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Participants

Bill Michalek; Investor Relations; FTC Solar Inc

Yann Brandt; Chief Executive Officer; FTC Solar Inc

Cathy Behnen; Chief Financial Officer; FTC Solar Inc

Sameer Joshi; Analyst; H.C. Wainwright & Co., LLC

Graham Price; Analyst; Raymond James & Associates, Inc.

Presentation

Operator

Thank you for standing by. My name is Louella, and I will be your conference operator today. At this time, I would like to welcome everyone to the FTC Solar third-quarter 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to turn the call over to Bill Michalek, Vice President of Investor Relations. Please go ahead.

Bill Michalek

Thank you, and welcome, everyone, to FTC Solar's third-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 yet reviewed, these documents are 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 Business Development.
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 we 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

Thank you, Bill, and good morning, everyone. I'm pleased to speak with you all today on my first official earnings call as CEO. I'll focus my comments on the state of FTC Solar and my observations overall as well as a few updates and then turn it over to Cathy to review the financials.
Throughout my career, which is taking me across the solar and storage industry, people seem to primarily only remember how things end up and the successes we realized, not necessarily how they start. In the case of FTC Solar, I see my tenure starting with a company with a solid foundation made up of a great team and complete portfolio of tracker products and the potential to be enormously successful.
While revenue is at an inflection point with (inaudible) filled in with customer additions, both individual and portfolio projects, I believe the company is in an enviable position in many respects. This includes having a product set with features that customers love, a business they enjoy working with, and a cost structure poised to enable strong margin growth and profitability. In addition, the company now has a compelling and expanded product set in the 1P or 1 panel in portrait market that opens up the vast majority of the market that wasn't available to the company in the past.
In aggregate, I believe the company is in a strong position as it relates to some of the most critical aspects of the business and has had some recent business successes.
Here at about the 90-day mark of my tenure at FTC Solar, I've met with dozens of customers, prospective investors and, of course, employees. I want to thank all of those constituencies as well as the Board of Directors for the fantastic welcome and the candid feedback and advice I have received, which I can tell you has been heard and very much appreciated.
All of those conversations and my work before and during my time here have led to a few observations. But before I share these observations, I want to share an exciting update, which is that FTC has entered into a binding agreement to add additional liquidity to our balance sheet. This capital will be valuable improvement to our capital structure that was a missing link to some commercial opportunities in the past. This capital, in addition to the ability to convert inventory into cash, strengthens FTC and provides additional comfort that we're a tracker supplier that our customers can continue to rely on.
Now turning to the observations. First, I believe FTC is now at an inflection point, thanks to the enormous traction in our 1P positioning and sales efforts. Over 70% of our bookings are now 1P Pioneer product. That compares to 1P revenues of only 16% and 30%, respectively, in Q2 and Q3.
It's well documented by now that the company has been out of position in the marketplace by not having a complete product portfolio, inclusive of a single row 1P tracker available to the market, underscoring the importance of having innovative product market fit. While it has taken some time for the company to bring a compelling 1P solution to the market, introduce it to customers, get several projects in the ground, expand the offering and build a pipeline, the company has now done just that and is poised to prosper and expand in 2025.
In fact, we now have our most complete 1P product portfolio, which is quite robust. Since our initial launch of the 1P, we have introduced high wind offerings that now extend up to 150 miles per hour, compatibility for all module types, including ultra large format and Series 7 with the ability for their contractor and asset owner to make changes to model specifications late in the design process, and multiple features to reduce cut and fill which would fall into the train following category, including a dual row option, to name a few.
We have spent most of this year working with customers to ensure we can support diverse sets of type conditions, including the various wind, module and terrain conditions customers may need. I believe we can now address the vast majority of the 1P market and, importantly, address all of those projects that asset owners are looking to invest in. We have transitioned from a 2P-only company to one that is balanced with compelling 1P and 2P solution and can provide the optimal solution for each customer site, significantly increasing our total addressable market in the US and key global solar markets. Think about it, we essentially opened up roughly 85% of the market by aggressively expanding into 1P.
I believe the company's 2P product has always been top tier, and we're the clear market leader in that segment now more than ever. In fact, 70% of our current purchase orders are now 1P and more than 80% of our outgoing proposals are 1P. I'm convinced that this compelling product line will enable us to gain real market share in several of the market segments and geographies in relatively short order.
The second observation is that many customers find us amongst the easiest with which to do business. They value the relationships and experience working with our team. These relationships rooted in collaboration and decades of experience in the solar industry, aligned with a deep understanding of what it takes to get a solar project built and operate for the long term.
Customers do not want a duopoly. They want a healthy, robust, and competitive tracker module, which supports competitive pricing, improved customer service experience and continued innovation gives them more option. Several customers have shared examples with me where the FTC team has gone above and beyond in one way or another, engaging with customers in ways that our competitors either can't, don't or perhaps no longer do.
Lead times and support times matter, but it's more than that. FTC is a brand reputation much bigger than its current footprint and well-regarded products and service. In my opinion, there is nothing stopping us from being one of the clear leaders in this industry.
Third, our current quarterly revenue levels are also at an inflection point. While the company has had good amount of contracted business overall and is winning new business, the near-term revenue run rate has been low. Even though we are poised to grow much faster than the market, getting from purchase order to the start of deliveries is a process that takes time. We are beginning to see 1P revenue make its way into our financial performance, but it is the start of the turn from this inflection point.
We have many projects in flight and are working to increase our contracted backlog actively to enhance the volume of throughput. This low run rate means we are also currently not absorbing our fixed costs. We must give our team more overall volume to work with.
Our cost structure is good and the breakeven revenue level is relatively low. So there's not a large ramp needed to get to profitability, but we're not there yet.
As for capital, being new to the business, I have had a wide aperture as it relates to what option to consider -- from traditional fundraising to perhaps something more strategic. As I mentioned, today, we announced we have entered into a binding term sheet with an investor group for the company to issue a five-year promissory note in the principal amount of $15 million. This transaction is expected to close by the end of this month.
As Cathy will discuss, we also received an additional $4.7 million in cash after the end of the quarter from an earn-out on a prior investment. These items, along with the cash on the balance sheet, inventory and $65 million remaining on the ATM, puts FTC in an improved capital position going forward, providing the bankability that our customers want to see from us.
Fourth, our solutions are widely viewed as easier, safer and faster to install, driven by a significant innovation from key product features. Many of you may have seen our customer comments recently in press releases or social media referencing us having one of the fastest and easiest trackers to install. These are comments I continue to hear from our customers and prospects. For some, it's a matter of cost and labor efficiency. For example, a leading EPC shared that the mechanical installation of our tracker in their view is much faster than our competitors and results in significant savings.
Safety is a significant factor of importance for all of our partners. Our features focus on safety by minimizing activities that can cause injuries and removing dangerous pinch points throughout the system.
I'm sure many of you may have seen our videos on the LinkedIn page or YouTube, showing how quickly and easily one can hang modules on our tracker. The crew just lays that panels down, draping them like a picture frame. This is our slide and glide technology. Folks on the other side are quickly securing them with a rubber mallet made possible by our cinch clip as opposed to having people hold the modules and threading and securing bolts.
When taken in aggregate, the ease of module hanging, less work at height, pure connection points, no specialty tools and less torquing, for example, are found by customers to be easier, faster, and safer for their crews. This can result in less time training new employees, more projects that can be completed in a year, doing our part as a key vendor to improve safety and worker injuries on solar projects. Easier, faster and safer impacts the entire life cycle from training to project completion and safe costs throughout, making projects more profitable and possibly higher cost projects economical.
One final observation I wanted to share is that we are poised to achieve quarterly profitability in 2025. We have an excellent product cost structure that enables strong margins. I know the company has discussed in the past all the work that is done as part of the design to value and design manufacturing process. So I won't rehash that. But the work is now paying dividends to set the company up very well for the future. The direct margins on projects are healthy and will enable strong gross margin improvement as the top line scales, driven by recognizing our already signed bookings as well new (technical difficulty) we will continue to add.
We also have an efficient OpEx structure that doesn't sacrifice service to customers. The timing of the profitability depends on our growth in 1P and customer project timing. I'm going to resist putting out specific timing for the moment, and I'll avoid throwing out aggressive targets. But I'm confident in our positioning and that we can see strong improvement in our results as we move forward.
Before I turn it over to Cathy, I want to highlight some of our recent successes and momentum. First, towards the end of the quarter, we signed a multiyear supply agreement with Strata Clean Energy, a development EPC and O&M leader in the solar industry. The agreement is for at least 500 megawatts of 2P trackers and could expand to more than a gigawatt. They have said great things about our trackers and service, and we are honored to have their endorsement and continued business.
Second, after the end of the quarter, we signed a 1-gigawatt supply agreement with Dunlieh Energy. The first project under that agreement is a 500-megawatt project under development in Nebraska with tracker deliveries expected to begin in the second half of 2025. Dunlieh is a new customer and we are excited to work with them.
Third, we were recently able to share additional project details on the existing 1-gigawatt agreement with Sandhills Energy. We have previously announced a 225-megawatt project in Butler County, Nebraska; and we're able to share that we'll also be supplying nearby project of 320 and 448 megawatts, respectively. Tracker delivery on those projects is expected to begin in the second half of 2025.
And finally, after the end of the quarter, we entered into a binding term sheet for the $15 million note placement I mentioned, and we received $4.7 million cash earn-out from our previous investment in Dimension Energy. Dimension is a community solar developer in which the company invested $4 million in 2018. FTC subsequently sold its stake in 2021 for $22 million and has received earnouts of an additional $9 million since then, including the $4.7 million received in October. So not a bad result so far earning $31 million on a $4 million investment, and we're eligible to receive up to another $5 million based on their performance through the end of this year, which would be paid out in Q1.
So in summary, as I take stock of our position as a company, I believe that we are in an incredibly fortunate situation in many respects and in one of the most critical aspects of the business. So yes, our revenue is at an inflection point, and we need to fill gaps in project timing. But I also see us having an enviable position as it relates to having products that customers love, a business they love to work with, a cost structure that will enable strong margin growth and profitability, and now we complete 1P product set that opens up essentially 85% of the market that wasn't available to us before. That's a pretty awesome position.
Our stock price isn't yet reflecting this position or our potential. But as I said at the outset, people often forget where we start and only remember the successes we have from here. We'll see how it plays out this time around, but I'm optimistic about our future.
With that, I'll turn it over to Cathy.