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FTCI FTC Solar

Filed: 11 Aug 21, 9:01am

 

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 June 30, 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 July 31, 2021, 84,301,595 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

4

 

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

 

Condensed Consolidated Statements of Cash Flows

8

 

 

Notes to Condensed Consolidated Financial Statements

9–20

 

Item 2.

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

21

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

 

Item 1A.

Risk Factors

36

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

Item 3.

Defaults Upon Senior Securities

37

 

Item 4.

Mine Safety Disclosures

37

 

Item 5.

Other Information

37

 

Item 6.

Exhibits

38

 

SIGNATURES

39

 

 

2


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical or current facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. Forward-looking statements can be identified in some cases by the use of words such as “believe,” “can,” “could,” “potential,” “plan,” “predict,” “goals,” “seek,” “should,” “may,” “may have,” “would,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” the negative of these words, other similar expressions or by discussions of strategy, plans or intentions.

 

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the factors set forth under the heading “Risk Factors.” Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

 

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

 

3


 

FTC Solar, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

December 31,
2020

 

 

June 30,
2021

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

32,359

 

 

$

149,672

 

Restricted cash

 

 

1,014

 

 

 

0

 

Accounts receivable, net

 

 

23,734

 

 

 

46,981

 

Inventories

 

 

1,686

 

 

 

7,810

 

Prepaid and other current assets

 

 

6,924

 

 

 

30,950

 

Total current assets

 

 

65,717

 

 

 

235,413

 

Investments in unconsolidated subsidiary

 

 

1,857

 

 

 

0

 

Other assets

 

 

3,819

 

 

 

5,252

 

Total assets

 

$

71,393

 

 

$

240,665

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

17,127

 

 

$

27,620

 

Line of credit

 

 

1,000

 

 

 

0

 

Accrued expenses and other liabilities

 

 

18,495

 

 

 

19,525

 

Accrued interest – related party

 

 

207

 

 

 

0

 

Deferred revenue

 

 

22,980

 

 

 

8,201

 

Total current liabilities

 

 

59,809

 

 

 

55,346

 

Long-term debt and other borrowings

 

 

784

 

 

 

0

 

Other non-current liabilities

 

 

3,349

 

 

 

4,547

 

Total liabilities

 

 

63,942

 

 

 

59,893

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

      Preferred stock par value of $0.0001 per share, 10,000,000 shares
      authorized;
0ne issued as of December 31, 2020 and June 30, 2021

 

 

0

 

 

 

0

 

Common stock par value of $0.0001 per share, 850,000,000 shares
authorized;
66,155,340 and 84,301,595 shares issued and outstanding as of December 31, 2020 and June 30, 2021

 

 

1

 

 

 

8

 

Treasury stock, at cost; 9,896,666 and 10,762,566 shares as of December 31, 2020 and June 30, 2021

 

 

0

 

 

 

0

 

Additional paid-in capital

 

 

50,096

 

 

 

286,687

 

Accumulated other comprehensive income (loss)

 

 

(3

)

 

 

3

 

Accumulated deficit

 

 

(42,643

)

 

 

(105,926

)

Total stockholders’ equity

 

 

7,451

 

 

 

180,772

 

Total liabilities and stockholders’ equity

 

$

71,393

 

 

$

240,665

 

 

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

 

4


 

FTC Solar, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

42,849

 

 

$

35,755

 

 

$

73,318

 

 

$

92,217

 

Service

 

 

8,308

 

 

 

14,353

 

 

 

10,215

 

 

 

23,598

 

Total revenue

 

 

51,157

 

 

 

50,108

 

 

 

83,533

 

 

 

115,815

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

44,623

 

 

 

43,885

 

 

 

68,370

 

 

 

98,881

 

Service

 

 

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

 

 

1,515

 

 

 

5,585

 

 

 

2,609

 

 

 

7,539

 

Selling and marketing

 

 

818

 

 

 

3,258

 

 

 

1,333

 

 

 

4,358

 

General and administrative (Note. 9)

 

 

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

 

 

0

 

 

 

20,619

 

 

 

0

 

 

 

20,619

 

Gain (loss) on extinguishment of debt

 

 

(41

)

 

 

0

 

 

 

(41

)

 

 

790

 

Other expense

 

 

0

 

 

 

(46

)

 

 

0

 

 

 

(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

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.09

)

 

$

(0.70

)

 

$

(0.05

)

 

$

(0.87

)

Diluted

 

$

(0.09

)

 

$

(0.70

)

 

$

(0.05

)

 

$

(0.87

)

Weighted-average 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

 

 

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

 

5


 

FTC Solar, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31,
   2019

 

0

 

$

0

 

 

 

63,633,981

 

 

$

1

 

 

 

0

 

 

$

0

 

 

$

18,273

 

 

$

0

 

 

$

(26,719

)

 

$

(8,445

)

Restricted stock awards
   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

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,420

 

 

 

3,420

 

Other comprehensive income

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Balance as of March 31, 2020

 

0

 

$

0

 

 

 

74,216,336

 

 

$

1

 

 

 

0

 

 

$

0

 

 

$

48,731

 

 

$

8

 

 

$

(23,299

)

 

$

25,441

 

Restricted stock awards
   vested during the period

 

 —

 

 

 

 

 

594,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

475

 

 

 

 

 

 

 

 

 

475

 

Net (loss)

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,776

)

 

 

(6,776

)

Other comprehensive (loss)

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

Balance as of June 30, 2020

 

0

 

$

0

 

 

 

74,811,048

 

 

$

1

 

 

 

0

 

 

$

0

 

 

$

49,206

 

 

$

(8

)

 

$

(30,075

)

 

$

19,124

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31,
   2020

 

 

0

 

 

$

0

 

 

 

66,155,340

 

 

$

1

 

 

 

9,896,666

 

 

$

0

 

 

$

50,096

 

 

$

(3

)

 

$

(42,643

)

 

$

7,451

 

Restricted stock awards
   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 (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,442

)

 

 

(7,442

)

Other comprehensive (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of March 31, 2021

 

 

0

 

 

$

0

 

 

 

67,329,409

 

 

$

1

 

 

 

10,045,106

 

 

$

0

 

 

$

50,584

 

 

$

(4

)

 

$

(50,085

)

 

$

496

 

 

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

 

6


 

Restricted stock awards
   vested during the period

 

 

 

 

 

 

 

 

2,244,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common stock

 

 

 

 

 

 

 

 

(4,455,384

)

 

 

(1

)

 

 

 

 

 

 

 

 

(54,154

)

 

 

 

 

 

 

 

 

(54,155

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(717,460

)

 

 

 

 

 

717,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection with IPO

 

 

 

 

 

 

 

 

19,840,000

 

 

 

2

 

 

 

 

 

 

 

 

 

241,153

 

 

 

 

 

 

 

 

 

241,155

 

Impact of stock split

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

Deferred offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,093

)

 

 

 

 

 

 

 

 

(7,093

)

Issuance of common stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

60,788

 

 

 

0

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,192

 

 

 

 

 

 

 

 

 

56,192

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,841

)

 

 

(55,841

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Balance as of June 30, 2021

 

 

0

 

 

$

0

 

 

 

84,301,595

 

 

$

8

 

 

 

10,762,566

 

 

$

0

 

 

$

286,687

 

 

$

3

 

 

$

(105,926

)

 

$

180,772

 

 

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)

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(3,356

)

 

$

(63,283

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

933

 

 

 

56,641

 

Depreciation and amortization

 

 

40

 

 

 

42

 

Loss from unconsolidated subsidiary

 

 

160

 

 

 

354

 

Gain from disposal of equity investment

 

 

0

 

 

 

(20,619

)

(Gain) loss on extinguishment of debt

 

 

41

 

 

 

(790

)

Warranty provision

 

 

4,091

 

 

 

1,627

 

Warranty asset

 

 

(447

)

 

 

(511

)

Bad debt expense

 

 

0

 

 

 

23

 

Deferred income taxes

 

 

(2

)

 

 

0

 

Other non-cash items

 

 

32

 

 

 

0

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(29,067

)

 

 

(23,270

)

Inventories

 

 

4,121

 

 

 

(6,123

)

Prepaid and other current assets

 

 

(6,191

)

 

 

(23,892

)

Other assets

 

 

(137

)

 

 

678

 

Accounts payable

 

 

149

 

 

 

9,719

 

Accruals and other current liabilities

 

 

16,684

 

 

 

190

 

Accrued interest – related party debt

 

 

(153

)

 

 

(207

)

Deferred revenue

 

 

(9,836

)

 

 

(14,779

)

Other non-current liabilities

 

 

424

 

 

 

224

 

Other, net

 

 

(401

)

 

 

(319

)

Net cash used in operating activities

 

 

(22,915

)

 

 

(84,295

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

0

 

 

 

(293

)

Proceeds from disposal of equity method investment

 

 

0

 

 

 

22,122

 

Net cash provided by investing activities:

 

 

0

 

 

 

21,829

 

Cash flows from financing activities:

 

 

 

 

 

 

      Proceeds from borrowings

 

 

784

 

 

 

0

 

Repayments of borrowings

 

 

(2,000

)

 

 

(1,000

)

Repurchase and retirement of common stock

 

 

0

 

 

 

(54,155

)

Offering costs paid

 

 

0

 

 

 

(5,334

)

Deferred financing costs for revolving credit facility

 

 

0

 

 

 

(1,959

)

Proceeds from stock issuance

 

 

30,000

 

 

 

241,207

 

Net cash provided by financing activities

 

 

28,784

 

 

 

178,759

 

Effect of exchange rate changes on cash and restricted cash

 

 

(8

)

 

 

6

 

Net increase in cash and restricted cash

 

 

5,861

 

 

 

116,299

 

Cash and restricted cash at beginning of period

 

 

8,235

 

 

 

33,373

 

Cash and restricted cash at end of period

 

 

14,096

 

 

 

149,672

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Purchase of property and equipment included in accounts payable

 

$

0

 

 

$

154

 

Unpaid offering costs included in accounts payable

 

$

0

 

 

$

619

 

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

 

$

0

 

 

$

(790

)

Cash paid during the period for interest

 

$

378

 

 

$

247

 

 

 

 

 

 

 

Reconciliation of cash and restricted cash at period end

 

December 31, 2020

 

 

June 30,2021

 

Cash

 

 

32,359

 

 

 

149,672

 

Restricted cash

 

 

1,014

 

 

 

0

 

Total cash and restricted cash

 

$

33,373

 

 

$

149,672

 

 

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, Singapore, and South Africa.

 

Initial Public Offering and Related Transaction

The Company’s common stock began trading on the Nasdaq Stock Exchange on April 28, 2021, under the symbol “FTCI” and on April 30, 2021, the Company completed its Initial Public Offering (“IPO”). In connection with the IPO, the Company issued and sold 19,840,000 shares of its common stock at a public offering price of $13.00 per share.



Prior to the completion of the IPO, the Board of Directors and Stockholders approved an approximately
8.25-for-1 forward stock split (the “Forward Stock Split”) of the Company’s shares of common stock which became effective on April 28, 2021.

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 and retire 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 reclassified to Additional paid-in capital and recorded against the proceeds from the offering during the quarter ended June 30, 2021.



JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. Under the JOBS Act, emerging growth companies 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.

 

 

9


 

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.

 

Forward Stock Split

 

On April 28, 2021, we effected an approximately 8.25-for-1 forward split of our issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the Forward Stock Split, one (1) share of common stock issued and outstanding was automatically increased to approximately 8.25 shares of issued and outstanding common stock, without any change in the par value per share. All information related to common stock, stock options, restricted stock awards and earnings per share have been retroactively adjusted to give effect to the Forward Stock Split for all periods presented.

Use of Estimates

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis.

 

COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The COVID-19 pandemic has had and may continue to have an unfavorable impact on certain parts of our business. The broader implications of the COVID-19 pandemic on our business, financial condition and results of operations remain uncertain and will depend on certain developments, including the duration and severity of the COVID-19 pandemic, the impact of virus variants, the rate of vaccinations, the COVID-19 pandemic’s impact on our customers and suppliers and the range of governmental and community reactions to the pandemic. We may continue to experience reduced customer demand in certain parts of our business or constrained supply that could materially and adversely impact our business, financial condition, results of operations, liquidity and cash flows in future periods.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2020 and 2021, have been prepared in accordance with GAAP for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments have been made that are considered necessary for a fair statement of our financial position as of December 31, 2020 and June 30, 2021, our results of operations for the three and six months ended June 30, 2020 and 2021 and our cash flows for the six months ended June 30, 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 and six months ended June 30, 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

 

10


 

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 Comprehensive 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).

The Company has made an accounting policy election, as a result of disposing of its equity method investment on June 24, 2021, to account for the contingent gains from the earnout provision and projects escrow release only when those amounts become realizable in the periods subsequent to the disposal date. (See Note. 6)



Stock Based Compensation

The Company recognizes compensation expense for all share-based payment awards made, including stock options and restricted stock, based on the estimated fair value of the award on the grant date, in the accompanying consolidated statements of operations over the requisite service period of the awards. The Company calculates the fair value of stock options using the Black-Scholes Option-Pricing model. The fair value of restricted stock grants represents the estimated fair value of the Company's common stock on the date of grant. The Company accounts for forfeitures as they occur. For service-based awards, stock-based compensation is recognized using the straight-line attribution approach over the requisite service period. For performance-based awards, stock-based compensation is recognized based on graded vesting over the requisite service period when the performance condition is probable of being achieved.

Revenue 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)

 

 

11


 

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

 

Term-based software license revenue included under product revenue is primarily derived from sale of term-based software licenses that are deployed on the customers’ own servers and have significant standalone functionality. The revenue is recognized upon transfer of control to the customer. The control for term-based software licenses is transferred at the later of delivery to the customer or the software license start date. Term-based software license revenue is immaterial for the three and six month periods ended June 30, 2020 and June 30, 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 for the three and six month periods ended June 30, 2020 and June 30, 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

 

12


 

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.

 

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 evaluating the impact that the adoption of ASU 2016-13 will have on its condensed consolidated financial statements and the Company plans to adopt in beginning of year 2023.

 

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 and the Company plans to adopt in year 2022. 

 

13


 

 

3.       Revenue

The Company’s product revenue and service revenue is presented in the Condensed Consolidated Statement of Comprehensive Loss. Revenue by geographic region is based on the customer’s location and presented under Note 13.

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 $23.7 million as of December 31, 2020 and June 30, 2021, respectively.

The Company’s contracts have a varied range of terms based on the type of products and services sold. Deferred revenue amounts to $23.0 million and $8.2 million as of December 31, 2020 and June 30, 2021, respectively, consisting of customer deposits related to products and services which were billed in advance. The Company expects to recognize 100% of the revenue related to remaining performance obligations within the next 12 months. During the six months ended June 30, 2020 and 2021, the Company recognized $19.9 million and $22.9 million, respectively from deferred revenue recorded at December 31, 2019 and 2020.

 

14


 

4.       Prepaid Expenses and Other Current Assets

 

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

 

 

 

December 31,
2020

 

 

June 30,
2021

 

Vendor deposits

 

$

4,205

 

 

$

23,913

 

Prepaid expenses

 

 

1,043

 

 

 

5,182

 

Deferred cost of revenue

 

 

992

 

 

 

0

 

Surety collateral

 

 

113

 

 

 

141

 

Other current assets

 

 

571

 

 

 

1,714

 

 

 

$

6,924

 

 

$

30,950

 

 

The increase in vendor deposits reflects efforts to secure steel capacity for projects in the back half of 2021.

5. Accrued Expenses and Other Current Liabilities

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

 

 

 

December 31,
2020

 

 

June 30,
2021

 

Accrued cost of revenue

 

$

7,812

 

 

$

11,609

 

Accrued expenses

 

 

2,856

 

 

 

3,071

 

Warranty reserves

 

 

3,985

 

 

 

1,742

 

Accrued compensation

 

 

2,869

 

 

 

2,144

 

Accrued interest expense

 

 

28

 

 

 

0

 

Other

 

 

945

 

 

 

959

 

Total

 

$

18,495

 

 

$

19,525

 

 

6. Sale of Equity Method Investments

  On June 24, 2021, the Company disposed of its 4,791,566 Class A common unit interest in Dimension Energy LLC, (“Dimension”) representing approximately 23% of the total outstanding common shares, for approximately $22.0 million, net of a success-based fee of $1.9 million.  For the six months period ended June 30, 2021, the Company recognized a gain of $20.6 million due to its disposal of approximately 23% non-controlling interest in Dimension.  The Company recognized net loss from the unconsolidated subsidiary of $0.2 million and $0.4 million for the six months ended June 30, 2020 and 2021, respectively.

 

Below is the summarized financial information of the investee through June 24, 2021, the date the Company disposed its entire interest in the investee, and the calculated share of loss from equity investment that is reported in net loss from unconsolidated subsidiary on the accompanying unaudited condensed consolidated statements of comprehensive loss for the six months ended June 30, 2020 and 2021(in thousands):

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

2020

 

 

 

 

2021

 

Revenue

 

 

 

$

6,229

 

 

 

 

$

130

 

Gross loss

 

 

 

 

4,656

 

 

 

 

 

(62

)

Loss from operations

 

 

 

 

(446

)

 

 

 

 

(2,514

)

Net loss

 

 

 

 

(676

)

 

 

 

 

(1,522

)

Share of net loss from equity method investment

 

 

 

 

(159

)

 

 

 

 

(354

)

 

 

15


 

           The sales agreement with Dimension includes an earnout provision which provides the potential to receive an additional contingent consideration of up to approximately $14.0 million through December 2024, based on Dimension achieving certain performance milestones. This potential earnout is calculated each quarter starting January 1, 2022. The potential payment is calculated as $200 per the number of kilowatts constituting each Notice To Proceed (NTP) megawatt (MW) achieved during such quarterly earnout period, provided that no earnout amount is payable in respect to the first 100 NTP MW achieved in any earnout year. The sales agreement also includes a projects escrow release which is an additional contingent consideration to receive $7 million based on Dimension’s completion of certain construction projects currently in progress. The Company has made an accounting policy election to account for the contingent gains from the earnout provision and projects escrow release only when those amounts become realizable in the periods subsequent to the disposal date.

 

On June 29, 2021, the Company made a success-based fee payment in the amount of $1.9 million to two Executive Members of Dimension for entering into voting and support letter agreements and for recommending to all Executive Members of Dimension to support the purchase agreement and the consummation of the transaction on June 24, 2021.

 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 required the Company to pay regular monthly payments of all interest accrued as of each payment date. The prime rate at the time of borrowing was at 5.50% per annum. The outstanding balance for the revolving line of credit as of December 31, 2020 was $1 million 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 ("SBA") that they approved the forgiveness of the full $0.8 million PPP loan. The Company recorded the forgiveness of the PPP loan as a gain on debt extinguishment in other income.

On April 30, 2021, the Company entered into a $100 million senior secured revolving credit facility, by and among the Company, as borrower, the several financial institutions from time to time parties thereto, and Barclays Bank PLC, as an issuing lender, the swingline lender and as administrative agent (the “Credit Agreement”). The Credit Agreement has an initial three-year term, and it will be used for working capital and for other general corporate purposes. The Company has not made any draws on the revolving credit facility. The Credit Agreement includes the following terms: (i) aggregate commitments of up to $100 million, with letter of credit and swingline sub-limits; (ii) customary base rate of LIBOR plus 3.25% per annum, respectively; (iii) initial commitment fees of 0.50% per annum; (iv) initial letter of credit fees of 3.25% per annum; and (v) other customary terms for a corporate revolving credit facility.
 

The facility is secured by a first priority lien on substantially all of the Company’s assets, subject to certain exclusions, and customary guarantees. The Credit Agreement includes the following financial condition covenants that the Company is required to satisfy: (i) maintain a 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. 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 covenant.

 

16


 



 

The Company added $2.1 million in debt issuance costs related to the revolving credit facility which was included in other assets in the Condensed Consolidated Balance Sheets. The debt issuance costs are being amortized over a three year initial term of the loan. As of June 30, 2021 the unamortized debt issuance cost amounted to $2.0 million.

The Company recognized $0.1 million and $0.2 million of interest expense on its debt and other borrowings for the three months ended June 30, 2020 and 2021 and $0.2 million and $0.2 million for the six months ended June 30, 2020 and 2021, respectively.

 

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 statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiation, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Legal costs are expensed as incurred.

 

On 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. On July 2, 2021, we filed a motion to dismiss the tort claims. On July 16, 2021, rather than responding to that motion, FCX filed an amended complaint asserting the same claims as the original complaint. On July 22, 2021, we advised the court that FTC would stand on its motion to dismiss, and at the request of the court, we filed a revised motion citing the amended complaint. FCX's response to the motion is due on August 13, 2021. On May 29, 2021, FCX filed a separate lawsuit against us in the United States District Court for the Western District of Texas, alleging a claim for patent infringement related to U.S. Patent No. 10,903,782. FCX seeks an unspecified amount of damages, including past and future royalties, and injunctive relief. Our answer to that complaint was filed on June 22, 2021, along with our motion to transfer the patent suit to the Southern District of New York to be consolidated with the New York litigation. FCX filed an amended complaint asserting claims for direct patent infringement, indirect infringement by active inducement, and contributory infringement on July 27, 2021, and we filed our answer to that complaint on August 10, 2021. The Company believes the claims asserted in both 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 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 June 30, 2021.

Warranties

The Company provides standard warranties on its hardware products. The liability amount is based on actual historical warranty spending activity by type of product, customer, and geographic region, modified for any known differences such as the impact of reliability improvements. As of June 30, 2021, warranty reserves totaling $1.7 million were recorded in accrued expenses and other current liabilities and $3.8 million were recorded in other non-current liabilities, in the Company’s Condensed Consolidated Balance Sheets.

 

17


 

Changes in the Company’s product warranty reserves were as follows (in thousands):

 

 

June 30,
2021

 

Balance at beginning of period, December 31, 2020

 

$

6,811

 

Warranties issued during the period

 

 

2,108

 

Settlements made during the period

 

 

(2,891

)

Changes in liability for pre-existing warranties

 

 

(481

)

Balance at end of period

 

$

5,547

 

 

9. Stock-Based Compensation

On April 30, 2021, in connection with the IPO offering, the Company used $54.2 million of net proceeds from the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock, of which 2,191,557 was a repurchase of common shares and 2,263,827 shares were from the settlement of certain vested RSUs and common shares exercised from options in connection with the IPO offering, at the initial public offering price net of underwriters' fees and commissions.

The Company’s stock-based compensation expense increased by $55.7 million during the three months ended June 30, 2021 due to RSUs, for which the service-based vesting condition was satisfied and for which the liquidity event related performance vesting condition was met in connection with our IPO. We utilized a graded vesting method which results in an accelerated recognition of compensation costs. Stock-based compensation expense incurred was $0.5 million and $56.2 million for the three months ended June 30, 2020 and 2021 and $0.9 million and $56.6 million for the six months ended June 30, 2020 and 2021, respectively.

 

 

10.        Stockholders' Equity

Preferred Stock

The Certificate of Incorporation, as amended as of April 28, 2021, and amended as of June 7, 2021, (the "Certificate of Incorporation"), authorizes the Company to issue 10 million shares of Preferred Stock with a par value of $0.0001 with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of June 30, 2021 there were 0 shares of preferred stock issued or outstanding.

Common Stock

The Certificate of Incorporation authorizes the Company to issue 850 million shares of $0.0001 par value of Common Stock. Holders of Common Stock are entitled to dividends, as and when, declared by the Board of Directors, subject to the rights of the holders of all classes of stock outstanding having priority rights as to dividends. There have been 0 dividends declared to date. The holders of the Common Stock are entitled to one vote for each share of Common Stock; provided that, except as otherwise required by law, holders of Common Stock (in such capacity) shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation.

In March 2020, the Company sold 9,162,976 shares of common stock at $3.27 per share for an aggregate purchase price of $30.0 million. The proceeds are available for working capital and other corporate purposes.

On April 30, 2021, the Company closed on its IPO in which we issued and sold 19,840,000 shares of our common stock at a public offering price of $13.00 per share. We received aggregate proceeds of $241.2 million from the IPO, net of approximately $16.8 million in underwriting discount and commissions and before offering costs.

 

 

18


 

The Company used $54.2 million of net proceeds from the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock, of which 2,191,557 was a repurchase of common shares and 2,263,827 shares were from the settlement of certain vested RSUs and common shares exercised from options in connection with the IPO offering.

 

The Company has and intends to continue to use the remaining $187.0 million for general corporate purposes, including working capital and operating expenses. We may also use a portion of such proceeds to acquire or invest in businesses, products, services or technologies, however, we do not have binding agreements or commitments for any material acquisitions or investments at this time.

 

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 founders of the Company. The repurchase of these shares was recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of the quarterly period ended 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. 

 

On April 5, 2021, the Company’s Board of Directors approved a share repurchase of 717,460 shares of common stock for an aggregate price of $0 from founders of the Company. The repurchase of these shares is recorded as treasury stock on the Company’s Condensed Consolidated Balance Sheets as of the quarterly period ended June 30, 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. 

11. Net loss per share

The table below sets forth the computation of basic and diluted loss per share. All shares and per share amounts have been adjusted for an approximately 8.25-for-1 share forward stock split which took effect on April 28, 2021 (in thousands, except per share amounts):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(6,776

)

 

$

(55,841

)

 

$

(3,356

)

 

$

(63,283

)

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average number of common shares outstanding

 

 

74,612,811

 

 

 

79,229,174

 

 

 

70,994,078

 

 

 

73,106,935

 

Diluted weighted-average number of common shares outstanding

 

 

74,612,811

 

 

 

79,229,174

 

 

 

70,994,078

 

 

 

73,106,935

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share

 

$

(0.09

)

 

$

(0.70

)

 

$

(0.05

)

 

$

(0.87

)

Diluted loss per share

 

$

(0.09

)

 

$

(0.70

)

 

$

(0.05

)

 

$

(0.87

)

 

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):

 

 

 

As of June 30,

 

 

 

2020

 

 

2021

 

Shares of common stock issuable under stock option plans outstanding

 

 

8,566

 

 

 

8,152

 

Shares of common stock issuable upon vesting of restricted stock awards

 

 

3,747

 

 

 

15,079

 

Potential common shares excluded from diluted net loss per share

 

 

12,313

 

 

 

23,231

 

 

 

19


 

12.      Income Taxes

For the three months ended June 30, 2020 and 2021, the Company recorded an income tax expense of $0.02 million and $0.12 million respectively. For the six months ended June 30, 2020 and 2021, the Company recorded an income tax benefit of $0.14 million and income tax expense of $0.1 million, respectively. Income tax expense recorded for three and six months ended June 30, 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.



As of June 30, 2021, the Company had total unrecognized tax benefits of approximately $
0.1 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 June 30, 2021, the Company had 0t accrued any interest or penalties related to unrecognized tax benefits.
 

13.      Segment Information

The Company has 1 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

United States

 

$

51,128

 

 

$

49,912

 

 

$

83,443

 

 

$

115,556

 

Other

 

 

29

 

 

 

196

 

 

 

90

 

 

 

259

 

Total net revenue

 

$

51,157

 

 

$

50,108

 

 

$

83,533

 

 

$

115,815

 

 

14.      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.

On April 5, 2021, the Company’s Board of Directors approved a share repurchase of 717,460 shares of common stock for an aggregate price of $0 from a founder of the Company.

On June 29, 2021, the Company made a success-based fee payment in the amount of $1.9 million to two Executive Members of Dimension Energy LLC. (See Note. 6)

 

20


 

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:

Revenue recognition;
Equity method investments;

 

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Warranties;
Stock-based compensation;
Deferred revenues;
Leases;
Contingent consideration; and
Income taxes

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of customer concentrations and fluctuations in steel, aluminum and logistics/transportation prices. We do not hold or issue financial instruments for trading purposes.

Commodity Price Risk

 

We subcontract to various contract manufacturers, who manufacture and deliver products directly to our customers. We, therefore, do not procure raw materials and commodities directly. We are subject to indirect risk from fluctuating market prices of certain commodity raw materials, including steel and aluminum, that are used in our products, through our contract manufacturers, as increases in these commodity prices would increase our cost of procuring subcontracting services. Prices of these raw materials may be affected by supply restrictions or other market factors from time to time. Significant price increases for these raw materials could reduce our operating margins if we are unable to recover such increases in costs from our customers, and could harm our business, financial condition and results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures are designed to ensure that the information relating to our Company, including our consolidated subsidiary, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting, as described below.

 

 

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Previously Reported Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the course of preparing for our IPO and as reported in the IPO Prospectus, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls over financial reporting that constituted the following material weaknesses:

 

• We did not have a sufficient complement of experienced personnel with the requisite technical knowledge of public company accounting and reporting and for non-routine, unusual or complex transactions. This material weakness contributed to the following material weaknesses.

 

• We did not design and maintain adequate controls over the period-end close and financial reporting process including establishment of accounting policies and procedures, certain account reconciliations, cut-off, segregation of duties, journal entries and financial statement preparation. This material weakness contributed to material adjustments in the 2019 consolidated financial statements principally, but not limited to, in the following areas: definite-lived intangibles, warranty obligation, cut-off of revenue transactions and related cost of sales.

 

• We did not design and maintain effective information technology general controls (ITGC) over the IT systems used for preparation of the financial statements. Specifically, we did not design and maintain (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel; and (iii) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

 

Although there were no material adjustments to the consolidated financial statements as a result of IT deficiencies, these IT deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined that these IT deficiencies in the aggregate constitute a material weakness

 

Additionally, the above material weaknesses could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement of the annual or interim financial statements that would not be prevented or detected.

 

Status of Remediation Plan

 

Our remediation efforts for these material weaknesses have included the following:

 

• We have hired additional accounting personnel from the finance and accounting profession

with experience in publicly traded companies;

 

• We have utilized third-party consultants and specialists to supplement our internal resources;

 

• We have drafted and implemented new accounting policies and procedures;

 

• We plan to implement processes and procedures to monitor and evaluate the effectiveness of our

ITGCs on an ongoing basis and are committed to taking further action and implementing additional

enhancements or improvements, as we find necessary.

 

We plan to continue to assess our internal controls and procedures and implement processes and procedures to remediate these material weaknesses.

 

 

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Changes in Internal Control

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II - OTHER INFORMATION

 

From time to time, we are subject to routine legal proceedings in the normal course of operating our business.

Currently there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

On April 21, 2021, FCX Solar, LLC (“FCX”), filed a lawsuit against us in the United States District Court for the Southern District of New York. The complaint 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. On July 2, 2021, we filed a motion to dismiss the tort claims. On July 16, 2021, rather than responding to that motion, FCX filed an amended complaint asserting the same claims as the original complaint. On July 22, 2021, we advised the court that FTC would stand on its motion to dismiss, and at the request of the court, we filed a revised motion citing the amended complaint. FCX's response to the motion is due on August 13, 2021. On May 29, 2021, FCX filed a separate lawsuit against us in the United States District Court for the Western District of Texas, alleging a claim for patent infringement related to U.S. Patent No. 10,903,782. FCX seeks an unspecified amount of damages, including past and future royalties, and injunctive relief. Our answer to that complaint was filed on June 22, 2021, along with our motion to transfer the patent suit to the Southern District of New York to be consolidated with the New York litigation. FCX filed an amended complaint asserting claims for direct patent infringement, indirect infringement by active inducement, and contributory infringement on July 27, 2021, and we filed our answer to that complaint on August 10, 2021. The Company believes the claims asserted in both 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 strength of the Company’s defenses.

 

ITEM 1A.   RISK FACTORS

 

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Prospectus. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Prospectus which is included in the Company’s IPO Prospectus dated as of April 29, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.



 

 

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unregistered Sales of Equity Securities

None.

 

Use of proceeds from Initial Public Offering of Common Stock

 

On April 30, 2021, we closed the IPO in which we issued and sold 19,840,000 shares of our common stock at a public offering price of $13.00 per share.

 

The offer and sale of all of the shares of our common stock in the IPO was registered under the Securities Act pursuant to our Registration Statements on Form S-1, as amended (File No. 333-254797), which became effective on April 27, 2021. Barclays, BofA Securities, Credit Suisse and UBS Investment Bank acted as joint book-running managers and representatives of the underwriters for the IPO. HSBC, Cowen, Simmons Energy | A Division of Piper Sandler, Raymond James and Roth Capital Partners acted as co-managers for the IPO.

 

We received aggregate proceeds of $241.2 million from the IPO, net of approximately $16.8 million in underwriting discount and commissions and before offering costs.

We used $54.2 million of the net proceeds of the IPO to purchase and retire an aggregate of 4,455,384 shares of our common stock, some of which resulted from the settlement of certain vested RSUs and the exercise of certain options in connection with the IPO offering, at the initial public offering price net of underwriters' fees and commissions.

 

We have and intend to continue to use the remaining $187.0 million for general corporate purposes, including working capital and operating expenses. We may also use a portion of such proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have binding agreements or commitments for any material acquisitions or investments at this time.

There has been no material change in our planned use of the net proceeds from the IPO as described in the IPO prospectus.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

The following exhibits are filed as part of this report:

 

 

 

 

Exhibit

Number

 

Description

3.1

**

Amended and Restated Certificate of Incorporation of FTC Solar, Inc.(filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).
 

3.2

**

Amended and Restated Bylaws of FTC Solar, Inc.(filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).
 

3.3

**

Certificate of Correction of Amended and Restated Certificate of Incorporation (As Corrected June 8, 2021)

10.1

**

Registration Rights Agreement, dated April 29, 2021, by and among FTC Solar, Inc. and certain holders of its capital stock (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).

10.2

**

Senior Secured Revolving Credit Facility, by and among FTC Solar, Inc., 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 (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).

10.3

**

Employment Agreement by and between FTC Solar, Inc. and Anthony P. Etnyre (filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).

10.4

**

Employment Agreement by and between FTC Solar, Inc. and Patrick M. Cook (filed as Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).

10.5

**

Employment Agreement by and between FTC Solar, Inc. and Jay B. Grover (filed as Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2021 and incorporated herein by reference).

10.6

*

FTC Solar, Inc. 2021 Stock Incentive Plan and form of agreement

10.7

*

FTC Solar, Inc. 2021 Employee Stock Purchase Plan

31.1

*

Certification of Chief Executive Officer Pursuant to SEC Rule 13a−14(a)/15d−14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

*

Certification of Chief Financial Officer Pursuant to SEC Rule 13a−14(a)/15d−14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

*

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

*

Inline XBRL Instance Document

101.SCH

*

Inline XBRL Taxonomy Extension Schema Document

101.CAL

*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)

 

 

* Filed herewith

**Incorporated herein by reference

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

FTC SOLAR, INC.

 

 

 

 

Date:  August 11, 2021

/s/ Anthony P. Etnyre

 

Anthony P. Etnyre, Chief Executive Officer

 

 

 

 

 

 

Date:  August 11, 2021

/s/ Patrick M. Cook

 

Patrick M. Cook, Chief Financial Officer

 

 

 

 

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