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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 March 31, 2021

 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

 

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 7(a)(2)(B) of the Securities 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 May 31, 2021, 84,301,596 shares of the registrant's common stock were outstanding.

 

 

 


 

FTC Solar, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

 

 

 

 

Pages(s)

 

Item 1.

Financial Statements (Unaudited)

 

 

 

Condensed Consolidated Balance Sheets

5

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity

7

 

 

Condensed Consolidated Statements of Cash Flows

8

 

 

Notes to Condensed Consolidated Financial Statements

919

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

 

Item 1A.

Risk Factors

33

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

Item 3.

Defaults Upon Senior Securities

34

 

Item 4.

Mine Safety Disclosures

34

 

Item 5.

Other Information

34

 

Item 6.

Exhibits

35

 

SIGNATURES

36

 

 

3


 

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.

 

4


 

FTC Solar, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

December 31,
2020

 

 

March 31,
2021

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

32,359

 

 

$

5,340

 

Restricted cash

 

 

1,014

 

 

 

 

Accounts receivable, net

 

 

23,734

 

 

 

43,906

 

Inventories

 

 

1,686

 

 

 

4,273

 

Prepaid and other current assets

 

 

6,924

 

 

 

9,747

 

Total current assets

 

 

65,717

 

 

 

63,266

 

Investments in unconsolidated subsidiary

 

 

1,857

 

 

 

1,639

 

Other assets

 

 

3,819

 

 

 

7,546

 

Total assets

 

$

71,393

 

 

$

72,451

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

17,127

 

 

$

30,107

 

Line of credit

 

 

1,000

 

 

 

 

Accrued expenses and other liabilities

 

 

18,495

 

 

 

29,750

 

Accrued interest – related party

 

 

207

 

 

 

 

Deferred revenue

 

 

22,980

 

 

 

8,184

 

Total current liabilities

 

 

59,809

 

 

 

68,041

 

Long-term debt and other borrowings

 

 

784

 

 

 

 

Other non-current liabilities

 

 

3,349

 

 

 

3,914

 

Total liabilities

 

 

63,942

 

 

 

71,955

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock par value of $0.0001 per share, 98,960,064 shares
authorized;
66,155,340 and 67,329,409 shares issued and outstanding as of December 31, 2020 and March 31, 2021

 

 

1

 

 

 

1

 

Treasury stock, at cost; 9,896,666 and 10,045,106 shares as of December 31, 2020 and March 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

50,096

 

 

 

50,584

 

Accumulated other comprehensive loss

 

 

(3

)

 

 

(4

)

Accumulated deficit

 

 

(42,643

)

 

 

(50,085

)

Total stockholders’ equity

 

 

7,451

 

 

 

496

 

Total liabilities and stockholders’ equity

 

$

71,393

 

 

$

72,451

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

5


 

FTC Solar, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Revenue:

 

 

 

 

 

 

Product

 

$

30,469

 

 

$

56,462

 

Service

 

 

1,907

 

 

 

9,245

 

Total revenue

 

 

32,376

 

 

 

65,707

 

Cost of revenue:

 

 

 

 

 

 

Product

 

 

23,747

 

 

 

54,996

 

Service

 

 

1,649

 

 

 

10,592

 

Total cost of revenue

 

 

25,396

 

 

 

65,588

 

Gross profit

 

 

6,980

 

 

 

119

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

1,094

 

 

 

1,954

 

Selling and marketing

 

 

515

 

 

 

1,100

 

General and administrative

 

 

2,475

 

 

 

5,084

 

 

 

 

4,084

 

 

 

8,138

 

Income (loss) from operations

 

 

2,896

 

 

 

(8,019

)

Interest expense

 

 

(112

)

 

 

(14

)

Gain on extinguishment of debt

 

 

-

 

 

 

790

 

Income (loss) before income taxes

 

 

2,784

 

 

 

(7,243

)

Benefit from income taxes

 

 

158

 

 

 

19

 

Income (loss) from unconsolidated subsidiary

 

 

478

 

 

 

(218

)

Net income (loss)

 

$

3,420

 

 

$

(7,442

)

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

8

 

 

 

(1

)

Comprehensive income (loss)

 

$

3,428

 

 

$

(7,443

)

Net income (loss) per share:

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

(0.11

)

Diluted

 

$

0.04

 

 

$

(0.11

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

67,334,111

 

 

 

66,875,469

 

Diluted

 

 

77,105,419

 

 

 

66,875,469

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

6


 

FTC Solar, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31,
   2019

 

 

63,633,981

 

 

$

1

 

 

 

 

 

$

 

 

$

18,273

 

 

$

 

 

$

(26,719

)

 

$

(8,445

)

Restricted stock awards
   vested during the period

 

 

1,419,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

9,162,976

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

 

 

 

 

 

30,000

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

 

 

 

 

 

 

458

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,420

 

 

 

3,420

 

Other comprehensive income
   (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Balance as of March 31, 2020

 

 

74,216,336

 

 

$

1

 

 

 

 

 

$

 

 

$

48,731

 

 

$

8

 

 

$

(23,299

)

 

$

25,441

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31,
   2020

 

 

66,155,340

 

 

$

1

 

 

 

9,896,666

 

 

$

 

 

$

50,096

 

 

$

(3

)

 

$

(42,643

)

 

$

7,451

 

Restricted stock awards
   vested during the period

 

 

1,169,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of treasury stock

 

 

(148,440

)

 

 

 

 

 

148,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon
   exercise of stock options

 

 

152,902

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

449

 

 

 

 

 

 

 

 

 

449

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,442

)

 

 

(7,442

)

Other comprehensive income
   (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of March 31, 2021

 

 

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.

 

7


 

FTC Solar, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

3,420

 

 

$

(7,442

)

Adjustments to reconcile net income (loss) to cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

458

 

 

 

449

 

Depreciation and amortization

 

 

37

 

 

 

9

 

(Income) loss from unconsolidated subsidiary

 

 

(478

)

 

 

218

 

Gain on extinguishment of debt

 

 

 

 

 

(790

)

Warranty provision

 

 

441

 

 

 

1,554

 

Warranty asset

 

 

(182

)

 

 

328

 

Bad debt expense

 

 

(3

)

 

 

58

 

Deferred income taxes

 

 

(3

)

 

 

(20

)

Other non-cash items

 

 

14

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

3,364

 

 

 

(20,230

)

Inventories

 

 

4,128

 

 

 

(2,587

)

Prepaid and other current assets

 

 

(9,009

)

 

 

(2,887

)

Other assets

 

 

(119

)

 

 

(3,649

)

Accounts payable

 

 

(936

)

 

 

12,913

 

Accruals and other current liabilities

 

 

4,355

 

 

 

10,379

 

Accrued interest – related party debt

 

 

(228

)

 

 

(207

)

Deferred revenue

 

 

(11,562

)

 

 

(14,797

)

Other non-current liabilities

 

 

52

 

 

 

(206

)

Other, net

 

 

(49

)

 

 

(81

)

Net cash used in operating activities

 

 

(6,300

)

 

 

(26,988

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(85

)

Net cash used in investing activities:

 

 

 

 

 

(85

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of borrowings

 

 

 

 

 

(1,000

)

Proceeds from stock issuance

 

 

30,000

 

 

 

39

 

Net cash provided by (used in) financing activities

 

 

30,000

 

 

 

(961

)

Effect of exchange rate changes on cash and restricted cash

 

 

8

 

 

 

1

 

Net increase (decrease) in cash and restricted cash

 

 

23,708

 

 

 

(28,033

)

Cash and restricted cash at beginning of period

 

 

8,235

 

 

 

33,373

 

Cash and restricted cash at end of period

 

$

31,943

 

 

$

5,340

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Purchase of property and equipment included in accounts payable

 

$

 

 

$

67

 

Non-cash gain on extinguishment of debt from PPP loan forgiveness

 

$

 

 

$

(790

)

Cash paid during the period for interest

 

$

350

 

 

$

247

 

 

 

 

 

 

 

Reconciliation of cash and restricted cash at period end

 

December 31, 2020

 

 

March 31,2021

 

Cash

 

 

32,359

 

 

 

5,340

 

Restricted cash

 

 

1,014

 

 

 

 

Total cash and restricted cash

 

$

33,373

 

 

$

5,340

 

 

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 Business

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. FTC Solar, Inc. (the “Company”, “we”, “our”, or “us”) was founded in 2017 and is incorporated in the state of Delaware. The Company is a team of dedicated renewable energy professionals focused on delivering cost reductions to our clients across the solar project development and construction cycle. With significant US and worldwide project installation experience, our differentiated offerings drive value for solar solutions spanning a range of applications including ground mount, tracker, canopy, and rooftop. The Company is headquartered in Austin, Texas and has subsidiaries in Australia, India, and Singapore.

 

Initial Public Offering and Related Transaction

On April 30, 2021, the Company completed its Initial Public Offering (“IPO”) and the Company’s common stock began trading on the Nasdaq Stock Exchange on April 28, 2021, under the symbol “FTCI”. 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.

The condensed consolidated financial statements as of March 31,2021 and for the period then-ended do not reflect the transaction since the IPO closed subsequent to the period end. The Company received aggregate proceeds of $241.2 million from the IPO, net of the underwriting discount and commissions and before offering costs and used $54.2 million to purchase an aggregate of 4,455,384 shares of our common stock, some of which resulted from the settlement of certain vested 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, have been capitalized in Other assets within the accompanying condensed consolidated balance sheet as of March 31, 2021, and upon completion of the IPO, these deferred offering costs will be reclassified to Additional paid-in capital and recorded against the proceeds from the offering which will be recorded in the second quarter of 2021.

Prior to the completion of the IPO, the Board and stockholders approved an approximately 8.25-for-1 forward stock split of the Company’s shares of common stock which became effective on April 28, 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 can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Accordingly, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period.

 

2.       Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

These unaudited condensed consolidated financial statements include the results of the Company and its wholly owned subsidiaries and have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Intercompany accounts and transactions have been eliminated upon consolidation.

 

9


 

 

Forward Stock Split

 

On April 28, 2021, we effected an approximately 8.25-for-1 forward split (the “Forward Stock Split”) of our issued and outstanding shares of common stock, par value $0.0001 per share (“Common Stock”). 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.

 

Giving effect to the Forward Stock Split, the Company’s issued and outstanding stock increased from 8,022,066 to 66,155,340 and from 8,164,435 to 67,329,409 at December 31, 2020 and March 31, 2021, respectively.

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.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 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 results of operations, financial position as of December 31, 2020 and March 31, 2021, our results of operations for the three months ended March 31, 2020 and 2021 and our cash flows for the three months ended March 31, 2020 and 2021. The condensed consolidated balance sheets as of December 31, 2020 have been derived from the Company’s audited consolidated financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

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”) dated as of April 29, 2021, and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed 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 Investments

The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of these investees is included in our Condensed Consolidated Statements of

 

10


 

Comprehensive Income (Loss). Judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, legal form of the investee, representation on the board of directors, participation in policy-making decisions and material intra-entity transactions.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount 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 value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than temporary is recognized in the period identified.

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).

Revenue Recognition

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 Voyager Tracker and customized components of Voyager Tracker, individual part sales for certain specific transactions, and 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.

 

Voyager Tracker and individual parts of Voyager Tracker (including shipping and handling)

 

The Company contracts with customers for sale of Voyager Trackers 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.

 

The Company’s 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. 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’s performance in transferring control.

 

The revenue for shipping and handling services is recognized over-time based on shipping terms of the arrangements, as this faithfully depicts the Company’s performance in transferring control.

 

The Company’s sale of individual parts of Voyager Tracker for certain specific transactions include multiple 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

 

 

11


 

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 has significant standalone functionality. The revenue is recognized upon transfer of control to the customer. The control for term-based software license is transferred at the later of delivery to the customer or the software license start date. Term-based software license revenue is immaterial as of March 31, 2020 and March 31, 2021.

 

Subscription and Maintenance and support services revenue

 

Subscription revenue is derived from a subscription-based enterprise licensing model with contract terms typically ranging from one to two years and consists of subscription fees from the licensing of Subscription services. Subscription services revenue is immaterial as of March 31, 2020 and March 31, 2021. The hosted on-demand service arrangements do not provide customers with the right to take possession of the software supporting the hosted services. Services revenue includes maintenance and support service revenue related to term-based software licenses. Support revenue is derived from ongoing security updates, upgrades, bug fixes, and maintenance. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term beginning on the date access is provided.

 

Cost of Revenue

 

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, net 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 material 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."

 

 

12


 

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions related 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 2019-12 in the first quarter of 2021 and the adoption had no material impact to the Company's consolidated financial statements.

 

New 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 Company is currently assessing the impact that the adoption of ASU 2016-13 will have on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation 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. The Company is currently evaluating the impact this adoption will have on the Company’s condensed consolidated financial statements. 

3.       Revenue

The Company’s product revenue and service revenue is presented in the Condensed Consolidated Statement of Comprehensive Income (Loss). Revenue by geographic region is based on the customer’s location and presented under Note 12.

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 of $1.2 million and $19.8 million as of December 31, 2020 and March 31, 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 $8.2 million as of December 31, 2020 and March 31, 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 remaining performance obligations within the next 12 months. During the three months ended March 31, 2020 and 2021, the Company recognized $19.9 million and $21.1 million, respectively from deferred revenue recorded at December 31, 2019 and 2020.

 

 

 

13


 

4.       Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

December 31,
2020

 

 

March 31,
2021

 

Vendor deposits

 

$

4,205

 

 

$

6,468

 

Prepaid expenses

 

 

1,043

 

 

 

718

 

Deferred cost of revenue

 

 

992

 

 

 

921

 

Deferred income taxes

 

 ─

 

 

 

20

 

Surety collateral*

 

 

113

 

 

 

90

 

Other current assets

 

 

571

 

 

 

1,530

 

 

 

$

6,924

 

 

$

9,747

 

 

*Surety collateral represents amounts held in deposit to secure performance bonds, which is expected to be ultimately received back in cash when settled. 

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

December 31,
2020

 

 

 March 31,
2021

 

Accrued cost of revenue

 

$

7,812

 

 

$

21,827

 

Accrued expenses

 

 

2,856

 

 

 

2,900

 

Warranty reserves

 

 

3,985

 

 

 

2,891

 

Accrued compensation

 

 

2,869

 

 

 

1,336

 

Accrued interest expense

 

 

28

 

 

 ─

 

Other

 

 

945

 

 

 

796

 

Total

 

$

18,495

 

 

$

29,750

 

 

6. Equity Method Investments

Equity method investments are as follows (in thousands, except percentages):

 

 

 

December 31,
2020

 

 

March 31,
2021

 

Dimension Energy LLC

 

 

 

 

 

 

Carrying value

 

$

1,857

 

 

$

1,639

 

Ownership percentage

 

 

23.6

%

 

 

23.3

%

 

As of December 31, 2020, and March 31, 2021, the Company owned 4,791,566 of Class A common interests of Dimension Energy LLC, representing approximately 23% of the total outstanding common shares. However, the Company concluded that it is not the primary beneficiary of Dimension as it does not have deemed control of the entity. As a result, it does not consolidate the investee into its condensed consolidated financial statements. The Company accounts for its investment in Dimension Energy using the equity method of accounting. The difference between fair value and book value of the investee’s assets was entirely attributable to equity method goodwill. For the three months ended March 31, 2021, the Company recorded $0.2 million as its share of Dimension Energy’s net loss.

 

14


 

Summarized financial information for the Company’s equity method investment is as follows:

Balance sheet (in thousands)

 

 

 

December 31,
2020

 

 

March 31,
2021

 

Current assets

 

$

10,162

 

 

$

8,775

 

Non-current assets

 

 

9,045

 

 

 

12,342

 

Current liabilities

 

 

12,350

 

 

 

15,196

 

Non-current liabilities

 

 

9,723

 

 

 

9,858

 

Members’ equity (deficit)

 

 

(2,866

)

 

 

(3,937

)

 

Statement of operations (in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Revenue

 

$

5,625

 

 

$

183

 

Gross profit

 

 

4,302

 

 

 

18

 

Income (loss) from operations

 

 

3,116

 

 

 

(1,074

)

Net income (loss)

 

 

2,025

 

 

 

(940

)

Share of earnings from equity method investment

 

 

478

 

 

 

(218

)

 

 7.       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 published by the Wall Street Journal and requires 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 and as of March 31, 2021, the outstanding balance was paid in full and the revolving credit line was closed.

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) in the amount of $0.8 million. The loan had a two-year term and bore a fixed interest rate of 1%. Under the terms of the CARES act, the loan 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 this entry as a gain on debt extinguishment in other income.

The Company recognized $0.1 million and $0.01 million interest expense on its debt and other borrowings for the three months ended March 31, 2020 and 2021, respectively.

The notes and revolving line of credit contained affirmative customary covenants, including maintenance of insurance, notices of claims and litigations, subordination of other lender’s credit and compliance with environmental laws.

 

 

15


 

8. Commitments and Contingencies

Litigation

The Company may be involved in various claims, lawsuits, investigations, and other proceedings, arising from 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 statement 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 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 alleges breach of contract and tort claims related to a patent license agreement and consulting relationship between FCX and us. FCX seeks damages of approximately $134 million in the lawsuit. Our response to the complaint will be filed on or before July 2, 2021. On May 29, 2021, FCX filed a 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 response to that complaint will be filed on or before June 23, 2021. The Company believes the claims asserted in the lawsuits are without merit, and we plan to vigorously defend against them. The Company and its 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 believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the Company’s defenses.

The Company has not recorded any material loss contingency in the Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 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 March 31, 2021, warranty reserves totaling $2.9 million were recorded in accrued expenses and other current liabilities and $3.5 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):

 

 

 

March 31,
2021

 

Balance at beginning of period

 

$

6,811

 

Warranties issued during the period

 

 

1,554

 

Settlements made during the period

 

 

(1,819

)

Changes in liability for pre-existing warranties

 

 

(187

)

Balance at end of period

 

$

6,359

 

 

9.        Stockholders' Equity

Common Stock

The Certificate of Incorporation, as amended as of April 28, 2021, and corrected as of June 7, 2021, (the "Certificate of Incorporation"), authorizes the Company to issue 99 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 no 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

 

16


 

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.

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 a founder of the Company. The repurchase of these shares is recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of December 31, 2020 and is intended to 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 a founder of the Company. The repurchase of these shares is recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2021 and is intended to be added to the overall pool of stock available to be utilized for future option/stock award issuances to other employees of the organization.

 

10. Net income (loss) per share

The table below sets forth the computation of basic and diluted income (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 March 31,

 

 

 

2020

 

 

2021

 

Basic and diluted:

 

 

 

 

 

 

Net income (loss)

 

$

3,420

 

 

$

(7,442

)

 

 

 

 

 

 

Basic weighted-average number of common shares outstanding

 

 

67,334,111

 

 

 

66,875,469

 

Effect of dilutive shares

 

 

9,771,308

 

 

 ─

 

Diluted weighted-average number of common shares outstanding

 

 

77,105,419

 

 

 

66,875,469

 

 

 

 

 

 

 

Basic income (loss) per share

 

$

0.05

 

 

$

(0.11

)

Diluted income (loss) per share

 

$

0.04

 

 

$

(0.11

)

 

For purposes of computing diluted net income per share, weighted-average common shares do not include potentially dilutive securities that are anti-dilutive. The following potentially dilutive securities were excluded (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2020

 

 

2021

 

Shares of common stock issuable under stock option plans outstanding

 

 

526

 

 

 

8,197

 

Shares of common stock issuable upon vesting of restricted stock awards

 

 

825

 

 

 

15,463

 

Potential common shares excluded from diluted net loss per share

 

 

1,351

 

 

 

23,660

 

 

11.      Income Taxes

For the three months ended March 31, 2020 and 2021, the Company recorded an income tax benefit of $0.16 million and $0.02 million, respectively. The income tax benefit recorded for both the three months ended March 31, 2020 and 2021, was lower than the statutory tax rate of 21% primarily due to a valuation allowance established against the U.S deferred tax assets. On March 27, 2020, the CARES Act among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019

 

17


 

and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income tax. The Company recorded a discrete income tax benefit during the first quarter of 2020 related to an NOL carryback refund of approximately $0.2 million.

 

       As of March 31, 2021, the Company had total unrecognized tax benefits of approximately $0.09 million. All 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 March 31, 2021, the Company had not accrued any interest or penalties related to unrecognized tax benefits.

12.      Segment Information

The Company has one segment: manufacturing and servicing of Voyager Tracker. The Company's Chief Executive Officer (the chief operating decision maker) views and evaluates operations, manages resource allocations, and measures performance based on the results of the Company’s reportable operating segment under its management reporting system. The application of this structure permits us to align our strategic business initiatives and corporate goals in a manner that best focuses our businesses and support operations for success.

The following table summarizes the Company’s total revenue by geographic area based on the billing address of the customers (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

United States

 

$

32,315

 

 

$

65,644

 

Other

 

 

61

 

 

 

63

 

Total net revenue

 

$

32,376

 

 

$

65,707

 

 

Other than the United States, no other individual country exceeded 10% or more of total revenue during the three months ended March 31, 2021.

 

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13.      Related Parties

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 a founder of 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 a founder of the Company.

There were no other material related-party transactions during the three months ended March 31, 2021.

 

14.      Subsequent Events

 

Revolving Credit Facility

 

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 and LIBOR-based interest rates, with initial margins of 2.25% and 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 will be 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 certain financial condition covenants that the Company is required to satisfy. These covenants include minimum adjusted EBITDA, liquidity, net leverage ratio and interest coverage ratio as defined in the Revolving Credit Facility.

 

 

 

 

 

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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 is 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 March 31, 2021. As of March 31, 2021, we had 207 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 March 31, 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 86% of all of our revenue from tracker system sales for the three months ended March 31, 2021. During this same period, substantially all of our revenues were derived from sales to our customers in the United States. We have maintained focus on our growth strategy throughout the quarter ended March 31, 2021. We also secured 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

 

20


 

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.

 

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 March 31, 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. 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. 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.

 

 

21


 

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, are 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 our 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 eight weeks and 16 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 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. 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. Subsequent to the quarter ended March 31, 2021, we entered into contracts to provide more certainty for a substantial portion of the steel commodities required for our anticipated production in the second half of the year.

 

 

22


 

Gross profit may vary from quarter-to-quarter and is primarily affected by our ASP, product costs, product mix, customer mix, geographical mix, shipping method and costs, warranty costs and seasonality.

 

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 period ended March 31, 2020 were related to sales to customers in the United States and business development in other parts of the world. As of March 31, 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 the 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 will 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 consists of interest payments related to a revolving line of credit with Western Alliance Bank, which was scheduled to mature on June 10, 2021 (See “Debt Obligations” below) but was paid off during the quarter ended March 31, 2021.

 

Gain on extinguishment of debt

 

23


 

 

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

 

Benefit from income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business.

 

Income (Loss) from Unconsolidated Subsidiary

 

Income (loss) from unconsolidated subsidiary is comprised of income/expense allocation from our equity method investment.

 

Results of Operations

 

The following tables summarizes our results of operations as well as other financial data management considers meaningful for the three months ended March 31, 2021 and 2020. 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

 

 

 

March 31,

 

 

 

2020

 

 

2021

 

 

 

(dollars in thousands)

 

Revenue:

 

 

 

 

 

 

Product revenue

 

$