FTC Solar, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. FTC Solar provides solar tracker systems, software and engineering services. Results are unaudited and compared with Q1 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $49.6 million | $65.7 million |
| Gross profit (loss) | $(9.3) million; (18.7)% margin | $0.1 million; 0.2% margin |
| Operating loss | $(27.8) million | $(8.0) million |
| Net loss | $(27.8) million; $(0.28) per share | $(7.4) million; $(0.11) per share |
| Operating cash flow | $(53.1) million | $(25.9) million |
- Product revenue fell 45.2% to $31.0 million; service revenue rose 101.0% to $18.6 million. Management cited a 34% decrease in megawatts produced and an approximately 11% decline in average selling price.
- Cost of revenue declined only 10.3% to $58.8 million. Cost per megawatt produced increased 37%, driven mainly by freight and logistics, steel and personnel costs. Gross margin also reflected a $5.0 million customer concession reserve.
- Operating expenses rose 127% to $18.5 million. General and administrative expense increased to $13.8 million, including higher stock-based compensation, payroll, professional fees and public-company costs. Stock-based compensation totaled $4.6 million, versus $0.4 million.
- Non-GAAP adjusted EBITDA was $(20.0) million; adjusted net loss was $(20.3) million and adjusted EPS was $(0.20). These measures exclude specified items and are not substitutes for GAAP results.
Liquidity, cash flow and debt
- Cash and cash equivalents were $49.4 million at March 31, down from $102.2 million at December 31, 2021. Working capital was $119.8 million.
- Operating cash use was $53.1 million, including approximately $30.4 million used for working capital and other items, largely due to slower collections and project activity. Accounts receivable, net, rose to $132.2 million.
- The company reported no borrowings under its $100 million revolving facility and $98.1 million of unused capacity after a $1.9 million letter of credit. It reported compliance with the applicable financial covenant. The filing also describes approximately $22.4 million of available liquidity after a $125 million minimum-liquidity requirement, while elsewhere describing a $50 million minimum-liquidity covenant; investors should verify the operative covenant and calculation.
- As of May 12, 2022, FTC Solar reported collecting approximately $62 million of receivables since quarter-end and cash of approximately $71 million.
Changes, outlook and risks
- Revenue decreased 24.6% year over year, gross margin turned sharply negative, net loss widened from $7.4 million to $27.8 million, and operating cash outflow more than doubled.
- Management identified substantial doubt about the company’s ability to continue as a going concern within twelve months of issuance, citing recurring losses, expected continued 2022 operating losses, cash needs and uncertainty from the Department of Commerce AD/CVD investigation. The statements assume continued operations and include no adjustments for this uncertainty.
- The Commerce investigation into alleged tariff circumvention by certain Southeast Asian solar manufacturers contributed to project deferrals amid uncertainty over module availability and cost. Management expected this to weigh on revenue and cash flow. Supply constraints, transportation costs, steel, motors and microchip costs also threaten margins.
- Management reported no formal numerical revenue or earnings guidance in the provided filing text. Actions include cost controls, non-essential hiring and initiative freezes, efforts to improve payment terms and collections, supply-chain diversification, a margin-improvement program and exploration of additional capital. Additional debt or equity financing may be needed if these steps or market conditions do not support cash needs; financing may not be available on favorable terms or at all.
- Management disclosed ineffective disclosure controls as of March 31, 2022, due to material weaknesses in staffing, close and reporting controls, and IT general controls. Remediation is ongoing and may not be sufficient.
- FCX Solar litigation includes a contract claim seeking approximately $134 million and a separate patent-infringement claim seeking unspecified damages and injunctive relief. Fraud and unjust-enrichment claims were dismissed; discovery continues. FTC Solar says it believes material loss is remote and recorded no material loss contingency.
- The filing corrected an immaterial prior-period cash-flow classification error: $1.1 million of offering costs was moved from operating to financing activities for Q1 2021.
Key facts for investors to verify
- Whether subsequent collections and cash levels improved liquidity sustainably, and the company’s cash burn and financing needs.
- The exact minimum-liquidity covenant in force, available borrowing capacity and implications of any covenant amendment.
- Whether supply-chain, tariff-investigation and project-deferral pressures ease, and whether pricing or cost actions restore gross margins.
- Progress on control remediation and the effect of the FCX contract and patent cases, including any change to the company’s loss assessment.
- The assumptions behind the $5.0 million customer concession reserve, receivables allowance and project cost-to-complete estimates.