FTC Solar Inc (FTCI) 2022 Q3 法說會逐字稿

Hello. Thank you for standing by, and welcome to the FTC Solar Third Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question-and-answer session. (Operator Instructions). Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Bill Michalek, Vice President of Investor Relations.

Thank you, and welcome, everyone, to FTC Solar's Third Quarter 2022 Earnings Conference Call. Prior to today's call, we'd like to (inaudible) opportunity to review our earnings release, supplemental financial information and slide presentation, which we posted earlier today. If you've not reviewed these documents, they are available on the Investor Relations section of our website at ftcsolar.com. I'm joined today by Sean Hunkler, FTC Solar's President and Chief Executive Officer; Phelps Morris, the company's Chief Financial Officer; and Patrick Cook, the company's Chief Commercial Officer. Before we begin, I remind everyone that today's discussion contains forward-looking statements based on our assumptions and beliefs in the current environment and speak only as of the current date.

As such, these forward-looking statements include risks and uncertainties and actual results and events could differ materially from our current expectations. Please refer to our press release and other SEC filings for more information on the specific risk factors. We assume no obligation to update such information, except as required by law. As you'd expect, we'll discuss both GAAP and non-GAAP financial measures today. Please note that the earnings release issued this morning includes a full reconciliation of each non-GAAP financial measure to the nearest applicable GAAP measure. In addition, we'll discuss our executed contracts and awarded orders (inaudible) referred to as backlog, and our definition of this metric is also included in our press release. With that, I'm going to turn the call over to Sean.

Thanks, Bill, and good morning, everyone. Starting at the market level, the Uyghur Forced Labor Prevention Act, or UFLPA and its rules for module importers and reviews by U.S. Customs and border patrol continues to prevent solar modules from getting into the country and in turn, prevents a large portion of projects in the industry from moving forward. This obviously also delays our ability to convert a large portion of our backlog into revenue, as you'll see when Phelps discusses our Q4 outlook. While extraordinarily frustrating, we are not sitting idle. We are making great strides in our efforts to improve our near and long-term positioning and remain optimistic about FTC Solar’s future.

There are 4 primary takeaways I'd like to leave you with today. First, our total backlog continues to grow nicely and is approaching the $1 billion mark, presently sitting at $961 million. This includes $203 million added since August 9. This growth is supported by our efforts to build and strengthen customer relationships, add new customers, including top-tier developers and EPC companies and accelerate our international expansion. Our international expansion was just at its early stages when the regulatory issues started here in the U.S. We've made great progress on this front. We've told you about a number of projects in Australia, and we were recently awarded our largest to date in the country, a 128-megawatt hybrid solar project, which is expected to be the largest DC-coupled solar and battery project in the country. In addition to Australia, we have also recently been awarded projects in South Africa, Kenya, Malaysia and Thailand. In addition to our backlog progress, our total project pipeline has now reached a new record level at 90 gigawatts. The international portion of that has more than doubled year-to-date and now represents the majority of our pipeline.

The second takeaway is that $165 million of the $203 million we've added to backlog in the last 3 months is not expected to be impacted by UFLPA. This gives us confidence that we've seen the lows in terms of revenue in Q3. This backlog includes international projects, U.S. thin film or U.S. crystalline projects for which modules have been secured. Much of our recent focus, actions and accomplishments will also serve and continue to bolster this portion of our backlog as we await resolution of UFLPA. For example, the team has been working hard behind the scenes to work on a cost-effective solution for U.S. thin-film modules, which we recently made available to customers filling an obvious gap in our offering. This gap was a result of our previous decision to focus our R&D team's efforts toward providing solutions for crystalline modules first, which in a normalized environment represents the bulk of the overall U.S. market. And that was perhaps a reasonable position when crystalline modules were flowing normally. However, more recently, that gap in our offering has been more noticeable, has impacted our ability to convert backlog into revenue and frankly, was something we needed to rectify to hedge against a delayed UFLPA resolution. I'm pleased to say that while this new solution has only recently been made available, we already have multiple project awards in the hundreds of megawatts for this solution in our backlog additions.

Another example includes the recent announcement of a new 1P tracker solution called Pioneer. Having this differentiated new 1P tracker greatly expand our served market around the world, giving us more opportunities to win projects where there is a preference or benefit for 1P. Our solution offers 18% to 36% fewer foundations than other leading competitor solutions and is projected to deliver gross margins between 12% and 18% as revenue gets to the $150 million quarterly revenue run rate. That is enabled by: one, our design-to-value initiative, which we had previously discussed with you at length and has allowed us to take more than 20% of the cost out of our tracker systems, providing a product cost structure to enable double-digit gross margins on future projects; two, leveraging expertise brought in-house with our HX acquisition, including our design to manufacturing efforts, which ensure that our DTV efforts are also easy and cost effective to manufacture; and three, building out our DG business, which has higher margins and ASPs. We have received a lot of interest in our offering since launching earlier this year, along with great feedback. Our DG pipeline is growing very quickly, and there are 2 nice-sized portfolios of projects in the Midwest and West Coast, which in total will be in the range of 500 megawatts, included in our backlog additions this period. Obviously, at our current low revenue run rate, the gross margin improvements remain muted, but will be even more apparent as our revenue run rate grows and our R&D Team continues to grind out incremental cost improvements.

And the final takeaway I want to leave you with is that our liquidity position is stable. We ended the quarter with $50 million in cash on our balance sheet. In addition, we have no debt and a $100 million revolver, which remains undrawn. For the fourth quarter, we expect to be approximately cash neutral based on our current forecast and anticipated collections. This sets us up nicely as we enter what we expect will be an improving financial position in 2023.

So in closing, we believe we have turned the corner and seen the lows from which we will grow. Volumes are still depressed at the moment as U.S. customers try to find solar modules, but the pent-up demand represented by our pipeline and backlog is incredibly large and growing. The proportion of our backlog that is not expected to be impacted by UFLPA is improving and will be enhanced by our new U.S. thin-film offering, our new 1P tracker offering and the continued growth of our international business. We now have a strong product cost structure on future projects, which puts us on track for double-digit gross margins as our revenue run rate recovers and our cash position is stable and expected to be flat in Q4, setting us up nicely ahead of expected improvement in 2023. We believe our actions during this industry slowdown have positioned us to show improvement in the near term and to once again outpace market growth once module availability returns to normal with significantly enhanced profitability. With that, I will turn the call over to Phelps to provide more detail.

Thanks, Sean, and good morning, everyone. As a follow-up to Sean's comment, I'd like to provide some additional color on the third quarter performance and our outlook. So let's begin with the results of the third quarter. Our results through the quarter were in line with guidance ranges. Revenue was $16.6 million at the lower end of the range with a depressed level reflecting the lower demand environment in the U.S. amidst the UFLPA-related module constraints that Sean talked about. This revenue level represents a decrease of 46.1% compared to the prior quarter and a decrease of 69% year-over-year, driven by lower volume and partially offset by a higher ASP. GAAP gross loss was $9.5 million or 57.4% of revenue compared to $6.5 million or 21.2% of revenue in the prior quarter. Non-GAAP gross loss was $8.2 million or 49.8% of revenue. The margin percentage is also towards the lower end of the range on the lower revenue level. The results for this quarter compares to a non-GAAP gross loss of $7.7 million in the prior year period, with the difference primarily driven by the lower product revenue, partially offset by improved logistics margins. GAAP operating expense was $17.2 million on a non-GAAP basis, excluding stock-based compensation and certain other expenses. Operating expenses were $9.1 million compared to $8.4 million a year-ago quarter. This was better than our guidance range due to some cost management activities in the quarter. This relatively small year-over-year increase was driven by the growth in staffing and other costs related to public company requirements. GAAP net loss was $25.6 million or $0.25 per share compared to a loss of $25.7 million or $0.26 per share in the prior quarter and compared to a net loss of $22.9 million or $0.24 per share in the year-ago quarter. Adjusted EBITDA loss, which excludes approximately $7.9 million, including stock-based compensation expense, certain consulting and legal fees, severance and other non-cash items was $17.7 million. This result compares to an adjusted EBITDA loss of $17.7 million in the prior quarter and $16.1 million in the year-ago quarter.

As Sean mentioned regarding liquidity, we ended the quarter with $50 million of cash on our balance sheet, no debt and access to our $100 million revolver, which remains undrawn. In addition, while we did establish a $100 million ATM program during the quarter, we did not tap into it. And at the present time, given the stability of our liquidity position, we have no plans to utilize the facility in Q4.

With that, let's turn to the outlook. We continue to expect the third quarter to represent the low watermark in terms of revenue and margin. We do believe we have seen the lows and will grow from here. As Sean discussed, the actions we've taken by adding a U.S. thin-film module solution, introducing a new 1P tracker, Pioneer, and our international business will help mitigate the near-term impact of UFLPA, which has delayed our ability to convert backlog into revenue. We have roughly $165 million of backlog that includes these projects, the U.S. thin-film projects, international projects and U.S. projects with crystal modules that are not expected to be impacted by UFLPA because they're already in hand, which gives us confidence that we have seen the lows. The flip side is that over 80% of our backlog is U.S.-based projects scoped with crystalline panels, which had been delayed due to UFLPA. This continues to be very frustrating and has impacted our ability to convert our backlog into revenue. As such, while we expected revenue growth on a percentage basis from the third quarter lows, we do expect revenue for the fourth quarter to be lower than our previous target. In addition, our gross margin expectation for the fourth quarter also reflects an improvement from the third quarter as we see an improved revenue mix and improved project margins as a result of our internal initiatives. However, the results are similarly impacted as the overhead cost absorption is still being spread across a relatively low revenue base. Collectively, these factors slow down to adjusted EBITDA, offset to a degree by the continued focus on controlling costs that we have implemented considering the module uncertainty in the market.

One item to highlight is a number of our members of our executive leadership team, including Sean, Patrick and myself have voluntarily elected to take a vast majority of our salaries in stock versus cash subject to a minimum cash requirement to maintain benefits. This began on July 1 and will continue through the end of 2022. We believe this shows the management team's confidence in the long-term prospects of the company (inaudible) regulatory headwinds list.

Moving to the specifics (inaudible) guidance. Revenue growth, we're anticipating a 40% to 60% of the Q3 (inaudible) to be between $23 million and $27 million, non-GAAP gross loss of $3.5 million to breakeven or negative 15% to 0%. As you might expect, the percentage ranges vary more greatly at these lower revenue levels. Non-GAAP operating expense between $10 million and $11 million and adjusted EBITDA loss between $14.5 million and $10 million. Finally, while we are still looking for incremental clarity on how much module supply will be available to customers, we expect to see continued sequential revenue improvement in the first quarter of 2023, along with continued margin improvements. With that, we will conclude our prepared remarks, and I'll turn it over to the operator for any questions.

(Operator Instructions). Our first question comes from Philip Shen with ROTH Capital Partners.

I want to start off with the 500 megawatt order you had with Primoris. I was wondering if you could just give us a sense for how you guys think you won the business? I think the 1P product is still not out there. And so you were able to win that business in a nice way. Help us understand compared to your peers, how you won that business?

Thanks, Phil. Appreciate the question. I would tell you that there is just an amazing amount of customer excitement about the 1P product. And in fact, a lot of the customers who know us for our 2P product, were involved in looking at our initial designs and thoughts around the 1P. And we want to make sure that like our 2P offering, that the 1P offering is really appealing to our customers by solving their problems and has all of the constructability advantages that are so well known in the Voyager 2P product. And so just from the initial launch at Replus where we brought basically a sample of the product to show people, we've gotten really positive feedback. We've also gotten a lot of positive feedback at our demo site in Colorado, where we've had just an endless stream of customers coming through. And it feels like the market really wants an alternative in terms of 1P. And so we're really excited about the the first order with Primoris. I'll turn it over to Patrick also to give a little more color.

Thanks Sean. What Sean says is exactly right. We've been engaged with our customers pretty deeply over the last year and trying to figure out what they want in terms of products that fit their needs. Obviously, we've got the Voyager solution, which we were incredibly proud of in terms of constructability, but really focused on the 1P based on customer feedback. So we have folks like Primoris we've been engaged with for a long time developing that product and ultimately led to that 500-megawatt order. The other thing I'd articulate too is it really comes down to customer service. I think they like how we engage with our customers. We bring a developer mindset, given most of us came from a developer platform previously. And I think that's played in well with the account penetration that we've had with some of these top-tier EPCs and developers in 2022. We're seeing that momentum carry into 2023 with the growth of our contract and awarded backlog as well.

I heard a lot about your positive customer service as well. So kudos there. In terms of your Q4 guide, clearly, everyone's disappointed. We had done some work highlighting that the industry was installing a lot of projects with Tracker, but without modules. And we saw what Array did last night and they took a side up as we're looking for. But in your case, it's been a little more difficult. So I was wondering if you could share some color on what you think your exposure was to those types of customers who were building or perhaps were not building projects with that module? And just any color on the dynamics there would be?

Yes, absolutely, Phil. We absolutely believe that Q3 is our low point. And with the things we've done in terms of the product portfolio, we talked at length about our 1P pioneer a moment ago. But also you saw the press release, I'm sure last night, we announced our first solar offering and we've seen a lot of excitement around the first solar offering as well. And so I think in terms of our product portfolio, I think it's greatly enhanced now by both of those developments. And in fact, the team just did a fantastic job pivoting when it became apparent, UFLPA is going to continue along and developing our first solar solution. The team has done a fantastic job providing that to the market. And like we've seen with our 1P Pioneer solution, we're seeing a lot of excitement around our first solar Voyager offering as well. And so again, I would just emphasize that we really do believe Q3 is the bottom for us, and we think there's tremendous opportunity. In addition, our international portfolio, we continue to see success internationally, and we think we'll see some continued progress there into next year.

Great. Finally, in terms of cash consumption, I was wondering if you could share a little bit more detail on how much you expect (inaudible) in Q4? And then in terms of Q1 and 2, I was wondering if you could talk through what you see in terms of bookings momentum for Q4 and the first part of next year? And also what might cash consumption be in Q1 and especially if the UFLPA situation persists?

So yes, no problem. I'll comment and then I'll ask Phelps to comment as well. Phelps and the team have done a really good job focusing on cash through this period. And I'm really satisfied with the results that we did see last quarter in terms of cash, being able to end with roughly $50 million and then the untapped revolver as well and no debt. And so we continue to watch that very carefully and manage it very carefully, but I'm pleased with the results we've seen so far. So let me turn it over to Philips to comment a little bit more.

Thanks. As Sean mentioned, we ended the quarter with about $50 million of cash. I think when we look to Q4, we have line of sight between now and the end of the year in terms of collections as well as new deposits for POs being placed for the quarter that we think will be around neutral from a cash flow perspective. Obviously, you have to collect the collections and get the actual POs in, but that's going to help us offset some of the operational burn that you'll see in the guidance. And so that puts us in a good position. Obviously, the other thing that we put in place that we talked about in the prepared remarks is we did put in place the ATM facility, but given our current liquidity position, we don't have any desire at the current time to tap into that. I think another area that you should focus on in the balance sheet, just look at our current assets and current liabilities (inaudible)? If you look at the current assets, it's basically $132 million versus the current liability, $66 million. So if you look at your current ratio, it's 2x over, which is very strong. If you look at your quick ratio, it's about 1.9 as well. So when you look at the overall balance sheet, you don't have this big imbalance where your liabilities are in excess of your current assets. And so that's what makes me sleep well at night that we have that. Obviously, we'd love to have more cash in a certain environment that, but we think we're in a very good position from a balance sheet perspective at the current time.

And on the bookings perspective, we see a lot of demand going into 2023. A lot of our customers are engaged with us on the 1P, the first solar solution and also our Voyager 2P, so we are seeing that pent-up demand, customers are really trying to make sure that they get the capacity that they need to build out their product portfolio. And now that we've got several different offerings, it puts us in a pretty unique position. The other thing we're seeing is customer deposits and downpayments, so the liquidity perspective continue to come up, so we're able to really anchor our liquidity position in there as well.

Yes. And I would add to that as well, Phil, that while we're not certainly not guiding Q1, Q2, but we've really, this quarter, with the work on 1P and internationally and then the first solar solution, we've really done a good job to make the company resilient to UFLPA for future business. And so if ULPA persists, we think now with our product portfolio, we have certainly more opportunity for next year.

Thanks for all comments.

Our next question comes from Donovan Schafer with Northland Capital Markets.

I want to start by just asking about this proposal from FEMA to the international construction or building council to raise the design categories from category 1 to category 4 for natural disasters and whatnot. I think like the tracker design that you guys have, because it's taken this ground-up approach, you maybe have relatively less steel on average and can do lower pile embedment, horizontal, so with the overdamping approach. And so there's a lot of positives and elegance to the design in a way that I think could potentially be very favorable vis-a-vis peers for an increase in the design standard, but you don't have as many megawatts deployed and other things like that, so it could also potentially see things maybe going the other way. So I'm curious if you can just give any color around that and how you think your designs are fair with respect to customer appetite and in light of an increase in these standards, if that were to transpire?

Yes. Donovan, this is Sean. Thanks for the question. Yes, we believe our design is indeed quite robust, but we are watching that situation very, very carefully in terms of the actions that FEMA may or may not take. So let me turn it over to Patrick to provide a little bit more color.

Yes, thanks, John. From a design perspective, we believe we have a very robust solution. And we've been watching the FEMA situation pretty closely. We think it's going to end somewhere a little bit less draconian than what's ultimately out there. But in any event, the system that we've designed as it currently stands, won't see a material change in any sort of outcome that we have. The tracker that we've built is set to withstand these design wind speeds, and we'll be able to act accordingly without a material change in our product.

Okay. That's helpful. And then for the (inaudible), the new product with thin-film largely for solar panels. I was under the impression, and maybe I'm misremembering this, and I couldn't clarify with certainty in my notes. But I feel pretty confident. I think I asked about this back when this issue arose. And I remember I went out to the demonstration site that you guys have in Colorado. And I thought at that time that you already were able to accommodate thin-film, our First Solar modules on at least the 2P tracker version at that time. So is the thin film capability now just applying to the 1P? Or am I missing something? Or is there just sort of a nuance where it could accommodate Centerton before, but it wasn't as ideal as (inaudible). And so this is a more sort of optimized or ideal upgrade for doing thin-film. Just any clarification there would be helpful.

So we did have some small number of projects that we did in the past in terms of thin film. But what we're excited about is we've really worked on the system through the DTV initiatives and now can accommodate the 6 and 6 Plus modules from First Solar and really feel good about the way it's come together in terms of still being able to see the advantages of the Voyager system in terms of putting panels on to the system with the lowest amount of man hours. And so this is our version of the system that accommodates the 6 and 6 Plus modules.

Okay. And just a quick follow-up on that is First Solar, I think, has notoriously had so much of its capacity booked out for 2 years or so in the future. And so in terms of the impact near term or 2023 from having this ability to do thin-film, is there sort of a secondary market of customers that are buying and selling, buying other people out of their contracts to get their hands on thin-film panels because without that, you'd think that there would not be surplus thin-film around, but is that what you expect?

The people we're talking to are what I would consider primary customers of the modules that have agreements to have the modules over the course of the next couple of years, but have not yet determined what tracker system they're going to use. And so now we provided another option. And we've seen, again, just like we've seen with our Pioneer 1P solution, a lot of interest and excitement among customers that do have First Solar modules. And I think the other thing too (inaudible) of 6 Plus, I think it opens up a new dynamic for us in terms of our total addressable market. We hadn’t been bidding on those projects to date. Because of the solution now that we've developed it, we've seen an influx of bids, and that's informed by our contracting awarded. We inked several hundred megawatts shortly after deployment with some Tier 1 customers. We're continuing to engage with some additional ones and really opening up the market as it relates to First Solar to a broad base of the EPCs and developers that we weren't able to participate in before.

Okay. Great. That's helpful. Yes, I was able to kind of check out your demo unit and everything and (inaudible). And I really like the engineering, the design seems really solid. And a lot of the ideas from the Voyager Tracker seem to carry over well to the Pioneer. So on the face of it, it seems like a really solid product. And so I'm hopeful that just squares. What you're saying about customer interest? Squares with my (inaudible) understanding from some engineering experience that it seems like a great design, but hopefully, we will start to see that play out in some of the numbers. So good luck with everything. Take care.

Our next question comes from Jeff Osborne with Cowen.

A couple of questions on my end. Just to be clear, were there projects in either 3Q or anticipated for 4Q that were impacted by detentions from UFLPA? You've mentioned it several times, but it was unclear if you actually have had customers come to you and so we had modules to (inaudible).

Yes. We've definitely seen projects that have shifted right due to the inability of people to get crystalline modules due to seizures related to UFLPA.

Is there a way to quantify that just as we hopefully hear about releases from detention that coming through in the springtime of next year?

Yes. We're hopeful that, Jeff, that we will see release, but we've really put our emphasis here in the last quarter on making ourselves much more robust to a lingering UFLPA situation by having the 1P tracker available, which allows us to participate in a much larger swathe of the market and then also the news that we shared yesterday in terms of our First Solar solution. And so it's hard to quantify exactly, and we're not providing numbers related to that. But suffice it to say, we're really working to make the company robust to UFLPA and frankly, whatever may come next.

And another way to think about it, Jeff, is you just look at our Q4 guidance that we provided at the end of last quarter versus what we're providing today. Most of that is UFLPA being pushed out, right? And so that's one way to think about the quantification impact on Q4 with UFLPA because as Sean mentioned previously, a majority of that projects are all crystalline-based projects that modules were not being delivered and were impacted.

Is it a safe assumption to say that those were the detentions we heard about in the public domain in August? Or were those more recent?

Yes. I don't know if you want to quantify on specific customers, but you can make some assumptions.

Got it. And then just 2 other quick ones. Is there any risk to the backlog that you have in hand of almost $1 billion? Is any of that pricing a bit stale or margin dilutive? I'm just trying to get in the slowdown here. I'm trying to understand if there's any work-through of suboptimal price products or projects relative to the recent bookings.

No. Great question, Jeff. (inaudible) $961 million of backlog. How we price our projects is really refreshing the bids every 10 to 14 days. So every about 2 weeks. So within that $961 million, there's no long-term fixed price cost agreements that are going to come out where commodity prices move or logistics prices move that we get caught to the negative downside. So we're able to pass those costs and the increases off to the customer as it relates to the bid. There are no fixed pricing in any of that 961.

That's great to hear. And then last one I had for you is just, as you anticipate the domestic content requirement for next year kicking in, is there any sense of guidance you can give us on how much of a preliminary snapshot of your supply chain could be prepared in the U.S.? Is that 60%, 70%, 80% or more? And then most of you (inaudible) come from the U.S., (inaudible) aluminum steel galvanization.

Yes. We are excited about the opportunity that IRA presents for tracker, and we have been studying options and so we're very deep into that right now, and we feel confident that we'll be able to supply from U.S.-based sources without any issue. And we've had a lot of inbound requests from customers that are requiring kind of that 100% steel content, and we've been able to meet the requirements for those bids that are coming up in the short-term as well. So we feel very confident in our bidding and able to meet those requirements on existing projects that currently stands.

Excellent.

Our next question comes from Kashy Harrison with Piper Sandler.

Good morning. Just 2 quick ones for me. So you're highlighting an order book that's approaching $1 billion. If we were to be optimistic and just assume panel supply all of a sudden is not an issue anymore. How much of that order book would convert to revenues in 2023? And then would you have sufficient liquidity, given the working capital requirements of growing significantly in a short period of time. Would you have sufficient liquidity to deliver on that order book?

So we haven't typically broken it out in terms of by year, but a significant portion of that backlog is indeed for next year. And we feel very comfortable with the work that the team has done in terms of our liquidity that we will not have any working capital issues in terms of meeting that demand, if indeed, the crystalline panel supply is resolved in the short-term. I think one of the big (inaudible) is how quickly some of the developers are going to have from a workforce perspective to be able to put the projects on the ground. We'll be ready for that. And from a working capital perspective, the trend you're seeing is bigger downpayments are being required from developers to lock in their supply chains. And so that's really going to offset some of the working capital required as they spin up in terms of the ramp-up once you've felt the (inaudible).

Our next question comes from Maheep Mandloi with Credit Suisse.

Good morning. Just a clarification on the pushouts because of UFLPA. Trying to understand, are there any cancellations in there? Just trying to think in these higher rate environments if project developers might cancel if in case the deal is extended beyond a certain period. Any thoughts on that?

Yes. It's really, frankly, a matter of push-outs and not real cancellations. So the impact of UFLPA basically has been for projects to shift right and not for them to effectively be canceled.

I think the other thing I'd add to. You see a lot of the developers in 2022 going back and renegotiating the PPAs for higher rates. I mean solar generation source is still one of the most cost-effective ways to deploy energy and the U.S. needs energy. So these projects, economics still fundamentally work because of the rising PPA prices, which are great. But also, we're seeing commodity and logistics pricing continue to fall. So the project economics on these projects still work. It's really just the timing of the crystalline modules and when they're going to arrive in the U.S.

Got it. And then on these push-outs, (inaudible) clarification on the cost adjusted every few weeks. But on the pricing, is it firm pricing? Or the pricing is also adjusted? Just trying to see if there's any upside to margins once you delay in the next year and steel and shipping costs are much lower than today.

We're locking in the purchase orders with our contract manufacturer at the time we received those purchase orders. Leading up to there, we're refreshing the bids to our customers that reflect the latest logistics and steel pricing to ensure that we maintain our margins. We are not fixing projects or fixing contracts to a long-term date that isn't tied to some form of index. We are locking in pricing every 2 weeks.

Got it. And the expectation is to get back to that 12% to 18% margin as soon as UFLPA clears up?

Yes. The projects that we have in the backlog, we definitely can reaffirm the margin outlook based on the projects that we see in the backlog. So absolutely, as the base revenue grows over time, we do certainly expect to return to that level. I think you see even on a relatively low base, you can see the margin improvement from Q3 to Q4.

Got it.

(Operator Instructions). Our next question comes from Julien Dumoulin-Smith with Bank of America.

Good morning, Team. Just want to follow up with a couple of questions here. Just looking at the cash gen, you talked about being in the neutral position here relative to the negative EBITDA. Can you talk about a little bit of what's driving that and especially as you roll forward here into the first quarter, given the revolving credit facility here that extends through March 31. Just talk a little bit about the cash gen and then maybe from there, as you think about cash gen, you talked about gross margins getting to this mid-teens range with $150 million run rate. Based on what you understand on the backlog today, what's that time-line to get to that may see? I know there was a hypothetical asked about solar panel availability was today, what that backlog realization would be? But maybe asked slightly differently, when under status quo context, do you anticipate realizing that backlog such that you get to the $150 million run rate, if you will?

Yes. Thanks for the question, Julien. I'll start off on the cash flow. I think there's 2 factors that are going to drive and offset some of the potential operational burn in Q4. One of them is deposits that we talked about earlier in the call. We're expecting to get higher upfront deposits once POs are placed for future projects. So if we got a PO place in Q4, they'll put 20 to 20-plus percent down for delivery and revenue, you'll start to see in Q1 as an example. In addition, we have line of sight on collections that we have. If you look at the AR that we have outstanding, it's about (inaudible) $53 million. And if one of those collections come in, you can offset some of the operational burn to get to that relatively neutral area that we're targeting for Q4 year-end.

This is Sean. So with regard to the margin question. So clearly, we're not guiding for next year, but we are reaffirming our gross margin outlook. And so I absolutely feel positive based on what we see in the backlog today that we have lots of opportunity to achieve it next year.

When you say next year, just to make sure that sort of an (inaudible) of 23 or at some point next year? And then maybe to clarify that even further. The $165 million outside of UFLPA, that's all First Solar panels, right?

So the backlog addition for the quarter, we said was $203 million. And of that $165 million is basically what I would call UFLPA-resilient. And so in some cases, it's first solar, in some cases, it's international. And in some cases, it's crystalline projects for which modules have been secured. And they have them in country currently. It's not subject to any sort of attainment.

Got it, and that's what gives you the confidence to say you get to that $150 million run rate at some point next year, just to make sure I'm tying those 2 statements together here?

We're not guiding anything for next year. But absolutely, we feel good about the gross margin numbers, and we're basically just reaffirming the numbers that we provided. A theoretical $150 million revenue per quarter run rate.

Got it. That is not specific next year. Excellent guys. Appreciate your patience.

I would now like to turn the call back over to management for any closing remarks.

Thanks very much. I appreciate everybody's participation in the call. I'm really excited about the progress our team has made in terms of our product offering, the First Solar offering that we issued the press release regarding yesterday and our new 1P Pioneer that we recently introduced at (inaudible). I'm also excited about the progress the team has made on the non-UFLPA backlog, $165 million out of the $203 million. And I feel confident in Q3 being our bottom, and I'm absolutely optimistic about the future for the company and the opportunity that we have moving forward. So thank you all for your participation today.

This concludes today's conference call. Thank you for participating. You may now disconnect.