FTC Solar(FTCI) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Forward-Looking Statements This report contains forward-looking statements based on current expectations, which are subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on current expectations and projections, but actual results may differ due to known and unknown risks, uncertainties, and important factors[8][9] - Key risk factors include costs and integration challenges from acquisitions, inability to achieve anticipated benefits, failure to scale tracker systems internationally, and changes in applicable laws or regulations[9] - Investors should not unduly rely on these statements as predictions of future events, and the company does not plan to publicly update or revise them unless required by law[9][10][11][12] Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of loss, equity, and cash flows for the relevant periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $33,817 | $44,385 | | Accounts receivable, net | $69,728 | $49,052 | | Inventories | $6,045 | $14,949 | | Total current assets | $119,866 | $118,690 | | Total assets | $137,435 | $134,398 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $27,049 | $15,801 | | Accrued expenses | $12,248 | $23,896 | | Deferred revenue | $2,512 | $11,316 | | Total current liabilities | $50,921 | $60,340 | | Total liabilities | $58,041 | $67,948 | | Total stockholders' equity | $79,394 | $66,450 | | Total liabilities and stockholders' equity | $137,435 | $134,398 | - Total assets increased by $3.0 million from December 31, 2022, to June 30, 2023, driven by a significant increase in accounts receivable, net, partially offset by a decrease in cash and cash equivalents and inventories[14] - Total liabilities decreased by $9.9 million, primarily due to reductions in accrued expenses and deferred revenue, while total stockholders' equity increased by $12.9 million[14] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss | (in thousands, except per share data) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $32,359 | $30,721 | $73,253 | $80,274 | | Total cost of revenue | $30,158 | $37,233 | $69,017 | $96,073 | | Gross profit (loss) | $2,201 | $(6,512) | $4,236 | $(15,799) | | Loss from operations | $(10,367) | $(25,239) | $(22,764) | $(53,017) | | Net loss | $(10,414) | $(25,683) | $(22,176) | $(53,476) | | Basic and diluted net loss per share | $(0.09) | $(0.26) | $(0.20) | $(0.54) | - For the three months ended June 30, 2023, total revenue increased by 5.3% YoY, while gross profit turned positive at $2.2 million compared to a loss of $6.5 million in the prior year[16] - For the six months ended June 30, 2023, total revenue decreased by 8.7% YoY, but gross profit improved significantly to $4.2 million from a loss of $15.8 million in the prior year[16] - Net loss per share improved for both the three-month period (from $(0.26) to $(0.09)) and the six-month period (from $(0.54) to $(0.20)) year-over-year[16] Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity | (in thousands, except shares) | Balance as of Dec 31, 2022 | Shares issued for vested restricted stock awards | Issuance of common stock upon exercise of stock options | Shares issued for legal settlement | Sale of shares | Stock offering costs | Stock-based compensation | Net loss | Other comprehensive loss | Balance as of Jun 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common stock (shares) | 105,032,588 | 2,712,024 | 304,212 | 797,396 | 9,272,000 | — | — | — | — | 118,118,220 | | Common stock (amount) | $11 | $0 | $0 | $0 | $1 | $0 | $0 | $0 | $0 | $12 | | Additional paid-in capital | $315,345 | $4,860 | $51 | $2,000 | $23,639 | $(159) | $5,141 | — | — | $350,877 | | Accumulated deficit | $(248,845) | — | — | — | — | — | — | $(22,176) | — | $(271,021) | | Total stockholders' equity | $66,450 | $4,860 | $51 | $2,000 | $23,639 | $(159) | $5,141 | $(22,176) | $(413) | $79,394 | - Total stockholders' equity increased from $66.45 million at December 31, 2022, to $79.39 million at June 30, 2023, primarily driven by the sale of common stock under the ATM program and stock-based compensation[19] - The company issued 9,272,000 shares of common stock through sales, contributing $23.6 million to additional paid-in capital during the six months ended June 30, 2023[19] - Accumulated deficit increased by $22.18 million due to net loss during the six months ended June 30, 2023[19] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | (in thousands) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operations | $(30,809) | $(36,398) | | Net cash used in investing activities | $(197) | $(275) | | Net cash provided by financing activities | $20,577 | $514 | | Net decrease in cash and cash equivalents | $(10,568) | $(36,160) | | Cash and cash equivalents at end of period | $33,817 | $66,025 | - Net cash used in operating activities decreased by $5.59 million, from $(36.40) million in H1 2022 to $(30.81) million in H1 2023, indicating improved operational cash management[25] - Net cash provided by financing activities significantly increased to $20.58 million in H1 2023, primarily due to the sale of common stock, compared to $0.51 million in H1 2022[25] - Overall, the net decrease in cash and cash equivalents was substantially lower in H1 2023 at $(10.57) million, compared to $(36.16) million in H1 2022[25] Notes to Condensed Consolidated Financial Statements 1. Description of Business - FTC Solar, Inc is a global provider of solar tracker systems, proprietary software, and value-added engineering services, headquartered in Austin, Texas, with international subsidiaries[28] - The company's primary tracker system is Voyager (2P single-axis), and it introduced Pioneer (1P solar tracker) and a new mounting solution for U.S.-manufactured thin-film modules in September 2022[28] 2. Summary of Significant Accounting Policies - The company operates in one business segment: manufacturing and servicing solar tracker systems[32] - FTC Solar has incurred cumulative losses and cash outflows from operations, with an accumulated deficit of $271.0 million as of June 30, 2023[33] - The company maintains $33.8 million cash on hand, $68.9 million working capital, $75.6 million remaining ATM program capacity, and $98.0 million unused borrowing capacity under its Credit Facility[33][34] - Regulatory issues like UFLPA and the Solar Circumvention Investigation, along with supply chain disruptions and inflation, have negatively impacted revenues and cash flows[35][36][37][38][40] - The Inflation Reduction Act of 2022 is expected to bolster demand for solar products, extending ITCs through at least 2032[39] - Management believes existing cash, cost-saving initiatives (e.g., equity compensation, workforce reduction, supply chain diversification, Alpha Steel investment, ATM program), and improved market conditions will ensure sufficient liquidity for at least one year[41][42][43][44] - The company adopted ASU No 2016-13 (Credit Losses) effective January 1, 2023, which did not have a material impact on its financial statements[82] 3. Equity Method Investment - FTC Solar entered into an LLC Agreement with Taihua New Energy (Thailand) Co, LTD and DAYV LLC on February 9, 2023, to create Alpha Steel LLC[83] - Alpha Steel, located in Sealy, Texas, will produce steel components for utility-scale solar projects, enhancing the domestic supply chain and reducing exposure to import duties[83][84] - FTC Solar holds a 45% interest in Alpha Steel and made an initial capital contribution of $0.9 million, with potential for up to $2.6 million in additional contributions[84][85] 4. ATM Program - On September 14, 2022, FTC Solar filed a prospectus supplement for an 'at the money' (ATM) offering to sell up to $100 million of common stock[87] - During the six months ended June 30, 2023, the company sold 9,272,000 shares, generating $23.6 million in net proceeds[89] - As of June 30, 2023, approximately $75.6 million of capacity remained for future sales under the ATM program[89] 5. Accounts Receivable, Net Accounts Receivable Composition | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Trade receivables | $41,898 | $35,367 | | Revenue recognized in excess of billings | $26,103 | $14,844 | | Other receivables | $3,114 | $25 | | Total | $71,115 | $50,236 | | Allowance for credit losses | $(1,387) | $(1,184) | | Accounts receivable, net | $69,728 | $49,052 | - Accounts receivable, net, increased by $20.68 million from December 31, 2022, to June 30, 2023, primarily due to a rise in revenue recognized in excess of billings[90] 6. Inventories, Net Inventory Composition | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Finished goods | $6,833 | $16,269 | | Allowance for slow-moving and obsolete inventory | $(788) | $(1,320) | | Total | $6,045 | $14,949 | - Inventories, net, decreased by $8.9 million from December 31, 2022, to June 30, 2023, mainly due to a reduction in finished goods[91] 7. Prepaid and Other Current Assets Prepaid and Other Current Assets Composition | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Vendor deposits | $4,630 | $5,085 | | Prepaid expenses | $3,836 | $3,544 | | Deferred cost of revenue | $404 | $0 | | Total | $10,276 | $10,304 | - Prepaid and other current assets remained relatively stable, with a slight decrease from $10.30 million at December 31, 2022, to $10.28 million at June 30, 2023[92] 8. Leases - The company leases office and warehouse space, including its corporate headquarters, an applications laboratory, and new facilities in Sequin, India, South Africa, and Australia[93][94] Total Lease Cost | (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total lease cost | $378 | $281 | $699 | $594 | - Total lease cost increased by 34.5% YoY for the three months ended June 30, 2023, and by 17.7% YoY for the six months ended June 30, 2023[95] 9. Property and Equipment, Net Property and Equipment, Net | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total | $2,724 | $2,529 | | Accumulated depreciation | $(1,216) | $(827) | | Property and equipment, net | $1,508 | $1,702 | - Property and equipment, net, decreased by $0.19 million from December 31, 2022, to June 30, 2023, primarily due to accumulated depreciation[96] 10. Intangible Assets, Net and Goodwill Intangible Assets and Goodwill | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Intangible assets, net | $792 | $1,113 | | Goodwill | $7,173 | $7,538 | - Intangible assets, net, decreased by $0.32 million, and goodwill decreased by $0.37 million, primarily due to translation adjustments, from December 31, 2022, to June 30, 2023[97][98] 11. Debt - FTC Solar has a Senior Secured Revolving Credit Facility with aggregate commitments of up to $100.0 million, terminating on April 30, 2024[99] - As of June 30, 2023, the company had no draws on the Credit Facility but had $2.0 million in outstanding letters of credit, reducing available borrowing capacity to $98.0 million[99] - The Credit Facility Agreement was amended on June 7, 2023, to replace USD LIBOR with Term SOFR as the benchmark rate for future term loans[100] - The company was in full compliance with its financial condition covenant, maintaining a liquidity level above the required $125.0 million minimum as of June 30, 2023[101] 12. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accrued cost of revenue | $8,617 | $13,198 | | Accrued compensation | $214 | $4,688 | | Other accrued expenses | $3,417 | $6,010 | | Total accrued expenses | $12,248 | $23,896 | | Warranty reserves | $7,791 | $8,004 | | Total other current liabilities | $8,775 | $8,884 | - Total accrued expenses decreased by $11.65 million from December 31, 2022, to June 30, 2023, primarily due to lower accrued cost of revenue and compensation[102] Warranty Accrual Activity | (in thousands) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Balance at beginning of period | $12,426 | $9,346 | | Warranties issued during the period | $2,852 | $4,184 | | Settlements made during the period | $(2,337) | $(1,380) | | Changes in liability for pre-existing warranties | $(860) | $(706) | | Balance at end of period | $12,081 | $11,444 | - Warranty accruals increased from $11.44 million at June 30, 2022, to $12.08 million at June 30, 2023[104] 13. Income Taxes Income Tax (Benefit) Expense | (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Income tax (benefit) expense | $122 | $(90) | $(9) | $(166) | - The company recorded an income tax benefit of $0.12 million for the three months ended June 30, 2023, compared to an expense of $0.09 million in the prior year[105] - For the six months ended June 30, 2023, income tax expense was $0.01 million, significantly lower than $0.17 million in the prior year, primarily due to a valuation allowance against U.S. deferred tax assets[105] 14. Commitments and Contingencies - CBP issued tariff assessments in March 2023 for approximately $9.67 million related to torque beams imported from Thailand, asserting Section 301 China tariffs, Section 232 steel & aluminum tariffs, and AD/CVD[108] - The company disputes these assessments, believing the goods are products of Thailand due to substantial transformation and proper classification, and has made no accrual as of June 30, 2023[109][110][111] - While the company is working to resolve the matters, unfavorable rulings could materially affect its financial position[111] 15. Stock-Based Compensation Stock Compensation Expense | (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total stock compensation expense | $2,962 | $3,138 | $7,852 | $7,748 | - Total stock compensation expense decreased slightly by 5.6% YoY for the three months ended June 30, 2023, but increased by 1.3% YoY for the six months ended June 30, 2023[112] 16. Related Party Transactions - FTC Solar engaged Ayna.AI LLC, a related-party consulting firm, for process and performance improvements in areas like design, sourcing, and logistics[113] - General and administrative expense related to Ayna was $0.5 million for Q2 2023 and $1.4 million for H1 2023, with cash payments of $0.8 million and $1.7 million, respectively[113] 17. Net Loss Per Share Net Loss Per Share Calculation | | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss (in thousands) | $(10,414) | $(25,683) | $(22,176) | $(53,476) | | Weighted average shares outstanding (Basic and diluted) | 112,669,296 | 100,321,943 | 109,632,336 | 99,752,707 | | Basic and diluted loss per share | $(0.09) | $(0.26) | $(0.20) | $(0.54) | - Basic and diluted loss per share improved significantly from $(0.26) to $(0.09) for the three months ended June 30, 2023, and from $(0.54) to $(0.20) for the six months ended June 30, 2023[114] - Potentially dilutive securities, totaling 15.6 million shares as of June 30, 2023, were excluded from diluted EPS calculation as they were anti-dilutive due to the net loss[115][116] 18. Subsequent Events - Effective July 5, 2023, FTC Solar acquired and retired 312,500 shares of its common stock from ARC Family Trust for no monetary consideration[117] - Concurrent with the share retirement, the company issued 250,000 RSUs to Mr Tony Alvarez (Board Observer) and 62,500 RSUs to Mr William Aldeen 'Dean' Priddy, Jr (Board Director), with one-year vesting, resulting in zero dilution[118] - An amendment to the Alpha Steel LLC Agreement on July 28, 2023, allows members to make Credit Support Payments for contractual obligations, treated as capital contributions[119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, highlighting impacts from regulations, supply chain issues, strategic investments, and liquidity Overview - FTC Solar, Inc, founded in 2017 and incorporated in Delaware, completed its IPO in April 2021 and trades on Nasdaq under 'FTCI'[123] - The company is a global provider of solar tracker systems (Voyager 2P, Pioneer 1P), proprietary software, and engineering services, with headquarters in Austin, Texas, and international subsidiaries[124] - As an emerging growth company, FTC Solar elected to use the extended transition period for adopting new accounting standards[125] Key Factors Affecting Our Performance - Government regulations, including UFLPA, AD/CVD investigations, and tariffs, create market uncertainty and impact project timing and costs, leading to developer deferrals[126][127] - The Inflation Reduction Act of 2022 is expected to boost U.S. solar demand through extended ITCs (30-50% depending on labor/domestic content), though implementing regulations are still pending[128] - Supply chain disruptions, raw material costs (steel, motors, micro-chips), and transportation expenses significantly affect operating margins[129] - The company is diversifying its supply chain, optimizing logistics, and investing in domestic manufacturing (Alpha Steel) to mitigate these impacts[126][129][133] - Performance metrics include MW produced/shipped and Average Selling Price (ASP), which are influenced by supply/demand, product mix, tariffs, and government incentives[130] - Investments in technology (patent portfolio, product enhancements) and personnel (sales, engineers, software developers) are crucial for attracting customers and driving efficiencies[131] - Climate change increases demand for solar, and the company mitigates related risks by diversifying suppliers and designing equipment for high-slope tolerance and wind mitigation[132][133][134] Non-GAAP Financial Measures - FTC Solar uses Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS as supplemental non-GAAP measures to provide additional insight into operational performance[136][137] - Adjusted EBITDA excludes taxes, interest, depreciation, amortization, stock-based compensation, non-routine legal fees, severance, and other costs, while deducting contingent gains from unconsolidated subsidiary disposal[136] - Adjusted Net Loss further adjusts for amortization of debt issue costs and intangibles, and the income tax impact of these adjustments[136] Reconciliation of Non-GAAP Financial Measures | (in thousands, except per share data) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss per U.S. GAAP | $(10,414) | $(25,683) | $(22,176) | $(53,476) | | Adjusted EBITDA | $(7,239) | $(17,741) | $(14,391) | $(37,706) | | Adjusted Net Loss | $(7,163) | $(18,226) | $(14,521) | $(38,510) | | Adjusted EPS (Diluted) | $(0.06) | $(0.18) | $(0.13) | $(0.39) | - Adjusted EBITDA and Adjusted Net Loss showed significant improvements year-over-year for both the three and six-month periods ended June 30, 2023[140][143] Key Components of Our Results of Operations - Revenue streams include Product (solar tracker systems, components, software licenses) and Service (shipping, engineering, subscription, maintenance)[147][158] - Product revenue is recognized over time based on cost-to-cost progress, while service revenue is recognized over time or at a point in time depending on the service[147] - Revenue is influenced by sales volume, Average Selling Price (ASP), product/geographic mix, competition, tariffs, supply chain issues, government incentives, and seasonality[150][151] - Cost of revenue includes raw materials, freight, warranty, and personnel costs, and is affected by material prices, manufacturing innovation, economies of scale, and headcount changes[152][153][162] - Operating expenses comprise R&D, selling & marketing, and G&A, with personnel-related costs being the most significant component[154] - Operating costs are impacted by R&D activities, sales expansion, legal/professional fees, and strategic changes, with recent workforce reductions and hiring freezes[155] Results of Operations - Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 Quarterly Results of Operations | (in thousands, except percentages) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $21,074 | $9,166 | $11,908 | 129.9% | | Service revenue | $11,285 | $21,555 | $(10,270) | (47.6)% | | Total revenue | $32,359 | $30,721 | $1,638 | 5.3% | | Total cost of revenue | $30,158 | $37,233 | $(7,075) | (19.0)% | | Gross profit (loss) | $2,201 | $(6,512) | $8,713 | (133.8)% | | Loss from operations | $(10,367) | $(25,239) | $14,872 | (58.9)% | | Net loss | $(10,414) | $(25,683) | $15,269 | (59.4)% | - Total revenue increased by 5.3% to $32.36 million, driven by a 129.9% surge in product revenue due to increased MW produced, partially offset by a 47.6% decrease in service revenue[159][160][161] - Gross profit turned positive at $2.20 million (6.8% margin) from a $(6.51) million loss (negative 21.2% margin) in the prior year, attributed to lower direct/warranty costs and reduced overhead[164][165] - Operating expenses decreased by 32.9% to $12.57 million, with significant reductions in R&D (30.9%), selling & marketing (36.7%), and G&A (32.4%), leading to a substantial improvement in loss from operations[157][168][170][173] - Net loss improved by 59.4% to $(10.41) million, reflecting improved gross profit and reduced operating expenses[157] Results of Operations - Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 Semi-Annual Results of Operations | (in thousands, except percentages) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $53,653 | $40,134 | $13,519 | 33.7% | | Service revenue | $19,600 | $40,140 | $(20,540) | (51.2)% | | Total revenue | $73,253 | $80,274 | $(7,021) | (8.7)% | | Total cost of revenue | $69,017 | $96,073 | $(27,056) | (28.2)% | | Gross profit (loss) | $4,236 | $(15,799) | $20,035 | (126.8)% | | Loss from operations | $(22,764) | $(53,017) | $30,253 | (57.1)% | | Net loss | $(22,176) | $(53,476) | $31,300 | (58.5)% | - Total revenue decreased by 8.7% to $73.25 million, primarily due to a 51.2% drop in service revenue, partially offset by a 33.7% increase in product revenue[176][177][178] - Gross profit turned positive at $4.24 million (5.8% margin) from a $(15.80) million loss (negative 19.7% margin) in the prior year, driven by improved product ASP and lower direct/indirect costs[180][181] - Operating expenses decreased by 27.5% to $27.00 million, with reductions across R&D (29.9%), selling & marketing (27.3%), and G&A (27.0%), contributing to a 57.1% improvement in loss from operations[175][183][184][185] - Net loss improved by 58.5% to $(22.18) million, reflecting the positive gross margin and reduced operating expenses[175] - Gain from disposal of investment in unconsolidated subsidiary increased by 166.5% to $0.90 million, due to contingent payments from escrow related to Dimension Energy LLC[188] Liquidity and Capital Resources - FTC Solar has a history of cumulative losses ($271.0 million accumulated deficit as of June 30, 2023) and cash outflows from operations[190] - As of June 30, 2023, the company had $33.8 million cash, $68.9 million working capital, $75.6 million ATM program capacity, and $98.0 million unused Credit Facility capacity[190] - Regulatory uncertainties (UFLPA, Solar Circumvention Investigation) and supply chain issues continue to impact revenues and cash flows, but the Inflation Reduction Act is expected to boost demand[191][192][193][194][195][196] - Management believes current cash and strategic actions (e.g., cost controls, supply chain diversification, Alpha Steel investment, ATM program) will provide sufficient liquidity for at least one year[199][200][201][202] Cash Flow Summary | (in thousands) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operations | $(30,809) | $(36,398) | | Net cash used in investing activities | $(197) | $(275) | | Net cash provided by financing activities | $20,577 | $514 | | Net decrease in cash and cash equivalents | $(10,568) | $(36,160) | - Cash used in operations decreased by $5.59 million YoY, while cash provided by financing activities significantly increased by $20.06 million YoY, primarily from common stock sales under the ATM program[205][209] - Investing activities included a $0.9 million equity investment in Alpha Steel and $0.9 million in contingent payments received from the Dimension Energy LLC disposal[207] - The Credit Facility was amended to replace LIBOR with Term SOFR, and the company remains in compliance with its $125.0 million minimum liquidity covenant[211][214] Critical Accounting Policies and Significant Management Estimates - Preparation of financial statements requires significant management estimates and assumptions, particularly for revenue recognition, credit losses, inventory, asset impairment, stock compensation, and taxes[215][216][217] - Revenue recognition involves a five-step process, with key judgments in identifying performance obligations, determining transaction price, and allocating it, especially for solar tracker systems recognized over time[218][219][222][226][227][229] - The allowance for credit losses is based on lifetime expected credit loss, considering historical experience, credit quality, and economic conditions, with potential for variability under the new ASU 2016-13 model[233][234][235] - Warranty obligations are estimated based on historical experience and forward-looking factors, with potential material adjustments if actual costs differ from estimates[236][237][238] - Stock-based compensation fair value is estimated using Black-Scholes or Monte Carlo simulations, relying on assumptions like expected term, volatility, and risk-free interest rates, which can impact reported expense[239][240][241][242][243][244][245][246] - Impairment assessments for long-lived assets, intangible assets, and goodwill involve evaluating indicators, estimating future cash flows, and determining fair value, with no impairments identified as of June 30, 2023[247][248][249][250][251][252] - As an emerging growth company, FTC Solar elected to delay adopting new accounting standards until they apply to private companies[253] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily from customer concentrations, commodity price fluctuations, and logistics costs - FTC Solar is exposed to market risk from customer concentrations and fluctuating prices of steel, aluminum, and logistics/transportation[254][260] - Financial instruments (cash, accounts receivable, accounts payable) are stated at carrying value, approximating fair value due to short maturities[255] - The company had $33.8 million in cash and cash equivalents as of June 30, 2023, with no debt outstanding, and reallocated cash balances based on financial institution health[256] - Reliance on a small number of customers for a large portion of revenue and receivables exposes the company to credit risk within the solar industry[258][259] - Indirect commodity price risk from contract manufacturers could reduce operating margins if cost increases are not recoverable from customers[260] Item 4. Controls and Procedures Management evaluated and concluded that the company's disclosure controls and procedures were effective as of the period end, with no material changes in internal control - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance for timely and accurate reporting[261] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023[263] - The company acknowledges that no control system can prevent all error and fraud, providing only reasonable assurance[262] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is disputing tariff assessments from U.S. Customs and Border Protection totaling approximately $9.67 million and has made no accrual for this amount - CBP issued tariff assessments in March 2023 for approximately $9.67 million related to imported torque beams, asserting Section 301 China tariffs, Section 232 steel & aluminum tariffs, and AD/CVD[267] - FTC Solar disputes the assessments, arguing the goods are products of Thailand due to substantial transformation and proper classification, and has made no accrual for these amounts[268][269] - The company is in communication with CBP to resolve the matters, but acknowledges that unfavorable rulings could materially impact its financial position[269] Item 1A. Risk Factors The company faces significant risks related to its history of losses, intense competition, dependence on government incentives, trade regulations, and supply chain disruptions - Risks include being a relatively new public company with a history of losses, intense competition in the rapidly changing solar industry, and dependence on government incentives and tax credits[271] - The company faces risks from changes in trade environments, import tariffs, and other regulations impacting product importability, as well as reliance on contract manufacturers for timely and cost-effective raw material procurement[271][276] - Other risks include the inability to protect intellectual property, cybersecurity incidents, stock price fluctuations, and the adverse impacts of health epidemics like COVID-19 on supply chains and operations[276] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities occurred and details the use of proceeds from the April 2021 Initial Public Offering - No unregistered sales of equity securities occurred during the period[273] - Proceeds from the April 2021 IPO ($241.2 million net) were used to purchase $54.2 million of common stock and for general corporate purposes, including working capital and operating expenses[274] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities[277] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - Not applicable; no mine safety disclosures[278] Item 5. Other Information This section discloses that seven executive officers terminated their 10b5-1 trading plans in May 2023 - Seven executive officers, including the CEO, CFO, and COO, terminated their 10b5-1 Plans in May 2023[279][280] - These plans were primarily established for selling common stock to satisfy tax obligations arising from the vesting and settlement of restricted stock units[280] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, agreements, certifications, and XBRL-related files - The exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), employment agreements, and amendments to the Senior Secured Revolving Facility[281] - Certifications from the Principal Executive Officer and Principal Financial Officer (Sarbanes-Oxley Act Sections 302 and 906) are also filed[281] - Inline XBRL documents for the instance, schema, calculation, definition, label, and presentation linkbase are included[281] SIGNATURES - The report is signed by Sean Hunkler, President and Chief Executive Officer, and Phelps Morris, Chief Financial Officer, on August 9, 2023[285]