FTC Solar faces supply chain challenges (NASDAQ:FTCI)

A quick overview of FTC Solar

Solar CTF (NASDAQ: FTCI) went public in April 2021, raising approximately $258 million in an IPO at a price of $13.00 per share.

The company sells solar panel tracking systems to industrial and utility scale solar installations.

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

Until the company can address these challenges, either through supply chain diversification or by releasing modules under contract, I am on hold for FTCI.

Presentation of FTCI

FTC, based in Austin, Texas, was founded to develop its single-axis solar panel tracking system to maximize the efficiency of solar power generation throughout the day.

Management is led by Chairman and CEO Sean Hunkler, who has been with the company since September 2021 and was previously executive vice president of global operations at Western Digital and executive vice president of global operations for NXP Semiconductors.

The company’s main offerings include:

• Voyager Tracker – a two-panel portrait single-axis tracking 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 companies and independent power producers who build solar projects.

Market & Competition

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

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

The main drivers of this expected growth are the continued efforts of countries to reduce their carbon emissions through the increase in renewable energy sources.

Additionally, the short term has seen a reduction in activity due to the effects of the Covid-19 pandemic on supply chains.

However, below is a graph showing the historical and projected growth rate of the North America solar tracker market:

Major competitors or other industry participants include:

• Network technologies (ARRY)

• NEXTracker

• Photovoltaic material

• Artech Solar

• UNIRAC

• Solar RBI (ROCK)

Recent financial performance of FTCI

• The total turnover per quarter has been very variable over the last 5 quarters:

• The gross margin per quarter remained negative:

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

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

• Earnings per share (diluted) has also been significantly negative over the last 5 quarters:

(Source data for GAAP financial tables above)

Over the past 12 months, FTCI’s stock price has fallen 60.2% compared to the 10.9% drop in the US S&P 500 index, as shown in the chart below:

Evaluation metrics for FTCI

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

Measure	Rising
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)

For reference, a relevant public comparable would be Array Technologies (ARRY); Below is a comparison of their main evaluation metrics:

Metric	Network technologies (ARRY)	Solar FTC (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)

FTCI Commentary

In its latest earnings call (transcript), covering the first quarter of 2022 results, management highlighted the supply chain limitation issues it faced due to the US suspension order. . [WRO] regarding materials from Xinjiang province.

In addition, more Chinese companies are being investigated by the United States under anti-dumping and countervailing duty provisions. [AD/CVD] which further restricted the supply of PV modules.

As a result, although FTCI has “a lot of business under contracts and awards [stage]much of the construction was delayed.

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

As for its financial results, revenue fell in the first quarter year-over-year, while GAAP gross loss was slightly worse sequentially.

Operating expenses were also higher than last year as the company sought to ramp up operations despite significant supply issues.

Looking ahead, management has withdrawn its previous guidance for 2022 and will only provide quarterly guidance for the foreseeable future.

Management expects gross margin to deteriorate due to delays in obtaining new modules at lower cost.

As for valuation, the stock market currently values ​​FTCI at roughly the same price/sales multiple as Array Technologies.

The main risk to the company’s outlook is the uncertain duration of various orders and investigations of Chinese companies supplying FTCI’s modules, which is hampering revenue growth and gross margin expansion.

Until the company can address these challenges, whether through supply chain diversification or releasing modules under contract, I’m on hold for FTCI.