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While the picture above shows a sunny day, this is not the case for investors in FTC Solar (NASDAQ:FTCI). The solar tracker company has been disappointing investors in a rapid fashion since its public offering, as by now the situation is quite dire. To judge the potential from here, we first have to see what has happened since the offering.
Some Background
FTC Solar went public in April 2021, as the pricing of the shares of this solar tracking company took place at a 30% discount from the preliminary offering range. The company designs and produces advanced solar tracker systems, which it equips with its own software and engineering services.
The idea of these systems is to maximize energy generation. This is done by maintaining the optimal orientation relative to the sun, having the potential to boost production per panel by 25% vs. traditionally fixed mounted systems. Of course, this costs some money as well, as the debate about the efficiency per output is quite alive, yet FTC claims a superior pay-off, underwritten by many customers.
The company targets EPC companies and solar developers, claiming to have an 11% market share by 2020. Founded in 2017 the company has seen rapid adoption of its products, especially following its Voyager product line.
The company went public at $13 per share, giving the company a $1.07 billion equity valuation with 82 million shares outstanding. Factoring in pro forma net cash at $150 million, the operating asset valuation dropped to $920 million.
This nearly a billion valuation was applied to a business which generated a mere $53 million in sales in 2019 on which an operating loss of $12 million was reported. Revenues more than tripled to $187 million in 2020 as operating losses rose in a modest absolute fashion to $17 million, with relative losses coming down rapidly.
The problem was that no quarter results were announced, yet momentum was very strong as the company booked $227 million in orders between the end of 2020 and halfway through April 2021, when the company went public. While the outlook for FTC was highly uncertain, we had some comparables as Array Technologies (ARRY) went public around the time as well, trading at 4 times sales amidst 20% growth.
FTC traded around 5 times sales, amidst much higher growth, but unlike Array, FTC was not (yet) profitable. Concerns about reliance on a few large customers, quality, competition, made me very cautious when I evaluated the outlook for the business at the time of the IPO.
A Complete Implosion
Fast forwarding from the IPO day about one and a half years ago to today, shares have been falling in a steady fashion, now trading within immediate reach of the lows around $1.80 per share.
Reasons for concerns arrived quickly after the public offering. In June 2021, the company posted first quarter sales of $65.7 million, up 103% on the year before. Gross profits came in flat, with quarterly operating losses reported at $8.1 million. Second quarter sales were posted at just $50.1 million, down year-over-year as the company posted a huge loss amidst charges taken in relation to the offering, with a CEO transition announced just a few weeks later. Quite frankly, I was surprised to see shares still trade around the $10 mark at the time.
Fast forwarding to March of this year, FTC posted its 2022 results, with full year revenues up 44% to $271 million. That was about the good news as negative gross margins and higher costs resulted in non-GAAP losses more than tripling from $15 million to $55 million. There was a bright spot, and that was the fourth quarter results, with full year sales up 130% to nearly $102 million. That was about the good news as inflationary pressure hurt margins in a big way, still resulting in negative gross margins as adjusted quarterly operating losses increased to $16 million.
The company guided for strong growth to continue in 2022 with sales seen between $415 million and $460 million, positive gross margins, and EBITDA seen between minus $4 million and a positive $11 million number, as this outlook lifted the share price to a minimal extent temporarily.
In May, the company posted very soft first quarter results with revenues down quite a bit to $49.6 million, gross margins being firmly negative near 20%, and operating losses increasing to $20 million. The outlook can completely be thrown out of the window, with second quarter sales seen between just $30 and $35 million.
In August, FTC posted second quarter sales of just $30.7 million, again accompanied by negative gross margins and operating loss of around $18 million on an adjusted basis. Third quarter sales were seen at just $16.5-$19 million, albeit that fourth quarter sales are seen between $75 and $90 million. Fortunately, the balance sheet remains in a firm state despite the continuation of losses, with net cash balances still reported at $66 million.
The 100 million shares outstanding value equity of the company at $1.80 per share here, for a $180 million equity valuation, for an operating asset valuation just north of $100 million.
What Now?
The results so far this year are dismal by all means, due to high steel prices, general inflationary issues, supply chain disruptions and trade restrictions. Fortunately, some orders are arriving as the company furthermore believes that it can benefit from the clean energy order by the President this summer.
This should drive growth in the future, with the backlog reported at $774 million, far above the annual revenue run rate here, of course, indicating the potential for revenues to rebound in a meaningful fashion.
This is seen in the $75-$90 million revenue guidance for the fourth quarter, this time seen with positive gross margins as legacy loss-making contracts are phasing out, which is a real positive observation.
The reality is that while the company might see an upturn in the short term, the track record is dismal, with growth focused too much on an international basis, and it seems that the company does not have the most competitive technology out there. Hence, I am performing a balancing act as low valuations, net cash and a near-term rebound might trigger great upside, yet I fail to be convinced here, given the poor track record.
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