FTC Solar(FTCI) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements for Q3 2021 show significant asset growth from the IPO, but also increased net losses due to higher costs and operating expenses Condensed Consolidated Balance Sheets Balance sheets show total assets surged to $235.4 million by Sep 30, 2021, driven by IPO cash, significantly boosting stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Sep 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $32,359 | $140,662 | | Total current assets | $65,717 | $229,164 | | Total assets | $71,393 | $235,429 | | Liabilities & Equity | | | | Total current liabilities | $59,809 | $66,408 | | Total liabilities | $63,942 | $72,070 | | Accumulated deficit | $(42,643) | $(125,351) | | Total stockholders' equity | $7,451 | $163,359 | Condensed Consolidated Statements of Comprehensive Loss Q3 2021 saw a net loss of $22.9 million on $53.0 million revenue, a significant deterioration from the prior year due to gross loss and rising operating expenses Q3 and Nine-Month Performance Comparison (in thousands, except per share data) | Metric | Q3 2020 | Q3 2021 | Nine Months 2020 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $59,640 | $52,989 | $143,173 | $168,804 | | Gross profit (loss) | $2,866 | $(8,039) | $8,464 | $(23,970) | | Loss from operations | $(2,525) | $(22,771) | $(5,587) | $(103,261) | | Net loss | $(2,840) | $(22,916) | $(6,196) | $(82,707) | | Net loss per share (Basic & Diluted) | $(0.04) | $(0.24) | $(0.09) | $(1.00) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity substantially increased in the first nine months of 2021, primarily from $241.2 million in IPO proceeds, despite a $54.2 million stock repurchase and growing accumulated deficit - The company issued 19,840,000 shares of common stock in connection with its IPO, raising $241.2 million in net proceeds[22][91] - Stock-based compensation expense for the nine months ended September 30, 2021, was $58.5 million, a significant increase from $1.4 million in the same period of 2020[22][86][87] Condensed Consolidated Statements of Cash Flows Nine-month cash flow shows $92.4 million used in operations, offset by $178.1 million from IPO financing and $21.6 million from investing, leading to a $107.3 million cash increase Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months 2020 | Nine Months 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14,638) | $(92,414) | | Net cash provided by investing activities | $0 | $21,554 | | Net cash provided by financing activities | $26,784 | $178,140 | | Net increase in cash and restricted cash | $12,126 | $107,289 | Notes to Condensed Consolidated Financial Statements Notes detail the April 2021 IPO raising $241.2 million, a Q2 2021 financial statement revision, a $20.8 million gain from an equity disposal, a new $100 million credit facility, and a $134 million lawsuit - The company completed its IPO on April 30, 2021, issuing 19,840,000 shares and receiving net proceeds of $241.2 million after underwriting discounts[27][29] - Previously issued financial statements for Q2 2021 were revised to correct immaterial errors in the calculation of EPS and an overstatement of stock-based compensation expense by $3.5 million[33] - On June 24, 2021, the company disposed of its investment in Dimension Energy LLC for approximately $22.0 million, recognizing a gain of $20.8 million[69] - The company is defending against a lawsuit from FCX Solar, LLC, which seeks damages of approximately $134 million; management believes the claims are without merit and the likelihood of a material loss is remote[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2021 performance, noting a 7% YoY product revenue decrease, negative gross margin due to $5.5 million in unpassed shipping costs, and surging operating expenses from IPO-related stock-based compensation, while maintaining strong liquidity post-IPO Results of Operations Q3 2021 total revenue decreased to $53.0 million, resulting in an $8.0 million gross loss due to a 27% increase in cost per MW, while operating expenses surged to $14.7 million from increased stock-based compensation - Q3 2021 product revenue decreased by 7% YoY to $45.6 million, driven by a 16% decrease in MW shipped, partially offset by a higher Average Selling Price (ASP)[138] - Gross margin was negative for Q3 2021, impacted by approximately $5.5 million in increased shipping and logistics costs that were not passed on to customers[144] - For the nine months ended Sep 30, 2021, cost of revenue was impacted by approximately $4.5 million in expenditures for retrofits, remediations, and product reconfigurations for certain previously installed solar tracker systems[143] - General and administrative expenses for the nine months of 2021 increased to $63.2 million from $7.6 million in 2020, primarily due to a $47.4 million increase in stock-based compensation triggered by the IPO[152] Liquidity and Capital Resources The company maintains strong liquidity with $140.7 million cash post-IPO and an undrawn $100 million credit facility, despite using $92.4 million in cash for operations in the first nine months - The company's primary source of financing has been sales of common stock, including the recent IPO, and customer payments[155] - A new $100 million senior secured revolving credit facility was established on April 30, 2021, and remains undrawn as of September 30, 2021[164] - The company intends to make up to $30 million of development capital available to a tracker customer as part of a significant project commitment[155] Non-GAAP Financial Measures Non-GAAP metrics show an Adjusted EBITDA loss of $16.1 million for Q3 2021 and $39.5 million for the nine-month period, primarily adjusted for stock-based compensation and equity investment disposal gains Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q3 2020 | Q3 2021 | Nine Months 2020 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(2,840) | $(22,916) | $(6,196) | $(82,707) | | Stock-based compensation | $448 | $5,381 | $1,381 | $58,531 | | (Gain) from disposal of equity investment | $0 | $(210) | $0 | $(20,829) | | Non-routine legal fees | $0 | $988 | $0 | $1,763 | | Adjusted EBITDA | $(2,075) | $(16,092) | $(4,164) | $(39,501) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from customer concentrations and commodity price fluctuations, particularly steel and aluminum, and rising logistics costs, without using financial hedges - The company is subject to indirect risk from fluctuating market prices of commodity raw materials, including steel and aluminum, as increases in these prices raise the cost of procuring services from its contract manufacturers[186] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of September 30, 2021, due to material weaknesses in internal control over financial reporting, with ongoing remediation efforts - Management concluded that disclosure controls and procedures were not effective as of the end of the period due to material weaknesses in internal control over financial reporting[187] - Identified material weaknesses include: a lack of sufficient experienced personnel for public company accounting, inadequate controls over the period-end close process, and ineffective IT general controls (ITGC)[188][189][190] - Remediation efforts are ongoing, including hiring a new Director of Internal Audit, increasing employee training, and enhancing accounting policies and procedures[192][194] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is defending against two lawsuits from FCX Solar, LLC, including one seeking $134 million in damages, with management believing claims are without merit and a material loss is remote - FCX Solar, LLC has filed two lawsuits against the company, one alleging breach of contract and tort claims seeking damages of approximately $134 million, and another alleging patent infringement[197] - The company believes the claims are without merit and has determined that it is not probable that FCX will prevail, viewing the likelihood of any material loss as remote[197] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's IPO Prospectus dated April 29, 2021 - No material changes to the risk factors disclosed in the IPO Prospectus have occurred[198] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the use of $241.2 million net IPO proceeds, with $54.2 million used for stock repurchase and the remainder for general corporate purposes and potential investments - The IPO on April 30, 2021, generated net proceeds of $241.2 million after underwriting discounts and commissions[201][203] - $54.2 million of the net proceeds were used to purchase and retire 4,455,384 shares of common stock[204] - The remaining proceeds are being used for general corporate purposes, working capital, and potential funding for a 1.7 GW multi-project transaction[205] Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including corporate governance documents, credit agreements, and SEC certifications