Thesis: FTCI solar, Inc. (FTCI) is a provider of solar tracking systems with a compelling risk/reward and upside potential of 500%+. FTCI’s valuation seems extremely low with a market capitalization of only $52 mil, a backlog of $1.8 bil (with $485 mil contracted), and an enterprise value / 2025 (estimated) Revenues (EV/R) of 0.14x, with the company’s competitor ARRY valued at an EV/FY25 estimated revenues of around 1.5x. FTCI seems to be at the initial stages of a dramatic positive inflection of growth and profitability, with management forecasting a huge revenue acceleration starting in 3Q24 resulting in breakeven adjusted EBITDA, and positive adjusted EBITDA in 4Q24. If management achieves their objectives, FTCI stock could go up several fold, which is where it was prior to its recent decline. If the company can’t achieve their objectives, I think it’s likely they could be sold for a price above the current value. Management seems to believe in the turn-around because they’ve been buyers of the stock. The company has a lot of hair, but the upside potential justifies a meaningful position in my view.

Why Does This Opportunity Exist? 1) FTCI is a nano-cap illiquid stock with not that much coverage; 2) FTCI has a history of significant losses; 3) Trumps recent surge in the polls has caused pressure on solar stocks, because investors anticipate that Trump’s policies will not be as favorable for alternative energy companies. The market has punished FTCI along with all other solar stocks, which I don’t think is justified by the facts. FTCI serves utility scale solar projects which should grow dramatically regardless of the administration, because almost everyone agrees on the irrefutable benefits of these projects; 4) The company is currently in default of Nasdaq listing requirements, because its stock has fallen below $1. This has caused forced selling by any fund or person who is restricted or doesn’t want to own a delinquent stock.  On 6/1/24 FTCI received a 180-day extension to resolve this issue which should be easy for the company to remediate through either an increase in the stock price, a reverse split, or a sale of the company.

Background:  FTCI is a global provider of solar tracker systems, software, technology, and engineering systems, which are sold primarily for utility-scale solar projects. The company was founded in 2017 and went public in April 2021. FTCI’s trackers help increase energy production at solar power plants by adjusting the orientation of solar panels to the sun. FTCI has delivered more than 4.5 GW of trackers to over 100 utility-scale projects in the United States, Europe, the Middle East, Asia, North and South Africa, and Australia. FTCI sells a self-powered, two-panel (2P), and single-axis solar tracker under the name of the product line “Voyager”. FTCI sells a one module-in-portrait solar tracker solution (1P) under the “Pioneer” brand, which leverages the technological advantages of Voyager and provides what FTCI pitches as cost savings to customers versus the competitive products due to faster assembly capability, a reduced pile count, and a higher slope tolerance.

FTCI’s customers include project developers, solar asset owners and engineering, procurement and construction ("EPC") contractors that design and build solar energy projects. FTCI’s revenue comes from sales of its solar tracking products, engineering consulting and pile testing services, its subscription-based enterprise licensing model, and maintenance and support services in connection with the term-based software licenses. FTCI currently outsources all manufacturing to contract manufacturing partners.

FTCI was hit by a perfect negative storm of events which started with COVID, which caused disruptions in supply chains, and much higher input prices. FTCI’s contracts were not structured to recover the vast increase in commodity costs and supply disruptions, which caused the company to lose a significant amount of money over this period. FTCI has also undergone management and credibility issues over the last couple of years caused due to significant financial disappointments and the failure to translate backlog into revenues.

FTCI’s problems culminated in the November 8^th firing of the company’s CEO and CFO. Since that time the company has appointed a new CFO, but they are still in an active search for a CEO, with a new executive expected to be announced any day. The appointment of a CEO could serve as a positive catalyst for the stock. Until a new CEO is appointed the company is being managed by a combination of senior executives as well as the COB, Shaker Sadasivam.

Market for Solar Trackers: The current market for solar trackers is growing as governments worldwide promote and adopt low-carbon forms of energy as alternative options to fossil fuels. In the Energy Infrastructure Update Report for December 2023, issued by the Federal Energy Regulatory Commission, solar provided 49.3% of new domestic generating capacity in 2023 in the United States. The Short-Term Energy Outlook, issued by the U.S. Energy Information Administration in February 2024, forecasts that U.S. solar generation will rise by 43% in 2024.

FTC’s 10K refers to policies adopted in the United States regarding renewable energy:

“In the United States, various states have implemented Renewable Portfolio Standards, which require a specified percentage of the electricity sold by utilities to come from renewable sources by a certain date, as described further below. Additionally, the Inflation Reduction Act of 2022, passed by the U.S. Congress and signed into law by President Biden on August 16, 2022, expanded and extended the tax credits and other tax benefits available to solar energy projects and the solar energy supply chain…

Globally, renewable energy support has accelerated since the Paris Agreement under the United Nations Framework Convention on Climate Change, which became effective in 2016. These factors, along with efficiency improvements and cost reductions in the underlying photovoltaic cell technology used in solar energy production, have contributed to solar energy becoming the fastest growing and most affordable source of new electricity in America, according to the U.S. Department of Energy. Solar trackers have been gaining market share versus fixed-tilt mounting systems due to their ability to optimize energy production, accommodate more varied terrain and offer a more attractive return on investment.”

Competition:  FTCI’s largest competitors are Array Technologies INC and NEXTracker Inc. These competitors are significantly larger than FTCI, and there’s a decent probability one of them acquires FTCI at some point.

Financial History and Outlook:

FTCI has a history of significant losses, partially caused by a perfect storm of negative events such as Covid and mismanagement. However, all the while the company maintained a very healthy backlog of around $1.8 bil, with a current funded backlog of $485 mil. The company has not yet been able to convert this backlog to revenue due to a combination of issues including Covid, management execution, and project delays. FTCI’s revenues have fallen from $270 mil in 2021 to a consensus expectation of $129 mil in 2024, while incurring losses. FTCI had $12.6 mil in 1Q24 revenues, so sales are going to need to accelerate tremendously to reach consensus estimates.

FTCI management is projecting a sharp increase in revenues and profitability starting in 3Q24, with implied revenues in the $50 mil range, and adjusted EBITDA breakeven. Management has further projected that the company should be adjusted EBITDA positive in 4Q24, which implies revenues greater than $50 mil (because the company’s adjusted EBITDA breakeven point is $50 mil). Management claims FTCI has undergone a significant restructuring, which has dramatically lowered costs, while demand and conversion has also improved dramatically. This is all yet to be seen, but FTCI management noted several supporting factors on their 1Q24 call including the following: 1) signed purchase orders have accelerated from $6 mil per month in early 2022-2023 to $50 mil per month in the past 10 months; 2) Breakeven cost has greatly improved. Management claims breakeven revenue level has decreased to $50-$60 mil per quarter, from a historic level of around $100 mil; 3) The company expects 20%+ operating margins as revenues recover; and 4) The CEO search is progressing, and an announcement might be made before or on 2Q24EPS. If management achieves anything close to their objectives, I project the stock will go up tremendously.

FTCI’s balance sheet is solid for now, but if revenues don’t begin to recover meaningfully the company could face issues within a few quarters. During 1Q24 FTCI reported cash, equivalents and restricted cash of about $16 mil with no debt. The company also has accounts receivable of $66 mil which should be a source of significant liquidity. FTCI has working capital of about $56 mil, which is greater than the company’s market cap and suggests the liquidation value of the company may be above the current stock price. FTCI management expects the conversion of their receivables to result in cash generation during 2Q24, and expects the company to end the quarter with a net cash balance of $20-$25 mil. FTCI also has over $380 mil of operating loss carryforwards, so we don’t have to worry about them paying taxes for a long time. If the company breaks into profitability, it would be rational for the market to start valuing this tax asset. This asset also makes the company more valuable as an acquisition, or to use the stock for a reverse merger on preferable terms.

Valuation: It’s easy to project substantial upside for FTCI if the company achieves management’s objectives. If we simply assume the company achieves Yahoo consensus expectations for FY24 revenues of $252 mil, with an adjusted EBITDA margin of only 10% (which is significantly below management’s long-term targets) we get EBITDA of $25 mil, with free cash flow around the same assuming neutral working capital. If we assume FTCI should be valued at an EV/EBITDA of 7x or a FCF yield of 10%, we get a stock price of anywhere from $1.65-$2.10. If FTCI management achieves their 20% margin objectives, and using the same parameters the stock could be between $3-$4.20. However, if FTCI’s revenues start to accelerate anywhere near management’s projected rates, we could easily see a valuation much higher. Since FTCI has been public, the stock price has ranged between $0.30-$15, so a much higher stock price and valuation is not out of the norm for this company.

Catalysts: 1) A revenue and profitability recovery starting in 3Q24; 2) The naming of a new CEO; 3) Resolution of the Nasdaq listing delinquency.

Risks: 1) The primary risk is that FTCI’s management’s projections are wildly above reality, and the company continues to lose money which creates a liquidity issue; 2) A meaningful amount of the company’s receivables become uncollectable; 3) Standard market, regulatory and competitive risks.