FTC Solar, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. FTC Solar provides solar tracker systems, software and engineering services. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $30.5 | $16.6 | $103.8 | $96.8 |
| Gross profit (loss) | $3.4 | ($9.5) | $7.6 | ($25.3) |
| Gross margin | 11.1% | (57.4%) | 7.3% | (26.1%) |
| Operating loss | ($16.3) | ($26.7) | ($39.0) | ($79.7) |
| Net loss | ($16.9) | ($25.6) | ($39.1) | ($79.1) |
| Basic and diluted loss per share | ($0.14) | ($0.25) | ($0.35) | ($0.79) |
- Q3 product revenue rose 670% to $27.3 million, while service revenue fell 75% to $3.3 million. Management attributed the product increase principally to 483% more megawatts produced; service revenue declined amid lower deliveries and pricing.
- For the first nine months, product revenue rose 85% to $80.9 million and service revenue fell 57% to $22.9 million. Total revenue increased 7% year over year.
- Gross profit improved substantially in both comparisons, which management linked to higher production, a shift toward product revenue, improved pricing and lower direct costs, remediation and warranty expense, and overhead reductions. The company nevertheless remained loss-making.
- Operating expenses were $19.7 million in Q3, up from $17.2 million, including higher selling and marketing expense largely due to a $4.1 million credit-loss provision for a specific customer. G&A included a $3.2 million write-off of prepaid costs after termination of a related-party consulting agreement.
Cash, liquidity and capital
- Cash and cash equivalents were $31.5 million at September 30, down from $44.4 million at December 31, 2022. Working capital was $65.4 million; accounts receivable, net, was $71.4 million, including $26.1 million of revenue recognized in excess of billings.
- Operating cash outflow for the first nine months was $46.4 million, compared with $49.1 million in 2022. Investing activities used $0.5 million; financing provided $34.1 million, primarily from ATM share sales. Cash decreased $12.9 million over the period.
- No borrowings were outstanding under the $100 million revolving credit facility; $98.0 million of capacity remained after letters of credit. The facility terminates April 30, 2024 and requires at least $125 million of quarter-end liquidity, defined as cash plus available borrowing capacity. The company reported compliance at September 30.
- The ATM program generated approximately $34.0 million net proceeds from 15.4 million newly issued shares in the first nine months. Approximately $64.9 million of capacity remained. Common shares outstanding increased from 105.0 million at year-end 2022 to 125.0 million at September 30, 2023.
- The company reported no debt outstanding, but continues to use cash to fund operations. Management stated it expects available resources and planned improvements to fund operations for at least one year from issuance of the financial statements; it also noted that adverse market or regulatory developments could require additional financing, potentially dilutive equity.
Material developments, outlook and risks
- FTC Solar reduced its workforce by approximately 9% (21 employees) in August; it recorded $2.1 million of severance costs and had about $1.2 million accrued at quarter-end.
- The company invested $0.9 million for a 45% equity-method interest in Alpha Steel, a planned Texas-based steel-component manufacturer. It may be required to contribute up to an additional $2.6 million. Commercial production was expected to begin in Q4 2023; the filing reports no operating revenue from Alpha Steel through September 30.
- Management expects Pioneer tracker production to benefit results during 2024 and believes the Inflation Reduction Act and domestic supply-chain investment may support U.S. demand. It said customer project delays and uncertainty around UFLPA compliance continue to constrain activity; recovery timing may be slower than expected. No specific revenue or earnings guidance is provided.
- Key risks include project delays, customer concentration and collection risk, import restrictions and tariffs, dependence on contract manufacturers, steel and logistics costs, and the possibility of needing additional capital. The allowance for credit losses rose to $5.5 million from $1.2 million at year-end.
- U.S. Customs and Border Protection asserted tariff assessments of approximately $2.16 million and $2.01 million on imports from Thailand. FTC Solar disputes the assessments, has protested one and plans to protest the other; it recorded no accrual, stating the amounts were not considered probable obligations. Unfavorable outcomes or further assessments could materially affect results, financial position or liquidity.
- Other notable items include termination of a related-party consulting agreement, with a $3.2 million prepaid-cost write-off and forfeiture of 2.0 million unvested options; and a $0.9 million contingent escrow gain recognized from the prior sale of an investment.
Important facts for investors to verify
- Whether operating cash use and customer collections improve, particularly given elevated receivables and the specific customer credit-loss provision.
- Whether gross-margin improvement persists as production, product mix, project timing and warranty costs change.
- Availability of the revolving facility after its liquidity covenant is retested, and the company’s funding needs before the facility expires in April 2024.
- Potential dilution from further ATM sales or other financing; 15.4 million shares were sold under the ATM in the first nine months.
- Resolution of the CBP tariff assessments and any additional exposure, and Alpha Steel’s production start, funding requirements and expected contribution to supply and costs.
- Management’s stated expectation of funding operations for at least one year depends on assumptions about market recovery, cost control and financing access; verify progress against those assumptions.