SHLS - NASDAQ

Good afternoon, and welcome to the Shoals Technologies Group Second Quarter 2024 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 Matt Tractenberg, Vice President of Finance and Investor Relations 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 is our CEO, Brandon Moss; and our 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 which should not be considered guarantees of performance or results. Actual results could differ materially from our forward-looking statements. Risk factors include, among other things, those described in our filings with the Securities and Exchange Commission, including economic, market and industry conditions, project delays, defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, failure to accurately estimate the potential losses related to such matter and failure to recover those losses from the manufacturer, decreased demand for our products, policy and regulatory changes, supply chain disruptions and availability and price of our components and materials. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. Please note, that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. Before we begin, I want to remind our audience that Shoals will be hosting its first Analyst Day for research analysts and institutional investors on September 5 in Nashville, Tennessee. Our extended management team will present our strategy, growth drivers and investment thesis. Formal presentations will be followed by a factory tour and evening reception. If you're interested in joining us in person, please reach out to me directly at [email protected]. A live webcast will also be made available for those wishing to join virtually. With that, let me turn the call over to Brandon.

Thank you, Matt. And good afternoon, everyone. I'll begin with second quarter highlights, followed by an overview of market trends, and then discuss our updated outlook. I'll then cover the team's progress at Intersolar and provide an update on warranty remediation and our ongoing ITC intellectual property litigation. Finally, I'll wrap up with some customer highlights before handing the call over to Dominic, who will review our financial results for the quarter and the 2024 outlook. I'm pleased to report second quarter results exceeded expectations both on revenue and adjusted EBITDA. Q2 revenue of $99.2 million declined 16.7% from the prior year period but increased 9.3% sequentially. The year-over-year decline was largely a result of broader market disruptions we and others have been discussing this year and which I'll review in a moment. Gross margins of 40.3% declined by 210 basis points from the prior year period, driven by lower sales volumes and higher labor costs, but expanded 10 basis points sequentially. Adjusted EBITDA was $27.7 million for the period, down $20.5 million from the prior year period as a result of lower revenue and adjusted gross margin. We added $126 million of backlog and awarded orders to end at a record $642.3 million for the second quarter. While we're increasingly positive on long term outlook, we are not immune to near-term challenges many are experiencing within the U.S. utility scale solar market. To provide some context, 56% of planned installations in gigawatts are experiencing delays of six months or more. Almost 70% of installations are experiencing delays of any duration. Total gigawatts experiencing any delay now totals %41, up 15% from prior year period. And as of June 2024, U.S. Energy and Information Administration Form 860M on time installs and gigawatts are at their lowest level in 18 months. As a result of these delays, we continue to experience incremental pushouts during the second quarter, resulting in approximately $40 million of additional revenue moving from the current year into 2025. No cancellations occurred in the period. The reasons for delay remain consistent and include permitting lengthy interconnection queues, the inability to obtain transformers and switchgear in a timely manner, labor shortages and persistently high financing costs. We have no indication that these delays are unique to Shoals as customers have been candid in their feedback and share market expectations with us in real time. In fact, as you'll hear today, we believe that many of the strategic initiatives and focus are beginning to show signs of promise. As you would expect in a period of continued uncertainty around timing of rate cuts, ADCVD, a presidential election cycle, and supply chain disruptions, our book and term business was challenged as well, impacting our second half expectations. We take our commitments very seriously and believe setting realistic and achievable goals is critical to retaining the trust of shareholders. That said, while the underlying fundamentals of the U.S. utility scale solar market remains strong and compelling, project timing volatility persists. To account for this ongoing risk many are experiencing, we believe it's prudent to further reduce our full year 2024 outlook. Our revised outlook accounts for continued project delays and assumes minimal book-and-bill business for the remainder of the year. While we expect current challenges will resolve in time, strong tailwinds for low growth are expected to strengthen, driven by the growth of AI, the U.S. manufacturing renaissance and the electrification of transportation modes. We remain confident in solar's vital role and new power generation capacity for two key reasons. Utility scale solar remains quicker and more economical to deploy than conventional energy sources, and the major tech companies driving AI and data center growth have committed to powering these facilities with sustainable energy. These factors support our positive long-term outlook despite near-term uncertainty. While short term volatility is challenging for all of us, we remain focused on what we are building for the long term, a more resilient, consistent and diversified business. The impact of today's efforts will be realized in time, and we continue to believe that we are uniquely positioned to win in the marketplace. We will continue to focus on increasing our wallet share of domestic EPCs, expanding into previously unserved market segments, adding new products to our portfolio and moving into attractive geographies outside of North America. Moving to international. In addition to more than 130 customer meetings, we met with many of you at Intersolar in Germany in June. There, we unveiled our most comprehensive international product suite to date, launching new solutions for unobstructed rows, agri solar and north south configurations complementing our east west offerings. Our new prefabricated plug-and-play solutions eliminate the need for insulation piercing connectors, helping ensure durability in extreme conditions and protecting the long-term investment of developers. The lineup features globally certified versions of our U.S. products and innovations like SuperJumper, Trenched BLA, Mini BLA and Smart Combiner. These solutions are designed to simplify project design, reduce risk, accelerate timelines and cut costs while helping customers meet sustainability goals. These products significantly expand Shoal's international capabilities with our portfolio, which, based on conversations with customers, now address approximately 90% of their unique product needs. We continue to target Latin America, Australia, Southern Europe, Africa and the Middle East with an estimated collective opportunity of 63 gigawatts in 2025, more than double the U.S. market expectations. We look forward to updating you on our progress. Turning to our remediation efforts related to shrinkback on wire purchased from Prysmian, a former vendor, our potential range of exposure has not changed this quarter. Since our last update, we have become aware of two additional sites potentially displaying shrinkback. We continue to work with our customers to remediate known issues and further our understanding of remediation challenges and opportunities. In terms of the legal proceedings against Prysmian, we are working the process and expect written discovery and depositions to be completed by early next year. With regards to our ITC intellectual property litigation, the court's initial ruling was originally expected on July 12, but was delayed to August 16 based on the court's need for additional time. We continue to believe we presented a strong case in the protection of our intellectual property and await the initial ruling. Moving now to some exciting developments on the customer front. First, I'm pleased to see orders begin to appear from the EPC we signed a new agreement with in the first quarter. The relationship is off to a great start and I'm encouraged by the early traction. I'm also very proud to announce an expansion of our master supply agreement with Blattner, one of the largest EPCs in the market today. This agreement will add an additional 12 gigawatts through June of 2027 and is on top of the amount remaining on the existing MSA. We believe this expansion is a testament of the strong relationship we've built with this industry leader. We look forward to a long and productive partnership. Wins with existing partners are the most visible examples of the traction we see, but when we look deeper into our customer list, I'm even more encouraged. Through the first half of 2024, we've seen significant traction with customers who we previously saw wallet shares decline from. In fact, more than $130 million of our backlog and awarded orders as of June 30 is now from this subset of customers. Over the last six months, I've met with many of these customers myself and we've had very candid conversations about what they want and need from us. We believe we're turning the corner with many of them. We are gaining wallet share with these customers and appreciate their trust and support, and we intend on exceeding their expectations. Quoting activity continues to be at record levels as our value proposition remains compelling, particularly in an environment of rising labor and material cost. Notably, the amount of projects Shoals is quoting across all customers has increased by more than 50% within the U.S. utility scale solar market compared to just a year ago. In the first half of the year, a significant portion of our quote volume is with accounts beyond our top 20 customers. We are very positive about the opportunity ahead. In summary, while I'm pleased with our book-to-bill of approximately 1.3 in the period, I'm more encouraged by the quality and diversification of the order book. Our customer mix is improving and is a direct result of many of the things we've put in place over the last year, including expanding our outreach to underserved customers and enabling a deeper level of engagement within each account. Last quarter, we raised the subject of our revenue recognition as it pertains to industry capacity. While we provide this in the spirit of transparency and ongoing education for our analysts and shareholders, we believe it paints a valuable picture. I also think it's worth reminding you about our sales cycle. Because there is, in some cases, a significant lag in which we recognize revenue and when you may have visibility into that project. We believe we've done a great job growing our market share over the years and there are opportunities to expand it going forward. What is clear from the analysis, is that our sales cycle from first outreach through multiple engineering iterations to production to delivery and installation to COD is often in excess of two years. For example, some projects that went live in 2023 were recognized as revenue at Shoals as early as 2021. Approximately 10% of the 2023 COD was recognized as revenue in 2021, 70% in 2022 and 20% in 2023. Looking at the data from another angle, in revenue terms, not COD, 21% of projects associated with our 2022 reported revenues and 81% of those associated with our 2023 reported revenues have not gone live as of today. The average lead time from revenue recognition to COD is 13 months, consistent with what we've shared with you in the past but in some cases, it's more than two years and some projects go live in a short time after installing our solutions. What we glean from this analysis is the sales cycle has been lengthening, also consistent with past observations. Said another way, much of the commercial activity you see occurring today in 2024, from customer engagement to quoting to engineering will not be seen this year, but in years to come. That is a function of the size of the projects, the permitting and interconnection complexity which we all navigate, but also a function of the foundational changes we are implementing here at Shoals. Changes that are being put in place to prepare us for the market growth we see ahead and the expansion we tend on driving. Shoals brought the EBOS category to market first in 2008, so it shouldn't be surprising that we have leading market share. What might surprise you is that we've achieved that while addressing only a subset of the market, approximately 70% in fact. That 30% belonged to customers we either did not do business with or to projects that were smaller in size. That opportunity, that expansion of our served addressable market could be in excess of 30 gigawatts of capacity in the next three years alone according to industry estimates. Our goal going forward is to ensure all customers have the products and service they need to be successful in the marketplace. The changes we've made to our sales structure, product offering and marketing efforts are designed to do just that. In the last year, we built a formal product development function staffed with experienced electrical engineers who have already launched more new products than in the previous three years. We've improved and refined a marketing function that is capturing the customer voice, ensuring we meet their needs and is aligned with future market opportunities. Our new sales go-to-market pod strategy leverages a proven playbook to scale our business while improving touch points. Each of these critical functions are led by new, passionate business leaders who bring a wealth of experience, process and strategy to Shoals. Early indication is that these commercial initiatives we're executing on today are already making a difference. We can see it in the MSA expansion like Blattner's and other new commercial agreements with new customers we've signed this year and the composition of our awarded order book and the conversations with our customers I've been having this year. We are improving our customer service to existing accounts while expanding our offering into new market segments like CCNI, data centers and battery storage, and entering new geographies with new EPCs. We believe that what we are doing today will set us up for success in the years to come, but we like what we're seeing already and so do customers. With that, I'll turn it over to Dominic who will discuss our second quarter financial results and our outlook for the remainder of the year. Dominic?

Thanks, Brandon. And good afternoon to everyone on the call. Turning to our financial results. Second quarter net revenue declined 16.7% to $99.2 million year-over-year, but increased 9.3% sequentially. The year-over-year decline in net revenue was driven by project pushouts, which resulted in lower demand for our products in domestic utility scale solar projects. Gross profit decreased to $40.0 million compared to $50.5 million in the prior year period. Gross profit as a percentage of net revenue was 40.3% compared to 42.4% in the prior year period, primarily due to higher labor costs and lower fixed cost absorption. General and administrative expenses were $19.2 million compared to $16.7 million during the same period in the prior year. The year-over-year increase in general and administrative expenses was primarily related to legal fees for the patent infringement and wire insulation shrinkback matters and planned increases in payroll expense. Approximately $1.4 million of G&A expense was specifically related to the wire insulation shrinkback litigation. Net income was $11.8 million compared to $18.9 million during the same period in the prior year. Adjusted EBITDA was $27.7 million compared to $48.2 million in the prior year period. Adjusted EBITDA margin was 27.9% compared to 40.4% a year ago, driven largely by lower sales and adjusted gross margin. Adjusted net income was $17.8 million compared to $31.2 million in the prior year period. Cash flow from operations was $37.8 million, while capital expenditures were $2.0 million. The strength in cash flow from operations was driven by an improvement in working capital, more specifically, a reduction in receivables. As you likely read our announcement in June, our board approved our first share repurchase program up to $150 million, with authorization to repurchase through December 31 of 2025. This included a $25 million of an accelerated share repurchase, which was launched in June and completed just last week in the third quarter. In total, we retired approximately 3.9 million shares at an average price of just under $6.40 per share. We funded the initial ASR using cash on hand in June, which allowed us to quickly allocate capital towards an opportunity that we believe provides an attractive long-term return for shareholders. As we said on last quarter's earnings call, we do not believe the current share price reflects the long-term value we are creating, and so we expect this authorization may be used opportunistically over time. We will continue to evaluate investment opportunities to deploy the strong free cash flow we see ahead, which first and foremost includes growing our core business, but may also include M&A. We will prioritize those opportunities with the most attractive return profile that aligns with our strategy. Moving to wire insulation shrinkback, as Brandon mentioned, based on our current knowledge and assumptions, the remediation range remains at $59.7 million on the low-end and $184.9 million at the high-end. During the second quarter, we spent $5.3 million in cash for remediation efforts and had a remaining warranty liability on our balance sheet of $46.0 million related to the shrinkback matter as of June 30. The current portion of the remaining liability is now $29.8 million. As a reminder, this represents the amount of cash we estimate we will consume during the next four quarters as we continue remediation efforts and does not reflect any potential recovery from Prysmian or increased reserves if our assumptions or knowledge of facts change. This figure is more than covered by our expected free cash flow over the same period. Our balance sheet remains very strong and we ended the quarter with net debt to adjusted EBITDA of 1.1 times, which is down from 1.5 times a year ago and a significant improvement from 4.4 times as of Q1 2022. Optimizing our balance sheet is crucial to maximizing financial flexibility and long-term growth. By carefully managing our assets and liabilities, we can ensure efficient use of capital, reduce costs and position the company to seize new opportunities as they arise. Turning to backlog and awarded orders as of June 30, 2024, we had $642.3 million in backlog and awarded orders, an increase of 18% year-over-year as the company added $126 million to backlog and awarded orders during the period. As we have previously discussed, some of our international orders have longer lead times than domestic orders and we are also winning domestic jobs that extend or have been delayed beyond our historical revenue cycle of nine to 13 months to realize revenue from awarded orders. As of June 30, approximately $465 million of our backlog and awarded order projects have planned delivery dates in the coming four quarters with the remaining $177 million beyond that. We are halfway through 2024 and are comfortable where we currently sit for next year. Our sales team is encouraged by the level of customer engagement and projects continue to come into our awarded orders for 2025 at a reasonable pace. As you would expect in a period of market uncertainty, there will be gives and takes as we make our way through the second half of the year, but our intention is to give you more clarity in the coming quarter. Turning now to the outlook. As a result of the current macroeconomic and industry uncertainty, we will continue to provide quarterly guidance for the remainder of the year. Based on current business conditions, business trends and other factors, the company now expects third-quarter revenue to be in the range of $95 million to $105 million, third-quarter adjusted EBITDA to be in the range of $25 million to $30 million. And fourth-quarter revenue to be in the range of $85 million to $105 million and fourth-quarter adjusted EBITDA to be in the range of $22 million to $31 million. These figures imply that for the full year 2024, the company now expects revenue to be in the range of $370 million to $400 million. This incremental change is reflective of the industry delays we're experiencing. I want to stress that we believe these changes reflect the timing of revenues, not lost projects. Adjusted EBITDA is expected to be in the range of $96 million to $110 million. Adjusted net income to be in the range of $62 million to $76 million. Cash flow from operations to be in the range of $62 million to $82 million. Capital expenditures to be in the range of $15 million to $20 million and interest expense to be in the range of $15 million to $20 million. With that, I'll turn it back over to Brandon for closing remarks.

Thank you, Dominic. I would like to close by providing some additional color on why we remain so positive on the markets in which we operate and the transformation you're seeing at Shoals. Energy production is not meeting demand, that much is clear. What is not clear yet is what is going to be done to solve that problem. AI requires an enormous amount of power, and we believe the data center operators who are in an AI arms race are struggling to meet their net zero goals. And it's not just the data center operators, you might be among the 2.6 million people in Texas without power for days following Hurricane Beryl last month. A more robust grid is critical. It's getting worse, not better. All of us see more electric vehicles on the road today, and while we can argue the rate of adoption, we haven't seen anyone arguing that it's up and to the right. We believe the electrification of transportation is inevitable and it will strain the grid. No matter where you look, the trends we are embracing require more power, not less. We also know that solar power provides the most compelling economics. It's clean, accessible, and often the fastest to bring online, certainly as compared to nuclear, which estimates say could take a decade or more to stand up, and certainly more than coal, given the regulatory hurdles you need to navigate. We know Shoals brought to market the EBOS category for U.S. utility scale solar. We have an exceptional history of high quality, custom engineered solutions for our EPC customers. The rest of the world is navigating many of the same issues we are here, and while cheap labor is readily available, experienced electricians and engineers are not. Those EPCs are in need of many of the same solutions we provide today, and those discussions have already begun. We know that there are large portions of the U.S. utility and distributed generation market that have not been served by Shoals. We also know how meaningful the international market opportunity is for us and we know that operational excellence, including productivity and efficiency optimization is now top of mind. These market opportunities, when paired with the strong foundation we have and the new capabilities, talent and products we are introducing, set us up well for a successful future. We look forward to introducing those team members, discussing those capabilities, and letting you hear directly from our customers at our Investor Day, why Shoals is the partner they have chosen to do business with. I want to thank our customers and shareholders for their trust and our employees for their hard work. Operator, we are now ready to take questions.

[Operator Instructions] The first question is from Brian Lee from Goldman Sachs. Please go ahead.

Hi guys, good afternoon. Thanks for taking the questions. I guess, the first one I had was just on, you know, over the past three months, I guess, what has been the biggest incremental change here, you know, that's underscoring the revised outlook again downward for the second straight quarter. I guess, you know, we understand there's delays out there and your peers have been talking about how the environment's fluid, but it seems like the magnitude is maybe a bit more pronounced for you guys in terms of what it means to numbers versus others. So, just trying to reconcile why that might be the case? What's changed over the past three months for you specifically? And then, you know, maybe any comments you can share also on just the competitive landscape, because I know there's, especially with this revised outlook going to be incremental concerns around, you know, that potentially being an idiosyncratic factor in what's causing this update? And I had a follow up.

Brian, thanks. Good questions. A lot to unpack there. I guess, to tackle the first one first, really the big picture for us, quarter-to-quarter is it's more of the same. We talked about $50 million of project pushouts in the first quarter. We had about $40 million this quarter. So, the short term volatility, I know it's frustrating. It's frustrating for us. Again, I'd remind everybody, these are not lost projects. These are projects that are pushed out to the right. As it relates to, you know, the discussion around or the question around the competitive landscape, I feel better than ever about our commercial execution. We showed backlog and awarded order growth to record levels this quarter of $642 million, adding $126 million of backlog and awarded orders and a strong book-to-bill ratio of 1.3. So, I like how we're executing. I think our customers like how we're executing, as evidenced by our new extension to the Blattner agreement of 12 gigawatts, which is unbelievably exciting for this organization. What is also extremely exciting about our commercial execution is the quality and diversity of our order book. If you think about our order book last year this time, prior period Q2, about 77% of our backlog and awarded orders was made up of our top ten customers. That number is now 61%. I talked about in previous calls, you know, we had a handful of customers where we've lost wallet share and we needed to improve, $130 million of our backlog and awarded orders is now related to that customer subset. So, really happy with commercial execution. I think, you know, the challenges that we face are not unique to Shoals, are market driven challenges. And again, I couldn't be happier with how we're executing on the customer side. I think you have a follow up.

Yes. No, that was super helpful color. I guess, you know, given your comments between Q1 and Q2, it's almost $100 million of, you know, pushouts, not lost projects. Do you have indications from your customers that that's going to, you know, progress in '25? You will actually be asked to deploy and ship that product in 2025? Or what's sort of the visibility into the recapture of that, you know, close to $100 million of pushouts you've seen through the first part of this year? Thanks, guys.

Yes. The project pushouts, look, as I've talked about in the past, myriad of reasons, you know, what we hear probably most commonly is site permitting and interconnection challenges. So, you know, these project -- we look at everything on a project by project basis. We have our customers and construction schedules in many cases, and we see these projects pushing out into 2025. Now, you know, I think I've been asked this question in the past, you know, is one plus one going to equal two for 2025? We see these challenges, you know, still persisting into the back half of the year. There are project delays and those are a challenge for us. So, you know, we will continue to monitor those projects on a project by project basis as we always do, Brian.

All right. Thanks a lot, guys. I'll pass it on.

Thanks, Brian.

The next question is from Mark Strouse from JPMorgan Chase & Co. Please go ahead.

Yes, good afternoon. Thank you very much for taking our questions. Curious if you can discuss the ASP trends for these new orders that you're booking and whether we should think of your gross margins kind of remaining in that low to mid-40s range that you've talked about previously? Just kind of trying to feel out if any of these headwinds, be it industry or company specific, if those headwinds are impacting your pricing power? And then I've got a follow up as well. Thank you.

Yes. Thanks, Mark. Thanks for the question. Good to hear from you. Yes, no changes to our guided margin of 40% to 45%. So, we still feel good about those numbers moving forward in this environment and environments in the future.

Okay. And then, just a quick follow up to clarify the 2Q bookings, does that include anything from this new Blattner agreement? And then, if you're able to, are you able to say how much of the original 10 gigawatt MSA with Blattner is outstanding?

Yes. So, just for point of clarity on how we calculate backlog and awarded orders because I do think it varies from company to company amongst our peer set. Backlog -- awarded orders are calculated when we've got a verbal commitment from the customer, the EPC, that they have won the project, and we have a substantial amount of engineering design work done. So, in the case of Blattner and this new agreement, none of the new 12 gigawatts would be included in our backlog and awarded orders because these are projects out into the future in which they haven't yet won, nor we have started designing. So, although we've got, you know, an agreement in place, it is not included in our backlog and awarded orders. As far as the original agreement, we'll provide, you know, specifics but you can think of that as maybe at the halfway point.

Okay, understood. Thank you very much.

Thanks, Mark.

The next question is from Jordan Levy from Truist. Please go ahead.

Hi, thanks. It's Mo on for Jordan. I have two questions here. First one, in the press release you mentioned there are change being made in the planning process for this year and next. I know it's still too early to give guidance for 2025, but how are you thinking about activity levels based on your current commercial activity? Thanks. And I have a follow up.

Sure. Yes, as I mentioned, you know, during Brian's question, we're very pleased with our commercial execution. Quoting still remains at an all-time high. We're excited that our backlog and awarded orders have reached record levels. And we love a 1.3 book-to-bill ratio. So, you know, we feel very strongly about how we're executing our new, you know, we've got some new commercial strategies, new teammates, and I think we're doing quite well in that area. As far as 2025 goes, given the level of volatility with these projects and the relative uncertainty around delays, it's just too early to call the ball on 2025. So, I'm not going to do that. You have a follow up?

Sorry. Yes, I was on mute. Yes. I mean, it's great to see international attempting to ramp and increase as a percentage to backlog. So, what dynamics are you seeing in those market, I mean, Africa, Latin America, Middle East, like you just mentioned? And how does that differ from what you're seeing in the U.S. in terms of project slowdowns? Thanks.

Yes. For the international business that we've got booked today, I would say, you know, large projects, longer sales cycles, as you can imagine, where these projects are just, you know, construction at its core is not as easy as it might be in a state here in the U.S. So, you know, longer project cycles is probably, you know, the biggest thing to point out. Look, we're excited about our international market opportunity. As I mentioned in the prepared remarks, 63 gigawatts of opportunities. We've got a new leader for that business. We have launched, you know, the largest suite of products we've ever launched one time just at Intersolar here in June, and the feedback we've gotten from customers has been fantastic. So, I like our chances in developing organic growth and our focus local markets. So, more to come on international, but great progress being made.

Sachi, next question?

The next question is from Jon Windham from UBS. Please go ahead.

Hi, great. Thanks for taking the questions. I was hoping you could just help bridge the gap on. I think you had mentioned $40 million pushed out of 2024 to 2025. However, I think the total revenue cut was more like $790 million. Is that just go get business? That's not going to happen now? Just if you could help bridge that. Really appreciate it. Thanks.

Yes. Thanks, Jon. Yes. So, exactly $40 million pushed out into 2025. And look, this volatility in the marketplace has made it difficult for us to close typical book, and turn business within the year. So, I mean, you hit the nail on the head and that's what gets you to the numbers that you mentioned, just a challenging, volatile market. But again, pointing out on the project business that have pushed out, those are still good projects for us. Just to reiterate, no projects canceled in the quarter, just pushed out to the right.

Appreciate it.

Thank you.

The next question is from Colin Rusch of Oppenheimer. Please go ahead

Thanks so much. You know, can you talk about, you know, what your win rate was versus quotation activity during the quarter and how that compares to where you've been historically?

Yes. Colin, we have not -- good to hear from you. One we've not disclosed our win rate in the past. Not going to do that today. What I will say, though, we talked about is we have identified that approximately 30% of the total available market of U.S. utility scale solar was going basically, you know, underserved by Shoals in the past. That was either due to us not being aligned with one specific customer, whom we are now aligned with, and a group of customers that have just gone underserved. So, look, I think Shoals has had historically a strong win rate on jobs. You know, my focus now is maintaining that win rate and hopefully applying it to this new segment of the market, approximately 30% that over, you know, a period of three years will represent 30 gigawatts of opportunity for us. So, you know, I look for the batting average to stay strong, but also the plate appearances to increase for those baseball fans out there. So again, we're excited about our commercial execution.

Appreciate it. And then, in Europe, obviously, it's a nice start out of the gate with the new products. Can you talk about, you know, whether you're adding incremental customers here? Are these existing customers where you're just actually finally getting over the hump with them on new products or new products because of the product configurations?

Yes. The goal for us, Colin, is to add new customers, right? That's the point of localizing this product offering and really the aggressive push to develop new products in the marketplace. Historically, you know, we have been attacking our international sales with, just call it for lack of better terms, a U.S. based product portfolio, which didn't allow for much opportunity in many markets. So, we're trying to localize our product assortment and I think we've done that with our new product launch, and then in some cases localized production. So, you know, making good headway there. And again, the opportunity for us is to continue to serve our export customers, which we've had great success with, but also drive new organic growth in our focus countries or focus regions, rather.

Thanks so much. Appreciate it, guys.

Thanks, Colin.

The next question is from Philip Shen from ROTH Capital Partners. Please go ahead.

Hi guys. Thanks for taking my questions. I wanted to follow up on the price topic. You know, some of our channel checks with some of your customers suggest you may have lowered price recently to the tune of maybe 5% to 10%. I was just wondering if you can affirm or, you know, confirm that in any way? And then, is this something that might be one off or is it across the board? And then, if you're able to maintain margin, as you mentioned earlier, is it because you have, you know, cost outs that are helping you with that? I know you've had some copper, you know, increases here, but you're contracting in such a way that it's all passed through. So, axing out the raw material increases, if you can talk through the pricing, that would be fantastic. Make sense?

Yes. Phil, I'll answer that pretty simply is, look, we feel that our pricing has remained fairly consistent. No huge changes in our pricing strategy in the marketplace. And you hit it on the head where we're, you know, basically flowing commodities through our products and, you know, don't have exposure to commodities with inventory as projects -- or I'm sorry, inventory raw materials are procured as the project is booked. So, yes, I appreciate your channel checks. I'm happy to say -- and it sounds like you're hearing we're winning some projects in the marketplace, but no change to our pricing strategy dynamics.

Got it. Thanks, Brandon. And yes, we have identified, you know, you guys continue to do well with bookings. You showed that to us today. And it seems like bookings could have a seller in the back half and you could win shares. We got 325. Wanted to just check in -- so that's the kind of the bookings kind of front end element. You talked about earlier with the guide down that there wasn't a specific reason, it was kind of an amalgamation of everything that's been happening. But the main change that we've noticed in the market since your Q1 call has been the Southeast Asia ADCVD. And when we polled, you know, 25 asset owners, customers of yours, you know, I think 40% of them cited that they pushed out 25 CODs. And of the 40%, most of them cited Southeast Asia as one of the reasons why. So, maybe that's coming back to you in terms of module availability. Maybe they're not saying Southeast Asia specifically. Just curious if you can give us a little more color as to the guide down. You know, is module availability a reason? And perhaps, as a result, Southeast Asia ADCVDs could actually be one of the key drivers?

Thanks. Yes, Phil, I think that ADCVD is a driver. It is not a main driver for us. So, as we get projects push out, we understand the reasons why those are being pushed out. And you know, a swap to modules also incorporates really a redesign of our product, sometimes a minor redesign and sometimes a significant redesign. Say, if you were moving from bifacial to thin film, right? So, it is a reason, it is not the top reason. From the customer feedback that I get and also the design team that is interacting with our customers every day and working on these projects, you know, the prevailing reasons that we've heard more recently is site permitting and interconnection. I mean, those are the big ones with probably site permitting being the top of the list. So, it is a factor, but it is not the factor of the guide now.

Got it. Thanks, Brandon. One last quick one. Do you have a sense for when peak pain on site permitting and interconnection could be? I mean, is it around the corner or do you think this can persist for, you know, some time? Thanks.

Thanks. Yes, Phil, I wish I knew. Hopefully, it ends soon, right? I mean, I think with the backlog of permitting and interconnections. You know, I think we're in for turbulent times here for the foreseeable future. So, you know, it's a challenge for our customers. It's a challenge for us.

Got it. Okay. Thanks, Brandon. I'll pass it on.

The next question is from Maheep Mandloi from Mizuho Securities. Please go ahead.

Hi, thanks for taking the questions here. And I apologize if this was addressed earlier, but just wanted to understand the gross sort of the EBITDA margin or gross margin decline in the guidance for the second half over here. Is this a function of revenue or volumes here or any more design work required as customers push out some projects here?

Yes. Thanks, Maheep, for the question. I mean, you know, it's mostly just the leverage on the operations side and leverage on our SG&A expenses guide. Maybe, Dominic, I'll kick it over to you to maybe give some color to that if you'd like?

Yes. The only thing I would add is that, you know, with some of the projects being delayed, it's kind of difficult on the labor force as we're ramping to have some of the production capacity ready to deliver for the customers. And when the projects push, we're left with less efficient workforce than we desire. We called that out in second quarter. We're trying to be careful about how we ramp. We don't want to whipsaw our workforce. But fundamentally, it's between those two factors as we're ramping for production, but these are lowered numbers, and so we are losing a little bit of leverage.

Got it. Understood. Just on the buybacks here, any thoughts or algorithm on how you would kind of exercise those going forward or what prices?

Dom, you want to take that?

Sure. So, yes, the -- fundamentally, as you recall, the Board authorized up to $150 million, but we just want to start with some cash on hand. We did a $25 million ASR that's been completed. We believe that we have much better value for the long-term for our shareholders in a number of ways. And we want to be very open to looking at things like our organic growth, international markets and expansions and perhaps M&A. So, I don't want to use up all the dry powder necessarily on a share repurchase. Clearly, you know, with the stock price trading where it is, we believe it's a long-term disconnect from the value that we believe is happening long-term that we can continue to drive. So, I don't think if we announce something else with the, you know, available $125 million of share repurchase, we would announce that publicly, but at this point, nothing has been announced.

Got it. Appreciate that. I'll take the rest offline. Thank you.

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

Good afternoon. And thanks for taking my questions. So, my first one, just given the, you know, recent guidance revision, all the market commentary, you know, it's clear that predictability here is deteriorating. And so, I was wondering if you'd just give us the market some color on maybe some initiatives that are underway internally to improve your forecast? I'm just trying to understand, you know, what you're doing internally to avoid another, you know, guidance revision, you know, when we're back here on this call in November.

Kashy, yes, thanks for the question. And fair question, right? Again, we're experiencing a volatile market. I know that's extremely frustrating. It's frustrating for us. It's a challenge to plan labor, you know, as Dominic pointed out. Look, we're touching these projects, touching the EPCs. We've got a process. We're looking at this stuff on a weekly basis and summary review on a monthly basis. And we're collecting as much information from the EPCs as we can, including, you know, what panels they're using, what trackers they're using, permitting notice to proceed. So, that data is collected in our CRM and, you know, it's reviewed, as I said, on a weekly basis. So, we're trying to call this thing as accurately as we can. I think, look, it's not a challenge that is unique to Shoals right now. You know, on time installs are the lowest we've seen in 18 months, and it's a challenge for us to predict our customers delays. So, yes, again, I know it's a frustration. It's frustrating for us. We feel good about our revised guidance, you know, for the back half of the year and it's the best estimate we can give right now.

Okay. Got it. Fair enough. And just for my follow up question, I think you indicated that quotes or quoted value was up, I think maybe, like 50% year-over-year. You know, how do you explain the gap between, you know, quotes being up year-over-year, but orders being down year-over-year? Is that just a time lag? Is there some other explanation, you know, the elections, or you know, what's going on there? What's the story there?

Yes. Look, it's just the elongation of these project cycles, right? You know, that much has been consistent here the last couple of quarters. We've talked about it. You know, when we think about when we have a project identified to the time it takes to get to an awarded order status and then awarded order to actual purchase order or backlog in our terms, there is an elongation to that. You know, it is a change to the environment. I think, long-term, it's not necessarily a terrible thing because we've got, you know, better visibility, longer visibility, although it is somewhat volatile right now, we at least have the visibility to these projects. So, quote volumes are up. And then, also -- again, our backlog and awarded orders, if you think about from a year-over-year, period-to-period standpoint, are up 18%. Again, it's just that conversion from awarded order to revenue.

Appreciate it. Thank you.

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

Hi guys, thanks for taking the questions. So, first, with the 12% in the international backlog, I know that that, you know, there's a longer conversion time there, but just kind of trying to anticipate what that could look like. And I think you've provided some commentary on this before, but can you remind us, is it tending towards combiner boxes or more towards BLA type? And I know like even with combiner boxes, you know, you guys can have that via system sale. So, is it like a design system sale or more component sale? And is it more of the combiner box variety or more of the BLA? If you can just unpack that, that'd be great.

Yes. Hi, Donovan. I would classify our backlog and awarded orders internationally is more of a solution sale than less. You know, we're not going to give project to project specifics, but they are, for the most part, solution sales.

And are the solution sales primarily combiner box?

No, when we talk about a solution sale, those for the most part would include BLA in this case.

And they are a custom -

Yes, I mean, you know, they're not a, you know, a component sale. They are, you know, custom engineered sites and, I would say, a full solution is probably a good way to characterize this.

Fantastic. That's good to hear. And then, as a follow up, you talked about, you know, regaining customers where you had lost some wallet share. And I'm curious if you could clarify when you say that, you know, sometimes we talk about wallet share, it's about how much of the, you know, for a given project, say, like a gigawatt project, you know, you could say, well, geez, we lost wallet share because we still won the project, but we didn't get, you know, maybe the wire management solution included or something? Or is it a case where you actually were not winning as many projects with a particular customer, and so it's sort of almost had a market share component to it? And if you can describe what you did to win that back?

Yes. Great question. Your characterization of wallet share, I would say both of what you described are the case. You know, you asked about the international projects, our goal, our sales team's goal is to sell the total solution, right? So, anytime we're not selling the total solution, we want to move the customer up the value continuum and sell that total solution. So, that is one part of it. The other part is the, you know, the amount of spend we're getting from our EPC customers. Whether that's, you know, 10% or 20%, 30%, 50%, we want to grow with them to make sure that we are doing more and more projects each year. So, it is absolutely the case in, you know, both situations. As it relates to what have we done, I think I've mentioned in previous calls about us adopting this sales pod structure. I don't think that that's probably a new terminology to anybody out there. It is us having a distinct team of folks that are cross functional here at Shoals to serve our EPC customers. So, we've got broader touch points within the customer base. We're freeing up our account executives so they can have more frequent touch points and also grow with new customers. You know, cold calling on new customers and growing our business and attacking that 30% of the total available market that we may not have been serving in the past. And I think that fundamental change is what is driving the $130 million of backlog and awarded orders, you know, with customers where we saw wallet share decline. So, I like what I'm seeing. I like the fact that we're seeing orders with the new EPC that we announced in the first quarter, and we signed another supply agreement with an EPC in the second quarter, which was great. So, you know, good progress being made on the commercial side, there's no doubt.

This concludes the question and answer session. I would like to turn the floor back over to Matt Tractenberg for closing comments.

Thank you, Sachi. And thank you to our audience today for joining us today. If you have any additional questions, reach out to [email protected]. We're happy to help you. And finally, everyone is always welcome to join our live webcast of our Investor Day on September 5, that can be accessed on our IR website at investors.shoals.com. Have a great day, everyone.