Good afternoon, and welcome to Shoals Technologies Group First Quarter 2023 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Mehgan Peetz, Chief Legal Officer for Shoals Technologies Group. Thank you. You may begin.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me are Interim CEO and President, Jeff Tolnar; and CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including the guidance regarding full year 2023, are not guarantees of performance or results. Actual results could differ materially from our forward-looking statements if any of our assumptions are incorrect or because of other factors. These factors include, among other things, the risk factors described in our filings with the Securities and Exchange Commission as well as economic and market circumstances, decreased demand for our products, policy and regulatory changes, industry conditions, current macroeconomic events, supply chain disruptions and availability and price of our components and materials. Although we may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. We caution that any forward-looking statement included in this discussion is made as of the date of this discussion and do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Jeff.

Thank you very much, Mehgan, and good afternoon everyone. Shoals had a fantastic first quarter, and I'd like to express my gratitude to our employees, partners, and especially our customers for their support and contributions to our success. I'll start with some key highlights from our first quarter results, followed by an update on new product introductions, other growth initiatives, and an overview of our pending patent infringement complaint filed last Thursday. I'll then review current solar-market conditions and wrap up with a brief update on the CEO search before turning it over to Dominic who will provide an overview of our financial results for the first quarter and updated outlook for 2023. Shoals set new records for revenue, gross profit, adjusted EBITDA, and adjusted net income in the first quarter. Compared to the prior year period, first quarter revenue grew 55%, driven by increased demand for solar EBOS generally, and our combine-as-you-go system solutions specifically. We also achieved new highs for monthly and weekly production, demonstrating our ability to continue scaling for growth. First quarter gross margin grew more than 720 basis points to 45.9% and adjusted EBITDA margin expanded more than 1,000 basis points to 34.4%. The margin growth we achieved in the first quarter was driven by a higher mix of system solutions revenue, greater leverage on fixed costs, and enhanced operating efficiency resulting from the operational initiatives we discussed last quarter. The demand for Shoals products remained very strong, and we ended the quarter with record backlog and awarded orders of $527.5 million, an increase of 75% year-over-year. In fact, during the quarter we also saw an acceleration in quoting activity with both quotes submitted and quoted values hitting new records. Solar-related quotes increased 56% year-over-year and 57% quarter-over-quarter. System Solutions revenue nearly doubled, growing 95%…

Thanks Jeff, and good afternoon to everyone on the call. First quarter revenue grew 55% versus the prior year period to $105.1 million. Similar to prior quarters, our higher sales volume was primarily driven by strong demand for our combine-as-you-go EBOS system solutions, which comprised 87% of our revenue versus 69% in the prior year period. Gross profit increased 84% to $48.3 million, compared to $26.3 million in the prior year period. Gross profit as a percentage of net revenue grew more than 720 basis points to 45.9% compared to 38.7% in the prior year period. The increase was driven primarily by a higher proportion of revenue from the compan's combine-as-you-go system solutions, which carry a higher margin than our other products as well as increased leverage on fixed costs and efficiencies gained in operations, which Jeff mentioned earlier. First quarter general and administrative expenses were $20 million compared to $13.9 million during the same period in the prior year. The year-over-year increase in general and administrative expenses was primarily the result of higher non-cash stock-based compensation, and increases in payroll expense due to higher headcount supporting growth and new product initiatives. I would like to call out that approximately $2.4 million of the year-over-year increase in G&A expense was related to stock-based compensation for our prior CEO's transition. Net income was $17.0 million in the first quarter compared to $4.6 million in the prior year period. Adjusted EBITDA increased 119% to $36.1 million compared to $16.5 million in the prior year period. Adjusted EBITDA margin increased over 1,000 basis points year-over-year to 34.4% reflecting the impact of higher gross margins and leverage on G&A expense. Adjusted net income grew 163% to $23.8 million in the first quarter compared to $9.0 million in the prior year period. During the quarter,…

Thanks, Dominic. I would like to close by again thanking all of our customers for their confidence in Shoals, our employees for enabling us to effectively serve our customers and our shareholders for their continuous support. Momentum is incredibly strong following phenomenal results in 2022 and the first quarter of 2023. With continued robust demand for solar, successful new products and sales initiatives and increasing operational efficiencies, I'm incredibly optimistic about what we can achieve in the coming quarters and could not be more excited about the opportunity ahead. And with that, thank you everyone. I appreciate your time today. We will now open the line for questions.

Thank you. [Operator Instructions] The first question comes from Philip Shen with ROTH MKM. Please go ahead.

Hey guys thanks for taking my questions. Congrats on the strong results. First question is on your backlog and awarded orders. Was wondering if you might be able to share the mix for the quarter. And then also can you talk about the bookings trend that you've seen since March? How has the momentum been in April? And then finally, we noticed a small update in the release around your backlog and awarded orders. Was there a change in your disclosures or methodology? Thanks.

Hey, Phil, this is Dominic. Let me start with that one and I'll kind of go in reverse order. First of all, yes, I'm eagle eyes here. I think you've noticed that we have a little bit of a change as we align some of our earnings release more with SEC guidance with regards to disclosures, but we did not have a change in our methodology. It's just incremental disclosures that are in the press release now. I think you probably saw footnote also with a non-GAAP measures and things that we've now started doing. But the reason we're doing that is because backlog and awarded orders are such an important part of our business kind of an indicator of the health of the business and future revenues. And as a reminder, we do expect a vast majority of backlog and awarded orders to ultimately become revenue and typically a nine to twelve month window. With the trends, we are not talking about anything in second quarter at this point in time Phil. But we are pleased that I think as you saw from where we were from the last quarter's release from the year-end to now, we talked about achieving record levels early in January and it did continue throughout the quarter as we built to the $527.5 million that we ended on March 31. And with regards to the mix, I believe we've got our Q filed out there now. I'll have to come back to you on that one as I look for that information. I just don't have it right in front of me at the very second. So if you can give me a minute, I'll try to find that when we go into another question.

Okay, great. Thanks Dominic. Great job on the margins as well. So I think you guys hit close to 46%. What should we expect in terms of margins for Q2 and beyond? Is this the new run rate?

Yes, so yes, we're very pleased with the margin. I think as you recall, Phil, you've been following the company for a long time and you recall last year, there were some challenges that we had in the first half the year with regards to gross margin. And so I'd really characterize it as kind of the normal level that we would expect to have achieved based on this level of mix. In fact, if you go back to 2021, when we had a similar mix of system solutions revenue and components, you saw a very comparable mid 40s margin. Now, there are some planned investments and I've guided to some things that we are making in the COGS side. We still have some investments that we're making against that. So I'd be cautious to say that there is a guidance that we're going to give quarterly going forward about what gross margins are. But we do expect a very healthy mix of our product system solutions versus components going forward. And overall, we did, as you saw in our guidance range, we've now lifted the total EBITDA margin accordingly as well, up to 250 basis point improvement in our EBITDA margin. So yes, we're very pleased Jeff and the team operationally. We achieved some of our operational efficiencies at a little bit ahead of schedule. And so with that, we wanted to pass that along and raised the guidance for the full year.

Great. Great job again. I'll pass it on. Thanks, Dominic.

You got it. Thank you.

The next question comes from Mark Strouse with JPMorgan. Please go ahead.

Yes, good afternoon. Thanks for taking our questions. So kind of following up on Phil’s question there on the backlog. So historical conversion 9 to 12 months out or so, sitting here in early May should we assume that kind of going forward, you're filling in for 2024 now, or is there still potential that you could sneak in some deliveries in '23?

Oh, yes. It's definitely the latter. We believe that we are a position to still fill out the back half of the year. And that's one of the things that why we say typically in 9 months to 12 months, there are, I think in the past, we've characterized it as a kind of turn and burn deals that we can get done pretty quickly. And with the mid-year guidance range, when we come up to the second quarter earnings release, at that point in time, we'll feel like we can tighten the revenue projections even further. But at this point in time, we still have the opportunity to get some of the deals done in 2023.

Okay, that's helpful. Thank you. And then just following up on your commentary on the ITC case, understand you're probably limited and how much you can say there. But any color you can give investors as far as kind of what a potential timeline and kind of bookends for that might look like. And then just a more general kind of update on the competitive environment would be helpful. Thank you.

Yes, Mark, thanks for the question this Jeff. As you mentioned, we are in active litigation. So I'm somewhat limited on what I can say. What I will emphasize is that we have spent a significant amount of time and financial resources in the company over the years building our IP and much of our IP is foundational to our product sets into the market. We are still predominantly a domestic solar company that has recently expanded internationally. And the competition that we're seeing is our foreign-based competitors coming into the domestic market, and we hope that the ITC will protect our IP and continue to support domestic manufacturing and job creation. Competition in general, I would say is actually very similar to what we saw during the IPO. We continue to look at the marketplace. We continue to look at competition in the respective regions in which we operate. And overall, we feel that our solution speaks for itself and our results speak for themselves as far as our competitive viability.

I'll take the rest off line. Thank you.

If I could jump in real quickly, just to answer Phil's question on mix, it was about $300 million of awarded orders and $227.5 million of the backlog.

And then next question comes from Andrew Percoco with Morgan Stanley. Please go ahead.

Great. Thanks so much for taking the question here. Just one quick follow-up on the last question around the patent portfolio. Can you remind us of what the duration, how much time do you have left before some of those key patents expire, if you were to win the ITC case?

That's good question, Andrew. And I think I'll have to get back to you on the specific time duration. But I do believe it is close to a decade of longer runtime on those foundational patents. So it's a fairly substantial amount of time. But we’ll get back to you on specific timeframes.

Great. Thank you. And maybe just one quick follow-up on the battery storage side. What are you seeing there in terms of backlog growth and booking growth and opportunity? Maybe attaching solar with the battery storage BLA product?

Yes, a few things in there. One is that we've seen an increase in attached storage in the solar deployments in which we participate. That's one. The second is we are producing to the one gigawatt order we received late last year. And we've added staff in the storage part of our business and our increasing quotes and overall proposal activity, as new purchase orders come in. So we're really encouraged about the direction that's heading and feel that the Shoals has a strong position to differentiate in that market as well as the others we’re in.

Great. Thank you.

The next question comes from Maheep Mandloi with Crédit Suisse. Please go ahead.

Great. Good evening and thanks for the questions here. Just a question on the new products, BLA+ and others. How should we think about the ASPs and margins for those versus the current portfolio? And is there any upside in your contract of backlog to convert some of the BLA to BLA+ or other projects?

Yes hi Maheep, this is Jeff again. BLA+ is on target with the numbers that I presented at the end of fourth quarter, which I believe is 10% to 20% incremental ASP due to the overall mix of offerings within that bundled solution. The sales to date have met that target. The margins are consistent with what we've grown to enjoy with BLA. So you won't see any erosion from that perspective. And as far as timing and upside go, projects that are already in backlog and awarded order are for our traditional BLA. The quoting activity, which began earlier this year includes BLA+ and our traditional BLA.

Just on the awarded orders in the pipeline for you, what's the duration of revenue recognition for them? Is it in the 2024, '25? I just want to understand your comments on UFLPA and bookings should we see all of the new bookings this year to be -- when should we see the revenue recognition of new bookings this year?

So I'll go first on the revenue recognition piece because typically, as we've talked about, once something is awarded orders, we see about a nine to 12 month period of time on average, when something becomes awarded before to actually recognize as revenue. And for us, with revenue ASC 606, we have revenue recognition that allows us to look at contract by contract. But mainly when we complete production in our facilities for most contracts, some contracts is when we actually ship products. So it's about a nine to 12 months for what we talk about backlog and awarded orders. So the $300 million of awarded orders at the end of March, you would typically start that nine to 12 month window. Now as we talked about, I think with Mark's question, it was also, hey, some of that can come in earlier? Yes, it can. And in fact, following an announcement like we just had with our patent infringement, we might have customers coming to us and saying, "Hey, can you do something for us yet this year?" So it is always possible to accelerate, assuming that we can get the materials to do the work. With regards to where we're quoting now then, the majority of the combined backlog and awarded orders is still going to be recognized in 2023 because we just put in a $105 million quarter, and we're guiding to $480 million to $510 million in revenue. So the vast majority, for example, the backlog is expected to be fully drained as we replenish the backlog because those are contractual items that we're ready to go with. So over time, we are booking further out into the future, but we're -- as Jeff mentioned in his remarks, our quoting activity for the pipeline is up significantly as well. So we are -- that's why we could feel very confident that the solar industry is doing very well. And for Shoals specifically, we're very pleased with our sales activities.

Dominic, if I can add one more point, Maheep. If you look at Slide 34 in the deck, which is the slide we've used for a while, that gives a nice pictorial view. But I would add, as Dominic said, our time durations are really a curve, some projects and project types come in much quicker and some come out a little bit further based on the planning stages of the EPCs.

Got it. I’ll follow the rest. I guess congratulations on the quarter.

The next question comes from Brian Lee with Goldman Sachs. Please go ahead.

Hey guys, good afternoon. Kudos on the nice execution here. Maybe first question for you, Dominic. You mentioned some COGS investment that you're going to be making here over the next few quarters. And so just based on kind of how you're changing guidance for the year. It does seem like margins may be downtick a little bit here going forward. Can you elaborate a bit more on what those COGS investments are going to be? And then maybe quantify a bit? Is it 100 basis point drag? Is it 200 basis point drag? And what time frame do you kind of recapture that?

Sure. So a couple of things. One is we've talked about as we look at our facilities, and the need to look at the future. We're planning on growth. We haven't really come back to you and the broader community yet about what the multiple 3-year plan looks like from this point. We're in the third year of the IPO materials. So we've talked about the need for facilities. While it's very likely that much like last year in the first quarter, when we had some unproductive new facility costs up in the COGS line that we may be having some of that in the back half of this year. As we look at facilities, we look at where we are in Portland and our capacity; we're looking for capacity to make sure that we can meet demand going forward. So that would be one that would impact COGS. We have to recognize that expense as it's incurred. There's no full amortization of it with a rent or anything like that. There's a few things from a timing standpoint internally that we're making investments with our own team and wages. It's just a normal cycle. So from a plan standpoint, it didn't happen in Q1, it was planned to happen in Q2. So those are some things that are being invested in. We haven't given guidance specifically to what the margin is going to be. But you're right to infer that there's going to be an expected slight decline in the gross margin side of the business in the back half.

Okay, fairenough. I appreciate that color. And then I guess as you alluded to the 3 to 5 year growth plan, you guys are investing for that, and I would assume a lot of that has to do with as much solar but non-solar, the battery storage, the EV charging and so forth. Is there any sense you can provide whether it's backlog and awarded orders or some of the accelerated quoting activity you mentioned on the pipeline sort of what percentage mix you're seeing in terms of solar versus non-solar, just as we try to get a better handle of what that non-solar growth opportunity and what the time frame is going to look like for that? And any metrics around that would be super helpful.

So I'll go. I would say.

Go ahead. Go ahead. Well, I was going to just going to say...

All yours Dominic.

Okay. This time I'm going to run with it. Let me go first and then you can jump right in. A couple of things. One is the domestic solar industry has kind of exceeded expectations that were laid out for us a couple of years ago. And we are very pleased with the relationships, the adoption of our products and services with our customers. And so we're very pleased with the growth levels that we've seen. And so I think that since the predominance of it has grown and has outpaced expectations for the past 3 years that we want to make sure that we give the appropriate level of attention and dedication to that aspect of the business. With regards to some of the others, I'm going to let Jeff talk about some of the multiyear strategies that are underway with our Chief Product Development Officer and other things there. So Jeff, I'll turn it over to you now.

Yes. Thanks, Dominic. And Brian, a couple of things I would mention. One is that domestic solar is still the predominant driver of our business, as you would expect, considering the domestic growth in solar as a whole, we've looked at the different analyst firms that are projecting growth over the coming 3 to 5 years. Domestic is still planned to be strong growth curve. We launched 4 incremental growth pillars at our IPO. We still believe that those 4 growth pillars are foundational. They're all launched and they're all progressing. Our goal is to continue to drive them into a broader towards mass or growth segment of their development curve. As we continue to look at additional incremental offerings that we're also excited to be able to announce with our strategic plan. And I've been asked in the past, well, who's doing the big thinking and it really is -- it's a broader function within Shoals. We have our Chief Product Officer, John Hass, who came in with us from the ConnectPV acquisition. John is the Chief Product Officer, leading the initiative, but really, we look at anybody that faces the customer the market as the inception of ideas and then our engineering team then turns those into offerings. So overall, we feel very, very good about the future of the business. And as domestic solar continues to grow, we have -- we think we've got some great growth pillars to complement that.

Okay. Thanks guys. I’ll take it offline.

And the next question comes from Jordan Levy with Truist Securities. Please go ahead.

Afternoon all. Maybe just a quick follow-up on the last question on non-solar. Just wanted to see if we could get a little more detail on how you're thinking about the Brookfield partnership in terms of whatever you might be able to say there and any sense of timing for that over the next few quarters?

Yes. Thanks, Jordan. I'm really excited about that one. Brookfield, as you know, is a very strong company domestically but also internationally. We're partnering with Brookfield Renewables. They will be the counterparty for us. So Shoals will sell its solutions to Brookfield and then it will be an open ecosystem offering that will be bundled into Charging as a Service. So the team, if you will, will go to property owners, will go to city charge point operators, fleet operators. And then if they desire to shift rather than spend capital upfront and have operating expense via the driving deployment method for their charging systems than Brookfield has the means to be able to do that. When I said open ecosystem that involves the OEM charging companies that we want to partner with and pull into this ecosystem and also EPC partners. So we believe that it's going to have a very strong presence in the market and we will start to impact the market this year.

Appreciate that. And maybe a follow-up more on the solar segment side. I just wanted to get your thoughts around how the international expansion efforts are going? And if that's playing out kind of according to your expectations and how you're thinking about that market as it stands today versus domestic?

Yes. I would say consistent with our report in fourth quarter, our market focuses are certain countries in Europe, Australia, Latin America, we've continued to hone in our product offerings where we feel we have a right to win with certain offerings. The quoting activity is progressing. The order flow is starting to occur. It's still a tremendous market from a solar standpoint. So we still believe that it is the right market for us and we've got a right to play. I do intend to add resources this year so that we can further expand. And as I also mentioned last quarter, we are starting to look at facilities so that we can fulfill customer orders when they occur.

Thanks so much.

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much guys. With the EV charging solution, can you talk a little bit about what you're seeing from a project flow perspective? How many of these products are being gatekept by funds out of the IIJA or any of the IRA tax treatments that folks are wanting for clarity on? Any color you can provide on that is helpful.

Yes. I would say to date, I would say the IRA is not driving much from the EV charging world. It's still the infrastructure funds that are the primary drivers on school bus electrification and the NEVI grants. That's the corridor charging across the country. We're seeing a significant amount of not just quoting activity, but project flow in those 2 areas. And then fleet still continue to be a very strong segment as they start to then determine how they're going to electrify their fleets away from either compressed natural gas or diesel. So those are the primary drivers though in the segments.

Okay. That's helpful. And then given the shortness of skilled electricians, working on infrastructure projects right now, can you talk a little bit about how you're approaching pricing and how much pricing power you think you have here?

Yes. I don't know that I would couple pricing with labor shortages. So we work really closely with our EPC partners. They've got visibility into their project teams in 12, 18 months, sometimes 2-year windows. They know what their capacity is, and they know what team sizes they need. We get pulled in really early on a project cycle. As Dominic mentioned, 9 to 12 months from the time we get in awarded order, it's even longer than that from the time we're providing firm quotes to customers. So by the time the EPC is hired, they began ramping their crews and then Shoals gets involved. So what I would say is EPCs come first in a project and then Shoals comes thereafter. And then panel availability and other macro factors that we tend to talk about are quite a ways down the road. So the EPCs and the developers have learned quite well now how to negotiate some of the headwinds that they saw last year with UFLPA and some of the other macro events, they're getting quite good at filling out the right paperwork, making sure the documentation is correct, choosing the right panel providers and so on.

Okay, thanks so much guys.

The next question comes from Kashy Harrison with Piper Sandler. Please go ahead.

Good afternoon everyone and thanks for taking the questions. So first one for me, Jeff, you indicated that solar quotes were up 56% year-over-year and I think 57% quarter-over-quarter. Would you say those quotes are indicative of the U.S. market growth? Or are your quotes that much higher because of your current solar EBOS offering now covers, I think, $0.024 per watt versus $0.02 a watt last year?

Yes. The quoting activity is global. That's first. It includes some of the additional projects that were launched. From a volumetric standpoint, there is some upside in the average quoted price. But it's also important to note that the number of quotes has also increased at similar levels. So it's really both, Kashy.

Okay. Fair enough. And then maybe just taking a look at Slide 25 of your investor deck. So the current EBOS offering is now $0.024 per watt. That's up from the last deck and you show that you're still targeting about $0.011 per watt. And so that $0.011, is that the IV curve benchmarking and high-capacity plug and play that gets you there? Or are there additional products that will be launched next year that gets you to the balance to fill out that pie chart?

It's the former. It's the two products that we've announced that are in slide. We feel we can get the lion's share of that targeted product category. Now remember, too, though, that there's going to be an adoption curve for each of them. The one thing I really like about IV trace is that it can be deployed in existing fields. It's not just a new growth opportunity.

Got it. Thanks for that. That’s it for me. Thank you.

The next question comes from Donovan Schafer with Northland Capital Markets. Please go ahead.

Hey guys, and thanks for taking the questions and congratulations on the quarter. I want to start off. So I was at the ACT Expo last week, clean energy fleet stuff. And you guys had a booth there, and it was really great. I got to see one of your sales reps do fantastic job, a consultant came up basically to the booth and said, I've got a problem. I'm trying to do charging in a parking structure here in California. And I can't touch the concrete because it's prestressed -- or sorry, pretension rebar. And when it's pretension rebar, which apparently is a big deal or common in areas prone to seismic activity, it's not that trenching has been very expensive. It's that, at least based on this particular consultant, it's not even an option. So -- and then you have the -- with Australia, there you talk about being hard rock and that I know it's already a pain as it is to drill into rock when you got to drive the piles, let alone, I could only imagine trenching. So I'm wondering how often does it come up? Are there other things kind of off the radar maybe you haven't thought of yet where -- whether it's on the EV charging side or on the solar side, it's not even about choosing between options, but where really a non-trench solution is for all intents and purposes, the only option. Just anything you can elaborate on there that I realized I missed this thing on the concrete. So I'd be curious to learn about anything else.

I love your question, Donovan. And if you're looking for to consult our sales team, happy to have you do that. They -- it was a great event last week, and we were really thrilled with the way the market responded to Shoals. One you brought up specifically is retrofit. We believe that is one of our strengths. And until we got UL certification in the third quarter last year, we really didn't start to push that as much because we needed to be, if you were behind the fence. But now that we have UL search, that's picking up quite a bit of momentum. And that's mostly cities and state type opportunities that are driving that. But now there's also property owners that are coming around. When you look at the different opportunities fundamentally, what Shoals does is deliver electrons, whether it's AC power or DC Power. We do it in a very efficient and effective ways, and we do it above ground. So whenever you think of a solution that requires electrons, and it has some kind of inhibition of digging or mounting in a landfill or whatever the case may be, Shoals is a perfect opportunity. Whenever there's a one for many, that's our big lead assembly. Our trunk and our caps off of that, Shoals has an opportunity. So it is -- we do focus on solar. We're focusing on EV but remember, too, that everything we create, we look at other markets and adjacencies that we might gain. So you're spot on, Donovan and also considered endangered species because we're not trenching and digging underground, we're also helping to protect the environment in that way.

The next question comes from Vikram Bagri with Citigroup. Please go ahead.

Good afternoon everyone. Apologies if I missed this. Can you quantify in any way the impact of lower raw material costs on gross margin? How much of that was perhaps due to improvement in prices versus better negotiated contracts? It seems other drivers of gross margin that you talked about operating leverage and higher efficiency are all sustainable. I was wondering how much of the contribution came from lower raw material costs and how sustainable that is.

Yes. We didn't disclose -- we don't disclose the breakdown of the various components of our cost of goods sold. But we did make some comments last year about some specific challenges with regard to raw materials input and how that was a negative drain on the margins last year. And we had to intentionally go in and change the pricing model to recover from that. So there were some gains. And so when we talk about a disclosure of "pricing" which is it's very hard to say pricing in our environment because all of our solutions are bespoke and custom for the customer. So it's very difficult to say, here's a SKU that was sold at $1 last year and $1.10 this year. So we did take some corrective actions there. But we haven't disclosed anything with specifics regarding materials. On the last half of the year, we did talk about some opportunities we had to purchase wire at a discounted price. But at this point in time, I would suggest that we've gone through that wire because we typically don't stockpile lots of wire. We typically buy when a backlog job and a purchase order comes through is typically when we secure our materials. So if there was a onetime lift or the specific lift for materials, we really look at the cost of replacing our raw materials and price value based off of that to maintain our margins.

Understood, thank you. And then you talked about acceleration in quoting activity. It has been asked and answered multiple times. How much of the activity I was wondering is happening ahead of domestic content clarification? And I was wondering if we'll see a step change in backlog once the guidance is released. And on a related note, you guys filed an application seeking clarification on 45X credits also, if you can talk about how meaningful that can be and what the expectations are from there?

Yes. I'll hit the quoting comment and perhaps Dominic can hit the RECs credit comment or question. Vikram, as you mentioned, the quoting volume increased, we haven't broken out specifically for what purposes. But in general, what I would say is when you look at our quoting volume increase, it's now a combination of domestic plus international plus new product offerings. So those additive factors are by default going to add to the overall quoting value. And our goal is to continue to win business. So that's the direction that we hope to continue on.

And with regards to credits associated with the IRA and what's going on, from a production standpoint, there's very little that we'd be doing to qualify directly for any sorts of credits. We are not in that space. Our customers, however, would receive lots of benefit. And that's where all -- the rising tide raises all boats it's great for the industry. It's great for folks to pursue those credits, and therefore, solar projects have a better return for our customers and their owners.

The next question comes from Joseph Osha with Guggenheim Partners. Please go ahead.

Hi, thanks. Just to follow up on that previous question, there had been some discussion earlier that you might find a way to wedge your manufacturing operations into some sort of crevice in the language on the 45X direct credits. So you're telling us at this point that that's no longer a likely option?

Until we get very specific guidance, the expectation is still the way we understand it is that most of what the credits will apply for are for the customers purchasing our goods. There are some things that we're talking about. For example, when I talked about expanding our capacity, there are very specific capital expenditures that would qualify. But it's not like we're going to go off and build a new building. In fact, I think buildings are expressly written out of the credits. So we are very capital light. So that's what I was saying, the vast majority of the credits aren't going to be direct benefit to us. Yes, there are some that can help us and we'll look every possible angle. Of course, we will. But most of the credits seem to be for the customers themselves, and that's where they're looking for the domestic content to qualifying and get the maximum credits.

Sure. Okay. And an unrelated follow-up, I heard U.S. LPA come up a little bit ago. I'm just wondering if you can share any updated feedback you're getting from your EPCs about how panel -- the panel clearance environment is? Thank you.

Yes. So far -- thanks for the question, Joe. We've not seen an impact on our projects from UFLPA. It's still a significant issue and the market needs to continue to monitor that. But I would say so far that the operators that are making the panel decisions have done a very nice job in filling out the proper supporting materials and making sure that the documentation is completed on time and as expected. And then also making the right panel decisions in anticipation of that issue. And also, we're -- like I said, we're so far ahead of when the panels get deployed. In all likelihood, they've already made alternate arrangements, which then we can accommodate in our design because we are panel-agnostic.

The next question comes from Christine Cho with Barclays. Please go ahead.

Thank you for taking my question. In your presentation, it seems that your time line is getting a little longer from when you get an awarded order to EBOS. I don't know if I'm just reading too much into it, but before it was 8 to 11 months, now it's 8 to 13 months. Could you talk about what's driving that? And if you see risk for this getting extended? And I'm guessing this time line is for solar in the U.S. So is this time line the same for your non-solar products and internationally as well or is it longer or shorter?

Christine, there's a few things I'll point out, and thanks for the question. What we tried to do in this version of the deck is try to expand the range because it really is a range. The larger projects, the 500 megawatts/gigawatt projects are going to be longer in duration. They're more complex designs, they take longer and they're just more of a time cycle. The smaller projects tend to be much more rapid that we can turn more quickly. When you look at international projects, they tend to be on the smaller cycle size or cycle times. So it is a blend. It's a mix. It's hard to encapsulate it all into 1 page. We've tried to do that while providing a range but not having a range that's kind of silly because it's so broad. So I don't know that I'd read too much into it, Christine, and happy to discuss further offline if you still have more questions.

Okay. And then it also looks like you give a final quote 7 days before the PO, which is when it becomes the purchase order and goes into backlog. Does the quote move around much between awarded order to purchase order? And in the event an awarded order doesn't convert, what usually is the reason?

Yes. The quotes will move around. They'll move around because of commodities. They'll move around because of design. I won't put a percentage on it because there are some that get larger, some get smaller but they -- when you look at the grand picture or the total scale of things, they always tend to center around a center point. The predominance of the orders that are awarded orders do become backlog. And we've always treated them as a bundled view because when we get awarded, that's when we start doing a lot of detailed work arm and arm with the EPC. There's substantial time and effort spent with the EPC to finalize that design. And if they were to change direction and not proceed, it's a lot of wasted time and effort for them. So we've always treated awarded order as something that is incredibly important in our cycle, and that's why we report it as such. And then the final PO to the final quote comes 7 days after the final quote. So that allows us to better understand and quote for the commodities data that's in and along with the final design. Is that helpful?

The next question comes from Brett Castelli with Morningstar. Please go ahead.

Hi, thank you. Just with respect to your 2023 sales guidance. Can you give any color in terms of what percentage is coming from repeat or existing customers versus new customers?

I don't think we've guided that way. I know historically, we report out kind of customer with mix. And we are expanding the number of EPC customers all the time. So I would characterize it as the vast majority of our business is repeat known but we're continuing to add smaller EPCs. Originally, I think you saw where we targeted the top 10, and got 9 out of the top 10. And then it was the top 15 and top 20. So I would characterize it generally speaking, as it's folks coming back and continuing to buy for the next projects.

Okay, thanks Dominic. And then just on the BLA+ product and the adoption curve that you expect there, when would you expect that to be the majority and overtake the existing BLA in terms of new customer orders?

Yes. What I would say is that every solar project needs the components that are provided in the BLA+ bundle. It's a matter of whether those customers procure those from Shoals or not. We feel our bundle has a strong position and could merit that conversion. But I would also say that BLA+ is not a cannibalistic product to BLA. So it really could be that BLA continues for a long duration of time. If an EPC is very comfortable with the method of hanging the wires, the messenger wire, the tensioning kits and the wire hangers, if they've already got a comfort there, then it may take longer. If they don't have a solution that they feel meets their needs and they're looking for one company to procure from then Shoals has the answer. So in short, it's going to take some time. We expect to see some near-term wins to follow on from the one that we just announced. And as we start to announce those and they get further traction, we'll provide more visibility.

The next question comes from Derek Soderberg with Cantor Fitzgerald. Please go ahead.

Yes hey guys. I'll keep it to one here. Jeff, I believe you mentioned that order flow starting to occur internationally. Curious what's working for you guys there? And what are the challenges that might have held you guys back internationally in terms of growth before? And what are you doing different that might be helping? Thanks.

Yes. Thanks, Derek. What's working is the breadth of our portfolio. If you recall, we've got our component solutions, which is Shoals has been in the market with for a very, very long time domestically, but then we also have the full system solution. In the different range of deployment opportunities in the markets where we've chosen to enter Europe, LatAm, Australia, some of those projects fit components business better than a full system solution. So the fact that we better understand those markets now, we've been in market for 12 to 18 months. We've got feet on the street deployed. Now we're really understanding what parts of our portfolio are best to compete and win in their respective markets. So I would say that's what we've learned, and that's why we're starting to see more orders materialize.

Got it. Thanks guys.

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.