Q1 2024 Tigo Energy Inc Earnings Call

Participants

Bill Roeschlein; CFO; Tigo Energy, Inc.

Zvi Alon; Chairman & CEO; Tigo Energy, Inc.

Auguste Philip Richard; MD & Senior Research Analyst; Northland Capital Markets, Research Division

Eric Stine; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

Philip Shen; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division

Sameer S. Joshi; Analyst; H.C. Wainwright & Co, LLC, Research Division

Presentation

Operator

Good afternoon. Welcome to Tigo Energy's Fiscal First 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.

Bill Roeschlein

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 and ability to reach cash flow breakeven, adjusted EBITDA breakeven and long-term growth prospects, expectations regarding a recovery in our industry, statements about 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 fiscal second quarter 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 31, 2023, and on the 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 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 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 on Tigo's Investor Relations website at investors.tigoenergy.com. I would like to now turn the call over to Tigo's CEO, Zvi Alon. Zvi?

Zvi Alon

Thank you, Bill.
To begin today's discussion, I'll give some background on our company, its recent performance and market plans 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 our outlook for the second quarter of 2024. After that, I will 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 stands as a global leader in intelligent solar and energy storage solutions. Founded in 2007, our mission is to deliver smart hardware and software solutions that enhance safety, increase energy yield and lower operating costs for residential, commercial and utility scale solar systems. At Tigo, we offer 3 primary product categories. One, TS4 MLPE, our flagship product, which comprises a range of flexible design MLPE solutions to meet diverse needs of installers worldwide.
The second one, GO ESS energy and storage solutions is 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, our EI software platform, which includes monitoring fleet management and our flagship Predict+ software platform. We believe that the opportunity for solar and energy storage solutions is large and durable both in the United States as well as internationally.
Transitioning now to review of the recent operational results and demand outlook. As discussed in our previous call, our business faced significant challenges in the second half of 2023, primarily due to the elevated inventory levels and the channel. However, we are pleased to report that we have seen revenues stabilize since the start of this year. We reported $9.8 million in revenue and shipped 239,000 MLPEs or approximately 100 megawatts DC at an assumed panel size of 400 watts. We also shipped 3.3 megawatts DC and 1.5 megawatt hours hours of inverter and battery, respectively. Additionally, we continue to make the headway in our AI software services platform, with annual recurring revenue or ARR exceeding $1 million.
Geographically, the Americas region, which comprised 28% of revenue, appears to be stabilizing, and we are cautiously optimistic that Tigo will be able to grow its share in the region in the second half of 2024. Specifically, we are beginning to experience slow sales traction in Brazil, where rapid shutdown capabilities for solar products such as ours are increasingly becoming legally required. Within the EMEA region, which generated 59% of revenue, we are beginning to see some inventory replenishment activity and pockets of growth. Notable regions of improvements for us include Germany, Italy and Czech Republic. Within the APAC region, which comprised 13% of the total revenue, results have been uneven due to the nature of the timing of the C&I projects that we are involved in. Still, we see an upward trend in that region continuing into the later half of 2024.
We are also very pleased to announce the introduction of our newest line of MLPE, the TS4-X. The TS4-X family represents a culmination of multiyear effort to provide the C&I and utility marketplace with leading-edge MLPE that are designed to satisfy several key industry needs. The TS4 MLPE products provide customers with higher power, higher current solutions and maximum design flexibility, all while enabling a lower overall cost than alternatives. We also designed the TS4-X to provide the highest available level of safety through its unique multifactor technology that activates its rapid shutdown capabilities. Particular use case include high power panels, bifacial panels and systems designed to support the mixture of optimization, monitoring and rapid shutdown in a single installation. And the TS4-X family is especially useful for customers who are searching for a product with selective deployment abilities that enables maximum energy generation and safety.
In summary, we believe that the TS4-X represents the safest, most reliable and most cost-effective, most flexible at the higher power MLPE solutions in the marketplace today. In addition, the TS4-X, we would like to highlight some other recent announcements we have made, including the introduction of GO EV charger into the European market, a complement to our existing GO product portfolio and a new market for our EV charger. And its first installation and commissioning of the Tigo EI residential solar solution with whole own backup as part of the solution introduction to the Puerto Rican market. The Tigo EI residential solar solution consists of Tigo TS4 Flex MLPE products, the Tigo EI inverter, a modular DC-coupled EI battery and everything else required for fast, flexible, dependable installation and is designed to protect the households from grid disruptions.
Turning to our demand outlook for the second quarter and the rest of the year. We will continue to focus on the following 3 [tenets] of our growth strategy: 1, promote the flexibility and cost-effectiveness of our solution; 2, penetrate new markets and expand existing markets; 3, expand the suite of products we offer. We have discussed in prior quarters, we are still navigating through what we believe to be the tail end of the industry-wide inventory oversupply problem. Our guidance reflects the expectation that the second quarter will be transitional in nature as the industry reaches a new supply-demand equilibrium. Additionally, we expect to see a sharper recovery in the second half of the year once the seeds of the recovery that we are currently experiencing take hold.
With that, I will turn the call over to Bill to discuss our first quarter 2024 financial results and 2024 outlook in greater details. Bill?

Bill Roeschlein

Thank you, Zvi.
Turning now to our financial results for the first quarter ended March 31, 2024. Revenue for the first quarter of 2024 decreased 80% to $9.8 million from $50.1 million in the prior year period. By geography, EMEA revenue was $5.8 million or 59% of total revenues. Americas revenue was $2.7 million or 28% of total revenues and APAC was $1.3 million or 13% of total revenues for the quarter. On a sequential basis, revenues improved 6% compared to Q4 with improved results coming from many countries in the EMEA region, including Germany, Italy and the Czech Republic.
Gross profit in the first quarter of 2024 was $2.8 million or 28.2% of revenue compared to $18.4 million or 36.7% of revenue in the comparable year ago period. The year-over-year decline on a dollar basis was primarily due to lower sales volumes, while the decline in gross margin percentage was primarily due to a change in the product mix and lower ASPs on our battery products. On a sequential quarter basis, gross margin decreased by 290 basis points due primarily to lower ASPs on batteries within our GO ESS product lines.
Total operating expenses for the first quarter were $11.9 million, up from $10.6 million in the prior year period. The year-over-year increase was driven primarily by higher audit and legal fees that we incurred as a public company. Operating loss for the first quarter totaled $9.1 million compared to an operating profit of $7.8 million in the prior year comparable period.
GAAP net loss for the first quarter totaled $11.5 million compared to net income of $6.9 million in the prior year period. Adjusted EBITDA loss in the first quarter totaled $6.3 million compared to adjusted EBITDA of $8.6 million in the prior year period. As a reminder, adjusted EBITDA represents operating profit as adjusted for depreciation, amortization of stock-based compensation and M&A transaction expenses.
Primary shares outstanding were 59.4 million for the first quarter of 2024.
Turning to the balance sheet. Accounts receivable net decreased by $0.6 million in the first quarter to $6.3 million compared to $6.9 million last quarter and $32.4 million in the year ago comparable period. Inventories net decreased by $5.6 million or 9% compared to $61.4 million last quarter and $36.6 million in the year ago comparable period. In the first quarter, the vast majority of our cost of goods sold was comprised of inventory, which we expect will continue to decline and generate cash for us in future quarters.
Cash, cash equivalents and short and long-term marketable securities totaled $21.9 million at March 31, 2024. The sequential decline was primarily due to $9.7 million decline of accounts payable and our adjusted EBITDA loss of $6.3 million, partially offset by inventory to cash conversion of $5.6 million in the quarter. As we mentioned on our last call, we continue to have discussions regarding credit facilities to enhance our balance sheet flexibility, which we believe will be available in more favorable terms as our financial performance continues to improve.
In April, we initiated cost reduction efforts that included personnel costs and other discretionary items to better align our business model with the current pace of the industry recovery and lower the breakeven points for profitability and cash generation. As a result of these actions, we expect that on a normalized basis for the remainder of 2024, GAAP operating expenses will be in the range of $12.5 million per quarter, with non-GAAP operating expenses expected to be in the range of $11 million per quarter. With these changes and considering our current supply of inventory on hand, we expect the cash breakeven point at the quarterly revenue level of approximately $17 million to $19 million and an adjusted EBITDA breakeven point at a quarterly revenue 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 second 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 second quarter of 2024, we expect revenues and adjusted EBITDA to be in the following range. We expect revenues in the second quarter ended June 30, 2024, to range between $12 million and $16 million. We expect adjusted EBITDA loss to range between $5.5 million and $8 million.
Finally, as we approach our 1-year anniversary as a public company, we will soon be S-3 eligible. Under our current S-1 under which our affiliates and certain other shareholders have registered their stock went stale on April 30, and we received a registration rights waiver from the majority of these holders to register their holdings under an S-3 filing, which we will do as a post-effective amendment to our S-1 filing and expect it will be filed around May 31. We wish to emphasize that there will be no new primary shares registered in our upcoming S-3 filing as this filing is being done only to comply with Tigo's registration rights obligations to our affiliates.
That completes my summary. I'd like to now turn the call back over to Zvi for final remarks. Zvi?

Zvi Alon

Thanks, Bill. Overall, we are confident that we have started to turn the corner for our business, and as our team can effectively manage the current macroeconomic environment, while our industry recovers. We believe firmly in the long-term growth prospects of our business and look forward to providing additional updates in the coming quarters. With that, operator, please open the call for Q&A.

Question and Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Philip Shen from ROTH.

Philip Shen

First one is on the adjusted EBITDA breakeven. Bill, I think you were talking about $33 million to $35 million of revenue. Wanted to get a sense for when you expect that revenue to be possible? Could it be Q4 this year as Europe improves? Or do you think it might need to wait until 2025?

Bill Roeschlein

So as Zvi alluded to, we see the second half leading to a much sharper recovery as it relates to Tigo. So from our perspective, we do see a clear path to EBITDA breakeven this year. And while we're not providing that specific guidance there, we see a strong probability of that occurring.

Philip Shen

Okay. And then as it relates to channel inventory, at one point, earlier this year, I think you guys thought it might clear by Q2. Do you still expect that? I mean do you think Q3, we see a nice ramp and then even better Q4. I know these are a few questions in here, but if you can talk about when you think your channel inventory clears maybe by geography, so Europe and then the U.S. and then also should we expect the revenue ramp? I mean you said back half, but do we have to wait more to Q4? Do you think actually Q3, you feel confident with that bump?

Bill Roeschlein

So I'll jump in first and I'll let Zvi add additional color as you'd like. But we're viewing the current quarter as transitional in nature because we have customers who have depleted and are now replenishing their stocks of inventory, but we still have some customers who are not quite through the destocking process. But in our view, as we look into the second half of the year, we feel the destocking process will be mostly complete. And so I don't think it necessarily have to be Q4. It could be Q3, it could be a particular, not sure if at the end of the quarter or the beginning of a quarter. We're going to leave ourselves get a little bit of room. But I don't think it's a straight line. I do think it's a step function jump. And in our view, the second half of the year is going to be much more of a sharper recovery with a much more of a step function increase for Tigo. And by geography, I think that we've said on multiple calls, we didn't have much of an inventory issue or a destocking issue in the Americas or in Asia Pacific. It's been primarily an EMEA problem this whole time.

Philip Shen

Great. Can you share how much might be like remaining in EMEA? And you talked about some customers being done with the destocking, some not. So on a blended average basis, when you think about how many weeks might be out there in the channel? Does it sound like it's still north of 10 weeks or in Europe specifically? Or do you think it's meaningfully lower?

Bill Roeschlein

I don't think we can give you enough quantitative information, I guess, to address your question. But we're seeing at least from our customers in Germany, a really strong bounce back. That is continuing even up to today. We're also seeing strong results from U.K., Italy that also exists, we're strong in our first quarter, and we're seeing some continued strength as we're coming into the second quarter. The thing about what we're seeing currently is that we're a little bit more than 1 month into the second quarter and the amount of pipeline activity, booking activity is just a lot stronger than it was during the same period of the last quarter. We definitely turned the corner, and we're seeing strength that we expect to continue as we go through the year.

Philip Shen

Great. Sorry, I have one last question. And sorry if you guys talked about it earlier as well, but Enphase and SolarEdge, talk about how much sell-through is each quarter versus your sell-in and the degree of undershipments in terms of millions of dollars. Can you speak to that at all for Q1 and maybe even Q2?

Bill Roeschlein

So we don't get sell-through data from our distributors, specifically to be able to provide that kind of metric with any degree of confidence. But we do see the pipeline booking activity and in talking with customers, getting an understanding as to where their inventory levels are and the amount of replenishment that has occurred in Q1, and that is steadily progressing upward for us as we move forward through the current period here in the second quarter. We did say on the last call, we were at least 50% lower than where we should be. And I think we also just told you that we see us being EBITDA breakeven or better in the current year. So I mean, I think all that kind of serves as a guidepost to tell you where we think normalized recovery would put us.

Zvi Alon

I will just add one clarification. Just know that it's required. But in the countries that Bill mentioned, like Germany and the U.K., and we talked about the fact that the replenishment is occurring. Those are our main markets, and that's where it is happening.

Philip Shen

Great. Okay. Best of luck with the ramp, and I'll pass it on.

Operator

And our next question comes from the line of Eric Stine from Craig Hallum.

Eric Stine

So I just wanted to focus on the balance sheet a little bit. I think last quarter, you were hopeful that you would get some working capital benefit, and you did get some on the inventory line. Just curious what your expectation is here for the remainder of the year. You did talk about inventory that you expect to work down, but maybe just what you've seen early in Q2 and how you expect that to play out?

Bill Roeschlein

We've lowered our accrued current liabilities by more than $11 million and the current amount of AP is much lower. The previous quarter had some inventory payable that had to be settled, and we've worked through that, and we don't have that as something that's going to continue in the future quarters. Again, we guided $12 million to $16 million, and we've also given new guidance at $17 million to $19 million is our cash breakeven point. So you can see that our cash burn rate would be very minimal or at least within a predictable range. given what we've provided on those 2 fronts with the bulk of the cash generation coming from our inventory conversion, which is upwards of 90% of our cost of goods sold.

Eric Stine

Okay. That's helpful. All right. So that is expected to continue in Q2 and going forward. That is helpful. Maybe then just sticking with the liquidity side of it, you mentioned and you have for some time, you've been in some negotiations for line of credits just for more flexibility and it sounds like hopeful, I mean, waiting for maybe better rates. Is it fair to say that you have line of sight to facilities right now, just not at rates that you think are acceptable. That would be helpful to know.

Bill Roeschlein

Yes. That's correct. At the current moment, there's still some projection risk over the shape of the recovery in the market. And once we as an industry get a little bit more clarity and consensus on what that looks like, it just creates a better environment to borrow money essentially and negotiate rates. So we want to be prudent in how we do that.

Operator

(Operator Instructions) Our next question comes from the line of Gus Richard from Northland.

Auguste Philip Richard

Just wondering how you're doing on getting on more approved vendor list. How is that process going?

Zvi Alon

We are actually making good progress, the major suppliers or customers here in the U.S. And I don't want to provide any predictions, but I think that we will have a different conversation next quarter.

Auguste Philip Richard

Got it. And then a while back, you all talked about some opportunities and you totally scale for the optimizers. And I was just wondering now that we're sort of getting our feedback on the ground, has that reemerged or is that something that's not materialized?

Bill Roeschlein

We actually have a very promising pipeline with respect to that, and we feel really good. But obviously, you have to wait till (inaudible) to announce anything.

Auguste Philip Richard

Any other color you can provide just to give a little bit better flavor?

Bill Roeschlein

So the utility market has a pretty good velocity of activity around the world, not affected by government subsidies and [M30] type of situations. There continues to be a good amount of projects where we're getting RFP requests. And we're working through those with several very promising opportunities in our pipeline currently.

Auguste Philip Richard

Just one follow-on and I'll stop. Can you give them relative to the revenue market, sort of the size of the opportunity for you all just in what you're seeing in the pipeline?

Bill Roeschlein

I mean there are millions of dollars. So they tend to be in the 3, 5, 7, 10, I mean they're sizable. So...does that help?

Auguste Philip Richard

Yes. That sort of trends it up for me.

Operator

And our next question comes from the line of Sameer Joshi from H.C. Wainwright.

Sameer S. Joshi

Looking at the new products and services, I guess, or software products coming down the pipe, the TS4-X, are you already marketing it? And what is the level of interest you are seeing it from, say, the different geographies? And then when do we expect to see any initial revenues or any kind of arrangement for the Predict+ product?

Zvi Alon

So the quick answer to the TS4-X, it is and specifically in the markets where bifacial, high current and high power is required. We are rated at the highest specification for MLPE in the market. Nobody is even close to us amongst the competition. So most of the projects are C&I and utility scale. And to the question, have we shipped it already? The answer is no, but we have orders, which we have received and we will be shipping shortly. And we have shipped first installations for advanced testing, reproduction and whatnot. So we are exceptionally confident with that technology and the solution and market it is covering.

Sameer S. Joshi

And for the Predict+, is it too early to talk about it? Or should we expect 2025 initial revenues from Predict+?

Zvi Alon

Predict+ is continuing to grow as we expected, and we are seeing extended activity from both new customers and existing customers who are expanding the footprint of the product each. As we've discussed before, we started the sales effort of the product in Europe and in the U.S. late last year, and we are seeing some fairly interesting opportunities, which we believe we will be able to share in the next couple of quarters. All of them, 100% of them are very sizable companies.

Sameer S. Joshi

Good to hear. And just maybe a clarification on the cash breakeven versus adjusted EBITDA breakeven revenues. I'm just interpreting this, and please correct me if I'm wrong. It seems the $17 million to $19 million versus $33 million to $35 million implies like $14 million to $16 million of cash from tied up working capital, inventory, those kind of things. am I looking at it right?

Bill Roeschlein

The cash flow breakeven is based on the reality that 85%, 90% of the cost of goods sold has already been paid for. So you're only paying 10% on that revenue. And then you have to make some adjustments for working capital in AR and maybe paying some AP, et cetera. But you get to a cash breakeven at a rate in the high teens as we guided to. And the EBITDA model is based on the new OpEx guidance we provided and gross margins that are in the 30% to 35% range. So you get there sooner, obviously, at a higher gross margin, but at 30% to 35%, you're in the low 30s.

Sameer S. Joshi

Great. Thanks a lot, Bill, for clarifying that. That's all I have.

Operator

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Zvi Alon for any further remarks.

Zvi Alon

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?

Operator

Thank you for joining us today for Tigo's first quarter 2024 earnings conference call. You may now disconnect.