Q3 2024 Tigo Energy Inc Earnings Call
Good afternoon. Welcome to Tygo Energy's fiscal 3rd quarter 2020-24 earnings conference call. At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session. Joining us today for Tygo is 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.
Bill Roeschlein: Thank you operator. We would 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 and become profitable and our overall long-term growth prospects, expectations regarding the recovery and our industry, including the time they're up.
The timing thereof, statements about our demand for our products, our competitive position and market share, our current and future inventory levels and reserves, and their impact on future financial results.
inventory supply and its impact on our customer shipments and our revenue and adjusted EBITDA for the fourth quarter of 2024.
Our ability to penetrate new markets and expand our market share, including expansion in international markets.
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 31st.
A quarterly report on Form 10-Q for the fiscal quarter ended September 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 the call.
These forward-looking statements are made only as of the date when made.
During our call today, we will reference certain non-debt financial measures.
We include non-GAAP to GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP.
Speaker Change: With that, I'd like to now turn the call over to Tygo's CEO, Zvi Alon. Zvi?
Zvi Alon: Thank you, Bill.
Speaker Change: and Bill Roeschlein.
Speaker Change: To begin today's discussion, I will highlight key areas in our recent performance as well as provide some commentary on market trends and conditions before turning the call over to our CFO, Bill Roeschlein.
Speaker Change: He will discuss our financial results for the quarter in more depth, as well as provide our outlook for the fourth quarter of 2024.
Speaker Change: After that, I will share some closing remarks before opening the call for questions.
Speaker Change: okay
Speaker Change: Let's get started.
Speaker Change: Since the fourth quarter of 2023, we have experienced increased quarterly revenue growth in each of the last three quarters of 2024.
Speaker Change: We are also gaining market share, as illustrated by recent industry data showing Tiger's global DC optimizer market share increasing from 9% in 2022 to 13% in 2023.
Speaker Change: A key area of focus for us has been within the utility scale market.
Speaker Change: where we are seeing good success as evidenced by the recent selection of TIGO to deliver more than 97,000 MLT units for Brazil's largest floating system.
Speaker Change: which includes our newest TS4XO devices.
Speaker Change: As we shared with you last quarter, the TS4X0 is our newest MLT device, which we believe is ideally positioned to address the high-reflection bifacial platform.
Speaker Change: is
Speaker Change: as one of, as the one that we are using in Pursuit.
Speaker Change: Meanwhile, we expect to complete the final delivery to our EPC customers this quarter for the previously announced 142 megawatt utility scale project in Spain.
Speaker Change: We continue to see positive trends coming from this market and have a strong pipeline of opportunities which we hope to talk about in more detail in the future.
Speaker Change: Another key focus area is within our EI software solution, where our PredictPlus AI-based energy consumption and production platform continues to grow with 62,000 meters under management.
Speaker Change: During the quarter, we signed six new contracts, having a total multi-year contract value of $700,000.
Speaker Change: Most contracts are for five years, and both new contracts and additional meters enable us to increase our annual recurring revenue.
Speaker Change: O-A-L-L.
Speaker Change: which now stands at 1.3 million dollars per year.
Speaker Change: To give some geographical color on our results, we saw positive sales growth in Czech Republic, Spain, and the United Kingdom during the quarter.
Speaker Change: We also saw a solid sales growth in Puerto Rico, and announced a new partnership in Costa Rica, driven by increasing regulatory requirements for rapid shutdown capabilities in Latin America.
Speaker Change: I think they're both human.
Speaker Change: which exhibits some volatility on a quarter-over-quarter basis.
Speaker Change: We saw some notable sales growth in both Thailand and Australia.
Speaker Change: Expanding our sales footprint into new markets has been key area and focus for us as we are seeing the benefits.
Speaker Change: Additionally, these regions I mentioned are helping us offset the sluggish or negative growth we are seeing in some other larger markets, including Germany, Italy, and Netherlands.
Speaker Change: Bill will have some additional more details in a minute.
Speaker Change: Lastly, we welcome Anita Chang back as our Chief Operating Officer.
Speaker Change: who originally joined TIGO in 2015 as VP Operations and served as the COO from 2020 to 2023.
Speaker Change: We are confident that her extensive experience and knowledge of supply chain operations in the industry will make her a key asset in driving operations forward.
Speaker Change: And with that, I would like to turn to Bill. Bill? Thanks, Zvi.
Bill Roeschlein: Turning now to our financial results for the third quarter and it's September 30th, 2024.
Bill Roeschlein: Revenue for the third quarter of 2024 decreased 16.8% to $14.2 million from $17.1 million in the prior year period.
Bill Roeschlein: On a sequential basis, revenues increased 12.1%, with improved results coming from many countries in the EMEA and APAC regions.
Bill Roeschlein: including the Czech Republic, Spain, the UK, Thailand, and Australia. By region, EMEA revenue was 8.6% or 60% of total revenues, a 23.5% sequential increase.
Bill Roeschlein: America's revenue was $2.9 million or 21% of total revenues, a 3.7% sequential increase. And APAC's revenue was $2.7 million or 19% of total revenues, a decline of 7% sequentially.
Bill Roeschlein: Gross Profit in the third quarter of 2024 was 1.8 million or 12.5% of revenue compared to 4.2 million or 24.3% of revenue in the comparable year ago period.
Bill Roeschlein: The year-over-year decline was primarily due to an inventory charge of 3.4 million, primarily for battery inventory.
Bill Roeschlein: The charge reflects management's estimate of the inventory's net realizable value and incorporates current and forward future expectations of the battery pricing environment.
Bill Roeschlein: Total operating expenses for the third quarter declined 20.7% to $12.2 million compared to $15.4 million in the prior year period. The decline was driven primarily by our previously announced cost cutting efforts.
Bill Roeschlein: Operating loss.
Bill Roeschlein: Gap net loss for the third quarter was $13.1 million compared to a net income of $29.1 million in the prior year period. As a reminder, the prior year period reflected a mark-to-market adjustment for a convertible note.
Bill Roeschlein: Our adjusted EBITDA loss includes the previously mentioned inventory charge of $3.4 million.
Bill Roeschlein: As a reminder, Adjusted EBITDA represents operating profit or loss as adjusted for depreciation, amortization, stock-based compensation, and M&A transaction expenses.
Bill Roeschlein: Primary shares outstanding were $60.7 million for the third quarter of 2024.
Bill Roeschlein: Inventory's net decreased by 4.5 million or 8.8 percent compared to 51.3 million last quarter and 57.4 million in the year ago comparable period.
Bill Roeschlein: Cash equivalents and short and long-term marketable securities totaled $19.5 million at September 30, 2024. On a sequential basis, we reduced our cash burn rate with cash declining by $0.7 million as we continue to make progress on reducing our inventory and working capital.
Bill Roeschlein: Before I turn the call back over to Zvi, I will now take a few minutes to provide our financial outlook for the 2024 fourth 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.
Bill Roeschlein: We expect adjusted EBITDA loss to range between $6.5 million and $8.5 million.
Bill Roeschlein: Our guidance includes the potential needs for additional inventory charges as we complete our year-end audit.
Bill Roeschlein: The continued positive momentum that we are seeing in our business and the growth initiatives that are being undertaken to gain market share provide confidence that we will achieve profitable growth in the near future, and we look forward to sharing further updates as we progress through the rest of 2024 and into 2025.
Speaker Change: That completes my summary and I'd like to now turn the call over back to Zvi for final remarks.
Zvi Alon: Thanks, Bill.
Zvi Alon: While industry is still contending with the headwinds, we believe that our robust product portfolio positions us to mitigate competitive pressure.
Bill Roeschlein: As demand for our solutions continues to return, we expect revenue and profitability to increase steadily throughout the remainder of 2024 and into 2025.
Bill Roeschlein: We are encouraged by the momentum we have built over the last three quarters and remain focused on advancing our mission to be a leading provider of intelligent solar and energy storage solutions.
Bill Roeschlein: We firmly believe in the growth prospect of our business and look forward to providing additional updates in the coming quarters.
Bill Roeschlein: With that operator, please open the call for Q&A.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Philip Shen of Roth Capital Partners. Your line is now open.
Philip Shen: Hey guys, thanks for taking my questions. I wanted to check in with you on the outlook for margins, especially as we get through 25. The margins were quite low in Q3. Q4 we can get to an implied margin for gross margins. If you can share what you think that is, that would be great. But then what do you think the cadence of revenue and margins is on a quarterly basis through 25?
Speaker Change: Hi, Phil. Well, given that we have an outsourced manufacturing model, our margins on a normalized basis without inventory charges and things like that are in the mid-30s.
Speaker Change: And so, if you factor out the inventory charge, for instance, this quarter, we would have been around 35%. So, if we look to next year, that's where we would expect our margins to be on a normalized basis.
Speaker Change: And as we get more economy of scale, as revenue grows, that number can grow into the high 30s and hopefully reach our target of 40%, which was closer to where we were at the high point in Q2 of 23.
Speaker Change: In terms of the growth and how we get there, you know, if you can look at it, just,
Speaker Change: mathematically in several different ways. I'll point out a couple things.
Speaker Change: our Q4 guidance.
Speaker Change: is, you know, flat up 20%, 19.4% actually, the midpoint's up 10%, the current quarter we were up 12.1%, the previous quarter we were up almost 30%.
Speaker Change: So, you can model it a variety of different ways.
Speaker Change: of either mid-teens, which is sort of basically where we are at now, with some acceleration into high teens to 20.
Speaker Change: and you can see where the model would take us on a sequential basis of continuing to do that each quarter. You can see that we would have year-over-year growth of anywhere from 70 to 90 to 100% growth that gives us
Speaker Change: revenue, a revenue rate that's in that, you know, 30 million plus area which we previously talked about and where EBITDA break-even is.
Speaker Change: And so that's how we're thinking about the business, and we're steadily marching towards that. We're making progress, and we're continuing to go in the right direction. Of course, the macro picture is something we can't control, but that's how we're thinking of the business as we move into 2025. And we're pretty happy about the progress that we've made so far.
Philip Shen: Okay, thanks Bill. You know back in August you guys talked about the channel inventory being largely cleared.
Speaker Change: And in this quarter, you're still talking about reducing your inventory. And I think in your 10-2.
Speaker Change: You talked about the elevated inventory levels.
Speaker Change: with distributors and overall channel inventory being high and so wanted to understand when you think the European channel inventory truly clears and how many weeks or you know months do you think
Speaker Change: is in the channel in Europe.
Speaker Change: and Bill Roeschlein.
Speaker Change: So, the commentary overall is
Speaker Change: Thank you.
Speaker Change: Our channel inventory is mostly cleared.
Speaker Change: One or two out of the, you know...
Speaker Change: 100 customers, hundreds of customers we have.
Speaker Change: It may still have some issues, but the channel primarily, as it relates to us, is relatively cleared. We never stuffed it, or I don't want to say the word stuffed, we never got that far ahead of ourselves as maybe some other competitors might have.
Speaker Change: But overall, channel inventories are still elevated just from a macro perspective because
Speaker Change: Distributors carry multiple vendors.
Speaker Change: And so, if they have a hangover in general and they're having some pressure on their balance sheet...
Speaker Change: It doesn't necessarily relate to our inventory, it just relates to the balance of inventory that they're carrying for the rest of the year.
Speaker Change: the market there. And so we still see that there's some issues with clearing inventory at a macro level with all vendors, but we're not really ascribing it to as a symptom of what we're going through right now.
Speaker Change: I would like to also add and highlight the field that
Speaker Change: I believe at the end of Q1, we shared that we started seeing an increased number of repeat orders from existing customers, distributors.
Speaker Change: and that has been continually growing substantially. I would say the majority of the orders we continue to get are repeat orders for new stock that is going into our distributors.
Speaker Change: to supply the men.
Speaker Change: So, from that perspective, the overhang from the last...
Speaker Change: Bill Roeschlein
Speaker Change: problems we had is almost gone. I would second Bill's point of view.
Philip Shen: Great. Okay. Thank you, Zvi. Sorry if I missed this, but did you reinforce that your EBITDA break-even will be in early H1, 25, first half 25? That's what you talked about on the Q2 call. Just remind me, are you going to be...
Speaker Change: perhaps later in the year now.
Speaker Change: So, we'll answer it now. Whether it occurs in the first half or second half is obviously the trajectory of the growth rate.
Speaker Change: that that we achieve. We, you know, we achieved 30% in Q2, 12% this last quarter. We're guiding anywhere from flat to up 20, and if I just sort of
Speaker Change: flatline that number anywhere between 15% to 20%. It suggests that we would be at a break-even level at that 30% number in the second half of the year, not the first half of the year.
Speaker Change: That being said, you know, we're not making any predictions on the markets, it's too unpredictable to just draw a straight line. And so...
Speaker Change: So, what we said on the last call was first half of the year.
Speaker Change: We can't say with definitiveness whether it's going to be first half or second half, but if you look at the progress that we're making, it's going to be in 2025, in our view.
Philip Shen: Great. And then one last question for me in terms of pricing. We recently wrote that SolarEdge
Philip Shen: stopped running their promotion and just cut their price for
Speaker Change: ADLP standpoint, authorized distributor list price. And so we've heard others doing that as well, Chinese vendors lowering price as opposed to running promotions.
Speaker Change: So have you taken any price action recently? I know you guys don't price exactly on per watt, it's on a per unit basis, but, and I know you guys don't sell. Well, anyway, just if you can speak to how you're approaching pricing, especially given the competitive dynamics, that would be great, thanks.
Speaker Change: Happy to answer your question. I would summarize it as saying we have not decreased our price. Obviously, we had to, over the last year, use in various positions some discounts in some special cases, but overall we have not.
Speaker Change: And, as a matter of fact, we are maintaining our prices pretty much the same as the same type of discounts that we have been providing before.
Speaker Change: I would also highlight that the new product line we introduced, the PS4X product line, has been introduced at a higher price, and we have seen a very nice uptick in orders for those products.
Speaker Change: We've heard about SolarEdge and some other suppliers but we've not been required to make it to respond to make any changes so far in the market.
Speaker Change: Okay.
Speaker Change: Do you expect a lower price in the coming quarters?
Speaker Change: The answer is no.
Speaker Change: Thank you, Zvi. I'll pass it on. You're most welcome.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Eric Stein of Craig Hallum Capital Group. Your line is now open.
Eric Stein: Hi Zvi, Hi Bill
Eric Stein: Hello, so you had mentioned market share for 2022 and 2023 and I can appreciate you know given market dislocation and things going on and in different countries in Europe may be tough to answer but any thoughts on kind of current market share trends and I would think especially in Europe this is where your inverter agnostic architecture would come into play.
Speaker Change: Well, Eric, besides the industry reports, the third-party reports that validate our gains in market share...
Speaker Change: You know, us and our main competitor, both
Eric Stein: publish the number of optimizers that we sell each quarter. And if you do a comparison of that, and I think we've talked about it a few times on calls.
Eric Stein: We've almost increased our share against them.
Eric Stein: going from 10% of their unit volumes to 15-20%. So we continue to see that play out and we'll analyze the numbers from here in the third quarter as soon as they're published.
Eric Stein: by our competitor, and we'll see what that looks like. But each of the quarters this year so far have demonstrated continued progress in shared gain.
Speaker Change: Okay, so I guess that's what I was getting at. I mean, I guess we will find that out, but it sounds like that is the feeling. I mean, and it does seem like your commentary on balance is a little more positive than some of the others.
Eric Stein: You know, and maybe that's by specific market, you know, markets that you're in versus others, but you know, to me, I guess that's noteworthy.
Speaker Change: I can add, I can shed a bit more light
Speaker Change: and Bill Roeschlein. Thank you.
Speaker Change: We have been told, and not just recently, but for the last couple of quarters, that we are the best-selling optimizer in the market in a couple of the European markets, the big ones.
Eric Stein: are better than SolarEdge and better than some of the other guys.
Speaker Change: Got it, okay.
Speaker Change: If you could talk about the pipeline there, the interest level there, given it's a pretty unique product in the market.
Speaker Change: over the years, and we get also some insights into numbers that they see. So it gives us an indication as to how we're doing in the market as well.
Speaker Change: Got it. Okay. I guess I'll take the rest offline. Thanks.
Speaker Change: Thank you.
Speaker Change: There is one thing I think it's worth highlighting that was discussed in Zvi's prepared remarks.
Speaker Change: is that, and maybe this is what differentiates us, is that we're able to show growth.
Speaker Change: and some of these newer regions.
Speaker Change: You know, as those markets return to normalcy, Germany, Italy, and especially those two geographies,
Speaker Change: that's going to help benefit benefit us as well and so benefits everybody but some some of the cadence of growth
Speaker Change: You know, because of how large the markets are in those two countries, it's going to be a little dependent on the recovery in those two specific areas.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Samir Joshi of H.C. Wainwright. Your line is now open.
Samir Joshi: Thanks for taking my questions, Bill and Zvi.
Samir Joshi: Bill, actually, just following up on your comment, my question was going to be around that, those lines in terms of geography, into the second half of 2025, how do you see these geographies developing?
Samir Joshi: the 30 to 35 level that you may be expecting in the second half quarterly.
Samir Joshi: Is the contribution for that revenue coming mostly from increased...
Samir Joshi: APEC adoption, or are there assumptions of Germany and Italy coming back by that time in these sort of outlook assumptions?
Samir Joshi: and Bill Roeschlein.
Bill Roeschlein: Yes, so you know the current is sort of mid-teens growth that we're putting on the board is
Bill Roeschlein: is coming from our ability to land and expand in some of these newer geographies.
Bill Roeschlein: In recent past
Bill Roeschlein: and so
Bill Roeschlein: We do see a return to more normalcy or to more of a growth.
Bill Roeschlein: pattern as it relates to Germany which has been sort of just I would say sluggish, sluggish positive and then and Italy which has been going through some you know
Samir Joshi: internal
Samir Joshi: Internal issues
Samir Joshi: and the Netherlands, which also, you know, having...
Samir Joshi: very issues that are specific to that country but we don't we don't see we don't see those markets as we just see as transitory.
Samir Joshi: So we do believe that there will be improvement in 2025, and so once we have improvement in those markets,
Samir Joshi: We're going to be able to incorporate that into our own growth and revenue, and that should bode well for us.
Speaker Change: Thanks for that.
Speaker Change: And then, I think, in your prepared state remarks, you mentioned 3.4 million, in addition to mentioning the 3.4 million charge, you mentioned there is likely to be a charge in the next quarter, and in the current quarter.
Samir Joshi: Thank you.
Speaker Change: What is the, directionally, is it higher than the 3.4 we saw in this quarter?
Speaker Change: And then part two of that question is...
Samir Joshi: Is this charge me?
Samir Joshi: because of
Samir Joshi: Thank you.
Samir Joshi: Hope to see you soon.
Samir Joshi: So yeah, I'll take your second question first.
Samir Joshi: to our GOESS product line.
Samir Joshi: which is comprised of batteries and inverters, which has a much more...
Samir Joshi: Steeper price curve and degradation in pricing environment. It's much more
Samir Joshi: It's quite competitive, hyper-competitive.
Samir Joshi: And so, in the current quarter, as I mentioned in our prepared remarks, we reduced the carrying cost in order to be able to adapt to the current and future pricing environment and be able to accelerate sales.
Samir Joshi: in
Samir Joshi: for batteries.
Samir Joshi: We also mentioned in my prepared remarks that the guidance incorporates the potential because the analysis has not been done yet and it's part of a year-end audit of the remaining balance of primarily Go ESF products.
Samir Joshi: which again, it's the GO ESF line that has carries more of the pricing risk because it does have
Samir Joshi: some degradation in pricing compared to our legacy TS4 line which we haven't changed prices on in more than five years and it represents very stable pricing.
Samir Joshi: for us. So every time we get asked the question of are we seeing changes in pricing and competition there, in general for GS4s, no. We have a very differentiated product.
Samir Joshi: that separates us from the rest of the pack.
Samir Joshi: with that product, but in batteries and inverters, as you know, there's a lot more players involved.
Samir Joshi: And so, we have to be able to adapt to the current pricing environment and that's why we put that out there as a potential marker for investors to be aware of in Q4.
Speaker Change: Understood. Thanks, Bill, for that clarification. Good luck for the next quarter.
Samir Joshi: Bill Roeschlein.
Bill Roeschlein: Thank you. Thank you.
Speaker Change: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Samir Joshi: Please stand by.
Samir Joshi: At this time, I am showing no further questions. I would now like to turn it back to Bill for closing remarks.
Bill Roeschlein: Thank you. Thank you.
Bill Roeschlein: Thanks again everyone for joining us today. I especially want to thank our dedicated employees for their ongoing contribution, as well as our customers and partners for their continued hard work. I also want to thank the investors for their continued support. Operator?
Speaker Change: Thank you for joining us today for TIGO's third quarter 2024 Earnings Conference Call. You may now disconnect.