Tigo Energy, Inc.

Good afternoon. Welcome to Tygo Energy's fiscal third quarter 2024 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.

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 in our industry, including 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 of our annual report on Form 10-K for the fiscal year ended December 31st, 2023, our quarterly report on Form 10-Q for the fiscal quarter ended September 30th, 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-GAAP financial measures. We include non-GAAP to GAAP reconciliations in our press release furnished as an exhibit to our Form 8K. 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. Finally, I would like to remind everyone that this conference call is being webcast. Any recording will be made available for replay at Tygo's investor relations website at investors.tygoenergy.com. With that, I'd like to now turn the call over to Tygo CEO, Vy Alon. Vy?

Thank you, Bill. 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 Roschlein. He will discuss our financial results for the quarter in more depth, as well as provide our outlook for the fourth quarter of 2024. After that, I will share some closing remarks before opening the call for questions. Okay, let's get started. Since the fourth quarter of 2023, we have experienced increased quarterly revenue growth in each of the last three quarters of 2024. In addition to benefiting from the improved conditions in the solar industry, we are also gaining market share as illustrated by recent industry data showing Tygo's global DC optimizer market share increasing from 9% in 2022 to 13% in 2023. A key area of focus for us has been within the utility scale market, where we are seeing good success as evidenced by the recent selection of Tygo to deliver more than 97,000 MLP units for Brazil's largest floating system, which includes our newest TS4XO devices. As we shared with you last quarter, The TS4XO is our newest MLP device, which we believe is ideally positioned to address the high-reflection bifacial platform as the one that we're using in Brazil. Meanwhile, we expect to complete the final delivery to our EPC customer this quarter for the previously announced 142 megawatt utility scale project in Spain. 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 details in the future. Another key focus area is within our AI software solution, where our PredictPlus AI-based energy consumption and production platform continues to grow with 62,000 meters under management. During the quarter, we signed six new contracts, having a total multi-year contract value of $700,000. Most contracts are for five years, And both new contracts and additional meters enable us to increase our annual recurring revenue, or ARR, which now stands at $1.3 million per year. To give some geographical color on our results, we saw positive sales growth in Czech Republic, Spain, and the United Kingdom during the quarter. We also saw a solid growth 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. In this equation, which exhibits some volatility on a quarter-over-quarter basis, we saw some notable sales growth in both Thailand and Australia. Expanding our sales footprint into new markets has been key area and focus for us as we are seeing the benefits. 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. Bill will have some additional or more details in a minute. Lastly, we welcome Anita Cheng back as our Chief Operating Officer, who originally joined TIGO in 2015 as VP Operation and served as the COO from 2020 to 2023. 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. And with that, I would like to turn to Bill.

Bill? Thanks, V. Turning now to our financial results for the third quarter ended September 30, 2024. Revenue for the third quarter of 2024 decreased 16.8% to $14.2 million from $17.1 million in the prior year period. On a sequential basis, revenues increased 12.1%. with improved results coming from many countries in the EMEA and APAC regions, 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. America's revenue was 2.9 million or 21% of total revenues, a 3.7% sequential increase, and APAC was Revenue was $2.7 million or 19% of total revenues, a decline of 7% sequentially. 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. The year-over-year decline was primarily due to an inventory charge of $3.4 million, primarily for battery inventory. The charge reflects management's estimate of the inventory's net realizable value and incorporates current and future expectations of the battery pricing environment. Total operating expenses for the third quarter declined from 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. Operating loss for the third quarter decreased by 7.2% to $10.4 million compared to $11.2 million in the prior year period. Operating loss, 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. Adjusted EBITDA loss for the third quarter decreased 12.7% to 8.3 million compared to adjusted EBITDA loss of 9.5 million in the prior year period. Our adjusted EBITDA loss includes the previously mentioned inventory charge of 3.4 million. As a reminder, adjusted EBITDA represents operating profit or loss as adjusted for depreciation, amortization, stock-based compensation, and M&A transaction expenses. Primary shares outstanding were $60.7 million for the third quarter of 2024. Turning now to the balance sheet, accounts receivable net increased this quarter to $8.8 million compared to $6.9 million last quarter and decreased from $20.4 million in the year-ago comparable period. Inventory's net decreased by 4.5 million or 8.8% compared to 51.3 million last quarter and 57.4 million in the year-ago comparable period. Cash, cash equivalents and short and long-term marketable securities totaled 19.5 million at September 30th, 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. 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, Tygo 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 fourth quarter of 2024, we expect revenues and adjusted EBITDA to be in the following range. We expect revenues in the fourth quarter ended December 31st, 2024 to range between $14 million and $17 million. We expect adjusted EBITDA loss to range between $6.5 million and $8.5 million. Our guidance includes the potential needs for additional inventory charges as we complete our year-end audit. 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. That completes my summary, and I'd like to now turn the call over back to Zvi for final remarks. Zvi?

Thanks, Bill. While industry is still contending with the headwinds, we believe that our robust product portfolio positions us to mitigate competitive pressure. As demand for our solutions continue to return, we expect revenue and profitability to increase steadily throughout the remainder of 2024 and into 2025. 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. We firmly believe in the growth prospects of our business and look forward to providing additional updates in the coming quarter. With that, operator, please open the call for Q&A.

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 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Our first question comes from Philip Shen of Roth Capital Partners.

Your line is now open.

Hey, guys. Thanks for taking my questions. Wanted to check in with you on the outlook for margins, especially as we get through 2025. 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'd be great. But then, what do you think the cadence of revenue and margins is on a quarterly basis through 2025? Thanks.

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. 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. 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. In terms of the growth and how we get there, You can look at it just mathematically in several different ways. I'll point out a couple things. Our Q4 guidance is flat to 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%. So you can model it a variety of different ways. of either mid-teens, which is sort of basically where we are at now, with some acceleration into high teens to 20. And you can see where the model would take 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 a revenue rate that's in that you know, 30 million plus area which we previously talked about and where EBIT outbreak even is. 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, you know, 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.

Okay. Thanks, Bill. You know, back in August, you guys talked about the channel inventory being largely cleared. And in this quarter, you're still talking about reducing your inventory. And I think in your 10Q, you talked about the elevated inventory levels with distributors and overall channel inventory being high. And so I wanted to understand when you think the European channel inventory is truly clears and how many weeks or months do you think is in the channel in Europe? Thanks.

So the commentary overall is our channel inventory is mostly cleared. There might be one or two out of the 100 customers, hundreds of customers we have, It may still have some issues, but the channel primarily, as it relates to us, is relatively clear. 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. But overall, channel inventories are still elevated just from a macro perspective because distributors carry multiple vendors. And so if they have a hangover in general and they're having some pressure on their balance sheet, 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 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 as a symptom of what we're going through right now.

I'd like to also add and highlight, Phil, that I believe at the end of Q1, we showed that we started seeing an increased number of repeat orders from existing customers, distributors, and that has been continually growing Substantially, I would say the majority of the orders will continue to get repeat orders for new stock that is going into our distributors to supply demand. So from that perspective, the overhang from the last problems we had is almost gone. I would second Bill's point of view.

Great. Okay. Thank you, Steve. Sorry if I missed this, but did you reinforce that your EBITDA breakeven 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 perhaps later in the year now?

Yeah, so we'll answer it now. Whether it occurs in the first half or second half is obviously the trajectory of the growth rate that we achieve. We achieved 30% in Q2, 12% this last quarter. We're guiding anywhere from flat to up 20. And if I just sort of... flatline that number anywhere between 15 to 20 percent, 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. That being said, you know, we're not making predictions on the markets. It's too unpredictable to just draw a straight line. And so So, what we said on the last call was first half of the year, and 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.

Great. And then one last question for me in terms of pricing. We recently wrote that SolarEdge stopped running their promotion and is had just cut their price for their product in Europe by 20% to 30% from an 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. And then SMA, I think, lowered price by 12% to 20%. So have you taken any – price action recently. I know you guys don't price exactly on per unit basis, and I know you guys don't sell. Well, anyway, if you can speak to how you're approaching pricing, especially given the competitive dynamics, that would be great. Thanks.

Happy to answer the 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. And as a matter of fact, we are maintaining our prices pretty much the same, the same type of discounts that we have been providing before. 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. We've heard about SolarEdge and some other suppliers, but we've not been required to respond or make any changes so far in the market.

Okay. Do you expect a lower price in the coming quarters?

The answer is no.

Okay. Thank you, Zvi. I'll pass it on.

Most welcome.

Thank you. Our next question comes from Eric Stein of Craig Halloum Capital Group. Your line is now open.

Hi, Zvi. Hi, Bill. Hello, everyone. Hello. So you had mentioned market share for 22 and 23, and I can appreciate, you know, given market dislocation and things going on in different countries in Europe, maybe 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.

Well, Eric, besides the industry reports, the third-party reports that validate our gains in market share, you know, us and our main competitor both publish the number of optimizers that we sell each quarter. And if you do a comparison of that, and I think we talked about it a few times on calls, we've almost increased our share against them. going from 10% of their unit volumes to 15% to 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 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 share gain.

Yep. Okay. So I guess that's what I was getting at. I mean, I guess we will find that out, but it sounds like, um, that is the feeling. I mean, and it does seem like your, your commentary on balance is a little more positive than some of the others. Um, you know, and maybe that's by specific market, um, you know, markets that you're in versus others. But, you know, to me, I guess that's noteworthy.

I can add, I can shed a bit more light, um, 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, better than SolarEdge and better than some of the other guys.

Got it. Okay. Very helpful. And I guess I'll just keep it to two questions here. But just curious, I mean, I know you've been gaining nice traction on the licensing, the rapid shutdown device. Just maybe if you could talk about the pipeline there, the interest level there, given it's a pretty unique product in the market.

So I can tell you, yes, we have been adding licensees to our host bill. And it has been growing steadily over the years. And we get also some insights into numbers that they sheet. So it gives us an indication as to how we're doing in the market as well.

Got it. Okay. I guess I'll take the rest offline. Thanks.

Thank you. There is one thing I think it's worth highlighting that was discussed in Zvi's prepared remarks, and maybe this is what differentiates us, is that we're able to show growth in some of these newer regions, and it's in spite of sluggishness that you're seeing in the typical large markets, which historically for us have been Germany and Italy. As to the question of the cadence of return leave that profitability and the revenue ramp you know as those markets return to normalcy Germany Italy and and Especially those two geographies That's going to help benefit benefit us as well. And so benefits everybody but Some some of the cadence of growth, you know because of the how large the markets are in those two countries is going to be a little dependent on the recovery in those two specific areas.

Thank you. Thank you.

Our next question comes from Samir Joshi of HC Wainwright. Your line is now open.

Thanks. Thanks for taking my questions those weeks. Bill, actually, just following up on your comment, my question was going to be around those lines in terms of geography. In the second half of 2025, how do you see these geographies developing, like the 30 to 35 level that you may be expecting in the second half quarterly? Is the contribution for that revenue coming mostly from increased APAC adoption or are there assumptions of Germany and Italy coming back by that time in these sort of outlook assumptions?

Yes, so you know the current sort of mid-teens growth that we're putting on the board is is coming from our ability to land and expand in some of these newer geographies that have been mentioned, you know, Czech Republic, the UK, Australia, you know, with more than 10% of our total, which it hasn't been that large in recent past. And so, We do see a return to more normalcy or more of a growth pattern as it relates to Germany, which has been sort of just, I would say, sluggish, just sluggish positive, and Italy, which has been going through some internal issues. And the Netherlands, which also having very issues that are specific to that country. But we don't see those markets as, we just see it as transitory. So we do believe that there will be improvement in 2025. And so once we have improvement in those markets, we're going to be able to incorporate that into our own growth and revenue, and that should bode well for us.

Understood. Thanks for that. 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. What is the... directionally, is it higher than the 3.4 we saw in this quarter? And then part two of that question is, is this charge mainly because of devaluation or reduced prices, or is it because of part of the inventory is going obsolete?

So I'll take your second question first. It It's not related to obsolescence. It's related to our GOESS product line, which is comprised of batteries and inverters, which has a much more steeper price curve and degradation in pricing environment. It's much more quite competitive, hyper-competitive. And so in the current quarter, we, 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 for batteries. 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 ESS products, which, again, it's the GO ESS line that carries more of the pricing risk because it does have 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 for us. So every time we get asked the question of, are you seeing changes in pricing and competition there, in general, for TS4s, no. We have a very differentiated product that separates us from the rest of the pack with that product. But in batteries and inverters, as you know, There's a lot more players involved, and so we have to be able to adapt to the current pricing environment. That's why we put that out there as a potential marker for investors to be aware of it in Q4. Understood.

Thanks, Bill, for that clarification, and good luck for the next quarter. Thank you. Thank you.

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.

Please stand by. At this time, I am showing no further questions.

I would now like to turn it back to Bill for closing remarks.

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?

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