Tigo Energy, Inc.

Good afternoon and welcome to TIGO Energy's fiscal fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Joining us from TIGO are Zvi Alon, CEO, and Bill Roschlein, CFO. As a reminder, this call is being recorded. I would now like to turn the call over to Bill Roschlein, Chief Financial Officer. Please go ahead.

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, our ability to increase our revenues and become profitable, and our overall long-term growth prospects expectations regarding 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, charges and reserves, and their impact on future financial results, inventory supply, and its impact on our customer shipments and adjusted EBITDA for the first fiscal quarter 2025, and our revenue for the first fiscal quarter and full year of 2025 and 2024, and our ability to penetrate new markets and expand our market share, including expansion in international markets and 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 described in the risk factors section of our most recent annual report on Form 10-K 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 this call. These forward-looking statements are made only as of the date as 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 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 Tygo's investor relations website at investors.tygoenergy.com. With that, I'd like to now turn the call over to Tygo CEO, Zvi Alon. Zvi?

Thank you, Bill. To begin today's discussion, I will highlight key areas in our recent performance to wrap up the past year and provide some commentary on the recent operational highlights before turning the call over to our CFO, Bill Roslein. He will discuss our financial results for the fourth quarter in more depth, as well as provide our guidance for the first quarter of 2025 and full year of 2025. After that, I will show some closing remarks, tell you about our outlook for the year 2025, and then open the call for questions from our analysts. Let's get started. I am pleased to report that we ended 2024 with yet another sequential quarterly revenue goal, making it four out of four for the fiscal year. Given how 2023 ended, I am exceptionally proud of what our team at Tygo has managed to accomplish. To give some geographical color on the results, We saw positive sales growth, especially within the EMEA and Americas regions during the quarter. Expanding our sales footprint into markets and doubling down our efforts in key markets has remained an area of focus for us. To share only a few recent highlights, our team has spent time in Malaysia and Hawaii to educate, train, and sell our product portfolios. In the fourth quarter of 2024, we shipped 480,000 MLPE units, bringing our 2024 MLPE shipped total to 1.5 million units. Our TS4X product line continues to build momentum in the marketplace, and we expect this trend to continue in 2025. additionally we achieved multiple utility scale wins in 2024 and our pipeline in this sector of the market continues to grow another key focus area is within our ei software solution where our predict plus ai based energy consumption and production platform continues to grow we announced yesterday Since the first quarter of 2024, PredictPlus platform has grown from 15,000 to 140,000 meters under management and covers a total of 600 gigawatt hour of energy at year end. As PredictPlus expands into Europe and North America, we are bringing machine learning to energy analytics and predictions to a new standard for energy forecasting. Our annual recurring revenue, or ARR, now stands above $1 million per year, and we expect it will continue to grow in 2025. Additionally, we just recently announced another great milestone. Since the inception of the program, Green Glove has now reached 1,000 site arrangements, engagements, globally including over 700 CNI installations and over 300 residential solar installations. We are excited to see our efforts towards the total quality solar starting to pay off. And with that, I would like to turn it over to Bill. Bill?

Thank you, Sri. Before I start reviewing the results of the fourth quarter, I would like to address the inventory reserve charges that are significantly impacting many line items in our income statement as they are accounted for in the cost of revenue. In 2024, our GO ESS storage and solutions business represented 6% of total sales compared with 9% of total sales in the prior year, reflecting the fact that this business line has not participated in our business recovery as well as we had anticipated. As you may be well aware of, this segment of the market has many market participants competing for market share, and battery prices in particular continue to fall at a significant rate, all of which negatively impacts companies holding high inventory positions. As mentioned in our previous earnings call, the charges taken in both the third and fourth quarters reflect management's estimate of the inventory's net realizable value and incorporates current and future expectations of the market environment. Now turning to the financial results for the fourth quarter ended December 31st, 2024. Revenue for the fourth quarter of 2024 increased 86.8% to $17.3 million from $9.2 million in the prior year period. On a sequential basis, revenues increased 21.3% with improved results coming from many countries in the EMEA and Americas regions, including the US and Germany, along with some recovery in Italy. By region, EMEA revenue was 11.2 million, or 65 percent of total revenues, and a 29.3 percent sequential increase. America's revenue was 4.6 million, or 27 percent of total revenues, and a 57.2 percent sequential increase. And APAC revenue was 1.5 million, or 9 percent of total revenues, and a decline of 44 percent sequentially. Gross loss in the fourth quarter of 2024 was $12.6 million or negative 72.7% of revenue compared to gross profit of $2.9 million or 31.1% of revenue in the comparable year-ago period. The year-over-year decline was primarily due to the previously mentioned inventory charge of $19.5 million. Operating expenses for the fourth quarter declined 29.8% to 11.6 million compared to 16.4 million in the prior year period. The decline was driven primarily by our previously announced cost-cutting efforts. Operating loss for the fourth quarter increased by 77.9% to 24.1 million compared to 13.5 million in the prior year period. Gap net loss for the fourth quarter was 26.8 million compared to a net loss of 14.8 million in the prior year period. While we recorded a higher net loss on a GAAP basis for the fourth quarter compared to the prior year period, absent the inventory charge, our results reflect progress towards profitability on a non-GAAP basis. Adjusted EBITDA loss in the fourth quarter increased 90.4% to 22.1 million compared to an adjusted EBITDA loss of 11.6 million in the prior year period. As a reminder, adjusted EBITDA is a non-GAAP measure that represents net loss as adjusted for interest and other expenses, income tax expense, depreciation, amortization, stock-based compensation, and M&A transaction expenses. Primary shares outstanding were $60.8 million for the fourth quarter of 2024. Turning to the balance sheet, accounts receivable net decreased this quarter to $8 million compared to $8.8 million last quarter and increased from $6.9 million in the year-ago comparable period. Inventories net decreased by $24.8 million or 53% to $22 million compared to $46.8 million last quarter and $61.4 million in the year-ago comparable period. Cash equivalents and short and long-term marketable securities totaled $19.9 million at December 31, 2024. On a sequential basis, cash increased by $400,000 as we continue to make progress on reducing our inventory and working capital. Turning now to our financial outlook for our first quarter of 2025 and full year of 2025. As a reminder, Tygo provides quarterly guidance for revenue as well as adjusted EBITDA as we believe that these metrics to be key indicators for the overall performance of our business. For the first quarter of 2025, we expect revenues and adjusted EBITDA to be in the following range. We expect revenues in the first quarter ended March 31st, 2025 to range between $17 million and $19 million. We expect adjusted EBITDA loss to range between $2.5 million and $4.5 million. For the full year of 2025, we expect revenues to range between $85 million and $100 million. That completes my summary. I'd like to now turn the call back over to Zvi for final remarks.

Thanks, Bill. As we look ahead, I can say that the industry still faces headwinds, but our track record over the past year, 2024, makes us believe that our robust product portfolio solutions allows us to mitigate the industry and market pressure better than others. As demand of our solutions continues to return, we expect revenue to increase steadily throughout the remainder of 2025. After four quarters of sequential top-line growth, we believe we have enough visibility into what's ahead for the company to carefully provide an outlook for the four quarters ahead of us. We anticipate that our quarterly revenues will continue to improve throughout 2025. We firmly believe in the growth prospects of our business and look towards providing additional updates in the coming quarters. With that, operator, please open the call for Q&A.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 1 and 1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Eric Stein with Craig Howland Capital Group. Your line is open. Hi, it's me. Hi, Bill.

Hello. Hi.

Hello. So maybe just on the adjusted EBITDA, I know you called out the charge X that, a loss of $2.6 million. Can you just remind, when you previously guided, were you expecting or factoring a charge into that? Just noteworthy that at the midpoint, excluding the charge, you outperformed by $5 million.

Yeah, correct. In the last call, we did say in our guidance that the EBITDA guidance reflected an expectation of additional inventory reserves. That being said, the amount of the inventory reserve ended up being higher than we had initially anticipated during that call. But we feel that the reserve taken is both adequate and necessary as we move forward.

And sticking with the charge, do you feel like this This kind of covers it. I mean, you're not expecting, I guess from the guide, it would imply that you're not expecting a charge in Q1, at least.

Right. So, yes, as part of the annual audit, you know, obviously review process, we have to look at the balance sheet in terms of valuation. And at this point, with the reserve taken, we've reserved 90% of... the energy storage solutions business inventory, we're left with a net book value somewhere in around the $2.1 million range, which we think is adequate and justified given what we expect to sell.

Got it. Okay, that's helpful. And then, you know, just looking at OPEX, looks like it came down a little bit more. You know, I'm just curious, as you think about fiscal 25 guidance, and maybe where you are exiting the year. I mean, do you have, I know in the past you've given some quarterly revenue targets for cash flow positive and EBITDA positive. Are those things that you are able to update on this call?

Yes, certainly. So in general, we look to keep the cash op-ex, which is Looking at the OpEx and taking out the EBITDA adjustments, stop-based comp, and amortization, depreciation, to come up with an OpEx number that is sub 10 million. In this past quarter, it was around a little bit less than 9.5. There's going to be a little bit of lumpiness with Q1. where we have the annual audit and expenses related to that. And then we have some ebbs and flows as it relates to some litigation expense. But we believe that after Q1, we are able to take the OPEX further down somewhat. And with some assistance with the OPEX being lower, along with kind of not having the continual drag of reserving inventory, which, if you recall, in Q1, Q3, and Q4, we had reserves, primarily for the GOESF Solutions product. Absent that, our margins were mid-30s to Q4 was actually 40%. So, taking that forward, Our outlook for Greek even EBITDA is more like 25 to 28 million at that mid 30 to high 30% gross margin range. And our guidance of 85 million to 100 million is 8.5% to 15.5% sequential growth, which is fairly consistent with what we've delivered thus far. If you recall, Q2 is about 30%, Q3, 12%, Q4, 21.3%. And so within that range, we would expect second half profitability on an adjusted EBITDA basis. And you can see that at the low end, 85, that would suggest somewhere more like late Q3, Q4. But at the high end, that could be Q2, Q3. So if you want to take the midpoint of the guidance, we would still expect to see EBITDA profitability in the second half, Q3, to be specific. It would be based on our business model going forward, which is $25 to $28 million with mid-30s margins. And that's what we're tracking to, and that's also what we've been delivering in these past two quarters.

Okay, that's great, thanks a lot. One moment for our next question. Our next question comes from Phil Shen with Roth Capital Partners. Your line is open.

Hey guys, thanks for taking the questions. First one is on the 25 guidance. Can you share what you expect the geographic mix to be? I know for Q4 it was roughly two-thirds EMEA, and then America's 27%, and then APAC-9. Would you expect that to maintain as we go through the year?

So the answer is, in general, the answer is absolutely yes. In the 65% to plus percent for EMEA, and in the 30%, give or take, for North America. We've seen, as I said before, we've seen an increase in those two regions also in the last quarter.

Okay, thank you, Zvi. And then in terms of EMEA, I think on the last call you talked about the top three countries being Germany, Italy, and the U.K. What were the top countries in EMEA for you in Q4 and then as we go through 2025? what would they be?

Thanks. It's pretty much the same. It's Germany, the UK, and Italy. We have not seen any recovery in the Netherlands, as an example. We do see some interesting activity in Eastern Europe, but the top three countries are Germany, number one, and UK and Italy.

Got it. And so what is your outlook for each of these countries overall? Our sense is Germany might be a little bit flattish. I think Woodmac was sharing with us in a recent webinar that it could be down 5% in 2025 after being down 20% in 2024. But they do see Germany being down significantly in 2026 and beyond. With Germany being such a big segment or kind of slice, how would you expect to navigate that? Maybe you disagree with the WMAC team as well. So can you share the outlooks for these countries? Thanks.

We actually see in Germany a robust market, and it continues to be strong for us. The indications we are getting from the distribution is that At the level that we have been running and increasing, they maintain that they see the same continuing for the rest of the year for us. And also the other side, which is also impressive for us, is UK. UK is really coming very strong for us.

Great. Okay. Thanks. And then in terms of the U.S. outlook, there have been There's a big debate on Powerwall 3 and the ramp up and how that can take share from inverters and storage companies. I was wondering, is there an opportunity for you to pair your optimizers with the internal Powerwall 3 inverter? Is that something that is workable now, and is that an opportunity for you? I see with the Section 48E rules that require separation to get the domestic content out for solar and storage. It seems like there could be something there for you guys. What are your thoughts?

Yeah, I can tell you we have seen an increase in requests from customers who go with the Power 3 system. to use it with our product. And so we are paying attention to it and we are doing our best to make sure that we obviously comply with Tesla to support it. And we do have a good number of installations already with Powerwall 3. So we know that in the market it's actually working well and we will see how it continues.

Okay. Are you being paired up with your fire safety device, or is it more your optimizer?

Actually, the optimizer. Actually, it's the higher-priced unit.

Great. Okay. Are you qualified to work with the Tesla inverter-only product?

We have installations. You mean the Powerwall 2? Yes.

No, meaning Tesla also sells an inverter that is separate from the orange. And so I was wondering if you were able to be matched up with them.

So the answer is yes, we can. The optimizers can.

Okay, good. So, you know, that is maybe an opportunity now that there's, you know, the Section 48E requirement to separate soil and storage, again, for domestic. Yeah. So great. And then shifting, can you share what you think? You've talked about the Predict Plus. and the opportunity there, and that that's growing for you. Most of your business historically has been DG, distributed generation, and so when you think about your revenue mix for 25, what is the split between utility-scale solar and DG? My guess is utility-scale solar is a very small percentage, maybe sub-10, 5-ish or so, but was wondering if you think that can grow to a much bigger percentage near-term. Thanks.

So as I said in my remarks, we have seen an increase in large-scale installations, and the two we mentioned was the 142 megawatts in Spain, which used 100,000 of our devices. And we also announced another very large scale, 97,000 devices in Brazil. And we don't even, you know, release any information on systems which are in the 10, 15, 20 megawatts and above. We do see an increase in demand and requirements for those larger systems. I don't want to yet predict percentage-wise from the total, but I can tell you it is becoming a more significant component for us. And it's true not just in the U.S. and Europe. We've seen most of our installations in Asia-Pacific, the majority are CNI and small utility-scale systems.

And these are direct sales, right? It's not through distributions?

The majority are direct sales. Sometimes we do deliver to the distribution, but the majority are direct sales.

Okay. And then is the margin profile of the direct sales comparable to your sales into distribution, or is it a little bit lighter given the volume?

So what's beautiful about our product, Phil, is that it's the same product that we sell to the residential and to the lounge systems, and our pricing is not changing. It's the same. Actually, we've kept this price of the unit equal for the last four or five years. We didn't change it. We didn't lower the price of our product.

Great. Okay. Well, I look forward to following that story as well. Thanks for taking my many questions. I'll pass it on.

Thank you. One moment for our next question. Our next question comes from Samir Doshi with HC Wainwright. Your line is open.

Hey, good afternoon, Julie, Bill. Many of my questions have been answered, but just digging a little bit into the gross margins, I think, Bill, you did mention in response to one of the questions that probably your fourth quarter gross margins were over 40%. And so going forward, do you expect that level of margins? Because I think you're guided mid-30s. during the commentary as well. I just was wondering whether 40 was sort of because of some kind of a product mix or some other reason.

I think between 35 and 40 is where we're tracking. One quarter doesn't make for a trend, but Q3, again, X reserve was 36.5. Q4, X reserve was 40.2. So we are our trend and our product set is set up for that mid to upper 30s figure. And so we're comfortable with that range. The inventory reserve that we've had to take over the past few quarters have dampened that and eliminating uncertainty around that helps to better explain what the underlying margins should be like and that's where they are.

Understood. And then a larger picture, you've given guidance for 2025 and we can understand the 1Q guidance, you probably have very, very good visibility on it. But for the year, what is the level of your confidence and What areas are you looking at when you're looking at this buildup, revenue buildup?

Yeah, so we've got four quarters behind us here of sequential growth. And coming out of the downturn in Q1, we had 6.5% growth. Q2, 29.6%. Q3, 12.1%. Q4, 21.3%. So, you know, we're giving a conservative but realistic range here of a low point of $85 million being 8.5% sequential growth up to $100 million being 15.5%. So just look at what we've done over the last four quarters. You know, you can see that I think we've done our best job to incorporate, you know, the highest probability of outcomes. in 2025 and the book of businesses continues to remain strong for us. And so, um, you know, we've got confidence that, uh, that, um, that the range we're providing is, is, is a good range.

Got it. And this one last one, uh, is there any impact, uh, likely impact off any tariffs that might materialize, um, over the next few quarters, uh, that, uh, will impact your margins?

So that is a you-never-say-never question, but we moved our production, for the most part, a lot of it to Thailand back in 2017-18 when we went through Trump version one, and we have not had any indication that any of our products would be targeted in any way at this point. So the best I can answer is that way.

Thanks for taking my questions, and congrats on the progress.

Thank you. At this time, this concludes our question and answer session. I'd like to turn the call back over to Mr. Alon for his 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 continuing hard work. I also want to thank the investors for their continued support. Operator?

Thank you for joining us. Thank you for joining us today. Thank you for joining us. Well, one moment. We do have another person in the queue for a question. Our next question comes from Gus Richard with Northland. Your line is open.

Yes, thanks for letting me ask the question. Sorry to be at 5 o'clock, Charlie. Just real quick on the gross margins, I think that's a record for you all, and I just was wondering, you know, what drove such strong performance and gross margins in the quarter?

There's a couple points. You know, we continue to improve our cost on our product, and so... A lot of work continues to go into costing down the cost of the product and we continue to expand margin and that's just a continual process that we do. We've introduced the X as well and the X provides a very healthy margin and so the family of TS4 for us is just on a variable basis very attractive margins. And so when you get a quarter where you're selling most of, most product is these TS4s, you're going to get the high margins that you're seeing here.

Got it. And then, you know, you recently signed a, you know, or got on an approved vendor list at a large company. And I'm just wondering, is some of the visibility that you're getting just channel full for that customer or, you know, I'm just, just want to, sort of wrap my mind around the visibility for the full year, given how dynamic the environment is.

So our visibility, I guess, if we talk about EMEA, is coming from the three countries I mentioned with the very strong distributors and very sizable distributors there, which provides us confidence as far as the continuation. Obviously, we've seen also an increase in footprint in the U.S., And no, we did not rely just on this last one we signed, even though it will be a contributor as it evolves and continues to grab additional footprint within our offering. But my point is that the visibility is not just based on that one.

Got it. And then just the last one for me. In terms of sell-in versus sell-out and the health of the channel, can you just comment on what you see geographically?

I can tell you that I believe that 100% of all the orders we've received for the last two plus quarters are brand new into inventory, which is getting depleted almost in no time. So we don't have much leftover, or any additional inventory in the channel. Okay.

All right. Thank you for squeezing me in. Sorry again for being late.

Most welcome. Mr. Alon, were you finished with your closing remarks?

Yes, I am.

Okay. Well, I just want to thank everyone for joining us today for TIGO's fourth quarter 2024 earnings conference call. You may now disconnect and have a wonderful day.