Nextpower Inc. (NXT) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for standing by. My name is Kevin, and I will be your conference operator today. Today's call is being recorded. I would like to welcome everyone to Nextpower's First Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions] At this time, for opening remarks, I would like to pass the call over to Ms. Sarah Lee, Head of Investor Relations.

Thank you, and good afternoon, everyone. Welcome to Nextpower's First Quarter Fiscal Year 2027 Earnings Call. I'm Sarah Lee, Nextpower's Head of Investor Relations; and I'm joined by Dan Shugar, our CEO and Founder; Howard Wenger, our President; and Chuck Boynton, our CFO. As a reminder, there will be a replay of this call posted on the IR website along with the earnings press release and shareholder letter. Today's call contains statements regarding our business, financial performance and operations, including our business and our industry that may be considered forward-looking statements, and such statements involve risks and uncertainties that may cause actual results to differ materially from our expectations. Those statements are based on current beliefs, assumptions and expectations and speak only as of the current date. For more information on those risks and uncertainties, please review our earnings press release, shareholder letter and our SEC filings, including our most recently filed quarterly report Form 10-Q and annual report on Form 10-K, which are available on our IR website at investors.nextpower.com. This information is subject to change, and we undertake no obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. Please note, we will provide GAAP and non-GAAP measures on today's call. The full non-GAAP to GAAP reconciliations can be found in the appendix to the press release and the shareholder letter as well as the financial section of the IR website. And now I'll turn the call over to our CEO and Founder, Dan.

Good afternoon, and thank you for joining us. We are very pleased by the company's performance and positioning as we report on the first quarter of our fiscal year. Nextpower delivered a strong quarter, characterized by continued bookings momentum and backlog growth, operational discipline and execution and significant progress in the expansion of our technology platform. We achieved a record quarterly revenue of $935 million with adjusted EBITDA of $233 million. Backlog grew to over $5.5 billion, reflecting healthy customer demand and booking strength across both our core tracker business and our expanding portfolio of non-tracker products. On top of the $5.5 billion, Nextpower energy storage brings over $300 million of additional backlog. We demonstrated continued progress with our long-term strategy of solving customer problems and delivering tangible value and performance. For most of our history, this meant developing tracker products that help customers lower LCOE, accelerate installation, improve reliability, reduce risk and increase energy yield. That approach led to global market leadership in solar trackers. According to Wood Mackenzie, for 2025 tracker market share, Nextpower was recognized as the #1 solar tracker company in the U.S. and globally for the 11th consecutive year. Growing share to 55% in the U.S. and 30% worldwide. By innovating tracker solutions that solve complex project challenges and improve financial outcomes, we have earned trust and repeat business from our global Tier 1 customer base and deployed our technology across projects totaling more than 160 gigawatts. Each project deepens our customer relationships and gives us greater insight into evolving needs of utility-scale solar and storage customers. Those insights guide how we invest both organically and through disciplined M&A to enhance the value we can deliver to our customers. Customers continue to ask us to do more as utility scale solar, storage and critical power infrastructure projects become larger and more complex. With the acquisition of Prevalon, which closed last Monday, we launched Nextpower energy storage. Prevalon brings us a proven team with an excellent track record across 6 gigawatt hours of turnkey storage solutions, spanning applications from dispatchable peaking power to data center stabilization, serving blue-chip customers. Solar and storage are highly symbiotic technologies for electric grids, enabling low-cost energy and rapid capacity deployment for dispatchable firm power. Energy storage also represents a significant growth vector and opportunity for Nextpower as it is projected to grow at 33% CAGR from 2025 to 2028. Since our last call, we also announced the pending acquisition of Zimmermann PV-Steel Group, a very well-respected company based in Germany with an excellent European footprint. Upon closing, Zimmermann is expected to expand Nextpower's offering with 5 new product lines, extending the company's reach into 15 additional countries and creating cross-selling opportunities for Nextpower eBOS, power conditioning systems and batteries. These transactions follow our customer-focused playbook, identify critical pain points, invest in differentiated technology, scale through Nextpower's global footprint and trust relationships and reinvest to strengthen the platform. As we execute on this strategy, we believe we can improve customer outcomes, increase our project participation scope, strengthen Nextpower's competitive moat and generate attractive long-term returns for shareholders. I also want to proactively address questions around Tuesday's announcement by the FCC related to imported inverters. Nextpower launched a power electronics business to solve customer needs in inverters, which include better operating performance, stronger domestic manufacturing, enhanced cybersecurity and support from an investment-grade U.S. company that has a strong product service culture. Our new inverter business satisfies these needs and helps to further derisk customers as we may see additional U.S. government restrictions on overseas inverters. We're pleased to announce today that our acquisition of the Apex inverter business has closed and that our product has achieved Underwriters Laboratories UL 1741 SB certification. We are further accelerating our U.S. manufacturing build-out across multiple locations. We expect deliveries to begin in early 2027 and plan to have over 10 gigawatts of U.S. capacity online next summer. Our UL certified Apex inverter is designed to enhance cybersecurity using site-level optical fiber communications and is designed to meet all government requirements. Customer response to our inverter technology, manufacturing, cyber, domestic manufacturing and service plan has been very strong. We're doubling down on ramp plan for these essential products and services with the goal of having the highest availability operating inverters for solar and storage power plant owners. The current market environment represents a structural tailwind for our business. Global electricity demand continues to accelerate, driven by electrification, industrial growth, artificial intelligence, data centers and the need for more reliable and resilient power infrastructure. Solar and storage are the fastest, lowest cost and proven ways to add new capacity. As this market moves forward toward terawatt-scale annual deployment volumes, customers need partners that can deliver high-performing, reliable energy infrastructure solutions at scale. We believe Nextpower is uniquely positioned to meet that demand. We will be hosting our second Capital Markets Day on November 16 at RE+ in Las Vegas, where we will provide an update to our 2030 outlook that will reflect a material acceleration due to our strong market momentum, recent strategic acquisitions and exemplary operational execution. We look forward to seeing many of you there. With that, I'll turn it over to Howard.

Thank you, Dan. Q1 was another great quarter for Nextpower, marked by record revenue, strong customer bookings and backlog growth and operational execution. We continue to see a flight to quality in the market and increasing validation of our platform and bundling strategy. Customers are choosing Nextpower because of our technology, execution, supply chain, bankability and customer service. We believe these factors are propelling company growth and show up in our sales backlog and market share. We had another excellent bookings quarter with strong demand, both in the U.S. and international markets. Tracker sales drove sequential backlog growth to a new record high. We are now also benefiting from meaningful sales and revenue contributions from non-tracker products, starting with eBOS, which serves as a proof point of how we are efficiently integrating and operationalizing acquisitions. We had record eBOS bookings in the quarter, and the product segment is on track to contribute well over $100 million of revenue for the year. Our eBOS offering has strengthened further with the recent UL certification of our unique and differentiated NX PowerMerge solution. We have currently booked 850 megawatts of PowerMerge with deliveries expected to begin in the current quarter. Secondly, our foundations business is also growing with a 50% year-over-year increase in the quarter. Thirdly, our TrueCapture control system delivered record revenue and backlog in the quarter, reinforcing Nextpower's industry-leading position. We are also pleased to announce in the non-tracker category that the Apex inverter is now UL certified and is applicable for both solar and storage markets. This certification paves the way for broad commercialization in the U.S. market, and we are highly focused on rapidly building out a scalable and flexible supply chain for these products. Finally, we are very excited to add energy storage to the Nextpower platform. With the launch of Nextpower energy storage, we expand our ability to serve our solar customers with a broader set of integrated solutions while expanding our customer base to include hyperscalers, stand-alone storage developers and a large range of utility customers. Now moving to markets and the demand picture. The U.S. remains our best market globally. We are seeing continued positive demand signals as project pipelines are growing, getting permitted and reaching construction. We have very strong and trusted customer relationships in the U.S., and this is helping us accelerate growth in our non-tracker business and puts us in great position for addressing the storage segment. Internationally, we secured a tracker order for the largest solar plus storage project to date in Australia, a 721-megawatt project incorporating significant locally made steel content. We also continue to expand our global customer footprint in the quarter, taking our customer reach to over 50 countries. The acquisition of Zimmermann PV, when closed, will extend our reach further with 15 additional countries. Zimmermann is a very well-respected brand with a fantastic team with more than 20 gigawatts of cumulative projects and well-established customer relationships across Europe. Importantly, the acquisition of Zimmermann will expand our ability to serve a much broader set of ground-mount solar applications with their product portfolio. For example, roughly half of Europe's ground-mount PV installations are fixed tilt at about 25 gigawatts per year, and Zimmermann brings deep expertise in fixed tilt and other structural solutions that we expect will significantly increase our addressable market. Zimmermann's German headquarters and strong market position there are key strategic elements for us as Germany is projected by S&P to become Europe's largest solar market by 2030. Germany currently represents approximately 20% of Europe's ground-mount solar market, mostly deployed as fixed tilt systems. We also see meaningful energy storage opportunities across Europe, where installations are expected to grow rapidly. Over time, we believe that Zimmermann's sales channels and customer base, especially across Europe, can facilitate sell-through for Nextpower's product portfolio, including trackers, eBOS, power conversion, storage and software. Turning to project timing and pricing globally. Project timing generally remains manageable. As is typical in utility scale solar, we continue to see some projects accelerate and others move to the right. And we manage those movements across a large and diverse portfolio of customers and geographies. Overall, pricing continues to track the broader solar cost curve, and we continue to invest in R&D and scalable infrastructure to reduce costs while improving system performance. Our culture is to relentlessly serve customers and deliver maximum value at competitive cost and pricing. In summary, our business fundamentals are strong, and we are excited by the revenue and growth vectors we added with power conversion, energy storage and eBOS solutions now in the mix. Demand is healthy. Our backlog is large and continues to grow. Execution visibility is solid, and we continue to strengthen our competitive position through innovation, customer focus and operational excellence. With that, I'll pass it on to Chuck.

Thank you, Howard, and good afternoon, everyone. Overall, Q1 was another quarter of strong execution with results that reflected healthy end market demand, disciplined execution and continued investment in long-term growth. For the first quarter of fiscal 2027, revenue was $935 million, representing 8% year-over-year and 6% sequential growth. Q1 adjusted gross profit was $342 million, adjusted gross margin was 37% and adjusted EBITDA was $233 million, representing an adjusted EBITDA margin of 25%. Q1 geographic revenue mix was approximately 83% U.S. and 17% Rest of World. Our revenue mix remains predominantly solar tracker systems, but non-tracker products are becoming a more meaningful part of the business. In Q1, we recognized revenue from TrueCapture, eBOS, foundations, robotic solutions and other platform offerings. Non-tracker products represented approximately 14% of total revenue, reflecting continued customer adoption. Q1 saw solid execution that exceeded our gross margin targets of the low 30s, benefiting from IEEPA tariff recoveries, higher relative U.S. revenue contribution, strong TrueCapture revenue, partially offset by higher logistics costs. Adjusted operating expenses increased year-over-year as we expanded our platform and increased investment in research and development. This is consistent with the strategy we have discussed previously. Turning to cash flow and the balance sheet. Our strong balance sheet, cash flow generation and ample liquidity remain competitive advantages. We closed the quarter with over $1.2 billion of total cash and cash equivalents with no debt. We generated $121 million of operating cash flow and $105 million of adjusted free cash flow in the quarter. We operate a capital-efficient business and remain focused on maintaining and improving our cash conversion cycle. Our investment-grade credit rating speaks to the strength of our balance sheet and capital structure, and it remains important to customers, suppliers and project financing partners. Based on our Q1 performance, the strength and quality of our backlog and continued demand across our core and emerging product categories, we are updating our fiscal 2027 outlook. We now expect revenue in the range of $4.1 billion to $4.4 billion, adjusted EBITDA in the range of $870 million to $930 million and adjusted diluted EPS in the range of $4.42 to $4.73. As previously communicated, our outlook includes planned investments of approximately $50 million related to growth initiatives, primarily the acceleration of our entry into the power conversion market. I want to spend a minute on margins and returns. Our structural margin framework has not changed. We continue to expect gross margins in the low 30s and operating margins in the low 20s. Quarterly margins will fluctuate based on mix, tariff recoveries, ramping of new businesses and the policy environment, but the long-term framework remains intact. As we integrate recent acquisitions and scale new product categories, we will see an impact to EBITDA and margin percentages. In many organic initiatives or acquisitions, certain costs will come ahead of revenue as we build engineering, manufacturing, go-to-market and service capabilities. We are making these investments where we see strong customer pull, clear strategic fit and attractive financial returns. eBOS is an early proof point. A little over a year after acquiring and launching that product line, we have delivered multiple quarters of record bookings and revenue and seeing strong attach rates. And as Howard pointed out earlier, remain on track to generate well over $100 million of revenue this year. Prevalon is another example of our approach. A meaningful portion of the consideration is tied to future profit targets and management incentives that are aligned with cumulative profit. We are not relying on speculative upside or large unproven cost synergies to justify the transaction. We acquired proven deployments, real customer relationships, backlog, life cycle service capabilities and a platform we believe can scale through Nextpower's customer relationships, engineering, supply chain discipline and execution model. As Nextpower scales, we believe investors should evaluate us on both absolute profit dollars as well as margin percentages. The objective is not to dilute returns to buy revenue. We are focused on sustaining structural margins on a larger revenue base while growing adjusted EBITDA dollars, free cash flow and return on invested capital over time. Finally, on capital allocation. Our priorities remain consistent. First, we continue to prioritize organic investment in new products and services. Second, we pursue disciplined M&A that strengthens our technology platform and creates customer value. Returning capital to shareholders remains the third pillar of our capital allocation framework with our Board-approved $500 million share repurchase authorization. We have increased confidence in our ability to deliver sustained growth and profitability while continuing to invest in innovation and long-term value creation. And with that, we'll take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Jon Windham with UBS.

This is David Choe on for Jon Windham. Congrats on the quarter. I know you mentioned the FCC inverter ban briefly. But I was just wondering, assuming you made the decision to accelerate investment in the inverter segment prior to that announcement. Just wondering how do you view -- or how do you kind of view the change in the scale of the opportunity for you in that product segment post the announcement? Or how incremental is that to kind of your long-term outlook for market share in inverters?

David, Dan Shugar. Thanks for the question. So we keep saying this, and it's just very basic and so true. We ask customers what are your greatest pain points? What do you need help with? And it comes back often inverter power conditioning unit, those things. And so we actually made a decision over 2 years ago to really launch a family of products in the inverter business to serve solar and power conditioning business to serve energy storage. So we have a tremendous amount of momentum on organic internal product families. And then we also wanted to double down on that, and we did the acquisition of the Apex product line, and we couldn't be more pleased with that. Let me be clear about what our objective is. Nextpower will deliver to the market the most available inverter and power conditioning products in the industry. That's our objective, and we will get that done. What that means is from an owner standpoint, these systems are online, okay, when you look back after a year or 5 years, what have you. And it's not rocket science. I could take you to systems we did 20 years ago with really inverters, IGBTs, inverters that are still operational. So in order to do this, you need to have a great product, a great service model, spare parts, operational excellence and the right kind of service culture. And we're going to do that. So in response to -- as we've been rolling this out and preconditioning the market, we've seen very strong demand and feedback from our customer, which is why at our last earnings call, we announced we're putting this incremental $50 million in, which is real money. And we've hired some of the best and the brightest, organically. And then we're extremely pleased to bring the Apex and legacy Zigor technology team led by Antonio Poveda and Jacob Marshall in the United States to the team. And so what we're seeing is customers are also really valuing domestic production. They're valuing cybersecurity. This also addresses fiat concerns. We're going to have a portfolio of product and supply options for these segments or these applications available to the market. And it's also synergistic with the storage business that we announced completion of the acquisition last week.

And your next question comes from the line of Brian Lee with Goldman Sachs.

I have 2, so I'll just try to fit them both in here. One, there's been a number of M&A deals here, obviously. So I would be curious, Dan, Howard, if you guys have any comments you can make early read on integration efforts, realization of synergy potential, anything you can quantify? I mean it does sound like margins may be impacted negatively near term, but then should be back to normal by end of fiscal year-end. And then related to that, just curious how your direct access visibility discussions, however you would characterize it with hyperscaler and data center customers has evolved here with a more robust portfolio and maybe how quickly you expect to realize some of the opportunities across that customer segment? And then maybe in what product category specifically?

Sure. I'll take the first part, Brian, related to the acquisitions and how the integration is going. Howard will take the second part related to the hyperscalers in that market segment. So first, we have a history of success with M&A. We did the BrightBox machine learning acquisition 10 or 11 years ago. That really helped us develop our TrueCapture and NX Navigator suite of products, which has been an overwhelming success in use on many hundreds of power plants, extremely material to our financial results, but importantly, to the customer projects. Starting about 3 years ago, we did a number of smaller acquisitions. Those have been fully integrated. Those are more tuck-in technology acquisitions. We did Ojjo on the foundation. We have many gigawatts of that under fulfillment, that's going great, complementary technology on the foundation business that customers are really valuing. And some of the stuff is hard. You have to invest. It takes a few years to operationalize and be able to really get to both volumetric scale, but also tune these businesses up where they're actually hitting the financial metrics you want. So I mean, that's going great. We've done a number of additional earlier-stage businesses. And Chuck in his earlier remarks mentioned, for example, our eBOS business. We closed that just about 5 quarters ago. We're at sort of a $50 million or $100 million annualized run rate, which is double what that company did in the 30-year history. And we just announced our new UL listed product PowerMerge, which brings the best of both schools of thought through electrical balance system to the market, and we've seen great results there. So it really comes to putting your shoulder into these things, sweating the details, getting the best people to run these businesses, empowering them and then bringing those forward to customers where we're adding value. And the -- I think our program is going extremely well. What's different about the Prevalon acquisition is that we had a very mature team that had done about 38 projects with very good references from customers. I was just out at a large utility scale site last week with the team, a 200-megawatt -- 800-megawatt hour site that was brought online in under a year. The very sophisticated utility customer was extremely pleased with the performance. So there -- we don't need to integrate those as much because that product line can run. And the last one in that M&A family, the large one that we announced last quarter was a definitive agreement to acquire Zimmermann in Germany, which is a very well-established, respected, stable revenue, cash flow generating company in Germany that we don't need to do the level of integration we have with the other businesses. So that's how we've thought about that program. Howard, can you address the hyperscaler question?

Sure. Brian, so we are serving hyperscalers, both indirectly and directly. And by indirectly, I mean we're working with IPP owner developers who have contracts with hyperscalers, and we're supplying equipment to them. Now that we have a full platform of solar and storage, we can offer much more value for both hyperscalers and the -- our IPP developer partners. We also -- that's indirectly. And in directly, we are working with hyperscalers directly one product that Prevalon, now Nextpower storage has is hybrid OS. It's a power stabilizer that provides a continuous power can respond to data center demand fluctuations that are less than 10 milliseconds, really fast response and working directly with hyperscalers and what they're doing on their side of the meter on those kinds of applications. So people ask is hyperscaler market and data center market and demand market for electricity real? It's very real. We're seeing expanding pipelines to serve this market segment and closing business on that basis. So we're really excited about that. I just wanted to add that, today, we announced the closing of the inverter acquisition we made in power conditioning system acquisition. Dan noted that, that acquisition serves both solar and storage. So there's some synergy there. You asked about synergies, Brian, and that's one of them, taking that inverter power conversion technology from one company and porting it through our Nextpower storage acquisition in Prevalon. So quite excited about that. Thank you.

And your next question comes from Mark Strouse with JPMorgan.

I appreciate you guys are giving us the percentage of your revenue that's coming from the non-tracker business. Is there any other color that you can provide us, though, as far as like the percentage of your tracker projects that are coming with other technologies, maybe kind of the average number of offerings or solutions per project, kind of what that looks in your bookings and maybe how that's trended over the last couple of quarters? And then just a quick follow-up, if I can get it out there. Chuck, I just want to make sure the $50 million incremental investment in power conversion, is that in line with what you were talking about back in May when you announced the deal? Or is this incremental on top of that? And so we should be thinking about $100 million now?

Thanks, Mark. I'll go first. This is Chuck. Yes, it's the same $50 million. We're excited that the power conversion business closed today. And so that investment really started a little bit last quarter, but for the most part, it's kind of over the next 4 quarters. It's the same numbers, though, not incremental to what we announced in May.

Okay. This is Howard. Really pleased with the progress in porting in more products alongside our tracker platform, including foundations, which grew 50% year-over-year in revenue for the quarter. And then our eBOS business, Dan mentioned it in his previous answer that, that's really going extremely well, $100 million-plus revenue run rate for the year, which is beginning to become -- well, it's a meaningful contribution to our annual revenue and growing. The attach rate on eBOS, I think, is particularly striking for us, and it's exceeding the overall attach rate that we noted in our remarks of 14%. So we're really happy with the progress on eBOS. And everything so far points to an affirmation of our strategy, which is to offer a fully engineered solution, entire bundle where we're wringing out cost and increasing yield. Just integrating our foundations with our trackers, we're able to reduce install time by 20%. Part of that, we eliminated all the fasteners between the foundation and the tracker. So that's another proof point of what we can do to optimize system cost and performance and provide a better solution for our customers. Thanks, Mark.

And your next question comes from Phil Shen with ROTH Capital Partners.

First one here is on your margin expansion. You highlighted in your quarter or in the shareholder letter that this was driven in part by TrueCapture and tariff recoveries. I was wondering if you could split that out and specifically call out how much TrueCapture benefited you guys there? And then ultimately, can you give us a more detailed update on TrueCapture? I know at the IPO, you guys were a little bit hesitant on that, but you've had some time now, a couple of few years here to ramp up that volume. So I was wondering what percentage of your installed base has TrueCapture. And then as you book new business, what's the attach rate of TrueCapture there? Given the strong margins, it would be great to understand what kind of impact TrueCapture is having.

Yes. Phil, it's Chuck. I'll go first on some of the details and Howard can fill in on attach rates. So TrueCapture historically was 2% of revenue. We're not giving the exact number, but it's gone higher. So the overall revenue from TrueCapture has accelerated. We had a great quarter, and it's tied to commissioning. So you'll see some quarters it goes up, some it may be in line. But we expect a very strong year for TrueCapture. Q1 was strong. But the real kind of overall beat on margins was we had pretty significant IEEPA recoveries. And there's still more that we'll get in Q2 and some beyond possibly, but that was a real benefit. And there was a bit of a headwind on freight that kind of offset that a bit. But I would look -- our guide overall was kind of low 20s operating margins. And we delivered 25% and that overachievement was primarily tariff recoveries then offset a little bit by freight and logistics. Howard, do you want to talk about the attach rates?

Sure. First, I want to hum a few bars on TrueCapture, which we love and adore because it represents the best of what we do as a company. We've been working on it for about 10 years. It's a really hard thing to do, which is to optimize the performance of every single row of trackers in a field. And there are thousands of tracker rows in every field typically for the larger fields. And we operate each one independently to maximize yield, and that's what TrueCapture does. And it does it in several different ways. And we've proven it. Third-party engineers have proven it that it works, it's validated. And we have many -- tens of gigawatts of TrueCapture installed with validated performance. And we are seeing increasing attach rate for it because over time, the -- it becomes even more valuable, the more you have uneven terrain and more difficult locations to install the power plant. And so operating the power plant in a reliable way that maximizes yield is becoming more challenging, but our TrueCapture control system does that. And so we're not publishing attach rates, but I can tell you that it's going up. When we did the IPO, we -- and did the roadshow, we said it was about 1% of revenue. Then we've given an indication that it's 2% of revenue. I can tell you in the quarter, it was higher than that. And so the attach rates are going up for that, and it is important, Phil, it's a very insightful question and much appreciated.