Good day and thank you for standing by. Welcome to the FTC Solar Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President of Investor Relations. Please go ahead.

Thank you and welcome everyone to FTC Solar’s third quarter 2021 earnings conference call. Prior to today’s call, you have likely had opportunity to review the earnings release and supplemental slide presentation, both of which were posted earlier today. If you not yet they are available on the Investor Relations section of our website at ftcsolar.com. I am joined today by FTC Solar’s recently named President and Chief Executive Officer, Sean Hunkler and Patrick Cook, the company’s Chief Financial Officer. Before we begin, let me remind everyone that today’s discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speak only as of the current date. As such, these forward-looking statements include risks and uncertainties, and actual results could differ materially from our current expectations. Please refer to our press release and other SEC filings, including our 10-Q for more information on the specific risk factors. We assume no obligation to update such information except as required by law. As you expect, we will provide 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. In addition, we’ll discuss our executed contracts and awarded orders, and our definition for this metric is also included in our press release. With that, it is my pleasure to turn the call over to our CEO, Sean Hunter.

Thanks, Bill and good morning everyone. I’m excited to be speaking with all of you for the first time in my capacity as CEO of FTC Solar. I have had the pleasure of previously working with several members of our Board of Directors, the management team and other FTC Solar employees at other companies in the past. Prior to joining, I watched the company’s strong growth and progress and admired how it was positioning itself for the future. It’s for these reasons that I was so interested and excited to take on this new role. FTC Solar has so much growth potential. I am also genuinely excited about the role the company plays in supporting the transition to renewable energy. In short, I couldn’t be more pleased to join as CEO and spearhead the next phase of our growth and to work with all of you. Over the last 6 weeks, in addition to spending a lot of time with employees and visiting sites as well as some suppliers, I spent quite a bit of time with customers, with many face-to-face meetings. It’s clear that the long-term demand drivers for solar are in place and customers love our products. Our bookings reflect that. At the same time, there is also, frankly, a little bit of chaos in the marketplace as developers and suppliers work to navigate things like AD/CVD, WRO, polysilicon pricing, commodity pricing and logistics challenges. This is causing some to have uncertainty and push out project time lines. So we are navigating through this environment in the near-term, but hope to see some of the disruption settle as we enter the new year. Overall, I believe we are well positioned, have incredible potential as a company and are working to position the company for strong long-term growth. We…

Thanks, Sean and good morning everyone. I’ll provide some additional detail on the third quarter performance and outlook. And as a reminder, our year-over-year comparisons reflect a significant amount of growth in our personnel and corporate infrastructure ahead of becoming a public company, which occurred in the second quarter of this year. These items make the year-over-year comparisons a bit less meaningful. Beginning with the results for the third quarter, total revenue was $53 million, which was below our target range due to shift in production timing and the resulting revenue recognition between quarters. This revenue level represents an increase of 5.8% compared to the prior quarter on slightly higher product volume and higher ASP and a decrease of approximately 11% compared to the third quarter of 2020 on lower product volumes. GAAP gross loss was $8 million compared to $16.1 million in the prior quarter, driven primarily by lower stock-based compensation relative to our first quarter as a public company and lower logistics expense on fewer deliveries and compared to a profit of $2.9 million in the prior year period, with the difference driven primarily by a strong ramp-up in employee count and other overhead expenses to support the company’s growth trajectory. Logistics impact of $6 million in the third quarter was lower than the $12 million to $15 million indicated in the company’s guidance with a portion of that shifting into the fourth quarter, along with a shift in production. GAAP operating expense was $14.7 million. On a non-GAAP basis, excluding stock-based compensation and certain other expenses, operating expenses were $8.4 million, better than the company’s guidance range due to cost controls and timing between quarters, which compares to $5 million in the year ago quarter. The year-over-year increase was driven primarily by the necessary growth in staffing…

Thank you. [Operator Instructions] And our first question comes from Kashy Harrison with Piper Sandler. Your line is now open.

Good morning, everyone. And thanks for taking my questions. On the contracted awarded orders for 2022, how much of the $692 million is associated with 2022? And then how much is associated with 2023?

This is Bill. Kashy, we’ve got more than $350 million that’s currently set for 2022, and we do have beyond that 2022 given the additional contract as well that we talked about.

Got it. And then I wanted to dig a little bit more into the longer-term agreements that you guys outlined. Can you provide some color on how much capital you’re providing to the developer on the longer-term arrangement, how to think about the direct return associated with that capital? How are the ASPs on these longer-dated arrangements structured? Maybe talk us through some procurement as well. We’re just trying to understand the structure of these new agreements that I think are a little bit different than what you’ve done in the past.

So Kashy, this is Sean Hunker. So let me take a stab at that, and then I’ll ask Patrick to comment as well. So I’m really excited about this long-term agreement because it really locks us into an additional 1.7-gigawatt with this top-tier developer. And if you think about it, it’s going to be for us, $30 million is the fund size that we’re setting up for this purpose. And if you think about the ASPs and such, so each individual project will have its own agreement. And so we will – just like we announced that we’ve got two projects underway at about 200 megawatts. We will have additional projects over the next 3 to 4 years to get to the full 1.7. And then we will have the opportunity, if we both decide things are going well to extend the agreement further. So I’m really excited about the opportunity it presents. Patrick?

Yes. I think the one thing I’d add, Kashy, is as it relates to the contracts themselves that make up the 1.7 gigawatts, these projects are going to be negotiated in individual basis as the product is needed. So we’re not fixing price today for projects that is 1, 2 and 3 years out. We will – we’re going to price those projects similar to what we do with any other project that we have at the time in which the PO is signed.

Got it. Got it. Got it. Okay. And then you talked – thanks for all the color, all the market color, I really appreciate it. We’ve now seen projects get shipped – slipped from ‘21 into 2022. When you think about 2022, how do you think about the risk of project further delays into 2023? And do you think that the Build Back Better plan may actually unintentionally end up driving project delays as well into 2023 just given the ITC extension?

So we’re – that’s a great question, Kashy. We’re hopeful that things will stabilize a bit that having a resolution on AD/CVD, having the legislation passed. We’re hopeful that, that will cause a little bit more stability. Obviously, as we discussed, there is been a lot of chaos and uncertainty with all these factors that have caused projects to push forward into ‘22. And I guess you could say there is some risk that it would have the reverse effect and because of the ITC push some projects. But I think on balance, just having some decisions made on some of these open issues will lend itself to having some more stability in the outlook for projects. And so that’s our hope is that things stabilize a bit that we see a decision on some of these topics, and that will help us moving forward with our customer base.

That makes sense. And then just the last one for me, I was wondering, maybe for Patrick, if you could just provide us with an update on the path to profitability. You indicated you would have been – I think you said you would have been there in Q4, if not for the project delays. And so are we thinking profitability in Q2 of next year, Q3? Just any commentary at all would be very helpful. And that’s it for me. Thank you.

Thanks for the question. We’re not guiding to 2022 kind of profitability now. But what I will say is as it looks at the kind of the three main factors of our cost roadmap initiative the design-to-value, the high-volume manufacturing and the expansion of our supply contract base. Those continue to remain on track into Q3 and through Q4, timing and magnitude, all holding. We’re continuing to see those efforts muted by the increased logistics and increased steel costs. But we are extremely excited about what that – what those are going to afford for us in the future when logistics and steel really revert back to what we’ve seen in the traditional 3 to 5-year averages, so no change there.

Thank you.

And our next question comes from Philip Shen with ROTH Capital Partners. Your line is open.

Hi, guys. Thanks for taking my questions. First one is, I think you guys talked about $80 million from Q4 are getting pushed into 2022. Can you help us understand how much of that might be in Q1 versus Q2 versus possibly the back half? And do you expect all these projects to ultimately get done? Or is there a chance that some of these projects get canceled?

So the slip we’re seeing or the push we’re seeing is somewhere in the range of 60, 90 days. So we’re looking at Q1, Q2 for things that are pushed into next year, Phil. So that’s basically how it is now. The good news is that, frankly, we’re talking about pushes, right? We’re not talking about projects that are getting canceled. We’re not talking about projects that are being lost. This is simply a shift. And we’re seeing a shift, and we’ve talked to many customers over the past several weeks face-to-face. And so with all the uncertainty and chaos, we’re seeing it happen. But again, it’s not a cancellation, which is the good news.

Great. That indeed is good news. As it relates to ‘22, I know you haven’t issued official guidance, but just think back to the IPO and what your view on ‘22 revenue was and EBITDA was back then? And then now reflect on your view of ‘22 now revenue and EBITDA, given the wins that you’ve had offset in part by the increased costs and delays, are you incrementally more positive or negative relative to that kind of prior view? Thanks.

Phil, this is Sean Hunkler again. So frankly speaking, I’ve had face-to-face meetings with roughly a dozen or so customers in my first 5 to 6 weeks. And one thing that’s been just incredibly impressive to me is how much our customers like the product and really appreciate how our team stands behind the product in terms of assisting them to achieve things like the manufacturability benefit of our product and the constructability benefit of our product. And so I’m feeling optimistic based on what I’m hearing for our customers. And we talked about the opportunity now is up over 68 gigawatts. And so while I haven’t yet turned my attention specifically to the plan for ‘22, I have to tell you that I have an overall high level of optimism about the future of our business.

Yes. Phil, the one thing I’d add to that is if you think about the contract in awarded, we booked $267 million of additional backlog this quarter in an extremely difficult environment. So the highest amount of revenue booked in our history in an extremely difficult environment, we’re very optimistic on the future adoption rate of the FTC Solar tracker.

Great, thank you both. And one last one for me, as it relates to the reconciliation Bill, let’s say, it gets passed as is and we have the domestic content ITC adder. You talked about having U.S. steel relationships from 2019. What is the timing of when you could actually secure U.S. steel for the vast majority of your customers or projects? Could you do it as early as first half ‘22 or would it be more likely back half ‘22 or perhaps even 2023?

So we have – as you’ve mentioned, Phil, we’ve had deep relationships with U.S. steel suppliers dating back to 2019. In fact, last week, our COO was on the road meeting with some of those U.S. steel suppliers. We have really good relationships, and we have a lot of parts for the product that we are able to source today from U.S. steel sources. And in terms of the overall domestic content, I believe by the midpoint of next year, we will be able to source the vast majority of the parts we need for building the product in the U.S. on our domestic content.

Great. Thanks, Sean.

Sure. Thank you for the questions, Phil.

Our next question comes from Maheep Mandloi with Credit Suisse. Your line is open.

Hey, good morning and thanks for taking questions as well. Maybe just one quick clarification on the push out yet, just want to clarify, is it just one customer where you’re seeing this big push out for 60 to 90 days or is it multiple projects, multiple customers?

It’s – this overall concern about the uncertainty around items like the MRO, polysilicon pricing, AD/CVD is pretty much out there in the industry, and we’ve seen multiple customers that have basically chosen to pause or push out projects, again, not canceling, but just pausing or pushing out. And that being said, we also have customers that are moving forward. And so we’ve got a lot of things going on project-wise in the U.S. And as we spoke about on the international front, also some significant wins there as well. So while we are seeing the pushout as a common theme among several of our customers, we’re also seeing customers moving forward. And so we’re – I guess I’d say it’s a mixed bag. We’re seeing both.

Got it. And then to the extent you can kind of quantify this, could you talk about how much of these push-outs are related to shipping derivative issues versus the more domestic issues in the U.S. related to the tariffs, WRO and then more on the module side. And then what I’m trying to get is to understand when could you expect the customers to come back once all these near-term issues solved? And then maybe just wait for the shipping conditions to improve?

So I’d say it’s a bit of a mixed bag, right? Because we have – I kind of referred to the current situation is a bit chaotic, right? Because you have so many factors, this perfect storm of the commodity price issues continuing, logistics costs being at record high levels, 5x higher than they were in the past. You have all these other externalities like AD/CVD, MRO. And it’s hard to kind of segregate what – how many are related to each of those individual factors, frankly. So, I really – I wouldn’t be able to even hazard a guess there because when we talk to customers, we typically are talking about the whole – the overall market and the overall situation. So, I wouldn’t – it would be tough for me to estimate kind of what are the – what percent is due to logistics, what percent is due to the AD/CVD, etcetera. So, it’s just a sort of mix bag of things right now. And as we mentioned before, we are hoping that the decision on AD/CVD will come out this month. We are hoping that things will stabilize a little bit in terms of the power situation in China that’s impacting polysilicon. And so we are hoping moving into next year that there is a little bit more stability in some of these factors.

And on the module front, we – as Sean talked about, when we talk to our customers, there are projects that we have where our customers are just waiting for the decision on AD/CVD, so they can go procure the modules for those projects. And once they have clarity around that that is a green light for that project to go ahead and go forward. So, we expect after the AD/CVD decision for supply – our customers to come back to the table once they have the ability or know the purchase modules.

Got it. I appreciate that color there. Again, it sounds difficult to put a number to that. And just last one for me, just on the working capital that improved this quarter, how should we think about that in Q4 and Q1? Thanks.

Yes. From a working capital perspective, obviously, we continue to focus on liquidity for the company. So, with improvement with more known with our customers, we have better payment terms with our contract manufacturers, and we can continue to grow and have payment history with them. We are able to kind of continue to expand those – that working capital need, but really a huge focus for us. As we have kind of reiterated at every earnings call that we have had, our liquidity, we believe provides us with a differentiator in the marketplace. And having that strong balance sheet allows us and affords us to do different things, but also allows us to weather any kind of short-term dislocation storms without having to go out to the market in times where capital may not be as favorable, and we can continue to run our business and really focus on creating the long-term value for the shareholders rather than trying to raise capital.

And Maheep, this is Sean. I would add to that, that the competitive advantage of a strong balance sheet really manifested itself this quarter in the deal that we struck for the 1.7 gigawatts. It’s the strength of our balance sheet that allows us to do things like that, that we think provide a competitive advantage and access to additional projects.

Got it. Thanks.

Thanks Maheep.

Thank you. Our next question comes from Adhok Bellurkar with Bank of America Securities.

Hi. Thank you. Good morning and thank you so much for taking my question. Just wanted to understand one thing that you mentioned about the revenue shift between third quarter and fourth quarter, and it may be semantics, but you mentioned that some of that is due to production shift. So, does it mean any production hiccup at your end, or was it more to do with the customer choosing to defer the order?

From a production – no, it was not a customer-driven event. It was a production event at the contract manufacturer. So, there was no delay or cancellation from the customer’s perspective. It was really just a push from Q3 to Q4.

Yes, so basically steel.

Got it. Understood. And presumably, that won’t be impacting fourth quarter?

Correct. That revenue was pushed and it will be recognized in Q4.

Got it. Thank you. And then just was also curious about your South Africa and Australia projects. What’s the expected timeline for those projects? And how do the unit economics for those projects compared to your U.S. projects?

So, those projects are underway. We have had multiple calls with the EPC and developer in both Australia and in South Africa. And we are really excited about those projects moving forward. In particular, the South Africa project is AgriSolar and its related to a local university there. So, it’s really – it’s a new area for us, and we believe it’s going to lead to some other more significant projects as well in South Africa. As you know, we have been in Australia for some time working on projects. And so we are really excited about the increase in the size of some of the more recent projects that have been awarded. But yes, we continue to be excited about the opportunities for FTC Solar in the international market.

Got it. Thank you. And with respect to shipping and logistics costs, you mentioned that compared to the $12 million to $15 million that you were expecting in third quarter, the actuals were $6 million, and then fourth quarter, you are expecting lesser impact. So, could you just elaborate a bit more? I know some of it is due to Breakbulk, but exactly what were the initiatives that led to that reduction?

Right. So, for Q3, we guided to the $12 million to $15 million of logistics impact in which we saw a $6 million impact. We saw about a $3 million to $5 million impact just due to timing and some of the delays of logistics of that push into Q4. So, it was really just a push of the costs from Q3 to Q4. We expect a good majority of our freight to be on Breakbulk shipping – or is on not expected to be with a limited amount on container-based freight. And that’s consistent with what we have discussed in previous earnings calls with Q1 and Q2 being on the Breakbulk shipping method rather than the container-based freight. And we are really excited about the opportunity that that gives us, because it gives us and our customers price certainty on the logistics front, whether it takes away the variability and having to discuss additional logistics costs to our customers and to the Street.

Got it. Thank you. And last one for me, and then I will pass it on. Just with respect to the design-to-value initiative. You mentioned that it’s been showing results in third quarter and would also continue to improve. So, I am curious, when we think about fourth quarter and gross profit, particularly for the product part, not the services, which has the logistics impact. Should we be expecting positive gross margins there? What kind of range are you – do you have in mind there?

So, we are really happy with the results we have seen from the DTV or design-to-value initiative. We saw several million dollars of benefit in the previous quarter, and we expect to see benefit in the coming quarter. And so we expect to see continued progress in gross margin. And frankly speaking, I think we will see – I am very optimistic about next year as well. But we are seeing very good results from that initiative in terms of looking at the – every aspect of the product and every opportunity that we have to engineer it and engineer our costs, but also engineer a better product. So, we are seeing really good results from DTV that are indeed helping us from a gross margin perspective.

Got it. Thank you.

Thank you.

Thank you. Our next question comes from Pavel Molchanov with Raymond James. Your line is open.

Thanks for taking my question. At a time when input costs are obviously a problem for everybody. I thought I would ask about the status of the software solution and what you are seeing in terms of customer uptake and willingness to pay extra for that?

So – thanks very much Pavel. That’s a great question. This is Sean Hunkler, again. So, as we mentioned in the discussion earlier, we are very excited about the fact that we have signed our fourth contract on the SunPath software solution. The SunPath software solution is great for the customer, because it will allow them to build the project as they plan and see additional yield or it allows them to actually build a smaller project and achieve what’s been targeted for output by using the added enhanced efficiency from SunPath software solution. And so we are seeing a lot of interest in the market in terms of SunPath. We have other ideas as well for future software offerings in addition to SunPath. We think this is a great growth area for the company. It’s really a win-win because it offers an advantage to our customers, but it’s also great for FTC Solar in the future. And we see this as a continuing growing area for the company.

Right. Following up on ‘22, again, recognizing you are not giving formal guidance at this stage, but is it fair to say that the geographic mix of your sales next year will be more international than what perhaps you would have expected, let’s say, six months ago given the – some of the policy variables in the U.S. that are not manifesting themselves overseas?

So, we see – Pavel, we see a great opportunity internationally. And we believe if thinking ahead that you will definitely see a significantly high growth rate, because we are obviously starting with a relatively low base in terms of international projects this year. But definitely, you will see an increase in our international projects. And we are very excited, as we mentioned in what’s going on in Australia, what’s going on in South Africa. So, that’s absolutely a fact. And you are right. And those projects are not necessarily subject to some of the challenges that we faced in North America. That being said, though, the vast majority of our projects today are here in the U.S. And next year, that’s probably going to be the same way in terms of the vast majority being here. But you will see, I think a significant increase percentage-wise in what we are doing internationally as well. And there is a lot of good momentum in both Australia and South Africa, but there is also some good momentum, and the team is doing a great job in the Middle East as well, and I expect some good things happening there, too.

Very good. Thank you, guys.

Thanks Pavel. Thanks for your questions.

Thank you. Our next question comes from Moses Sutton with Barclays. Your line is open.

Hi. Thanks for taking my questions. On the large 1.7 gigawatt of multi-year agreement, how are you quantifying the expected ASP for bookings prices before you know what ASP will be? Are you sort of using the first projects and then just using that to price it for the bookings purpose?

So, what we are doing in terms of the – like we said, we booked 200 megawatts of those. As we look outward for the ASP, we are taking an aggregated view. Obviously, we expect the ASPs to come down with logistics and steel prices as those things start to fall. So, we assess the value of that took an aggregated approach based on a forward-looking view of where ASPs will be.

Great. That makes a lot of sense. And then on that idea of where ASPs are next year, any sense you can quantify for us how much has been pushed through for, let’s say, the bookings that are next year versus legacy ASPs, call it, six months ago, even anything directional or percentage-based cents per watt anything?

So clearly, logistics are still a challenge. We are using the Breakbulk method, as Patrick talked about, and that’s starting to yield some great results for us as a way to combat logistics. We also are working very closely in the U.S. to see what combination of rail and trucking makes the most sense for domestic products. So, we are trying to do our very best to sort of optimize our performance given the challenges. In steel, you see that internationally, if you look at some of the methods associated with steel pricing. Steel pricing, it seems to be turning from its peak internationally. It’s still going up in the U.S. So, it’s going up at a decreased rate from where it was before. So, we are hopeful that next year, we will see some more stability and more normalized performance from these factors that contribute to our costs. But it’s hard to predict, but we are doing everything we can by expanding the number of steel suppliers we have. We are looking closely with logistics, what’s the landed cost of steel to a project in the U.S. and where does it make the most sense to source from. But it’s hard to predict exactly what’s going to happen next year. But hopefully, some of the signs we are seeing will lead to some more normal circumstance in those areas.

And just to reframe that one a bit, how has pricing actually changed into next year? That’s really what I am getting at. So, we have moved to this environment over the recent months, especially since the IPO. We have heard about some competitors raising prices. Just curious on where next year’s bookings are on a per watt basis on a unit basis relative to what your pricing was six months to nine months ago.

Yes. I mean from a pricing perspective, ASPs obviously have increased with the cost of logistics and the cost of steel. I think it’s a good reminder. We are bidding projects out six months or nine months, specifically into 2022 with indicative pricing. And based on how we engage with the customer, we are changing the price of that project or cost of that project on a week-to-week basis. So, we are not locking in price six months or nine months into the future. We are giving indicative bids in pricing. And as the market changes are able to update our price accordingly so that we are not held on underwater projects.

Great. And last one for me, any chance you could share how many megawatts that Australia project is?

Yes, Australia project is above 40 megawatts.

Excellent. Thank you.

[Operator Instructions] Our next question comes from Jeff Osborne with Cowen & Company. Your line is open.

Yes. Thanks for squeezing me in. A couple of questions. One, maybe following up on Moses’ question around pricing, can you give us a sense of perspective of the $350 million bill that you referenced for ‘22 that’s in the backlog? How much of that has fixed pricing that you have locked down versus the flexible approach that you just alluded to?

Most of it – our customers are very understanding of this difficult market. So – and for the most part with our customers, we are working through this and using a model that helps us recognize the dynamic situation and how pricing continues to increase. So, most of our customers are quite attuned with the situation and are working with us.

Right. And if you think about it, it kind of goes back to the comment I made for Moses’ for the projects that are fixed, those are with really kind of signed purchase orders and anything else would be available to be moved.

Got it. And then two other ones. On the abrupt push-outs that you referenced, so I am just curious, is it projects that were already under construction that are just pausing midway or is this all sort of new development that maybe folks hadn’t locked in panels or experiencing issues and just procuring them?

So, for the most part, these are projects that are not yet underway that are being pushed out. Projects where the panels have been secured, those continue to progress. And the type of projects that are getting pushed out are basically projects that haven’t yet began construction.

Makes sense. The last question, I probably missed this, but the $30 million that you are committing is associated with the 1.7 gigawatts, it was unclear to me, how are you going to actually recoup that capital back? Is it – as they take delivery, they are sort of overpaying and in essence, rewarding you back for providing that development capital to begin with?

That’s correct. Structurally, we get a lean on the projects. They are using it for kind of middle to late stage development prior to construction and our capital gets taken out with construction financing. So, these are all projects that have a PPA, have interconnection, have land associated with them, and we are kind of coming in and providing some of that middle to late stage capital for the project and ultimately get taken out with construction financing. So, very kind of short duration if you think about kind of the cycle times of these projects.

Got it. That’s helpful. That’s all I had. Thank you.

Thank you, Jeff.

Thank you. And I am currently showing no further questions at this time. I would like to turn the call back over to management for any closing comments.

Great. This is Sean Hunkler again. And I would like to say thank you all for joining us today and your interest in FTC Solar. I am very excited about the long-term prospects of FTC Solar and the progress we are making, including the significant growth in demand for our trackers in the marketplace. As evidenced by our backlog, our international expansion and our cost reduction program that is just getting started. I look forward to keeping you all updated on our progress in the quarters ahead. Thank you very much.

This concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.