Tigo Energy Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 6, 2024

There are 6 speakers on the call.

Operator

Good afternoon. Welcome to TIGO's Energy Financial Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Join us today from Tygo are Zvi Alon, CEO and Bill Rushline, CFO.

Operator

As a reminder, this call is being recorded. I would now like to turn the call over to Bill Rushline, Chief Financial Officer.

Speaker 1

Thank you, operator. We'd like to remind everyone that some of the matters we'll discuss on this call, including our expected business outlook, our ability to increase our revenues, reach cash flow breakeven, adjusted EBITDA breakeven, become profitable and our overall long term growth prospects, expectations regarding recovery in our industry, statements about demand for our products, our competitive position, our current and future inventory levels and their impact on future financial results, inventory supply and its impact on our customer shipments and our revenue and adjusted EBITDA for the 3rd fiscal quarter 2024, our ability to penetrate new markets and expand our market share, including expansion in international markets and investments in our product portfolio are forward looking. And as such, are subject to known and unknown risks and uncertainties, including, but not limited to, those factors described in today's press release and discussed in the Risk Factors section of our annual report on Form 10 ks for the fiscal year ended December 31, 2023, our quarterly report on Form 10 Q for the fiscal quarter ended June 30, 2024 and other reports we may file with the SEC from time to time. These risks and uncertainties could cause actual results to differ materially from those expressed on this call.

Speaker 1

These forward looking statements are made only as of the date when made. During our call today, we will reference certain non GAAP financial measures. We include non GAAP and GAAP reconciliations in our press release furnished as an exhibit to our Form 8 ks. The non GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay at Tygo's Investor Relations website at investors.

Speaker 1

Tygoenergy.com. I would now like to turn the call over to Tygo's CEO, Zvi Elan. Zvi?

Speaker 2

Thank you, Bill. To begin today's discussion, I will give some background on our company, its recent performance and market trends before turning the call over to our CFO, Bill Roschlein. He will discuss our financial results for the quarter in low debt as well as provide financial outlook for the Q3 of 2024. After that, I will discuss the demand outlook and share some closing remarks before opening the call for questions. All right, let's begin.

Speaker 2

For those of you who may be new to our journey, Tygo Energy is recognized as a global leader in intelligent solar and energy storage solutions. Established in 2007, our mission is to provide smart hardware and software solutions that improve safety, enhance energy yield and reduce operating cost of residential, commercial and utility scale systems. At Tygo, we offer 3 primarily product lines. The TS4 MLP, module level power electronics, our flagship product, which offers a range of flexibly designed MLP solutions to meet the diverse needs of installers worldwide. 2nd, Go ESS Energy and Storage Solutions, a line of energy storage solutions built on modular components designed to be intuitive and flexible during the installation.

Speaker 2

Our GO ESS range includes the GO inverter, GO battery, GO ATS and GO EV charger. And the third one, Energy Intelligence or our EI software platform, which includes monitoring, fleet management and our flagship Predict Plus EI based prediction tool for energy production and consumption. Now let's discuss our recent operational results and demand outlook. As mentioned in our last quarterly call, our revenue stabilized during the Q1 of the year, and we are pleased to report a significant sequential revenue growth of roughly 30% this quarter, surpassing many of our peers during this period of extended market recovery. We conclude Q2 with $12,700,000 in revenue within the previously stated guidance and shipped 378,000 MLPE devices, which translates to approximately 151 Megawatt DC, assuming a panel size of about 400 watts.

Speaker 2

Our C and I saw an increased business saw an increased activity, highlighted by Tiger's selection as the rapid shutdown technology provider for 142 Megawatts power solar installation for a large EPC in Spain, marking our largest order in history. Once installed, we believe that this will represent the largest utility project globally to deploy MLPE. We are proud to deliver the best in class with our newly introduced TS4X product at large scale. We also welcome Midnight Solar as our latest rapid shutdown licensee. This agreement empowers them to deploy innovative products containing Tygo's rapid shutdown intellectual property for compliance with safety regulations.

Speaker 2

Geographically, the EMEA region grew 20.9% sequentially and represents 55% of our total revenue in the quarter. During the quarter, we saw solid sales growth in Germany, Italy and the United Kingdom. The Americas grew 3.6% sequentially and represents 22% of our revenue during the quarter. During the quarter, we saw solid sales growth in Brazil, driven by increasing regulatory requirements for rapid shutdown capabilities in that country. The Asia Pacific region grew more than 124% sequentially and represents 23% of our revenue during the quarter.

Speaker 2

During the quarter, we saw solid sales growth in Singapore, Australia and in the Philippines. Turning to an update to our newest line of MLPE. The TSRX, as a reminder, the TS4x family represents a combination of multiyear effort to provide the C and I and utility marketplace with leading edge MLPE that are designed to satisfy the several key industrial needs. The TS4X MLP products offer higher power, higher current solution and maximum design flexibility, all while enabling lower overall system cost and or demo telematics. We are pleased to report that we have received a great reception since last quarter's rollout.

Speaker 2

We believe the TS4x family will continue to prove its safest, most reliable, most cost effective TS4X, we would also like to highlight some other recent announcements we have made, including the unveiling of the new Tygon Installer loyalty program for residential TB installers in EMEA at Intersolar Europe 2024. This program will recognize the dedication of professionalism of installers who choose this type of solution, further supporting their continued success and emphasizing the vitality of all members of the SOLOS value chain. Within our ei software product line, we recently introduced a new 3 Tudes paid service offering with the flagship solution, EI Professional, offering a centralized view of critical health and performance data or systems under management. Beyond scalable monitoring experience and simple flat price model, the ultimate seat ei professional package includes: 1 click enrollment of company wide unlimited seat subscription access covering all systems under management A portfolio wide dashboard with prioritized view into critical data such as health status, production, performance, equipment status, local data, location data and commissioning time tracking and time saving feature, including advanced tagging, grouping and site filtering for improved management maintenance optimization and trend analysis. The standard system by system monitoring view, now named ei basic, remains free of charge and includes module level resolution and insight into 3rd party hardware.

Speaker 2

More advanced monitoring and analytics tools, historical data and minute level monitoring resolution, among others, are available via simple in platform upgrades to eiPremium. Finally, we are pleased to announce that more than 520 solar installations have been enrolled in our Tygo Green Glove program, which provides premium customer experience for every phase of system installation for C and I installers. And with that, I would like to turn over to Bill. Bill?

Speaker 1

Thank you, Zvi. Turning now to our financial results for the Q2 ended June 30, 2024. Revenue for the Q2 of 2024 decreased 81.5 percent to $12,700,000 from $68,800,000 in the prior year period. By geography, EMEA revenue was $7,000,000 or 55 percent of total revenues. Americas revenue was $2,800,000 or 22 percent of total revenues, and APAC was $2,900,000 or 23 percent of total revenues for the quarter.

Speaker 1

On a sequential basis, revenues improved 29.6% compared to Q1 with improved results coming from Germany, Italy and the UK and Singapore, Australia and the Philippines in the APAC region. Gross profit in the Q2 of 2024 was $3,900,000 or 30.4 percent of revenue compared to $25,900,000 or 37.6 percent of revenue in the comparable year ago period. Year over year decline was primarily due to lower revenue and lower gross margins on our Go ESS product line amid competitive pricing conditions in that market. On a sequential quarter basis, gross margins increased by 220 basis points due primarily to product mix. Total operating expenses for the Q2 were $12,300,000 down from $17,200,000 in the prior year period.

Speaker 1

The year over year decrease was driven primarily by M and A expenses recognized in the prior year period as a result of our de SPAC. During the quarter, we initiated additional cost cutting efforts and expect that on a normalized basis, our GAAP operating expenses to be approximately $12,500,000 per quarter and our non GAAP operating expenses to be approximately $11,000,000 per quarter. Operating loss for the 2nd quarter totaled $8,400,000 compared to an operating profit of $8,700,000 in the prior year comparable period, while GAAP net loss for the 2nd quarter totaled $11,300,000 compared to a net loss of $22,200,000 for the prior year period. Adjusted EBITDA loss in the 2nd quarter totaled $6,400,000 compared to adjusted EBITDA of $13,600,000 in the prior year period. As a reminder, adjusted EBITDA represents operating profit as adjusted for depreciation, amortization, stock based compensation and M and A transaction expenses.

Speaker 1

Primary shares outstanding were $60,400,000 for the Q2 of 2024. Now turning to the balance sheet. Accounts receivable net increased $600,000 in the 2nd quarter to $6,900,000 compared to $6,300,000 last quarter $45,800,000 in the year ago comparable period. Inventories net decreased by $4,400,000 or 8 percent to $51,300,000 compared to $55,800,000 last quarter and $50,600,000 in the year ago comparable period. In the 2nd quarter, the vast majority of our cost of goods sold was comprised of inventory, which we expect to continue to decline and generate cash for us in future quarters.

Speaker 1

Cash, cash equivalents and short and long term marketable securities totaled $20,200,000 at June 30, 2024. This sequential decline by $1,800,000 was primarily due to As we mentioned on our last call, considering our current supply of inventory on hand, we expect a cash breakeven point at a quarterly revenue level of approximately $17,000,000 to $19,000,000 and an adjusted EBITDA breakeven point at a quarterly revenue level of approximately $33,000,000 to $35,000,000 on a normalized basis. Before I turn the call back over to Zvi, I'll now take a few minutes to provide our financial outlook for our 2024 Q3. As a reminder, Tygo provides quarterly guidance for revenue as well as adjusted EBITDA as we believe these metrics to be key indicators for the overall performance of our business. For the Q3 of 2024, we expect revenues and adjusted EBITDA to be in the following range.

Speaker 1

We expect revenues in the Q3 ended September 30, 2024 to range between $13,000,000 $16,000,000 We expect adjusted EBITDA loss to range between $6,500,000 8,500,000 and reflects the potential variability in product mix and non cash inventory reserve expenses for the 3rd quarter. That completes my summary. I'd like to now turn the call back over to Zvi for final remarks.

Speaker 2

Zvi? Thanks, Bill. As we have discussed in prior quarters, we are still navigating the uncertainty of the prolonged solar market industry recovery. Customers are now reordering products to fulfill demand and the evidence of market recovery is present, although at slower pace than what was being predicted earlier in the year. Even within the current environment, however, we believe we can continue to outpace the market and return to profitability growth.

Speaker 2

For the second half of twenty twenty four, we expect our revenue unprofitability to more slowly continue the upward trajectory, but the sluggish microeconomics environment may delay EBITDA profitability into early 2025. Longer term, we believe firmly in the long term growth prospects for our business and look forward providing additional updates in the coming quarters. With that, operator, please open the call for Q and A.

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from the line of Philip Shen with Roth Capital Partners. Your line is now open.

Speaker 3

Hi, everyone. Thanks for taking my questions. So I'm balancing 3 calls at same time, so sorry if I missed some things. On the last quarter, you guys talked about a path to breakeven on EBITDA in the back half of twenty twenty four with the weaker Q3 guide. I was wondering if you might be able to hit it in Q4 of this year or do you think you need until 2025 to hit your breakeven EBITDA target?

Speaker 3

Thanks.

Speaker 1

Hi, Phil. Yes, as Vee mentioned in his closing remarks, we made note of the more muted recovery compared to what us and analysts alike were sort of projecting earlier in the year. And because of that, we think that we expect continued upward trajectory in both our revenue and profitability metrics, but that our EBITDA breakeven may be pushed to early 2025. And so we alluded to that in our prepared remarks, and I think that reflects our thinking at the moment.

Speaker 3

Okay, got it. So early is not middle. And so that would suggest Q1, twenty twenty five. I mean, is that a realistic option or do you think it might have risk for Q2?

Speaker 1

Yes. I mean, I would define early as first half. That's how I think

Speaker 3

of it. Got it. Okay. As you think about the channel inventory, this is a little bit slower than expected. I met with you guys at the end of June in Munich as well as London at our London event.

Speaker 3

And so I was wondering if the channel inventory is taking a little bit longer to clear. So is it a like the slower than expected kind of view, is it a function of channel inventory taking longer to clear? Or is it perhaps, the demand outlook is a little bit weaker than expected or a combination of both or something else altogether? Thanks.

Speaker 1

Well, first, we thoroughly enjoyed our time with you in Interim Solar and in London at ROTH Conference. And I think you and I both could sort of see what the general view of the market was while we were all there. And it compared to analyst reports and industry reports that came out earlier in the year, the macroeconomic just appears to be more muted and taking longer. So last call, last couple of calls, we talked about a more step function improvement in the recovery and it looks less like a step function. It looks a little bit more prolonged than we had initially anticipated.

Speaker 1

So we're mostly done with any restocking efforts. There's always 1 or 2 laggards out there. But for the most part, that's not what's driving the current situation. I think it's the macro picture and the demand recovery that's affecting all industry participants, including us.

Speaker 3

Got it. Yes, that makes sense. And can you give us a status update on the channel inventory? Are you fully cleared or if not, how much longer do you think you need?

Speaker 1

Like I mentioned, I think there's a couple a few laggards here and there. But it the channel is largely cleared for us and we're seeing solid pickup in orders from existing customers. So that I really wouldn't call that as having an effect on our future performance. I think we're sort of beyond the channel inventory stage of recovery and we're really talking more about the demand outlook. So I wouldn't use that as I don't think it's a discussion point for us any further.

Speaker 3

Got it. Yes, sorry to bring that up again. Again, I'm multitasking with multiple calls.

Speaker 1

Understood. So

Speaker 3

sorry, go ahead, Zvi.

Speaker 2

No, it's fine. I mean, as Bill said, the major places where we had inventory, it's pretty much down to normal or, as you say, depleted. As a matter of fact, you've seen an increase in number of repeat orders from them. And in the markets we've highlighted, like Germany and Italy and the U. K, we've seen a growing number of repeat orders.

Speaker 2

And as a matter of fact, specifically in Germany, we had at least 2 of them who stated that the volume of our product grew 2x or 3x month over month just recently. So we have we are beyond that stage. The market is slow in general. Right.

Speaker 3

Okay. Thanks, Vee. One last question, I'll pass it on. As it relates to the slowness of the market, can you talk about the general trajectory of that outlook? Do you think like what kind of we had a webinar with WoodMac recently, their European resi team and they see the overall European market basically being flat for the next 5 ish years.

Speaker 3

And so do you see that as well? Or do you think you have exposure to specific countries that while the whole continent might be flat for a number of years, you could still grow because the countries that you have exposure to see growth? Thanks.

Speaker 2

So I can tell you that we cannot project 5 years obviously. But we have seen actually an increase in activity in Eastern Europe and some of those places, which is very encouraging. A couple of quarters ago, Czech Republic was one of our biggest countries, and just to give you an example. So we believe that we will see through that exposure, we will see an increased number of activities, not to mention that even within the mainstream, like Germany specifically, we are doing exceptionally well even though the market is slowing down, but we are going there.

Speaker 3

Great. Okay. Best of luck. Thank you very much. I'll pass it on.

Speaker 2

Thank you very much.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Eric Stine with Craig Hallum Capital Group. Your line is now open.

Speaker 4

Hi, Zviha Bill.

Speaker 2

Hi. Hi.

Speaker 3

Hey. So maybe just so it sounds like

Speaker 4

a little more sluggish here on the recovery, but I would assume though it is a decent assumption that in Q4, you would expect if you're going to have further improvement even if it's modest that that cash flow breakeven goal would be in reach in Q4 as we think about the remainder of the year?

Speaker 1

We agree with that.

Speaker 4

Okay. And I know in the past you've talked about, look, if things are slower, you would not hesitate to cut costs further. And it sounds like you did a little bit in the quarter. But it sounds like you're also kind of in a it's a little bit of a transition because that breakeven EBITDA in your mind is not that far off. So I mean how do you kind of balance that knowing that you don't want to be behind the 8 ball, but yet if that recovery is a couple of quarters away, you want to be prepared for it?

Speaker 1

Yes, there's puts and takes on that. So of course, we can do stuff on the discretionary end as it relates to bent outsource vendors and professional services fees, etcetera, etcetera. And we will and are doing that. But as it relates to the more difficult decisions of headcount, you have to balance the risk rewards of when you do something like that, you do lose momentum and you lose institutional knowledge. I mean, there is a real cost of making taking actions like that.

Speaker 1

So if you can see the recovery coming and you can get to see the clear path to the EBITDA breakeven, then you don't cut your nose off to spite your face kind of thing. So that we're very flexible and we've been proactive about making cuts and changes in restructuring where we have to and we'll continue to be very mindful of doing that as we have to.

Speaker 4

Okay, understood. And then last one for me. Obviously, there's been a lot of well known issues for companies out there and headlines. Just curious, any exposure to any of these companies that we should think about or not? You're pretty well insulated from that.

Speaker 2

We are completely insulated. We have no impact, none whatsoever. We are not very happy with some of those instances. But no, we don't have any potential exposure at all.

Speaker 4

Okay. That's great. Thanks a lot.

Speaker 2

In fact, we are using a couple of those synergies as a potential market for that.

Operator

All right. Thank you so much. One moment for our next question, please. Our next question comes from the line of Amit Dayal with H. C.

Operator

Wainwright. Your line is now open.

Speaker 5

Thank you. Good afternoon, everyone. With respect to the TS4X sales, were there any contribution from that in the quarter?

Speaker 2

Yes. There were, and we are very happy took off faster than we expected. And yes, so they were.

Speaker 5

Okay. And in relation to sort of the launch of this product into the market versus what you have been previously selling and what may be in inventory, Is there any cannibalization or does that impact any of the inventory monetization opportunities for you in the future?

Speaker 2

So I would say that on the MLPE, 100% of what we have and had in the inventory is not going to be cannibalized by no stretch of imagination anytime soon. On the storage solution side, the inverter and all the other auxiliary components, we are fine, but the batteries have been facing some challenges, the battery, the storage itself. But we will be able to manage it.

Speaker 5

Okay, understood. And just at the macro level, right, Dave, going into 2024, we were anticipating sort of a faster pace of recovery in the second half, but it looks like that's being pushed out. What are the factors driving that? Is it still the interest rate environment that is pushing projects out, etcetera? Or are there any other sort of drivers that are also coming into play that is causing some of the recovery being pushed out?

Speaker 2

So as we all know, there is a big impact both in the U. S. And in Europe in the resi market. On the other hand, utility scale and C and I are having a slower pace, but they are fairly steady. And we have seen a major increase in that space.

Speaker 2

As a matter of fact, the product and project we just talked about in Spain is a very large utility scale project, and it's one of many we're working on. And it ended up being, I think, the largest order we ever received for a single project and the largest installation will be in the world with MLP. So the fact that our MLP product is sort of agnostic to the market is helping us. It helps us from an inventory perspective and to go through the market that has a little bit variations between the different segments.

Speaker 5

Understood. And this the order from Spain, like what's the delivery timeline on that? Is it over the next year or even faster than that?

Speaker 2

It's all going to be delivered this year, all of it, 100%. Before the end of 2024? 100%, yes. Okay.

Speaker 5

Thank you, guys. That's all I have. I appreciate it. Thank you.

Speaker 2

Most welcome. Thank you.

Speaker 5

Okay.

Operator

Thank you all so much. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Olong for his closing remarks.

Speaker 2

Thanks again, everyone, for joining us today. I especially want to thank to the dedicated employees for their ongoing contribution as well as our customers and partners for their continued hard work. I also want to thank our investors for their continued support. Operator?

Operator

Thank you for joining us today for Tyco's Q2 2024 Earnings Conference Call. You may now disconnect.

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Tigo Energy Q2 2024
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