Tigo Energy, Inc. (TYGO) Earnings Call Transcript & Summary

Good afternoon. Welcome to Tigo Energy Financial Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Joining us today from Tigo are Zvi Alon, CEO; and Bill Roeschlein, CFO. As a reminder, this call is being recorded. I would now like to turn the call over to Bill Roeschlein, Chief Financial Officer.

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 to 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 or 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 third 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-K, 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. 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-K. 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 Tigo's Investor Relations website at investors.tigoenergy.com. I would now like to turn the call over to Tigo's CEO, Zvi Alon. Zvi?

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 Roeschlein. He will discuss our financial results for the quarter in more depth as well as provide financial outlook for third quarter 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. For those of you who may be new to our journey, Tigo 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 improves safety, enhance energy yield and reduce operating cost of residential, commercial and utility scale systems. At Tigo, we offer 3 primarily product lines. The TS4 MLPE, Module Level Power Electronics, our flagship product, which offers a range of flexibly designed MLPE solutions to meet the diverse needs of installers worldwide. Second, 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. 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+ AI-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 first quarter 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 $12.7 million in revenue within the previously stated guidance and shipped 378,000 MLPE devices, which translates to approximately 151 (sic) [ 144 ] megawatt DC, assuming a panel size of about 400 watts. Our C&I saw an increased business -- saw an increased activity highlighted by Tigo selection as the rapid shutdown technology provider for 142-megawatt 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 TS4-X product at large scale. We also welcome Midnite Solar as our latest rapid shutdown licensee. This agreement empowers them to deploy innovative products containing Tigo's rapid shutdown intellectual property for compliance with safety regulations. 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. During the quarter, we saw a solid sales growth in Singapore, Australia and in the Philippines. Turning to an update to our newest line of MLPE. The TS4-X -- as a reminder, the TS4-X family represents a culmination of multiyear efforts to provide the C&I and utility marketplace with leading edge MLPE that are designed to satisfy the several key industrial needs. The TS4-X MLPE products offer higher power, higher current solutions and maximum design flexibility all while enabling lower overall system costs and their alternatives. We are pleased to report that we have received a great reception since last quarter's rollout. We believe the TS4-X family will continue to prove it is safest, most reliable, most cost-effective and most flexible and highest power MLPE solution in the market. In addition to the TS4-X, we would also like to highlight some other recent announcements we have made, including the unveiling of the new Tigo Solar Installer Loyalty Program for residential PV installers in EMEA at Intersolar Europe 2024. This program will recognize the dedication of professionalism of installers who choose the Tigo solution, further supporting the continued success and emphasizing the vitality of all members of the SolaX (sic) [ solar ] value chain. Within our EI Software product line, we recently introduced a new 3-tiered paid service offering with the flagship solution EI Professional, offering a centralized view of critical health and performance data, all systems under management. Beyond scalable monitoring experience and simple flat price model, the ultimate seat EI Professional package includes: one-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 features, 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 third-party hardware. More advanced monitoring analytics tools, historical data and minute-level monitoring resolution, among others, are available via simple in-platform upgrades to EI Premium. Finally, we are pleased to announce that more than 520 solar installations have been enrolled in our Tigo Green Glove program, which provides premium customer experience for every phase of system installation for C&I installers. And with that, I would like to turn over to Bill. Bill?

Thank you, Zvi. Turning now to our financial results for the second quarter ended June 30, 2024. Revenue for the second quarter of 2024 decreased 81.5% to $12.7 million from $68.8 million in the prior year period. By geography, EMEA revenue was $7 million or 55% of total revenues, Americas revenue was $2.8 million or 22% of total revenues and APAC was $2.9 million or 23% of total revenues for the quarter. On a sequential basis, revenues improved 29.6% compared to Q1 with improved results coming from Germany, Italy and the U.K. and the EMEA region and Singapore, Australia and the Philippines in the APAC region. Gross profit in the second quarter of 2024 was $3.9 million or 30.4% of revenue compared to $25.9 million or 37.6% 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 second quarter were $12.3 million, down from $17.2 million in the prior year period. The year-over-year decrease was driven primarily by M&A expenses recognized in the prior year period as a result of our [ lease ] back. During the quarter, we initiated additional cost-cutting efforts and expect that on a normalized basis, our GAAP operating expenses to be approximately $12.5 million per quarter and our non-GAAP operating expenses to be approximately $11 million per quarter. Operating loss for the second quarter totaled $8.4 million compared to an operating profit of $8.7 million in the prior year comparable period. While GAAP net loss for the second quarter totaled $11.3 million compared to a net loss of $22.2 million for the prior year period. Adjusted EBITDA loss in the second quarter totaled $6.4 million compared to adjusted EBITDA of $13.6 million in the prior year period. As a reminder, adjusted EBITDA represents operating profit as adjusted for depreciation, amortization, stock-based compensation and M&A transaction expenses. Primary shares outstanding were 60.4 million for the second quarter of 2024. Now turning to the balance sheet. Accounts receivable net increased $0.6 million [ too ] in the second quarter to $6.9 million, compared to $6.3 million last quarter and $45.8 million in the year ago comparable period. Inventories net decreased by $4.4 million or 8% to $51.3 million compared to $55.8 million last quarter and $50.6 million in the year ago comparable period. In the second 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. Cash, cash equivalents and short and long-term marketable securities totaled $20.2 million at June 30, 2024. This sequential decline by $1.8 million was primarily due to our adjusted EBITDA loss of $6.4 million, offset by the conversion of existing inventory into cash. 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 million to $19 million and an adjusted EBITDA breakeven point at a quarterly revenue level of approximately $33 million to $35 million 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, third quarter. As a reminder, Tigo 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 third quarter of 2024, we expect revenues and adjusted EBITDA to be in the following range. We expect revenues in the third quarter ended September 30, 2024, to range between $13 million and $16 million. We expect adjusted EBITDA loss to range between $6.5 million and $8.5 million and reflects the potential variability in product mix and noncash inventory reserve expenses for the third quarter. That completes my summary. I'd like to now turn the call back over to Zvi for final remarks. 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 a 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. For the second half of 2024 we expect our revenue and profitability to more slowly continue their upward trajectory, but that the sluggish macroeconomic 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 quarter. With that, Operator, please open the call for Q&A.

[Operator Instructions] Our first question comes from the line of Philip Shen with ROTH Capital Partners.

So I'm balancing 3 calls at the 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 '24, 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?

Phil. Yes, as Zvi 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.

Okay. Got it. So early is not middle and so that would suggest Q1 '25? I mean, is that a realistic option? Or do you think it might have risk for Q2?

Yes. I mean I would define early as first half. That's how I think 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. And so was wondering if the channel inventory is taking a little bit longer to clear? So is it -- 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 like altogether.

Well, first, we thoroughly enjoyed our time with you at Intersolar 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. 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.

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?

Like I mentioned, I think there's a couple -- a few laggards here and there, but 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.

Got it. Yes. Sorry to bring that up again. Again, I'm multitasking with multiple calls. Sorry, go ahead, Zvi.

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 market, we highlighted like Germany and Italy and the U.K., we've seen a growing number of repeat orders. And as a matter of fact, specifically in Germany, we had at least 2 of them who stated that the volume of our products grew 2x or 3x month-over-month just recently. So we are beyond that stage. The market is slow in general.

Right. Okay. One last question, and 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. 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?

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 growing there.

Our next question comes from the line of Eric Stine with Craig-Hallum Capital Group.

So maybe just -- so it sounds like 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 cash flow breakeven goal would be in reach in Q4 as we think about the remainder of the year?

We agree with that.

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 eight ball yet if that recovery is a couple of quarters away, you want to be prepared for it?

Yes, there's puts and takes on that. So of course, we can do stuff on the discretionary end as it relates to outsourced vendors and professional services fees, et cetera, et cetera, and we will and are doing that. But as it relates to the more difficult decisions of headcount, you have to balance the risk and 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 and taking actions like that. 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 way 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 if we have to.

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

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. In fact, we are using a couple of those changes as a potential market [ pull up ].

Our next question comes from the line of Amit Dayal, H.C. Wainwright.

With respect to the TS4-X sales, were there any contribution from that in the quarter?

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

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?

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. The -- on the Storage Solution side, the inverter and all the other auxiliary components are -- were fine. But the batteries have been facing some challenges, the battery, the storage itself. But we will be able to manage it.

Okay. Understood. Just at the macro level, right, 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, et cetera? Or are there any other sort of drivers that are also coming into play that is causing some of the recovery being pushed out?

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&I are having a slower pace, but they are fairly steady. And we have seen a major increase in that space. As a matter of fact, the product and projects we just talked about in Spain is a very large utility scale project and it's one of many we are working on. And it ended up being, I think, the largest order we ever received for a single project and the largest installation it will be in the world with MLPE. So -- the fact that our MLPE 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.

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

It's all going to be delivered this year, all of it. 100%.

Before the end of 2024?

100%, yes.

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

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?

Thank you for joining us today for Tigo's Second Quarter 2024 Earnings Conference Call. You may now disconnect.