FTC Solar, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. FTC Solar supplies solar tracker systems, software and related engineering services. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $40.9 | $49.6; down 17.5% |
| Product revenue | $32.6 | $31.0; up 5.2% |
| Service revenue | $8.3 | $18.6; down 55.3% |
| Gross profit (loss) | $2.0; 5.0% margin | $(9.3); (18.7%) margin |
| Operating expenses | $14.4 | $18.5 |
| Operating loss | $(12.4) | $(27.8) |
| Net loss | $(11.8); $(0.11) per share | $(27.8); $(0.28) per share |
| Adjusted EBITDA (non-GAAP) | $(7.2) | $(20.0) |
| Cash used in operating activities | $(8.3) | $(53.1) |
At March 31, cash and cash equivalents were $41.5, working capital was $57.9, and total liabilities were $70.8. The company had no borrowings under its revolving facility; $98.1 of approximately $100.0 in commitments remained available after letters of credit. The facility is secured, and a minimum-liquidity covenant of $125.0 applies at each quarter-end beginning June 30, 2023. The present cash and unused capacity total approximately $139.6. The company also reported $2.5 in present-value operating lease liabilities.
Changes and drivers
- Revenue fell mainly because service revenue and shipping/logistics activity declined amid project delays associated with trade and import uncertainty. Q1 2022 also included customer concession charges of $5.0 in total, reducing revenue.
- Gross margin improved to 5.0% from a loss margin of 18.7%. Management cited a 12% increase in product average selling price, lower direct and indirect product costs, and positive shipping/logistics margins on newer contracts. Cost reductions also reflected 12% fewer megawatts produced, 56% less shipping/logistics activity, and lower payroll and other costs.
- Operating expenses decreased 22%, to $14.4, including lower payroll, severance and professional-service costs. General and administrative expense included $2.3 for a related-party consulting engagement with Ayna; cash payments to Ayna were $0.8.
- Operating cash use improved substantially year over year, but remained negative. Accounts receivable rose to $61.3 from $49.1, including $24.1 of revenue recognized in excess of billings.
- Cash decreased $2.9 during the quarter. Financing included approximately $5.5 of net cash proceeds from common-stock sales under the at-the-market program. The company sold 2.683 million shares for approximately $6.3 before related costs and had approximately $93.7 of ATM capacity remaining at quarter-end.
Outlook, risks and unusual items
- Management expects improved margins and market conditions to support profitable growth and positive operating cash flow in the second half of 2023, at levels it believes will fund operations for at least one year from issuance of the statements. This is an expectation, not quantified revenue or earnings guidance.
- The company has a history of operating cash outflows and an accumulated deficit of $260.6. Management identified risks that could require additional debt or equity financing, which may not be available on favorable terms or at all.
- UFLPA enforcement and the AD/CVD investigation continue to create uncertainty around solar-module supply, project timing and demand. The company cited the Inflation Reduction Act and a temporary duty pause for certain imports as potential demand supports, while noting implementing rules and trade outcomes remain uncertain.
- CBP asserted duties and tariffs of approximately $7.17 on one Thailand-import assessment and $2.15 on another, totaling about $9.32. FTC Solar disputes the assessments and recorded no accrual, but an unfavorable outcome could materially affect results, financial position or liquidity.
- FTC Solar invested $0.9 for a 45% interest in Alpha Steel, a planned Texas steel-component manufacturing venture. Up to $2.6 in additional capital contributions may be required; commercial production was expected to begin in mid-2023.
- The company reported warranty reserves of $12.6, including $1.5 of warranty provisions issued during the quarter. It also cited supply-chain, commodity-price, customer-concentration, contract-manufacturer, regulatory and financing risks.
Key facts for investors to verify
- Whether the company achieves positive operating cash flow in the second half of 2023 and maintains the $125.0 minimum-liquidity covenant.
- Whether gross-margin improvement is sustained as production and shipments change, and as warranty and logistics costs develop.
- Collections and recoverability of receivables, especially unbilled receivables, and any customer concentration or credit deterioration.
- Resolution and potential financial exposure from the approximately $9.32 in CBP assessments.
- Capital needs and potential dilution from further ATM share sales, as well as Alpha Steel’s production start, performance and additional funding requirements.