Good day, and thank you for standing by. Welcome to the FTC Solar First Quarter 2024 Earnings Conference Call. [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.

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 are posted earlier today. If you've not reviewed these documents, they are 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 the 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 except as required by law. As you'd expect, we will 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. 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.

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 10 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 tracker 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…

Thanks, Ahmad, and good morning, everyone. I'll 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 volumes. 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 4 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 2 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…

[Operator Instructions] And our first question is going to come from the line of Philip Shen with ROTH MKM.

First one is on the back half. You talked about hitting breakeven in Q3 and then profitability in Q4. As it relates to the Southeast Asia AD/CVD and the challenges that might come from that. To what degree is there a risk from those projects that you need to hit in Q3 and 4 that they could get delayed by the new tariffs?

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

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

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

Thank you for this question again. Cathy, why don't you give some color?

So yes, so we are giving net booking numbers, but we are not -- we don't really break that out. But we are -- we have never had any significant contracts pulled out. Sometimes small ones, but we've not done any significant drop out of our backlog.

Our next question will come from the line of Pavel Molchanov with Raymond James.

Let's zoom in on Q3 when you anticipate EBITDA approaching breakeven, what kind of gross margin does that assume?

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

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

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

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

Yes. I will get Patrick to answer that.

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

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

Patrick?

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

And our next question is going to come from the line of Sameer Joshi with H.C. Wainwright.

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

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

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

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

Yes. Let me -- I'll take this one. This is Ahmad. Thank you, Sameer. So the -- there's 2 ways. One is to control the overhead costs, not reduce it, but control it. And as volumes expand to be careful of how we expand that overhead costs, like services in the field and so on and so forth. But the vast majority of that gross margin improvement comes from unit cost reduction like bill of materials, value-added manufacturing and logistics.

Great. Great. And then just one last question. In the income statement, there is a $4.1 million gain from disposal of investment. Can you give us -- tell us what it is?

Cathy?

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

Our next question comes from the line of Jeff Osborne with TD Cowen.

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

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

That's helpful. Just going back 6, 9 months ago, Patrick and the team were a bit maybe overly specific, but I think there was reference to like the Cat Creek project in Idaho and then some agri photovoltaics in Italy and some potential projects in Spain. I was just wondering if you could update us on where those stand. And then specifically in Italy, I think the government is looking to possibly shut down the agri PV sector as a whole. And so I wasn't sure if there's any notable backlog in that vertical, just given that, that was a focus of the prior...

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

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

Great. And then 2 other just rapid fire ones. Ahmad, how do you define high wind? Is it 120 or 140 miles an hour?

I define it as 135 and 150.

Got it. That's helpful. And then is there a bias to pay bonuses in Q3 or Q4? Or have you accrued for either period?

I'll get Cathy to answer that.

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

Our next question comes from the line of Kashy Harrison with Piper Sandler.

So just a few ones for me. Could you, first off, remind us on the definition of the contracted backlog? And then can you also give us a sense of what proportion of this backlog, you would say, is fully derisked from a permitting perspective, interconnection, financing, high-voltage, critical equipment panels. Just trying to make sure that the customers have what they need to move forward with these projects.

All right. Patrick, why don't you answer this question?

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

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

And I'm showing no further questions, and I'd like to hand it back to management for any further or closing remarks.

Bill?

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

This concludes today's conference call. Thank you for participating. You may now disconnect.