UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended |
|
| OR |
☐ |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to__________
Commission File Number 001-40350
FTC SOLAR, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware |
| 81-4816270 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
9020 N Capital of Texas Hwy, Suite I-260, Austin, Texas 78759 |
|
78759 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(737) 787-7906
Registrant's Telephone Number, Including Area Code
Not Applicable
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value | FTCI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company | |
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Emerging growth company | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of October 31, 2April 30, 2022, 021, 84,984,64599,810,544 sharesshares of the registrant's common stock were outstanding.
FTC Solar, Inc.
Table of Contents
PART I – FINANCIAL INFORMATION
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| PART II – OTHER INFORMATION | ||
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2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical or current facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. Forward-looking statements can be identified in some cases by the use of words such as “believe,” “can,” “could,” “potential,” “plan,” “predict,” “goals,” “seek,” “should,” “may,” “may have,” “would,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” the negative of these words, other similar expressions or by discussions of strategy, plans or intentions.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the factors set forth under the heading “Risk Factors.” Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.
These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
1
ITEM 1. FINANCIAL STATEMENTS
FTC Solar, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except shares and per share data) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 49,383 |
|
| $ | 102,185 |
|
Accounts receivable, net |
|
| 132,230 |
|
|
| 107,548 |
|
Inventories |
|
| 8,918 |
|
|
| 8,860 |
|
Prepaid and other current assets |
|
| 13,762 |
|
|
| 17,186 |
|
Total current assets |
|
| 204,293 |
|
|
| 235,779 |
|
Operating lease right-of-use assets |
|
| 1,622 |
|
|
| 1,733 |
|
Property and equipment, net |
|
| 1,564 |
|
|
| 1,582 |
|
Other assets |
|
| 3,929 |
|
|
| 3,926 |
|
Total assets |
| $ | 211,408 |
|
| $ | 243,020 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 46,102 |
|
| $ | 39,264 |
|
Accrued expenses |
|
| 30,648 |
|
|
| 47,860 |
|
Income taxes payable |
|
| 87 |
|
|
| 47 |
|
Deferred revenue |
|
| 3,100 |
|
|
| 1,421 |
|
Other current liabilities |
|
| 4,523 |
|
|
| 4,656 |
|
Total current liabilities |
|
| 84,460 |
|
|
| 93,248 |
|
Operating lease liability, net of current portion |
|
| 1,190 |
|
|
| 1,340 |
|
Other non-current liabilities |
|
| 5,590 |
|
|
| 5,566 |
|
Total liabilities |
|
| 91,240 |
|
|
| 100,154 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
|
| ||
Preferred stock par value of $0.0001 per share, 10,000,000 shares authorized; NaN issued as of March 31, 2022 and December 31, 2021 |
|
| 0 |
|
|
| 0 |
|
Common stock par value of $0.0001 per share, 850,000,000 shares |
|
| 10 |
|
|
| 9 |
|
Treasury stock, at cost; 10,762,566 shares as of March 31, 2022 and December 31, 2021 |
|
| 0 |
|
|
| 0 |
|
Additional paid-in capital |
|
| 297,119 |
|
|
| 292,082 |
|
Accumulated other comprehensive income (loss) |
|
| 64 |
|
|
| 7 |
|
Accumulated deficit |
|
| (177,025 | ) |
|
| (149,232 | ) |
Total stockholders’ equity |
|
| 120,168 |
|
|
| 142,866 |
|
Total liabilities and stockholders’ equity |
| $ | 211,408 |
|
| $ | 243,020 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
FTC Solar, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
|
| Three months ended March 31, |
| |||||
(in thousands, except shares and per share data) |
| 2022 |
|
| 2021 |
| ||
Revenue: |
|
|
|
|
|
| ||
Product |
| $ | 30,968 |
|
| $ | 56,462 |
|
Service |
|
| 18,585 |
|
|
| 9,245 |
|
Total revenue |
|
| 49,553 |
|
|
| 65,707 |
|
Cost of revenue: |
|
|
|
|
|
| ||
Product |
|
| 34,963 |
|
|
| 54,996 |
|
Service |
|
| 23,877 |
|
|
| 10,592 |
|
Total cost of revenue |
|
| 58,840 |
|
|
| 65,588 |
|
Gross profit (loss) |
|
| (9,287 | ) |
|
| 119 |
|
Operating expenses |
|
|
|
|
|
| ||
Research and development |
|
| 2,701 |
|
|
| 1,954 |
|
Selling and marketing |
|
| 1,972 |
|
|
| 1,100 |
|
General and administrative |
|
| 13,818 |
|
|
| 5,084 |
|
Total operating expenses |
|
| 18,491 |
|
|
| 8,138 |
|
Loss from operations |
|
| (27,778 | ) |
|
| (8,019 | ) |
Interest expense, net |
|
| (295 | ) |
|
| (14 | ) |
Gain from disposal of investment in unconsolidated subsidiary |
|
| 337 |
|
|
| 0 |
|
Gain on extinguishment of debt |
|
| 0 |
|
|
| 790 |
|
Other income (expense) |
|
| 19 |
|
|
| 0 |
|
Loss from unconsolidated subsidiary |
|
| 0 |
|
|
| (218 | ) |
Loss before income taxes |
|
| (27,717 | ) |
|
| (7,461 | ) |
(Provision) benefit for income taxes |
|
| (76 | ) |
|
| 19 |
|
Net loss |
|
| (27,793 | ) |
|
| (7,442 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
| ||
Foreign currency translation adjustments |
|
| 57 |
|
|
| (1 | ) |
Comprehensive loss |
| $ | (27,736 | ) |
| $ | (7,443 | ) |
Net loss per share: |
|
|
|
|
|
| ||
Basic |
| $ | (0.28 | ) |
| $ | (0.11 | ) |
Diluted |
| $ | (0.28 | ) |
| $ | (0.11 | ) |
Weighted-average common shares outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 99,211,792 |
|
|
| 66,875,469 |
|
Diluted |
|
| 99,211,792 |
|
|
| 66,875,469 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
FTC Solar, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)Statements of Stockholders’ Equity
(unaudited)
|
| December 31, |
|
| September 30, |
| ||
|
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 32,359 |
|
| $ | 140,662 |
|
Restricted cash |
|
| 1,014 |
|
|
| 0 |
|
Accounts receivable, net |
|
| 23,734 |
|
|
| 53,668 |
|
Inventories |
|
| 1,686 |
|
|
| 11,276 |
|
Prepaid and other current assets |
|
| 6,924 |
|
|
| 23,558 |
|
Total current assets |
|
| 65,717 |
|
|
| 229,164 |
|
Investments in unconsolidated subsidiary |
|
| 1,857 |
|
|
| 0 |
|
Other assets |
|
| 3,819 |
|
|
| 6,265 |
|
Total assets |
| $ | 71,393 |
|
| $ | 235,429 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 17,127 |
|
| $ | 16,556 |
|
Line of credit |
|
| 1,000 |
|
|
| 0 |
|
Accrued expenses and other liabilities |
|
| 18,495 |
|
|
| 40,246 |
|
Accrued interest – related party |
|
| 207 |
|
|
| 0 |
|
Deferred revenue |
|
| 22,980 |
|
|
| 9,606 |
|
Total current liabilities |
|
| 59,809 |
|
|
| 66,408 |
|
Long-term debt and other borrowings |
|
| 784 |
|
|
| 0 |
|
Other non-current liabilities |
|
| 3,349 |
|
|
| 5,662 |
|
Total liabilities |
|
| 63,942 |
|
|
| 72,070 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
|
| ||
Preferred stock par value of $0.0001 per share, 10,000,000 shares |
|
| 0 |
|
|
| 0 |
|
Common stock par value of $0.0001 per share, 850,000,000 shares |
|
| 1 |
|
|
| 8 |
|
Treasury stock, at cost; 9,896,666 and 10,762,566 shares as of December 31, 2020 and September 30, 2021 |
|
| 0 |
|
|
| 0 |
|
Additional paid-in capital |
|
| 50,096 |
|
|
| 288,696 |
|
Accumulated other comprehensive income (loss) |
|
| (3 | ) |
|
| 6 |
|
Accumulated deficit |
|
| (42,643 | ) |
|
| (125,351 | ) |
Total stockholders’ equity |
|
| 7,451 |
|
|
| 163,359 |
|
Total liabilities and stockholders’ equity |
| $ | 71,393 |
|
| $ | 235,429 |
|
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(in thousands, except shares) |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| ||||||||||
Balance as of December 31, 2021 |
|
| 0 |
|
| $ | 0 |
|
|
| 92,619,641 |
|
| $ | 9 |
|
|
| 10,762,566 |
|
| $ | — |
|
| $ | 292,082 |
|
| $ | 7 |
|
| $ | (149,232 | ) |
| $ | 142,866 |
|
Shares issued during the period for vested restricted stock awards |
|
| — |
|
|
| — |
|
|
| 5,311,326 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock upon exercise of stock options |
|
| — |
|
|
| — |
|
|
| 1,793,876 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 428 |
|
|
| — |
|
|
| — |
|
|
| 428 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,610 |
|
|
| — |
|
|
| — |
|
|
| 4,610 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,793 | ) |
|
| (27,793 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| 57 |
|
Balance as of March 31, 2022 |
|
| 0 |
|
| $ | 0 |
|
|
| 99,724,843 |
|
| $ | 10 |
|
|
| 10,762,566 |
|
| $ | — |
|
| $ | 297,119 |
|
| $ | 64 |
|
| $ | (177,025 | ) |
| $ | 120,168 |
|
|
| Preferred stock |
|
| Common stock |
|
| Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(in thousands, except shares) |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| ||||||||||
Balance as of December 31, 2020 |
|
| — |
|
| $ | — |
|
|
| 66,155,340 |
|
| $ | 1 |
|
|
| 9,896,666 |
|
| $ | — |
|
| $ | 50,096 |
|
| $ | (3 | ) |
| $ | (42,643 | ) |
| $ | 7,451 |
|
Shares issued during the period for vested restricted stock awards |
|
| — |
|
|
| — |
|
|
| 1,169,607 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock upon exercise of stock options |
|
| — |
|
|
| — |
|
|
| 152,902 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Repurchases of treasury stock |
|
| — |
|
|
| — |
|
|
| (148,440 | ) |
|
| — |
|
|
| 148,440 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 449 |
|
|
| — |
|
|
| — |
|
|
| 449 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,442 | ) |
|
| (7,442 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Balance as of March 31, 2021 |
|
| 0 |
|
| $ | 0 |
|
|
| 67,329,409 |
|
| $ | 1 |
|
|
| 10,045,106 |
|
| $ | — |
|
| $ | 50,584 |
|
| $ | (4 | ) |
| $ | (50,085 | ) |
| $ | 496 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
FTC Solar, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share data)Cash Flows
(unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
| $ | 48,879 |
|
| $ | 45,582 |
|
| $ | 122,197 |
|
| $ | 137,799 |
|
Service |
|
| 10,761 |
|
|
| 7,407 |
|
|
| 20,976 |
|
|
| 31,005 |
|
Total revenue |
|
| 59,640 |
|
|
| 52,989 |
|
|
| 143,173 |
|
|
| 168,804 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
|
| 46,513 |
|
|
| 48,090 |
|
|
| 114,883 |
|
|
| 146,964 |
|
Service |
|
| 10,261 |
|
|
| 12,938 |
|
|
| 19,826 |
|
|
| 45,810 |
|
Total cost of revenue |
|
| 56,774 |
|
|
| 61,028 |
|
|
| 134,709 |
|
|
| 192,774 |
|
Gross profit (loss) |
|
| 2,866 |
|
|
| (8,039 | ) |
|
| 8,464 |
|
|
| (23,970 | ) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 1,438 |
|
|
| 2,116 |
|
|
| 4,047 |
|
|
| 9,653 |
|
Selling and marketing |
|
| 1,041 |
|
|
| 2,224 |
|
|
| 2,374 |
|
|
| 6,421 |
|
General and administrative (Note 10) |
|
| 2,912 |
|
|
| 10,392 |
|
|
| 7,630 |
|
|
| 63,217 |
|
Total operating expenses |
|
| 5,391 |
|
|
| 14,732 |
|
|
| 14,051 |
|
|
| 79,291 |
|
Loss from operations |
|
| (2,525 | ) |
|
| (22,771 | ) |
|
| (5,587 | ) |
|
| (103,261 | ) |
Interest expense |
|
| (70 | ) |
|
| (301 | ) |
|
| (303 | ) |
|
| (515 | ) |
Gain from disposal in equity investment |
|
| 0 |
|
|
| 210 |
|
|
| 0 |
|
|
| 20,829 |
|
Gain (loss) on extinguishment of debt |
|
| (34 | ) |
|
| 0 |
|
|
| (75 | ) |
|
| 790 |
|
Other expense |
|
| (1 | ) |
|
| (13 | ) |
|
| (1 | ) |
|
| (59 | ) |
Loss before income taxes |
|
| (2,630 | ) |
|
| (22,875 | ) |
|
| (5,966 | ) |
|
| (82,216 | ) |
(Expense) benefit from income taxes |
|
| (24 | ) |
|
| (41 | ) |
|
| 115 |
|
|
| (137 | ) |
Loss from unconsolidated subsidiary |
|
| (186 | ) |
|
| - |
|
|
| (345 | ) |
|
| (354 | ) |
Net loss |
| $ | (2,840 | ) |
| $ | (22,916 | ) |
| $ | (6,196 | ) |
| $ | (82,707 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
| (12 | ) |
|
| 3 |
|
|
| (20 | ) |
|
| 9 |
|
Comprehensive loss |
| $ | (2,852 | ) |
| $ | (22,913 | ) |
| $ | (6,216 | ) |
| $ | (82,698 | ) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.04 | ) |
| $ | (0.24 | ) |
| $ | (0.09 | ) |
| $ | (1.00 | ) |
Diluted |
| $ | (0.04 | ) |
| $ | (0.24 | ) |
| $ | (0.09 | ) |
| $ | (1.00 | ) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
| 82,677,824 |
|
Diluted |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
| 82,677,824 |
|
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (27,793 | ) |
| $ | (7,442 | ) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
| ||
Stock-based compensation |
|
| 4,610 |
|
|
| 449 |
|
Depreciation |
|
| 121 |
|
|
| 9 |
|
Amortization of debt issue costs |
|
| 173 |
|
|
| 0 |
|
Loss from unconsolidated subsidiary |
|
| 0 |
|
|
| 218 |
|
Gain from disposal of investment in unconsolidated subsidiary |
|
| (337 | ) |
|
| 0 |
|
(Gain) loss on extinguishment of debt |
|
| 0 |
|
|
| (790 | ) |
Warranty provision |
|
| 516 |
|
|
| 1,554 |
|
Warranty recoverable from manufacturer |
|
| (205 | ) |
|
| 328 |
|
Bad debt expense (credit) |
|
| (30 | ) |
|
| 58 |
|
Deferred income taxes |
|
| 0 |
|
|
| (20 | ) |
Lease expense and other non-cash items |
|
| 198 |
|
|
| 0 |
|
Impact on cash from changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable, net |
|
| (24,652 | ) |
|
| (20,230 | ) |
Inventories |
|
| (58 | ) |
|
| (2,587 | ) |
Prepaid and other current assets |
|
| 3,440 |
|
|
| 216 |
|
Other assets |
|
| (40 | ) |
|
| (3,649 | ) |
Accounts payable |
|
| 7,258 |
|
|
| 12,913 |
|
Accruals and other current liabilities |
|
| (17,044 | ) |
|
| 8,360 |
|
Accrued interest – related party debt |
|
| 0 |
|
|
| (207 | ) |
Deferred revenue |
|
| 1,679 |
|
|
| (14,797 | ) |
Other non-current liabilities |
|
| (752 | ) |
|
| (206 | ) |
Lease payments and other, net |
|
| (190 | ) |
|
| (81 | ) |
Net cash used in operating activities |
|
| (53,106 | ) |
|
| (25,904 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (523 | ) |
|
| (85 | ) |
Proceeds from disposal of investment in unconsolidated subsidiary |
|
| 337 |
|
|
| 0 |
|
Net cash used in investing activities |
|
| (186 | ) |
|
| (85 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Repayments of borrowings |
|
| 0 |
|
|
| (1,000 | ) |
Offering costs paid |
|
| 0 |
|
|
| (1,084 | ) |
Proceeds from stock issuance |
|
| 0 |
|
|
| 39 |
|
Proceeds from stock option exercises |
|
| 428 |
|
|
| 0 |
|
Net cash provided by (used in) financing activities |
|
| 428 |
|
|
| (2,045 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 62 |
|
|
| 1 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
| (52,802 | ) |
|
| (28,033 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 102,185 |
|
|
| 33,373 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 49,383 |
|
| $ | 5,340 |
|
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
| ||
Purchases of property and equipment included in ending accounts payable and accruals |
| $ | 59 |
|
|
| 67 |
|
Increase in offering costs in period end accruals |
| $ | 0 |
|
|
| 2,019 |
|
Commencement of new operating leases |
| $ | 0 |
|
|
| 246 |
|
Cash paid during the period for third party interest |
| $ | 128 |
|
|
| 40 |
|
Cash paid during the period for related party interest |
| $ | 0 |
|
|
| 207 |
|
Cash paid during the period for taxes |
| $ | 7 |
|
|
| 0 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
FTC Solar, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||||||||||
|
| Shares |
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income (Loss) |
|
| Deficit |
|
| Equity |
| |||||||||
Balance as of December 31, 2019 |
| 0 |
| $ | 0 |
|
|
| 63,633,981 |
|
| $ | 1 |
|
|
| 0 |
|
| $ | 0 |
|
| $ | 18,273 |
|
| $ | 0 |
|
| $ | (26,719 | ) |
| $ | (8,445 | ) |
Restricted stock awards |
| — |
|
| — |
|
|
| 2,014,091 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock |
| — |
|
| — |
|
|
| 9,162,976 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,000 |
|
|
| — |
|
|
| — |
|
|
| 30,000 |
|
Stock-based compensation |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 933 |
|
|
| — |
|
|
| — |
|
|
| 933 |
|
Net loss |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,356 | ) |
|
| (3,356 | ) |
Other comprehensive loss |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| (8 | ) |
Balance as of June 30, 2020 |
| 0 |
| $ | 0 |
|
|
| 74,811,048 |
|
| $ | 1 |
|
|
| 0 |
|
| $ | 0 |
|
| $ | 49,206 |
|
| $ | (8 | ) |
| $ | (30,075 | ) |
| $ | 19,124 |
|
Restricted stock awards vested during the period |
| — |
| — |
|
|
| 594,712 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
Repurchase of common stock, held in treasury |
| — |
| — |
|
|
| (9,896,666 | ) |
| — |
|
|
| 9,896,666 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||
Stock-based compensation |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 448 |
|
|
| — |
|
|
| — |
|
|
| 448 |
|
Net loss |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,840 | ) |
|
| (2,840 | ) |
Other comprehensive loss |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
Balance as of September 30, 2020 |
| 0 |
| $ | 0 |
|
|
| 65,509,094 |
|
| $ | 1 |
|
|
| 9,896,666 |
|
| $ | 0 |
|
| $ | 49,654 |
|
| $ | (20 | ) |
| $ | (32,915 | ) |
| $ | 16,720 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income (Loss) |
|
| Deficit |
|
| Equity |
| ||||||||||
Balance as of December 31, 2020 |
|
| 0 |
|
| $ | 0 |
|
|
| 66,155,340 |
|
| $ | 1 |
|
|
| 9,896,666 |
|
| $ | 0 |
|
| $ | 50,096 |
|
| $ | (3 | ) |
| $ | (42,643 | ) |
| $ | 7,451 |
|
Restricted stock awards |
|
| — |
|
|
| — |
|
|
| 3,413,849 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of treasury stock |
|
| — |
|
|
| — |
|
|
| (865,900 | ) |
|
| — |
|
|
| 865,900 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock upon |
|
| — |
|
|
| — |
|
|
| 213,690 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
Repurchase and retirement of common stock |
|
| — |
|
|
| — |
|
|
| (4,455,384 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (54,154 | ) |
|
| — |
|
|
| — |
|
|
| (54,155 | ) |
Issuance of common stock in connection with IPO |
|
| — |
|
|
| — |
|
|
| 19,840,000 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 241,153 |
|
|
| — |
|
|
| — |
|
|
| 241,155 |
|
Impact of stock split |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Deferred offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,093 | ) |
|
| — |
|
|
| — |
|
|
| (7,093 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53,150 |
|
|
| — |
|
|
| — |
|
|
| 53,150 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (59,792 | ) |
|
| (59,792 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Balance as of June 30, 2021 |
|
| 0 |
|
| $ | 0 |
|
|
| 84,301,595 |
|
| $ | 8 |
|
|
| 10,762,566 |
|
| $ | — |
|
| $ | 283,196 |
|
| $ | 3 |
|
| $ | (102,435 | ) |
| $ | 180,772 |
|
Issuance of common stock upon |
|
| — |
|
|
| — |
|
|
| 642,550 |
|
|
| - |
|
|
| — |
|
|
| — |
|
|
| 107 |
|
|
| — |
|
|
| — |
|
|
| 107 |
|
Deferred offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,381 |
|
|
| — |
|
|
| — |
|
|
| 5,381 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,916 | ) |
|
| (22,916 | ) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3 |
|
|
|
|
|
| 3 |
| ||||||||
Balance as of September 30, 2021 |
|
| 0 |
|
| $ | 0 |
|
|
| 84,944,145 |
|
| $ | 8 |
|
|
| 10,762,566 |
|
| $ | — |
|
| $ | 288,696 |
|
| $ | 6 |
|
| $ | (125,351 | ) |
| $ | 163,359 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
FTC Solar, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (6,196 | ) |
| $ | (82,707 | ) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
| ||
Stock-based compensation |
|
| 1,381 |
|
|
| 58,531 |
|
Depreciation and amortization |
|
| 43 |
|
|
| 383 |
|
(Gain) loss from unconsolidated subsidiary |
|
| 345 |
|
|
| 354 |
|
Gain from disposal of equity investment |
|
| 0 |
|
|
| (20,829 | ) |
(Gain) loss on extinguishment of debt |
|
| 75 |
|
|
| (790 | ) |
Warranty provision |
|
| 5,195 |
|
|
| 2,118 |
|
Warranty asset |
|
| (726 | ) |
|
| (484 | ) |
Bad debt expense |
|
| 0 |
|
|
| 83 |
|
Deferred income taxes |
|
| (2 | ) |
|
| 0 |
|
Other non-cash items |
|
| 43 |
|
|
| 0 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable, net |
|
| (12,219 | ) |
|
| (30,017 | ) |
Inventories |
|
| (1,523 | ) |
|
| (9,590 | ) |
Prepaid and other current assets |
|
| (4,351 | ) |
|
| (16,609 | ) |
Other assets |
|
| (365 | ) |
|
| 180 |
|
Accounts payable |
|
| 4,009 |
|
|
| (535 | ) |
Accruals and other current liabilities |
|
| 13,825 |
|
|
| 21,243 |
|
Accrued interest – related party debt |
|
| (112 | ) |
|
| (207 | ) |
Deferred revenue |
|
| (14,108 | ) |
|
| (13,374 | ) |
Other non-current liabilities |
|
| 386 |
|
|
| 904 |
|
Other, net |
|
| (338 | ) |
|
| (1,068 | ) |
Net cash used in operating activities |
|
| (14,638 | ) |
|
| (92,414 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| 0 |
|
|
| (778 | ) |
Proceeds from disposal of equity method investment |
|
| 0 |
|
|
| 22,332 |
|
Net cash provided by investing activities: |
|
| 0 |
|
|
| 21,554 |
|
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from borrowings |
|
| 784 |
|
|
| 0 |
|
Repayments of borrowings |
|
| (4,000 | ) |
|
| (1,000 | ) |
Repurchase and retirement of common stock |
|
| 0 |
|
|
| (54,155 | ) |
Offering costs paid |
|
| 0 |
|
|
| (5,942 | ) |
Deferred financing costs for revolving credit facility |
|
| 0 |
|
|
| (2,077 | ) |
Proceeds from stock issuance |
|
| 30,000 |
|
|
| 241,314 |
|
Net cash provided by financing activities |
|
| 26,784 |
|
|
| 178,140 |
|
Effect of exchange rate changes on cash and restricted cash |
|
| (20 | ) |
|
| 9 |
|
Net increase in cash and restricted cash |
|
| 12,126 |
|
|
| 107,289 |
|
Cash and restricted cash at beginning of period |
|
| 8,235 |
|
|
| 33,373 |
|
Cash and restricted cash at end of period |
| $ | 20,361 |
|
| $ | 140,662 |
|
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
| ||
Purchase of property and equipment included in accounts payable |
| $ | 0 |
|
| $ | 40 |
|
Non-cash gain on extinguishment of debt from PPP loan forgiveness |
| $ | 0 |
|
| $ | (790 | ) |
Cash paid during the period for interest |
| $ | 350 |
|
| $ | 332 |
|
|
|
|
|
|
|
| ||
Reconciliation of cash and restricted cash at period end |
| December 31, 2020 |
|
| September 30, 2021 |
| ||
Cash |
| $ | 32,359 |
|
| $ | 140,662 |
|
Restricted cash |
|
| 1,014 |
|
|
| 0 |
|
Total cash and restricted cash |
| $ | 33,373 |
|
| $ | 140,662 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
FTC Solar, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Description of Businessbusiness
FTC Solar, Inc. (the “Company”, “we”, “our”, or “us”) was founded in 2017 and is incorporated in the state of Delaware. We are a global provider of advanced solar tracker systems, supported by proprietary software and value-added engineering services. Our mission is to provide differentiated products, software, and services that maximize energy generation and cost savings for our customers, and to help facilitate the continued growth and adoption of solar power globally. Trackers significantly increase the amount of solar energy produced at a solar installation by moving solar panels throughout the day to maintain an optimal orientation relative to the sun. Our tracker systems are currently marketed under the Voyager brand name (“Voyager Tracker” or “Voyager”). Voyager is a next-generation two-panel in-portrait single-axis tracker solution that we believe offers industry-leading performance and ease of installation. We arehave a team of dedicated renewable energy professionals with significant project installation experience focused on delivering cost reductions to our US and worldwide clients across the solar project development and construction cycle. With significant US and worldwide project installation experience, our differentiated offerings drive value forOur solar solutions spanningspan a range of applications, including ground mount, tracker, canopy, and rooftop. The Company is headquartered in Austin, Texas, and has international subsidiaries in Australia, India, Singapore, and South Africa.
In April 2021, we completed an initial public offering (IPO) of
Initial Public Offering and Related Transaction19,840,000
The Company’s shares of our common stock receiving proceeds of $241.2 million, net of underwriting discounts and commissions, but before offering costs, and began trading on the Nasdaq Stock Exchange on April 28, 2021,Global Market under the symbol “FTCI” and on April 30, 2021, the Company completed its Initial Public Offering (“IPO”). In connection with the IPO, the Company issued and sold 19,840,000 shares of its common stock at a public offering price of $13.00 per share.Prior to the completion of the IPO, the Boardboard of Directorsdirectors and Stockholdersstockholders approved an approximately 8.25-for-1 forward stock split (the “Forward Stock Split”) of the Company’s shares of common stock which became effective on April 28, 2021.
The Company received aggregate proceeds of $241.2 million Proceeds from the IPO net of the underwriting discount and commissions and before offering costs andwere used for general corporate purposes, with $54.2 million used to purchase and retire an aggregate of 4,455,384 shares of our common stock, some of which resultedincluding shares resulting from the settlement of certain vested Restricted Stock Units ("RSUs"restricted stock units (“RSUs”) and the exercise of certain options in connection with the IPO at the IPO price, less underwriting discounts and commissions.Offering costs, including legal, accounting, printing and other IPO-related costs, were reclassified to Additional paid-in capital and recorded against the proceeds from the offering during the quarter ended June 30, 2021.JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. Under the JOBS Act, emerging growth companies canwe elected to use the allowed extended transition period to delay adopting new or revised accounting standards until such time as those standards apply to private companies. Accordingly, we have elected to use the extended transition period to adopt new or revised accounting standards.
9
2. Revision of Previously Issued Financial StatementsBackground of the Revision
In connection with the preparation of the Company's financial statements as of and for the three months ended September 30, 2021, the Company identified an error in the basic and diluted earnings per share (“EPS”) calculation for the three and six months ended June 30, 2021. Specifically, the Company incorrectly omitted from the basic and diluted weighted-average shares outstanding calculation shares of common stock underlying RSUs that became fully vested during the period but had not yet been settled through the legal issuance of common stock. Additionally, the Company identified that it overstated stock-based compensation expense by $3.5 million for the three and six months ended June 30, 2021 due to an error in the calculation of expense related to grantees’ RSU awards. Although the Company has concluded that these errors are immaterial to the previously issued interim financial statements, the Company is correcting these errors by revising the previously issued unaudited condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021.Effect of the Revision
The following table summarizes the effect of the revision on the affected financial statement line items within the previously reported unaudited condensed consolidated financial statements as of the date, and for the periods indicated. The errors had no impact on total cash flows for operating, investing, or financing activities, but did impact line items in the indirect method of operating cash flow presentation as shown below:
|
| As of and for Three Months Ended June 30, 2021 |
|
| Adjustments |
|
| As of and for Three Months Ended June 30, 2021 |
| |||
|
| (in thousands, except share and per share data) |
| |||||||||
Condensed Consolidated Balance Sheet |
|
|
|
|
|
|
|
|
| |||
Additional paid-in capital |
| $ | 286,687 |
|
| $ | (3,491 | ) |
| $ | 283,196 |
|
Accumulated deficit |
|
| (105,926 | ) |
|
| 3,491 |
|
|
| (102,435 | ) |
Condensed Consolidated Statement of Comprehensive Loss |
|
|
|
|
|
|
|
|
| |||
Cost of Revenue - Product |
| $ | 43,885 |
|
| $ | (7 | ) |
| $ | 43,878 |
|
Research and development |
|
| 5,585 |
|
|
| (2 | ) |
|
| 5,583 |
|
Selling and Marketing |
|
| 3,258 |
|
|
| (161 | ) |
|
| 3,097 |
|
General and administrative |
|
| 51,063 |
|
|
| (3,321 | ) |
|
| 47,742 |
|
Total operating expenses |
|
| 59,906 |
|
|
| (3,484 | ) |
|
| 56,422 |
|
Loss from operations |
|
| (75,963 | ) |
|
| 3,491 |
|
|
| (72,472 | ) |
Loss before income taxes |
|
| (55,590 | ) |
|
| 3,491 |
|
|
| (52,099 | ) |
Net loss |
|
| (55,841 | ) |
|
| 3,491 |
|
|
| (52,350 | ) |
Comprehensive loss |
|
| (55,834 | ) |
|
| 3,491 |
|
|
| (52,343 | ) |
Net loss per share - basic |
|
| (0.70 | ) |
|
| 0.09 |
|
|
| (0.61 | ) |
Net loss per share - diluted |
|
| (0.70 | ) |
|
| 0.09 |
|
|
| (0.61 | ) |
Weighted-average common shares outstanding - basic |
|
| 79,229,174 |
|
|
| 6,927,135 |
|
|
| 86,156,309 |
|
Weighted-average common shares outstanding - diluted |
|
| 79,229,174 |
|
|
| 6,927,135 |
|
|
| 86,156,309 |
|
Condensed Consolidated Statement of Stockholders' Equity |
|
|
|
|
|
|
|
|
| |||
Additional paid-in capital |
| $ | 286,687 |
|
| $ | (3,491 | ) |
| $ | 283,196 |
|
Accumulated deficit |
|
| (105,926 | ) |
|
| 3,491 |
|
|
| (102,435 | ) |
Net loss |
|
| (55,841 | ) |
|
| 3,491 |
|
|
| (52,350 | ) |
Stock-based compensation |
|
| 56,192 |
|
|
| (3,491 | ) |
|
| 52,701 |
|
Note 11. Net loss per share |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | (55,841 | ) |
| $ | 3,491 |
|
| $ | (52,350 | ) |
Basic weighted-average number of common shares outstanding |
|
| 79,229,174 |
|
|
| 6,927,135 |
|
|
| 86,156,309 |
|
Diluted weighted-average number of common shares outstanding |
|
| 79,229,174 |
|
|
| 6,927,135 |
|
|
| 86,156,309 |
|
Basic loss per share |
|
| (0.70 | ) |
|
| 0.09 |
|
|
| (0.61 | ) |
Diluted loss per share |
|
| (0.70 | ) |
|
| 0.09 |
|
|
| (0.61 | ) |
10
|
| As of and for the Six Months Ended June 30, 2021 |
|
| Adjustments |
|
| As of and for the Six Months Ended June 30, 2021 |
| |||
|
| (in thousands, except share and per share data) |
| |||||||||
Condensed Consolidated Balance Sheet |
|
|
|
|
|
|
|
|
| |||
Additional paid-in capital |
| $ | 286,687 |
|
| $ | (3,491 | ) |
| $ | 283,196 |
|
Accumulated deficit |
|
| (105,926 | ) |
| $ | 3,491 |
|
|
| (102,435 | ) |
Condensed Consolidated Statement of Comprehensive Loss |
|
|
|
|
|
|
|
|
| |||
Cost of Revenue - Product |
| $ | 98,881 |
|
| $ | (7 | ) |
| $ | 98,874 |
|
Research and development |
|
| 7,539 |
|
|
| (2 | ) |
|
| 7,537 |
|
Selling and Marketing |
|
| 4,358 |
|
|
| (161 | ) |
|
| 4,197 |
|
General and administrative |
|
| 56,147 |
|
|
| (3,321 | ) |
|
| 52,826 |
|
Total operating expenses |
|
| 68,044 |
|
|
| (3,484 | ) |
|
| 64,560 |
|
Loss from operations |
|
| (83,982 | ) |
|
| 3,491 |
|
|
| (80,491 | ) |
Loss before income taxes |
|
| (62,833 | ) |
|
| 3,491 |
|
|
| (59,342 | ) |
Net loss |
|
| (63,283 | ) |
|
| 3,491 |
|
|
| (59,792 | ) |
Comprehensive loss |
|
| (63,277 | ) |
|
| 3,491 |
|
|
| (59,786 | ) |
Net loss per share - basic |
|
| (0.87 | ) |
|
| 0.09 |
|
|
| (0.78 | ) |
Net loss per share - diluted |
|
| (0.87 | ) |
|
| 0.09 |
|
|
| (0.78 | ) |
Weighted-average common shares outstanding - basic |
|
| 73,106,935 |
|
|
| 3,474,582 |
|
|
| 76,581,517 |
|
Weighted-average common shares outstanding - diluted |
|
| 73,106,935 |
|
|
| 3,474,582 |
|
|
| 76,581,517 |
|
Condensed Consolidated Statement of Cash Flows |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | (63,283 | ) |
| $ | 3,491 |
|
| $ | (59,792 | ) |
Stock-based compensation |
|
| 56,641 |
|
|
| (3,491 | ) |
|
| 53,150 |
|
Note 11. Net loss per share |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | (63,283 | ) |
| $ | 3,491 |
|
| $ | (59,792 | ) |
Basic weighted-average number of common shares outstanding |
|
| 73,106,935 |
|
|
| 3,474,582 |
|
|
| 76,581,517 |
|
Diluted weighted-average number of common shares outstanding |
|
| 73,106,935 |
|
|
| 3,474,582 |
|
|
| 76,581,517 |
|
Basic loss per share |
|
| (0.87 | ) |
|
| 0.09 |
|
|
| (0.78 | ) |
Diluted loss per share |
|
| (0.87 | ) |
|
| 0.09 |
|
|
| (0.78 | ) |
Shares of common stock issuable upon vesting of restricted stock |
|
| 15,079 |
|
|
| (9,885 | ) |
|
| 5,194 |
|
Potential common shares excluded from diluted net loss per share |
|
| 23,231 |
|
|
| (9,885 | ) |
|
| 13,346 |
|
3.2. Summary of Significant Accounting Policiessignificant accounting policies
Basis of Presentationpresentation and Principlesprinciples of Consolidationconsolidation
TheseThe accompanying unaudited condensed consolidated financial statements include the results of the Company and its wholly owned subsidiaries and have been prepared in conformityaccordance with U.S.accounting principles generally accepted accounting principlesin the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated upon consolidation.
Forward Stock Split
On April 28, 2021, we effected an approximately 8.25-for-1 forward split of our issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the Forward Stock Split, one (1) share of common stock issued and outstanding was automatically increased to approximately 8.25 shares of issued and outstanding common stock, without any change in the par value per share. All information related to common stock, stock options, restricted stock awards and earnings per share have been retroactively adjusted to give effect to the Forward Stock Split for all periods presented.
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis.
11
COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The COVID-19 pandemic has had and may continue to have an unfavorable impact on certain parts of our business. The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, the impact of virus variants, the rate of vaccinations, the COVID-19 pandemic’s impact on our customers and suppliers and the range of governmental and community reactions to the pandemic. We have experienced delays in production and shipments in the current quarter due to an outbreak of COVID at a supplier site and a quarantine imposed on one of our shipping vessels. Due to the nature of the pandemic, we may continue to experience reduced customer demand in certain parts of our business or constrained supply that could materially and adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2020 and 2021, have been prepared in accordance with GAAP for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments have been made that are considered necessary for a fair statement of our financial position as of March 31, 2022, and December 31, 2020 and September 30, 2021, our results of operations for the three and nine months ended September 30, 2020March 31, 2022 and 2021 and our cash flows for the ninethree months ended September 30, 2020March 31, 2022 and 2021. The condensed consolidated balance sheetssheet as of December 31, 2020 have2021 has been derived from the Company’s audited consolidated financial statements.statements but, does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
2022. Intercompany balances and transactions have been eliminated in consolidation.
Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s final prospectus (the “IPO Prospectus”) datedAnnual Report on Form 10-K for the year ended December 31, 2021.
On April 28, 2021, we effected an approximately 8.25-for-1 forward split of our issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the forward stock split, one (1) share of common stock issued and outstanding was automatically increased to approximately 8.25 shares of issued and outstanding common stock, without any change in the par value per share. All information related to common stock, stock options, restricted stock awards and earnings per share have been retroactively adjusted to give effect to the forward stock split for all periods presented, unless otherwise indicated.
6
We currently operate in one business segment, the manufacturing and servicing of Voyager Tracker.
Liquidity
We have incurred cumulative losses since inception, resulting in an accumulated deficit of $177.0 million at March 31, 2022, and have a history of cash outflows from operations. During the year ended December 31, 2021, and the three months ended March 31, 2022, we had $132.9 million and $53.1 million, respectively, of cash outflow from operations. At March 31, 2022, we had $49.4 million of cash on hand, $119.8 million of working capital and approximately $98.1 million of unused borrowing capacity under our existing revolving credit facility. The revolving credit facility includes a financial condition covenant stating we are required to have a minimum liquidity, consisting of cash on hand and unused borrowing capacity, of $125.0 million as of April 29, 2021,each quarter end. After considering this financial condition covenant, we had approximately $22.4 million of available liquidity as of March 31, 2022, in order to retain access to our revolving credit facility. Additionally, we had 0 long-term borrowings or other material obligations requiring the use of cash as of March 31, 2022.
As of May 12, 2022, we have collected approximately $62 million of receivables since March 31, 2022, and filedhave a cash balance of approximately $71 million.
On March 25, 2022, the U.S. Department of Commerce, in response to a petition by Auxin Solar, Inc., initiated an investigation of claims related to alleged circumvention of U.S. antidumping and countervailing duties ("AD/CVD") by solar manufacturers in certain Southeast Asian countries in an effort to determine whether or not solar cells and/or modules made in those Southeast Asian nations use parts originating from China in order to circumvent the AD/CVD tariffs. This decision has resulted in some developers deferring projects later in the year due to the uncertainty of panel supply and costs, which is expected to negatively impact our anticipated revenues and our cash flows.
Our costs are affected by certain component costs including steel, motors and micro-chips, as well as transportation costs. Current market conditions that constrain supply of materials and disrupt the flow of materials from international vendors impact the cost of our products and services. These cost increases impact our operating margins. We are taking steps to expand and diversify our manufacturing partnerships and have employed alternative modes of transportation to mitigate the impact of the current headwinds in the global supply chain and logistics markets. Additionally, we have contracted with a consulting firm to support us with improvements to our processes and performance in various areas including design, sourcing, logistics, pricing, software and standard configuration. For further information regarding this consulting firm, see "Note 13. Related party transactions".
In accordance with ASC 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, which raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Based on our recurring losses from operations, impact of the U.S. Department of Commerce investigation of AD/CVD circumvention claims, the expectation of continued operating losses during 2022, and the need to improve profitability and cash flow to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within twelve months of the issuance date of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes we will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
As we continue to address these current market challenges, management has also undertaken the following actions:
7
Should we not be successful in executing the above initiatives, or in reducing our historical levels of use of cash to fund our operations, or should market conditions deteriorate significantly from what we currently expect, or regulatory and international trade policies become more stringent as a result of findings from the Department of Commerce's AD/CVD investigation, or other factors, we may need to issue additional debt or obtain new equity financing to fund our operations for the next twelve months. We may be unable to obtain any desired additional financing on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors that are outside of our control, including general economic and market conditions, the health of financial institutions, investors' and lenders' assessments of our prospects and the prospects of the solar industry in general.
Use of estimates
Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the period. Estimates are used for calculating the measure of progress of Voyager tracker projects and deriving the standalone selling prices of the individual performance obligations when determining amounts to recognize for revenue, estimating allowances for doubtful accounts and slow-moving and obsolete inventory, determining useful lives of noncurrent assets and the estimated fair value of those assets for impairment assessments, and estimating the fair value of investments, stock compensation awards, warranty liabilities and federal and state taxes and contingencies. We base our estimates on historical experience and anticipated results, trends, and various other assumptions that we believe are reasonable under the Securities Act of 1933,circumstances, including assumptions as amended (the “Securities Act”).to future events. Actual results could differ from those estimates.
Concentration of Credit Riskcredit risk
Financial instruments whichthat potentially subject the Company to concentrationconcentrations of credit risk consistare primarily of cash and accounts receivable.
We regularly maintain cash equivalents. The Company maintains deposits inbalances with various financial institutions that exceed federally insured financial institutions in excess of federally insured limits. The Company is exposedamounts, but we have experienced no losses associated with these amounts to credit risk in the event of default by the financial institutions holding our cash and cash equivalents that are recorded on our balance sheets. The Company mitigates its risk by investing in high-grade instruments and limiting the concentration in any one issuer, which limits its exposure. The Company has not experienced any losses since inception.
The carrying amounts of cash and cash equivalents, prepaid expenses, accounts payable and accrued other liabilities are reasonable estimates of their fair value because of the short maturity of these items.
Equity Method Investmentsdate.
The Company usesextends credit to customers in the equity methodnormal course of accountingbusiness, often without requiring collateral. The Company performs credit analyses and monitors the financial health of its customers to reduce credit risk.
The Company’s accounts receivables are derived from revenue earned from customers primarily located in the U.S. and in the Asia Pacific region. No country other than the U.S. accounts for equity10% or more of our revenue. Most of our customers are project developers, solar asset owners and engineering, procurement and construction (“EPC”) contractors that design and build solar energy projects. Often times, a small number of customers account for a significant portion of our outstanding receivables at period end and our total revenue for the year.
Cash and cash equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We regularly maintain cash balances that exceed federally insured amounts, but we have experienced no losses associated with these amounts to date.
Accounts receivable, net
Trade receivables are recorded at invoiced amounts, net of allowances for doubtful accounts if applicable, and do not bear interest. We generally do not require collateral from our customers; however, in certain circumstances, we may require letters of credit, other collateral, additional guarantees or advance payments. The allowance for doubtful accounts is based on our assessment of the investment provides thecollectability of our customer accounts. We regularly review our accounts receivable that remain outstanding past their applicable payment terms and establish allowances or make potential write-offs by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customers’ ability to exercise significant influence, but not control, over operating and financial policiespay.
Receivables arising from revenue recognized in excess of the investee. The Company’s proportionate share of the net income or loss of these investees is included inbillings represents our Condensed Consolidated Statements of Comprehensive Loss. Judgment regardingunconditional right to consideration before customers are invoiced due to the level of influence over each equity method investment includes considering key factors suchprogress obtained as the Company’s ownership interest, legal form of the investee, representationperiod end on the board of directors, participationour contracts to install Voyager tracker systems and related equipment. Further information may be found below in policy-making decisions and material intra-entity transactions.our revenue recognition policy.
128
Inventories, net
Inventories are stated at the lower of cost or net realizable value, with costs computed on a first-in, first-out basis. The Company evaluates equity method investmentsperiodically reviews its inventories for impairment whenever events or changes in circumstances indicate thatexcess and obsolete items and adjusts carrying costs to estimated net realizable values when they are determined to be less than cost.
Warranty
Typically, the carrying amountsale of Voyager Tracker projects includes parts warranties to customers as part of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time and the extent to which the fair valueoverall price of the equity method investment has been less thanproduct. We provide standard assurance type warranties for our products for periods generally ranging from five to ten years. We record a provision for estimated warranty expenses in cost the investee’s financial conditionof sales, net of amounts recoverable from manufacturers under their warranty obligations to us. We do not maintain general or unspecified reserves; all warranty reserves are related to specific projects. All actual or estimated material costs incurred for warranty services in subsequent periods are charged to those established reserves.
While we periodically monitor our warranty activities and near-term prospects and the intent and abilityclaims, if actual costs incurred were to hold the investment for a period of time sufficientbe different from our estimates, we would recognize adjustments to allow for anticipated recovery. An impairment that is other-than temporary is recognizedour warranty reserves in the period in which those differences arise or are identified.
Stock-based compensation
The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).
The Company has made an accounting policy election, as a result of disposing of its equity method investment on June 24, 2021, to account for the contingent gains from the earnout provision and projects escrow release only when those amounts become realizable in the periods subsequent to the disposal date. (See Note 7)
Stock -Based Compensation
The Company recognizesWe recognize compensation expense for all share-based payment awards made, including stock options and restricted stock, based on the estimated fair value of the award on the grant date, in the accompanying consolidated statementsstatement of operations over the requisite service period of the awards. The Company calculatesand comprehensive loss. We calculate the fair value of stock options using the Black-Scholes Option-Pricing model. Themodel, while the fair value of restricted stock grants representsis based on the estimated fair value of the Company's common stock on the date of grant. The Company accountsSince completion of our IPO, we consider the closing price of our stock, as reported on the Nasdaq Global Market, to be the fair value of our stock on the grant date.
Forfeitures are accounted for forfeitures as they occur. For service-based awards, stock-based compensation is recognized using the straight-line attribution approach over the requisite service period. For performance-based awards, stock-based compensation is recognized based on graded vesting over the requisite service period when the performance condition is probable of being achieved.
Revenue Recognitionrecognition
The Company derives its revenue primarily from sale of: (1) Voyager Tracker and customized components of Voyager Tracker, (2) individual parts of Voyager Tracker for certain specific transactions, (3) shipping and handling services, (4) term-based software licenses, (5) maintenance and support services for the term-based software licenses, and (6) subscription services. Product revenue includes revenue from the sale of Voyager Tracker and customized components of Voyager Tracker, individual part sales for certain specific transactions, and sale of term-based software licenses. Term-based software licenses are deployed on the customers’ own servers and have significant standalone functionality.
Service revenue includes revenue from shipping and handling services, subscription-based enterprisesubscription fees from licensing model,subscription services, and maintenance and support services in connection with the term-based software licenses. Our subscription-based enterprise licensing model typically has contract terms ranging from one to two years and consists of subscription fees from the licensing of subscription services. Our hosted on-demand service arrangements do not provide customers with the right to take possession of the software supporting the hosted services. Support services include ongoing security updates, upgrades, bug fixes, and maintenance.
We recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Identify the contract with a customer: A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. In assessing the recognition of revenue, we also evaluate whether two or more contracts should be combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period. Change orders may include changes in specifications or design, manner of
Voyager Tracker and individual parts of Voyager Tracker (including shipping and handling)9
The Company contractsperformance, equipment, materials, scope of work, and/or the period of completion of the project. We analyze change orders to determine if they should be accounted for as a modification to an existing contract or a new stand-alone contract.
Contracts we enter into with our customers for sale of Voyager Trackers are generally under two different types of arrangements: (1) Purchase Agreementspurchase agreements and Equipment Supply Contractsequipment supply contracts (“Purchase Agreements”) and (2) sale of individual parts of the Voyager Tracker.
Change orders from our customers are generally modifications to existing contracts and are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized.
The Company’sIdentify the performance obligations in the contract: We enter into contracts that can include various combinations of products and services, which are either capable of being distinct and accounted for as separate performance obligations or as one performance obligation since the majority of tasks and services are part of a single project or capability. However, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.
Our Purchase Agreements typically include two performance obligations- (1)1) Voyager Tracker or customized components of Voyager Tracker, and (2)2) shipping and handling services. The deliverables included as part of the Voyager Tracker are predominantly accounted for as one performance obligation, as these deliverables are part of a combined promise to deliver a project.
The revenue for shipping and handling services will be recognized over time based on progress in meeting shipping terms of the arrangements, as this faithfully depicts the Company’s performance in transferring control.
Sale of individual parts of Voyager Tracker for certain specific transactions includes multiple performance obligations consisting of individual parts of the Voyager Tracker. Revenue is recognized for parts sales at a point in time when the obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.
Determine the transaction price: The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring services to the customer. Such amounts are typically stated in the customer contract, and to the extent that we identify variable consideration, we will estimate the variable consideration at the onset of the arrangement as long as it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The majority of our contracts do not contain variable consideration provisions as a continuation of the original contract. None of our contracts contain a significant financing component. Taxes collected from customers and remitted to governmental authorities are not included in revenue.
Allocate the transaction price to performance obligations in the contract: Once we have determined the transaction price, we allocate the total transaction price to each performance obligation in a manner depicting the amount of consideration to which we expect to be entitled in exchange for transferring the good(s) or service(s) to the customer. We allocate the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis.
We use the expected cost-plus margin approach based on hardware, labor, and related overhead cost to estimate the standalone selling price of the Voyager Tracker, customized components of Voyager Tracker, and individual parts of Voyager Tracker for certain specific transactions. We use the adjusted market assessment approach for all other performance obligations except shipping, handling, and logistics. For shipping, handling, and logistics performance obligations, we use a residual approach to calculate the standalone selling price, because of the nature of the highly variable and broad range of prices we charge to various customers for this performance obligation in the contracts.
Recognize revenue when or as the Company satisfies a performance obligation: For each performance obligation identified, we determine at contract inception whether we satisfy the performance obligation over time or at a point in time. Voyager Tracker and customized components of Voyager Tracker performance obligations in the contract are satisfied over-time as work progresses for its custom assembled Voyager Tracker, utilizing an input measure of progress determined by cost-to-cost measures on these projects as this faithfully depicts the Company’sour performance in transferring control.
The revenue for shipping and handling services is recognized over-time based on shipping terms Additionally, our performance does not create an asset with an alternative use, due to the highly customized nature of the arrangements, as this faithfully depicts the Company’sproduct, and we have an enforceable right to payment for performance in transferring control.
13
The Company’s sale ofcompleted to date. Our performance obligations for individual parts of Voyager Trackerpart sales for certain specific transactions include multipleare recognized point-in-time as and when control transfers based on the Incoterms for the contract. Our performance obligations consisting of individual parts of the Voyager Tracker. Revenue recognized for the Company’s part sales are recorded at a point in time and recognized when obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.
Term-based software license revenue
Term-based software license revenue included under product revenue is primarily derived from sale of term-based software licenses that are deployed on the customers’ own servers and have significant standalone functionality. The revenue is recognized upon transfer of control to the customer. The control for term-based software licenses is transferred at the later ofare recognized point-in-time as and when control transfers, either upon delivery to the customer or the software license start date. Term-based software license revenuedate, whichever is immaterial for the three and nine month periods ended September 30, 2020 and September 30, 2021.later. Our performance obligation
Subscription and Maintenance and support services revenue10
Subscription revenuefor shipping and handling services is derived from a subscription-based enterprise licensing model with contract terms typically ranging from one to two years and consists of subscription fees fromsatisfied over-time as the licensing of Subscription services. Subscription services revenue is immaterial forare delivered over the three and nine month periods ended September 30, 2020 and September 30, 2021. The hosted on-demand service arrangements do not provide customers with the right to take possessionterm of the software supportingcontract. We recognize subscription services sales/other services on a straight-line basis over the hosted services. Servicescontract period. With regard to support revenue, includes maintenance and support activities related to term-based software licenses. Support revenue is derived from ongoing security updates, upgrades, bug fixes, and maintenance. Aa time-elapsed method is used to measure progress because the Company transferswe transfer control evenly over the contractual period. Accordingly, the fixed consideration related to these revenuessupport revenue is generally recognized on a straight-line basis over the contract term beginning on the date access is provided.term.
Contract assets and liabilities:
CostThe timing of Revenue
revenue recognition, billing, and cash collection results in the recognition of accounts receivable, unbilled receivables for revenue recognized in excess of billing, and deferred revenue in the Consolidated Balance Sheets. We may receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities, which are reflected as “deferred revenue” on our Consolidated Balance Sheets.
Cost of revenue consists primarily of costs related to raw materials, freight and delivery, product warranty, and personnel costs (salaries, bonuses, benefits, and stock-based compensation). Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the procurement, installment, and delivery of the finished product and services. Deferred cost of revenue results from the timing differences between the costs incurred in advance of the satisfaction of all revenue recognition criteria consistent with our revenue recognition policy.
Warranty
We provide standard assurance type warranties with our Voyager Trackers for periods generally ranging from five to ten years. We record a provision for estimated warranty expenses, netRevision of amounts recoverable from manufacturers, to cost of sales when we recognize revenue. These estimates are based on our historical experience and forward-looking factors including the expected nature and frequency of product failure rates and costs to address future claims. These estimates are inherently uncertain given our relatively short history of sales and changes to our historical or projected warranty experience may result in material changes to our warranty reserve in the future. We do not maintain general or unspecified reserves; all warranty reserves are related to specific projects. All actual or estimated costs incurred in subsequent periods are charged to those established reserves.
Remaining Performance Obligations
Remaining performance obligations relate to contracts that have original expected durations of one year or less. Therefore, the transaction price allocated to performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period are not required to be disclosed under ASC 606.
14
Recent Accounting Pronouncements
Recently Adopted Accounting Standardspreviously issued financial statements
In connection with preparation of our consolidated financial statements as of and for the year ended December 2019,31, 2021, we identified an error in the FASBclassification of offering costs in the statement of cash flows for the three months ended March 31, 2021. Specifically, we incorrectly classified $1.1 million of offering costs paid as an operating cash outflow instead of a financing cash outflow in our previously issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifyingcash flow statement for the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions relatedthree months ended March 31, 2021. Although we have concluded that this error is immaterial to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The Company adopted ASU 2019-12previously issued financial statements, we have corrected this error in the first quarteraccompanying condensed consolidated statements of 2021,cash flows by revising the operating and financing cash outflows previously reported in our cash flow statement for the adoption had no material impact to the Company's consolidated financial statements.three months ended March 31, 2021.
New Accounting Pronouncements Not Yet Adopted
Recent accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and requires the use of an expected loss model in place of the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The update to the standard is effective for the Company for its fiscal year beginning after December 15, 2022, to the extent the Company remains an emerging growth company, and early adoption is currently evaluating the impact thatpermitted. The Company does not expect the adoption of ASU 2016-13 willto have a material impact on its condensed consolidated financial statements and the Company plans to adopt effective January 1, 2023.statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation3. Accounts receivable, net
Accounts receivable consisted of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. following:
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Trade receivables |
| $ | 100,285 |
|
| $ | 38,597 |
|
Revenue recognized in excess of billings |
|
| 40,663 |
|
|
| 72,676 |
|
Other receivables |
|
| 148 |
|
|
| 147 |
|
Total |
|
| 141,096 |
|
|
| 111,420 |
|
Allowance for doubtful accounts |
|
| (8,866 | ) |
|
| (3,872 | ) |
Accounts receivable, net |
| $ | 132,230 |
|
| $ | 107,548 |
|
Entities may apply this ASU upon issuance through DecemberDuring the three months ended March 31, 2022, onwe recognized a prospective basis. $The Company is currently evaluating the impact this adoption will have on the Company’s condensed consolidated financial statements and will apply this guidance to transactions and modifications of these arrangements as appropriate.5.0 million reserve against our revenue for a potential customer concession.
4. Revenue
The Company’s product revenue and service revenue is presentedIncluded in the Condensed Consolidated Statement of Comprehensive Loss. Revenue by geographic region is based on the customer’s location and presentedtotal receivables above are amounts billed under Note 14.
Unbilled revenue and contract liabilities
The timing of revenue recognition, billing, and cash collection results in the recognition of accounts receivable, unbilled receivables, and deferred revenue in the Condensed Consolidated Balance Sheets. Unbilled receivables represent an unconditional right to consideration before customers are invoiced. Unbilled receivables are recorded within accounts receivable on the Condensed Consolidated Balance Sheets at the end of the reporting period and consist ofretainage provisions totaling $1.25.1 million and $15.711.6 million as of DecemberMarch 31, 20202022, and September 30, 2021, respectively.
The Company’s contracts have a varied range of terms based on the type of products and services sold. Deferred revenue amounts to $23.0 million and $9.6 million as of December 31, 2020 and September 30, 2021, respectively, consisting of customer deposits related to products and services which were billed in advance. The Company expects to recognize 100% of the revenue related to deferred revenueare due within the next 12 months. During the nine months ended September 30, 2020 and 2021, the Company recognized $19.9 million and $23.0 million, respectively from deferred revenue recorded at December 31, 2019 and 2020.upcoming year.
15
11
4. Inventories, net
Inventories consisted of the following:
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Finished goods |
| $ | 9,008 |
|
| $ | 8,950 |
|
Allowance for slow-moving and obsolete inventory |
|
| (90 | ) |
|
| (90 | ) |
Total |
| $ | 8,918 |
|
| $ | 8,860 |
|
5. Prepaid Expenses and Other Current Assets
other current assets
Prepaid expenses and other current assets consistconsisted of the following (in thousands):following:
|
| December 31, |
|
| September 30, |
| ||||||||||
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
Vendor deposits |
| $ | 4,205 |
| $ | 18,125 |
|
| $ | 10,700 |
| $ | 13,098 |
| ||
Prepaid expenses |
| 1,043 |
| 4,060 |
|
| 1,308 |
| 2,301 |
| ||||||
Deferred cost of revenue |
| 992 |
| 0 |
| |||||||||||
Prepaid taxes |
| 290 |
| 269 |
| |||||||||||
Surety collateral |
| 113 |
| 246 |
|
| 334 |
| 460 |
| ||||||
Other current assets |
|
| 571 |
|
| 1,127 |
|
|
| 1,130 |
|
|
| 1,058 |
| |
|
| $ | 6,924 |
| $ | 23,558 |
| |||||||||
Total |
| $ | 13,762 |
|
| $ | 17,186 |
|
6. Leases
We lease office and warehouse space in various locations, including our corporate headquarters in Austin, Texas. Additionally, we lease space for an applications laboratory and have a membership in a collaborative research facility in Colorado. All of our manufacturing is outsourced to contract manufacturing partners, and we currently do not own or lease any manufacturing facilities.
Our lease expense consisted of the following:
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Operating lease cost |
| $ | 198 |
|
| $ | 78 |
|
Short-term lease cost |
|
| 115 |
|
|
| 63 |
|
Total lease cost |
| $ | 313 |
|
| $ | 141 |
|
|
|
|
|
|
|
| ||
Reported in: |
|
|
|
|
|
| ||
Cost of revenue |
| $ | 193 |
|
| $ | 61 |
|
Research and development |
|
| 8 |
|
|
| 6 |
|
Selling and marketing |
|
| 0 |
|
|
| 1 |
|
General and administrative |
|
| 112 |
|
|
| 73 |
|
Total lease cost |
| $ | 313 |
|
| $ | 141 |
|
12
Future remaining operating lease payment obligations were as follows:
(in thousands) |
| March 31, |
| |
2022 |
| $ | 424 |
|
2023 |
|
| 520 |
|
2024 |
|
| 511 |
|
2025 |
|
| 446 |
|
2026 |
|
| 55 |
|
Thereafter |
|
| 0 |
|
Total lease payments |
|
| 1,956 |
|
Less: imputed interest |
|
| (315 | ) |
Present value of operating lease liabilities |
| $ | 1,641 |
|
|
|
|
| |
Current portion of operating lease liability |
| $ | 451 |
|
Operating lease liability, net of current portion |
|
| 1,190 |
|
Present value of operating lease liabilities |
| $ | 1,641 |
|
7. Property and equipment, net
Property and equipment consisted of the following:
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Leasehold improvements |
| $ | 22 |
|
| $ | 22 |
|
Field equipment |
|
| 891 |
|
|
| 833 |
|
Information technology equipment |
|
| 243 |
|
|
| 182 |
|
Tooling |
|
| 527 |
|
|
| 543 |
|
Capitalized software |
|
| 250 |
|
|
| 250 |
|
Total |
|
| 1,933 |
|
|
| 1,830 |
|
Accumulated depreciation |
|
| (369 | ) |
|
| (248 | ) |
Property and equipment, net |
| $ | 1,564 |
|
| $ | 1,582 |
|
8. Accrued Expensesexpenses and Other Current Liabilitiesother current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):following:
|
| December 31, |
|
| September 30, |
| ||
Accrued cost of revenue |
| $ | 7,812 |
|
| $ | 33,279 |
|
Accrued expenses |
|
| 2,856 |
|
|
| 3,205 |
|
Warranty reserves |
|
| 3,985 |
|
|
| 1,183 |
|
Accrued compensation |
|
| 2,869 |
|
|
| 1,766 |
|
Accrued interest expense |
|
| 28 |
|
|
| 128 |
|
Other |
|
| 945 |
|
|
| 685 |
|
Total |
| $ | 18,495 |
|
| $ | 40,246 |
|
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Accrued cost of revenue |
| $ | 22,623 |
|
| $ | 43,185 |
|
Accrued compensation |
|
| 4,507 |
|
|
| 981 |
|
Other accrued expenses |
|
| 3,518 |
|
|
| 3,694 |
|
Total accrued expenses |
| $ | 30,648 |
|
| $ | 47,860 |
|
|
|
|
|
|
|
| ||
Warranty reserves |
| $ | 3,771 |
|
| $ | 4,032 |
|
Current portion of operating lease liability |
|
| 451 |
|
|
| 452 |
|
Non-federal tax obligations |
|
| 301 |
|
|
| 172 |
|
Other |
|
| 0 |
|
|
| 0 |
|
Total other current liabilities |
| $ | 4,523 |
|
| $ | 4,656 |
|
7. SaleWe provide standard warranties on our hardware products to customers. The liability amount is based on actual historical warranty spending activity by type of Equity Method Investments
On June 24, 2021,product, customer and geographic region, modified by any known differences such as the Company disposedimpact of its 4,791,566 Class A common unit interest in Dimension Energy LLC, (“Dimension”) representing approximately 23% of the total outstanding common shares, for approximately $22.0 million, net of a success-based fee of $1.9 million. The Company recognized a gain of $20.8 million due to its disposal of approximately 23% non-controlling interest in Dimension during the nine months ended September 30, 2021. The Company has recognized a net loss from the unconsolidated subsidiary of $0.4 million that is included in the nine months ended September 30, 2021 and recognized net loss of $0.2 million and $0.3 million for the three months and nine months ended September 30, 2020, respectively.reliability improvements.
The sales agreement with Dimension includes an earnout provision which provides the potential to receive an additional contingent consideration of up to approximately $14.0 million through December 2024, based on Dimension achieving certain performance milestones. This potential earnout is calculated each quarter starting January 1, 2022. The potential payment is calculated as $200 per the number of kilowatts constituting each Notice To Proceed (NTP) megawatt (MW) achieved during such quarterly earnout period, provided that no earnout amount is payable in respect to the first 100 NTP MW achieved in any earnout year.
The sales agreement also includes a projects escrow release which is an additional contingent consideration to receive $7 million based on Dimension’s completion of certain construction projects currently in progress. The Company has made an accounting policy election to account for the contingent gains from the earnout provision and projects escrow release only when those amounts become realizable in the periods subsequent to the disposal date. On June 29, 2021, the Company made a success-based fee payment in the amount of $1.9 million to two Executive Members of Dimension for entering into voting and support letter agreements and for recommending to all Executive Members of Dimension to support the purchase agreement and the consummation of the transaction on June 24, 2021.
During the three months ended September 30, 2021, the Company received a $0.2 million escrow release payment and recognized the income in accordance with our policy election.
1613
8. Debt and Other Borrowings
On January 30, 2017, the Company sold $7.0 million in aggregate principal amount of secured five-year promissory notes (“the Notes”) through a private placement. Pursuant to the issuance of the Notes, the Company issued 25,000 shares of common stock for every $250,000 of Notes purchased. The fair value of common stock issued was accounted for as debt discount and was amortized over the term of the Notes. The Notes had a fixed rate of 5% per annum payable at maturity. The Company repaid the principal during the year ended December 31, 2020.
On June 17, 2019, the Company entered into a revolving line of credit agreement with the Western Alliance Bank for a total principal amount of $1.0 million and maturity in two years from the date of borrowing. The line of credit had a variable rate of interest, based on movement of prime rate as calculated and publishedActivity by the Wall Street Journal and required the Company to pay regular monthly payments of all interest accrued as of each payment date. The prime rate at the time of borrowing was at 5.50% per annum. The outstanding balance for the revolving line of credit as of December 31, 2020 was $1 million. The outstanding balance was paid in full and the revolving credit line was closed as of March 31, 2021.
On April 30, 2020, the Company received a Paycheck Protection Program (“PPP”) loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act)period in the amount of $0.8 million. The PPP loan had a two-year term and bore a fixed interest rate of 1%. Under the terms of the CARES act, the PPP loanCompany's warranty accruals was eligible to be forgiven, in part or whole, if the proceeds were used to retain and pay employees and for other qualifying expenditures. On January 20, 2021, the Company received notification from the Small Business Administration that they approved the forgiveness of the full $0.8 million PPP loan. The Company recorded the forgiveness of the PPP loan as a gain on debt extinguishment in other income.follows:
On April 30, 2021, the Company entered into a $100 million senior secured revolving credit facility, by and among the Company, as borrower, the several financial institutions from time-to-time parties thereto, and Barclays Bank PLC, as an issuing lender, the swingline lender and as administrative agent (the “Credit Agreement”). The Credit Agreement has an initial three-year term, and it will be used for working capital and for other general corporate purposes. The Company has not made any draws on the revolving credit facility. The Credit Agreement includes the following terms: (i) aggregate commitments of up to $100 million, with letter of credit and swingline sub-limits; (ii) customary base rate of LIBOR plus 3.25% per annum, respectively; (iii) initial commitment fees of 0.50% per annum; (iv) initial letter of credit fees of 3.25% per annum; and (v) other customary terms for a corporate revolving credit facility.
The facility is secured by a first priority lien on substantially all of the Company’s assets, subject to certain exclusions, and customary guarantees. The Credit Agreement includes the following financial condition covenants that the Company is required to satisfy: (i) maintain a minimum liquidity of $125 million for each quarter; (ii) maintain a 3.75 times leverage ratio; and (iii) maintain a 1.5 times interest coverage ratio. The leverage and interest coverage ratios will be triggered when the Company achieves $50 million in adjusted EBITDA over a trailing twelve months. Once the leverage and interest coverage ratios are triggered the minimum liquidity will not have a minimum limit. Minimum liquidity includes unrestricted cash plus the undrawn balance of the revolving credit facility. The minimum liquidity covenant was the only financial condition covenant the Company had to satisfy as of the period ended September 30, 2021.As of September 30, 2021, the Company was in full compliance with its financial condition covenant.
The Company added $2.1 million in debt issuance costs related to the revolving credit facility which were included in other assets in the Condensed Consolidated Balance Sheets. The debt issuance costs are being amortized over a three-year initial term of the loan. As of September 30, 2021 the unamortized debt issuance costs amounted to $1.8 million.
Included in interest expense for the three and nine months periods ended September 30, 2021 are credit facility revolver fees and amortization of debt issuance costs. The Company had $0.1 million in revolver fees and $0.2 million in amortized debt issuance cost for the three months ended September 30, 2021 and $0.2 million in revolver fees and $0.3 million in amortized debt issuance cost for the nine months ended September 30, 2021, respectively.
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Balance at beginning of period |
| $ | 9,346 |
|
| $ | 6,811 |
|
Warranties issued during the period |
|
| 516 |
|
|
| 1,554 |
|
Settlements made during the period |
|
| (421 | ) |
|
| (1,819 | ) |
Changes in liability for pre-existing warranties |
|
| (205 | ) |
|
| (187 | ) |
Balance at end of period |
| $ | 9,236 |
|
| $ | 6,359 |
|
|
|
|
|
|
|
| ||
Accrued warranty balance reported in: |
|
|
|
|
|
| ||
Other current liabilities |
| $ | 3,771 |
|
| $ | 2,891 |
|
Other non-current liabilities |
|
| 5,465 |
|
|
| 3,468 |
|
Balance at end of period |
| $ | 9,236 |
|
| $ | 6,359 |
|
17
The Company recognized $0.1 million and $0.3 million of interest expense on its debt and other borrowings for the three months ended September 30, 2020 and 2021 and $0.3 million and $0.5 million for the nine months ended September 30, 2020 and 2021, respectively.
9. Commitments and Contingenciescontingencies
Litigation
The Company may be involved in various claims, lawsuits, investigations, and other proceedings, arising fromin the normal course of its business. The Company accrues a liability when management believes information available prior to the issuance of financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiation, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred.
On AprilApril 21, 2021, FCX Solar, LLC (“FCX”), filed a lawsuit against us in the United States District Court for the Southern District of New York. The complaint allegesalleged breach of contract, fraud and tortunjust enrichment claims related to a patent license agreement and consulting relationship between FCX and us. FCX seekssought damages of approximately $134$134 million in the lawsuit. On July 2, 2021, we filed a motion to dismiss the tortfraud and unjust enrichment claims. On July 16, 2021, rather than responding to that motion, FCX filed an amended complaint asserting the same claims as the original complaint. On July 22, 2021, we advised the court that FTC would stand on its motion to dismiss, and at the request of the court, we filed a revised motion citing the amended complaint. FCX filed its response on August 19, 2021, and we filed a reply and a request for oral argument on September 7, 2021. Discovery inOral argument on our motion to dismiss was held on February 3, 2022, and the Southern DistrictCourt granted our motion on February 7, 2022, dismissing FCX's fraud and unjust enrichment claims and leaving only a claim for breach of New York matter is ongoing.a license agreement. On April 15, 2022, FCX filed a motion to amend its complaint to add two additional claims for breach of the license agreement and to remove the dismissed claims, including its request for damages of approximately $134 million. We intend to oppose FCX's motion to add new breach of contract claims. On May 29, 2021, FCX filed a separate lawsuit against us in the United States District Court for the Western District of Texas, alleging a claim for patent infringement related to U.S. Patent No. 10,903,782. FCX seeks an unspecified amount of damages, including past and future royalties, and injunctive relief. Our answer to that complaint was filed on June 22, 2021, along with our motion to transfer the patent suit to the Southern District of New York to be consolidated with the New York litigation. FCX filed an amended complaint asserting claims for direct patent infringement, indirect infringement by active inducement, and contributory infringement on July 27, 2021, and we filed our answer to that complaint on August 10, 2021. On October 25, 2021, our motion to transfer the case to the Southern District of New York was granted. The Company believesgranted, and the patent case was consolidated with FCX's contract case on November 19, 2021. Discovery in this consolidated matter is ongoing. We believe the claims asserted in both lawsuits are without merit, and we plan to vigorously defend against them. The CompanyWe and itsour management considered (a) the facts described above, (b) the preliminary stages of the proceedings and (c) the advice of outside legal counsel on the claims and determined that it is not probable that FCX will prevail on the merits. At this time, the Company believeswe believe that the likelihood of any material loss related to these matters is remote given the strengthstrength of the Company’s defensesour defenses.
The Company has not0t recorded any material loss contingency in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2020 and September 30, 2021.
Warranties
The Company provides standard warranties on its hardware products. The liability amount is based on actual historical warranty spending activity by type of product, customer, and geographic region, modified for any known differences such as the impact of reliability improvements. As of September 30, 2021, warranty reserves totaling $1.2 million were recorded in accrued expenses and other current liabilities and $4.2 million were recorded in other non-current liabilities, in the Company’s Condensed Consolidated Balance Sheets.
Changes in the Company’s product warranty reserves were as follows (in thousands):
|
| September 30, |
| |
Balance at beginning of period, December 31, 2020 |
| $ | 6,811 |
|
Warranties issued during the period |
|
| 2,902 |
|
Settlements made during the period |
|
| (3,507 | ) |
Changes in liability for pre-existing warranties |
|
| (783 | ) |
Balance at end of period |
| $ | 5,423 |
|
1814
10. Stock-Based CompensationStock-based compensation
On April 30, 2021, in connection with the IPO offering, the Company used $54.2 million of net proceeds from the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock, of which 2,191,557 was a repurchase of common shares and 2,263,827 shares were from the settlement of certain vested RSUs and common shares exercised from options in connection with the IPO offering, at the initial public offering price net of underwriters' fees and commissions.
The Company’s stock-basedStock compensation expense for the three and nine months ended September 30, 2021each period was $5.4 million and $58.5 million, an increase of $5.0 million and $57.1 million when compared to stock-based compensation expense for the three and nine months ended September 30, 2020, respectively. The increases have been primarily due to RSUs, for which the service-based vesting condition was satisfied and for which the liquidity event performance vesting condition was met in connection with our IPO. We utilized a graded vesting method which results in an accelerated recognition of compensation costs.as follows:
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Cost of revenue |
| $ | 309 |
|
| $ | 66 |
|
Research and development |
|
| 188 |
|
|
| 14 |
|
Selling and marketing |
|
| 530 |
|
|
| 9 |
|
General and administrative |
|
| 3,583 |
|
|
| 360 |
|
Total stock compensation expense |
| $ | 4,610 |
|
| $ | 449 |
|
Stock-based compensation expense incurred was $0.4 million and $5.4 million for the three months ended September 30, 2020 and 2021 and $1.4 million and $58.5 million for the nine months ended September 30, 2020 and 2021, respectively.
11. Stockholders' Equity
Preferred Stock
The Certificate of Incorporation, as amended as of April 28, 2021, and amended as of June 7, 2021, (the "Certificate of Incorporation"), authorizes the Company to issue 10 million shares of Preferred Stock with a par value of $0.0001 with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2021 there were no shares of preferred stock issued or outstanding.
Common Stock
The Certificate of Incorporation authorizes the Company to issue 850 million shares of $0.0001 par value of Common Stock. Holders of Common Stock are entitled to dividends, as and when, declared by the Board of Directors, subject to the rights of the holders of all classes of stock outstanding having priority rights as to dividends. There have been 0 dividends declared to date. The holders of the Common Stock are entitled to one vote for each share of Common Stock; provided that, except as otherwise required by law, holders of Common Stock (in such capacity) shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation.
In March 2020, the Company sold 9,162,976 shares of common stock at $3.27 per share for an aggregate purchase price of $30.0 million. The proceeds are available for working capital and other corporate purposes.
On April 30, 2021, the Company closed on its IPO in which we issued and sold 19,840,000 shares of our common stock at a public offering price of $13.00 per share. We received aggregate proceeds of $241.2 million from the IPO, net of approximately $16.8 million in underwriting discount and commissions and before offering costs.
The Company used $54.2 million of net proceeds from the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock, of which 2,191,557 was a repurchase of common shares and 2,263,827 shares were from the settlement of certain vested RSUs and common shares exercised from options in connection with the IPO offering.
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The Company is using the proceeds from the IPO for general corporate purposes, including working capital and operating expenses. We may also use a portion of such proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have binding agreements for any material acquisitions or investments at this time though, we would expect to use a portion of such proceeds to provide funding for future development capital in connection with the multi project opportunity for 1.7 gigawatts ("GWs") of projects using our tracker systems.Treasury Stock
On July 21, 2020, the Company’s Board of Directors approved a share repurchase of 9,896,666 shares of common stock for an aggregate price of $0 from founders of the Company. The repurchase of these shares are recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of December 31, 2020 and the shares will be added to the overall pool of stock available to be utilized for future option/stock award issuances to other employees of the organization.
On January 8, 2021, the Company’s Board of Directors approved a share repurchase of 148,440 shares of common stock for an aggregate price of $0 from founders of the Company. The repurchase of these shares are recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of the period ended September 30, 2021 and the shares will be added to the overall pool of stock available to be utilized for future option/stock award issuances to other employees of the organization.
On April 5, 2021, the Company’s Board of Directors approved a share repurchase of 717,460 shares of common stock for an aggregate price of $0 from founders of the Company. The repurchase of these shares are recorded as treasury stock on the Company’s Consolidated Balance Sheets as of the period ended September 30, 2021 and the shares will be added to the overall pool of stock available to be utilized for future option/stock award issuances to other employees of the organization.
12. Net loss per share
The table below sets forth the computation of basic and diluted loss per share. All shares and per share amounts have been adjusted for an approximately 8.25-for-1 share forward stock split which took effect on April 28, 2021 (in thousands, except per share amounts):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| ||||
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (2,840 | ) |
| $ | (22,916 | ) |
| $ | (6,196 | ) |
| $ | (82,707 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted-average number of common shares outstanding |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
| 82,677,824 |
|
Diluted weighted-average number of common shares outstanding |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
| 82,677,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic loss per share |
| $ | (0.04 | ) |
| $ | (0.24 | ) |
| $ | (0.09 | ) |
| $ | (1.00 | ) |
Diluted loss per share |
| $ | (0.04 | ) |
| $ | (0.24 | ) |
| $ | (0.09 | ) |
| $ | (1.00 | ) |
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net loss (in thousands) |
| $ | (27,793 | ) |
| $ | (7,442 | ) |
Weighted average shares outstanding for calculating basic and diluted loss per share |
|
| 99,211,792 |
|
|
| 66,875,469 |
|
Basic and diluted loss per share |
| $ | (0.28 | ) |
| $ | (0.11 | ) |
For purposes of computing diluted net incomeloss per share, weighted-averageweighted average common shares outstanding do not include potentially dilutive securities that are anti-dilutive. The following potentially dilutive securities were excluded (in thousands): anti-dilutive, as shown below.
|
| As of September 30, |
| |||||
|
| 2020 |
|
| 2021 |
| ||
Shares of common stock issuable under stock option plans outstanding |
|
| 8,566 |
|
|
| 9,610 |
|
Shares of common stock issuable upon vesting of restricted stock awards |
|
| 13,622 |
|
|
| 5,598 |
|
Potential common shares excluded from diluted net loss per share |
|
| 22,188 |
|
|
| 15,208 |
|
|
| As of March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Anti-dilutive securities excluded from calculating dilutive loss per share: |
|
|
|
|
|
| ||
Shares of common stock issuable under stock option plans outstanding |
|
| 8,452,319 |
|
|
| 8,197,000 |
|
Shares of common stock issuable upon vesting of restricted stock units |
|
| 4,995,792 |
|
|
| 15,463,000 |
|
Potential common shares excluded from diluted net loss per share calculation |
|
| 13,448,111 |
|
|
| 23,660,000 |
|
20
13.12. Income Taxestaxes
For the three months ended September 30, 2020March 31, 2022 and 2021, the Companywe recorded an income tax expense of $0.020.08 million and $0.04 million respectively. For the nine months ended September 30, 2020 and 2021, the Company recorded an income tax benefit of $0.120.02 million, and income tax expenserespectively, both of $0.14 million, respectively. Income tax expense recorded for three and nine months ended September 30, 2020 and 2021, waswhich were lower than the statutory tax rate of 21%, primarily due to a valuation allowance established against the U.S. deferred tax assets.
As of September 30, 2021, the CompanyAt March 31, 2022, we had total unrecognized tax benefits of approximately $0.10.7 million. AllApproximately $0.2 million of our gross unrecognized tax benefits, if recognized, would affect our effective tax rate. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of September 30, 2021, the CompanyMarch 31, 2022, we had 0t accrued any interest or penalties related to unrecognized tax benefits.
14. Segment Information13. Related party transactions
In February 2022, we engaged Fernweh Engaged Operator Company LLC (“FEOC”) to support us with improvements to our processes and performance in various areas including design, sourcing, logistics, pricing, software and standard configuration. The Company has 1 segment: manufacturingconsideration for such engagement is a combination of (i) quarterly cash payments through mid-2023, (ii) stock options that are time-based vested through the second quarter of 2023, and servicing(iii) options with vesting tied to achievement of Voyager Tracker. The Company's Chief Executive Officer (the chief operating decision maker) views and evaluates operations, manages resource allocations, and measurescertain performance metrics based on our stock price. The foregoing transaction constitutes a related person transaction under our policies and procedures as South Lake One LLC, an entity affiliated with Isidoro Quiroga Cortés, a member of our board of directors, and a holder of more than 5% of our outstanding capital stock, is an investor in Fernweh Group LLC (“Fernweh Group”), the resultsparent entity of the Company’s reportable operating segment under its management reporting system. The application of this structure permits us to align our strategic business initiativesFEOC. Also, Aequanimitas Limited Partnership and corporate goalsDiscrimen LLC are investors in a manner that best focuses our businessesFernweh Group, and support operations for success.
The following table summarizes the Company’s total revenue by geographic area basedIsidoro Quiroga Cortés is affiliated with those entities. Isidoro Quiroga Cortés is also on the billing addressboard of Fernweh Group. For the customers (three months ended March 31, 2022, we incurred $in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| ||||
United States |
| $ | 59,591 |
|
| $ | 52,984 |
|
| $ | 143,034 |
|
| $ | 168,540 |
|
Other |
|
| 49 |
|
|
| 5 |
|
|
| 139 |
|
|
| 264 |
|
Total net revenue |
| $ | 59,640 |
|
| $ | 52,989 |
|
| $ | 143,173 |
|
| $ | 168,804 |
|
15. Related Parties
On July 21, 2020, the Company’s Board of Directors approved a share repurchase of 9,896,6661.1 sharesmillion of common stock for an aggregate pricegeneral and administrative expense associated with our engagement of $FEOC. We made 0 from founders ofcash payments during the Company.
On January 8, 2021, the Company’s Board of Directors approved a share repurchase of 148,440 shares of common stock for an aggregate price of $0 from founders of the Company.
On April 5, 2021, the Company’s Board of Directors approved a share repurchase of 717,460 shares of common stock for an aggregate price of $0 from founders of the Company.
On June 29, 2021, the Company made a success-based fee payment in the amount of $1.9 million to two Executive Members of Dimension Energy LLC. (See Note. 7)three months ended March 31, 2022.
2115
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of this Form 10-Q and along with information included in our IPO prospectus filedAnnual Report on April 29, 2021, which includes our audited financial statementsForm 10-K for the year ended December 31, 2019 and 2020.2021. In addition to historical financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and timing of selected events could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”Part I, Item 1A. "Risk Factors" included in our prospectus.Annual Report on Form 10-K for the year ended December 31, 2021. Additionally, our historical results are not necessarily indicative of the results that may be expected in any future period.
This discussion and analysis of our financial condition and results of operations contain the presentation of Adjusted EBITDA, Adjusted Net Loss and Adjusted Net Income,EPS, which are not presented in accordance with GAAP. Adjusted EBITDA, Adjusted Net Loss and Adjusted Net IncomeEPS are being presented because they provide the Company and readers of this Form 10-Q with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend Adjusted EBITDA, Adjusted Net Loss and Adjusted Net IncomeEPS to be substitutes for any GAAP financial information. Readers of this Form 10-Q should use Adjusted EBITDA Adjusted Net Loss and Adjusted Net IncomeEPS only in conjunction with Net Income,Loss and Net Loss per Share, the most comparable GAAP financial measure.measures. Reconciliations of Adjusted EBITDA, Adjusted Net Loss and Adjusted Net IncomeEPS to Net Income,Loss and Net Loss per Share, the most comparable GAAP measure,measures, is provided in Non-GAAP"Non-GAAP Financial Matters.Measures".
Overview
FTC Solar, Inc. (the “Company”, “we”, “our”, or “us”) was founded in 2017 and is incorporated in the state of Delaware. We are a global provider of advanced solar tracker systems. Our trackers aresystems, supported by proprietary software designed to increase energy production yield from our tracker systems. We also support our customers in project design and development by providing value-added engineering services that assist customers in optimizing our products and reducing total project costs.services. Our mission is to provide differentiated products, software, and services that maximize energy generation and cost savings for our customers. We believe achieving our mission willcustomers, and to help facilitate the continued growth and adoption of solar power globally. Trackers significantly increase the amount of solar energy produced at a solar installation by moving solar panels throughout the day to maintain an optimal orientation relative to the sun. Our systems offer efficiency gains relative to other tracker systems due to our their enhanced design, which includesare currently marketed under the Voyager brand name (“Voyager Tracker” or “Voyager”). Voyager is a next-generation two-panel in-portrait formatsingle-axis tracker solution that we believe offers industry-leading performance and independent rows, and its optimization for use with bifacial panels. Additionally, these efficiency gains can be enhanced by our proprietary software solutions. Our customers include leading project developers, solar asset owners and engineering procurement and construction ("EPC") contractors that design and build solar energy projects. Ourease of installation. We have a team of experienceddedicated renewable energy professionals iswith significant project installation experience focused on delivering compelling valuecost reductions to customersour US and worldwide clients across the full solar energy project lifecycle,development and construction cycle. Our solar solutions span a range of applications, including at the development, constructionground mount, tracker, canopy, and operations phases.rooftop. The Company is headquartered in Austin, Texas, and
Our corporate headquarters and testing lab are locatedwe have a training and technology development site in Aurora, Colorado. To assist with our global expansion effort, we have grown our sales and support network abroad, with employees locatedhas international subsidiaries in Australia, Canada, India, the Middle East, China, Europe,Singapore, and South Africa, and South-East Asia. As of September 30,Africa.
In April 2021, we had 216 full-time employees.completed an initial public offering (IPO) of 19,840,000 shares of our common stock receiving proceeds of $241.2 million, net of underwriting discounts and commissions, but before offering costs, and began trading on the Nasdaq Global Market under the symbol “FTCI”. Prior to the completion of the IPO, the board of directors and stockholders approved an approximately 8.25-for-1 forward stock split (the “Forward Stock Split”) of the Company’s shares of common stock which became effective on April 28, 2021. Proceeds from the IPO were used for general corporate purposes, with $54.2 million used to purchase an aggregate of 4,455,384 shares of our common stock, including shares resulting from the settlement of certain vested restricted stock units (“RSUs”) and exercise of certain options in connection with the IPO at the IPO price, less underwriting discounts and commissions.
2216
We currently offer tracking and software solutions targeting the utility-scale solar energy markets to current and potential customersare an emerging growth company, as defined in the United States, Asia,Jumpstart Our Business Startups (JOBS) Act. Under the Middle East, North Africa, Europe, South America and Australia. In 2020 and forJOBS Act, we elected to use the nine months ended September 30, 2021, we derived the majority of our revenue from EPC contractors in the United States. We expect this revenue profileallowed extended transition period to shift overdelay adopting new or revised accounting standards until such time as project developers and solar asset owners make more direct purchases of solar installations and as we continuethose standards apply to expand our global footprint in Latin America, Europe and certain other markets. We derived 81% of all of our revenue from tracker system sales for the nine months ended September 30, 2021. During this same period, substantially all of our revenues were derived from sales to our customers in the United States. The solar industry continues to experience higher commodities and logistics costs. These increased input costs result in downward pressure on our margins. In addition, a group called American Solar Manufacturers Against Chinese Circumvention (A-SMACC) filed an anti-dumping and countervailing duties (AD/CVD) claim withthe US Department of Commerce to investigate solar cells and modules imported from certain companies in Malaysia, Thailand and Vietnam. The Department of Commerce has not made a decision regarding the request and this uncertainty is causing some customers to push out certain projects. We are taking meaningful action to further diversify our supply chain and accelerate our product cost roadmap to mitigate the impact of these cost increases to our business and provide compelling solutions for our customers. At the end of the quarter, we hired a new CEO to accelerate the growth and profitability of the Company. We have maintained focus on our growth strategy throughout the quarter ended September 30, 2021 and experienced growth in our contracted and awarded projects which we believe will produce revenue growth in 2022. We have secured several international project awards and a multi project transaction to provide trackers for 1.7 GWs of projects in development by a leading project developer . As part of this transaction, FTC intends to make a limited amount of development capital available to some of these projects. We also added another order of our SunPath performance enhancing software product which we introduced at the end of 2020. Our SunPath product boosts project energy production yield and our solution is differentiated from other products in the marketplace by eliminating row-to-row shading, optimizing capture of diffuse light and increasing the system yield. We estimate this enables customers to achieve up to a 6% increase in energy yield at a solar installation.private companies.
We also launched a large format module tracker system in January 2021which is currently being utilized by various customers. To meet market demand for large format modules, we are providing tracker systems that are compatible with a wide variety of module sizes and configurations, while maintaining the format and installation speed for in portrait orientation. FTC is committed to providing innovative solutions designed to benefit our customers and deliver value.
Key Factors Affecting Our Performance
Government Regulations. Changes in the U.S. trade environment, including the imposition of import tariffs, AD/CVD investigations and WROs directed at forced labor in China, can have an impact on the timing of developer projects. This impact on project activity by developers can negatively affect the amount and timing of our revenue, results of operations and cash flows. Escalating trade tensions, particularly between the United States and China, have led to increased tariffs and trade restrictions, including tariffs applicable to certain raw materials and components for our products. We have taken measures with the intention of mitigating the effect of tariffs, AD/CVD and WROs on our business by reducing our reliance on China. In 2019, 90% of our supply chain was sourced from China. As of March 31, 2022, we have qualified suppliers outside of China for all our commodities and reduced the extent to which our supply chain for U.S.-based projects is subject to existing tariffs. We have entered into partnerships with manufacturers in the United States, Mexico, Canada, Spain, Brazil, Turkey, Saudi Arabia, India, Thailand, Vietnam and Korea to diversify our supply chain and optimize costs.
Disruptions in Transportation and Supply Chain. Our costs are affected by the underlying costs of raw materials including steel, component costs including motors and micro-chips and transportations costs. Current market conditions and international conflicts that constrain supply of materials and disrupt the flow of materials from international vendors impacts the cost of our products and services. We have also seen increases in domestic fuel prices and transportation costs. These cost increases impact our margins. We are taking steps to expand and diversify our manufacturing partnerships and we are implementing alternative modes of transportation to mitigate the impacts of these current headwinds in the global supply chain and logistics market. We also have a sharp focus on our design to value initiative to improve margin by reducing manufacturing and material costs of our products.
Megawatts ("MW") Shipped and Average Selling Price ("ASP"). The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products is the change in quantity of megawatts (MW) shipped from period to period. MW are measured for each individual project and are calculated based on the expected output of that project once installed and fully operational. We also utilize metrics related to price and cost of goods sold per watt, including the change in ASP from period to period and cost per watt. ASP is calculated by dividing total revenue by total watts and cost per watt is calculated by dividing total costs of goods sold by total watts. These metrics enable us to evaluate trends in pricing, manufacturing cost and profitability. Events such as the COVID-19 pandemic and international conflicts can impact the U.S. economy, global supply chains, and our business. These impacts can cause significant shipping delays and cost increases, as well as offsetting ASP increases, and also raise the price of inputs like steel and logistics, affecting our cost per watt.
Investment in Technology and Personnel. We invest in both the people and technology behind our products. We intend to continue making significant investments in the technology for our products and expansion of our patent portfolio to attract and retain customers, expand the capabilities and scope of our products, and enhance user experience. We also intend to make significant investments to attract and retain employees in key positions, including sales leads, engineers, software developers, quality assurance personnel, supply chain personnel, product management, and operations personnel, to help us drive additional efficiencies across our marketplace and, in the case of sales leads, to continue to enhance and diversify our sales capabilities, including international expansion.
Megawatts Shipped and Average Selling Price. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products is the change in megawatts (MW) shipped from period to period. MW are measured for each individual project and are calculated based on the expected output of that project once installed and fully operational. We also utilize metrics related to price and cost of goods sold per MW, including the change in average selling price (“ASP”) from period to period and cost per watt. ASP is calculated by dividing total revenue by total MW and cost per watt is calculated by dividing total costs of goods sold by total MW. These metrics enable us to evaluate trends in pricing, manufacturing cost and profitability.
23
Government Regulations. Changes in the U.S. trade environment, including the imposition of import tariffs and the recent anti- dumping and countervailing duties (AD/CVD) claim currently pending with the Department of Commerce, affect the amount and timing of our revenue, results of operations and cash flows. Escalating trade tensions, particularly between the United States and China, have led to increased tariffs and trade restrictions, including tariffs applicable to certain raw materials and components for our products.We have taken measures with the intention of mitigating the effect of tariffs on our business by reducing our reliance on China. In 2019, 90% of our supply chain was sourced from China. As of September 30, 2021, we have qualified suppliers outside of China for all our commodities and reduced the extent to which our supply chain for U.S.-based projects is subject to existing tariffs. We have entered into partnerships with manufacturers in the United States, Mexico, Canada, Spain, Brazil, Turkey, Saudi Arabia, India, China, Vietnam and Korea to diversify our supply chain and optimize costs.
Disruptions in Transportation and Supply Chain. Our costs are affected by the underlying costs of raw materials including steel, component costs including motors and micro-chips and transportations costs. Current market conditions that constrain supply of materials and disrupt the flow of materials from international vendors impacts the cost of our products and services. We have also seen increases in domestic transportation costs. These cost increases impact our margins. We are taking steps to expand and diversify our manufacturing partnerships and we are implementing alternative modes of transportation to mitigate the impacts of these current headwinds in the global supply chain and logistics market We also have a sharp focus on our design to value initiative to improve margin by reducing manufacturing and material costs of our products.
Impact of the COVID-19 PandemicPandemic.
In March of 2020, the World Health Organization declared that the worldwide spread and severity of a new coronavirus, referred to as COVID-19, was severe enough to be characterized as a pandemic. In response to the continued spread of COVID-19, governmental authorities in the United States and around the world have imposed various restrictions designed to slow the pace of the pandemic, including restrictions on travel and other restrictions that prohibit employees from going to work, including in cities where we have offices, employees, and customers, causing severe disruptions in the worldwide economy. WeThe broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, the impact of virus variants, the rate of vaccinations, the COVID-19 pandemic’s impact on our customers and suppliers and the range of governmental and community reactions to the pandemic. While our day-to-day operations have been affected, the impact has been less pronounced as most of our staff has worked remotely and continued to develop our product offerings, source materials and install our products. However, we have experienced significant supply chain disruptions that have caused delays in product deliveries due to diminished vessel capacity and port detainment of vessels as a consequence of the COVID-19 pandemic (including as a result of multiple COVID-19 variants), which have contributed to an increase in lead times for delivery of our tracker systems. For instance, we experienced a COVID-related supplier production slowdown in India at the
17
end of March 2021, which continued throughout 2021 due to the emergence of the Omicron variant. The reduced capacity for logistics is also causing increases in logistics costs. We also experienced a COVID-19 related supplier production slowdown due to isolated outbreaks. Additionally, ground operations at project sites have been impacted by health-related restrictions, shelter-in-place orders and worker absenteeism, which has resulted in delays in project completions, in 2020, and these restrictions have also hindered our ability to provide on-site support to our customers and conduct inspections of our contract manufacturers. The disruptions in the global supply chain have resulted in extended lead times for some of our component parts. Management will continue to monitor the impact of the global situation on our financial condition, cash flows, operations, contract manufacturers, industry, workforce and customer relationships.
Non-GAAP Financial Measures
Adjusted EBITDA, adjusted net loss and adjusted earnings per share ("EPS")
We utilize Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS as supplemental measures of our performance. We define Adjusted EBITDA as net loss plus (i) provision (benefit) for income taxes, (ii) interest expense, net, (iii) depreciation expense, (iv) amortization of intangibles, (v) stock-based compensation, (vi) non-routine legal fees, severance and certain other costs (credits) and (vii) the loss (income) from our unconsolidated subsidiary. We also deduct the gains from the disposal of our investment in unconsolidated subsidiary and from extinguishment of our debt from net loss in arriving at Adjusted EBITDA. We define Adjusted Net Loss as net loss plus (i) amortization of debt issue costs and intangibles, (ii) stock-based compensation, (iii) non-routine legal fees, severance and certain other costs (credits), (iv) the loss (income) from our unconsolidated subsidiary and (v) income tax expense (benefit) of adjustments. We also deduct the gains or add back the losses from the disposal of our investment in unconsolidated subsidiary and from extinguishment of our debt from net loss in arriving at Adjusted Net Loss. Adjusted EPS is defined as Adjusted Net Loss on a per share basis using the weighted average diluted shares outstanding.
Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). We present Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, because we believe they assist investors and analysts in comparing our performance across reporting periods on an ongoing basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS to evaluate the effectiveness of our business strategies.
Among other limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS do not reflect (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments, and (ii) the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations. Further, the adjustments noted in Adjusted EBITDA do not reflect the impact of any income tax expense or benefit. Additionally, other companies in our industry may calculate Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS differently than we do, which limits its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP, and you should not rely on any single financial measure to evaluate our business. These non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure as disclosed below:
18
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
(in thousands, except shares and per share data) |
| Adjusted EBITDA |
|
| Adjusted Net Loss |
|
| Adjusted EBITDA |
|
| Adjusted Net Loss |
| ||||
Net loss per GAAP |
| $ | (27,793 | ) |
| $ | (27,793 | ) |
| $ | (7,442 | ) |
| $ | (7,442 | ) |
Reconciling items - |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision (benefit) for income taxes |
|
| 76 |
|
|
| — |
|
|
| (19 | ) |
|
| — |
|
Interest expense, net |
|
| 295 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
Amortization of debt issue costs in interest expense |
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| — |
|
Depreciation expense |
|
| 121 |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
Stock-based compensation |
|
| 4,610 |
|
|
| 4,610 |
|
|
| 449 |
|
|
| 449 |
|
(Gain) from disposal of investment in unconsolidated subsidiary(d) |
|
| (337 | ) |
|
| (337 | ) |
|
| — |
|
|
| — |
|
(Gain) loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| (790 | ) |
|
| (790 | ) |
Non-routine legal fees(a) |
|
| 1,078 |
|
|
| 1,078 |
|
|
| 15 |
|
|
| 15 |
|
Severance(b) |
|
| 615 |
|
|
| 615 |
|
|
| — |
|
|
| — |
|
Other costs(c) |
|
| 1,370 |
|
|
| 1,370 |
|
|
| 882 |
|
|
| 882 |
|
(Income) loss from unconsolidated subsidiary(d) |
|
| — |
|
|
| — |
|
|
| 218 |
|
|
| 218 |
|
Income tax expense (benefit) attributable to adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
Adjusted Non-GAAP amounts |
| $ | (19,965 | ) |
| $ | (20,284 | ) |
| $ | (6,664 | ) |
| $ | (6,676 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
GAAP net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| N/A |
|
| $ | (0.28 | ) |
| N/A |
|
| $ | (0.11 | ) | ||
Diluted |
| N/A |
|
| $ | (0.28 | ) |
| N/A |
|
| $ | (0.11 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted Non-GAAP net loss per share (Adjusted EPS): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| N/A |
|
| $ | (0.20 | ) |
| N/A |
|
| $ | (0.10 | ) | ||
Diluted |
| N/A |
|
| $ | (0.20 | ) |
| N/A |
|
| $ | (0.10 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| N/A |
|
|
| 99,211,792 |
|
| N/A |
|
|
| 66,875,469 |
| ||
Diluted |
| N/A |
|
|
| 99,211,792 |
|
| N/A |
|
|
| 66,875,469 |
|
(a) Non-routine legal fees represent legal fees incurred for matters that were not ordinary or routine to the operations of the business.
(b) Severance costs were incurred related to agreements with certain executives due to restructuring changes.
(c) Other costs in 2022 include certain costs attributable to accelerated vesting of stock-based compensation awards resulting from our IPO and shareholder follow on registration costs pursuant to our IPO. Other costs in 2021 include consulting fees in connection with operations and finance.
(d) Our management excludes the gain from current year collections of contingent contractual amounts arising from the sale in 2021 of our unconsolidated subsidiary when evaluating our operating performance, as well as the income (loss) from operations of our unconsolidated subsidiary prior to the sale.
Key Components of Our Results of Operations
The following discussion describes certain line items in our condensed consolidated statements of operations.
Revenue
We generate our revenue in two streams – Product revenue and Service revenue. Product revenue is derived from the sale of Voyager Trackers, customized components of Voyager Trackers, individual part sales for certain specific transactions and sale of term-based software licenses. Revenue from the sale of Voyager Trackers and customized components of Voyager Trackers is recognized over time, as work progresses, utilizing an input measure of progress determined by cost incurred to date relative to total expected cost on these projects to correlate with our performance in transferring control over Voyager Trackers and its components. Revenue from the sale of a Voyager Tracker’s individual parts is recognized point-in-time as and when control transfers based on the terms of the contract. Revenue from sale of term-based software licenses is recognized upon transfer of control to the customer. Service revenue includes revenue from shipping and handling services, subscription-based enterprise licensing model and maintenance and support services in connection with the term-based software licenses. Revenue for shipping and handling services is
19
recognized over time based on progress in meeting shipping terms of the arrangements. Subscription revenue, which is derived from a subscription-based enterprise licensing model, and support revenue, which is derived from ongoing security updates and maintenance, isare generally recognized on a straight-line basis over the term of the contract.
Our customers include project developers, solar asset owners and EPC contractors that design and build solar energy projects. For each individual solar project, we enter into a contract with a customerour customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for Voyager Trackers and related parts can vary between twelve weeksdepending on size of the project and 23 weeks.availability of vessels and other means of delivery. Contracts can range in value from tens of thousands to tens of millions of dollars.
24
Our revenue is affected by changes in the volume and ASP of our solar tracking systems purchased by our customers and volume of sales of software products and engineering services, among other things. The ASP of our solar tracker systems and quarterly volume of sales is driven by the supply of, and demand for, our products, changes in product mix, geographic mix of our customers, strength of competitors’ product offerings and availability of government incentives to the end-users of our products. Additionally, our revenue may be impacted by seasonality and variability related to Investment Tax Credit ("ITC")ITC step-downs and construction activity as well as inclement weather conditions.the cold weather.
The vast majority of our revenue in the periods presented was attributable to sales in the United States and Australia, with a smaller portion derived from sales in South Africa, Europe and Southeast Asia. Our revenue growth is dependent on continued growth in the number of solar tracker projects software sales and engineering services we win in competitive bidding processes. Ourprocesses and growth targets are impacted byin our software sales each year, as well as our ability to increase our market share in each of the geographies in which we currently compete, and to expand our global footprint to new emerging markets. To support this planned growth, we mustmarkets, grow our production capabilities to meet demand and continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers, among other things.
Cost of revenue and gross profit (loss)
We subcontract with third-party manufacturers to manufacture and deliver our products directly to our customers. Our product costs are affected by the underlying cost of raw materials procured by these contract manufacturers, including steel and aluminum; component costs, including electric motors and gearboxes; technological innovation in manufacturing processes; and our ability to achieve economies of scale resulting in lower component costs. We do not currently hedge against changes in the price of raw materials, but we continue to explore opportunities to mitigate the risks of foreign currency and commodity fluctuations through the use of hedges and foreign exchange lines of credit. Some of these costs, primarily personnel, are not directly affected by sales volume.
We have increased our headcount since our April 2021 IPO as we scaled up our business. Our gross profit may vary period-to-period due to changes in our headcount, ASP, product costs, product mix, customer mix, geographical mix, shipping methods, warranty costs and seasonality. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), we received employee retention credits during 2021, which reduced the impact of increased personnel costs on our operating results during the prior year comparative period.
Operating expenses
Operating expenses consist of research and development expenses, selling and marketing expenses and general and administrative expenses. Personnel-related costs are the most significant component of our operating expenses and include salaries, benefits, bonuses, commissions and stock-based compensation expenses.
Our increased headcount has contributed to increased operating costs both in absolute dollars and as a percentage of revenue. While we have recently frozen non-essential hiring in response to current regulatory issues that are negatively impacting solar project activity levels, we expect to resume hiring new employees in the future as needed to support our future expected growth and in response to expected turnover. In addition, our operating costs have been impacted by (i) our level of research activities to originate, develop and enhance our products, (ii) our sales and marketing efforts as we expand our development activities in other parts of the world, and (iii) increased legal and professional fees, compliance costs, insurance, facility costs and other costs associated with our expected growth and in being a public company.
Cost20
Results of Operations - Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
(in thousands, except percentages) |
| Amounts |
|
| Percentage of revenue |
|
| Amounts |
|
| Percentage of revenue |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
| $ | 30,968 |
|
|
| 62.5 | % |
| $ | 56,462 |
|
|
| 85.9 | % |
Service |
|
| 18,585 |
|
|
| 37.5 | % |
|
| 9,245 |
|
|
| 14.1 | % |
Total revenue |
|
| 49,553 |
|
|
| 100.0 | % |
|
| 65,707 |
|
|
| 100.0 | % |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
|
| 34,963 |
|
|
| 70.6 | % |
|
| 54,996 |
|
|
| 83.7 | % |
Service |
|
| 23,877 |
|
|
| 48.2 | % |
|
| 10,592 |
|
|
| 16.1 | % |
Total cost of revenue |
|
| 58,840 |
|
|
| 118.7 | % |
|
| 65,588 |
|
|
| 99.8 | % |
Gross profit (loss) |
|
| (9,287 | ) |
|
| (18.7 | %) |
|
| 119 |
|
|
| 0.2 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 2,701 |
|
|
| 5.5 | % |
|
| 1,954 |
|
|
| 3.0 | % |
Selling and marketing |
|
| 1,972 |
|
|
| 4.0 | % |
|
| 1,100 |
|
|
| 1.7 | % |
General and administrative |
|
| 13,818 |
|
|
| 27.9 | % |
|
| 5,084 |
|
|
| 7.7 | % |
Total operating expenses |
|
| 18,491 |
|
|
| 37.3 | % |
|
| 8,138 |
|
|
| 12.4 | % |
Loss from operations |
|
| (27,778 | ) |
|
| (56.1 | %) |
|
| (8,019 | ) |
|
| (12.2 | %) |
Interest expense, net |
|
| (295 | ) |
|
| (0.6 | %) |
|
| (14 | ) |
|
| 0.0 | % |
Gain from disposal of investment in unconsolidated subsidiary |
|
| 337 |
|
|
| 0.7 | % |
|
| — |
|
|
| 0.0 | % |
Gain on extinguishment of debt |
|
| — |
|
|
| 0.0 | % |
|
| 790 |
|
|
| 1.2 | % |
Other expense |
|
| 19 |
|
|
| 0.0 | % |
|
| — |
|
|
| 0.0 | % |
Loss from unconsolidated subsidiary |
|
| — |
|
|
| 0.0 | % |
|
| (218 | ) |
|
| (0.3 | %) |
Loss before income taxes |
|
| (27,717 | ) |
|
| (55.9 | %) |
|
| (7,461 | ) |
|
| (11.4 | %) |
(Provision) benefit for income taxes |
|
| (76 | ) |
|
| (0.2 | %) |
|
| 19 |
|
|
| 0.0 | % |
Net loss |
| $ | (27,793 | ) |
|
| (56.1 | %) |
| $ | (7,442 | ) |
|
| (11.3 | %) |
Revenue and Gross Profit
We generate our revenue in two streams – Product revenue and Service revenue. Product revenue is derived from the sale of Voyager Trackers, customized components of Voyager Trackers, individual part sales for certain specific transactions and the sale of term-based software licenses. Service revenue includes revenue from shipping and handling services, subscription-based enterprise licensing model and maintenance and support services in connection with the term-based software licenses.
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Product |
| $ | 30,968 |
|
| $ | 56,462 |
|
| $ | (25,494 | ) |
|
| (45.2 | )% |
Service |
|
| 18,585 |
|
|
| 9,245 |
|
|
| 9,340 |
|
|
| 101.0 | % |
Total revenue |
| $ | 49,553 |
|
| $ | 65,707 |
|
| $ | (16,154 | ) |
|
| (24.6 | )% |
Product revenue
The decrease in product revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to (i) a customer concession reserve, (ii) a 34% decrease in MW produced and (iii) a decrease of approximately 11% in ASP.
The current period decrease in MW produced was due to accelerated production and product delivery in the fourth quarter of 2021, which had the effect of reducing our project production in the current year quarter. Continued tight logistics, supply chain availability, and increased uncertainty among project owners and developers regarding the ability to obtain modules for use in their projects, which also utilize our trackers, all contributed to the production decline during the three months ended March 31, 2022. We believe the regulatory concerns regarding module availability, among other things, has slowed new and existing project activity during the three months ended March 31, 2022 by pushing some activity out to later periods in 2022 and beyond.
21
Service revenue
The increase in service revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to an increase in MW delivered during the quarter related to logistics as well as an increase in ASP related to shipping and logistics revenue on Voyager Tracker sales, partially offset by a customer concession reserve recognized during the three months ended March 31, 2022.
Cost of revenue and gross profit (loss)
Cost of revenue consists primarily of Voyager Trackers’ raw material costs, including purchased components, as well as costs related to freight and delivery, product warranty, supply chain personnel and consultants, insurance and customer support. Personnel costs include both direct labor costs as well as costs attributable to any individuals whose activities relate to the procurement, installation and delivery of the finished product and provision of services.
We subcontract to third party contract manufacturers to manufactureservices and deliver our products directly to our customers. Our product costs are affected by the underlying costnet of raw materials procured by these contract manufacturers, including steel and aluminum; component costs, including electric motors and gearboxes; technological innovation in manufacturing processes; and our ability to achieve economies of scale resulting in lower component costs. We do not currently apply financial hedges against changes in the price of raw materials, but we continue to explore opportunities to mitigate the risks of foreign currency and commodity fluctuations through the use of hedges and foreign exchange lines of credit. The industry is currently experiencing rising steel and logistics costs. We do not have any multi-year contracts with unhedged steel exposure. Subject to the last sentence of this paragraph, we fix our steel input prices as close to signing a customer purchase order as possible. We continue to expand our global supply chain which improves our ability to secure necessary supplies and further diversifies us on key components and positions us with additional flexibility moving forward. During the three month period ended June 30, 2021 we entered into contracts to ensure necessary steel capacity and more price certainty for a substantial portion of the steel commodities required for our anticipated production the rest of the fiscal year.
federal employee retention credits received.
Gross profit may vary from quarter-to-quarterperiod-to-period and is primarily affected by our volume of MW, ASP, product costs, product mix,timing of tracker production and delivery, customer mix, geographical mix, shipping method, andlogistics costs, warranty costs personneland seasonality.
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Product |
| $ | 34,963 |
|
| $ | 54,996 |
|
| $ | (20,033 | ) |
|
| (36.4 | )% |
Service |
|
| 23,877 |
|
|
| 10,592 |
|
|
| 13,285 |
|
|
| 125.4 | % |
Total cost of revenue |
| $ | 58,840 |
|
| $ | 65,588 |
|
| $ | (6,748 | ) |
|
| (10.3 | )% |
Gross profit (loss) |
| $ | (9,287 | ) |
| $ | 119 |
|
| $ | (9,406 | ) |
|
| (7,904.2 | )% |
Gross profit (loss) percentage of revenue |
|
| (18.7 | %) |
|
| 0.2 | % |
|
|
|
|
|
|
The decrease in cost of revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily driven by a decrease of 34% in MW produced, lower warranty costs and seasonality.
Operating Expenses
Operating expenses consistlower expenditures for certain retrofits, remediations and product reconfigurations compared to the same period last year. This was partially offset by increases in shipping and logistics costs during much of research2021 and development expenses, sellinginto 2022, as compared to rates available during the first three months of 2021 and marketing expenses and general and administrative expenses. Personnel-relatedincreases in personnel-related costs are the most significant component ofdue to higher headcount levels subsequent to our IPO as we scaled up our operating expensesstructure. Cost per MW produced increased 37% due mainly to increases in shipping and include salaries, benefits, bonuses, commissionslogistics costs, steel prices and stock-based compensation expenses.
personnel-related costs.
Our full-time employee headcount in research and development, selling and marketing and general and administrative capacities has grown as we invested in new employees to support our growth and operations as a publicly traded company.
The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as agross profit (loss) percentage of revenue. We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses will increase in absolute dollar amountsrevenue for the foreseeable future.three months ended March 31, 2022 was a negative 18.7%, as compared to a positive 0.2% for the three months ended March 31, 2021. The decrease was due primarily to (i) a customer concession reserve of $5.0 million recognized during the three months ended March 31, 2022, (ii) increased shipping and logistics costs that were not passed on to our customers that impact our service margins and (iii) increased headcount levels in relation to lower production which impacted our product margins.
Research and Development Expenses
development
Research and development expenses consist primarily of salaries (net of federal employee retention credits received during 2021), employee benefits, stock-based compensation expenses and travel expenses related to our engineers performing research and development activities to originate, develop and enhance our products. Additional expenses include consulting charges, component purchases, legal fees for registering patents and other costs for performing research and development on our software products.
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Research and development |
| $ | 2,701 |
|
| $ | 1,954 |
|
| $ | 747 |
|
|
| 38.2 | % |
The increase in research and development expenses was primarily attributable to (i) $0.5 million of higher payroll-related costs and (ii) $0.2 million of higher stock-based compensation expense mainly due to headcount increases allowing for expansion of our research and development activities designed to enhance our products and the absence of federal employee retention credits received subsequent to 2021. Research and development expenses as a percentage of revenue were 5.5% for the three months ended March 31, 2022, compared to 3.0% for the three months ended March 31, 2021.
2522
Selling and Marketing Expenses
marketing
Selling and marketing expenses consist primarily of salaries (net of federal employee retention credits received during 2021), employee benefits, stock-based compensation expenses and travel expenses related to our sellingsales and marketing and business development personnel. Additionally, selling and marketing expenses include costs associated with professional fees and support charges for software subscriptions and licenses, trade shows and conventions.
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Selling and marketing |
| $ | 1,972 |
|
| $ | 1,100 |
|
| $ | 872 |
|
|
| 79.3 | % |
We expect anThe increase in the number of selling and marketing personnel in connection with the expansion of our global selling and marketing footprint as we enter new markets. The majority of our selling and marketing expenses was primarily attributable to (i) $0.5 million of higher stock-based compensation expense, and (ii) $0.2 million of higher payroll-related costs related to higher headcount levels as we scaled up our operating structure following our IPO and the absence of federal employee retention credits received subsequent to 2021. In addition, we also spent an additional $0.2 million for trade shows and advertising as compared to the same period last year. Selling and marketing costs as a percentage of revenue were 4.0% for the three and nine months ended September 30, 2020 were relatedMarch 31, 2022, compared to sales to customers in1.7% for the United States and business development in other parts of the world. As of September 30, 2021, we have a sales presence in the United States, Australia, India, the Middle East, China, Europe, South Africa, and South-East Asia. We intend to continue to expand our sales presence and marketing efforts to additional countries.
three months ended March 31, 2021.
General and Administrative Expenses
administrative
General and administrative expenses consist primarily of salaries (net of federal employee retention credits received during 2021), employee benefits, stock-based compensation expenses, and travel expenses related to our executives, finance team, and administrative employees. It also consists of legal, consulting, and professional fees, rent and lease expenses pertaining to our headquarters and international offices, business insurance costs and other costs. We have and will continue to incur additional audit, tax, accounting, legal and other costs related to compliance with applicable securities and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
General and administrative |
| $ | 13,818 |
|
| $ | 5,084 |
|
| $ | 8,734 |
|
|
| 171.8 | % |
Non-Operating Expenses and Other Items
Interest Expense
Interest expense for the nine months ended September 30, 2021, consists of commitment fees related to a revolving credit facility we entered into in April 2021, amortization of debt issuance costs and interest expense related to a revolving line of credit with Western Alliance Bank, which was paid off during the quarter ended March 31, 2021.
Gain on extinguishment of debt
Gain on extinguishment of debt is the result of a forgiveness of a loan effective January 20, 2021 (See “Debt Obligations” below) under the SBA’s Paycheck Protection Program (PPP).
Income Taxes
Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business.
Gain on disposal in equity investment
Gain on disposal in equity investment resulted from the Company disposing of its approximate 23% non-controlling interest in Dimension Energy, LLC (See "Note 7." in the Notes to Condensed Consolidated Financial Statements.)
Loss from Unconsolidated Subsidiary
Loss from unconsolidated subsidiary represents our allocated net loss arising from our equity method investment in Dimension Energy, LLC through the disposal date.
Results of Operations
The following tables summarizes our results of operations as well as other financial data management considers meaningful for the three and nine months ended September 30, 2020 and 2021. This information should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The results of historical periods are not necessarily indicative of the results of operations for any future period.
26
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product revenue |
| $ | 48,879 |
|
| $ | 45,582 |
|
| $ | 122,197 |
|
| $ | 137,799 |
|
Service revenue |
|
| 10,761 |
|
|
| 7,407 |
|
|
| 20,976 |
|
|
| 31,005 |
|
Total revenue |
|
| 59,640 |
|
|
| 52,989 |
|
|
| 143,173 |
|
|
| 168,804 |
|
Cost of revenue (a): |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Product cost of revenue |
|
| 46,513 |
|
|
| 48,090 |
|
|
| 114,883 |
|
|
| 146,964 |
|
Service cost of revenue |
|
| 10,261 |
|
|
| 12,938 |
|
|
| 19,826 |
|
|
| 45,810 |
|
Total cost of revenue |
|
| 56,774 |
|
|
| 61,028 |
|
|
| 134,709 |
|
|
| 192,774 |
|
Gross profit (loss) |
|
| 2,866 |
|
|
| (8,039 | ) |
|
| 8,464 |
|
|
| (23,970 | ) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development (a) |
|
| 1,438 |
|
|
| 2,116 |
|
|
| 4,047 |
|
|
| 9,653 |
|
Selling and marketing (a) |
|
| 1,041 |
|
|
| 2,224 |
|
|
| 2,374 |
|
|
| 6,421 |
|
General and administrative (a) |
|
| 2,912 |
|
|
| 10,392 |
|
|
| 7,630 |
|
|
| 63,217 |
|
Total operating expenses |
|
| 5,391 |
|
|
| 14,732 |
|
|
| 14,051 |
|
|
| 79,291 |
|
Loss from operations |
|
| (2,525 | ) |
|
| (22,771 | ) |
|
| (5,587 | ) |
|
| (103,261 | ) |
Interest expense |
|
| (70 | ) |
|
| (301 | ) |
|
| (303 | ) |
|
| (515 | ) |
Gain from disposal in equity investment |
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| 20,829 |
|
Gain (loss) on extinguishment of debt |
|
| (34 | ) |
|
| — |
|
|
| (75 | ) |
|
| 790 |
|
Other expense |
|
| (1 | ) |
|
| (13 | ) |
|
| (1 | ) |
|
| (59 | ) |
Loss before income taxes |
|
| (2,630 | ) |
|
| (22,875 | ) |
|
| (5,966 | ) |
|
| (82,216 | ) |
(Expense) benefit from income taxes |
|
| (24 | ) |
|
| (41 | ) |
|
| 115 |
|
|
| (137 | ) |
Loss from unconsolidated subsidiary |
|
| (186 | ) |
|
| — |
|
|
| (345 | ) |
|
| (354 | ) |
Net Loss |
| $ | (2,840 | ) |
| $ | (22,916 | ) |
| $ | (6,196 | ) |
| $ | (82,707 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
| $ | — |
| |||
Foreign currency translation adjustments |
|
| (12 | ) |
|
| 3 |
|
|
| (20 | ) |
|
| 9 |
|
Comprehensive Loss |
| $ | (2,852 | ) |
| $ | (22,913 | ) |
| $ | (6,216 | ) |
| $ | (82,698 | ) |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
| ||||
Cost of revenue |
| $ | 80 |
|
| $ | 342 |
|
| $ | 244 |
|
| $ | 7,571 |
|
Research and development |
|
| 16 |
|
|
| 200 |
|
|
| 47 |
|
|
| 3,925 |
|
Selling and marketing |
|
| 9 |
|
|
| 1,135 |
|
|
| 28 |
|
|
| 2,942 |
|
General and administrative |
|
| 343 |
|
|
| 3,704 |
|
|
| 1,062 |
|
|
| 44,093 |
|
Total stock-based compensation expense |
| $ | 448 |
|
| $ | 5,381 |
|
| $ | 1,381 |
|
| $ | 58,531 |
|
Comparison of the Three and Nine Months ended September 30, 2020 and 2021
Product Revenue
Product revenue for the three months ended September 30, 2021 was $45.6 million, a decrease of $3.3 million or 7%, as compared to $48.9 million for the three months ended September 30, 2020, primarily driven by a 16% decrease in MW shipped, partially offset by an increase in ASP. During the three months ended September 30, 2021, 42% of the MW shipped were to new customers that we did not have in the three months ended September 30, 2020 and 58% represented new projects with customers we worked with in the three months ended September 30, 2020. The revenue was primarily generated by customer projects located in the United States.
27
Product revenue for the nine months ended September 30, 2021 was $137.8 million, an increase of $15.6 million or 13%, as compared to $122.2 million for the nine months ended September 30, 2020, primarily driven by a 15% increase in MW shipped and a slight increase in ASP. During the nine months ended September 30, 2021, 15% of the MW shipped were to new customers that we did not have in the nine months ended September 30, 2020 and 85% represented new projects with customers we worked with in the nine months ended September 30, 2020. The revenue was primarily generated by customer projects located in the United States.
Service Revenue
Service revenue for the three months ended September 30, 2021, was $7.4 million, a decrease of $3.4 million, as compared to $10.8 million for the three months ended September 30, 2020, primarily driven by an decrease in MW shipped offset by an increase in shipping and logistics revenue on Voyager Tracker sales due to increases in contract pricing which helped offset the significant rise in shipping and logistics costs.
Service revenue for the nine months ended September 30, 2021, was $31.0 million, an increase of $10.0 million, as compared to $21.0 million for the nine months ended September 30, 2020, primarily driven by an increase in shipping and logistics revenue on Voyager Tracker sales due to a 15% increase in MW shipped to our U.S. customers and by increased contract prices which help offset rising shipping and logistics costs.Cost of Revenue and Gross Profit
Cost of revenue for the three months ended September 30, 2021 was $61.0 million, an increase of $4.3 million as compared to $56.8 million for the three months ended September 30, 2020, primarily driven by an increase in personnel, shipping and logistics costs and steel commodity prices which were partially offset by a reduction in MW shipped. Cost per MW increased 27% year over year due to increases in steel prices and shipping and logistics costs. Overhead costs were higher due to increased headcount. Our approach when we receive a contract from our customers, is to place the related supply purchase orders for tracker components as soon as possible thus locking our costs for commodities like steel. We continue to develop innovative approaches to mitigate the impacts of global increases in shipping and logistics costs due to the capacity constraints within the market.
Cost of revenue for the nine months ended September 30, 2021 was $192.8 million, an increase of $58.1 million as compared to $134.7 million for the nine months ended September 30, 2020, primarily driven by the aforementioned increase in MW shipped as well as increases in steel costs and shipping and logistics costs. Cost per MW increased 24% due to increases in steel prices and shipping and logistics costs. Overhead costs were higher year over year due to increased headcount to support our growth and the higher stock-based compensation expense recorded in the second quarter of 2021 due to our IPO triggering vesting of a significant number of shares. Cost of revenue for the nine months ended September 30, 2021 was also impacted by approximately $4.5 million in expenditures related to certain retrofits, remediations and product reconfigurations for certain of our solar tracker systems that had been previously installed, or were in the process of being installed, at customer sites.
Gross margin was negative for the quarter ended September 30, 2021 due to increased shipping and logistics costs of approximately $5.5 million that were not passed on to our customers, product reconfiguration, higher costs for our components and higher overhead costs due to an increase in headcount.
28
Our gross margin for the nine months ended September 30, 2021 decreased $32.4 million as compared to the nine months ended September 30, 2020 due primarily to increased logistics costs that were not passed on to our customers, increases in headcount as we scale and higher stock-based compensation triggered by the IPO. The gross profit for the nine months ended September 30, 2020 benefitted from a higher mix of safe harbor projects which carried a higher margin as customers were seeking to take advantage of the expected ITC step down.
Research and Development (R&D)Expenses
Research and development expenses for the three months ended September 30, 2021 were $2.1 million, an increase of $0.7 million as compared to $1.4 million for the three months ended September 30, 2020. The increase in expenses was primarily attributable to an increase of $0.3 million in personnel-related expenses, due to a net increase in headcount for the research and development of our products, $0.2 million increase in patent related expense and $0.1 increase in R&D focused on design to value initiatives. Research and development expenses as a percentage of revenue were approximately 2% for the three months ended September 30, 2020 and 4% for the three months ended September 30, 2021.
Research and development expenses for the nine months ended September 30, 2021 were $9.7 million, an increase of $5.6 million, as compared to $4.0 million for the nine months ended September 30, 2020. The increase in expenses was primarily attributable to an increase of $3.9 million attributable to stock-based compensation triggered by our IPO, $0.7 million in personnel-related expenses, due to a net increase in headcount for the research and development of our products and an increase of $0.6 million in R&D related to our design to value initiatives to reduce the costs of our tracker product. Research and development expenses as a percentage of revenue were 3% for the nine months ended September 30, 2020 and 6% for the nine months ended September 30, 2021.
Selling and Marketing Expenses
Selling and marketing expenses for the three months ended September 30, 2021 were $2.2 million, an increase of $1.2 million as compared to $1.0 million for the three months ended September 30, 2020. The increase in selling and marketing expenses was primarily attributable to an increase of $1.1 million of stock-based compensation and a $0.2 million increase in personnel-related expenses due to a net increase in headcount to support our international expansion plans. Selling and marketing expenses as a percentage of revenue were 2% for the three months ended September 30, 2020 and 4% for the three months ended September 30, 2021.
Selling and marketing expenses for the nine months ended September 30, 2021 were $6.4 million, an increase of $4.0 million, as compared to $2.4 million for the nine months ended September 30, 2020. The increase in selling and marketing expenses was primarily attributable to an increase in of $3.1 million for stock-based compensation triggered by our IPO, and $1.1 million in personnel-related expenses, due to a net increase in headcount to support our international expansion plans. Selling and marketing expenses as a percentage of revenue were 2% for the nine months ended September 30, 2020 and 4% for the nine months ended September
29
30, 2021.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2021 were $10.4 million, an increase of $7.5 million, as compared to $2.9 million for the three months ended September 30, 2020. The increase in general and administrative expenses was primarily attributable to an increase in stock based(i) $3.2 million of higher stock-based compensation expense, (ii) $2.9 million of $3.4higher payroll-related costs due to increased headcount, (iii) $1.0 million of higher legal and other professional services costs and (iv) an increase of $0.6$1.3 million in personnel-relatedother operating expenses, dueprimarily related to a net increase in headcount, an increase of $0.5 million in professional fees for consulting, legal and accounting services to support becoming a public company, an increase of $0.9 million in businesshigher insurance costs and an increaseas a result of $0.4 million pertaining to rent, lease and other office expenses in line with an increase in headcount.being a new public company. General and administrative expenses as a percentage of revenue were approximately 5%27.9% for the three months ended September 30, 2020 and 20%March 31, 2022, compared to 7.7% for the three months ended September 30, 2021.March 31, 2021.
General and administrative expenses for the nine months ended September 30, 2021 were $63.2 million, an increase of $55.6 million, as compared to $7.6 million for the nine months ended September 30, 2020. The increase in general and administrative expenses was primarily attributable to an increase of $47.4 million for stock based compensation triggered by our IPO, an increase of $2.4 million in personnel-related expenses due to an increase in headcount, an increase of $2.3 million in professional fees for consulting, legal and accounting services, an increase of $1.5 million in business insurance costs and an increase of $0.8 million pertaining to rent, lease and other office expenses in line with an increase in headcount. General and administrative expenses as a percentage of revenue were approximately 5% for the nine months ended September 30, 2020 and 37% for the nine months ended September 30,
Interest Expenseexpense, net
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Interest expense, net |
| $ | 295 |
|
| $ | 14 |
|
| $ | 281 |
|
|
| 2,007.1 | % |
Interest expense consists of interest expense in connection with our revolving line of credit with Western Alliance Bank, which was scheduled to mature on June 10, 2021 but was paid off during the quarterthree months ended March 31, 2021 and interest expense in connection with our2022, primarily related to commitment fee forfees on our revolving credit facility and amortization of debt issuance costswith Barclays Bank that we entered into in April 2021. (See “Debt Obligations” below).2021, along with associated debt issue cost amortization.
Gain from disposal of investment in unconsolidated subsidiary
|
| Three months ended March 31, | ||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change | |||
Gain from disposal of investment in unconsolidated subsidiary |
| $ | 337 |
|
| $ | — |
|
| $ | 337 |
|
| N/A |
Loss from Unconsolidated Subsidiary23
We sold our interest in our unconsolidated subsidiary, Dimension Energy LLC ("Dimension"), on June 24, 2021. Dimension is a community solar developer based in Atlanta, Georgia that provides renewable energy solutions for local communities in the United States. The sales agreement with Dimension includes an earnout provision which provides the potential to receive additional contingent consideration of up to approximately $14.0 million through December 2024, based on Dimension achieving certain performance milestones. The sales agreement also includes a projects escrow release which is an additional contingent consideration to receive $7 million based on Dimension’s completion of certain construction projects in progress at the time of the sale. We made an accounting policy election to account for the contingent gains from the earnout provision and projects escrow release only when those amounts become realizable in the periods subsequent to the disposal date.
During the three months ended March 31, 2022, we received $0.3 million from escrow for subsequent completion of certain construction projects that were in progress at the time of the sale.
Gain on extinguishment of debt
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Gain on extinguishment of debt |
| $ | — |
|
| $ | 790 |
|
| $ | (790 | ) |
|
| (100.0 | %) |
In January 2021, our Paycheck Protection Program loan that was received in April 2020 pursuant to the CARES Act, was forgiven, resulting in a gain on extinguishment of debt. The terms of the CARES Act provided for loan forgiveness if the proceeds were used to retain and pay employees and for other qualifying expenditures.
Loss from unconsolidated subsidiary
|
| Three months ended March 31, |
| |||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Loss from unconsolidated subsidiary |
| $ | — |
|
| $ | 218 |
|
| $ | (218 | ) |
|
| 100.0 | % |
As discussed above, we sold our interest in our unconsolidated subsidiary, Dimension, on June 24, 2021. Our share of the loss from this unconsolidated subsidiary for the period from January 1, 2021, to the disposal date was $0.4 million. For the ninethree months ended September 30, 2020, we recognized a loss of $0.3 million on this equity investment.March 31, 2021 was $0.2 million.
Liquidity and Capital Resources
Liquidity
Since our inception, we have financed our operations primarily through sales of shares of common stock, including our IPO in April 2021, issuance of debt and payments from our customers. Our ability to generate positive cash flow from operations is dependent on contract payment terms, timely collections from our customers and the strength of our gross margins.
We have incurred cumulative losses since inception, resulting in an accumulated deficit of $177.0 million at March 31, 2022, and have a history of cash outflows from operations. During the nineyear ended December 31, 2021, and the three months ended September 30,March 31, 2022, we had $132.9 million and $53.1 million, respectively, of cash outflow from operations. At March 31, 2022, we had $49.4 million of cash on hand, $119.8 million of working capital and approximately $98.1 million of unused borrowing capacity under our existing revolving credit facility. The revolving credit facility includes a financial condition covenant stating we are required to have a minimum liquidity, consisting of cash on hand and unused borrowing capacity, of $125.0 million as of each quarter end. After considering this financial condition covenant, we had approximately $22.4 million of available liquidity as of March 31, 2022, in order to retain access to our revolving credit facility. Additionally, we had no long-term borrowings or other material obligations requiring the use of cash as of March 31, 2022.
As of May 12, 2022, we have collected approximately $62 million of receivables since March 31, 2022, and have a cash balance of approximately $71 million.
On March 25, 2022, the U.S. Department of Commerce, in response to a petition by Auxin Solar, Inc., initiated an investigation of claims related to alleged circumvention of U.S. antidumping and countervailing duties ("AD/CVD") by solar manufacturers in certain Southeast Asian countries in an effort to determine whether or not solar cells and/or modules made in those Southeast Asian nations use parts originating from China in order to circumvent the AD/CVD tariffs. This decision has resulted in some developers deferring projects later in the year due to the uncertainty of panel supply and costs, which is expected to negatively impact our anticipated revenues and our cash flows.
24
Our costs are affected by certain component costs including steel, motors and micro-chips, as well as transportation costs. Current market conditions that constrain supply of materials and disrupt the flow of materials from international vendors impact the cost of our products and services. These cost increases impact our operating margins. We are taking steps to expand and diversify our manufacturing partnerships and have employed alternative modes of transportation to mitigate the impact of the current headwinds in the global supply chain and logistics markets. Additionally, we have contracted with a consulting firm to support us with improvements to our processes and performance in various areas including design, sourcing, logistics, pricing, software and standard configuration. For further information regarding this consulting firm, see Note 13 in Part I, Item 1 of this Quarterly Report on Form 10-Q.
In accordance with ASC 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, which raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Based on our recurring losses from operations, impact of the U.S. Department of Commerce investigation of AD/CVD circumvention claims, the expectation of continued operating losses during 2022, and the need to improve profitability and cash flow to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within twelve months of the issuance date of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes we will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
As we continue to address these current market challenges, management has also undertaken the following actions:
Should we not be successful in executing the above initiatives, or in reducing our historical levels of use of cash to fund our operations, or should market conditions deteriorate significantly from what we currently expect, or regulatory and international trade policies become more stringent as a result of findings from the Department of Commerce's AD/CVD investigation, or other factors, we may need to issue additional debt or obtain new equity financing to fund our operations for the next twelve months. We may be unable to obtain any desired additional financing on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors that are outside of our control, including general economic and market conditions, the health of financial institutions, investors' and lenders' assessments of our prospects and the prospects of the solar industry in general.
Statements of cash flows
In connection with preparation of our consolidated financial statements as of and for the year ended December 31, 2021, we identified an error in the classification of offering costs in the statement of cash flows for the three months ended March 31, 2021. Specifically, we incorrectly classified $1.1 million of offering costs paid as an operating cash outflow instead of a financing cash outflow in our previously issued cash flow statement for the three months ended March 31, 2021. Although we have concluded that this error is immaterial to the previously issued financial statements, we have corrected this error in the accompanying condensed consolidated statements of cash flows
25
by revising the operating and financing cash outflows previously reported in our cash flow statement for the three months ended March 31, 2021.
The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods (revised as described above):
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Net cash used in operating activities |
| $ | (53,106 | ) |
| $ | (25,904 | ) |
Net cash used in investing activities |
|
| (186 | ) |
|
| (85 | ) |
Net cash provided by (used in) financing activities |
|
| 428 |
|
|
| (2,045 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 62 |
|
|
| 1 |
|
Net decrease in cash, cash equivalents and restricted cash |
| $ | (52,802 | ) |
| $ | (28,033 | ) |
Operating activities
During the three months ended March 31, 2022, we used approximately $22.7 million of cash generated from operations to ensure steel capacity forfund (i) losses on certain of our projects, in the back half of the yearlargely related to increased material and to acquire inventory that has a longer lead timelogistics costs due to global market supply chain disruptions during the past year that were not fully recoverable, (ii) higher personnel and logistics constraints. The economicfacility-related costs associated with headcount increases, and (iii) increased professional service fees, largely as a result of being a new public company. Economic conditions causingduring 2021 and the first three months of 2022 caused our industry to experience rapid commodity price increases and significant increases in transportation costs during the last twelve months which negatively impactsimpacted our marginmargins in the near term and thus, our cash flow from operations.
We are taking steps to diversify our supply chain and implement design changes to lower the material requirements for our trackers in order to mitigate these economic headwinds. We believe this impact to be temporary as we work through our cost improvement roadmap. We intend to make up to $30M of development capital available to a tracker customer that is committing to use our trackers on a significant portion of their development projects. We believe that our operating cash flows, our cash balances, as well as the available borrowing capacity under our revolving credit facility will be sufficient to meet our cash needs for the next 12 months.
A total of approximately $30.4 million was also used during the three months ended March 31, 2022, to fund increases in working capital and other items, largely related to (i) a slowdown in collections from customers during the period and (ii) current period project activity.
We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital and expected cash requirements for our operations, such as systems and project development activities in certain international regions. Any incremental debt financings could result in increased debt service expenses and/or restrictive covenants, which could limit our ability to pursue our strategic plans.
30
The following table shows our cash flows from operating activities, investing activities and financing activities forDuring the stated periods:
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2020 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Net cash used in operating activities |
| $ | (14,638 | ) |
| $ | (92,414 | ) |
Net cash provided by investing activities |
|
| — |
|
|
| 21,554 |
|
Net cash provided by financing activities |
|
| 26,784 |
|
|
| 178,140 |
|
Effect of exchange rate changes on cash and restricted cash |
|
| (20 | ) |
|
| 9 |
|
Increase in cash and restricted cash |
| $ | 12,126 |
|
| $ | 107,289 |
|
Operating Activities
For the ninethree months ended September 30, 2020, net cashMarch 31, 2021, we used inapproximately $5.6 million to fund operating activities was $14.6 million, primarily dueexpenses as we continued to a net loss of $6.2 million and an increase of $13.8 million in accrued expenses, $12.2 million in accounts receivable, and $4.4 million in prepaid and other current assets, and a decrease of $14.1 million in deferred revenue.
For the nine months ended September 30, 2021, net cash used in operating activities was $92.4 million, primarily due to a net loss of $82.7 million which is reflective of our current investment in growing our operations and becoming a public company, global increases in logistics costs and expandingexpand our presence to additional countries. This reflectsA total of $20.3 million was also used during the three months ended March 31, 2021, to fund increases in working capital, largely related to an increase in revenue recognized in excess of $30.0 million in receivables, $16.6 million in prepaid deposits to secure supply capacity forcustomer billings resulting from project activity levels during the remainder of the year, $20.7 million in accounts payable and accrued expenses and $9.6 million in inventory and a decrease in deferred revenue of $13.4 million.period.
Investing Activitiesactivities
ForDuring the ninethree months ended September 30,March 31, 2022, we paid approximately $0.5 million, primarily for new lab equipment to be used for product testing, as well as new computer and IT equipment, acquired during the latter part of 2021. Additionally, we received $0.3 million from escrow in connection with our June 2021 net cash provided by investing activities was $21.6 million, which was attributable to proceeds from the disposal of the equity method investment.Financing Activities
For the nine months ended September 30, 2020, net cash provided by financing activities was $26.8 million which was primarily due to proceeds received from the sale of stock.Dimension in connection with the
For the nine months ended September 30, 2021, net cash provided by financing activities was $178.1 million which was primarily attributable to the proceeds from sale of common stock from our initial IPO in April 2021, less underwriting commissions and repurchases of approximately 4.5 million shares of our common stock which resulted from the settlement of certain vested RSUs and the exercise of certain optionsIPO.subsequent completion of certain construction projects that were in progress at the time of the sale.
Debt ObligationsDuring the three months ended March 31, 2021, our capital spending on new equipment was approximately $0.1 million.
Financing activities
Revolving LineDuring the three months ended March 31, 2022, we received $0.5 million of Creditproceeds from employee exercises of stock options.
On June 17, 2019,During the three months ended March 31, 2021, we entered into apaid off the $1.0 million of outstanding borrowings under our Western Alliance Bank revolving line of credit agreementfacility and incurred approximately $1.1 million in costs associated with our IPO during the Western Alliance Bank for a total aggregate principal amountsecond quarter of $1.0 million, which was scheduled to mature on June 10, 2021. In the quarter ended March 31, 2021, the outstanding balance for the revolving
Revolving line of credit was paid in full and the revolving credit line was closed.
31
On April 30, 2021, the Companywe entered into a $100 million senior secured revolving credit facility by and among the Company, as borrower, the several financial institutions from time-to-time parties thereto, andwith various lenders, including Barclays Bank PLC, as an issuing lender, the swingline lender and as administrative agent (the “Credit Agreement”). The Credit Agreement has an initial
26
three-year term and it will be used for working capital and for other general corporate purposes. The Company has not made any draws on the revolving credit facility. The Credit Agreement includes the following terms: (i) aggregate commitments of up to $100 million, with letter of credit and swingline sub-limits; (ii) customarya base rate of LIBOR, plus 3.25% per annum, respectively; (iii) initial commitment fees of 0.50% per annum; (iv) initial letter of credit fees of 3.25% per annum; and (v) other customary terms for a corporate revolving credit facility. The Company didShould LIBOR rates become unavailable during the term of the Credit Agreement, the rate per annum on loans will be based on the secured overnight financing rate (SOFR) published by the Federal Reserve Bank of New York, or a successor SOFR administrator.
We have not drawmade any fundsdraws on itsthe revolving credit facility during the three and nine months ended September 30, 2021.as of March 31, 2022. However, at March 31, 2022, we did have a $1.9 million in letter of credit outstanding that reduced our available borrowing capacity to approximately $98.1 million.
The facility is secured by a first priority lien on substantially all of the Company’sour assets, subject to certain exclusions, and customary guarantees. The Credit Agreement, as amended, includes the following financial condition covenants that the Company iswe are required to satisfy: (i) maintain a minimum liquidity limit of $125$50 million for each quarter; (ii) maintain a 3.75 times leverage ratio; and (iii) maintain a 1.5 times interest coverage ratio. The leverage and interest coverage ratios will be triggered when the Company achieveswe achieve $50 million in adjusted EBITDA over a trailing twelve months, or upon our election if we have achieved positive adjusted EBITDA over a trailing twelve months. Once the leverage and interest coverage ratios are triggered the minimum liquidity limit will not have a minimum limit. Minimum liquidity includes unrestricted cash plus the undrawn balance of the revolving credit facility. The minimum liquidity covenant was the only financial condition covenant the Companywe had to satisfy as of the period ended September 30, 2021.March 31, 2022. As of September 30, 2021, the Company wasMarch 31, 2022, we were in full compliance with itsour financial condition covenant.
Paycheck Protection Program
On April 30, 2020, we received a PPP loan pursuant to the Cares Act in the amount of $0.8 million. The PPP loan had a two-year term maturing on April 30, 2022 and a fixed interest rate of 1%. Under the terms of the CARES Act the loan is eligible for forgiveness, in part or whole, if the proceeds are used to retain and pay employees and for other qualifying expenditures. The PPP loan and the related accrued interest were fully forgiven on January 20, 2021.
Non-GAAP Financial Measures
Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted Non-GAAP Net Loss Per Share (“Adjusted EPS”)
We present Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS as supplemental measures of our performance. We define Adjusted EBITDA as net loss plus (i) income tax (benefit) or expense, (ii) interest expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) amortization of debt issuance costs, (vi) stock-based compensation (vii) gain on extinguishment of debt, (viii) gain from disposal in equity investment, (ix) non-routine legal fees, (x) severance, (xi) other costs and (xii) loss from unconsolidated subsidiary. We define Adjusted Net Loss as net loss plus (i) amortization of intangibles, (ii) amortization of debt issuance costs (iii) stock-based compensation, (iv) gain on extinguishment of debt, (v) gain from disposal of equity investment, (vi) non-routine legal fees, (vii) severance, (viii) other costs, (ix) loss from unconsolidated subsidiary and (x) income tax expense of adjustments. Adjusted EPS is defined as Adjusted Non-GAAP Net Loss Per Share using the weighted average basic and diluted shares outstanding.
Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). We present Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on an ongoing basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS to evaluate the effectiveness of our business strategies.
32
Among other limitations, Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS do not reflect (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments, and (ii) the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations. Further, the adjustments noted in Adjusted EBITDA do not reflect the impact of any income tax expense or benefit. Additionally, other companies in our industry may calculate Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS differently than we do, which limits its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA, Adjusted Non-GAAP Net Loss and Adjusted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP and you should not rely on any single financial measure to evaluate our business. These Non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure as disclosed below.
Revision of Previously Issued Financial Statements
In connection with the preparation of the Company's financial statements as of and for the three months ended September 30, 2021, the Company identified an error in the basic and diluted earnings per share (“EPS”) calculation for the three and six months ended June 30, 2021. The revisions for the stock-based compensation did not have any impact on Non-GAAP Adjusted EBITDA or Adjusted Non-GAAP Net Loss. However, the adjustment to the weighted average shares outstanding did have an impact to the Adjusted EPS. The Adjusted EPS as previously reported was $(0.21) and $(0.32) loss per share for the three and six months ended June 30, 2021 and after the revision the Adjusted EPS increased to $(0.19) and $(0.31) loss per share for the three and six months ended June 30, 2021. (See Footnote 2. to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.)
The following table reconciles Net Loss to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2021, respectively:
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||
|
| September 30, |
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2021 |
| 2020 |
|
| 2021 |
| ||||
|
| (in thousands) |
| ||||||||||||
Net loss |
| $ | (2,840 | ) |
| $ | (22,916 | ) | $ | (6,196 | ) |
| $ | (82,707 | ) |
Income tax (benefit) |
|
| 24 |
|
|
| 41 |
|
| (115 | ) |
|
| 137 |
|
Interest expense, net |
|
| 70 |
|
|
| 128 |
|
| 303 |
|
|
| 227 |
|
Depreciation expense |
|
| 3 |
|
|
| 53 |
|
| 10 |
|
|
| 95 |
|
Amortization of intangibles |
|
| — |
|
|
| — |
|
| 33 |
|
|
| — |
|
Amortization of debt issuance costs |
|
| — |
|
|
| 173 |
|
| — |
|
|
| 288 |
|
Stock-based compensation |
|
| 448 |
|
|
| 5,381 |
|
| 1,381 |
|
|
| 58,531 |
|
(Gain) loss on extinguishment of debt(a) |
|
| 34 |
|
|
| — |
|
| 75 |
|
|
| (790 | ) |
(Gain) from disposal of equity investment |
|
| — |
|
|
| (210 | ) |
| — |
|
|
| (20,829 | ) |
Non-routine legal fees (b) |
|
| — |
|
|
| 988 |
|
| — |
|
|
| 1,763 |
|
Severance(c) |
|
| — |
|
|
| — |
|
| — |
|
|
| 295 |
|
Other costs(d) |
|
| — |
|
|
| 270 |
|
| — |
|
|
| 3,135 |
|
Loss from unconsolidated subsidiary(e) |
|
| 186 |
|
|
| — |
|
| 345 |
|
|
| 354 |
|
Adjusted EBITDA |
| $ | (2,075 | ) |
| $ | (16,092 | ) | $ | (4,164 | ) |
| $ | (39,501 | ) |
(a) The gain on extinguishment of debt for the nine months ended September 30, 2021 resulted from forgiveness of a loan under SBA’s Paycheck Protection Program. See “Note -8 Debt and Other Borrowings”.
(b) Represents legal fees incurred that were not ordinary or routine to the operations of the business.
(c) Represents severance accrued related to an agreement with an employee due to restructuring changes.
(d) Represents consulting fees in connection with operations and finance and other costs associated with our IPO and one-time CEO transition cost.
(e) Represents results of an entity that we do not consolidate, as our management excludes these results when evaluating our operating performance.
The following table reconciles Net Loss to Adjusted Non-GAAP Net Loss and Adjusted EPS for the three and nine months ended September 30, 2020 and 2021, respectively. All shares and per share amounts have been adjusted for an approximately 8.25-for-1 share forward stock split which took effect on April 28, 2021:
33
|
| Three Months Ended |
|
| Nine Months Ended | |||||||||||||
|
| September 30, |
|
| September 30, | |||||||||||||
|
| 2020 | 2021 | 2020 |
| 2021 | ||||||||||||
|
| (in thousands, except per share data) | ||||||||||||||||
Net loss |
| $ | (2,840 | ) |
| $ | (22,916 | ) |
| $ | (6,196 | ) |
|
| $ | (82,707 | ) |
|
Amortization of intangibles |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
|
| — |
|
|
Amortization of debt issuance costs |
|
| — |
|
|
| 173 |
|
|
| — |
|
|
|
| 288 |
|
|
Stock-based compensation |
|
| 448 |
|
|
| 5,381 |
|
|
| 1,381 |
|
|
|
| 58,531 |
|
|
(Gain) loss on extinguishment of debt(a) |
|
| 34 |
|
|
| — |
|
|
| 75 |
|
|
|
| (790 | ) |
|
(Gain) from disposal of equity investment |
|
| — |
|
|
| (210 | ) |
|
| — |
|
|
|
| (20,829 | ) |
|
Non-routine legal fees(b) |
|
| — |
|
|
| 988 |
|
|
| — |
|
|
|
| 1,763 |
|
|
Severance(c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 295 |
|
|
Other costs(d) |
|
| — |
|
|
| 270 |
|
|
| — |
|
|
|
| 3,135 |
|
|
Loss from unconsolidated subsidiary(e) |
|
| 186 |
|
|
| — |
|
|
| 345 |
|
|
|
| 354 |
|
|
Income tax expense of adjustments(f) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
|
| — |
|
|
Adjusted Non-GAAP net loss |
| $ | (2,172 | ) |
| $ | (16,314 | ) |
| $ | (4,365 | ) |
|
| $ | (39,960 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted Non-GAAP net loss per share (Adjusted EPS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.03 | ) |
| $ | (0.17 | ) |
| $ | (0.06 | ) |
|
| $ | (0.48 | ) |
|
Diluted |
| $ | (0.03 | ) |
| $ | (0.17 | ) |
| $ | (0.06 | ) |
|
| $ | (0.48 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
|
| 82,677,824 |
|
|
Diluted |
|
| 67,567,724 |
|
|
| 94,596,519 |
|
|
| 69,857,468 |
|
|
|
| 82,677,824 |
|
|
(a) The gain on extinguishment of debt for the nine months ended September 30, 2021 resulted from forgiveness of a loan under SBA’s Paycheck Protection Program. See “Note -8 Debt and Other Borrowings”.
(b) Represents legal fees incurred that were not ordinary or routine to the operations of the business.
(c) Represents severance accrued related to an agreement with an employee due to restructuring changes.
(d) Represents consulting fees in connection with operations and finance and other costs associated with our IPO and one-time CEO transition cost.
(e) Represents results of an entity that we do not consolidate, as our management excludes these results when evaluating our operating performance.
(f)Represents incremental tax expense of adjustments made to reconcile Net Loss to Adjusted Non-GAAP Net Loss driven from loss from unconsolidated subsidiary.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.
Recently Issued Accounting Pronouncements
See Note 3 to our condensed consolidated financial statements included elsewhere in this report.
34
Critical Accounting Policies and Significant Management Estimates
The preparation ofWe prepare our interim unaudited condensed consolidated financial statements in accordance with GAAPGAAP. The preparation of condensed consolidated financial statements also requires us to make estimates judgments and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses and the related disclosuresdisclosure of contingent assets and liabilities in our interim unaudited condensed consolidatedat the date of the financial statements, and accompanying notes. The SEC has defined a company's criticalthe reported revenue and expenses during the period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the onesmore significant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that arewe consider the most important to the portrayal of the company'sour financial condition and results of operations and whichbecause they require the company to make itsour most difficult, and subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates:
We have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. See Note 3 - Summary of Significant Accounting Policies to the interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Of those policies, we believe that the accounting policies enumerated abovedescribed below involve the greatesta significant degree of complexityjudgment and exercisecomplexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our condensed consolidated financial condition and results of judgment by our management.operations.
DuringRevenue recognition
Policy description
We recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Identify the contract with a customer: A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. In assessing the recognition of revenue, we also evaluate whether two or more contracts should be combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period. Change orders may include changes in specifications or design, manner of
27
performance, equipment, materials, scope of work, and/or the period of completion of the project. We analyze change orders to determine if they should be accounted for as a modification to an existing contract or a new stand-alone contract.
Contracts we enter into with our customers for sale of Voyager Trackers are generally under two different types of arrangements: (1) purchase agreements and equipment supply contracts (“Purchase Agreements”) and (2) sale of individual parts of the Voyager Tracker.
Change orders from our customers are generally modifications to existing contracts and are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized.
Identify the performance obligations in the contract: We enter into contracts that can include various combinations of products and services, which are either capable of being distinct and accounted for as separate performance obligations or as one performance obligation since the majority of tasks and services are part of a single project or capability. However, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.
Our Purchase Agreements typically include two performance obligations- 1) Voyager Tracker or customized components of Voyager Tracker, and 2) shipping and handling services. The deliverables included as part of the Voyager Tracker are predominantly accounted for as one performance obligation, as these deliverables are part of a combined promise to deliver a project.
The revenue for shipping and handling services will be recognized over time based on shipping terms of the arrangements, as this faithfully depicts the Company’s performance in transferring control.
Sale of individual parts of Voyager Tracker for certain specific transactions includes multiple performance obligations consisting of individual parts of the Voyager Tracker. Revenue is recognized for parts sales at a point in time when the obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.
Determine the transaction price: The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring services to the customer. Such amounts are typically stated in the customer contract, and to the extent that we identify variable consideration, we will estimate the variable consideration at the onset of the arrangement as long as it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The majority of our contracts do not contain variable consideration provisions as a continuation of the original contract. None of our contracts contain a significant financing component. Taxes collected from customers and remitted to governmental authorities are not included in revenue.
Allocate the transaction price to performance obligations in the contract: Once we have determined the transaction price, we allocate the total transaction price to each performance obligation in a manner depicting the amount of consideration to which we expect to be entitled in exchange for transferring the good(s) or service(s) to the customer. We allocate the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis.
We use the expected cost-plus margin approach based on hardware, labor, and related overhead cost to estimate the standalone selling price of the Voyager Tracker, customized components of Voyager Tracker, and individual parts of Voyager Tracker for certain specific transactions. We use the adjusted market assessment approach for all other performance obligations except shipping, handling, and logistics. For shipping, handling, and logistics performance obligations, we use a residual approach to calculate the standalone selling price, because of the nature of the highly variable and broad range of prices we charge to various customers for this performance obligation in the contracts.
Recognize revenue when or as the Company satisfies a performance obligation: For each performance obligation identified, we determine at contract inception whether we satisfy the performance obligation over time or at a point in time. Voyager Tracker and customized components of Voyager Tracker performance obligations in the contract are satisfied over-time as work progresses for its custom assembled Voyager Tracker, utilizing an input measure of progress determined by cost-to-cost measures on these projects as this faithfully depicts our performance in transferring control. Additionally, our performance does not create an asset with an alternative use, due to the highly customized nature of the product, and we have an enforceable right to payment for performance completed to date. Our performance obligations for individual part sales for certain specific transactions are recognized point-in-time as and when control transfers based on the Incoterms for the contract. Our performance obligations for term-based software licenses are recognized point-in-time as and when control transfers, either upon delivery to the customer or the software license start date, whichever is later. Our performance obligation
28
for shipping and handling services is satisfied over-time as the services are delivered over the term of the contract. We recognize subscription services sales/other services on a straight-line basis over the contract period. With regard to support revenue, a time-elapsed method is used to measure progress because we transfer control evenly over the contractual period. Accordingly, the fixed consideration related to support revenue is generally recognized on a straight-line basis over the contract term.
Contract accounting: The timing of revenue recognition, billing, and cash collection results in the recognition of accounts receivable, unbilled receivables for revenue recognized in excess of billing, and deferred revenue in the Condensed Consolidated Balance Sheets. We may receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities, which are reflected as “deferred revenue” on our Condensed Consolidated Balance Sheets.
Judgments and assumptions
The timing and amounts of revenue and cost of revenue recognition, as well as recording of related receivables and deferred revenue, is highly dependent on our identification of performance obligations in each contract and our estimates by contract of total project cost and our progress toward project completion as of each period end. Certain estimates are subject to factors outside of our control that may impact our suppliers and the global supply chain. As an example, we began to experience increases in steel prices and shipping and logistics costs, as well as delays in delivery of our products to customers during 2021, which negatively impacted our results of operations as we were not able to recover all of the additional costs under certain of our fixed fee contracts. We base our estimates on the best information available at each period end, but future events and their effects cannot be determined with certainty, and actual results could differ materially from our assumptions and estimates.
Accounts receivable, net
Policy description
Trade receivables are recorded at invoiced amounts, net of allowances for doubtful accounts if applicable, and do not bear interest. We generally do not require collateral from our customers; however, in certain circumstances, we may require letters of credit, other collateral, additional guarantees or advance payments. The allowance for doubtful accounts is based on our assessment of the collectability of our customer accounts.
We plan to adopt ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments effective January 1, 2023. For the three months ended March 31, 2022 and nine months ended September 30, 2021 there were no significant changeswe have utilized the incurred loss model in estimating our critical accounting policies or estimates which were included in the condensed consolidated financial statementsallowance for doubtful accounts.
Judgments and the accompanying notes for the fiscal year ended December 31, 2020, which are included in our year ended December 31, 2020 financial statements in the Company’s IPO Prospectus for its IPO dated as of April 29, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.assumptions
We evaluateregularly review our accounts receivable that remain outstanding past their applicable payment terms and establish allowances or make potential write-offs by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customers’ ability to pay.
Adjustments to the allowance may either impact the amount of revenue previously recognized or bad debt expense depending on the facts and circumstances leading to the adjustment. Adjustments to amounts originally estimated to be collectible that are considered to be potential price concessions as a result of a dispute regarding performance or other matters affecting customer relationships will result in a reduction in revenue whereas adjustments due to changes in customer credit risk or their expected ability to pay will be recognized in bad debt expense.
Warranty
Policy description
Typically, the sale of Voyager Tracker projects includes parts warranties to customers as part of the overall price of the product. We provide standard assurance type warranties for our products for periods generally ranging from five to ten years. We record a provision for estimated warranty expenses in cost of sales, net of amounts recoverable from manufacturers under their warranty obligations to us. We do not maintain general or unspecified reserves; all warranty reserves are related to specific projects. All actual or estimated material costs incurred for warranty services in subsequent periods are charged to those established reserves.
29
Judgments and assumptions
We base our estimated warranty obligations on our historical experience and forward-looking factors including the nature and frequency of product failure rates and costs to address future claims. These estimates are inherently uncertain given our relatively short history of sales and changes to our historical or projected warranty experience may result in material changes to our warranty reserve in the future. Additionally, we make estimates of what costs we believe will be recoverable from the manufacturer of our products that we use to offset our obligations to our customers.
While we periodically monitor our warranty activities and claims, if actual costs incurred were to be different from our estimates, judgmentswe would recognize adjustments to our warranty reserves in the period in which those differences arise or are identified. Such adjustments could be material to our results of operations in the period the adjustments are made.
Stock-based compensation
Policy description
We recognize compensation expense for all share-based payment awards made, including stock options and restricted stock, based on the estimated fair value of the award on the grant date, in the accompanying consolidated statement of operations and comprehensive loss. We calculate the fair value of stock options using the Black-Scholes Option-Pricing model while the fair value of restricted stock grants is based on the estimated fair value of the Company's common stock on the date of grant. Forfeitures are accounted for as they occur. For service-based awards, stock-based compensation is recognized using the straight-line attribution approach over the requisite service period. For performance-based awards, stock-based compensation is recognized based on graded vesting over the requisite service period when the performance condition is probable of being achieved.
Judgments and assumptions
The Black-Scholes model relies on various assumptions, in addition to the exercise price of the option and the value of our common stock on an ongoing basis,the date of grant. These assumptions include:
Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and while we believeis calculated as the average of the option vesting and contractual terms, based on the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.
Expected Volatility: Since the Company did not have a trading history of its common stock prior to our IPO and since such trading history subsequent to our IPO is limited, the expected volatility is derived from the average historical stock volatilities of several public companies within the Company’s industry that it considers to be comparable to its business over a period equivalent to the expected term of the stock option grants.
Risk-Free-Interest-Rate: The Company bases the risk-free interest rate on the implied yield available on US Treasury zero-coupon issues with a remaining term equivalent to the expected term.
Expected Dividend: The Company has not issued any dividends in its history and does not expect to issue dividends over the life of the options and, therefore, has estimated the dividend yield to be zero.
Changes to any of these assumptions, but particularly our estimates judgmentsof expected term and assumptionsvolatility, could change the fair value of our options and impact the amount of stock-based compensation expense we report each period.
JOBS Act accounting election
We are reasonable, they are based upon information available atan emerging growth company, as defined in the time. Actual results may differ significantly from these estimates under different assumptions, judgmentsJOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or conditionsrevised accounting standards until such time as those standards apply to private companies. We elected to use the allowed extended transition period for adopting new or revised accounting standards.
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ITEM 3. Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of customer concentrations and fluctuations in steel, aluminum and logistics/transportation prices. We do not hold or issue financial instruments for trading purposes.
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Commodity Price Risk
We subcontract to various contract manufacturers, who manufacture and deliver products directly to our customers. We, therefore, do not procure raw materials and commodities directly. We are subject to indirect risk from fluctuating market prices of certain commodity raw materials, including steel and aluminum, that are used in our products, through our contract manufacturers, as increases in these commodity prices would increase our cost of procuring subcontracting services. Prices of these raw materials may be affected by supply restrictions or other market factors from time to time. Significant price increases for these raw materials could reduce our operating margins if we are unable to recover such increases in costs from our customers, and could harm our business, financial condition and results of operations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that the information relating to our Company, including our consolidated subsidiary, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our
Our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. We conducted an evaluation, under the supervision and with the participation of management, including our chiefprincipal executive officer and chiefprincipal financial officer, ofevaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,procedures. Solely as amended) asa result of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation,material weaknesses described below, our chiefprincipal executive officer and chiefprincipal financial officer concluded that, as of the evaluation date,March 31, 2022, our disclosure controls and procedures were not effective due toeffective.
We have performed additional analyses, reconciliations, and other post-closing procedures and have concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, as described below.the consolidated financial statements fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Limitations on effectiveness of disclosure controls and procedures
Previously Reported Material WeaknessesIn designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that the information required to be disclosed by a company in Internal Control over Financial Reportingthe reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Description of material weaknesses
AWe determined that we had material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the course of preparing for our IPO and as reported in the IPO Prospectus, we identified a material weaknessweaknesses in our internal controlcontrols over financial reporting as of December 31, 2021. Specifically, we did notidentified certain control deficiencies in the design and maintain effectiveoperation of our internal controls over financial reporting that constituted the following material weaknesses:
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Although there were no material adjustments to theprior period consolidated financial statements as a result of IT deficiencies, these IT deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined that these IT deficiencies in the aggregate constitute a material weakness
weakness.
Additionally, the above material weaknesses could result in a misstatement of the aforementionedour account balances or disclosures that would result in a material misstatement of the annual or interim financial statements that would not be prevented or detected.
Remediation plan for the material weaknesses
Status of Remediation Plan
Our remediation efforts for theseTo address our material weaknesses, are ongoingwe have implemented and we continue our initiatives to enhanceimplement a remediation plan. We have added key personnel with requisite technical knowledge of public company accounting including a Director of SEC Reporting and improve our control activitiesTechnical Accounting, a Director of Tax Accounting and processes. Our remediation plan includes but is not limited to the following:
•Reporting and a Corporate Controller. We appointed a newalso hired an experienced Director of Internal Audit with previous experience withthat reports directly to the audit committee of our board of directors. We hired a Chief Information Officer & Chief Data Officer and a Director of Information Technology to strengthen our information technology infrastructure. During 2021, we implemented Blackline's account reconciliation tool, and ensured segregation of duties for journal entries and account reconciliations. We have been formalizing documentation of accounting and IT policies and internal controls. In addition, a disclosure committee charter was established, and several training sessions related to internal controls and internal audit process and procedure for publicly traded companies;
• We have increased communication and training to employees regardingdisclosure controls were provided. While we believe these efforts will improve our internal control over financial reporting, disclosure controls, processesthe implementation and procedures;
• We have established an Internal Control Committee that willvalidation of our remediation is ongoing and may not be chaired by our new Director of Internal Audit
to serve as an oversight and monitoring committee of the Company’s internal controls;
• We have hired and will continue to hire accounting personnel, as needed, from the finance and accounting profession
with experience in publicly traded companies;
• We continue to utilize third-party consultants and specialists to supplement our internal resources;
• We continue to enhance and improve our established accounting policies and procedures;
• We continue to enhance processes and procedures to monitor and evaluate the effectiveness of oursufficient to remediate these weaknesses or to avoid the identification of material
ITGCs on an ongoing basis and are committed to taking further action in making additional
improvements, as we find necessary.
We plan to continue to assess our internal controls and procedures and implement processes and proceduresweaknesses.
weaknesses in the future, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows, including our filing of quarterly or annual reports with the SEC.
Changes in Internal Control
internal control
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report, other than our (i) hiring a new Corporate Controller with public-company accounting experience and a new Chief Information Officer & Chief Data Officer, (ii) implementing a new stock-based compensation reporting system and (iii) establishing controls over tracking and reporting of our stock-based compensation awards that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to routine legal proceedings in the normal course of operating our business.
Currently there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows.
On April 21, 2021, FCX Solar, LLC (“FCX”), filed a lawsuit against us in the United States District Court for the Southern District of New York. The complaint allegesalleged breach of contract, fraud and tortunjust enrichment claims related to a patent license agreement and consulting relationship between FCX and us. FCX seekssought damages of approximately $134 million in the lawsuit. On July 2, 2021, we filed a motion to dismiss the tortfraud and unjust enrichment claims. On July 16, 2021, rather than responding to that motion, FCX filed an amended complaint asserting the same claims as the original complaint. On July 22, 2021, we advised the court that FTC would stand on its motion to dismiss, and at the request of the court, we filed a revised motion citing the amended complaint. FCX filed its response on August 19, 2021, and we filed a reply and a request for oral argument on September 7, 2021. Discovery inOral argument on our motion to dismiss was held on February 3, 2022, and the Southern DistrictCourt granted our motion on February 7, 2022, dismissing FCX's fraud and unjust enrichment claims and leaving only a claim for breach of New York matter is ongoing.a license agreement. On April 15, 2022, FCX filed a motion to amend its complaint to add two additional claims for breach of the license agreement and to remove the dismissed claims, including its request for damages of approximately $134 million. We intend to oppose FCX's motion to add new breach of contract claims. On May 29, 2021, FCX filed a separate lawsuit against us in the United States District Court for the Western District of Texas, alleging a claim for patent infringement related to U.S. Patent No. 10,903,782. FCX seeks an unspecified amount of damages, including past and future royalties, and injunctive relief. Our answer to that complaint was filed on June 22, 2021, along with our motion to transfer the patent suit to the Southern District of New York to be consolidated with the New York litigation. FCX filed an amended complaint asserting claims for direct patent infringement, indirect infringement by active inducement, and contributory infringement on July 27, 2021, and we filed our answer to that complaint on August 10, 2021. On October 25, 2021, our motion to transfer the case to the Southern District of New York was granted. The Company believesgranted, and the patent case was consolidated with FCX's contract case on November 19, 2021. Discovery in this consolidated matter is ongoing. We believe the claims asserted in both lawsuits are without merit, and we plan to vigorously defend against them. The CompanyWe and itsour management considered (a) the facts described above, (b) the preliminary stages of the proceedings and (c) the advice of outside legal counsel on the claims and determined that it is not probable that FCX will prevail on the merits. At this time, the Company believeswe believe that the likelihood of any material loss related to these matters is remote given the strength of the Company’sour defenses.
ITEM 1A. RISK FACTORS
ThisWe are subject to a number of risks that if realized could adversely affect our business, strategies, prospects, financial condition, results of operations and cash flows. Some of the more significant risks and uncertainties we face include those summarized below. The summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021 ("Annual Report"). Please carefully consider all of the information in this Quarterly Report on Form 10-Q should be readand our Annual Report, including the full set of risks set forth in conjunction with the risk factors includedItem 1A. "Risk Factors" of our Annual Report, and in our Prospectus. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Prospectus which is included in the Company’s IPO Prospectus dated as of April 29, 2021 and filedother filings with the SEC pursuantbefore making an investment decision regarding us.
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38Additionally, as described further in Note 2 in Part 1, Item 1 under the section "Liquidity" and in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the section "Liquidity and Capital Resources", we have a history of cash outflows to fund operations. At March 31, 2022, we have $22.4 million of available liquidity, after taking into consideration a minimum liquidity covenant in our senior secured revolving credit facility.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Initial Public Offering of Common StockStoc
k
On April 30, 2021, we closed the Company completed an IPO in which we issued and sold(Commission file number 333-254797) of 19,840,000 shares of ourits common stock at a publicreceiving proceeds of $241.2 million, net of underwriting discounts and commissions, but before offering price of $13.00 per share.
The offer and sale of allcosts. Prior to the completion of the IPO, the board of directors and stockholders approved an approximately 8.25-for-1 forward stock split of the Company’s shares of our common stock in the IPO was registered under the Securities Act pursuant to our Registration Statements on Form S-1, as amended (File No. 333-254797), which became effective on April 27,28, 2021. Barclays, BofA Securities, Credit Suisse and UBS Investment Bank acted as joint book-running managers and representatives of the underwriters for the IPO. HSBC, Cowen, Simmons Energy | A Division of Piper Sandler, Raymond James and Roth Capital Partners acted as co-managers for the IPO.
We received aggregate proceeds of $241.2 millionProceeds from the IPO net of approximately $16.8 million in underwriting discount and commissions and before offering costs.
Wewere used $54.2 million of the net proceeds of the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock someat a cost of which resulted$54.2 million, including shares resulting from the settlement of certain vested RSUsrestricted stock units and the exercise of certain options in connection with the IPO offering, at the initial public offeringIPO price, net of underwriters' feesless underwriting discounts and commissions.
We The remaining proceeds have been used and intend to continue to use the remaining $187.0 millionbe used for general corporate purposes, including working capital, capital expenditures and operating expenses. We may also use a portion of such proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have binding agreements or commitments for any material acquisitions or investments at this time, though we would expect to use a portion of such proceeds for the development capital in connection with the multi project transaction for 1.7 gigawatts ("GWs") described herein.
There has been no material change in our planned use of the net proceeds from the IPO as described in our final prospectus filed with the IPO prospectus.
SEC pursuant to Rule 424(b).
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
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ITEM 6.EXHIBITS
The following exhibits are filed as part of this report:
Exhibit Number |
| Description |
3.1 | ** | |
3.2 | ** | |
3.3 | ** | |
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10.2 | ** | |
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| * | Employment Agreement by and between FTC Solar, Inc. and |
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31.1 | * | |
31.2 | * | |
32.1 | * | |
32.2 | * | |
101.INS | * | Inline XBRL Instance Document |
101.SCH | * | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | * | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | * | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | * | Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) |
*Filed herewith
**Incorporated herein by reference
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| FTC SOLAR, INC. |
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Date: | /s/ Sean Hunkler |
| Sean Hunkler, Chief Executive Officer |
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Date: | /s/ |
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