FTC Solar, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. FTC Solar supplies utility-scale solar tracker systems, software and engineering services. Comparisons below are with Q1 2020 unless noted. Dollar amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $65.7 | $32.4 |
| Gross profit / margin | $0.1 / 0.2% | $7.0 / 21.6% |
| Operating expenses | $8.1 | $4.1 |
| Operating income (loss) | ($8.0) | $2.9 |
| Net income (loss) | ($7.4) | $3.4 |
| Basic and diluted EPS | ($0.11) | $0.05 / $0.04 |
| Adjusted EBITDA, non-GAAP | ($6.7) | $3.4 |
| Operating cash flow | ($27.0) | ($6.3) |
Revenue increased 103%: product revenue rose 85% to $56.5 million and service revenue rose 384% to $9.2 million. Management attributed product growth primarily to a 104% increase in megawatts shipped; average selling price declined slightly. U.S. customers generated approximately 99.9% of Q1 2021 revenue.
Cost of revenue increased 158% to $65.6 million, outpacing sales. Management cited higher steel and logistics costs, increased operating overhead, and approximately $2.5 million for retrofits, remediations and product reconfigurations. Q1 2020 gross profit had benefited from a higher-margin mix of safe-harbor projects. Operating expenses doubled, including higher headcount and professional fees.
- Cash and liquidity: Cash fell to $5.3 million at March 31 from $32.4 million at year-end 2020. Current assets were $63.3 million versus current liabilities of $68.0 million; stockholders’ equity was $0.5 million. Operating cash use reflected the net loss, a $20.2 million increase in receivables and a $14.8 million decrease in deferred revenue, partly offset by increases in payables and accrued liabilities.
- Debt: The $1.0 million bank line was repaid and closed during Q1; no debt or other borrowings were reported at March 31. The $0.8 million PPP loan was forgiven in January, producing a $0.8 million gain on debt extinguishment.
- Working capital: Unbilled receivables rose to $19.8 million from $1.2 million at year-end; deferred revenue declined to $8.2 million from $23.0 million. Warranty reserves totaled $6.4 million at quarter-end.
Material developments, outlook and risks
- IPO after quarter-end: FTC Solar completed its IPO on April 30, 2021, selling 19.84 million shares at $13 per share. It reported $241.2 million in proceeds after underwriting discounts and commissions but before offering costs. It used $54.2 million to purchase shares from stock repurchase parties and planned to use the remaining approximately $187.0 million for offering costs and general corporate purposes, including working capital and operating expenses. The IPO proceeds are not reflected in the March 31 balance sheet. An approximately 8.25-for-1 stock split also took effect April 28; share and per-share figures are presented retroactively adjusted.
- Credit facility: On April 30, the company entered into a $100 million senior secured revolving facility with an initial three-year term; it had made no draws as of the filing. The facility carries financial covenants, including minimum adjusted EBITDA and liquidity requirements, and is secured by substantially all assets, subject to exclusions.
- Business outlook: Management expects continued investment in employees, technology, product development and international expansion, and anticipates operating expenses to increase in absolute dollars. It reported a first order for its SunPath software and launched a large-format-module tracker system. No quantified revenue or earnings guidance is provided. Management said operating cash flows and IPO proceeds should meet near-term cash needs.
- Operational and market risks: COVID-related shipping and port disruption, reduced logistics capacity, supplier production slowdowns and project-site restrictions contributed to delivery delays and higher costs. Rising steel and logistics costs, tariffs, customer/project timing, seasonality and the ability to pass through cost increases could pressure margins. The company said it had qualified non-China suppliers for all commodities and entered contracts after quarter-end for greater certainty on a substantial portion of anticipated second-half steel needs.
- Legal matters: FCX Solar sued FTC Solar in April 2021 over contract and tort claims, seeking approximately $134 million, and filed a separate patent-infringement suit in May seeking unspecified damages and injunctive relief. FTC Solar said it believes the claims are without merit and that material loss is remote; it recorded no material loss contingency. Outcomes remain uncertain.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective as of March 31 due to material weaknesses involving accounting personnel, period-end close and reporting controls, and IT general controls. Remediation efforts include hiring experienced accounting staff, using consultants and implementing policies and procedures.
Important facts for investors to verify
- Whether the IPO proceeds and post-quarter share repurchase and offering costs materially improve liquidity, and the resulting fully diluted share count.
- Whether gross margins recover from the 0.2% Q1 level as freight, steel, overhead and retrofit costs evolve.
- Receivables, unbilled revenue, deferred revenue and operating cash flow trends, including the timing of customer collections.
- The status and potential financial or operational impact of the FCX litigation, including any developments in the claims or requested remedies.
- Progress remediating internal-control weaknesses and the company’s ability to meet the new credit facility’s financial covenants.