FTC Solar(FTCI) - 2022 Q1 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) The company reported a significant net loss and decreased assets, raising substantial doubt about its going concern ability Condensed Consolidated Balance Sheets Total assets decreased to $211.4 million by March 31, 2022, driven by a significant reduction in cash and equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $49,383 | $102,185 | | Accounts receivable, net | $132,230 | $107,548 | | Total current assets | $204,293 | $235,779 | | Total assets | $211,408 | $243,020 | | Liabilities & Equity | | | | Total current liabilities | $84,460 | $93,248 | | Total liabilities | $91,240 | $100,154 | | Accumulated deficit | $(177,025) | $(149,232) | | Total stockholders' equity | $120,168 | $142,866 | Condensed Consolidated Statements of Comprehensive Loss Total revenue declined to $49.6 million, leading to a significant gross loss and a widened net loss of $27.8 million Q1 2022 vs Q1 2021 Performance (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total revenue | $49,553 | $65,707 | | Gross profit (loss) | $(9,287) | $119 | | Loss from operations | $(27,778) | $(8,019) | | Net loss | $(27,793) | $(7,442) | | Net loss per share (diluted) | $(0.28) | $(0.11) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $53.1 million, reducing cash and equivalents to $49.4 million Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(53,106) | $(25,904) | | Net cash used in investing activities | $(186) | $(85) | | Net cash provided by (used in) financing activities | $428 | $(2,045) | | Net decrease in cash | $(52,802) | $(28,033) | Notes to Condensed Consolidated Financial Statements Notes highlight substantial doubt about going concern, management's mitigation plans, and details on reserves and legal proceedings - The company has determined there is substantial doubt about its ability to continue as a going concern within one year, based on recurring losses, the impact of the AD/CVD investigation, and expected continued operating losses[37] - Management has initiated actions to mitigate liquidity issues, including negotiating with lenders, improving operational performance, freezing non-essential hiring, negotiating payment terms, and exploring options for additional capital[38][155] - The company is involved in a lawsuit with FCX Solar, LLC, which alleges breach of contract and patent infringement, but the company believes the claims are without merit and that a material loss is remote[84] - A $5.0 million reserve against revenue was recognized during the quarter for a potential customer concession[71] - In February 2022, the company engaged FEOC, a related party, for consulting services, incurring $1.1 million in general and administrative expenses for the quarter[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes poor Q1 2022 performance to supply chain issues and trade investigations, impacting revenue, margins, and liquidity - Key factors negatively impacting performance include government trade actions (AD/CVD investigation), disruptions in transportation and supply chains leading to higher costs for steel and logistics, and the ongoing effects of the COVID-19 pandemic[99][100][103] - The U.S. Department of Commerce's AD/CVD investigation has caused developers to defer projects, which is expected to negatively impact the company's anticipated revenues and cash flows[35][150] Non-GAAP Reconciliation Highlights (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net loss per GAAP | $(27,793) | $(7,442) | | Adjusted EBITDA | $(19,965) | $(6,664) | | Adjusted Net Loss | $(20,284) | $(6,676) | | Adjusted EPS (Diluted) | $(0.20) | $(0.10) | Results of Operations Total revenue declined 24.6% to $49.6 million, with gross margin plummeting to -18.7% due to various cost pressures Revenue Breakdown by Type (in thousands) | Revenue Type | Q1 2022 | Q1 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product | $30,968 | $56,462 | $(25,494) | (45.2)% | | Service | $18,585 | $9,245 | $9,340 | 101.0% | | Total revenue | $49,553 | $65,707 | $(16,154) | (24.6)% | - The decrease in product revenue was primarily due to a customer concession reserve, a 34% decrease in MW produced, and an 11% decrease in Average Selling Price (ASP)[126] - Gross profit fell by $9.4 million, resulting in a gross loss of $9.3 million (-18.7% margin) in Q1 2022, compared to a gross profit of $0.1 million (0.2% margin) in Q1 2021[131][132] - General and administrative expenses increased 171.8% to $13.8 million, mainly due to higher stock-based compensation ($3.2M), payroll ($2.9M), and legal/professional fees ($1.0M)[139] Liquidity and Capital Resources Liquidity significantly tightened with cash at $49.4 million and limited available liquidity due to debt covenants - As of March 31, 2022, the company had $49.4 million in cash, $119.8 million in working capital, and $98.1 million of unused borrowing capacity[148] - A minimum liquidity covenant of $125.0 million on the revolving credit facility restricts available liquidity, which was approximately $22.4 million as of March 31, 2022[148] - The company collected approximately $62 million of receivables subsequent to quarter-end, increasing its cash balance to around $71 million as of May 12, 2022[149] - The company may need to issue additional debt or equity to fund operations for the next twelve months if its initiatives are not successful or if market conditions deteriorate[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price fluctuations and customer concentrations, potentially impacting margins - The primary market risks are customer concentrations and fluctuations in the prices of steel, aluminum, and logistics/transportation[199] - The company is subject to indirect risk from fluctuating commodity prices (steel, aluminum) as its contract manufacturers procure these materials, where significant price increases could reduce operating margins[200] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal controls, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022[201] - Three material weaknesses were identified: 1) Insufficient experienced personnel for public company accounting; 2) Inadequate controls over the period-end close and financial reporting process; 3) Ineffective information technology general controls[204][205] - A remediation plan is in progress, including hiring a Director of SEC Reporting, a Corporate Controller, a Director of Internal Audit, and a CIO, as well as implementing new tools and formalizing policies[207] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is defending against FCX Solar lawsuits alleging breach of contract and patent infringement, deeming material loss remote - FCX Solar, LLC filed lawsuits alleging breach of contract, fraud, unjust enrichment, and patent infringement, though the fraud and unjust enrichment claims were dismissed[212] - The company believes the claims are without merit, plans to vigorously defend against them, and has determined that a material loss is remote[212] Item 1A. Risk Factors Significant risks include a history of losses, intense competition, supply chain disruptions, and tight liquidity - Key business risks include a history of losses, competition from larger companies, and dependence on the solar industry's competitiveness[214] - Manufacturing and supply chain risks stem from reliance on contract manufacturers and their ability to source raw materials and deliver products in a timely, cost-effective manner[214] - Regulatory risks include changes in government incentives, tax credits, and international trade policies, such as tariffs, which could adversely affect business[220] - The company has a history of cash outflows and limited available liquidity of $22.4 million as of March 31, 2022, after considering debt covenants[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company completed its IPO in April 2021, generating $241.2 million in net proceeds for general corporate purposes - The company completed its IPO on April 30, 2021, with net proceeds of $241.2 million[217] - $54.2 million of IPO proceeds were used to purchase 4,455,384 shares of common stock, with the remainder used for general corporate purposes[217]