SHLS - NASDAQ

Good morning and welcome to the Shoals Technologies Group Fourth Quarter 2024 Earnings Conference Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Matt Tractenberg, Vice President of Finance and Investor Relations for Shoals Technologies Group. Thank you. Please go ahead.

Thank you, Charlie 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 and should not be considered guarantees of performance or results. Those risks and uncertainties are listed for interested investors in our most recent SEC filings. Actual results could differ materially from our forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's fourth quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest 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. With that, let me turn the call over to Brandon.

Thank you Matt and good morning everyone. I'll begin by sharing some thoughts on the most recent quarter and full year 2024. We'll discuss the current market and demand environment for U.S. utility-scale solar. I'll spend some time on the strategic framework we apply to key initiatives here at Shoals, including market penetration, customer diversification, new market entry and new product development. I'll then provide an update on our ongoing litigation. Dominic will dive deeper into the fourth quarter results and provide our outlook on the first quarter and full year 2025. We'll close it out with questions from our analysts. We executed well in the fourth quarter, delivering revenue of $107 million at the high end of our expected range. Bookings were also strong in the period, with $145 million in new projects. This resulted in total backlog and awarded orders, or BLAO, of $635 million in a book to bill of 1.4. As of December 31, 2024, approximately $440 million of that BLAO has shipment dates in the upcoming 4 quarters. I'll talk more in a few minutes about how that impacts our 2025 forecast. Adjusted gross profit percentage in the quarter was softer than expected at 37.6% driven by the competitive environment and product mix. This was slightly offset by the impact of productivity improvements we've begun to implement. Pricing is a strategic lever we've always used to respond to shifting market conditions and the value our solutions provide to our customers. In addition, like many industries, we leverage price to engage with customers who may have adopted alternative solutions in the past to secure long-term agreements, or as we enter new market segments or geographies. The impact of those price actions are expected to lessen over time as we continue to move customers up the value continuum. In addition, we expect ongoing productivity initiatives that we are aggressively pursuing to begin to take hold. We continue to believe that adjusted gross profit percentage at or above 40% is appropriate in the long-term. In addition to price, scale and product mix always play a role in our margins and both of those items are expected to be favorable in future periods. And finally, adjusted EBITDA in the fourth quarter was $26.4 million or 24.7% of revenue. 2024 was marked by external forces that created widespread project delays within our industry, driving uncertainty and volatility for many companies. A rapidly shifting political stage, labor and equipment availability and regulatory and permitting delays all contributed to that challenging backdrop. In that type of environment, the best course of action is to remain close to your customers, focus on what you can control or influence and prepare for the market to return to a more normalized state. And while we're still early in the year, we believe U.S. utility-scale solar will improve in 2025. 2024 also brought many exciting improvements across the number of fronts at Shoals. We introduced more than a dozen new products that solve real business problems our customers are facing. We're building successful businesses and new market segments like CC&I and BESS and we're winning projects in international markets. We added multiple members to our management team, bringing experience and process to the company to drive results. We have fundamentally changed how we approach commercial opportunities, drastically increasing our quote volume. We've diversified our customer list, engaging with new and old accounts in a more streamlined and efficient way. We've set in motion the consolidation of small factories into a single state-of-the-art factory in Tennessee where automation will drive increased productivity and we've made meaningful progress on our strategic initiatives. We enter 2025 in a position of commercial, operational and financial strength. I'm pleased by how much we've accomplished and how well we're set up for success in the new year. New product innovation was an area of focus I'd like to highlight. Technology evolves. Customers are constantly asking for help, solving construction or energy limitations. They look to lower cost, improve deployment speed and navigate bottlenecks. To help them with these things, we've been very deliberate about expanding our product offering. These new products are a result of the time invested with customers out in the field, understanding the issues they're wrestling with. And these products are not just concepts. They are being quoted and appear in our awarded orders. Examples include: our new best combiners and recombiners provide UL certification that offers simplicity, labor savings and reduced install times. Long-tail BLA allows for clustering of load break disconnects which provides lower O&M costs. Mini BLA used in North-South configurations enables unobstructed access between rows, perfect for stack tracker configurations over long distances and is well suited for project maintenance. Our 2KV solutions will enhance the efficiency, cost effectiveness and scalability of solar projects. This innovative solution will lead the next generation of utility-scale solar architectures. I'm very pleased by how quickly we've moved on developing these new products which will provide benefits for both EPCs and developers. Turning to the numbers; full year revenue totaled $399 million, an 18.4% decline from 2023 driven by the project delays we've spoken about at length. Wood Mackenzie reported that a staggering 53 gigawatts of pipeline projects experienced some form of delay in 2024. That disruption was impossible to avoid but we used the year to turn our attention to improving both commercial and operational processes that will benefit us for years to come. Adjusted gross profit percentage for the full year was 39%, a decrease from the prior year driven by product mix, lower volume and the competitive environment, partially offset by favorable labor trends in the second half of the year. As we've seen over the past 2 months, the federal regulatory dynamic is prone to rapid changes in course which requires us to be flexible in our planning and approach. However, we believe the outlook for U.S. utility-scale solar is improving. This is supported by both the conversations with our customers and the strength we've seen in our 2025 book of business. Customers are moving ahead with projects. And while project time lines remain somewhat fluid and are still dependent on labor availability, equipment and permitting, we believe the calendar to be firmer than 2024. We've spent an enormous amount of time talking with customers to understand what variables have risk and how time lines could change. Because of this, we have a greater degree of confidence in customer time lines as we look out over this year. We continue to focus on the strong underlying fundamentals driving demand for solar. We believe load growth could exceed many of the prevailing forecasts driven by onshoring and data center demand. Solar has the lowest levelized cost of energy and the fastest deployment time. The energy is needed and we believe solar is uniquely positioned to meet those needs over the next decade. At our investor event in September, we shared with you our strategic framework for growth and diversification. It's the framework we apply to all decisions we make at Shoals. First, to further penetrate the U.S. utility-scale solar market by deploying a new, highly engaged sales model to portions of the market we have historically not pursued. Second, to develop international markets by offering localized products to meet customer needs in targeted geographies. Third, accelerate product development, enabling expansion into adjacent markets that can benefit from our capabilities and scale, including CC&I and OEM applications. And fourth, to diversify our presence in high-growth markets that leverage our expertise and relationships, including BESS and data center infrastructure. I want to spend some time this morning sharing results for these initiatives. First, within our core business, we quoted over $2.5 billion of projects in 2024, many of those with multiple EPCs and we continue to see progress diversifying our order book. This is evidenced by more than 10% of our 2024 revenue coming from customers who purchased less than $1 million combined in 2023. We expect this trend to continue in 2025. Our strategy to win more projects outside of the U.S. was accelerated last year when we introduced a broad new product offering designed to meet international needs. As a result, I'm pleased to announce more than $8 million of new international projects were won in the fourth quarter, including Australia and Chile. We ended the year with approximately $86 million of international backlog and awarded orders and expect about $15 million of this to convert to revenue in 2025. Commercial, Community and Industrial is an opportunity that most closely leverages our existing products and relationships. These projects, often smaller than utility-scale, sometimes sold through distribution, require a more standardized offering from Shoals. We quoted almost $40 million of projects in 2024 and recognized almost $10 million in revenue. We continue to be excited about this opportunity. We're also pleased by the continued growth of our OEM business. Alignment with the leading module manufacturer in the U.S. has positioned us well and the growth in the partnership enables us to support the reshoring of domestic supply chain for the U.S. solar industry. We'll report additional commercial wins as they come in 2025. Battery energy storage systems is a market in which we've participated in. While we have offered combiners and recombiners to select customers, a new standardized product offering was introduced in 2024. We've quoted more than $30 million of projects during the year. We've also hired an industry veteran to lead our commercial efforts. This is a space to watch at Shoals, so stay tuned for some exciting commercial wins this year. The strategic framework we've presented to you here of protecting our core business, expanding our presence into new and attractive markets and developing new products for high-growth applications is taking shape as anticipated. Before I hand it to Dominic, I want to spend a minute on the subject of our ITC case against Voltage. As you've likely seen, there have been a few developments since the beginning of the year. First, we filed a new case with the ITC on January 9 which was subsequently instituted or accepted by the court. This new case applies to 2 new patents, 375 and 376 which we believe provide additional protection for our BLA product line. This new case is independent of the outcome of the 153 case you've been following since 2023. The second development which occurred on January 15, was that the ITC did not uphold the ALJ's initial determination. This was a surprise and very disappointing to us. We take our IP very seriously and we believe we're correct in asking the court to revisit their findings. As a result, we have appealed that decision with the federal court of appeals. We believe that it is in our shareholders, employees and the industry's best interest to ensure a fair and level playing field through the protection and defense of IP. This is not a quick process but a necessary one. In the meantime, we'll continue to compete with our innovative products, quality and best-in-class service. In summary, while I'm proud of how we navigated a challenging 2024, I'm most excited about how we're positioned for 2025. We entered the year with a solid order book, a more diversified customer list, expanded offerings, keys to a new, state-of-the-art factory and an energized and experienced leadership team. While markets will fluctuate, the fundamentals of our business remain very sound. I'm very confident in where we are and the direction we're headed. With that, I'll now turn it over to Dominic, who will discuss our fourth quarter financial results and in more detail, our outlook for 2025. Dom?

Thanks, Brandon and good morning to everyone on the call. Turning to our fourth quarter financial results; net revenue declined 18.0% to $107.0 million year-over-year but increased 4.7% sequentially from the prior quarter. The year-over-year decline in net revenue was driven by softer market demand resulting from customers shifting project schedules, as Brandon discussed earlier. Gross profit decreased to $40.2 million compared to $55.4 million in the prior year period. This resulted in GAAP gross profit percentage of 37.6% compared to 42.5% in the prior year period. General and administrative expenses were $21.5 million, flat on a year-over-year basis. We're very focused on controlling expenses and believe we are allocating resources in a responsible and thoughtful manner. Approximately $2.8 million of G&A expense was specifically related to the ongoing wire insulation shrinkback litigation. Net income was $7.8 million compared to net income of $16.6 million during the prior year period. Adjusted net income was $14.1 million compared to $21.3 million in the prior year period. Adjusted EBITDA was $26.4 million compared to $39.1 million in the prior year period. Adjusted EBITDA margin was 24.7% compared to 30.0% a year ago, driven largely by lower sales and the adjusted gross profit percentage decline. During the fourth quarter, we spent $13.1 million for wire insulation shrinkback remediation and had a remaining warranty liability on our balance sheet of $39.9 million as of December 31. The current portion of the remaining liability related to shrinkback is now $28.4 million. As a reminder, this represents the amount of cash we estimate we will consume during the next 4 quarters as we continue remediation efforts. This does not reflect any potential litigation recovery or increased reserves if our assumptions or knowledge of facts change. Our legal case against Prysmian is progressing and we expect written discovery and depositions to be completed by mid-2025. Cash flow from operations in the fourth quarter was $14.0 million, while capital expenditures were $1.5 million. Approximately $4 million of CapEx that we anticipated spending in 2024 has been deferred to 2025. Our balance sheet remains very strong and we ended the quarter with cash and equivalents of $23.5 million and net debt to adjusted EBITDA of 1.2x. Optimizing our balance sheet is crucial to maximizing financial flexibility and long-term growth. By carefully managing our assets and liabilities, we believe we can ensure efficient use of capital, reduce costs and position the company to seize new opportunities as they arise. With regards to capital allocation, we did not purchase any shares in the fourth quarter under our share repurchase program. We have $125 million currently remaining under the share repurchase authorization. We will continue to evaluate the cash deployment opportunities that we believe yield the highest return for shareholders. Backlog and awarded orders ended the fourth quarter at $634.7 million, a sequential increase of $38 million. As of December 31, $439.3 million of our backlog and awarded orders have planned delivery dates in the coming four quarters, with the remaining $195.4 million beyond that. While we cannot control the regulatory environment or the availability of electrical equipment needed to complete solar fields, we can work to ensure customers get the quality products they need from Shoals in a timely manner and to manage our costs responsibly. Turning to guidance; the process we used to determine the potential range of outcomes for 2025 was commensurate with the amount of volatility we've seen in our business over the past year. We've implemented several more layers and connection points between Shoals and our customers to better understand the moving parts of each project. That has provided a greater level of insight, allowing us to better gauge the timing risk of each project we see in 2025. Embedded in the process of constructing guidance are 2 main assumptions. First, the degree to which projects which are currently in our 2025 backlog and awarded orders will be delayed. And second, what amount of book and turn business will be secured during the year. Let's talk through both of those. I don't need to remind you that 2024 brought an enormous amount of project movement within and out of the year. For Shoals, it meant $130 million of expected 2024 revenue pushed out, almost 25% of the expected revenue for the year. Those delays occurred across the customer spectrum. So while we are more constructive on 2025, we have not assumed that project time lines fully return to a normalized pattern. Note that each and every year, we would expect projects to shift on our calendar. That is a part of our business and is largely driven by our customers' needs. Variability happens; however, it normally happens at a significantly lower rate than what occurred last year. Our assumption is that some delays will occur in 2025, less than 2024 but more than historical norms. Book and turn business is a relatively stable part of our year as well. It has consistently provided 10% to 20% of the full year number and 2024 was no exception. Remember, these are projects that are in some stage within our pipeline on December 31. We've quoted them, designed the project at least in part and discussed timing but they have not fully satisfied the requirements to move into our awarded orders bucket. As we examined our year-end pipeline, we believe that our book and turn business will account for a similar portion of our full year number in 2025. Finally, the net impact of both project delays and book and turn business allow us to arrive at an appropriate range of outcomes. In summary, our guidance range assumes that book and turn business will largely offset potential project delays in 2025. If project delays occur in a more normalized pattern, we would expect results toward the higher end of the range. Turning now to the outlook. Before we offer numbers, I want to call out an unusual seasonal pattern we see in 2025. Our first quarter and first half will be lighter than we would normally expect, resulting in a heavier second half. We expect roughly 40% of revenue in the first half of the year and 60% in the second half. This is compared to the more normal pattern of 45% to 55%. This will also require a higher level of working capital investment in the first half as we ramp up the business for the second half of the year. Based on what I just walked through, for the quarter ending March 31, 2025, the company expects revenue to be in the range of $70 million to $80 million and adjusted EBITDA to be in the range of $10 million to $15 million. For the full year 2025, the company expects revenue to be in the range of $410 million to $450 million and adjusted EBITDA to be in the range of $100 million to $115 million. In addition, for the full year, cash flow from operations to be in the range of $30 million to $45 million, capital expenditures to be in the range of $25 million to $35 million and interest expense to be in the range of $8 million to $12 million. To offer you more color on CapEx, we anticipate elevated investment as we complete the build-out of our new facility and make strategic investments to drive efficiencies. Capital spend levels are expected to normalize in 2026. With that, I'll turn it back over to Brandon for closing remarks.

Thank you, Dominic. We believe we're turning the corner into a year with improved fundamentals. The feedback we are hearing from our customers is exceptionally good. And while we never want to get comfortable, the meaningful changes we've put into motion over the last 18 months are showing promise. We're optimistic about 2025 and we remain focused on protecting our core business, expanding our geographic reach, diversifying our order book and delivering new and innovative products into attractive growth markets. It's a good time to be at Shoals. We want to thank our shareholders and our customers for their continued trust and our employees for their hard work and dedication. Operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from Andrew Percoco of Morgan Stanley.

Maybe just to start on the pricing dynamics that you alluded to the competition, can you just give us more context around where you're seeing the most pricing pressure and maybe how much you're having to lower price to remain competitive? Is this purely a Voltage issue? Or is this more widespread across the peer group?

Andrew, I'll start with that and then maybe let Dominic jump in. Look, I mean, I think the pricing environment, there's always ebbs and flows related to market dynamics. And this past year has been really no different. As we've talked about in previous quarters, we are opening our aperture and really trying to entice new customers that have not been part of our customer portfolio here over the past couple of years to try Shoals' products. And that may be by offering some pricing to do that to those customers. We've worked with customers to secure long-term agreements and we've offered some pricing to do that. And I think there's also a mix component here. Some of the new customers or reengagement with customers are not full solutions customers today. And we are starting our relationship with them with components products which does have a mix impact. So look, while we don't specifically guide to gross margin, I still expect this business to perform in the 40% range in the long-term. Dom, anything to add?

Well, I think you covered it all. I was going to say similarly that we do have some mix of customers certainly played a part in the fourth quarter and we certainly had a mix over the entire year. As you can see in our 10-K, for example, customer A was 26.4% of our revenue stream in 2024 compared to 36.3% in the prior year. So we've definitely had some mix, definitely had some diversification of the portfolio and that certainly had a bearing on the pricing environment.

That makes sense. That's helpful. And maybe just my follow-up would be, I think, Brandon, you alluded to the fact that you're having more in-depth conversations with some of your customers to ensure greater visibility into the delivery schedule for some of these projects. Can you maybe just add more context around exactly what you're doing to gain that greater visibility? And I think you also mentioned you're assuming slightly less project pushouts in 2025 relative to 2024. What gives you the confidence that things will improve this year?

Yes. Thanks, Andrew. Yes, first and foremost, just talking with our customers, both on the EPC side and investors and owners and quite honestly our peers, I think everybody feels good about the market dynamics in 2025 that things are improving versus 2024. As we said in the opening comments, I wouldn't call them normalized yet but I think they're certainly improving and that gives us some optimism, cautious optimism but optimism for 2025. Specifically, to your question around what we're doing, like probably most customers or most companies in our industry, we've got a CRM tool and we're trying to populate that CRM tool with as much data as possible to make us as educated around particular projects as we can be. And we track the different components of the projects. We track, obviously, the owners of the projects and we feel much better about our information and our ability to understand construction schedules than ever before. So I'm excited about the quality of our order book. I'm excited about the diversity of our order book going into 2025.

Our next question comes from Mark Strouse of JPMorgan.

Can you talk about the overall bidding activity since the ITC reversal in January? And I think you said on the last call that following the favorable ruling you received in late August, early September, that there were some new EPCs that had signed up for your product. Can you talk about what you're seeing there? Are those new customers reversing course now? Or is kind of the pricing environment, is that part of keeping them in your network?

Yes, Mark. Thanks for the question. Obviously, I can't talk about specifics of current quarter. But I would say our order book has been strong, particularly in the fourth quarter. As we talked about last quarter, we felt like we would have a very strong bookings quarter in Q4, we did with a 1.4 book-to-bill. We're seeing greater quality in our order book. What's very exciting is, look, we've got a long sales cycle, as you're well aware of. The processes and strategies that we have implemented over a year ago are now really starting to take shape. And our order book is as strong and diverse as it's ever been. We talked about tackling that 30% of the markets that we weren't quoting in our Investor Day back in September and we're making good progress there. 10% of our sales in 2024 came from customers that did less than $1 million. So I know we talked last quarter about attracting some new customers. We are seeing no change to that progress and again, are just are really excited about the diversity and quality of the order book.

Good to hear. And then a quick follow-up for Dominic. Just a bit more color on the cash from operations guidance for 2025. It sounds like part of that is just driven by a more back-end loaded year and so kind of the timing of those receivables turning into cash might be delayed into 2026. But first of all, is that right? And then second, is there anything else that you would add to that?

No, I think, Mark, you fundamentally answered your own question which is great for me, makes it easy. So I appreciate that. But yes, it's due to timing. As we've been kind of looking at the quarterly pacing and that's why I wanted to call out in my prepared remarks, the pacing because with a lighter first half and as we ramp up significantly for second -- latter part of Q2 into Q3 based on our timing, it will consume working capital and that pushes cash collections on the receivables side and particularly into the back half of the year. Likewise, on the inventories, we front-load as we're ordering materials to make sure that we're prepared for all that production. And so those are the kind of dynamics that will impact us. First half of the year is going to be more challenging. That's why I wanted to give some guidance to that. And then second half of the year is fine and we still have a very good strong book of business and positive cash flow again this year.

Our next question comes from Philip Shen of ROTH Capital Partners.

You guys talked a bit about pricing just now. Wanted to check-in on the margins. I know you haven't provided guidance officially for Q1 or the year. Brandon, you did just mention that 40% is a long-term target. So I was wondering if you could kind of bracket what the near-term targets might be for '25 and what the cadence of margins might be? Should we expect a bit of a dip in Q1 with the lower volume and then should that ramp through the year? Or do we see margins maybe staying stable through the year?

Yes, Phil, I'll go ahead and take that question. This is Dominic. So yes, once again, you really put in some of the elements of the answer. Yes, when revenue is going to be at a lower level in the Q1, it's the lowest level of the year as we expect, the margins would be more pressured there as you lose leverage and some of the mix becomes a little bit skewed towards some of our lesser margin driving businesses such as OEM. In the case of the pacing of it -- and while we don't specifically guide to the gross margin line item -- we do think that that will be improving throughout the year as we go towards the back half. And I really believe based on our mix, based on the projects that we've quoted, that we'll do everything we can to get right back to that 40% this year but we do have a couple of things going on. We are moving our facilities this year that will probably cause some inefficiencies and disruptions. We're going to work very closely to mitigate that. So I'm not sure that I would guide to a 40% fully this year but we're going to do everything we can to get there.

Second question here, a bit of a follow-up on bidding activity but it's more tied to the Voltage Section 337 case reversal. That was a big surprise for everybody. Wanted to understand what has the activity been like post-reversal? Have you had to move a little more in pricing? Or what have you been able to do to kind of offset some of the adverse impacts from that?

Phil, it's Brandon. I'll take that. Again, I can't comment specifically on current quarter. But look, we are continuing, as we always have to compete on quality and service. And our customer engagement is better than ever before. And again, really honing in on that quality piece, in talking to our larger customers, they are very pleased with our execution on site of projects and the quality and durability of our products. So no changes in the commercial activity. As you know, we've now filed and the case has been accepted by the ITC around our 2 new patents, the 375 and the 376 which we're very pleased with. And obviously, we've recently filed appeal of the 153 case in the federal court. So we'll keep progressing on the IP protection front as we should.

Our next question comes from Brian Lee of Goldman Sachs.

I guess first one on the guidance. I know you're giving us the cadence, first half, second half skew. I might have missed this but can you talk to some of the specific drivers? Is it a big customer? Is it just lumpier projects for the 2 half versus 1 half skew? Because I would have thought, I guess, coming into this year given what you're outlining as $130 million of pushouts from last year that it would have been sprinkled into the early part of the year. So it might have actually dampened the normal seasonality coming into this year. And then I guess I also look at the skew to awarded orders versus backlog, it's higher than normal heading into this year. So is this a customer issue, a project issue? Is this maybe lack of visibility based on the backlog/awarded orders mix? Just trying to understand the second half, first half skew a bit better.

Yes, this is Dominic. Let me -- Brian, let me take some of that because I think one thing that we've seen throughout 2024 is a bit of a declining backlog figure. If you go back and look at what we've released each quarter, there was some declines in backlog. So it's a natural reduction of business that was happening in 2024. And it's winter. Projects, this is a normal seasonality for the first quarter to be lighter than the rest of the quarters of the year. So as we look at the project pushouts, we have a lot of the timing. We do know that projects are more skewed towards the middle to the back half of the year. It's not limited to one particular customer. It's -- we've looked at every project, every single project in our pipeline, we've looked at the materials on site requests and we try to validate as much information as we can about the status of those projects moving forward. So I think it's an unusual seasonality this year. I think that once we have a more solid kind of expectation of when dates are going to land across the board on projects, I think that there's going to be a more predictable pattern in '26 and '27. I do believe that some projects were held up a little bit during the election cycle and that's why the orders didn't come through as quickly. So it is a bit of an unusual year for us. That's why I called it out, just trying to provide as much transparency as we can.

Fair enough. And then just maybe one follow-up on the margins here. I mean, if you back into it, the second half EBITDA margins are going to be back kind of low mid-30s which is pretty, pretty healthy for you guys. I mean it would imply you should be back to a 40% gross margin at some point, whether it's 3Q or 4Q, if the numbers are right. How much of that is just all through volume leverage? How much of that is some of the new products, new mix helping? I know you're seeing traction on some of those new efforts. Brandon, maybe can you speak to sort of the margin dynamics as some of that new revenue opportunity starts to translate to the P&L?

Yes, sure. I'll chime in and then let Dominic respond as well. I think you're exactly right on the volumes that we're seeing in the back half of the year, that's going to generate significant operating leverage for us and operating profits will improve as a result of that. So that is the main driver. As it relates to the new products and new markets, you're absolutely right. I mean we've got really good strong traction in our, call it, adjacent business units that we have put a greater focus on launching back in 2024. If you think about our diversification from a geographic standpoint, beginning to see some green shoots on the international front. We booked 2 nice projects in the fourth quarter, one in Australia and one in Chile. You see that our backlog and awarded orders has increased to $86 million. I'm well aware that we have had a consistent backlog there. We will recognize revenue in 2025 internationally. We expect projects to start flowing here very shortly. Brian, when I think about the products and market side, very excited about that. The CC&I business, we told you we'd begin recognizing revenue in the fourth quarter. We did. We recognized approximately $10 million in revenue last year. As it relates to product mix, that CC&I business is a good business for us, as we've communicated in the past. So we're excited about that. OEM business drives great operating profit for us. We're very excited to be aligned with the largest module manufacturer in the U.S. And as those products begin to get reshored, we will continue to grow with them. And maybe most exciting for us is our BESS product category which also will be accretive to margins. We launched a suite of products last year. Quote volumes have been significant. And we've got some exciting developments there. I think you'll hear from us, hopefully, in the next couple of weeks about a couple of those. So I think net-net, it's a mix up on those new market opportunities for us. Dom, anything to add?

Yes. I just want to add the emphasis on the product mix that Brandon just mentioned because as we even saw in 2024, with the OEM business being a larger percentage of our overall revenue and it certainly will be in the first quarter as well, when we land the projects with the full EBOS solutions, particularly our full BLA solutions and those grow in magnitude towards the back half, the product mix becomes very favorable to us from a margin standpoint, too. So yes, it's really everything that Brandon mentioned. We are getting traction in those areas which are meeting our targets and we're going to continue to drive that mix as much as we can to the full solutions.

Our next question comes from Colin Rusch of Oppenheimer.

Given the detailed conversations you've had with your customers, can you talk a little bit about the labor dynamics and specifically the skilled labor dynamics that your EPC customers are talking about right now in light of some of the changes in immigration policy?

Yes. Colin, it's a great question. This is Brandon. I think that as we've talked about all year, labor probably for our EPC customers as is big of a challenge, if not more, than supply chain. So there's no sign of that improving. Obviously, immigration policy will have an impact on that. But I don't think we see this improving in 2025. We get a lot -- asked a lot about project pull forward and that labor dynamic is the bottleneck. I think as you continue to see the explosive growth driven by AI in the data center space, that is pulling from the same labor pool. What I would say maybe a change that I hear from our EPC customers is around project planning. They are getting really strategic about how and where they take projects geographically and if they can package those projects sequentially, whether it is a renewables project or a data center project where they can keep that labor intact in a specific geography. I am hearing more and more of that. So they're having to do more preplanning probably than ever before to solve for that issue. So great question.

Yes. If I could just add one thing that we are hearing is that many of their dance cards are full. They've scheduled projects, they're going at their capacity and maybe that is the labor issue that we're talking about. But many of our customers are planned and fully booked for 2025.

That's super helpful, guys. And then in terms of this book and turn business, it's actually a pretty wide range impacting the overall guidance. What are you guys watching for in terms of that activity? And how can we think about that impacting numbers along the year? It seems like there's a lot of optionality for you if there's some book and turn business that shows up this year.

Yes. So we're very confident in being able to secure the book and turn business. And that's why in my prepared remarks, I kind of laid out that these are not new projects that are showing up on the radar. We've known about these projects, we know about the time lines, we've designed them in part. And we just haven't met all the qualifications. If they don't have notice to proceed, that's not going to be put into our awarded orders category, things like that. So as we look at book and turn, we're very confident that we'll be able to secure jobs that are not in the current year-end awarded orders and backlog kind of pie. It's in the pipeline just outside of what we've disclosed. And so yes, there is a bit of a wide range but I would say it's not really being driven as much by the book and turn concerns as it is the unpredictability of project delays. We do think '25 is going to be better than last year. We do have good cautious optimism about these projects all moving forward as slated. And if fewer projects push out than expected, I think you can see from our year-end number that our -- we would start skewing above the midpoint of our guidance range towards the high end of that range. So I think that's where I would say if there's any conservatism which I don't like using that word. But if there is, it's in the fact that we're still in a politically unstable environment with trade and we just have to make sure these projects hold to their schedules and then we'll be in really solid shape.

Our next question comes from Kashy Harrison of Piper Sandler.

So with '24 in the books, just kind of looking back at the numbers, it's now clear that your biggest customer was the main driver of the revenue pullback. And so was that all entirely project delay driven? Was that customer reallocating focus to other sectors? Was there something in the type of projects that were focused on? I'm just curious on what drives that view that since it's obviously such a big revenue contributor that that will be different in '25 than it was in '24? And I have a follow-up.

Sure, Kashy. So yes and that's one of the reasons why I want to call that out. I think it's important to note that none of our customers have been immune to developer delays of projects. It's not always our customers' decision about whether or not they're going to go forward on a particular time line. Sometimes those things are handed. And in many cases, folks were still absorbing and building out projects. One thing I think is very important to recognize is that just because we're done with the project doesn't mean our EPCs are. They're still engaged in the project, they still have to drive it through all the way to COD. And so many of them had the inability to take on more work. It is just a factor of the business. Sometimes there's ebbs and flows. Sometimes customers will have more business than others. I think in this particular case, it also impacted our mix somewhat. We did have a pullback in our full solutions. So it's ebbs and flows. We're very confident in the book of business. We do have some good agreements in place to drive additional volume and we're excited about the projects that we see in the pipeline. Brandon, is there anything else that you want to add to that?

No, Dominic, I think you hit it on the head. Excited about our project pipeline more than anything here in 2025.

And then just a follow-up for the '25 guidance, really just 2 housekeeping questions. One, can you talk about any implication of tariffs on how you've contemplated the impact of tariffs on your numbers? And then two, if you -- is there a way to think about what -- if we want to assume that the pushout environment is flat year-on-year, i.e., doesn't get better, would that put us at the low end of guidance? Would we be below the low end of guidance? I'm just trying to think through the sensitivity of if we want to be more aggressive on pushouts than you are, how we should be thinking about '25?

Let me maybe comment on the tariff environment first, Kashy. Look, just maybe as a reminder to everybody, we're a domestic manufacturer and we leverage a mostly domestic supply chain. So at a customer's request, we will import products from time to time to incorporate in our products. And we're working with suppliers and customers to mitigate any tariff exposure that we've got. But we've got, by and large, domestic products and domestic alternates for products for our bill of materials. So we feel like we'll be able to weather a tariff storm probably better than anybody. As it relates to project pushouts and guidance, Dom, do you want to maybe take that?

Yes, that's the natural and that's why we have the range. I mean if project delays are significantly back towards where they were in '24, then yes, that would be at the lower end of our guide. If you want to be more bullish -- we also listen to some peers that publicly release and we listen to their book of business because some of them are a little bit foretelling for what we might see. And we're optimistic. I'm going to be cautiously optimistic for the year but we're optimistic that the pushouts will not be as severe in '24. But you're right in the way you think about it. If project pushouts are a little bit heavier, we'd be in the lower end. If they're lighter, then they'd be on the upper end of our guidance range.

Our next question comes from Julien Smith of Jefferies.

Charlie, let's go to the next analyst. We'll come back to Julien.

Our next question comes from Praneeth Satish of Wells Fargo.

So, it looks like your -- about 69% of your backlog and awarded orders will convert to revenue over the next 12 months. So that's a bit lower than the 76% ratio that you achieved in Q3. So I'm just trying to understand what's driving that. Is that, I guess, due to further elongation of project cycles? Or is it more of the international bookings that have a longer revenue conversion cycle? And then when we think about bookings in 2025, do you expect that metric to improve from the 69% you're currently at or remain the same?

So, great questions. I mean there's a number of things in there. The projects that we've seen, as Brandon mentioned internationally, we are going to start driving international revenue. We know that some of those projects have been on the books for a while. And yes, some of those over the past 6 months may have slid out of '25 into '26. We never stopped talking to our customers. So our book of business now does reflect if projects were delayed, if we found out about a delay in Q4, if it was pushed out of the year, that would happen. We do expect a little bit of the project pipeline that we're seeing, we are being asked to quote projects now that are out further in the future. That is a key dynamic of the pipeline because I think we're really trying to get the visibility further out. As we've talked about before, we have -- we typically lead the COD dates of going live now by over a year when we do the work. And that's something that has gone from probably 8 or 9 months preceding COD in 2021 up to over 13 months now in 2024. And so time lines are elongating. So that also impacts our pipeline and our quotes and we're quoting and we're being awarded some business that is actually out in 2026 right now. So it is going to fall outside. And yes, we're quoting certainly for '27. I don't know if I've got award orders for '27 yet but we're certainly quoting business and we've been awarded business for 2026. It's just the nature of the time lines in the space right now.

That's helpful. And then just wondering if you could talk about any early feedback to the 2kV product from customers? How is the adoption going there?

Yes, on 2kV, still early in the process, pilot site underway but early in the process.

As a reminder, that does require regulatory approval before we can broadly commercialize that. We are leading the industry forward. We believe it's better for developers in the long-term to have 2kV. We are partnering with some very good names in the space as well to bring this product set to bear in the market. So we're very excited about it but it does require regulatory approval to move up from the 1,500 volt standard.

Charlie, if we can bring Julien back on.

Julien, your line is open. Please proceed with your question.

This is Deshante [ph] for Julien. Can you guys hear?

Yes, we can hear you.

So just wanted to touch on 2 things actually. One, the midpoint of the revenue guide kind of implied that 8% year-over-year growth. And I know that you guys don't necessarily talk about 2026 yet but how do we think about that 12% to 18% CAGR outlook that you guys have shared in your Investor Day?

Sure. And as I probably said at Investor Day, we do expect to ramp to get to that number as some of our new product offerings really begin to take hold. I think I tried to describe that some of the growth pillars were going to come from outside the domestic utility-scale solar space directly. And those are going to take some time to ramp. So the midpoint guide at 8% actually for us is very good. Now keep in mind, we also ended 2024 better than what we suggested at Analyst Day. We beat some of the internal forecast and expectations at that time. So we're on the track for the revenue growth that we outlined in our Analyst Day.

And then my second question was just on the international piece. I know you guys talked about Australia and Chile. Are there other markets that you guys are exploring? And then specifically, how does the margin cadence play out in the international markets just keeping in mind that 30% EBITDA margin that you have talked about in terms of outlook?

Yes, as we've described in the past, we have focused markets. Those are Australia, Latin America, Southern European countries. We've got some development opportunities in KSA as we signed an MOU to begin penetrating those markets. So look, we're excited to see that, call it, organic growth in 2 of the focus markets that we've identified. As it relates to margin profile, that is going to depend on the location and it's going to depend on the product that we sell, whether it's a full solution or a component product. And it may change depending on where we manufacture that product, whether it's export or whether we use some in-country manufacturing.

Charlie, let's squeeze in one last question from Dimple, if that's okay.

Of course, as you say, our final question comes from Dimple Gosai of Bank of America.

I wanted to talk a little bit on the tariffs which you initially brought up. Do you anticipate this will likely change the competitive landscape in part? And also, in terms of the ITC, right, I know you are appealing the process. Do you assign -- like what probability do you assign to a favorable outcome here? And do you have a time line around that by chance?

Yes. Maybe to start with the tariff landscape. Look, as a domestic manufacturer, tariffs can help us directly. I think it may cause a blip for the market in total but can help us directly. The tariffs that are currently on the table, as probably everybody is aware of, 10% for China and then a potential 25% for Mexico and Canada. We do have competitors and some primary competitors in China and in Mexico. So would certainly benefit us directly if those were imposed. As far as the second question goes, the ITC time line is, again, it's always sort of 12 to 18 months for the new case and will be very similar for the appeal of the 153. In terms of probability, I'm not going to assign a probability to either of those cases at this time.

Thanks, Dimple. We appreciate the question and thanks to all of our analysts. Apologies if we weren't able to get to your questions because that's all the time we have today. I do want to note before we let you go that we have a very active IR calendar in March which we announced last week in a press release. It can be found on our IR website. So please join us at one of those events. We'd love to spend some time with you. If we can help you further in any way, reach out to us at [email protected] with any questions. Thanks everybody for joining us today. Have a great day.