FTC Solar - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $13.2M, at the high end of guidance, with sequential growth of 30% and YoY decline of 43% due to lower product volumes; GAAP diluted EPS was a loss of $0.96 and Adjusted EPS was a loss of $0.80.
• Results vs Street: revenue beat S&P Global consensus ($11.6M*) and Adjusted EPS beat (-$0.84*), while EBITDA (S&P) was modestly below (-$11.9M* vs actual -$12.7M*); company-reported Adjusted EBITDA loss improved to -$9.8M (S&P Global estimates*).
• Backlog and bookings momentum accelerated: contracted backlog ~$502M (+$67M POs, -$65M adjustments since Nov 12), plus new multi-year awards including a 5GW Recurrent Energy supply arrangement, 333MW GPG Naturgy (Australia) and 280MW Rosendin (U.S.).
• Liquidity improved: quarter-end cash $11.2M; received $3.2M earn-out post quarter; upsized promissory note to add $10–$15M; ~$65M ATM capacity remaining.
• Near-term catalysts: Q1 2025 revenue guide $18–$20M (+~44% q/q at midpoint), domestic-content capability orders ramping (100% domestic content expected available in Q3’25), and management targeting quarterly Adjusted EBITDA breakeven in 2025.

What Went Well and What Went Wrong

What Went Well

• Record commercial traction: 5GW supply arrangement with Recurrent Energy across U.S./Europe/Australia, plus 333MW GPG (Australia) and 280MW Rosendin (U.S.) awards; management: “we have had a number of recent wins and are building momentum”.
• Sequential improvement and cost discipline: revenue up 30% q/q to $13.2M; non-GAAP OpEx reduced to $7.4M (lowest since early 2021); Adjusted EBITDA loss improved to -$9.8M vs -$12.2M in Q3.
• 1P product adoption and installation efficiency: CEO reiterated Pioneer 1P enables 30–40% faster installs, safer workflows, and ~$0.03+/W installed-cost savings; “one of the most automation-friendly trackers” and SunPath software providing monetizable value.

What Went Wrong

• Negative margins persisted at low scale: GAAP gross margin -29.1% and non-GAAP gross margin -25.6% as volumes remained insufficient to absorb fixed indirect costs.
• YoY declines: revenue -43% YoY and non-GAAP gross profit swung to a loss vs prior-year profit driven by lower volumes.
• Scale headwinds and project timing uncertainty: management noted exposure to timing of individual projects and back-half weighted profile; Q2 2025 trajectory uncertain (“could be up, could be flat”) before ramp in back half.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the FTC Solar fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press Star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star one one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President of Investor Relations. Please go ahead.

Bill Michalek (VP of Investor Relations)

Thank you, and welcome everyone to FTC 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 ftcsolar.com. I'm joined today by Yann Brandt, the company's President and Chief Executive Officer; Cathy Behnen, 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 FTC 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 Yann.

Yann Brandt (President and CEO)

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. 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. 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. I am pleased to say that we have had a number of recent wins and are building momentum. On our last call, I highlighted a 500 MW supply agreement with Strata Clean Energy, a new 1 GW supply agreement with Dunlieh Energy, additional detail on a 1 GW agreement with Sandhills Energy, a $15 million note placement, and a $4.7 million cash earn-out 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, 5 GW 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 U.S., 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 Naturgy, 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 MW project award from Rosendin, a top five EPC and the largest employee-owned electrical contractor in the U.S. The project, which is located on the U.S. West Coast, will also utilize our 1P Pioneer solution and is expected to begin tracker production in mid-2025. Fourth, on top of those wins, we have also continued to strengthen our positioning and talent, including the appointment last month of solar industry veteran Kent 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 are 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 earn-out on our investment in Dimension Energy, and we upsized our note offering, which will bring in up to an additional $10 million-$15 million in the coming days. 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 GW 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 Kent 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 timespan.

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 bottomed 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 breakeven, and become a strong and significant competitor in the industry. With that, I'll turn it over to Cathy.

Cathy Behnen (CFO)

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-GAAP 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 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 12th, 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 earn-out 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 $50 million from the note offering in Q4 and will now receive up to an additional $10 million-$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-$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-$2.3 million, or between -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. As Yann mentioned, we continue to expect to achieve adjusted EBITDA breakeven 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.

Operator (participant)

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Philip Shen with Roth Capital Partners. Your line is open.

Philip Shen (Managing Director)

Hey, guys. Thanks for taking the questions and congrats on the strong bookings momentum in this difficult environment. I wanted to talk through some of that, specifically on Recurrent. 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. Is it more dominated outside of the U.S., or is it a U.S. kind of centric agreement? You talked about the first project being put in place in the back half of this year. Which geography would that be? 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 (President and CEO)

Good to talk to you, Phil. Yeah, I mean, look, we're really excited about the partnership with Recurrent. Ultimately, it came down to, to answer the last part of your question first, we do have a really wide product set, having a really strong 1P offering now that's latest to market, really easy to use. We have the 2P product that we're one of the few manufacturers in the world that has it. 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 U.S., Europe, and Australia. US and Europe are likely to go first based on the work we're now doing in terms of engineering and design.

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 U.S. Obviously, from our standpoint, our preference is our goal is to supply the best product we can to wherever Recurrent is developing and 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 sort of environment in terms of wind loads and other technical considerations.

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 sort of pipeline and bid rate is, which is 85%-90% 1P.

Philip Shen (Managing Director)

Okay. Thanks, Yann. 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? If so, what needs to happen? What needs to happen in order to hit those expectations, and then what are some lines of potential risk? Thanks.

Yann Brandt (President and CEO)

Yeah, we certainly expect the year to be back half-weighted, right? This is a commercial focus of deploying 1P and getting contracts signed. Certainly, we're working with our developer partners in 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.

Philip Shen (Managing Director)

Okay. That would suggest Q2 might be more flat versus Q1?

Yann Brandt (President and CEO)

I think I don't want to overpromise for Q2. The way that I would think about FTC is every single project matters. If one project pulls in, it could be up, it could be flat, but the optimism is quite strong. We're focused on the execution side of the house and getting to breakeven, EBITDA breakeven by the back half of the year.

Philip Shen (Managing Director)

Got it. Thank you. 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. I was wondering if we should expect this kind of train of agreements to continue as we get through the first half of the year.

Yann Brandt (President and CEO)

That's certainly the expectation. Bringing Kent 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 Dunlieh and Sandhills to help early-stage engineering. I think we'll have continued demand of folks to do something on the early stage, these supply arrangements or MSAs or purchase orders or 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 sort of 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 in 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. 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.

Philip Shen (Managing Director)

Great. Okay. Thanks, Yann. I'll pass it on.

Operator (participant)

One moment for our next question. Our next question comes from Jeff Osborne with TD Cowen. Your line is open.

Jeff Osborne (Managing Director)

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 had talked about 30%-40% faster, if my memory is right, but that was under a prior management team. What's the pitch these days?

Yann Brandt (President and CEO)

Yeah, the pitch is there's a duality, right? I'll sort of put all of those under the umbrella that it also has a safety component to it, which is an important one, obviously, because no labor is faster if it's not safer, right? 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%-40% remains true. Depending on where the project is, there's also the ability for lower-cost labor to be used for particular 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.

You could see three-plus cents a watt of benefit by using Pioneer. We're certainly working to continuously improve the process and bring some lean 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 return data to each EPC. 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. As they use it once, people get comfortable with it, and then they start recognizing opportunities to optimize.

That is the stage we will be in over the next 12 to 18 months as these EPCs trial a product. The 1P product, they will start seeing opportunities to win more work with it.

Jeff Osborne (Managing Director)

That's helpful. Just given 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 sort of target gross margins for the business? I know you're not giving revenue guidance, but three, five years ago, people in the industry would say they're sort of a low 20s gross margin prior to the IRA. What do you think FTC's gross margin entitlement is longer-term?

Yann Brandt (President and CEO)

Yeah, I mean, I think without getting specific and just getting sort of qualitative on it, our track on margins is in line with our peers. Obviously, where do we have differentiation that's sort of 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. Also, from a volume standpoint, there's obviously some room to make up on our side. I think the important one is sort of 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 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 is learned by our partners, both EPCs and IPPs, that's going to give us a little bit of pricing room. Ultimately, right now, we're competitive. Our gross margins will increase as our volume increases, certainly. We see ourselves in line with at scale being able to be competitive with our peers.

Lastly, one thing we do not 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 is 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 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 SunPath, and I wouldn't underestimate the value it brings in the long run to gross margins.

Jeff Osborne (Managing Director)

Perfect. 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 or two? What's your supply chain management in light of the tariff environment and just price volatility in general, what your exposure is, etc.?

Yann Brandt (President and CEO)

Yeah, our exposure is quite limited. Ultimately, as a company, we secure our steel right when sort of the purchase orders are negotiated. There is really, it is a back-to-back procurement nature. It is probably if at much higher volumes, you have much greater exposure. There is always the discussion of what can you pass on and what cannot you pass on. The reality is every single cost that increases on a project, whether it is tariffs or commodity, often those two things are linked. The project itself needs to continue to pencil. Everyone is 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 costs of projects. From an exposure standpoint, I would say it is zero to limited. We certainly have not had meetings internally where it is a great concern to us.

We update it with each of our proposals.

Jeff Osborne (Managing Director)

Perfect. That's all I had. Thank you.

Operator (participant)

Again, ladies.

Jeff Osborne (Managing Director)

Thank you.

Operator (participant)

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. I am 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.