ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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 and other information included in our prospectus which includes our audited financial statements for the year ended December 31, 2019 and 2020 and this Quarterly Report on Form 10-Q. 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” included in our prospectus. 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 and Adjusted Net Income, which are not presented in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income 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 and Adjusted Net Income to be substitutes for any GAAP financial information. Readers of this Form 10-Q should use Adjusted EBITDA and Adjusted Net Income only in conjunction with Net Income, the most comparable GAAP financial measure. Reconciliations of Adjusted EBITDA and Adjusted Net Income to Net Income, the most comparable GAAP measure, is provided in Non-GAAP Financial Matters.
Overview
We are a global provider of advanced solar tracker systems. Our trackers are 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. 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 will 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 tracker’s enhanced design, which includes a two-panel in-portrait format 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 EPC contractors that design and build solar energy projects. Our team of experienced renewable energy professionals is focused on delivering compelling value to customers across the full solar energy project lifecycle, including at the development, construction and operations phases.
Our corporate headquarters and testing lab are located in Austin, Texas, and we 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 located in Australia, India, the Middle East, China, Europe, South Africa, and South-East Asia as of June 30, 2021. As of June 30, 2021, we had 213 full-time employees.
We currently offer tracking and software solutions targeting the utility-scale solar energy markets to current and potential customers in the United States, Asia, the Middle East, North Africa, Europe, South America and Australia. In 2020 and as of June 30, 2021, we derived the majority of our revenue from EPC contractors in the United States. We expect this revenue profile to shift over time as project developers and solar asset owners make more direct purchases of solar installations and as we continue to expand our global footprint in Latin America, Europe and certain other markets. We derived 80% of all of our revenue from tracker system sales for the six months ended June 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. We are taking meaningful action to mitigate the impact to our business and provide compelling solutions for our customers. We have maintained focus on our growth strategy throughout the quarter ended June 30, 2021. We have experienced significant growth in our contracted and awarded projects since we last reported earnings. We also recorded revenue for the first order of our SunPath performance enhancing software product which we introduced at the end of 2020. Our SunPath product boosts project energy production yield. 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. We also launched a large format module tracker system in January of 2021. We currently have customer projects utilizing this large format tracker system. With the industry seeing increasing interest in 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 in portrait orientation. FTC is committed to providing innovative solutions designed to benefit our customers and deliver value.
21
Key Factors Affecting Our Performance
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.
Government Regulations. Changes in the U.S. trade environment, including the imposition of import tariffs, continue to 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 June 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.
Impact of the COVID-19 Pandemic
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. 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. 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, which have contributed to an increase in lead times for delivery of our tracker systems. The reduced capacity for logistics is causing increases in logistics costs. We also experienced a COVID-related supplier production slowdown in India at the end of March 2021. Additionally, ground operations at project sites have been impacted by health-related restrictions, shelter-in-place orders and worker absenteeism, which resulted in delays in project completion 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.
Key Components of Our Results of Operations
The following discussion describes certain line items in our condensed consolidated statements of operations.
22
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 recognized over time based on 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, is 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 customer 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 weeks and 23 weeks. Contracts can range in value from tens of thousands to tens of millions of dollars.
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") step-downs and construction activity as well as inclement weather conditions.
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. Our growth targets are impacted by 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 must 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.
Cost of Revenue and Gross Profit
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 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 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 also recently expanded our global supply chain which has improved 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 have entered into contracts to ensure necessary capacity and more price certainty for a substantial portion of the steel commodities required for our anticipated production in the second half of the year.
Gross profit may vary from quarter-to-quarter and is primarily affected by our volume of MW, ASP, product costs, product mix, customer mix, geographical mix, shipping method and costs, warranty costs, personnel costs and seasonality.
23
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 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 a 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 amounts for the foreseeable future.
Research and Development Expenses
Research and development expenses consist primarily of salaries, 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.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries, employee benefits, stock-based compensation expenses and travel expenses related to our selling 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.
We expect an 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 for the three and six months ended June 30, 2020 were related to sales to customers in the United States and business development in other parts of the world. As of June 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.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, 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 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.
Non-Operating Expenses and Other Items
Interest Expense
Interest expense for the six months ended June 30, 2021, consists of commitment fees related to a revolving credit facility we entered into in April 2021 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.
24
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 6." in the Notes to Condensed Consolidated Financial Statements.)
Loss from Unconsolidated Subsidiary
Loss from unconsolidated subsidiary is comprised of income/expense allocation 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 six months ended June 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
|
(dollars in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
42,849
|
|
|
$
|
35,755
|
|
|
$
|
73,318
|
|
|
$
|
92,217
|
|
Service revenue
|
|
|
8,308
|
|
|
|
14,353
|
|
|
|
10,215
|
|
|
|
23,598
|
|
Total revenue
|
|
|
51,157
|
|
|
|
50,108
|
|
|
|
83,533
|
|
|
|
115,815
|
|
Cost of revenue (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of revenue
|
|
|
44,623
|
|
|
|
43,885
|
|
|
|
68,370
|
|
|
|
98,881
|
|
Service cost of revenue
|
|
|
7,916
|
|
|
|
22,280
|
|
|
|
9,565
|
|
|
|
32,872
|
|
Total cost of revenue
|
|
|
52,539
|
|
|
|
66,165
|
|
|
|
77,935
|
|
|
|
131,753
|
|
Gross profit (loss)
|
|
|
(1,382
|
)
|
|
|
(16,057
|
)
|
|
|
5,598
|
|
|
|
(15,938
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (a)
|
|
|
1,515
|
|
|
|
5,585
|
|
|
|
2,609
|
|
|
|
7,539
|
|
Selling and marketing (a)
|
|
|
818
|
|
|
|
3,258
|
|
|
|
1,333
|
|
|
|
4,358
|
|
General and administrative (a)
|
|
|
2,243
|
|
|
|
51,063
|
|
|
|
4,718
|
|
|
|
56,147
|
|
Total operating expenses
|
|
|
4,576
|
|
|
|
59,906
|
|
|
|
8,660
|
|
|
|
68,044
|
|
Loss from operations
|
|
|
(5,958
|
)
|
|
|
(75,963
|
)
|
|
|
(3,062
|
)
|
|
|
(83,982
|
)
|
Interest expense
|
|
|
(121
|
)
|
|
|
(200
|
)
|
|
|
(233
|
)
|
|
|
(214
|
)
|
Gain from disposal in equity investment
|
|
|
—
|
|
|
|
20,619
|
|
|
|
—
|
|
|
|
20,619
|
|
Gain (loss) on extinguishment of debt
|
|
|
(41
|
)
|
|
|
—
|
|
|
|
(41
|
)
|
|
|
790
|
|
Other expense
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
—
|
|
|
|
(46
|
)
|
Loss before income taxes
|
|
|
(6,120
|
)
|
|
|
(55,590
|
)
|
|
|
(3,336
|
)
|
|
|
(62,833
|
)
|
(Expense) benefit from income taxes
|
|
|
(19
|
)
|
|
|
(115
|
)
|
|
|
139
|
|
|
|
(96
|
)
|
Loss from unconsolidated subsidiary
|
|
|
(637
|
)
|
|
|
(136
|
)
|
|
|
(159
|
)
|
|
|
(354
|
)
|
Net Loss
|
|
$
|
(6,776
|
)
|
|
$
|
(55,841
|
)
|
|
$
|
(3,356
|
)
|
|
$
|
(63,283
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(16
|
)
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
6
|
|
Comprehensive Loss
|
|
$
|
(6,792
|
)
|
|
$
|
(55,834
|
)
|
|
$
|
(3,364
|
)
|
|
$
|
(63,277
|
)
|
(a)
Includes stock-based compensation expense as follows:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
Cost of revenue
|
|
$
|
82
|
|
|
$
|
7,170
|
|
|
$
|
164
|
|
|
$
|
7,236
|
|
Research and development
|
|
|
15
|
|
|
|
3,712
|
|
|
|
31
|
|
|
|
3,727
|
|
Selling and marketing
|
|
|
10
|
|
|
|
1,959
|
|
|
|
19
|
|
|
|
1,968
|
|
General and administrative
|
|
|
368
|
|
|
|
43,351
|
|
|
|
719
|
|
|
|
43,710
|
|
Total stock-based compensation expense
|
|
$
|
475
|
|
|
$
|
56,192
|
|
|
$
|
933
|
|
|
$
|
56,641
|
|
Comparison of the Three and Six Months ended June 30, 2020 and 2021
Product Revenue
Product revenue for the three months ended June 30, 2021 was $35.8 million, a decrease of $7.0 million or 16%, as compared to $42.8 million for the three months ended June 30, 2020, primarily driven by a 14% decrease in MW shipped and a slight increase in ASP. During the three months ended June 30, 2021, 89% of the MW shipped were to new customers that we did not have in the three months ended June 30, 2020 and 11% represented new projects with customers we worked with in the three months ended June 30, 2020. The revenue was generated by customer projects located in the United States.
Product revenue for the six months ended June 30, 2021 was $92.2 million, an increase of $18.9 million or 27%, as compared to $73.3 million for the six months ended June 30, 2020, primarily driven by a 34% increase in MW shipped and a slight increase in ASP. During the six months ended June 30, 2021, 79% of the MW shipped were to new customers that we did not have in the six months ended June 30, 2020 and 21% represented new projects with customers we worked with in the six months ended June 30, 2020. The revenue was generated by customer projects located in the United States.
Service Revenue
Service revenue for the three months ended June 30, 2021, was $14.4 million, an increase of $6.1 million, as compared to $8.3 million for the three months ended June 30, 2020, primarily driven by an increase in shipping and logistics revenue on Voyager Tracker sales due to increases in contract pricing related to the significant rise in shipping and logistics costs.
Service revenue for the six months ended June 30, 2021, was $23.6 million, an increase of $13.4 million, as compared to $10.2 million for the six months ended June 30, 2020, primarily driven by an increase in shipping and logistics revenue on Voyager Tracker sales due to a 34% increase in MW shipped to our U.S. customers which was also impacted by increased contract prices for rising shipping and logistics costs.
Cost of Revenue and Gross Profit
Cost of revenue for the three months ended June 30, 2021 was $66.1 million, an increase of $13.6 million as compared to $52.5 million for the three months ended June 30, 2020, primarily driven by an increase in personnel, shipping and logistics costs and steel commodity prices offset by a slight reduction in MW shipped. Cost per MW increased quarter over quarter due to increases in steel prices and logistics cost. 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. We increased our headcount in operations to support our rapid growth which is reflected in significantly higher overhead costs. This is further impacted by significant stock-based compensation of $7.2 million recorded during the second quarter of 2021 due to our initial public offering triggering vesting of a significant number of shares.
Cost of revenue for the six months ended June 30, 2021 was $131.8 million, an increase of $53.9 million as compared to $77.9 million for the six months ended June 30, 2020, primarily driven by the aforementioned increase in MW shipped as well as increases in steel costs
26
and shipping and logistics costs. Cost per MW increased 23% year over year 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 large stock-based compensation expense discussed above. Cost of revenue for the six months ended June 30, 2021 was also impacted by approximately $2.7 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. We undertook these activities after identifying these opportunities for such systems for our customers.
Gross margin was negative for the quarter ended June 30, 2021 due to increased shipping and logistics costs of approximately $9.0 million that were not passed on to our customers and higher overhead costs primarily caused by large stock based compensation recorded due to our IPO and an increase in headcount. We expect the impact of increased shipping and logistic costs to continue to impact our margins in third quarter of 2021 as we complete deliveries related to contracts that were priced and contracted prior to the significant and unexpected increases in shipping and logistics costs. Our gross profit for the three months ended June 30, 2021 decreased by $14.7 million, compared to the three months ended June 30, 2020 due to the above stated reasons.
Our negative gross profit for the six months ended June 30, 2021 reflects a decrease of $21.5 million as compared to the six months ended June 30, 2020 due primarily to increased logistics costs that were not passed on to our customers and increases in headcount as we scale and significant stock based compensation triggered by the IPO. The gross profit for the six months ended June 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 investment tax credit step down.
Research and Development Expenses
Research and development expenses for the three months ended June 30, 2021 were $5.6 million, an increase of $4.1 million as compared to $1.5 million for the three months ended June 30, 2020. The increase in expenses was primarily attributable to an increase of $3.7 million related to stock-based compensation expense triggered by our IPO and an increase of $0.1 million in personnel-related expenses, due to a net increase in headcount for the research and development of our products. Research and development expenses as a percentage of revenue were approximately 3% for the three months ended June 30, 2020 and 3.8%, which excludes stock-based compensation, for the three months ended June 30, 2021.
Research and development expenses for the six months ended June 30, 2021 were $7.5 million, an increase of $4.9 million, as compared to $2.6 million for the six months ended June 30, 2020. The increase in expenses was primarily attributable to an increase of $3.7 million attributable to stock-based compensation triggered by our IPO, $0.4 million in personnel-related expenses, due to a net increase in headcount for the research and development of our products and an increase of $0.1 million in facilities and equipment related expenses. Research and development expenses excluding stock -based compensation as a percentage of revenue were 3% for the six months ended June 30, 2020 and 3% for the six months ended June 30, 2021.
Selling and Marketing Expenses
Selling and marketing expenses for the three months ended June 30, 2021 were $3.2 million, an increase of $2.4 million as compared to $0.8 million for the three months ended June 30, 2020. The increase in selling and marketing expenses was primarily attributable to an increase of $2.0 million of stock-based compensation triggered by our IPO and a $0.3 million increase in personnel-related expenses due to a net increase in headcount to support our international expansion plans. Selling and marketing expenses excluding stock-based compensation as a percentage of revenue for the three months ended June 30, 2020 and 2021 were approximately 3%.
Selling and marketing expenses for the six months ended June 30, 2021 were $4.4 million, an increase of $3.1 million, as compared to $1.3 million for the six months ended June 30, 2020. The increase in selling and marketing expenses was primarily attributable to an increase in of $2.0 million for stock-based compensation triggered by our IPO, and $1.3 million in personnel-related expenses, due to a net increase in headcount to support our international expansion plans. Selling and marketing expenses excluding stock-based compensation as a percentage of revenue for the six months ended June 30, 2020 and 2021 were approximately 2%.
27
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2021 were $51.1 million, an increase of $48.9 million, as compared to $2.2 million for the three months ended June 30, 2020. The increase in general and administrative expenses was primarily attributable to an increase in stock based compensation of $43.4 million triggered by our IPO, an increase of $1.9 million in personnel-related expenses due to a net increase in headcount, an increase of $2.7 million in professional fees for consulting, legal and accounting services to support becoming a public company, an increase of $0.9 million in business insurance costs and an increase of $0.3 million pertaining to rent, lease and other office expenses in line with an increase in headcount. General and administrative expenses, excluding stock-based compensation, as a percentage of revenue were approximately 4% for the three months ended June 30, 2020 and 15% for the three months ended June 30, 2021.
General and administrative expenses for the six months ended June 30, 2021 were $56.1 million, an increase of $51.4 million, as compared to $4.7 million for the six months ended June 30, 2020. The increase in general and administrative expenses was primarily attributable to an increase of $43.7 million for stock based compensation triggered by our IPO, an increase of $2.3 million in personnel-related expenses due to a net increase in headcount, an increase of $4.0 million in professional fees for consulting, legal and accounting services, an increase of $1.2 million in business insurance costs and an increase of $0.2 million pertaining to rent, lease and other office expenses in line with an increase in headcount. General and administrative expenses excluding stock-based compensation as a percentage of revenue were approximately 5% for the six months ended June 30, 2020 and 11% for the six months ended June 30, 2021.
Interest Expense
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 quarter ended March 31, 2021 and interest expense in connection with our commitment fee for our revolving credit facility that we entered into in April 2021. (See “Debt Obligations” below).
Loss from Unconsolidated Subsidiary
We sold our interest in our unconsolidated subsidiary, 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. From April 1, 2021 to the disposal date, we recorded a loss from this equity investment of $0.1 million. For the three months ended June 30, 2020, we recognized a $0.6 million loss on this investment. We recognized a loss on investment in the three and six months ended June 30, 2021 due to the fact that Dimension did not reach performance obligation milestones to recognize revenue.
Loss from unconsolidated subsidiary for the period from January 1, 2021, to the disposal date was $0.4 million. For the six months ended June 30, 2020, we recognized a loss of $0.2 million on this equity investment
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through sales of shares of common stock, issuance of debt and payments from our customers. Our ability to generate positive cash flow from operations is dependent on contract payment terms and the strength of our gross margins. During the six months ended June 30, 2021, we used cash in operations to ensure steel capacity for our projects in the back half of the year and to acquire some inventory that has a longer lead time due to global market supply and logistics constraints. We believe that our operating cash flows, our cash balances, as well as the available revolving credit facility will be sufficient to meet our cash needs for the next 12 months from our filing.
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.
The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods:
28
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(22,915
|
)
|
|
$
|
(84,295
|
)
|
Net cash provided by investing activities
|
|
|
—
|
|
|
|
21,829
|
|
Net cash provided by financing activities
|
|
|
28,784
|
|
|
|
178,759
|
|
Effect of exchange rate changes on cash and restricted cash
|
|
|
(8
|
)
|
|
|
6
|
|
Increase in cash and restricted cash
|
|
$
|
5,861
|
|
|
$
|
116,299
|
|
Operating Activities
For the six months ended June 30, 2020, net cash used in operating activities was $23 million, primarily due to a net loss of $3.4 million and an increase of $9.0 million in prepaid and other current assets, $11.6 million in deferred revenue, $4.3 million in accrued expenses and a decrease of $3.4 million in receivables and $4.1 million in inventories.
For the six months ended June 30, 2021, net cash used in operating activities was $84.3 million, primarily due to a net loss of $63.3 million which is reflective of our current investment in growing our operations and becoming a public company, global increases in logistics costs and expanding our presence to additional countries. This reflects an increase of $23.2 million in receivables, $24.0 million in prepaid deposits to secure supply capacity for the back half of the year, $11.1 million in accounts payable and accrued expenses and $6.1 million in inventory and a decrease in deferred revenue of $14.8 million.
Investing Activities
For the six months ended June 30, 2021, net cash provided by investing activities was $21.8 million, which was attributable to proceeds from the disposal of the equity method investment.
Financing Activities
For the six months ended June 30, 2020, net cash provided by financing activities was $28.8 million which was from the sale of stock.
For the six months ended June 30, 2021, net cash provided by financing activities was $178.8 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 options in connection with the IPO.
Debt Obligations
Revolving Line of Credit
On June 17, 2019, we entered into a revolving line of credit agreement with the Western Alliance Bank for a total aggregate principal amount 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 line of credit was paid in full and the revolving credit line was closed.
29
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 Company did not draw any funds on its credit facility during the three and six months ended June 30, 2021.
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 liquidity ratio with a minimum limit of $125 million for each quarter (ii) maintain a 3.75 times leverage ratio and (iii) maintain a 1.5 times interest coverage ratio. Once the leverage and interest coverage ratios are triggered the liquidity ratio will not have a minimum limit. These covenants include, at applicable times, minimum liquidity, total net leverage ratio and interest coverage ratio, each as defined in the Credit Agreement. The liquidity ratio covenant was the only financial condition covenant the Company had to satisfy as of the period ended June 30, 2021. As of June 30, 2021, the Company was in full compliance with its financial condition covenants.
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 in 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.
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
30
evaluate our business. These Non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure as disclosed below.
The following table reconciles Net Loss to Adjusted EBITDA for the three and six months ended June 30, 2020 and 2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
2021
|
|
|
|
(in thousands)
|
|
Net loss
|
|
$
|
(6,776
|
)
|
|
$
|
(55,841
|
)
|
$
|
(3,356
|
)
|
|
$
|
(63,283
|
)
|
Income tax (benefit)
|
|
|
19
|
|
|
|
115
|
|
|
(139
|
)
|
|
|
96
|
|
Interest expense, net
|
|
|
121
|
|
|
|
85
|
|
|
233
|
|
|
|
99
|
|
Depreciation expense
|
|
|
4
|
|
|
|
33
|
|
|
7
|
|
|
|
42
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
33
|
|
|
|
—
|
|
Amortization of debt issuance costs
|
|
|
—
|
|
|
|
115
|
|
|
—
|
|
|
|
115
|
|
Stock-based compensation
|
|
|
475
|
|
|
|
56,192
|
|
|
933
|
|
|
|
56,641
|
|
(Gain) loss on extinguishment of debt(a)
|
|
|
41
|
|
|
|
—
|
|
|
41
|
|
|
|
(790
|
)
|
(Gain) from disposal of equity investment
|
|
|
—
|
|
|
|
(20,619
|
)
|
|
—
|
|
|
|
(20,619
|
)
|
Non-routine legal fees (b)
|
|
|
—
|
|
|
|
775
|
|
|
—
|
|
|
|
775
|
|
Severance(c)
|
|
|
—
|
|
|
|
295
|
|
|
—
|
|
|
|
295
|
|
Other costs(d)
|
|
|
—
|
|
|
|
1,968
|
|
|
—
|
|
|
|
2,865
|
|
Loss from unconsolidated subsidiary(e)
|
|
|
637
|
|
|
|
136
|
|
|
159
|
|
|
|
354
|
|
Adjusted EBITDA
|
|
$
|
(5,479
|
)
|
|
$
|
(16,746
|
)
|
$
|
(2,089
|
)
|
|
$
|
(23,410
|
)
|
(a) The gain on extinguishment of debt for the six months ended June 30, 2021 resulted from forgiveness of a loan under SBA’s Paycheck Protection Program. See “Note -7 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.
(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 six months ended June 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:
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
June 30,
|
|
|
2020
|
2021
|
2020
|
|
2021
|
|
|
(in thousands, except per share data)
|
Net loss
|
|
$
|
(6,776
|
)
|
|
$
|
(55,841
|
)
|
|
$
|
(3,356
|
)
|
|
|
$
|
(63,283
|
)
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
|
—
|
|
|
Amortization of debt issuance costs
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
|
115
|
|
|
Stock-based compensation
|
|
|
475
|
|
|
|
56,192
|
|
|
|
933
|
|
|
|
|
56,641
|
|
|
(Gain) loss on extinguishment of debt(a)
|
|
|
41
|
|
|
|
—
|
|
|
|
41
|
|
|
|
|
(790
|
)
|
|
(Gain) from disposal of equity investment
|
|
|
—
|
|
|
|
(20,619
|
)
|
|
|
—
|
|
|
|
|
(20,619
|
)
|
|
Non-routine legal fees(b)
|
|
|
—
|
|
|
|
775
|
|
|
|
—
|
|
|
|
|
775
|
|
|
Severance(c)
|
|
|
—
|
|
|
|
295
|
|
|
|
—
|
|
|
|
|
295
|
|
|
Other costs(d)
|
|
|
—
|
|
|
|
1,968
|
|
|
|
—
|
|
|
|
|
2,865
|
|
|
Loss from unconsolidated subsidiary(e)
|
|
|
637
|
|
|
|
136
|
|
|
|
159
|
|
|
|
|
354
|
|
|
Income tax expense of adjustments(f)
|
|
|
—
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
|
—
|
|
|
Adjusted Non-GAAP net loss
|
|
$
|
(5,623
|
)
|
|
$
|
(16,971
|
)
|
|
$
|
(2,193
|
)
|
|
|
$
|
(23,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Non-GAAP net loss per share (Adjusted EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
|
$
|
(0.32
|
)
|
|
Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Non-GAAP common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,612,811
|
|
|
|
79,229,174
|
|
|
|
70,994,078
|
|
|
|
|
73,106,935
|
|
|
Diluted
|
|
|
74,612,811
|
|
|
|
79,229,174
|
|
|
|
70,994,078
|
|
|
|
|
73,106,935
|
|
|
(a) The gain on extinguishment of debt for the six months ended June 30, 2021 resulted from forgiveness of a loan under SBA’s Paycheck Protection Program. See “Note -7 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.
(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 2 to our condensed consolidated financial statements included elsewhere in this report.
Critical Accounting Policies and Significant Management Estimates
The preparation of our interim unaudited condensed consolidated financial statements in accordance with GAAP requires estimates, judgments and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses and the related disclosures of contingent liabilities in our interim unaudited condensed consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates:
Equity method investments;
32
Stock-based compensation;
Contingent consideration; and
We have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. See Note 2 - 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 above involve the greatest degree of complexity and exercise of judgment by our management.
During the three months and six months ended June 30, 2021, there were no significant changes in our critical accounting policies or estimates which were included in the condensed consolidated financial statements 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.
We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions