FTC Solar, Inc. (FTCI) Earnings Call Transcript & Summary

Thank you, everyone, for joining us at the Barclays CEO Energy and Power Conference. In this session, we have with us FTC Solar. We have Anthony Etnyre, CEO; Patrick Cook, CFO; and IR as well. Without further ado, I'll pass it to Tony who can go through the presentation. Thank you, Tony.

Thank you, Moses. Appreciate the time, and good morning to everyone. I'm sure you've all seen the forward-looking statements comments. So I'll skip through those and get to the meeting of the presentation. My name is Tony Etnyre. I'm the CEO of FTC Solar. I have been since March of 2019, but I was a part of the startup of the company in 2017. Historically, worked in both the solar and semiconductor industries after spending some time in the Army. I'll be speaking today in a one-on-one. Patrick Cook, who's our CFO, who's got a significant amount of structured finance and renewable energy finance experience, will be with me in the sessions throughout the rest of the day. And then also on the page is T.J. Rodgers. T.J. is the Chairman of our Board, has been the Chairman since start-up, was one of our initial investors in FTC. And I'm sure you're familiar with T.J. and his work with Enphase. Recently, he launched a stack with Enovix, the battery manufacturer, historically worked with SunPower. We're really excited to have T.J. as part of our team and Chairman of our Board. I'll go through some background on the company, talk about the market, our technology specifically and talk about why I believe that we're growing the way that we are, and then provide some highlights on our financials. So we started FTC up in 2017. We started up with a group of renewable energy experienced team, and that team had experience in designing power plants in building single-access trackers and constructing power plants. And so we built a company really with the single access tracker as the backbone from a revenue standpoint of the company. I'll talk about that in great detail. Recognized as having industry-leading installation speeds. We also add to that software solutions, both algorithms that improve the production of this plant as well as design, automation, capability in software and then project and portfolio management in Atlas. And then with our engineering experience and our legacy of building solar power plants, we provide additional engineering services around optimizing site layouts and array designs, providing that value-added service to our customers. So we're more than just somebody who's dropping steel off and providing a track. We want to be a full-service partner to our customers. Our installed base is just over 2.5 gigawatt since our first installations in late 2019 across the 3 products, a significant customer base. We've grown the company to over 200 employees from the 28 at started the company in 2017. And I'll talk about our tracker portfolio, which is -- which backs up our technology, both on the tracker and our software. 2020 revenue was $187 million 2021 revenue target, you'll see the growth year-over-year is $310 million minimum is what we communicated in our last earnings call. So again, we're primarily a solar tracker provider, a single access tracker in comparison to the fixed tilt alternative for utility scale installations. Tracker because it's moving with the sun, provides 25% more energy up to 75%, lower levelized cost of energy, and you'll see in the market data, a significant shift to tracker as a base platform to utility scale. Ours is a 2-in-portrait product. We selected 2-in-portrait for really 4 key focuses. The first is higher design flexibility, better site accessibility, higher panel density. And I'll go through those in detail in a second. But also for bifacial panels, so solar panels are collecting light on the front and backside of the module. The 2-in-portrait platform performs better than the 1-in-portrait platform. And so as the growth of bifacial panels is prevalent in the market we're seeing 2-in-portrait grow as well. When we thought about differentiating our product, we really went down 2 streams. The first is we wanted to have the easiest product to install. And so it's underpinned by the installation time, 40% faster, third-party verified, than the leading competitors in the market with several points of value I'll talk to in a second, and then better performance led by our proprietary software, that SunPath yield algorithm suite that we sell on top of our tracker providing up to 6% additional energy yield for our customers. We built a global diversified supply chain with sources of supply internationally that we can flex in order to best serve our customers from a total landed cost and logistics' lead time standpoint. And so we spent a lot of time building a robust supply chain across the world to support our U.S. and international growth aspirations. Think about the key investment highlights for the business. It starts with a differentiated solution. Our products leading the market from an installation speed standpoint with 40%, again, third-party verified faster time, which drives directly to our customers' labor cost advantage. We have a rapid customer adoption, which I'll demonstrate here in a second, but significant improvement or January 1, 2021, contracted and awarded was up 100% year-over-year. Through August 1, we announced our contracted and awarded increased by $485 million year-to-date. So we're seeing tremendous growth and adoption of the product. And we're well positioned in a market with a large TAM with trackers growing 3x the rate of fixed tilt because of that advantage I talked about from an LCOE standpoint and a production standpoint. For our business specifically, multiple growth drivers as we grow our share in the United States and expand internationally. We have what we believe is a best-in-class financial profile, asset-light contract manufacturing, manufacturing model, a healthy debt-free balance sheet and we have an experienced leadership team, one that has delivered solar projects historically, one that understands what the industry needs. If you look at the market, that yellow line on the left there is showing solar costs from an LCOE standpoint, using tracker now dropping 82% over time, now the lowest cost option for new installations in utility scale. And you can see the growth of utility scale has followed that as a result. If you look at that market then from a tracker standpoint in both the U.S. and the rest of world, we see high single-digit growth rates out for the next 30 years, both in the U.S. and internationally. And so we're really excited about the growth opportunity for us in the business. And then the transition to trackers underpinning that total growth in general. So trackers in the United States, growing about a 19% CAGR from 2019 to 2023 and now at almost 80% of all utility-scale installations using tracker. And as we grow our business internationally, we're seeing that growth begin internationally now -- with coming from 17% tracker penetration in 2018 to, we believe, over 30% into 2023. There's innovation in both -- in the tracker market and in the solar market, they're driving that transition to tracker. I talked about that monofacial to bifacial transition, 9% more energy in a bifacial panel. Historically, about 20% of share. But as we talk to our customers, we see significant growth. We think a 30% growth rate over time and well over half the total market by 2024. The 1P to 2P transition led by those factors I spoke to and I'll go into greater detail, we believe, growing 3x that of 1P and the transition from standard to large-format panels. So these larger panels producing up to 30% more energy. We expect to be the dominant share of the market by 2024, 85%. We won, in fact, the first award of the large format modules in the United States for a project here in East Texas, and our tracker is well positioned as that module transition takes place. Let me talk a little bit about the advantages of 2-in-portrait and then dig into the advantages of the Voyager system, in particular. So I talked about at the top, those 4 advantages of 2P versus 1P that's the bifacial energy yield and then there's design flexibility benefit, panel density benefits and site accessibility benefits. I'll give some examples of that in a second. If you then look specifically at Voyager, we built a product with a reduced part counts, fewer pile foundations, fewer points of connection. Our fostering architecture has less wiring in order to string a site together. We have industry-leading installation speeds again up to 40% faster. I'll show some examples of our high slope tolerant where we can handle up to 17.5% grade without any changes to our standard configuration, and again, our performance enhancement software, up to 6% higher yield when you look at the advantages of the SunPath solution in both diffuse light conditions as well as terrain -- high terrain undulation conditions. So let me dig into some examples there. The design flexibility and panel density you see examples of 1-in-portrait solution versus our 2-in-portrait solution, both on the left and right. As sites become more constrained as the shapes become more nonstandard, the advantages of that short, dense platform, 60 meters for 120 modules for our platform, 120 meters for 120 modules for 1-in-portrait platform allow us to build 8% more power in that site but do that with 3x the amount of cost-efficient rows. So full rows, fully amortizing the cost of expensive motors and controllers and actuators, and we do with fewer foundations. You can see in this example, over 1,000 less than 500 for our solution, significant advantage in difficult site conditions. Site accessibility is a benefit of a 2-in-portrait tracker. For a given panel density or ground coverage ratio that we talk about, that's just the percentage of ground that's covered by solar panels when they're flat. You get twice the rows [ base ]. That's important during construction as you're trying to move in stage material, that's important during O&M as you're moving around the site to check on the site, to perform maintenance on the site, ease of use, no physical barriers when you compare it to a 1-in-portrait linked-row solution. They have a physical barrier in the middle and a very tight pitch for the same given ground coverage ratio. Digging into the Voyager's specific advantages. This is examples of the reduced part count. So you can see the number of posts or pile foundation for Voyager against the leading 1-in-portrait and 2-in-portrait competitors where we have advantage. Number of connections per row, that's just piece parts to put together to build an individual role, including nuts and bolts and connectors and main structural pieces, significantly advantaged in the design of the Voyager system. The direct current collections advantage. If you look at a 3-string tracker, that's 3 1,500-volt strings of panels versus a 4-string tracker. Our configuration with a gap at the center and our configuration to pull those strings together allows for the same installation with up to 25% less wire that drives installation costs, that drives copper material costs and allows us to be much more efficient than a 1-in-portrait tracker, which is going to have a kind of an orphan string that you have to pull with a long haul cable to connect to the other 2. And key for us is our focus on installation speed and driving our customers' labor costs. As you can see from 2015 to 2020, that chart on the top left, the equipment cost improvement as a percentage of the total stack has been material over time. What's gone up is the percentage of labor from 22% of a full cost to 35% in 2020. So we wanted to really attack that installation cost. That chart on the top right shows Voyager's man-hours per megawatt to install 211 against the leading competitors, both 1-in-portrait and 2-in-portrait. And that's meaningful for our customers. That drives significant labor savings, and we believe it's between $0.015 and $0.02 a watt of construction cost savings relative to other options in the market. And I know our customers are willing to pay for that. One of the things that's underpinning that installation speed is a patent-protected speed slot. You see that picture in the bottom right where you can drag and drape a module on our tracker just like you hang a picture on a wall. That patent-protected speed slot is one of the key components to the differentiation of our installation's fee. High slope tolerance. Sites are becoming more difficult, undulation is difficult. One of the significant costs to deal with that is the cost of grading. And so if you can build a tracker that can be in its standard configuration up to 17.5% slope tolerance with no changes to that configuration. That's material. You can see an example on the top right, that picture is one of our sites in Oregon, built on a highly sloped terrain where the customer did not have to flatten the ground to install the tracker, saving them cost, saving them time in the installation process. And then finally, our performance enhancement software. Our modules released today are our terrain based backtracking module and our diffuse light optimization module. We're testing today a bifacial yield improvement module and then an array level backtracking module. What these are designed to do is improve the production of the site, based on that site's unique conditions for terrain and for cloud cover and then for bifacial based on the module that's selected. Our portfolio, both on the product and the software side is backed by a core set of patents. So we have patents issued for the Voyager system around our speed slot module attachment, I talked about being so meaningful for our cost savings for our customers around labor. We have patents around our derived terrain architecture. Patents around the bearing material that's used inside our system to allow for that high slope tolerance, patents run our software for diffused life backtracking and then more filed patents around our terrain-based backtracking around our partially and fully locked damping solution that allows us to deploy the product at a differentiated steel content. And then our adaptive range of motion, managing snow, sand and flood. So you keep the tracker moving above those obstructions. Internationally, we follow those patents in key markets where we think it's important. And then our software solutions, our SunDAT software solution, making sure that we have patent protection in key markets around our solution for designing solar power plants and integrating our products inside this. I think I can talk a lot about how I see our value proposition. What's important is, is that value proposition recognized by our customers? And so just from the third quarter of 2019 through today, we're now at almost 70% of the top 15 EPCs are customers of our solution. We recently added the #3 EPC in the country as a new solution, our new customer for our solution. And we're winning now with the Tier 1 EPCs, the Tier 1 IPPs and utilities which is important because as our company has grown, the credibility that the team has demonstrated for releasing a high-quality product for supporting that product well and for delivering a differentiated product is taking hold. And we're really proud of the growth that we've made in the market share improvements that have been led from that growth. How we win customers is an important discussion, I think, and you really have to be able to get your hands on a tracker product to understand its benefits. And so we have a site in Denver, Colorado, where we invite our customers and called SolarTac. It's our research center. It's our sandbox. Here's an example of where we flew out the customer, let them tear down and rebuild our products. They then awarded us several hundred megawatt project because they realize in that estimation process, the cost savings they were going to generate as a result. They've validated that on their first site and awarded us another several hundred megawatt project as a result, and we have several additional projects in the pipeline. So that's how we are winning business by demonstrating very clearly the value advantage to our customers, letting them see, touch, feel and build that product so that we can continue to grow share with -- in the U.S. and as we expand internationally and providing that same view to our customers internationally. And talk about the growth drivers for the business. There are significant market tailwinds, the transition to solar energy. I talked about the transition to tracker, the 2-in-portrait growth, the bifacial growth. Those are very clear. With us, it's about driving share by attracting new customers, by growing share with our existing customers and launching our business internationally, which we've done across 2020 and into 2021 in key markets like Southeast Asia, Australia, Middle East, North Africa, South Africa and Europe. And we're seeing our pipeline of opportunities grow as a result. And then driving the unit economics, expanding the value per unit by adding software offerings at high margin, developing new products and services and then looking at M&A opportunities to grow our business, and then increasing our operational leverage from scale. As we scale our business, we see our ability to amortize that corporate infrastructure that went in place as a part of our IPO. We're seeing our opportunity to grow in low-cost regions and really driving our purchasing leverage as we grow our business and as we grow our steel purchasing power. We believe all those drive a long-term sustainable income model and a free cash flow growth model as we mature the business. The growth of our business, can I think very clearly be demonstrated by the progress we have made from our initial deliveries in 2019 to where we sit today. In 2019, we started the year with $2 million in contracted and awarded revenue, and we ended the year with $53 million in recognized revenue. In 2020, we started at $54 million, ended the year at $187 million. I talked about that 100% year-on-year growth rate of contracts and awarded on January 1 and $109 million. We just announced that -- in our last quarterly earnings call that our target minimum revenue number for 2021 is $310 million. And beyond that, already we have $284 million in contracted and awarded revenue for 2022, with still a quarter to close on additional opportunities. So if you look at that transition from 2 to 54 to $1.09 to $2.84, I think that really highlights the differentiation of our product, the customer adoption of that product and the growth opportunity of our business as we look forward. You can see that growth rate 142% CAGR from 2019 to 2021. And the IPO has placed us in a fantastic position from a cash standpoint. So we sit in June 2021 about $150 million in cash, access to another $100 million line of credit with our banking partners and no debt on the business. So we're well positioned to continue to grow the business. We are highly focused on driving our margin improvement, driven by our cost road map. These are all what we talked about at the IPO. We've continued to update our on-track to our plan, our design-to-value initiatives, which are driving -- reducing the manufacturing costs, reducing the steel content, using new modeling techniques in order to drive improvements in our base cost structure. With our growth, we see our procurement initiatives taking hold by expanding our supply base, improving our manufacturing efficiency, moving out of tariffed regions where we're limiting the tariff implications for U.S. projects. And then with volume, we see that purchasing leverage come through. These are all well on track. We're really excited about what the team is doing for these initiatives. The logistics market has muted these fall-throughs in Q2 and Q3 as we've seen significant increases in logistics costs that have impacted our profitability performance, but we're very excited about the work the team is doing around these cost reduction initiatives. And just to talk through, again, the highlights from our second quarter earnings call. Q2 revenue at $50 million, which is the high end of our guidance range. Our first half revenue up almost 40% from the first half of 2020. We added $419 million in executed contracts including $200 million just since the last earnings call, significant acceleration in our growth. Continuing to win new customers, I talked about that top 3 -- top 5 EPC firm that we just added. Recognizing revenue on our SunPath solutions and adding cash to our balance sheet by selling the minority stake in a C&I development company which provided $20 million inflow from a profitability standpoint, which was outside of our adjusted EBITDA numbers we announced in the second quarter. And we're continuing to grow our revenue, targeting significant growth in the second half with significant progress towards profitability as we work through the logistics challenges that have faced us in 2020. We've added a -- we talked about the balance sheet strength. I want to address a little bit what we're doing in the logistics market, moving away from containerized freight into bulk break shipments where we own capacity on the vessels. We're able to then secure that capacity with fixed costs that we can work with our customers on. We limit our exposure from a steel standpoint by securing steel at the time of the customer impact. We're seeing that software revenue growth I talked about, and I'm really excited about what the team is doing on our product cost road mapping. So even in a difficult environment, I think the underpinning value creation actions of our company are taking place nicely. So if I think about the simple reasons to invest in the business, gaining exposure to the largest and most attractive part of the market, I talked about that exciting growth. The company is growing faster than the market and improving our margins as we're doing that with key initiatives that we're executing on. And we're focused on delivering strong shareholder returns. Our company is owned by our employees, and our Board of Directors. We're highly focused on shareholder value, no debt on our balance sheet, with fast growth and scale in front of us. So very excited about the company going forward. And I'll pause there and see in the remaining 4 or 5 minutes if there are any questions.

That was really excellent. There's so much can go through. We could spend the next 2 hours if we needed to, if we could. Maybe you can give a little bit more background on the software products themselves, sort of what are you solving for there? And how do you see that evolving in terms of the value proposition over time?

That's a good question. So the terrain algorithms are focused on reducing the shade from 1 tracker row to its neighbor, based on where the sun position is and what the site undulation does. And so what our system does is models that shade using our proprietary software and then designs an individual tracking algorithm for every row on the site to eliminate the shade on solar panels, thereby improving the yield. The diffused light algorithm looks at the cloudy conditions using predictive analytics and satellite imagery and then alters the tracking position to best optimize yield capture in a scattered light environment as opposed to a direct beam environment. So we've got these deployed on customer sites. We've seen up to a 4% yield benefit for that terrain-based backtracking, up to a 2% yield benefit for that diffuse light capture. And you can do a couple of things. You can get incremental revenue, our customers can by producing more power. If we're able to model this early on, which we're talking to our customers now about during the sales process, they could actually get the same production output with less installation megawatt capacity because they're getting that yield benefit. And so you could build 98% of the site and get 100% of the planned production output using these algorithms. So we're working with customers on both sides of that equation and seeing where most value can be added.

That's great. And in this environment, with some of the macro issues that's especially beneficial. And you gave some good background on how you've managed it quite well. Everything from the balance sheet to breakbulk method of shipment. And I think it was Slide 10, where you gave a great overview of how you manage supply chain. Is there anything there either that you want to mentioned that -- other than the breakbulk shipment that's differentiated or anything else you're working on? Are you watching different areas of the supply chain or the value chain that you see greater optimization that maybe investors don't appreciate?

I think 2 points. I think the first is the diversification of location is so important, especially in the COVID environment where you can have plant impacts and you have to be flexible as well as in the logistics environment where there will be different lanes that may be optimized from a cost structure standpoint. So the fact that we've got a solid base of operations in Europe, a solid base of operations in India, a solid base of operations in Southeast Asia allows that ability. What we're doing today is, especially with the infrastructure plans that are in discussion is we're looking at how we continue to grow our U.S. content. We do supply today some materials from the U.S. and some steel components in the U.S. But we believe we can continue to add to that. If there's advantage to be taken from some of the incentives that are under discussion in the infrastructure plan around U.S. manufacturing for solar.

Makes a lot of sense. And I'll just squeeze 1 last one, more macro on the industry. You show how we're almost at 80% penetration against fixed tilt. What the -- what causes that last 20%? Is it just a linear progression there? Is it in education? Is it certain instances where a tracker still doesn't work because there are very extreme circumstances in some cases. What do you think the trajectory of that is beyond '21?

I think -- for the U.S., I think we'll continue to see -- we're seeing about 19% growth rate of tracker in the U.S., and we're seeing 2% or 3% continual transition from tracker -- from fixed-tilt to tracker. There will always be some sites, whether it's snow load conditions, whether it's very difficult ground conditions where fixed tilt might make more sense than tracker, but I think we'll continue to see those increases. What's more really exciting is that international transition from 17% in 2018. There's no reason why we can't see the international transition take hold like it has in the U.S., just delayed a little bit as the technology adoption takes place.

Great. Great. Looking forward to that. Thank you. This is really educational. We really appreciate your time.

Thank you. Appreciate it.