FTC Solar Faces Supply Chain Challenges Despite Strong Booking Backlog

Jun. 15, 2022 1:21 PM ETFTC Solar, Inc. (FTCI)1 Comment

Summary

  • FTC Solar went public in April 2021, raising approximately $258 million in gross proceeds in a U.S. IPO.
  • The firm provides solar array equipment to industrial and utility customers in the United States.
  • FTCI has severe supply chain issues mostly due to U.S. government actions against Chinese suppliers.
  • Until these issues are resolved, I'm on Hold for FTCI.
  • Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

Multiracial Group Of Three Engineers Surrounded By Solar Panels

Thurtell/E+ via Getty Images

A Quick Take On FTC Solar

FTC Solar (NASDAQ:FTCI) went public in April 2021, raising approximately $258 million in an IPO that priced at $13.00 per share.

The firm sells solar array tracking systems to industrial and utility scale solar facilities.

FTCI is experiencing significant supply chain issues due to regulatory restrictions and delays from suppliers in China.

Until the company can deal with these challenges, either through supply chain diversification or a release of contracted modules, I'm on Hold for FTCI.

FTCI Overview

Austin, Texas-based FTC was founded to develop its single axis solar array tracking system to maximize solar energy production efficiency throughout the day.

Management is headed by president and Chief Executive Officer Sean Hunkler, who has been with the firm since September 2021 and was previously EVP Global Operations at Western Digital and EVP of Global Operations for NXP Semiconductors.

The company’s primary offerings include:

  • Voyager Tracker - a two panel in-portrait single axis tracker solution.

  • Atlas - software database for project portfolio management

  • SunDAT - automated design and optimization software

The company sells its systems to engineering, procurement and construction companies as well as large development firms and independent power producers that build solar projects.

Market & Competition

According to a 2020 market research report by Fortune Business Insights, the global market for solar trackers was an estimated $9.3 billion in 2019 and is expected to exceed $22 billion by 2027.

This represents a forecast CAGR of 12.6% from 2020 to 2027.

The main drivers for this expected growth are a continued effort by countries to reduce their carbon emissions through increasing renewable energy sources.

Also, the near term has seen a reduction in activity due to the Covid-19 pandemic's effects on supply chains.

However, below is a chart indicating the historical and projected growth rate of the solar tracker market in North America:

North America Solar Tracker Market

N. America Solar Tracker Market (Fortune Business Insights)

Major competitive or other industry participants include:

  • Array Technologies (ARRY)

  • NEXTracker

  • PV Hardware

  • Artech Solar

  • UNIRAC

  • RBI Solar (ROCK)

FTCI’s Recent Financial Performance

  • Total revenue by quarter has been highly variable over the past 5 quarters:

FTC Solar Revenue

5 Quarter Total Revenue (Seeking Alpha and The Author)

  • Gross profit by quarter has remained negative:

FTC Solar Gross Profit

5 Quarter Gross Profit (Seeking Alpha and The Author)

  • Selling, G&A expenses as a percentage of total revenue by quarter have fluctuated as follows:

FTC Solar Selling, G&A % of Revenue

5 Quarter Selling, G&A % of Revenue (Seeking Alpha and The Author)

  • Operating income by quarter has remained significantly negative in recent quarters:

FTC Solar Operating Income

5 Quarter Operating Income (Seeking Alpha and The Author)

  • Earnings per share (Diluted) have also been materially negative over the past 5 quarters:

FTC Solar Earnings Per Share

5 Quarter Earnings Per Share (Seeking Alpha and The Author)

(Source data for above GAAP financial charts)

In the past 12 months, FTCI’s stock price has dropped 60.2 percent vs. the U.S. S&P 500 index’ fall of 10.9 percent, as the chart below indicates:

FTCI 52 Week Stock Price

52 Week Stock Price (Seeking Alpha)

Valuation Metrics For FTCI

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Amount

Market Capitalization

$503,050,000

Enterprise Value

$455,300,000

Price / Sales

1.62

Enterprise Value / Sales [TTM]

1.79

Operating Cash Flow [TTM]

-$160,600,000

Revenue Growth Rate [TTM]

15.27%

CapEx Ratio

106.70

Earnings Per Share

-$1.43

(Source)

As a reference, a relevant public comparable would be Array Technologies (ARRY); shown below is a comparison of their primary valuation metrics:

Metric

Array Technologies (ARRY)

FTC Solar (FTCI)

Variance

Price / Sales

1.75

1.62

-7.4%

Enterprise Value / Sales [TTM]

3.16

1.79

-43.4%

Operating Cash Flow [TTM]

-$271,140,000

-$160,600,000

-40.8%

Revenue Growth Rate

32.6%

15.3%

-53.1%

(Source)

Commentary On FTCI

In its last earnings call (transcript), covering Q1 2022’s results, management highlighted the supply chain limitation issues it has been facing due to the U.S. withhold release order [WRO] concerning materials from Xinjiang province.

Also, more Chinese companies are being investigated by the U.S. under antidumping and countervailing duties provisions [AD/CVD] which has further restricted PV module procurement.

As a result, while FTCI has ‘a lot of business in contracted and awarded [stage], much of the construction has been delayed.’

Contracted and awarded bookings ended the quarter at $664 million, ‘with $112 million added in the past two months and no cancellations.’

As to its financial results, revenue dropped in Q1 year-over-year, while GAAP gross loss was slightly worse sequentially.

Operating expenses were also higher compared to last year as the firm has sought to ramp up operations despite significant supply challenges.

Looking ahead, management withdrew its previous 2022 guidance and will be providing only quarterly guidance for the foreseeable future.

Management expects gross margin to worsen due to delays in getting new, lower-cost modules.

Regarding valuation, the stock market is currently valuing FTCI at around the same Price/Sales multiple as that of Array Technologies.

The primary risk to the company’s outlook is the uncertain duration of the various orders and investigations into Chinese companies which supply FTCI’s modules, putting a damper on revenue growth and gross margin increase.

Until the company can deal with these challenges, either via supply chain diversification or a release of contracted modules, I'm on Hold for FTCI.

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This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions. Post-IPO investing carries significant volatility and risk of loss.

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