Tigo Energy(TYGO) - 2023 Q3 - Quarterly Report

FORM 10-Q Filing Information This section provides key administrative details about the company's quarterly report filing, including registrant information, securities registered, filer status, and outstanding shares Registrant Information Tigo Energy, Inc. filed its quarterly report for the period ended September 30, 2023, registered in Delaware and headquartered in Campbell, California - Company name: Tigo Energy, Inc. (formerly Roth CH Acquisition IV Co.)[2] - Jurisdiction of incorporation: Delaware[2] - Principal executive offices: 655 Campbell Technology Parkway, Suite 150, Campbell, California 95008[2] Securities Registered The company's common stock is listed and traded on The Nasdaq Stock Market LLC under the ticker symbol TYGO Registered Securities Information | Title of each class | Trading Symbol | Name of each exchange on which registered | | :------------------ | :------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | TYGO | The Nasdaq Stock Market LLC | Filer Status The company is designated as a non-accelerated filer, a smaller reporting company, and an emerging growth company, having submitted all required reports and interactive data files Filer Classification | Large accelerated filer | ☐ | | :-------------------- | :-- | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | - The company has filed all required reports in the past 12 months and has complied with filing requirements in the past 90 days[4] - The company has electronically submitted all required interactive data files in the past 12 months[4] Outstanding Shares As of November 3, 2023, the company had 58,735,987 shares of common stock outstanding with a par value of $0.0001 per share - As of November 3, 2023, the number of common shares outstanding was 58,735,987, with a par value of $0.0001 per share[5] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY This section outlines the nature of forward-looking statements within the report and provides a summary of the principal risks the company faces Forward-Looking Statements This quarterly report contains forward-looking statements regarding the company's financial condition, business strategy, and future operational objectives, which are subject to risks and uncertainties - Forward-looking statements involve financial condition, business strategy, and future operational objectives, and are not guarantees of performance[6] - These statements are based on management's current estimates and projections of future results or trends[6] - Actual results or performance may differ materially from forward-looking statements due to various risks, uncertainties, and assumptions[7] Summary of Principal Risks The company faces diverse risks, including business and industry challenges, legal and operational compliance issues, competitive pressures, intellectual property concerns, financial stability, and securities ownership risks - Business and industry risks include: inability to achieve or maintain profitability if revenue growth is insufficient while expenses increase; slow growth in demand for solar solutions; adverse impact from alternative technology development; cyclicality and current downturn in the solar industry; and potential lack of broader market acceptance for MLPE products[11] - Legal, compliance, and operational risks include: product liability lawsuits; loss of key personnel; failure of the energy intelligence solutions market to develop; reduction in government subsidies and economic incentives; management's lack of public company operating experience; significant international operational risks; litigation or administrative proceedings; impact of seasonal trends and construction cycles; product defects, recalls, or manufacturing issues; inaccurate estimates of energy storage system useful life; and R&D cost investments that may not generate revenue[11] - Other risks include: loss of major customers; long sales and installation cycles; reliance on monitoring service subscription renewals; supply chain competition; rapid evolution of the solar industry; patent applications and intellectual property protection; personal information breaches; product pricing pressure; inaccurate demand forecasts; common stock price volatility; securities litigation; internal control failures; Nasdaq continued listing standard compliance; impact of securities analyst reports; and future common stock sales[14] TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, income statements, equity statements, and cash flow statements, along with detailed notes on key accounting policies and financial disclosures Condensed Consolidated Balance Sheets As of September 30, 2023, total assets grew to $143.1 million from $88.1 million, with significant increases in marketable securities and inventory, while cash decreased and stockholders' equity turned positive Condensed Consolidated Balance Sheets Key Data (in $ thousand) | Indicator | September 30, 2023 | December 31, 2022 | Change Amount | Change Rate | | :----------------------- | :------------- | :------------- | :----- | :----- | | Cash and cash equivalents | $2,240 | $36,194 | $(33,954) | -93.8% | | Marketable securities, short-term | $34,440 | — | $34,440 | N/A | | Accounts receivable, net | $20,358 | $15,816 | $4,542 | 28.7% | | Inventory, net | $57,437 | $24,915 | $32,522 | 130.5% | | Total assets | $143,141 | $88,078 | $55,063 | 62.5% | | Total liabilities | $67,314 | $56,630 | $10,684 | 18.9% | | Stockholders' equity (deficit) | $75,827 | $(55,692) | $131,519 | N/A | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended September 30, 2023, revenue decreased by 25%, but net income reached $29.1 million due to derivative liability fair value changes; for the nine months, revenue grew by 170%, with net income of $13.8 million Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Key Data (in $ thousand, except per share data) | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount (3 months) | Change Rate (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount (9 months) | Change Rate (9 months) | | :----------------------- | :--------------------- | :--------------------- | :-------------- | :-------------- | :--------------------- | :--------------------- | :-------------- | :-------------- | | Revenue, net | $17,104 | $22,824 | $(5,720) | -25.1% | $135,988 | $50,382 | $85,606 | 170.0% | | Cost of revenues | $12,946 | $16,236 | $(3,290) | -20.3% | $87,555 | $35,579 | $51,976 | 146.1% | | Gross profit | $4,158 | $6,588 | $(2,430) | -36.9% | $48,433 | $14,803 | $33,630 | 227.2% | | Total operating expenses | $15,376 | $8,681 | $6,695 | 77.1% | $43,166 | $17,858 | $25,308 | 141.7% | | Operating income (loss) | $(11,218) | $(2,093) | $(9,125) | -435.9% | $5,267 | $(3,055) | $8,322 | N/A | | Other income (expense), net | $(51,236) | $328 | $(51,564) | N/A | $(8,552) | $4,885 | $(13,437) | N/A | | Income tax expense | $10,962 | — | $10,962 | N/A | $29 | — | $29 | N/A | | Net income (loss) | $29,056 | $(2,421) | $31,477 | N/A | $13,790 | $(7,940) | $21,730 | N/A | | Basic net income per share | $0.50 | $(0.92) | $1.42 | N/A | $0.19 | $(2.51) | $2.70 | N/A | | Diluted net income per share | $(0.27) | $(0.92) | $0.65 | N/A | $0.04 | $(2.51) | $2.55 | N/A | Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) As of September 30, 2023, stockholders' equity transitioned from a $55.7 million deficit to a $75.8 million positive balance, driven by the business combination's conversion of preferred stock and increased additional paid-in capital Stockholders' Equity (Deficit) Changes (in $ thousand) | Indicator | September 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :------------- | | Common stock | $6 | $1 | | Additional paid-in capital | $136,983 | $6,522 | | Accumulated deficit | $(61,006) | $(62,215) | | Accumulated other comprehensive loss | $(156) | — | | Total stockholders' equity (deficit) | $75,827 | $(55,692) | - The business combination resulted in the conversion of convertible preferred stock into common stock and an increase in additional paid-in capital[24] - As of September 30, 2023, all convertible preferred stock had been converted into common stock, with no preferred stock outstanding[20][24] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, operating cash outflow increased to $29.4 million, investing cash outflow significantly rose to $40.9 million, and financing cash inflow decreased to $34.8 million, leading to a net decrease in cash of $35.5 million Condensed Consolidated Statements of Cash Flows Key Data (in $ thousand) | Cash Flow Activity | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :----------------------- | :--------------------- | :--------------------- | :----- | :----- | | Net cash from operating activities | $(29,379) | $(13,248) | $(16,131) | -121.8% | | Net cash from investing activities | $(40,919) | $(662) | $(40,257) | -6081.1% | | Net cash from financing activities | $34,821 | $49,987 | $(15,166) | -30.3% | | Net increase (decrease) in cash and restricted cash | $(35,477) | $36,077 | $(71,554) | -198.3% | | Cash and restricted cash, end of period | $2,240 | $43,551 | $(41,311) | -94.9% | - The increase in cash outflow from operating activities was primarily due to increased inventory purchases, lower sales volume in the third quarter, and an increase in days sales outstanding[225] - The significant increase in cash outflow from investing activities was mainly due to purchases of marketable securities and property and equipment, partially offset by proceeds from sales and maturities of marketable securities[226] Notes to Condensed Consolidated Financial Statements The financial statement notes provide detailed disclosures on the company's operations, accounting policies, business combinations, EPS, fair value of financial instruments, revenue, debt, commitments, equity, leases, goodwill, intangibles, and income taxes, also explaining accounting choices as an emerging growth company 1. Nature of Operations Tigo Energy, Inc. and its subsidiaries provide solar and energy storage solutions, including MLPE and EI solutions, to maximize energy output and enhance safety, with its business combination accounted for as a reverse recapitalization - The company provides solar and energy storage solutions, including MLPE and EI solutions, to maximize energy output and enhance safety[35] - The company is headquartered in Campbell, with offices in Europe, Asia, Australia, and the Middle East[35] - The company's business combination with ROCG was accounted for as a reverse recapitalization, with ROCG considered the acquired entity[38] 2. Summary of Significant Accounting Policies As an emerging growth company, the company has opted to delay the adoption of new accounting standards, preparing its GAAP financial statements by consolidating Tigo and its subsidiaries, making necessary estimates and judgments - As an emerging growth company, the company has elected to delay the adoption of new or revised accounting standards[41] - Financial statements include accounts of Tigo and its wholly-owned subsidiaries in Israel, Italy, China, and Australia, with all intercompany transactions and balances eliminated[42] - The company has adopted new accounting standards such as ASU No. 2016-13 (CECL), ASU No. 2016-02 (Leases), and ASU No. 2020-06 (Convertible Instruments), with no significant impact on the financial statements[56][57][58] 3. Merger with Roth CH Acquisition IV Co. The business combination with Roth CH Acquisition IV Co. was completed on May 23, 2023, treated as a reverse recapitalization with Legacy Tigo as the accounting acquirer, resulting in 58,144,543 common shares outstanding - The business combination was completed on May 23, 2023, and accounted for as a reverse recapitalization, with Legacy Tigo as the accounting acquirer[60] - Prior to the merger, all Legacy Tigo convertible preferred stock and warrants were converted into Legacy Tigo common stock[67] - Post-merger, the total common stock outstanding was 58,144,543 shares[63] 4. Acquisition of Foresight Energy, Ltd. On January 25, 2023, the company acquired 100% of fSight for $13.1 million, aiming to expand intelligent energy management capabilities, which resulted in $13.079 million in goodwill - The company acquired 100% of fSight, an AI-based energy intelligence software platform, on January 25, 2023[64] - Total consideration was $13.1 million, including $11.0 million in common stock and $2.1 million in contingent shares[65][66][68] - The acquisition generated $13.079 million in goodwill, primarily attributed to anticipated synergies, the value of the assembled workforce, and management team experience[68][70] 5. Net Income (Loss) Per Share Basic and diluted net income (loss) per share are calculated using the two-class method, with diluted EPS equaling basic EPS during net loss periods due to anti-dilutive shares Basic and Diluted Net Income (Loss) Per Share | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Basic net income (loss) per share | $0.50 | $(0.92) | $0.19 | $(2.51) | | Diluted net income (loss) per share | $(0.27) | $(0.92) | $0.04 | $(2.51) | | Basic weighted-average common shares | 58,408,441 | 4,908,232 | 31,070,476 | 4,852,696 | | Diluted weighted-average common shares | 68,368,758 | 4,908,232 | 40,487,517 | 4,852,696 | - During net loss periods, diluted net loss per share is the same as basic net loss per share because dilutive shares are considered anti-dilutive[77] 6. Fair Value of Financial Instruments The company measures financial assets and liabilities using a three-level fair value hierarchy, holding $38.775 million in available-for-sale marketable securities as of September 30, 2023, with certain liabilities reclassified Fair Value Measurements as of September 30, 2023 (in $ thousand) | Indicator | Level 1 | Level 2 | Level 3 | | :----------------------- | :------ | :------ | :------ | | Cash equivalents: Money market accounts | $108 | — | — | | Marketable securities: Corporate bonds | — | $20,377 | — | | Marketable securities: U.S. agency securities | — | $18,398 | — | | Contingent share liability | $1,809 | — | — | - As of September 30, 2023, total available-for-sale marketable securities were $38.775 million, primarily comprising corporate bonds and U.S. agency securities[83] - Convertible note derivative liabilities were reclassified to equity on September 24, 2023, and recorded in additional paid-in capital[54][86] 7. Revenue Recognition For the nine months ended September 30, 2023, EMEA contributed $105.6 million in revenue, Americas $21.8 million, and APAC $8.6 million, with deferred revenue of $0.46 million and product warranty liability of $5.8 million Net Revenue by Geographic Region (in $ thousand) | Region | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :--- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | EMEA | $10,241 | $13,999 | $105,595 | $30,861 | | Americas | $3,576 | $6,681 | $21,776 | $15,818 | | APAC | $3,287 | $2,144 | $8,617 | $3,703 | | Total | $17,104 | $22,824 | $135,988 | $50,382 | - As of September 30, 2023, the deferred revenue balance was $0.46 million, expected to be recognized over the next 3.2 years[92] - As of September 30, 2023, product warranty liability was $5.8 million, an increase from $4.351 million on December 31, 2022[95] 8. Selected Financial Data As of September 30, 2023, net inventory was $57.4 million, primarily finished goods, with net property and equipment at $2.8 million, and accrued expenses increasing to $8.7 million due to contingent share liabilities Inventory, Net (in $ thousand) | Indicator | September 30, 2023 | December 31, 2022 | | :----------- | :------------- | :------------- | | Raw materials | $1,063 | $1,869 | | Work-in-process | — | $31 | | Finished goods | $57,448 | $23,293 | | Inventory reserve | $(1,074) | $(278) | | Inventory, net | $57,437 | $24,915 | Property and Equipment, Net (in $ thousand) | Indicator | September 30, 2023 | December 31, 2022 | | :----------------- | :------------- | :------------- | | Machinery and equipment | $5,297 | $3,881 | | Accumulated depreciation | $3,783 | $3,192 | | Property and equipment, net | $2,763 | $1,652 | - As of September 30, 2023, accrued expenses and other current liabilities were $8.7 million, with $2.0 million primarily related to contingent share liabilities from the fSight acquisition[98] 9. Long-Term Debt As of September 30, 2023, long-term debt primarily consisted of $50.0 million in convertible promissory notes, bearing 5.0% annual interest and maturing on January 9, 2026, with prior notes fully repaid Long-Term Debt Composition (in $ thousand) | Indicator | September 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :------------- | | Convertible promissory notes | $50,000 | — | | Series 2022-1 notes | — | $20,833 | | Less: Unamortized debt discount and issuance costs | $(20,666) | $(191) | | Less: Current portion | — | $(10,000) | | Long-term debt, net | $29,334 | $10,642 | - The convertible promissory notes have a principal of $50.0 million, an annual interest rate of 5.0%, and mature on January 9, 2026[100] - In January 2023, the company fully repaid the Series 2022-1 notes using proceeds from the convertible promissory notes[106] 10. Commitments and Contingencies The company has employment agreements with key personnel and may face litigation in the normal course of business, providing indemnification to directors and officers with minimal estimated fair value - The company has entered into employment agreements with key personnel, providing compensation and severance in specific circumstances[109] - The company may be involved in litigation or legal disputes in the normal course of business, but potential outcomes are difficult to quantify[110] - The company provides indemnification to its directors and officers to the extent permitted by law, but as of September 30, 2023, the estimated fair value is minimal, and no liabilities have been recognized[112][113] 11. Common Stock and Convertible Preferred Stock The company is authorized to issue 150 million shares of common stock, with 16,296,952 shares reserved for future issuance, and all convertible preferred stock converted to common stock as of September 30, 2023 - The company is authorized to issue 150 million shares of common stock, each with one vote[114] - As of September 30, 2023, 16,296,952 shares of common stock were reserved for future issuance, including for stock options, restricted stock units, L1 convertible note conversions, fSight contingent shares, and awards under the 2023 Equity Incentive Plan[115] - All Legacy Tigo warrants were exercised or redeemed by September 8, 2023, and all convertible preferred stock was converted into common stock in the business combination, with no preferred stock outstanding as of September 30, 2023[116][120][121] 12. Stock-Based Compensation The company grants stock-based compensation through equity incentive plans, with $11.9 million in unrecognized stock option expense and $10.2 million in unrecognized RSU expense as of September 30, 2023, to be recognized over 3.4 and 2.7 years, respectively Stock-Based Compensation Expense (in $ thousand) | Expense Category | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :--------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Research and development | $180 | $67 | $292 | $79 | | Sales and marketing | $455 | $97 | $901 | $106 | | Cost of revenues | $59 | $30 | $113 | $35 | | General and administrative | $580 | $147 | $831 | $173 | | Total stock-based compensation expense | $1,274 | $341 | $2,137 | $393 | - As of September 30, 2023, unrecognized stock option compensation expense was $11.9 million, expected to be recognized over 3.4 years[134] - As of September 30, 2023, unrecognized restricted stock unit (RSU) compensation expense was $10.2 million, expected to be recognized over 2.7 years[137] 13. Leases The company leases office space and vehicles globally, with all leases classified as operating leases, a weighted-average remaining lease term of 3.0 years, and total future minimum lease payments of $3.0 million as of September 30, 2023 - All company leases are classified as operating leases, with no finance or sales-type leases[138] Lease-Related Information | Indicator | September 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :------------- | | Weighted-average remaining lease term (years) | 3.0 | 2.7 | | Weighted-average discount rate | 5.0% | 5.4% | Future Lease Liability Maturities (in $ thousand) | Period | Operating Leases | | :--------- | :------- | | Remainder of 2023 | $328 | | 2024 | $1,300 | | 2025 | $549 | | 2026 | $385 | | 2027 | $335 | | Thereafter | $64 | | Total | $2,961 | 14. Goodwill and Intangible Assets As of September 30, 2023, goodwill totaled $13.1 million from the fSight acquisition, and net amortizable intangible assets were $2.3 million, with amortization expected over 4 to 10 years - As of September 30, 2023, the company's goodwill balance was $13.1 million, primarily from the fSight acquisition[141] Intangible Asset Composition (in $ thousand) | Asset Class | Weighted-Average Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | | :--------------- | :--------------------- | :------- | :------- | :--------- | | Patents | 6.7 | $450 | $(48) | $402 | | Customer relationships | 10.0 | $170 | $(11) | $159 | | Developed technology | 10.0 | $1,820 | $(121) | $1,699 | | Total intangible assets | | $2,440 | $(180) | $2,260 | Future Amortization Expense (in $ thousand) | Period | Amount | | :--------- | :--- | | Remainder of 2023 | $70 | | 2024 | $270 | | 2025 | $270 | | 2026 | $270 | | 2027 | $262 | | Thereafter | $1,118 | | Total | $2,260 | 15. Income Taxes In Q3 2023, the company recorded an $11.0 million income tax expense and a valuation allowance against U.S. federal net deferred tax assets due to significant industry outlook changes, while nine-month income tax expense was $29 thousand - In the third quarter of 2023, the company recorded a valuation allowance against its U.S. federal net deferred tax assets due to significant changes in industry outlook, including installer bankruptcies, order cancellations, slower installation rates, increased channel inventory, and macroeconomic slowdown[146] - For the three months ended September 30, 2023, income tax expense was $11.0 million; for the nine months, income tax expense was $29 thousand[148] - For the three months ended September 30, 2023, the effective tax rate was 27.4%, primarily impacted by discrete tax expenses from the valuation allowance against U.S. net deferred tax assets[149] 16. Related Party Transactions In December 2022, a $0.1 million full recourse promissory note from the CEO and a former director was waived, with a similar related party note receivable existing as of September 30, 2022 - As of September 30, 2022, the company's CEO and a former director had a $0.1 million full recourse promissory note, which was waived in December 2022[153] 17. Subsequent Events The company has evaluated subsequent events up to the financial statement issuance date and identified no material events requiring adjustment or disclosure - The company did not identify any material subsequent events requiring adjustment or disclosure[154] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operating results for the period ended September 30, 2023, covering its overview, recent developments, key metrics, influencing factors, and cash flow analysis Overview Tigo Energy, Inc. is a global leader in smart hardware and software solutions, enhancing safety, energy yield, and operational cost reduction for solar systems across residential, commercial, and utility-scale applications worldwide - The company is a global leader in smart hardware and software solutions, focused on enhancing the safety, energy yield, and operational cost reduction of solar systems[157] - The company offers Flex MLPE and solar optimizer technology, combined with intelligent cloud-based software for advanced energy monitoring and control[158] - The company's products are sold in over 100 countries, covering residential, commercial, industrial, and utility systems[160] Recent Developments The company recently completed the redemption of common stock warrants, with most exercised, and finalized its business combination with Roth CH Acquisition IV Co. on May 23, 2023, converting all Legacy Tigo preferred stock and warrants into common stock Common Stock Warrant Redemption The company announced the redemption of all outstanding public and private warrants on August 9, 2023, resulting in $3.7 million net proceeds from exercised warrants and $0.1 million paid for redeemed warrants - The company announced the redemption of all outstanding public and private warrants on August 9, 2023[161] - As of September 8, 2023, 324,546 warrants were exercised, generating $3.7 million in net proceeds[162] - The remaining unexercised warrants were redeemed, for which the company paid $0.1 million[162] The Business Combination The company completed its business combination with Roth CH Acquisition IV Co. on May 23, 2023, with Legacy Tigo becoming a wholly-owned subsidiary and 58,144,543 new Tigo common shares outstanding - The business combination was completed on May 23, 2023, with Legacy Tigo becoming a wholly-owned subsidiary of ROCG[163][168] - Prior to the merger, all Legacy Tigo preferred stock and warrants were converted into Legacy Tigo common stock[164] - Post-merger, ROCG was renamed Tigo Energy, Inc., with 58,144,543 new Tigo common shares outstanding[168] Accounting Impact of the Business Combination The business combination was accounted for as a reverse recapitalization, with Legacy Tigo as the accounting acquirer, and the most significant financial change was the conversion of convertible preferred stock to common stock and additional paid-in capital - The business combination was accounted for as a reverse recapitalization, with Legacy Tigo considered the accounting acquirer[169] - ROCG's net assets were reported at historical cost, with no goodwill or other intangible assets recorded[169] - The most significant changes in financial position post-merger were the conversion of convertible preferred stock to common stock and additional paid-in capital[170] Critical Accounting Estimates Details of the company's critical accounting estimates are provided in Note 2, "Summary of Significant Accounting Policies," within the condensed consolidated financial statements - Details of critical accounting estimates are available in Note 2, "Summary of Significant Accounting Policies," to the condensed consolidated financial statements[171] Public Company Costs As a public company, Tigo Energy, Inc. anticipates incurring substantial additional legal, accounting, and compliance expenses, requiring increased personnel and new processes to meet regulatory requirements - The company expects to incur substantial additional legal, accounting, and compliance expenses, including for directors' and officers' liability insurance, board fees, internal control compliance, and investor relations[172] - The company will hire additional staff and implement new processes to meet public company requirements[172] Key Operating and Financial Metrics The company regularly reviews key operating and financial metrics such as revenue, gross profit, gross margin, operating income (loss), and net income (loss) to assess business performance, identify trends, and inform strategic decisions Key Operating and Financial Metrics (in $ thousand, except percentages) | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Revenue, net | $17,104 | $22,824 | $135,988 | $50,382 | | Gross profit | $4,158 | $6,588 | $48,433 | $14,803 | | Gross margin | 24% | 29% | 36% | 29% | | Operating income (loss) | $(11,218) | $(2,093) | $5,267 | $(3,055) | | Net income (loss) | $29,056 | $(2,421) | $13,790 | $(7,940) | - Gross profit and gross margin are used to understand financial performance and efficiency, evaluate pricing strategies, and compare with competitors[175] Key Factors that May Influence Future Results of Operations The company's future operating results are influenced by slowing product demand, unfavorable macroeconomic conditions, supply chain challenges, U.S. residential sales expansion, new product development, and customer acquisition strategies Demand for Products Demand for the company's products has generally slowed in Europe and the U.S. due to high interest rates and net metering policy changes, leading to increased distributor and installer inventory, which is expected to adversely affect revenue for the remainder of 2023 - Demand for the company's products has generally slowed in the European and U.S. markets, primarily due to high interest rates and changes in net metering policies[177] - This has led to elevated inventory levels for distributors and installers[177] - Revenue is expected to be adversely affected for the remainder of 2023[177] Unfavorable Macroeconomic and Market Conditions Global macroeconomic uncertainties, including high interest rates and inflation, may disrupt financial markets, causing customers to delay or cancel purchases and intensifying price competition, thereby adversely impacting the company's business and financial condition - Global macroeconomic and market uncertainties, including high interest rates and inflation, have caused disruptions in financial markets[178] - Customers may delay or cancel product and service purchases, and tightening credit markets may lead to increased price competition[178] - These factors may adversely impact the company's business, operating results, and financial condition[178] Managing Supply Chain The company's reliance on sole-source contract manufacturers and suppliers, particularly in Thailand and China, creates risks of supply shortages, extended lead times, and increased costs, which could harm cash flow and operating results, especially during economic slowdowns - The company relies on contract manufacturers and suppliers for component production, some of which are sole-source[179] - Supply chain concentration may lead to shortages, extended lead times, and increased costs, particularly in Thailand and China[179][180] - Failure to mitigate delays and price increases could harm cash flow and operating results, and economic slowdowns may lead to increased inventory levels[180] Expansion of U.S. Residential Sales Future revenue growth depends partly on expanding products and services in the U.S. residential market, where the company plans to partner with solar providers and evaluate new international opportunities, as current North American revenue is primarily from commercial and industrial sectors - The company's future revenue growth partly depends on expanding products and services in the U.S. residential market[181] - Currently, North American revenue primarily comes from commercial and industrial markets[181] - The company plans to expand its presence in the residential market by partnering with U.S. solar providers and continues to evaluate and invest in new international market opportunities[181] Expansion of New Products and Services The company has invested significantly in R&D and sales and marketing to enhance existing products and plans to continue developing its Energy Intelligence (EI) solutions, which saw revenue grow to $12.1 million in the first nine months of 2023 - The company has invested significantly in R&D and sales and marketing to expand the capabilities of existing products and solutions[182] - The company plans to continue developing and promoting its Energy Intelligence (EI) solutions[182] EI Solutions Revenue (in $ million) | Period | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :--- | :--------------------- | :--------------------- | :----- | :----- | | EI solutions revenue | $12.1 | $1.0 | $11.1 | 1110% | Adding New Customers and Expansion of Sales with Existing Customers The company aims to acquire new customers in the U.S. residential market through partnerships and industry collaborations, while also investing in sales and marketing to expand coverage among existing U.S. residential and European customers - The company plans to target new customers in the U.S. residential market by partnering with residential solar providers[183] - The company primarily acquires new customers through collaboration with industry partners and distributors[183] - The company expects to invest in sales and marketing to expand coverage among U.S. residential and European customers[183] Results of Operations This section analyzes the company's operating results for the three and nine months ended September 30, 2023, detailing changes in revenue, cost of revenues, gross profit, and various operating expenses, along with their primary drivers Revenue, net For the three months ended September 30, 2023, net revenue decreased by 25% due to delayed orders and macroeconomic slowdown, while for the nine months, it increased by 170% driven by market acceptance and marketing efforts Net Revenue (in $ thousand, except percentages) | Period | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount | Change Rate | | :--- | :--------------------- | :--------------------- | :----- | :----- | | Revenue, net | $17,104 | $22,824 | $(5,720) | -25% | | Period | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :--- | :--------------------- | :--------------------- | :----- | :----- | | Revenue, net | $135,988 | $50,382 | $85,606 | 170% | - Three-month revenue decline was primarily due to customer requests for delayed order delivery, order cancellations, and macroeconomic slowdown[185] - Nine-month revenue growth was primarily due to increased sales volume, improved product market acceptance, and increased marketing activities[186] Net Revenue Change by Geographic Region (in $ thousand, except percentages) | Region | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount | Change Rate | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :--- | :--------------------- | :--------------------- | :----- | :----- | :--------------------- | :--------------------- | :----- | :----- | | EMEA | $10,241 | $13,999 | $(3,758) | -27% | $105,595 | $30,861 | $74,734 | 242% | | Americas | $3,576 | $6,681 | $(3,105) | -46% | $21,776 | $15,818 | $5,958 | 38% | | APAC | $3,287 | $2,144 | $1,143 | 53% | $8,617 | $3,703 | $4,914 | 133% | Cost of Revenues and Gross Profit For the three months ended September 30, 2023, cost of revenues decreased by 20%, gross profit by 37%, and gross margin fell to 24%; for the nine months, cost of revenues grew by 146%, gross profit by 227%, and gross margin rose to 36% Cost of Revenues and Gross Profit (in $ thousand, except percentages) | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount | Change Rate | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :----------- | :--------------------- | :--------------------- | :----- | :----- | :--------------------- | :--------------------- | :----- | :----- | | Cost of revenues | $12,946 | $16,236 | $(3,290) | -20% | $87,555 | $35,579 | $51,976 | 146% | | Gross profit | $4,158 | $6,588 | $(2,430) | -37% | $48,433 | $14,803 | $33,630 | 227% | | Gross margin | 24% | 29% | -5% | | 36% | 29% | 6% | | - Three-month gross margin decline was primarily due to increased inventory write-off expenses, partially offset by product cost reductions and lower freight costs[192] - Nine-month gross margin increase was primarily due to product cost reductions and lower freight costs[193] Research and Development For the three and nine months ended September 30, 2023, R&D expenses increased by 50% and 58%, respectively, primarily due to higher personnel costs and headcount growth, with fluctuations expected based on development activities Research and Development Expenses (in $ thousand, except percentages) | Period | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount | Change Rate | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :--------------- | :--------------------- | :--------------------- | :----- | :----- | :--------------------- | :--------------------- | :----- | :----- | | Research and development expenses | $2,425 | $1,621 | $804 | 50% | $7,063 | $4,476 | $2,587 | 58% | | Percentage of net revenue | 14% | 7% | | | 5% | 9% | | | - R&D expense increase was primarily due to increased personnel costs and headcount growth[195][196] Sales and Marketing For the three and nine months ended September 30, 2023, sales and marketing expenses increased by 86% and 111%, respectively, driven by higher personnel costs, stock-based compensation, and travel expenses to support company growth Sales and Marketing Expenses (in $ thousand, except percentages) | Period | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :--------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Sales and marketing expenses | $5,601 | $3,007 | $15,536 | $7,348 | | Percentage of net revenue | 33% | 13% | 11% | 15% | - Sales and marketing expense increase was primarily due to increased personnel costs, stock-based compensation expense, and travel expenses[198][199] General and Administrative For the three and nine months ended September 30, 2023, general and administrative expenses increased by 81% and 241%, respectively, driven by higher credit loss allowances, personnel costs, legal fees, and M&A-related expenses General and Administrative Expenses (in $ thousand, except percentages) | Period | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :--------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | General and administrative expenses | $7,350 | $4,053 | $20,567 | $6,034 | | Percentage of net revenue | 43% | 18% | 15% | 12% | - Three-month increase was primarily due to higher allowance for credit losses, increased personnel and facility costs, and higher legal fees[201] - Nine-month increase was primarily due to M&A-related business combination expenses, legal fees, increased allowance for credit losses, increased personnel and facility costs, and higher insurance expenses[202] Other Expenses, Net For the three and nine months ended September 30, 2023, other expenses, net, significantly decreased (turned into income) due to a substantial gain from derivative liability fair value changes, which were reclassified to equity Other Expenses, Net (in $ thousand) | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | Change Amount | Change Rate | September 30, 2023 (9 months) | September 30, 2022 (9 months) | Change Amount | Change Rate | | :--------------------------------------- | :--------------------- | :--------------------- | :----- | :----- | :--------------------- | :--------------------- | :----- | :----- | | Fair value change of preferred stock warrants and contingent share liability | $(2,977) | $(45) | $(2,932) | 6516% | $143 | $(37) | $180 | -486% | | Fair value change of derivative liability | $(50,498) | — | $(50,498) | 100% | $(12,247) | — | $(12,247) | 100% | | Loss on debt extinguishment | — | — | — | —% | $171 | $3,613 | $(3,442) | -95% | | Interest expense | $2,875 | $392 | $2,483 | 633% | $5,240 | $1,241 | $3,999 | 322% | | Other income (expense), net | $(636) | $(19) | $(617) | 3247% | $(1,859) | $68 | $(1,927) | -2834% | | Total other expenses, net | $(51,236) | $328 | $(51,564) | -15721% | $(8,552) | $4,885 | $(13,437) | -275% | - Fair value changes in derivative liabilities resulted in significant gains for both three-month and nine-month periods, with the liability reclassified to equity on September 24, 2023[206][210] - Interest expense significantly increased due to interest on convertible promissory notes and amortization of deferred debt issuance costs[207][212] - Other income, net, increased due to interest income from higher cash and marketable securities holdings[208][213] Non-GAAP Financial Measures The company utilizes Adjusted EBITDA as a non-GAAP financial metric to assess business operations and financial performance, facilitating comparisons within the industry by excluding specific non-operating and non-cash items - Adjusted EBITDA is defined as net income (loss) excluding interest and other expenses, net, income tax expense, depreciation and amortization, stock-based compensation, and M&A expenses[216] - The company uses Adjusted EBITDA as an internal performance measure to achieve more relevant comparisons of operating results[215][216] Adjusted EBITDA (in $ thousand, except percentages) | Indicator | September 30, 2023 (3 months) | September 30, 2022 (3 months) | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income (loss) | $29,056 | $(2,421) | $13,790 | $(7,940) | | Adjustments: | | | | | | Total other income (expense), net | $(51,236) | $328 | $(8,552) | $4,885 | | Income tax expense | $10,962 | — | $29 | — | | Depreciation and amortization | $284 | $178 | $820 | $404 | | Stock-based compensation | $1,274 | $341 | $2,137 | $393 | | M&A expenses | $152 | $2,000 | $4,399 | $2,000 | | Adjusted EBITDA (loss) | $(9,508) | $426 | $12,623 | $(258) | Liquidity, Capital Resources, and Going Concern As of September 30, 2023, the company's liquidity sources include cash, marketable securities, debt financing, and operating income, with an accumulated deficit of $61.0 million, and management expects existing resources to sustain operations until November 2024, though additional financing may be required - As of September 30, 2023, the company's primary liquidity sources were cash and cash equivalents, marketable securities, debt financing, and operating revenues[218] - As of September 30, 2023, the company's accumulated deficit was $61.0 million[220] - Management believes existing cash, cash equivalents, and marketable securities, along with a growing customer base and appropriate expenditure management, are sufficient to sustain operations until November 2024, but cannot guarantee that additional financing will not be needed[222] Cash Flows For the nine months ended September 30, 2023, operating cash outflow increased by $16.1 million, investing cash outflow rose by $40.3 million, and financing cash inflow decreased by $15.2 million, primarily due to inventory purchases, marketable securities, and debt repayment Cash Flow Summary (in $ thousand) | Cash Flow Activity | September 30, 2023 (9 months) | September 30, 2022 (9 months) | | :----------------------- | :--------------------- | :--------------------- | | Net cash from operating activities | $(29,379) | $(13,248) | | Net cash from investing activities | $(40,919) | $(662) | | Net cash from financing activities | $34,821 | $49,987 | | Net increase (decrease) in cash and restricted cash | $(35,477) | $36,077 | - Cash outflow from operating activities increased by $16.1 million, primarily due to increased inventory purchases, lower sales volume in the third quarter, and an increase in days sales outstanding[225] - Cash outflow from investing activities increased by $40.3 million, mainly for purchasing marketable securities and property and equipment[226] - Cash inflow from financing activities decreased by $15.2 million, primarily due to $50.0 million in proceeds from convertible promissory notes and $3.7 million from warrant redemptions, partially offset by the repayment of $20.8 million in Series 2022-1 notes[227] Contractual Obligations The company's contractual obligations primarily include convertible promissory notes, operating lease obligations, and inventory component purchases, with no material changes since the proxy statement/prospectus filed on April 26, 2023 - The company's contractual obligations primarily include convertible promissory notes, operating lease obligations, and inventory component purchases[230] - As of September 30, 2023, there were no material changes compared to the disclosures in the proxy statement/prospectus filed on April 26, 2023[230] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk under Rule 12b-2 of the Securities Exchange Act of 1934 - As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk[231] Item 4. Controls and Procedures As of September 30, 2023, the company's disclosure controls and procedures were deemed ineffective due to a material internal control weakness related to convertible promissory notes, prompting a remediation plan, though prior weaknesses were remediated by June 30, 2023 Evaluation of Disclosure Controls and Procedures As of September 30, 2023, the company's management assessed its disclosure controls and procedures as ineffective due to identified material weaknesses in internal control - As of September 30, 2023, the company's disclosure controls and procedures were deemed ineffective[233] - The ineffectiveness is due to identified material weaknesses in internal control related to the accounting treatment of complex financial instruments[233][234] Material Weakness in Internal Control over Financial Reporting The company has a material weakness in internal control over financial reporting concerning the accounting treatment of conversion features in convertible promissory notes, yet believes its unaudited financial statements are fairly presented in accordance with GAAP - A material weakness exists related to the accounting treatment of embedded conversion features in convertible promissory notes[234] - Despite the material weakness, the company believes the unaudited financial statements in this quarterly report are fairly presented in all material respects in accordance with GAAP[234] Remediation and Plan for Remediation of the Material Weakness in Internal Control over Financial Reporting Management has initiated a remediation plan, including engaging external consultants, formalizing risk assessment, evaluating additional accounting personnel, and enhancing access to accounting literature, with prior material weaknesses remediated by June 30, 2023 - Remediation measures include engaging external consultants, formalizing risk assessment procedures, evaluating additional accounting and finance personnel, and enhancing accounting and finance personnel access to accounting literature and research materials[236][237] - Previous material weaknesses regarding accrued expenses and cash flow statements were remediated by June 30, 2023[238] Changes in Internal Control over Financial Reporting Aside from the disclosed remediation efforts and remediated material weaknesses, no other significant changes in internal control over financial reporting occurred during the three months ended September 30, 2023 - Except for the disclosed remediation measures and remediated material weaknesses, no other significant changes in the company's internal control over financial reporting occurred[239] Limitations on the Effectiveness of Disclosure Controls and Procedures Management acknowledges that any control system provides only reasonable, not absolute, assurance, as inherent limitations include judgment errors, simple mistakes, individual acts, collusion, or management override - Any control system can only provide reasonable, not absolute, assurance that its objectives will be met[240] - Control systems have inherent limitations, including the possibility of judgment errors, simple errors or mistakes, and individual acts, collusion, or management override of controls[240] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company may be involved in various claims, lawsuits, and legal proceedings in the normal course of business, with uncertain outcomes that could lead to damages, fines, or non-monetary sanctions - The company may be involved in various claims, lawsuits, and other legal and administrative proceedings in the normal course of business[242] - These proceedings vary in complexity, and their outcomes are uncertain, potentially leading to damages, fines, or non-monetary sanctions[242] - The company will actively def