Do we not? Can this customer show us that they’ve done the things they need to do to get that equipment in time for the project when they expect it to start?
Dominic Bardos: Yeah. So Donovan, this is Dominic. Yeah, there’s a couple interesting points in there, but fundamentally when we have the purchase order, we’re at a point along in the project where the EPC has already been selected. The EPC is typically our customer record. They’re the ones that are working on the build, and so they know that they need our products. If other supply chain elements are coming up, it does not impact where we are from the purchase order standpoint. We are delivering our products on the timelines that we work with the EPCs, and if they struggle getting a transformer piece in or something’s going to be delayed for them for a few months to finish the project, that still generally does not impact us, unless the entire project is going to say, hey, we just realized we need to push it a few months.
Can you guys hold your delivery dates for us? And that’s where we always want to work with the customers. But the other components of the solar field typically don’t impact us from a purchase order standpoint, because once we have it, we now know our delivery schedule.
Operator: Thank you. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch: Thanks so much, guys. Can you talk about the opportunity to reduce your COGS, any of the bill of materials, ex-copper at this point? As you scale up, are there some meaningful opportunities for you guys in the offing?
Dominic Bardos: Yeah, so Colin, I appreciate the question on COGS. We actually are always working with our suppliers, and when we have visibility to projects going longer terms out, it gives us the opportunity to negotiate discounts and better pricing. We do appreciate the MSAs that we negotiate with customers like Blattner that you’ve seen us announce, because that gives us visibility into the demand so we can negotiate better pricing. But we have guided that we believe gross margin for this business long term is that 40% to 45% range. Not all products carry the same margin. We are introducing products in other jurisdictions, and there are some different cost structures with that. So we always are looking to be as efficient as possible with COGS, but we also want to win business and grow the business. So we believe 40% to 45% is still a good target for COGS for us, I mean gross margin.
Colin Rusch: Excellent. And then obviously, some of these larger MSA agreements are pretty important. Can you talk a little bit about, as you move into some of these international markets, how many customers you’re in qualification with or testing with that we might be able to see some sort of agreement in the next 12 months with those folks, and what you might need to see to commit to an international manufacturing operation?
Brandon Moss: Yeah. That’s a great question. I think we are always going to try to pursue master supply agreements for the reasons that Dominic just disclosed. Probably can’t comment to where we stand either internationally or domestically on those. As we’ve talked about in the past, we intend to, and I think you will see us, put some sort of manufacturing or supply chain operations overseas. We are in the process of vetting where and when that happens right now. So I don’t have a particular tipping point for you, but what we do know is in order for us to continue to compete, we’ve got to offer our customers reduced lead times, and that would be the reason why we would put manufacturing outside of the United States.
Operator: Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho. Please proceed with your question.
David Benjamin: Hi, this is David Benjamin in for Maheep, thanks for squeezing me in here. I have a question on mix looking forward. It looks like system components in the second half of ’23 was down a little bit versus the first half. It was my understanding that we started with components and then customers shifted over to system solutions. Should we expect that to go back up to those 85 — mid to high 80s? Can you guys just give us a little color on product mix?
Dominic Bardos: Yeah. So — thanks, David. This is Dominic. The main thing about mix is we do respond to the projects that are being awarded to us that we win the backlog for. In some cases, the EPCs are passing go. They’re going directly to full system solutions. In some cases, they might be doing homeruns and getting to know the company and the quality of our work before making the switch. In some cases, components are just going to be what they want to do. They choose to do the business that way. So the EPC mix is going to have a lot to do with how the component and systems mix goes going forward. There is a baseline of that business and it will shift quarter to quarter. But we’re always trying to encourage folks to use the full solution because that is the maximum value generation for the customers.
Our BLA solution is the best in the business and having that solution for the customers is the best value for them. So it’s a natural. We would love to keep it up in the high 80s, but we haven’t gotten specifically to what mix is going to be going forward.
David Benjamin: Great. Thanks for the color.
Dominic Bardos: You got it, David.
Operator: Thank you. Our next question comes from the line of Vikram Bagri with Citi. Please proceed with your question.
Vikram Bagri: Good afternoon, everyone. I was trying to think about the longer term impact of the longer term times you guys talked about. You had added about $700 million of backlog in 2023. It sounds like quoting activity hasn’t slowed down. The industry continues to project growth longer term. You continue to gain market share as indicated by your comments while you have a flat revenue year this year due to delays. Is it likely you end up with significantly higher backlog at the end of this year and we see a potential step change in revenue next year? And staying on the same topic, when I look at the capacity expansions being planned, it appears you’re preparing for this step change when deliveries catch up with quoting activity.
That’s why you’re progressing towards 42 gigawatts of capacity, which is significant. Perhaps it allows you revenue generation capacity of $800 million to $900 million on an annual basis. Is the busy delivery schedule you see in front of you the reason for continued expansion?
Dominic Bardos: Yeah. So let me jump in there first and then I’ll have Brandon add his color. In terms of backlog and awarded orders and one of the things you’ve noticed this year is we’re starting to disclose more and more. Some of the projects do have longer lead times. Some of the international projects and some of the domestic visibility that we have is longer and longer. So some of the growth that you’re going to see this year may be that jobs are just going to sit in the awarded order status a bit longer. Some of it may be that there is a pent-up demand from the market itself and we would see an increase to your hypothesis that you first laid out. But with regards to our facility, look, we have to be — we keep our employees in mind, we keep our communities in mind, and all of our stakeholders.
And we are set up like a business that grew from $60 million to $500 million in a few short years and it’s a little bit of a hodgepodge. We have an opportunity to improve the safety, have that purpose-built facility to really help us have a state-of-the-art thing. And it does not mean that we’re going to keep all of our facilities. We have three in the Portland area. We won’t need that as we now signed up for it. So some of the facilities will shutter. They’re not all owned. Some are owned. But we’re looking for the maximum efficiency and being an employer of choice in our market. And I think the facility decision that we’ve made will have benefits across the board, but it’s not necessarily geared towards any particular event. We do know that we need to get ahead of it.
It will take time to outfit and we can’t just react on a dime if the demand spigot opens up in Q3. We have to take the time to set this thing up right. So Brandon, any other color you would add?
Brandon Moss: Maybe just to start with your first comment or question. Look, we remain very excited about our future and I think your inclination around backlog growth is correct. We are seeing longer time from quote to purchase order. While saying that, our year-end backlog and awarded orders, again, $631 million, 140% up in fourth quarter as we added $128 million in new orders. We are seeing our funnel as large as it’s ever been and quote volume again up 154% over last year. So I think it is natural as projects get pushed out and we have slower delivery and revenue recognition of projects, you could see an increase in backlog and awarded orders. It’s just a natural occurrence.
Vikram Bagri: Thank you.
Operator: Thank you. And we have reached the end of the question-and-answer session. I’ll now turn the call back over to management for closing remarks.
End of Q&A:
Brandon Moss: I would just like to thank everybody for joining us today and we look forward to connecting with you all over the coming weeks to have further conversations. Take care.
Operator: And this concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.
