Shoals Technologies Group Inc (SHLS) 2021 Q1 法說會逐字稿

Good afternoon, and welcome to Shoals Technologies Group First Quarter 2021 Earnings Conference Call. Today's call is being recorded (Operator Instructions). There is a presentation accompanying the prepared remarks, which can be found on the Investor Relations section of the Shoals website.

At this time, I would like to turn this conference over to Mehgan Peetz, General Counsel for Shoals Technology. Thank you, ma'am. You may begin.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me are Shoals Chairman, Brad Forth; CEO, Jason Whitaker; CFO, Philip Garton; and SVP of EV Solutions, Jeff Tolnar.

On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of other factors discussed in today's press news release regarding first quarter earnings and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.shoals.com. We do not undertake any duty to update any 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 first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures.

With that, let me turn the call over to Brad.

Thank you very much, Mehgan, and good afternoon, everyone. We are excited to have completed our first quarter as a public company. We continue to execute and deliver on our strategy. We have a great team and an opportunity not just domestically, but globally as well.

With that, I'll now over it over to Jason to provide an update on our business performance and strategy. Jason?

Thank you very much, Brad, and good afternoon, everyone. We have some important updates to share with you today, so I'll be referring to the slides that were posted to the Investor Relations section of our website earlier this afternoon. I'll start off with an update on our business and growth strategies. Then turn it over to Shoal's Chief Financial Officer, Phil Garton, who will provide financial highlights from the first quarter. And then our SVP of EV Solutions, Jeff Tolnar will give an update on our EV business initiative.

Turning to Slide 7 of our presentation. As most of you know, 2020 was a record year for Shoals both in terms of revenues and profits. That momentum continued into Q1. We generated more revenue and adjusted EBITDA in the first quarter of 2021 than in any other first quarter in our history.

Our results were driven by continued growth in our system solutions business, which was up 46% versus the first quarter of last year. That growth was the result of continued strong demand for utility scale solar as well as market share gains. More and more customers are seeing the value that our combine-as-you-go system provides, and we're converting customers to BLA in a much shorter period of time than it took us in the past.

To give you some context for how much we've accelerated the customer conversion process, we have converted 4 of the top EPCs in the U.S. to BLA when we went public in January. Winning those first 4 customers had taken us about 3 years. And in just 3 months since our IPO, we've completed conversion of 4 additional EPCs to our system, bringing our total to 8. We see the strong growth we experienced in the first quarter continuing throughout the balance of this year.

As of March 31, 2021, we had backlog and awarded orders of $181 million, an increase of 42% from the same time last year and greater than our full year 2020 revenues. We expanded our margins again in the first quarter with gross margin increasing 635 basis points year-over-year and approximately 290 basis points sequentially. The primary driver of our margin expansion is the continuing shift in mix from components to system solutions. System solutions carry higher margins than components. As we transition customers from purchasing components to purchasing system solutions, our margins grow.

It's also important to emphasize that the labor savings our customers are achieving using our products can exceed the cost of our product. When you have a value proposition that's strong, it's not hard to maintain prices and earn good margins. We're seeing tremendous performance from our core combine-as-you-go products, but we are not standing still. We are completing field testing of our IV curve benchmarking and first wire management products with selected customers now and we're on track to generate first revenues from those products in Q4. We're ahead of schedule on our EV charging products, and we'll be accelerating the launch of those products from 2022 to the fourth quarter of this year.

Now turning to Slide 8 for the outlook of our end markets. In our core U.S. solar business, we're seeing increasing levels of demand as the build out of new projects accelerates. The acceleration is being driven by continued declines in LCOE of solar, which makes it more competitive with other sources of generation; growing corporate utility commitments to buy more of their energy from renewable resources; the 2-year extension of the solar ITC that was passed in December; as well as the normalization of permitting processes as more states reopen from the pandemic.

The chart on the right of this slide is a reflection of how much things change in just the past few quarters. These bars show what IHS estimates were for solar installations in June of last year versus where they were in January of this year. The total forecast for the U.S. installations from 2021 to 2023 has increased by over 30%. That's a huge increase in the size of the market and aligns with what we've been seeing in the marketplace and hearing from customers. It's also important to highlight that the acceleration of the solar market does more than just increase our addressable market. It also pushes customers to adopt our solution versus conventional EBOS. The reason for that is as activity levels grow, labor rates rise and labor availability falls.

Many of our EPC customers are telling us that they're having difficulty staffing jobs. The opportunity right now is that big because our combine-as-you-go system installs much faster than the conventional EBOS and does not require skilled labor. We can be the difference between our customers being able to take on an incremental job versus letting it go to a competitor because they simply don't have the crews available to do the work.

Turning to Slide 9 of our presentation. That growth in the market, combined with the share gains we're seeing, is reflected in our order book. Quoting activity has increased 50% from what we were seeing during the same time last year and average project sizes have increased 25%. The latter is very favorable to us because our system solutions are customized to a particular job. We have certain fixed costs that are the same regardless of job size. So as the job size gets bigger, we get more leverage on those costs. More leverage on fixed costs usually translates to higher job margins. And as I mentioned earlier, as of March 31, 2021, our total backlog and awarded orders were $181 million, which is greater than our full year revenues last year and represents a 42% increase versus the same period last year.

Turning to Page 10 of our presentation. One of our core growth strategies is to take share with our combine-as-you-go system. This slide gives you some perspective on how successful we've been in just the past few months, converting EPCs and developers to our system. When we went public in January, there were 4 major EPCs that used our system for most or all of their projects and another 10 that were in transition. When we define customers as in transition, when they place an order that is included in our backlog and awarded orders.

Winning over those first 4 EPCs took about 3 years. Contrast that within the last 3 months, where we completed conversion of an additional 4 EPCs, we're getting faster at winning new customers. More importantly, the amount of time it is taking for sales prospects to place their first order is compressing. You can see that in the numbers on the page.

Since our IPO in January, we identified 21 new prospects. During the first quarter, 5 of them placed orders. That means we successfully converted a prospect to an order in less than 90 days. That is an extraordinarily short period of time for an EPC or developer to move to a new system that has different means and methods. And we think it underscores the tremendous strength and differentiation of our product offering.

Turning to Page 11 of our presentation. I mentioned earlier that we're not stopping with just BLA. We have additional new products for solar in our pipeline, and we're on or ahead of the launch schedule that we set out for those products during our IPO. The next 2 products that we'll be introducing are IV curve benchmarking systems and wire management solutions.

IV curve benchmarking systems give owners unparalleled insight into the performance of their projects down to the string level. And we believe they will be a valuable tool for owners to improve production and lower O&M costs. Wire management solutions are an improvement on conventional wire types that have a high rate of failure in the field. This will be a high-volume, high-margin product for us. Both products are currently being tested with customers, and we're on track to generate revenues from both in Q4 of this year.

Now I'll turn it over to Phil to take you through the Page 12 of our presentation, which has our financial highlights for the first quarter. Phil?

Thank you, Jason. Revenues in the first quarter increased 12% versus the prior year period to $45.6 million driven by a 46% year-over-year increase in our system solutions revenues, which was partially offset by a decline in components revenue. Our first quarter revenues exceeded our plan. The growth in system solutions revenues reflect strong demand for a combine-as-you-go system. The decline in components revenue was in line with our plan and reflected a change in the timing of orders from our customers relative to last year and the conversion of certain customers from buyers of components to buyers of system solutions. Prices across our product lines during the first quarter were comparable to the prior year.

Gross margins in the first quarter increased by 635 basis points versus the prior year period to 41.2% as a result of: a higher portion of revenue coming from combine-as-you-go system solutions; purchase and efficiencies from increased volumes; improved material planning, which reduced logistics costs; enhancements to product design that lowered manufacturing costs; and other manufacturing efficiencies resulting from higher production volume.

Operating expenses were $8.9 million compared to $4.6 million in the prior period. This was driven by higher equity-based compensation; increased payroll expense related to additional headcount that we added as part of our planned international growth and new product initiatives; COVID-19-related costs; new public company costs; and nonrecurring expenses related to our IPO.

Adjusted EBITDA for the first quarter was $14.1 million, up 17% from the $12.1 million in the prior year period, with adjusted EBITDA margin increasing more than 120 basis points year-over-year to 30.9%.

Adjusted net income was $8.8 million compared to $8.9 million during the same period in the prior year. This was primarily as a result of higher interest expense as compared with the first quarter of 2020.

Adjusted EBITDA and adjusted net income exclude amortization of intangibles, stock-based compensation, COVID-19-related expenses and nonrecurring items. Please see the adjusted EBITDA and adjusted net income reconciliation tables in the first quarter press release for a bridge to our GAAP results.

Turning to our outlook for 2021. Based on current market conditions and input from our customers and team, we are reaffirming our previous guidance and expect 2021 revenues to be in the range of $230 million to $240 million, representing a 34% year-over-year increase at the midpoint of the range. We expect adjusted EBITDA to be in the range of $75 million to $80 million and adjusted net income to be in the range of $47 million to $51 million.

As we noted last quarter, we expect year-over-year revenue growth to increase in subsequent quarters. At the midpoint of our guidance, we currently anticipate approximately 45% of our full year revenues will fall within the first half and 55% in the second half.

Before I turn it back over to Jason, I wanted to make a couple of comments regarding the commodity price increases and supply chain disruptions with several companies in the solar industry and other industries have reported. We are not seeing those issues in our business. We only purchased raw materials and components after we have received a firm order from our customers, which avoids any mismatch between the price we charge our customers and the cost we pay for the input store products. So far this year, all of our major suppliers have continued to meet their delivery commitments, and we have not had any difficulty procuring materials for our production process.

Jason, back to you.

Thanks, Phil. I'll now turn it over to Jeff Tolnar, our SVP of EV Solutions. Jeff joined Shoals earlier this year. Previously, he was the Chief Commercial Officer for Greenlots, where he was responsible for sales relationships with major fleet operators, retailers, electric utilities and municipalities. Greenlots was sold to Shell in 2019. Jeff has a reputation as an innovator in developing charging solutions and his knowledge and relationships are already helping us to accelerate our EV charging strategy.

And with that, I'll turn it to Jeff.

Thanks, Jason, and good afternoon, everyone. I'll start out on Slide 14 of the presentation and talk about the opportunity that we see for Shoals in the EV charging market.

First, EV charging has a lot of similarities to solar. The market potential is very large, deployments are growing very rapidly and participants need to get more efficient to stay competitive. Installation is nearly half the cost of deployment. For a solar project, it is about 30%. And the reasons the installation is so costly revolve around a lot of the same issues: the need for trenching; complex interconnections; homerun cabling; and the need for expensive skilled labor. Together, those characteristics make the EV charging market ripe for innovation and the innovation it needs are in exactly the areas where Shoals has unique expertise and manufacturing capabilities.

Turning to Slide 15. This slide illustrates how most conventional EV charging stations are configured. On the left side of the page, you have the building blocks of all charging systems, transformers that step down the voltage from power line feeder and distribution panels that distribute power to each dispenser, and they function as breakers in the event of a circuit overload. Each piece of equipment is often sourced from different vendors and can arrive on site at different times. Once all the equipment arrives on site, it has to be mounted on a concrete pad and manually interconnected. The process is very time-consuming and error-prone. Once all of the equipment is installed on the pad, trenches are typically dug from the pad to each dispenser. Conduit is laid in the trenches and wire is fished through the conduit to each dispenser individually. In most cases, there are 3 to 4 separate wire runs from each dispenser to the distribution panel. The term for those runs is the same as it is in solar, homeruns. It's expensive and is very time consuming, not to mention disruption to the customer side and almost all of the work has to be done by licensed electricians. We intend to change all that.

Turning to Slide 16. We will be launching 4 product families that we believe will reduce the installed cost of a charging deployment by 20% to 30%. Our first product family is a power conversion and protection skid solution. Skid solutions at the power entry point will package all of the components needed for an EV charging deployment under a prefabricated plug-and-play skid. Preassembling the components in our factory will dramatically reduce field installation cost, reduce site disruption, increase quality and will also give customers the ability to move equipment around their site or to a new site of desire. Utilization drives the return on (inaudible) for charging. So the ability of our solution to be relocated is a tremendous advantage.

Our second product family is Raceways. Raceways are above-ground cable trays that eliminate or minimize the need for trenching and underground conduit. Think of them as looking like a speed bump in a parking lot, but that speed bump will have cables running through it. Raceways are used today, but Shoals' intention is to develop a more aesthetically pleasing and effective solution. Eliminating trenching and fishing wire through a conduit will make installation much faster, cut work dramatically and minimize disruption to the customer site during installation.

Our third product family is our EV-BLA Our EV-BLA takes our solar BLA technology and applies it to EV charging to eliminate the multiple homeruns from each dispenser to the distribution panel. EV-BLA will have the same plug-and-play features and benefits as our solar BLA.

Our fourth product family is our Quad Charger Skid. Our Quad Charger is a prefabricated skid with 4 dispensers that is designed to sit at the intersection of 4 parking spots. The Quad Charger minimizes placement and cabling costs because each skid supports 4 vehicles. We think this will be an ideal product for fleets.

Importantly, each of our product families can be used individually or in concert with one another. We will encourage customers to purchase a complete system, which will be a value multiplier. But we designed each product to stand on its own if customers want to purchase only certain components.

Turning to Slide 17. We see an opportunity to disrupt the market and we are moving fast. Our Phase 1 products, Skid Solutions and the Quad Charger, are already in development, and we expect to have our first units deployed with customers in Q4. Our Phase 2 products, Raceways and EV-BLA are being developed now, and we expect to have our first units deployed with customers in the first quarter of next year. We currently expect full commercial launch of all products will occur in the second quarter of 2022.

Turning to Slide 18. We're targeting 2 types of customers for our EV charging products, EPCs that build stations and charge point operators. We already have preliminary conversations with several EPCs. They're very excited about our products. It helps that some of them are already solar customers and that they have seen how our technology can impact their cost and efficiency. Our value proposition for the EPCs that use our EV solutions will be: first, to make them more cost competitive; and second, to allow them to take on more jobs with the same number of staff because of less time on site for each job.

We're targeting charge point operators because they are the ultimate beneficiary of lower installation costs and because they typically specify which vendor's equipment they will allow EPCs to use for their stations. Our goal is to demonstrate the benefits of our system to charge point operators and to have them specify our solutions when they solicit bids from EPCs to build stations.

Importantly, we don't have to spend a lot of money to penetrate this market. We think we can cover both groups with a relatively small investment in sales and market development resources. Today, the industry is fairly concentrated and you can get to roughly 80% of the addressable market through only about a dozen companies.

Turning to Slide 19. I'd like to close by talking about the large potential that we see for our EV business. Between 2021 and 2025, Bloomberg estimates that there will be more than 250,000 new public and commercial charge points installed in the U.S. Also important to note is that estimate was prepared before the Biden administration announced its planned $174 billion investment in electric vehicles and charging infrastructure. We currently believe the addressable spend across our product families is approximately $5,000 per charge point deployed. Keep in mind, that number will be lower on smaller level 2 chargers and significantly higher on DC and high-power chargers. What that translates to is cumulative revenue potential of about $1.3 billion over the next 4 years in the U.S. alone.

Our goal is to maximize share and grow revenue per charge point, while maintaining gross margins consistent with our solar business. Even if you assume relatively small share for Shoals, you get to some pretty meaningful revenue numbers, and we don't intend to be a small player.

Now I'll turn it back over to Jason.

I think you can see from Jeff's slides that we're very active and fully committed to building out our EV business. We see an opportunity to bring real innovation to that market and build an entirely new leg for our company. I couldn't be more pleased with our team's execution thus far, and we are just getting started. We look forward to reporting on our progress in the coming quarters.

With that, I'd like to ask the operator to open the line for questions.

(Operator Instructions) Our first question comes from the line of Brian Lee with Goldman Sachs.

First, on the gross margin, 41% plus, that's pretty impressive. It seems like you're running pretty ahead of plan. Is there any reason margins don't stay at these levels or grow even higher moving through the year? Because it sounds like you mentioned supply chain is not an issue for you. And if that's the case, does that make some of your profit targets for 2021 a bit on the conservative side? Or how should we just be thinking about that given how well you're doing on gross margins already? And then I had a follow-up.

Brian, this is Philip. I do think our gross margins will be consistent through the year and do have upside. The big driver here is mix. We are -- combine-as-you-go system solutions do have excellent margins because they provide excellent value, and we continue to see the market transitioning to those. And that's where the sales growth is going to happen this year. As far as conservative nature for the year, I think we're being prudent as we look at our -- in our forecast for the year and guidance. And I'll turn it over to Jason in case he has any more comments on that.

No, I think that's good. Go ahead, Brian.

All right. Yes. Second question. That's helpful. I wanted to ask around the EV, which is a great disclosure here. Nice to see you guys accelerating that and breaking it out a bit. I don't want to put you on the spot, but at the IPO, I think you talked about a $30 million annual opportunity for Shoals in EV charging. If I take the new $5,000 per charging point and assume the 25% market share like you said at the IPO, that seems like it's an $80 million annual opportunity, just assuming a linear average. So first, is that right? And then second, what's driving that much bigger potential here versus the prior view?

Good question, Brian. Good to talk to you again. So first of all, I'd like to start off, there's a lot of tailwinds as we well know, particularly behind EV, especially when you look at the Biden infrastructure plan. And when we first initiated our plan from an EV perspective, we really focused on one of the products. And as you can see here, we're updating to show what our full product launch looks like as of right now into 2 different phases. So based upon that, we have extended further into the opportunity within the EV space. And again referring back to exactly what Jeff covered, what I can say at this point is the opportunity ahead is about $1.3 billion when you look at that cumulative opportunity from 2021 through 2025. And I think the most exciting thing about that is we believe that that's a very conservative estimate, and it definitely doesn't include the latest announcements from the Biden administration plan. But at this particular point, Brian, I can't go into any specific details other than we see significant upside to what we've already talked about and definitely look forward to providing more clear direction on that in quarters to come.

Our next question comes from the line of Shar Pourreza with Guggenheim.

So just a couple of quick questions here. First, the BLA conversion data that's on Slide 10 is super helpful. But sort of with the highlighted '21 incremental prospects since deal launch, especially with the 16 that have yet to place orders, can you maybe frame the size of these opportunities as we think about your backlog and then the potential timing of these opportunities as we sort of think about revenue recognition? Clearly, your conversions have been very strong, and it's been happening at a much faster pace, but how do we sort of frame this?

Yes. That's a good question, Shar. So first of all, when you look at BLA specifically as a percentage of revenue and growth going forward, at this point in time, I can't go into any particular further details exactly what that looks like. But I think the key takeaway here is when you look at what we've been able to accomplish in such a short window, right? Especially, we spent a lot of time in previous conversations talking about conversion time. A few of the takeaways here is the fact that we've doubled the number of EPCs and developers that are converted. But I think the most exciting thing is when you go out and you look at the prospects that we've identified and we've been working on is that conversion from those 21 prospects, whereas 15 still remain in that prospect category, but 5 almost immediately moved up to in transition. So we're very excited about that.

And as Phil also mentioned, we see a significant amount of the growth going forward from a revenue perspective this particular year coming based upon the transition of our combine-as-you-go or BLA product.

Got it. And then I know the sales team has seen an increase in quoting on sort of that (inaudible) replace opportunities that remain kind of fully incremental to your forecasting in that $500 million annual target that you set by '23 during deal launch, any sort of status there as we think about these incremental revenue recognition?

So at this point, we're not including that in our guidance or our guidance going forward, Shar. From a risk and replace perspective, I can tell you that the conversations are not going away. If anything, they're being further increased. But at this point in time, again, we've not included that in our guidance because it's really hard to predict exactly when that opportunity may fall into our lap. And based upon that, we've excluded that for potential upside as that transpires.

Got it. And then lastly for me is I know you guys -- the Slide 11 on sort of the new product introductions and the timing is super helpful, and you've talked about in the past about sort of thinking about the wallet share through these kind of complementary products sort of increasing, right? And when you think about EBOS being about $0.05, $0.055 for a 50-megawatt project, you already do $0.02 of it, where are you sort of as far as hitting your target for that incremental $0.015? So as we're thinking about the wallet share gains from where you are today and then incorporating Slide 11, where are you as far as hitting that $0.035 goal from a market share perspective wallet share?

Yes. So how we think about that, when you look at the products, specifically on Slide 11, first of all, I mean, that's not all the products that we have currently in development, but just a few that we have highlighted. And when you look at those and you take those into full consideration, those cover a large majority of that conversion with more, specifically, the high-capacity plug-and-play harness and the BLA 2.0 having a higher weighted effect to that transition.

Okay. Got it. But I guess I'm kind of curious as where you as far as the wallet share gains versus where you are today from an EBOS perspective?

You said wallet share as it correlates to the new product introduction, Shar? I want to make sure I understand your question.

Right. Right. Versus the $0.055 total EBOS wallet share that's out there.

Yes. Sorry. So when you look at the new products, we just touched based on from wire management, IV curve, high-capacity or BLA, so those are products that we are introducing into the market based upon the time line that we depicted on Slide 11. And that time line would correlate with a significant portion of that conversion of that additional wallet share as we roll these products out.

(Operator Instructions) Our next question comes from the line of Colin Rusch with Oppenheimer.

Guys, can you talk a little bit about the pipeline, bookings and growth of the business in Europe? I know it's kind of early days, but I want to get a sense of how much progress you're making at this point.

Yes. Colin, Jason here. Good to talk to you again. So as we've talked about before, we have our VP of EMEA in place, and he's actually hitting the ground running. I'm very excited about what he's been able to pull together over there. The number of customers that we've already reached out to and communicated with, and even the fact that our product offering has been very well received in those conversations. And I think the best thing to really correlate back to is the chart that really shows where we are in our BLA conversion. And more specifically, when you look at the prospects that we have and the customers that are in transition, 2 of the customers that are in transition reside in the international market. And more specifically, 6 of the customers that are in the prospects are in the international market as well. So that's how we kind of think about that. Again, very excited about what we've been able to accomplish. But at this point, I can't provide any further details as far as the exact specifics on international.

Awesome. That's actually super helpful. And then as you look at the domestic customers and the sell-through, we're hearing various commentary around broken projects or delays in construction schedules. Can you just give us a sense of how close you're tracking that with your customers? And any shifts in some of the delivery time frames that you had expected and how that works, just given that you lock in pricing on both commodities and the funnel product early in the process?

Yes. No, that's a good question. So again, I guess, first of all, we're in cost of communication with our customers and whether they be direct or indirect being an EPC or a direct developer or indirect. And as of right now, I mean, we're not seeing any significant change in the timing of projects. The reality is, as we all know, projects do move from time to time, but we're seeing nothing that would force us to change our current outlook.

Our next question comes from the line of Philip Shen with ROTH Capital Partners. Our next question comes from the line of Michael Weinstein with Credit Suisse.

It's 6 new international prospects out there. I'm wondering if you're planning to expand at all on manufacturing international markets as well. Is that -- anything you can say on that -- on those lines?

Yes. Michael, Jason here. Good to talk to you again. So when you look at the growth that we have right now, based upon our initial target markets that we've identified, we're going to serve those markets out of our current North American facilities. And how I would really think about that going forward is when we look at our next phase of growth internationally, one of the areas that may force us to look into expanding our manufacturing footprint internationally would be an area that would allow us to access certain markets that would require local content.

Got you. And along the same lines, any strategic partnership plans or M&A-type discussions you can talk about? I mean you never really had much competition out there. Just wondering if there's any -- anybody other worth taking a look at in terms of strategic partnerships or acquisitions?

I think, Michael, there's really nothing to discuss at this time. I mean we're always looking for potential M&A, especially if it would accelerate our growth plans, but nothing to talk about as of now.

And it's Brad. I wanted just a little more color on the lack of need in the here and the now for international factories. That's also a function of the fact that our products pack out so well that we can ship them anywhere in the world for 0.5% of revenue or less. So absent local content requirements, which Jason alluded to, that's not otherwise an economic necessity like it is for many other things. And in an inflated freight environment, that's also proven to be just very helpful even domestically.

So you guys haven't -- or you're not anticipating any problems with shipping containers or lack of, I guess, kind of squeeze on shipping services that are available out there right now?

Yes. We're unimpacted by that at this point, unlike many, many other industries. So we're in a nice place and highly vertically integrated, by the way, in our manufacturing and because the product packs out so well, we can get it where it needs to be quite readily.

Our next question comes from the line of Paul Coster with JPMorgan.

It sounds like you're doing a great job of managing the supply chain and minimizing the margin risk associated with quoting when commodity prices are rising. But I guess my question is, some of these deliveries have keep stated some way out. And between now and then, you could experience some disruption or failure to deliver by your suppliers. To what extent do you have future dated risk here if the supply situation does deteriorate further?

Sure, Paul. This is Phil. Go ahead, Jason.

Paul, this is Jason. I'll -- good talking to you again. I'll take the initial part of that. And then Phil, if there's anything you want to add, feel free to jump in. So when you look at the supply, I think it's important to note that from an inbound perspective, a large portion of our input are raw materials and the like, really reside out of North America. So when you look at delays there, look, you could have a couple of day delay, but the reality is that's not going to harm our operations. And really because of that, we've not seen any impacts that would actually strain our manufacturing environment, nor have we seen any immediate results in delays that go out to our customers. And there are several other reasons for that, ABLs, multiple vendors that we can pull from. But very happy, operationally speaking, for how well the teams performed. And Phil, you can add anything, if you like.

Sure. Paul, the other item, when we talk about commodity prices and you get something that's out there 9 months or something with some of the projects are, because as you know, in our process, we have great visibility what's coming up. We've locked in that price even if it's out there several months with both -- with the supplier that matches exactly what that purchase order ties to because we have these projects down by week as we look out. So even though it may be a ways out and you do see the commodity increasing or commodity volatility, we stepped back from that. We've locked that in with the supplier, and it works very well for all parties.

Got it. Okay. And just something -- maybe it's a misunderstanding on my part, but obviously, like everyone has seen a lot of solar-plus-storage projects all of a sudden and some very, very large. To what extent is the product identical to that application at your large-scale customer sites?

Yes. Paul, so -- sorry, yes. So Paul, how I would think about that, again, just from a very high level -- and I'm obviously simplifying this, but from a very high level, both systems require EBOS. When you look at things, your panels are configured in a series in parallel configuration to harvest the energy and the batteries are really in that same configuration to store the energy. So there's a lot of wiring that's involved in that. There's also circuit protection devices that are involved in that. So there's a lot of similarity. There are a few differences. When you look at the -- inrush current or the incidental energy that you actually have because it is an energy storage or it is a battery device, but outside of that, there's a lot of similarities and overlap between the two.

Okay. And are you already seeing revenues associated with storage? Or is it still -- I mean, we've got it as beginning to kind of seep into revenues in the second half very modest.

Yes. No, I think, as you well mentioned, Paul, I'll confirm. I mean we're excited about the growing number of solar projects that we're seeing in our pipeline that has storage attached. And really, it's unfolding the way that we really thought and the way that a lot of the -- or I guess, a lot of the analysts and stuff were providing feedback. So when you look at the projects that we have, we currently do have projects in our pipeline. And based upon those projects and their timing associated, we expect to convert those into our backlog and awarded orders towards the latter part of the year.

(Operator Instructions) Our next question comes from the line of Philip Shen with ROTH Capital Partners.

Sorry for the trouble earlier. As it relates to EVs, can you talk through how many target companies you're active with today? Similar to that, Slide 10, kind of the bottom 2 buckets there of opportunities, who you're active with? And then who are you prospecting? I know you talked about how the customer base is highly concentrated, but how many are you actually actively involved with now? And when do you think we could see some announcements with some EV customers?

Phil, Jason here. I'll start that, and Jeff, if there's anything you want to add, feel free to join in. So when you look at the approach that we're taking, as Jeff highlighted in the presentation, it's very similar to what we did in renewables. So first and foremost, we work with the EPCs very intimately so that they understand the product solution that we're bringing to market, and we understand their need to make sure that it addresses their needs. And as that really -- as we start to capitalize on those relationships, again, just like we've seen in the accelerated conversion on our full system combine-as-you-go in BLA and solar, we start working with, as Jeff referred to, as the charge point operators, which is very similar to like the developers and the owners in solar to make sure that they understand that full value proposition.

So the phase that we're in now is working directly with those EPCs to make sure that the product that we're bringing to market, they can fully understand what that is, and we're well aligned on that launch. But as far as the specifics are concerned, Phil, I can't go into any specific details as to exactly who we're talking to. But what I am very excited about is the multitude or the number of EPCs that we have spoken with have been very excited about the product offering that we'll bring to market.

And just one quick point to add, and we also have been working with CPOs. So it's both EPCs and CPOs and they're both very excited about what we're doing.

Okay. And when I -- I'm thinking about the U.S. utility scale market and a lot of our recent conversations with EPCs and developers is just how tight things are and with module pricing in the spot market increasing from, call it, high $0.20 per watt to $0.35, $0.38 per watt. And then it seems like all the EPCs are booked out and there's just tightness everywhere through the chain. I was wondering how much of your backlog might be at risk as a result of projects that might be getting pushed out? Jason, I think you may have addressed part of this earlier, but I wanted to kind of ask that question more specifically and put a finer point on it.

Yes. No issue, Phil. So when you look -- as I mentioned earlier, we do work very closely with our customers, and those include both EPCs and developers. And there are some shifting of projects, but nothing that, based upon where projects currently set right now, nothing that's meaningful enough that would cause us to change our outlook and what we plan on performing to for 2021.

Our next question comes from the line of Jeff Osborne with Cowen.

Just a couple of questions on my end. I was wondering, I know you're limited in what you can say as it relates to combine-as-you-go or BLA as a percentage of revenue, Jason. But I was wondering if you can give us a sense of context for the backlog, is there a meaningful shift of the backlog to combine-as-you-go relative to the percentage of revenue?

Yes. That's -- at this point, Jeff, that's something that I can't really touch base on definitively. But again, I think the exciting part about that is, I mean, that's really one of our main growth initiatives to capture share and more specifically, do that with our combine-as-you-go product, and we're seeing a lot of growth in that particular area. But as of right now, I can't really touch base on that. But I do look forward to going over that level of detail with you when we go through and we announce our fourth quarter earnings.

Got it. And then I don't think you touched on, but it's on the chart, but BLA 2.0, I imagine you'll introduce that at SPI just based on the timing. Can you give us a sense of where you are in the development of that? And then what the commercialization process is for that?

Yes. So BLA 2.0, we're definitely on track for that. It's not slightly ahead of schedule. Going through the product engineering portion of that, which transitions into our validation and certification. And depending upon exactly where that product is, we may or may not launch that at SPI and maybe one of the proceeding shows following that. But very excited about how the team is performing on that product and absolutely look forward to bringing that to market.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Jason Whitaker for closing remarks.

Yes. Thank you, everyone, for joining us today. I would like to close by thanking all of our team members for their contributions to our success, our shareholders for their support and our customers for their commitments. And we look forward to future discussions and updating you on our progress with quarters to come. Thank you very much.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.