FTC Solar, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. FTC Solar provides solar tracker systems, proprietary software, and engineering services. Unless noted otherwise, dollar amounts below are in millions.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $32.4 | $30.7 | $73.3 | $80.3 |
| Gross profit (loss) | $2.2 | $(6.5) | $4.2 | $(15.8) |
| Gross margin | 6.8% | (21.2%) | 5.8% | (19.7%) |
| Operating loss | $(10.4) | $(25.2) | $(22.8) | $(53.0) |
| Net loss | $(10.4) | $(25.7) | $(22.2) | $(53.5) |
| GAAP loss per share | $(0.09) | $(0.26) | $(0.20) | $(0.54) |
- Q2 product revenue rose 129.9% to $21.1 million, while service revenue fell 47.6% to $11.3 million. For the first half, product revenue increased 33.7% to $53.7 million, but service revenue declined 51.2% to $19.6 million.
- Q2 adjusted EBITDA was a loss of $7.2 million and adjusted net loss was $7.2 million (adjusted EPS $(0.06)); first-half adjusted EBITDA was a loss of $14.4 million and adjusted net loss was $14.5 million (adjusted EPS $(0.13)). These are non-GAAP measures.
- Cash and cash equivalents were $33.8 million at June 30, compared with $44.4 million at December 31, 2022. Working capital was $68.9 million. Total liabilities were $58.0 million and stockholders’ equity was $79.4 million.
- First-half operating cash use was $30.8 million, versus $36.4 million in the prior-year period. Investing cash use was $0.2 million; financing provided $20.6 million, primarily from ATM stock sales. Cash declined by $10.6 million during the half.
- No borrowings were outstanding under the senior secured revolving credit facility. After $2.0 million of letters of credit, approximately $98.0 million of capacity remained; the facility terminates April 30, 2024. The quarter-end minimum-liquidity covenant is $125.0 million, and the company reported compliance at June 30.
Material changes versus prior comparable periods
- Q2 revenue increased 5.3%, but first-half revenue decreased 8.7%. Product growth was offset by lower service revenue, largely reflecting project delivery and manufacturing timing and lower service pricing.
- Gross margin turned positive in both Q2 and the first half, compared with substantial gross losses in 2022. Management cited higher production activity, lower direct and warranty costs, design-to-value work, cost controls, and improved logistics; first-half product ASP also increased 11%.
- Operating expenses declined 32.9% in Q2 and 27.5% for the first half, partly reflecting reduced professional and legal costs, lower headcount-related costs, and lower research and selling expenses. Q2 general and administrative expense included higher stock-based compensation than the prior-year quarter.
- ATM sales raised approximately $20.6 million net during the first half. The company sold 9.27 million shares under the program in the six months, increasing issued and outstanding shares to 118.1 million at June 30 from 105.0 million at year-end. Approximately $75.6 million of ATM capacity remained.
Outlook, risks, contingencies, and unusual items
- Management expects Pioneer, its 1P tracker, to begin contributing to financial results in the second half of 2023. It believes the Inflation Reduction Act and the Alpha Steel investment may support U.S. demand, but the filing provides no numeric revenue or earnings guidance.
- Management believes existing cash, cost and working-capital actions, and expected margin improvement can fund operations for at least one year from issuance of the financial statements and support positive operating cash flow over the next twelve months. It cautions that weaker markets, delayed solar projects, or stricter trade enforcement could require additional debt or equity financing, with possible shareholder dilution.
- Solar project timing and demand remain exposed to uncertainty from UFLPA enforcement, customs reviews, the Solar Circumvention Investigation, tariffs, and module availability. Inflation, steel and component prices, logistics, reliance on contract manufacturers, customer concentration, and customer collections also affect results and liquidity.
- CBP assessments concerning torque beams imported from Thailand total approximately $9.67 million ($7.56 million and $2.11 million). FTC Solar disputes the assessments and recorded no liability, stating the amounts were not considered probable. The company warns an unfavorable outcome or further assessments could materially affect results, financial position, or liquidity.
- The company invested $0.9 million for a 45% interest in Alpha Steel and could be required to contribute up to a further $2.6 million. A July 2023 amendment permits optional member credit-support payments for Alpha Steel obligations, subject to approval and the agreement’s terms.
- Warranty reserves totaled $12.1 million. A $0.9 million contingent payment related to the prior sale of Dimension Energy was recognized in first-half results. Disclosure controls were reported effective; no material change in internal control over financial reporting was reported.
Investor verification priorities
- Track cash burn, customer collections, receivables, and the company’s ability to achieve its stated positive operating cash-flow outlook.
- Confirm covenant liquidity at subsequent quarter-ends and assess refinancing or replacement plans before the credit facility expires in April 2024.
- Monitor further ATM issuance, share-count growth, and potential dilution from any new capital raising.
- Follow CBP’s resolution of the $9.67 million assessments and any additional tariff or duty claims.
- Verify Pioneer production and sales, Alpha Steel’s expected commercial production and capital needs, and whether these initiatives improve margins and demand.
- Assess service-revenue recovery, project delivery timing, warranty costs, customer concentration, and the impact of UFLPA and other trade restrictions.