the founding members of Primoris, we’re taking a very dual approach in both focusing on the value proposition that we’re bringing to EPCs, helping them lower their labor burden by making it easier and faster to install, but also partnering with IPPs like Dunley and Sandhills to help early stage engineering.
I think we'll have continued demand of folks to do something on the early stage, the supply arrangements or MSAs or purchase orders are ahead of shipment, I think those are going to be some of our tactics, but also I think quite a bit of focus like we had, announcing our new contract signings, which is actually showing those projects come to fruition.
At a certain moment, like our peers, we'll have the translation of early stage actually becoming projects that will start shipment. We expect that to happen to be a big part of our back half of the year as those projects go through the development process.
We're making a lot of traction in our bidding. I think that's always the top of the funnel, getting our 1P product through approved vendor lists has been a strong, something we've been doing quite a bit over the last six months, getting products approved by the biggest IPPs and their backers, that allows us to bid, and we're bidding almost double the gigawatts on a monthly basis than we were a year ago. So the top of the funnel is really strong, and I think it shows the appetite for the technical value that our pioneer trackers bring to the table.

Phillip Shin

Great, okay, thanks, Yann. I'll pass it on.

Operator

Jeff Osborne, TD Cowen

Jeff Osborne

Thank you. Good morning. Just a couple of quick ones on my side, Yann, I was wondering if you could quantify the 1P and how much faster you're seeing, some of the partners that you've announced today, what the anticipated experience is. I think in the past you guys have talked about 30% to 40% faster if my memory is right, but that was under a prior management team. What the pitch these days?

Yann Brandt

Yeah, the pitches, there's a duality, right? And I'll put all of those on the umbrella that it's also has a safety component to it, which is an important one obviously for because no labor is faster if it's not safer, right. So for EPCs particularly this is of utmost importance.
I think overall when you think about it, the mechanical installation of the tracker represents something like 60% or more depending on the region of the overall labor need by an EPC. We see an opportunity, again that 30% to 40% remains true.
Depending on where the project is, there's also the ability for lower cost labor to be used for particularly parts of the installation like installing our cinch clips for example that's a much faster and much easier process that not only is less time but also less cost.
So you could see, [$0.03] a lot of benefit, by using Pioneer, and you know we're certainly working to continuously improve, the process and bring some lien methodology to our process we have, quite a big team working on the software and productivity side of, how to install our tracker and just getting, even better at that.
We're definitely looking to measure man hours per megawatt in a way that has returned data to each EPC the more people will use -- the more people use our trackers, the more return data they'll have, and they'll actually start including it in their bids, that's always the leading edge of bringing a new product to market and why it takes a little bit of time sometimes.
But as they use it once, people get comfortable with it and then they start recognizing opportunities to optimize and that's the stage we'll be in over the next 12 to 18 months as the EPCs trial a product, the 1P product they'll, start seeing opportunities to win more work with it.

Jeff Osborne

That's helpful. And just given you, you're now announcing five-year sort of framework agreements and broad strokes across multiple geographies, how should investors think about the broader lens of target gross margins for the business?
I know you're not giving revenue guidance, but 35 years ago, people in the industry would say they're a low 20s gross margin prior to the IRA. What do you think FTC's gross margin entitlement is, longer term?

Yann Brandt

Yeah, I mean, I think without getting specific and just getting qualitative on it, our track on margins is in line with our peers obviously, where do we have differentiation that's a headwind for us is, we have a little bit higher logistics costs given that we, don't have the supply chain base in quite as many as our largest peers.
So and then also from a volume standpoint there's obviously some room to make up on our side. I think the important one is tying it back to your initial question is, it's not all about CapEx, in the long run, the value proposition of Pioneer.
Not just for the installation of our tracker, but if you think -- if you take a step back and think about all things automation, my LinkedIn's full of it at this point, it's one of the most automation friendly trackers both for the installation as well as for O&M.
It has the ability to lower cost as that value proposition. You know is learned by our partners both EPCs and IPPs that's going to give us a little bit of pricing room but ultimately right now we're competitive our gross margins will increase as our volume increases certainly, and we see ourselves in line, with at scale being able to be competitive on, with our peers.
Lastly, one thing we don't talk a lot about because we talk about hardware mostly our product SunPath, which is our terrain-based backtracking software, is, on a -- if you were to take a step back and obviously I have a biased view, but unbiased opinion, it's one of the best backtracking softwares out there. It has, obviously row to row capabilities, right now backtracking software is one of these learned products in the market.
We have some peers that that see a lot of pricing, strength in it. We have some peers that give it away, ultimately we see SunPath as a huge opportunity for us to either provide value, to win more work in the high volumes, but also the ability to monetize it as we show real tangible return data to the IPPs as the system is performing.
I would say we're quite ahead of a lot of our peers with some paths, and I wouldn't underestimate the value it brings in the long run to gross margins.

Jeff Osborne

Perfect. And my last question is just in recent weeks you've seen quite a bit of steel price volatility. How should we think about, what transpired for Q1, but also for the next quarter to what your supply chain management, is in light of the tariff environment and just price volatility in general, what your exposure is, etc.

Yann Brandt

Yeah, our exposure is quite limited. Ultimately, as a company, we secure our steel right when the purchase orders are negotiated. So there's really -- it's a back to back procurement nature, it's probably -- if at much higher volumes you have much greater exposure, and there's always the discussion of what can you pass on and what can't you pass on. The reality is every single cost that increases on a project, whether it's, tariffs or commodity, often those two things are linked.
The project itself needs to continue to pencil, so everyone's sort of at the table, figuring out how to keep the project moving forward, the tariffs and commodity prices moving in a higher direction, is going to increase cost of projects, but we're -- from an exposure standpoint, I would say it's zero to limited we certainly haven't had meetings internally where it's, a great concern to us we updated with each of our proposals.

Jeff Osborne

Perfect, that's all I have. Thank you.

Operator

(Operating Instructions)
And I'm not showing any further questions at this time as such, this does conclude today's presentation. You may now disconnect and have a wonderful day.