FTC Solar, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. FTC Solar provides utility-scale solar tracker systems, software and engineering services. Amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $50.1 | $51.2 | $115.8 | $83.5 |
| Gross profit (loss) | $(16.1) | $(1.4) | $(15.9) | $5.6 |
| Gross margin | (32.0%) | (2.7%) | (13.8%) | 6.7% |
| Operating loss | $(76.0) | $(6.0) | $(84.0) | $(3.1) |
| Net loss | $(55.8) | $(6.8) | $(63.3) | $(3.4) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(84.3) | $(22.9) |
- Q2 revenue declined 2% year over year: product revenue fell 16% to $35.8 million, partly offset by service revenue rising to $14.4 million. For the first half, revenue increased 39%, with product revenue up 27% and service revenue more than doubling.
- At June 30, cash was $149.7 million; current assets were $235.4 million and current liabilities $55.3 million. Total assets were $240.7 million and stockholders’ equity $180.8 million. The filing reports no outstanding borrowings under its new revolving facility.
- Six-month operating cash use was $84.3 million. Investing activities provided $21.8 million, principally from the Dimension Energy investment sale; financing activities provided $178.8 million, primarily from the IPO. Cash increased $116.3 million from year-end 2020.
- The company reported a $0.70 Q2 net loss per share and $0.87 for the first half. Results include $56.2 million of first-half stock-based compensation, largely triggered by the IPO.
Material changes and unusual items
- On April 30, 2021, FTC Solar completed its IPO of 19.84 million shares at $13 per share. It received $241.2 million net of underwriting discounts and commissions, before offering costs; $54.2 million was used to repurchase and retire shares. The filing says the remaining approximately $187 million is intended for general corporate purposes.
- Q2 operating expenses were $59.9 million, including $51.1 million of general and administrative expense. The company attributed much of the increase from the prior year to IPO-triggered stock compensation, public-company costs and increased staffing.
- The company recorded a $20.6 million gain on selling its approximately 23% Dimension Energy interest for approximately $22.0 million net of a success-based fee. Potential additional consideration includes an earnout of up to approximately $14 million and a $7 million project escrow release, contingent on milestones and not yet recognized.
- Six-month cost of revenue included approximately $2.7 million for retrofits, remediation and product reconfigurations. The company also recorded $790,000 of gain from forgiveness of its PPP loan.
Outlook, risks and contingencies
- Management said it expects cash, operating cash flows and the available revolving credit facility to meet cash needs for the next 12 months. No numerical revenue or earnings guidance is provided.
- Management expects elevated shipping and logistics costs to continue affecting Q3 margins as the company completes deliveries under contracts priced before the cost increases. Q2 gross profit was pressured by approximately $9 million of shipping and logistics costs not passed on to customers, higher steel prices and overhead, including IPO-related stock compensation.
- The $100 million senior secured revolving credit facility has an initial three-year term and was undrawn at June 30. It is secured by substantially all assets and includes financial covenants; FTC Solar reported compliance at period-end.
- Supply-chain disruption, constrained shipping capacity, rising steel and logistics costs, tariffs, COVID-19 effects, customer and project timing, and execution of international growth may affect results. Vendor deposits rose to $23.9 million as the company secured steel capacity and supplies for the second half.
- FCX Solar filed a contract/tort lawsuit seeking approximately $134 million and a separate patent-infringement suit seeking unspecified damages and injunctive relief. FTC Solar disputes the claims, intends to defend them, and said a material loss was remote; no material loss contingency was recorded.
- Management concluded disclosure controls were ineffective due to previously identified material weaknesses in accounting personnel and expertise, period-end close and reporting controls, and IT general controls. Remediation efforts were underway.
Most important facts for investors to verify
- Whether tracker margins recover as higher logistics and commodity costs are incorporated into pricing and deliveries.
- Cash burn, working-capital needs, and use of IPO proceeds, including the effect of advance supplier deposits and receivables.
- Progress in remediating material weaknesses and whether controls become effective.
- Developments in the FCX Solar litigation and any resulting financial exposure.
- Whether Dimension Energy earns the contingent payments and whether growth in shipped megawatts translates into profitable revenue.