Nextpower Inc. (NXT) Earnings Call Transcript & Summary

Okay. I think we'll get started here. Good morning. Thank you for sticking with us on the last day of the 40th Annual Energy Power Conference. To close out our clean tech fireside chat for this year's conference, we have Nextpower, a company that started off as a tracker company but has evolved to a more comprehensive energy technology platform, including hardware, software and power conversion systems. Here to discuss the company is Dan Shugar, Chief Executive Officer; Officer. Dan, how are you this morning?

Wonderful. Thanks for the opportunity to be here, Christine.

Yes. It's your first time at our conference. So we're very happy to have you. So I thought I would start at your Analyst Day or Capital Markets Day last year. You laid out a goal of generating more than 1/3 of revenue from non-tracker revenue by fiscal 2030. You're already roughly at 15% -- you've announced a number of deals since then, you guys have been very busy. Do you now look at that number as a floor? And which product categories do you expect to be the largest contributors?

Yes. Thanks, Christine. And so thank you. We had our Capital Markets Day in November. We also articulated, we were finishing a year of about $3.5 billion, and we articulated a path to $5.2 billion by our fiscal 2030, which is predominantly calendar 2029. We're a couple of years ahead of schedule in terms of the revenue growth, the earnings growth and the diversification on to include other product categories. We'll be -- we're having another Capital Markets Day on November 16, and we'll be unpacking that a much more granular detail. But as you mentioned, when we did the original -- or the last Capital Markets Day, we had not yet acquired an energy storage company nor had we acquired a power conversion company, which is complementary to our organic power conversion program. So we see those as very significant vectors of additional growth and highly strategic with each other and with our core business. I'll just say each of our product categories and business units are overperforming. So in totality, we've performed well, and we're significantly ahead of plan and will be articulated a much bigger revenue, earnings and product diversification landing zone for our FY 2030 target.

So I do kind of want to touch upon like the new businesses that you have entered into. You closed the acquisition of your Power Conversion business not too long ago. From what I understand, this accelerated your go-to-market for power conversion that is still a bit further out. I guess you were internally working on a next-generation product that is still further out. How should we think about how this business evolves? Should we expect you to get involved with more things like solid state transformers, which is a big topic for data centers, but is also relevant for utility scale solar, which is your bread and butter?

Yes. Well, first, let's talk about what's actually happening. So we acquired a Spanish -- a subsidiary of a Spanish electronics company called Apex, which is manufacturing inverters -- we're manufacturing inverters today. The legacy parent company called Zigor, which is based in Spain, is our contract manufacturer. Today, we have UL listed inverters and power conditioning units to sort of solar and storage. We also have IEC listed products for solar and storage. We're actually shipping finished goods today produced by our contract manufacturer in Spain. They'll continue supporting us -- in parallel, we're building a very significant U.S. factory that will be at double-digit gigawatts that will be operational next year. We're taking orders now. And we see there's a huge vacuum that -- an opportunity for us to fill it. Before I get to that, the reason we made the original decision to move into the space was that -- when we ask our customers what their problem sets are, it's inverter, inverter, inverter typically. So there was a huge entitlement for additional performance. We believe we've got the skill set and the position to fill that gap. Then we had -- after we made the decision we're moving forward, a number of tailwinds with various U.S. government actions with the FCC band, cyber security issues and concerns and [ Peak ] issues. So that's been a great tailwind and our customers are responding very affirmatively. Now we could continue the product categories to include other things like transformers, either conventional or solid-state or what have you, we've done 13 acquisitions in the last 2.5 years. And so we're really focused on is executing what we have now. I'll just say that the inverter and power conditioning technology we've brought on both the acquisition and the organic is highly strategic with our storage program as well.

So that is a great segue into my next question. So you did mention the FCC band and then there was the Trump and how do we think about this opportunity for you on the solar inverter side as well as the storage side. The U.S. really hasn't seen domestic inverters. Why do you think that is? Has it just been sort of like a cost thing up until now? And I guess, how much urgency are you seeing from customers to diversify their sourcing strategies?

Yes. Well, let me just first say, I've been working with inverters, my whole career in renewables going back to the late '80s. And in a prior company, we interconnected serial number on IGBT inverter and solar that was in 1994. And it's not rocket science to build highly reliable products. Highly reliable products and service are not what most customers are experiencing right now in the market. There's a variety of root causes for that. But basically, there was a commoditization, people just pushing too much power through these units and not doing proper design. So we really think there's an opportunity to address those reliability issues. Now there are legitimate concerns and also a lot of fears around having a predominant amount of power conditioning manufactured by, let's just say, FIA countries. And so Nextpower is a U.S. company. We're going to be making our controllers in the United States with our code, our control boards are here. We're going to have full domestic supply options, where customers can also get domestic content points to hit their domestic content goals. We were the first study on trackers and other key components, and we're going to perform. And so we think it's an opportunity to both improve performance to help customers improve their unlevered IRRs or their power plants, but also have supply security, cybersecurity with Nextpower is an investment-grade company in terms of pure-play companies in clean tech, I think we're the only one. So we have an investment-grade very responsible company with a supply and support organization already in place.

With you're historically known as more of a tracker company, and the tracker has a longer shelf life, right? So when people think about tracker, we mostly think about sort of like new build right, new installations, but with inverters, those, I think, tend to have a shorter life. And so I guess with the bands that are in place, if, let's say, some of the POC players exit the market -- should we think that there's a retrofit opportunity for you with the installed base? How should we think about that?

Yes, that's a good question. I hope people don't -- it doesn't get to a point where people rip out power conditioning that's operating properly in the field. But we already are serving repower applications today. We're shipping today, both in overseas and in the U.S. for some of these legacy products. And one thing we really like about the platform and the team we brought on is that the technology is flexible to be able to support older installations that may have been at a lower voltage. For example, in solar, today, typically, you have an inverter class at 1,500 volts. But some of the legacy systems are at 1,000 volts. And our platform can support that. And we are -- we've actually shipped and have operating units at a range of legacy voltages.

And then just moving on to your storage acquisition. So with respect to your entry here with the Prevalon deal, can you talk through why this way was the right way to enter it as an aggregator. I think historically, investors think of this as a low moat business with the view that you're just sort of packaging things. So what do you think that you can do here that is differentiated? And what are the other synergies that are emerging that weren't initially obvious.

Yes. Great question. So just first strategically, like why did we do it right? Well, so we had enjoyed about a 30% CAGR for 5 years in solar than a 20% CAGR. It's still growing, but more like a 10% CAGR is what we've been delivering recently in solar, sometimes more. But the storage is really taking off. And it's not just growth for growth's sake, but also many of our legacy customers are doing storage, we need storage to do more solar and more wind and that's part of our mission. So well, we could have -- we could make or we could buy companies. And we just saw there was a huge market need. And rather than incubate another business within the company, and we're doing plenty of that and which is working great. We decided we wanted -- we had a need for speed, but to do the right acquisition. So actually, we spent about 1.5 years. We spent -- invested a lot, hired some top consulting companies. We basically looked at everything and talked to everybody. We have a lot of liquidity. We have about $1.2 billion of cash in the bank and a line of credit of comparable size. We could have acquired some really big companies. So we looked at everything -- what we -- the reason we acquired Prevalon we really like this team because they have tremendous track record and knowledge around power generation. They came from the Mitsubishi Heavy Industries, which had built a battery unit to complement their gas power generation unit and the team we have understands rotating machines and the interaction between solar storage and rotating equipment and 38 up successful projects. We're in the middle of delivering. And so in terms of strategically, no one was really thinking about using batteries to support inference data centers a few years ago. That's like a whole new pie. Very interesting. And what's great is that you don't have to build a lot of new electric transmission and distribution. I was a former T&D engineer for PG&E. It's really hard to build new stuff. So you can take the existing grids in many cases, and add a battery on the customer side of the main utility transformer, whether it's on the customer side of the meter or not is less relevant. But the battery can basically when the data centers have very fast fluctuating loads, which is measured in tens of seconds. So the battery can charge or discharge very quickly and basically stabilize the voltage and enable those systems to operate reliably. And the company we acquired now called Nextpower Energy storage, we're in the middle of fulfilling a 1.3 gigawatt Tier 1 plus inference data center customer. And so that's like a brand-new use case. And so I don't think anyone really fully understands how big that market can be, but the great thing about storage is it's kind of a Swiss Army knife. You can do arbitrage. You can do this. We call it hybrid power stabilizers, our product. You can do black start for generators, all kinds of micro grids, all kinds of applications and the company we acquired has a proven track record in doing those.

So you've raised an interesting point. With this deal, I think -- and correct me if I'm wrong, all of your customers have been front of the meter up until Prevalon. Is that right? And with this Prevalon it's sort of like I don't know, I guess, you can say like your entry into behind the meter with this data center. I guess how should we think about sort of the road map there like -- and with the storage, should we think like those are the types of customers that you're really going to go after? Is it front of the meter? Is it both? And then just sort of like, are there other -- you're very good at going to customers and saying, "What do you need? What are your problems? Do you already start, are you already having conversations with those data centers around pinch points that extend beyond [ George ]?

Well, yes. And the -- it's 1 thing that served us well is having a flexible product portfolios to serve a variety of use cases over time. And one of the things that's highly strategic here, and it also reflects on your prior question about this segment, we're more than an integrator here. We are an integrator in the battery space, but we're more than that because we're also manufacturing the really core technology, which is the inverter, the EMS system, the control system that allows these products to operate reliably with the grid in a way that utilities are comfortable with. And so we could do what we are doing all the way from the inference data center all the way back to storage that's co-located with solar for arbitrage. There's many use cases. The day we closed our transaction, which was only like 6 weeks ago, I went up to Boise, Idaho. And 1 of our -- the customers that formerly prevalent at served with Idol Power. They have 9 solar power systems. We were in the field, I saw a 200-megawatt 800-megawatt hour system, which is the largest system in Idaho. And they had a very interesting use case where there was a transmission line. And at the end of that was -- is a semiconductor manufacturer, a large chip manufacturer that has very large loads. But for the battery, they would not be able to reliably serve that customer and other customers on that circuit. And -- but it's not exactly the data center case, it's another use case, which is basically grid augmentation. So we're very excited about this. And the main thing is having the right product family to be able to address use cases. And it will be really exciting to see how things play out over the next few years because customers want to get online, but you can't wait for the utility.

I mean, your company has changed so much since you came public. I can't imagine what it's going to look like 3-ish now?