FTC Solar, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial amounts are in millions of dollars unless otherwise noted. FTC Solar supplies utility-scale solar tracker systems, software and engineering services; most revenue came from U.S. customers.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $53.0 | $59.6 | $168.8 | $143.2 |
| Gross profit (loss) | $(8.0) | $2.9 | $(24.0) | $8.5 |
| Operating expenses | $14.7 | $5.4 | $79.3 | $14.1 |
| Operating loss | $(22.8) | $(2.5) | $(103.3) | $(5.6) |
| Net loss | $(22.9) | $(2.8) | $(82.7) | $(6.2) |
| Net loss per share | $(0.24) | $(0.04) | $(1.00) | $(0.09) |
- Q3 revenue fell 11% year over year: product revenue declined 7% to $45.6 million and service revenue fell to $7.4 million. Management attributed lower product sales primarily to a 16% decrease in megawatts shipped, partly offset by higher average selling prices.
- Nine-month revenue rose 18%, with product revenue up 13% and service revenue up 48%. Megawatts shipped increased 15% and average selling prices increased slightly.
- Gross margin turned negative in Q3, primarily reflecting higher steel and logistics costs, about $5.5 million in shipping and logistics costs not passed through to customers, product reconfiguration and higher overhead. Cost per MW increased 27% in Q3 and 24% for the nine-month period.
- Nine-month operating expenses included $58.5 million of stock-based compensation, largely associated with IPO-triggered vesting. The nine-month net loss also included a $20.8 million gain from selling the Dimension Energy investment and a $0.8 million PPP loan-forgiveness gain.
Cash, liquidity and capital
- Cash was $140.7 million at September 30, 2021, versus $32.4 million at December 31, 2020. Nine-month operating cash use was $92.4 million; investing provided $21.6 million, mainly from the Dimension investment sale; financing provided $178.1 million, mainly from the IPO.
- The April 2021 IPO raised $241.2 million net of underwriting discounts and commissions, before offering costs. FTC used $54.2 million to repurchase and retire shares; it reported $187.0 million remaining for general corporate purposes.
- No borrowings were outstanding under the $100 million, three-year senior secured revolving facility. The facility is secured by substantially all assets. FTC reported compliance with its $125 million quarterly minimum-liquidity covenant; unrestricted cash alone exceeded that threshold at period end. Leverage and interest-coverage tests had not yet been triggered.
- Current assets were $229.2 million and current liabilities $66.4 million. Total liabilities were $72.1 million; the balance sheet showed no outstanding debt at September 30.
Outlook, risks and unusual items
- No formal numerical revenue or earnings guidance is provided. Management said contracted and awarded projects were expected to support revenue growth in 2022. It reported international awards and a multi-project opportunity covering 1.7 GW of projects in development; FTC expects to make up to $30 million of development capital available in connection with a tracker customer’s projects.
- Management cited rising steel, component and transportation costs, supply constraints, COVID-related production and shipping delays, and uncertainty from a pending U.S. trade-duty investigation as pressures on margins, deliveries and customer project timing. The company is diversifying suppliers and pursuing product-cost reductions.
- FTC sold its approximately 23% Dimension Energy interest for about $22 million net of a success-based fee. The agreement provides potential additional consideration of up to approximately $14 million from an earnout and $7 million from a project escrow release, subject to milestones; contingent gains are recognized only when realizable.
- FCX Solar lawsuits allege contract and tort claims, seeking approximately $134 million, and patent infringement, seeking unspecified damages and injunctive relief. FTC said it considers the claims without merit and the likelihood of a material loss remote; it recorded no material loss contingency. The patent case was transferred to the Southern District of New York in October 2021.
- Disclosure controls were deemed ineffective because of material weaknesses involving accounting expertise, close and reporting controls, and IT general controls. Remediation was ongoing. FTC also revised its previously issued June 2021 interim statements for errors in stock-based compensation and weighted-average shares; it characterized the errors as immaterial, and the revisions did not change total cash flows.
- Warranty reserves totaled $5.4 million at quarter end. Management noted estimates are uncertain given the company’s relatively short sales history.
Investor facts to verify
- Whether project awards and the 1.7 GW opportunity convert into orders, shipments and recognized revenue on the expected timeline.
- Whether supply-chain, freight and commodity costs ease or can be recovered through customer pricing, and whether gross margins improve.
- Operating cash burn, working-capital needs and the planned use of IPO proceeds, including development-capital commitments.
- Progress remediating material weaknesses and whether subsequent reporting avoids further revisions.
- Developments in the FCX litigation, contingent Dimension proceeds, warranty claims and continued compliance with the credit-facility liquidity covenant.