FTC Solar, Inc. (NASDAQ:FTCI) Q1 2024 Earnings Call Transcript

FTC Solar, Inc. (NASDAQ:FTCI) Q1 2024 Earnings Call Transcript May 10, 2024

FTC Solar, Inc. beats earnings expectations. Reported EPS is $-0.06985, expectations were $-0.09. FTCI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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.

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