FTC Solar, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 21, 2022. FTC Solar supplies utility-scale solar trackers, software and engineering services. Its primary product is the Voyager single-axis tracker. The company completed its IPO in April 2021.
Financial results and liquidity
Amounts are in millions of dollars except per-share data and percentages.
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $270.5 | $187.4 | +44.4% |
| Gross profit (loss) | $(32.5) | $3.6 | Margin fell to (12.0%) from 1.9% |
| Operating expenses | $94.3 | $20.6 | +358.4% |
| Operating loss | $(126.8) | $(16.9) | Widened |
| Net loss | $(106.6) | $(15.9) | Loss per share: $(1.24) vs. $(0.23) |
| Operating cash flow | $(132.9) | $0.6 | Significant cash use |
| Cash and cash equivalents at year-end | $102.2 | $32.4 | Up $69.8 |
| Debt at year-end | $0 | $1.8 | No borrowings outstanding |
- Product revenue was $227.4 million and service revenue $43.1 million. Revenue growth reflected a 25% increase in megawatts shipped and approximately 15% higher average selling price.
- Cost of revenue rose 65%, faster than revenue. Management cited steel and logistics inflation, costs not recovered under some fixed-price contracts, increased headcount and $8.6 million of tracker retrofits, remediations and reconfigurations. Cost per MW increased 32%.
- Operating expenses included $61.8 million of stock-based compensation, largely associated with the IPO and employee awards. A $20.8 million gain from selling the Dimension Energy investment partially offset the reported net loss. Adjusted EBITDA was $(55.9) million and adjusted net loss was $(56.6) million; these are non-GAAP measures.
- Operating cash use included substantial working-capital needs: accounts receivable increased $83.7 million and inventory increased $7.3 million. Management also cited approximately $57.3 million used to fund project losses and other operating costs, and approximately $75.6 million for working capital and related items.
- Current assets were $235.8 million and current liabilities $93.2 million, giving positive working capital of approximately $142.5 million. The $100 million senior secured revolving facility was undrawn. Its minimum-liquidity covenant was $125 million; the company reported compliance. Management stated available capital was sufficient for at least 12 months from issuance of the financial statements, but additional financing could be needed beyond that period if cash use continued at 2021 levels.
Material changes and notable items
- Revenue increased 44.4%, but gross margin deteriorated sharply, from 1.9% to (12.0%), and operating cash flow moved from modest positive cash generation to $132.9 million of cash use.
- Accounts receivable, net, rose to $107.5 million from $23.7 million; $72.7 million represented revenue recognized in excess of billings. Four customers represented 89% of year-end receivables. Three customers generated 72% of annual revenue.
- The IPO raised $241.2 million net of underwriting discounts and commissions, before offering costs; $54.2 million was used to repurchase and retire shares and settle certain equity awards and options. Stock-based compensation expense rose substantially after the IPO.
- The company sold its 23% Dimension Energy interest for approximately $22.3 million net, recognizing a $20.8 million gain. Additional contingent consideration may be payable based on milestones, including an earnout of up to approximately $14 million and a $7 million project escrow release; these amounts were not recognized unless realizable.
- In March 2022, after year-end, FTC Solar announced an agreement to acquire China-based HX Tracker for $4.3 million cash and approximately 1.4 million shares, with up to 1.6 million additional shares as an earnout. Closing was expected in the second quarter of 2022, subject to customary conditions.
Outlook, risks and contingencies
- The filing provides no quantitative revenue, earnings or margin guidance. Management described supply-chain and logistics challenges, inflation in steel and other inputs, and unrecovered costs as near-term pressures, while pursuing supplier diversification, alternative transportation and product cost-reduction initiatives.
- Key risks include dependence on contract manufacturers and a concentrated customer base; delayed projects and potential liquidated damages; competition and product acceptance; solar-policy and tax-credit changes; tariffs and forced-labor-related import restrictions; and seasonal construction patterns. Management also noted the impact of COVID-related disruptions and potential commodity and freight effects from Russia’s invasion of Ukraine.
- FCX Solar litigation remains pending. A court dismissed fraud and unjust-enrichment claims in February 2022 from a suit that sought approximately $134 million, leaving a breach-of-license-agreement claim. A related patent-infringement case, seeking unspecified damages and injunctive relief, was consolidated with the contract case; discovery was ongoing. The company said it considers the claims without merit and assesses the likelihood of a material loss as remote; it recorded no material loss contingency.
- Management concluded disclosure controls and procedures were ineffective at year-end because of material weaknesses in financial reporting controls, including staffing and technical expertise, close and reporting processes, and IT general controls. Remediation was ongoing and not yet validated as effective. The auditor issued an unqualified opinion on the financial statements, but did not provide an internal-control attestation.
- The company revised its previously issued 2020 cash-flow presentation to classify $1.1 million of offering costs as financing rather than operating cash flow; it said the error was immaterial to the previously issued statements. It also disclosed a prior interim-period revision involving stock-based compensation and weighted-average shares.
Most important facts for investors to verify
- Whether gross margins improve as logistics, steel and retrofit costs normalize, and whether price increases or design changes offset remaining cost inflation.
- Collections on the sharply higher receivables balance, particularly the large unbilled portion and exposure to major customers.
- Operating cash burn, working-capital requirements and covenant headroom, including the $125 million minimum-liquidity requirement.
- Progress and independent validation of remediation of the material weaknesses, and whether future filings require revisions.
- Developments in the FCX contract and patent litigation, and the terms, closing status, dilution and performance milestones of the HX Tracker acquisition.