FTC Solar, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. FTC Solar supplies solar tracker systems, software and related services; its June acquisition of HX Tracker added the Helios one-panel tracker offering. Financial amounts below are in millions of dollars unless otherwise noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $30.7 | $50.1 | $80.3 | $115.8 |
| Gross profit (loss) | $(6.5) | $(16.1) | $(15.8) | $(15.9) |
| Gross margin | (21.2%) | (32.0%) | (19.7%) | (13.8%) |
| Operating loss | $(25.2) | $(72.5) | $(53.0) | $(80.5) |
| Net loss | $(25.7) | $(52.4) | $(53.5) | $(59.8) |
| GAAP diluted loss per share | $(0.26) | $(0.61) | $(0.54) | $(0.78) |
| Adjusted EBITDA (non-GAAP) | $(17.7) | $(16.7) | $(37.7) | $(23.4) |
- Revenue mix: Q2 product revenue fell 74% to $9.2 million, while service revenue rose 50% to $21.6 million. For the first half, product revenue fell 56% to $40.1 million and service revenue increased 70% to $40.1 million.
- Cash flow: Operating cash use was $36.4 million in the first half, versus $84.3 million in the prior-year period. Investing activities used $0.3 million and financing activities provided $0.5 million. Cash declined $36.2 million from year-end to $66.0 million.
- Balance sheet at June 30: Current assets were $169.4 million and current liabilities $78.9 million; working capital was $90.5 million. Total assets were $185.5 million, total liabilities $85.5 million, and stockholders’ equity $100.0 million. Accumulated deficit was $202.7 million.
- Debt and liquidity: The company had no revolving-facility loans outstanding and no long-term borrowings; a $1.9 million letter of credit reduced unused facility capacity to $98.1 million. Management reported approximately $114.1 million of available liquidity after considering the minimum-liquidity covenant. The facility’s minimum-liquidity threshold was reduced to $50 million through March 31, 2023, with additional conditional covenants and restrictions.
Material changes versus the prior comparable period
- Q2 revenue fell 39%, principally as tracker production declined 42% and product average selling price fell about 56%, reflecting project mix and deferred U.S. projects amid supply and trade-policy uncertainty.
- First-half revenue fell 31%. Management cited a 37% reduction in megawatts produced, an approximately 27% decline in product average selling price, and a $5.0 million customer concession.
- Gross margin improved year over year in Q2 but worsened for the first half. The company continued to report gross losses, citing insufficient production volume to absorb fixed costs, project mix, higher costs, and the first-half customer concession.
- Net loss improved year over year in both periods, largely alongside lower stock-based compensation than in 2021, when IPO-related accelerated vesting drove unusually high expense. First-half adjusted net loss, a non-GAAP measure, worsened to $38.5 million from $23.6 million.
- Cash and cash equivalents decreased from $102.2 million at December 31, 2021, to $66.0 million at June 30, 2022. Accounts receivable, net, declined to $76.0 million from $107.5 million; inventory increased to $13.7 million from $8.9 million.
Outlook, risks and unusual items
- Outlook: The filing gives no specific revenue or earnings guidance. Management expected trade-duty relief announced in June to help U.S. developers reactivate delayed projects and support tracker demand in 2023. It expected regulatory uncertainty to continue weighing on revenue and cash flow for part of the remainder of 2022.
- Market and operating risks: The Department of Commerce AD/CVD investigation and the Uyghur Forced Labor Prevention Act created uncertainty around module sourcing, traceability and project timing. Supply-chain disruptions, steel and component costs, freight, inflation, COVID-related disruptions, and dependence on contract manufacturers could pressure margins and deliveries.
- Liquidity assessment: The company reported cumulative losses and operating cash outflows, but management concluded existing cash and unused credit capacity would fund operations for at least one year from issuance of the statements. It also warned that worsening markets or trade restrictions could require additional debt or equity financing, which might not be available on acceptable terms.
- Acquisitions: HX Tracker was acquired June 14 for a preliminary purchase price of $8.7 million, comprising cash, shares and assumed repayment of former-owner debt. The company issued 1.0 million shares and accrued approximately $4.3 million of cash payments. A separate asset acquisition for approximately $0.8 million closed July 1.
- Litigation: FCX Solar’s original complaint sought approximately $134 million. Fraud and unjust-enrichment claims were dismissed, but a contract claim and patent-infringement claims remained; the court adopted FCX’s disputed patent claim constructions. The company said it would defend the matters, while warning outcomes could materially affect results, financial position or liquidity.
- Reporting and governance: Management concluded disclosure controls were ineffective due to material weaknesses in financial reporting controls, including staffing, close and reporting processes, and IT general controls. Remediation was underway but not complete. The filing also revised 2021 interim figures for errors in stock compensation and weighted-average shares; the company characterized the errors as immaterial to the previously issued statements.
- Related-party expense: The company incurred $2.1 million in first-half general and administrative expense for consulting services from FEOC, a related party, and paid $1.7 million in cash during the period.
Important facts for investors to verify
- Whether delayed U.S. solar projects resumed, and whether demand and shipped megawatts recover as management anticipated.
- Whether negative gross margins improve as production volumes, project mix, customer concessions, and material and freight costs change.
- Cash burn, receivable collections, covenant compliance, and the amount of usable revolver capacity under the amended facility.
- Progress on HX Tracker integration, final purchase-price allocation, and realization of expected commercial benefits.
- Developments in the FCX litigation and the potential financial exposure; the filing does not provide a clear estimate of damages for the remaining claims.
- Remediation and independent validation of the disclosed material weaknesses in internal controls.