Introducing Nextracker (NXT)

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I have started a small position in Nextracker (NXT) and looking for feedback.

They are a relatively new company that went public about a year ago as a spin off from Flex Ltd (FLEX), and are in the business of selling intelligent solar tracking solutions. These are small devices for solar panels which track the movement of the sun to optimize panels. Nextracker has the leading solution in the market and they claim their solution is the only one to be able to handle rough terrain or basically not require bulldozing for installing the panels.

Nextracker has about 30% of the market for these devices and their next biggest competitor is Array Technologies (ARRY) which has 12% of the market and is not growing. The company is roughly 65% US based and 35% international. For those who are not aware, solar now has major tailwinds in the industry which did not exist recently as I’ll detail some below.

The financials of this business are appealing to me. Market cap is 9B, revenue is growing 42% last quarter at 737M, EBITDA margin was 37%, and net income margin 28% for last quarter.

Here’s the last four quarters of revenue with the growth rate year over year,

480M → 573M → 710M → 737M
19% → 23% → 38% → 42%

EBITDA
75M → 95M → 150M → 272M

Net income
20M → 39M → 41M → 205M

I have reviewed the latest earnings, and two conferences they spoke at, and my plan is to review the S1 from a year ago in depth next.

Fiscal Q4 2024 (May 14) earnings summary,

Guided
Full year revenue 2.45B → actual 2.5B
Full year EBITDA 488M → actual 592M

  • Fantastic year for Nextracker in the solar industry
  • Doubled adjusted EBITDA year over year to 160M
  • Record international revenue of 242M, +90% yoy
  • Exited year with 2.5B of revenue which is 30% yoy, and more than doubled adj EBITDA to 521M
  • New record backlog of over 4B
  • Backlog increased more than 50% from last year’s 2.6B and tripled over the last two years
  • Guiding for 2.8B - 2.9B in revenue and adjusted EBITDA of 600M for fiscal 2025
  • First US solar company to achieve the milestone of 100 gigawatts shipped
  • Have global supply chain to be able to ship 50 gigawatts annually with 30 gigawatts coming from the US
  • 80 major suppliers strategically located across five continents to support growth
  • Enabling domestic production in 20 new or expanded partner facilities since 2021
  • Few weeks ago launched industry’s first low carbon tracker solution with up to 35% lower carbon footprint, and announced sales from leading customers
  • Doubled down on innovation, over last two years doubled R&D investment for global expansion
  • Solutions are lower risk across variety of extreme weather, wind, hail, and flooding
  • Solar deployments continue to accelerate in most of the world
  • The market continued strong growth
  • Solar totally dominates planned power with 60% of the current queue positions
  • Nearly 7,000 solar projects have queue positions in the US with solar, or 1500 gigawatts
  • Department of Energy shows queue positions for solar dwarf natural gas by 25x, and there are zero new nuclear or coal plants in the queue
  • Solar economics have never been more favorable
  • Tracker fleets operate in nearly 40 countries
  • Total backlog has increased every quarter since the IPO
  • Q4 (current Q) bookings remain strong globally
  • Accelerated US supply chain expansion, domestic production tailored to customer needs
  • Record sizable customer contracts in India, Australia, Europe, and Brazil
  • Largest ever European project, 550 mega-watt power system in Greece
  • Largest ever Horizon XTR project over 1 gigawatt in Saudi Arabia
  • Bookings in six new countries: South Africa, Colombia, Hungary, New Zealand, Romania and Sweden
  • Trackers are the backbone of any system which needs to deliver energy for 30 years or more
  • Customers continue flight to quality for their products
  • Highest quality and most reliable product on the market with lowest install cost, lowest operating cost, and best engineering
  • Lower solar energy pricing has driving a rapidly increasing TAM
  • Solar is now the most installed form of new power generation
  • Energy yield maximization software, TrueCapture with record bookings and backlog
  • Industry first “hail stow” technology, used in Texas, all projects experienced zero damage during hail storms
  • Unrivaled inventions and tech in mechanics, electronics, and software
  • Help customers de-risk projects and improve economics
  • Revenue growth was 89% rest of world, 27% growth in US, mix was 67% US, 33% ROW
  • Gross margin expanded by over 10% from prior year to 30% as result of strong execution on contracts
  • Q4 EBITDA margin of 22% was up nearly 800 bps yoy
  • Strategically increased R&D 86% yoy, investing in growth and building stand alone infra post spin off from Flex
  • Separation from Flex increased public float by 74M shares
  • Adj FCF was 113M for the quarter, 427M for year, driven by strong net working capital management, customer deposits, and higher EBITDA
  • 474M in cash, 3x greater than debt of 150M, total liquidity 800M
  • Full year GAAP EPS projected at 2.41-2.61, 0.48 of stock based comp
  • “45X” regulation to bring manufacturing on shore is hugely helpful (part of inflation reduction act, tax credits)
  • Optimized our supply chain
  • On-shored over 20 facilities now that are manufacturing components in USA
  • Innovating and driving down costs which we need to do
  • “As far as macro going forward, the market is very strong”
  • Pipeline continues to be robust
  • Committed to higher structural gross margins
  • Analyst mentions beating every estimate since public
  • “There are a lot of tailwinds in the sector”
  • 45X credits are brining manufacturing on-shore, can be up to 30-40% savings
  • deals are split between VCA (volume commitment agreements) and non-VCA for more one time projects
  • Rising tide in the industry for many participants
  • On a path for solar to be the number one source of energy in the USA and the world

Nextracker presented at the Bank of America Securities 2024 Power conference on March 5, 2024. Here are some notes,

  • Had a long period of flat demand in the US that lasted 15 years, those days are over, we’re seeing very strong load growth happening in the United States
  • We’re seeing re-industrialization across the United States
  • “Catalyzed” 15 factories across the United States in last two years that are shipping finished goods, these are significant facilities, 100k-300k sqft
  • Seeing a lot of growth in data centers and AI, consuming a tremendous amount of additional energy
  • Legacy power plants like coal are dropping offline
  • Nuclear plants are dropping offline or getting to the end of their life
  • Tremendous growth for new power is coming
  • Energy Information Administration (EIA), historically conservative, forecasting 26% CAGR for solar in next five years
  • Within 10 years, EIA forecast solar being the number one source for the grid in the USA
  • All based on economics of solar, lowest cost way to generate power
  • Solar will be the dominant source of energy
  • We make mechanical and electrical components, control systems and software to move the panels to follow the sun, gaining up to 30% more energy
  • Measure atmosphere conditions in real time using machine learning, optimize angle of the panels, on rough terrain for max performance
  • Still some headwinds of permitting delays, interconnection queue delays, equipment shortages, labor issues, inflation, cost of capital
  • However tails in totality are strong than the headwinds
  • Embodied in federal law for last 18 months is investment tax credit going from 10% to 30% (This is the “45X” rule mentioned above)
  • Customers want to “decarbonize”
  • Canada also adopted a 30% investment tax credit, Nextracker has the largest operating system in Canada, very exciting market
  • Australia has policy tailwinds
  • Latin America where huge growth has happened over time in Brazil
  • Africa we have the largest operating portfolio, “very vibrant early but growing market”
  • “Solar is much lower cost wagering power than burning oil even if oil is their marginal value is very significant” (Talking middle east, even with oil they prefer solar now)
  • Largest solar operating complex in the world is in Dubai
  • “The market conditions have never been so strong in home, and abroad”
  • Historically was more 50/50 US International, used to being global manufacturer
  • Nine global offices and number one in 4 and 5 continents (they have 1050 employees)
  • 3,000 different utilities are in the US and they have different state rules, almost like operating in different countries
  • We have a much stronger financial position than any other providers in our space
  • XTRTM terrain follower, product 325-350 Megawatts a week which is a lot, equivalent to shipping a small coal plant each week, or 4 sq miles
  • Came up with a new technology for customers that actually follows the terrain, other competitors don’t have that
  • Made money every year since founding the company and have very low debt
  • 1993 solar cost about $30/watt, 2009 it was $12/watt, and today plants in US are $1/watt and India $0.50/watt
  • “The power is really, really, really low cost”
  • Storage is here at scale, you’re going to see unlimited growth, why the EIA says solar will be number one in 10 years
  • Customers can validate the effectiveness of the software and hardware using tools
  • TrueCapture for “undulating terrain”, embedded sensors to measure the actual angles
  • 45X rule makes manufacturing in the US about the same cost as overseas, regulation compensates to bring on-shore
  • Nextracker owns no factories, we have great partners kind of like Apple (I like that manufacturing seems outsourced in this case)
  • We’re a technology company but let other people make for us, great partners
  • Top legacy producer in Europe, relocated to Memphis, TN
  • Local utilities companies love buying from domestic, provides a lot of pull to have the product produced in USA

Nextracker presented at Goldman Sachs Energy on January 5, 2024. Here are some notes,

  • Flex spinoff makes a cleaner shareholder setup, put a lot of float on the market and they expected that
  • Nextracker one of the more global platforms out there across the entire solar value chain
  • Nextracker had a 30% CAGR of last 5 years
  • Marketshare has remained consistent around 30%
  • Projections in solar industry are too conservative
  • “The US has been killing it”, and expect ROW to be very strong
  • Expect healthy growth
  • Brazil has been second strongest market over the last three years, although lots of rain in Brazil is issue
  • Australia is picking up
  • India is one of our most exciting markets, 26 projects in India
  • See tailwinds are stronger than any headwinds
  • Championed having very large high quality Tier 1’s as predominance of customers
  • Always going to try and be price competitive, but not going to chase business
  • This is a 30 year asset, companies want best for 30 year investment
  • 80% of revenue comes from repeat customers
  • Analyst worried about “oversupply situation”, number of trackers “far exceeded” annual installation target - answer the installation target is underestimated on growth and capacity
  • Seen some pricing pressure, but it’s not new.
  • “There’s a new entrant in the market, and we’re very aware of that” (This is a concern for me, and I’m unable to track down which company this is)
  • Global footprint allows pivoting across the supply base
  • Flight to quality and to Nextracker for many companies

Some risks I see the with the business

  • The government tax credits expire
  • Share count has risen a lot since the spin off, something to watch
  • They own 30% of the market and competitive pressures

Overall I like what I have found about Nextracker so far. What’s most surprising is how fast solar is growing now and a I highlighted a lot of aspects on that above. This seems like an absolutely booming market now and is a much different situation than just a few years ago in Solar.

They seem to be underpriced by the market to me because of their 40%+ growth rate and 18 P/E ratio. It sounds like there is strong innovation in their product as they get more profitable and double down on their R&D efforts.

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Hi wpr101

An interesting find. Leaving my nervousness arising from having completely failed at any clean/renewable/solar energy oriented investments previously, a couple of questions to start with…

  1. Is their business model exposed to any cyclical factors around energy prices, solar panel demand or solar cell pricing and also to any physical depreciation and obsolescence in technology?

  2. Has the recent acceleration in revenues been organic or was there some acquisition juicing the growth along the way?

Thanks
Ant

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Similarly, this sounded interesting so I dove in. What has always kept me away from Solar/Clean-energy was the risk of the product becoming too commodity.

Overall, the product doesn’t sound that impressive, but the financials prove otherwise. I figured most solar lines would have sun-tracking technology as it sounds like its not that complex, but their numbers do appear like they have a significant advantage. Furthermore, their latest innovations felt underwhelming too me:

  1. Hail Pro - Angles the panels to avoid hail damage. Seems like a pretty lackluster innovation
  2. Horizon - Technology to account for variations in the landscape. Meh

Regardless of my views, they are putting up very impressive numbers and with considerable cash flow.

One additional stat from their investor day presentation: 90% NPS asset management net promoter score across all regions, so their customers love their product and continue to repeat.

They also argue their technology is backed by over 400 patents, so given the obvious ROI their product provides and the potential protection (if truly protected) of their product, they could have a nice runway.

Curious for those who have spent considerable time in the solar space, do most companies have a significant and growing backlog or is this fairly uncommon?

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Wow, I thought I wrote that myself. I am an enthusiast of the field, but every single one of my attempts failed. Even ETFs in the area.

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The Hail Pro and extreme weather features are what differentiate this from a DIY solution. You can make a solar tracker tons of different ways, the most interesting to me used tiny solar panels behind the main panel and caught light when the panels were not aligned with the sun properly and rotated the panel in that direction.

In 2022 hail caused $3.5 billion damage in the state of Texas. Depending on your location features like Hail Pro might pay for the entire product in reduced insurance premiums. In other areas it might be the ability to angle the panels in high wind or high snow that can reduce damage and long term reduce insurance premiums on the solar fields. In Africa it might be the ability to angle it to avoid damage by sand in the wind.

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I am in the same boat as the rest of you as being skeptical of anything alternative energy. What has gotten my interest here is tailwinds in the industry where in the past year or two it seems the cost of solar has come down significantly, and one of these factors is it’s easier to store solar. It sounds like some of the capture technology has gotten better at translating the energy into actual power.

When you consider it was $12/watt for solar in 2009 and it’s now $1/watt or over 90% efficiency gain, it becomes more clear why the transition to clean energy via solar has some legs this time.

Addressing some of the threads above,

Is their business model exposed to any cyclical factors around energy prices, solar panel demand or solar cell pricing and also to any physical depreciation and obsolescence in technology?

They depend on the price of steel for producing their products, and it’s my understanding their manufacturers often setup shop next to old steel mills and basically revitalize them. It sounds like they make incremental improvements to the tracker technology over the years, but the trackers are meant to stay in place for 30 years, so they aren’t being replaced unless they have to be.

The biggest potential issue is there are government tax credits for solar right now, and the incentive is even bigger if the steel/components are made in the USA. They mention this is a risk, and this could disappear at some point which would be a big hit to this company. Durability of this regulation seems like a big risk. However, a good portion of business is outside of the US, and if solar keeps on the track that prices keep going down, they may not need the tax subsidies to thrive.

Has the recent acceleration in revenues been organic or was there some acquisition juicing the growth along the way?

I believe all the growth since IPO is all organic. They do not have any acquisitions on record since going public. Keep in mind they are a spin off. The company was founded in 2013, acquired by Flex in 2015, and then spun off as independent at the start of 2023. The partnership made sense because Flex gave Nextracker the ability to go global through putting them on the same supply chain technology.

I briefly looked into Flex and they have a lot of revenue but are not growing. It seems like Nextracker was the fast growing segment within Flex while the rest of the business was stagnant, but the revenue from Nextracker wasn’t enough to move the needle, so it made sense to spin off the high growth unit of the business.

It was a bit of an unusual arrangement to start where Nextracker was a “controlled company” after spin off because Flex shareholders held a ton of Nextracker shares. But they took it a step further to go completely independent at the start of 2024. This increased the shares outstanding quite a bit, but I’m generally buying the explanation management has on how the spin off played out.

Furthermore, their latest innovations felt underwhelming too me

This was my initial impression as well when they were saying this like their tracker is 30% more carbon efficient or can handle extreme weather. Some of the other stats like LCOE (I think this is total cost) is a 9% advantage, or machine learning on their trackers increases yield by 1-2.2% seems very incremental to me.

The biggest thing to keep in mind is that these products are installed for a 30 year life cycle. Once the solar panels are installed somewhere they want them to work for a very long time. Getting some few percentage extra yields here and there over a 12-hour sun cycle adds up significantly when you look at a 30-year time line. Also having the whole system go down from hail or extreme weather is a huge risk for installing and then having to repair or scrap the project entirely.

They have other weather related protections like “Snow Shed” which makes the panels generate more power during a snowstorm. The panels periodically rotate to shed excess snow building and resume normal tracking.

I’ve checked out the S1 and 10-K the company posted recently and something stood out significantly comparing the financials. In the S1 they showed fiscal years 2020-2022 and the company was growing pretty slowly then. Reading through the S1 and seeing those financials, this definitely would not be a company I would be investing in.

When looking at the 10-K now and seeing fiscal years 2022-2024 you can see how much growth is happening now as the as the graphs of the data have ramped up significantly. Some of the more impressive datapoints going from 2022-2024 are profitability as well.

2022 → 2023 → 2024

GAAP net income
51M → 121M → 496M

EPS
N/A → 0.02 → 3.37

Adding a couple graphs here,

Revenue
Revenue1120×910 57 KB

Adj EBITDA
Adj EBITDA1022×926 35.5 KB

Adj FCF
Adj FCF710×972 19.9 KB

Biggest new concern is they mention they have 30% of the market and that has been consistent for awhile. My take is they are not really gaining market share too much, but the market itself has expanded massively. They are also getting supply chain efficiencies and benefits operating at scale. I’m not able to make sense of all these metrics ramping but not taking additional market share. I’d really like to see this 30% number start ticking up on new reports from here to gain additional confidence.

Their next biggest competitor Array (ARRY) at 12% market share is seeing a massive drop off in business, last quarter was -59% revenue year over year. I’m hoping somebody like Nextracker is the one taking the business with their customer’s “flight to quality” but would like to see more proof of this.

Taking a quick look at Enphase (ENPH), not a direct competitor, their revenue is down 63% year over year. However, somehow they have a 17B market cap and a P/E of 65. Array is losing over half their business, and has a P/E of 10. I’m seeing NXT growing 40%+ and they have a P/E of 18. This could potentially be a growth + value play where the market views them as a commodity and once they differentiate themselves in the market place they could get revalued more as tech or growth company by the market.

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Not commenting on this company specifically.

What I can say is that solar farms are sprouting up everywhere. I’m in the civil engineering business and many of my clients are involved in developing drainage infrastructure for large solar developments.

Same can be said for data centers.

AJ

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Heads up that Nextracker has a new CFO this past month which was announced back in March 2024. He was previously the CFO of Logitech and worked at SunPower for eight years during their growth phase. Additionally, he has been on the board for about 1.5 years or since the IPO.

The new CFO, Charles Boynton was interviewed at the JP Morgan Energy conference on June 17. Here are some of the highlights,

  • CFO knows the ecosystem really well
  • Sees a great management team at Nextracker
  • Mentions Nextracker’s world class engineering and customer first focus
  • Fine if customers want to delay a project or pull it forward, they work around customer’s schedule
  • “It’s a big market”
  • Pricing has come down but this is a good thing because it makes solar more competitive overall and increases the TAM
  • International is less developed than the US, more fragmented small players in the tracker business, and do expect international to be a larger part of revenue soon
  • As they drive cost reduction, they pass it on to customers
  • Most important metric for investors is return on invested capital and the fundamental operating cash flow Nextracker generates
  • Policies come and go, gives examples of massive German subsidies in 2007 for solar, now no longer a big market as regulation changed
  • Solar has many LCOE (levelized cost of energy) advantages to conventional electricity
  • “45X” regulation has been great for America and for solar, used to be a very large importer of steel, now shifting to local US manufactured steel
  • Open or expanded 20 plants in the US with manufacturing partners
  • The tracker is the backbone of the utility scale solar project
  • However tracker is 10% of the overall pie per solar project, the solar panel is still the biggest portion
  • First Solar has a great advantage with their Series 7 technology for panels
  • The tracker is critically important, but not the most important part of a solar project
  • “If you look at First Solar of Enphase, they are the manufacturer of record. They are the direct beneficiary of that credit (45X). Ours are through our manufacturing partners”
  • Primary goal of 45X was to shift purchasing from international steel to domestically produced steel and it’s working
  • Uses 45X proceeds to help lower cost and increase TAM and will also use it to protect operating margins
  • Very prudent approach to capital allocation, cannot do dividends or buybacks because of rules based on the spinoff from Flex (I believe this will expire after some time)
  • 470M of cash, 150M of debt
  • “Certainly, we could have a lot more leverage”
  • Conversion of FCF was about 70% last earnings call
  • Asked about election risk, “I think under either administrations, whether it’s a D or R, the things that we’re doing are germane to both, driving jobs, energy independence, this is really important to both sides”
  • “What this industry is doing is good for America”, it won’t shift back to importing foreign materials and panels
  • Use aerospace industrial grade rivets because they do not loosen over time. Riveting together it holds them together virtually forever
  • Other markets are still using traditional nuts, bolts and screws which they have to go back and re-ratchet and retighten over time
  • The customers will recognize the value and be willing to pay a little more to get a better return on investment
  • Expect international markets to become more mature and go to a flight towards quality which is a tailwind for Nextracker
  • Analyst, “It seems like you got through the worst of the macro hump resisting many of the issues that your competitors had?”
  • A lot of competitors compete on cost up front not lifetime cost
  • Customers willing to pay a slight premium for lower levelized cost of energy
  • Three large competitors in the US, it’s not like the panel world where you have got “a gazillion different players”
  • Long term goal to drive costs down to increase the TAM
  • “We can protect our margins, settle lower prices and have a larger market to sell into”
  • AI data centers “genie is out of the bottle”
  • Google, Meta, Amazon, and Tesla all making public statements about goals on decarbonizing
  • Seems “undeniable from a first principle standpoint that there’s going to be insatiable demand”
  • “I’m just super bullish on the long term”

The CFO seems pretty sharp and has solar industry experience, I liked what he had to say here. A large part of my thesis for investing in this company is that solar has industry tailwinds and a lot of those are highlighted in this Q&A.

Looking into a couple companies in the industry,

  1. First Solar - not a competitor, manufacturer of photovoltaic (PV) solar modules and systems (they make panels)
  2. Enphase - they do residential and commercial, seems like this part of the industry is struggling since interest rates rose and their customers having trouble financing
  3. Array Technology - direct competitor, reviewed their last earnings

Array Technology reported earnings on May 9, and revenue was down 59% which was actually above expectations because on the previous call their intentionally dropped about half their customers due to them not being profitable enough for the business. From what I gathered, Array has a much worse supply chain than Nextracker and has had a lot of delays.

Array specifically calls out competitive pressures, and emphasized way more headwinds then Nextracker mentions. Some components they build they thought would qualify for “45X” but did not like their clamps. Still they have a 2B backlog which is impressive for a company their size. They say they are ramping back up for sequential growth.

Overall I got that Array is run poorly compared to Nextracker, has an inferior supply chain, and more issues qualifying for the government tax breaks. Still Array mentions tailwinds for the industry as well, giving me confidence about the market that Array and Nextracker sell into.

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@wpr101 , thanks for introducing $NXT!

""They seem to be underpriced by the market to me because of their 40%+ growth rate and 18 P/E ratio. "

40%+ is their TRAILING revenue growth.

  • They expect FY2025 revenue between $2.8B and $2.9B
  • Consensus is FY2025 of $2.87B
  • 2024 revenue was 2.5B

So doesn’t that mean that FORWARD revenue growth, as asserted by $NXT and by the Analyst community, is projected to be more like 20%? Do you think the actual forward revenue growth will be more like 40+%? If so, why?

““Pricing has come down but this is a good thing because it makes solar more competitive overall and increases the TAM””

…perhaps this admitted pricing pressure explains how their revenue growth rate has remained flat even though they are taking market share?

Thanks again for delivering on “Job #1”! It is very much appreciated.

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I’m usually not giving much weight to forward analyst estimates because they mostly just extrapolate off the current revenue run rate and base estimates close to what the company says. In this case with Nextracker there’s a few interesting parts of the estimates to me.

The first is that the estimate for FY25 of 2.8-2.9B of revenue is lower than the current quarter run rate of 737M (737 * 4 = 2.95B). This seems like an extremely low bar, especially comparing to the commentary the management team has about the market.

Secondly the forward P/E is listed as 18 which is close to the current P/E. The analysts are forecasting zero earnings growth which does not line up with their current acceleration and I see that as an opportunity. The company also proudly states they have beat and raised on every earnings report since being public.

This latest issue of the Economist has solar on the cover and a “Special issue” dedicated to solar. In total there were about six articles on solar in this issue. I mention this because a large part of my thesis on Nextracker is there are industry tailwinds for solar that are massively underestimated.

It looks like some industry analysts are waking up to the growth but still underestimating the opportunity. The articles mention some of the recent predictions that people have gotten wrong about solar,

  • 2023 consensus prediction was 350 GW of solar capacity added, actual was 440 GW
  • In 2009 world capacity was 23 GW and prediction was given by 2030 would be 244 GW, but got there in 2016, and 2023 was at 1,419 GW
  • In 2008 there was a well known environmental group promoting solar saying that by 2020, cost would be down 19% for solar, in actuality by 2020 they were down over 95%

The article also mentions in 2015 solar cost $122 per MWh, and currently it’s $40 MWh. One of the articles says, “it will be the steepest drop in the price of basic factors of production that the world has ever seen”.

One critique of these Economist articles is they focused almost exclusively on the Chinese market of the creating the solar cells which go into the solar panels. China still accounts for 93% of the production of these and this is truly an commodity as these cells are standardized with no variation. The same solar cells go into industry level plants as they do into IoT solar devices.

There was no mention that America is re-industrializing for solar with what companies like Nextracker are doing. Solar trackers or this part of the industry were never mentioned in the articles and I believe this also creates an opportunity. Even investors who are now aware solar is growing, may be completely unaware of solar trackers and what Nextracker is doing. I believe this lack of awareness about this important market within solar may keep the valuation low in the short term.

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Since this is the current thread for NXT. I will give some updates about NXT here.

NXT bought Ojjo for 118M in all cash. The transaction closed on June 20, 2024, and is not expected to be material to fiscal 2025 results.

Ojjo is a U.S.-based renewable energy company specializing in foundation technology and services used in utility-scale ground-mount applications for solar power generation.

Ojjo has 2 products on their website. One is their trusses and the other is a drilling machine. I’m don’t know how good these technologies are. Not sure if this purchase was the cause of the sell off on Friday or not as well.

Nextracker is the leader in market share in Brazil at 38%. Nextracker has been in Brazil for 8 years but they are expanding their team in Brazil by 67% in 2024. Company does not expand its footprint in a country by 67% if they are expecting revenues to slow down. As someone who lives in Brazil, solar is everywhere.

Mentioned by the CFO at the JPM Energy Conference. “As we drive cost reduction, we pass on part of that to our customers. With our differentiation and great products, we’re able to maintain margins and protect our margins. I’m a real firm believer in protect the operating margins.”

Lots of interesting points in that conference but the new CFO is very bullish on the outlook of the company in the next few years.

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That still leaves me with a concern that pricing pressure is dragging down the revenue impacts of TAM expansion and their market-share gains. And that’s despite the already-low gross margin.

I love that quote “the steepest drop in the price of basic factors of production that the world has ever seen”; that is certainly a potential wake-up call imo. If it’s true, the entire globe is about to see a MASSIVE increase GDP, driven by cheap solar energy…on top of the massive increase in GDP we are about to see from HPC.

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WPR,
Thanks for this idea!
My residential solar panels generate more than enough power for my family and I am a net seller of electricity. I owned a Taycan for 3+ years until the realities of taking long trips in an EV with an immature charging network outweighed the benefits of free charging from my panels. So I am a supporter of solar power generally.

What I was looking for and admittedly, I perused this thread quickly, was a TAM calculation for this product, not solar spending overall. Reason being my panels, for example, are fixed - the do not follow the sun over the course of a day. My south and east facing panels fire up early in the day and reach peak production around noon, when my west facing panels are just hitting their stride.
Of all solar panel installations, what percentage are able to adopt this sun tracking technology? Apologize if I missed it.
Vince

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Nextracker provides intelligent solar tracker solutions for utility-scale and distributed generation projects to transform PV plant performance.

So mostly this is going to go on new solar projects that are being built. But you won’t see it on residential.

Andy

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Andy,
I get that - so the question is what % of total solar demand is commercial.
Vince

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Solar is broken into 3 main categories.
Residential, Commercial/Industry, and Utilities.
I believe the goal of your question was to try and see who can use Nextracker. Which would be the Commercial/Industry and Utilities sections. Because Commercial and industry tend to have flat roofs.

Utility saw 18.4 GW installed in the States in 2023. Projections indicate nearly double the growth in 2024 with 36.4 GW. Commercial solar saw 2 GW. Residential solar saw 6.8 GW.

So the time is now for NXT and other commercial/utility solar energy companies. Those that deal mostly with residential are facing headwinds as the high interest rates and shifting subsidies.

Drew
Long NXT

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In 2018, 70% of all new utility scale PV used solar tracker devices. In 2022, 94% of utility level scale solar PV used a tracker. So it’s basically now 100% of all new solar at large scale uses trackers.

In 2022, Nextracker had approximately 30% of the market, and by 2024 it was recently estimated they have 32.34% of the market. It’s market share is going up incrementally over the years. It seems like it’s a huge TAM for Nextracker if all the new solar plants use trackers and they have 30% of the market gaining more efficiencies as they scale bigger.

A large part of Nextracker sales are not sold to utility companies at least directly. EPCs (Engineering, Procurement, and Construction) make up 75% of Nextracker sales. Some portion of these sales are electric companies hiring an EPC rather than build it themselves for liability reasons.

It’s documented that 80% of EPC projects are made up the federal government, municipals, universities, schools, and hospitals. I’m guessing that a lot of the end customer sales are coming from the state and federal level domestically, and it’s probably a similar situation overseas with governments paying for some portion or all of the solar plant.

A good example case is the Arizona Public Services who worked with EPCs on numerous large scale solar facilities.

On industrial versus residential, they are somewhat different use cases. In the home use case, the homeowner is paying and it’s not that important if some of the energy is lost or wasted. For the utility level company they want to measure wattage per square foot, and the more the better. This infographic make give a sense of some of the trade offs,

solar - utility and residential
solar - utility and residential1506×1252 201 KB

Overall it seems like solar trackers are going into every industrial solar plant around the world. Nextracker is the clear leader in the space within a growing industry where they are building distance from their nearest competitors on both innovation and cost.

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WPR, Drew,
Appreciate your responses. Looking to open a small position.

Vince

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Wanted to expand on the unit economics of Nextracker, and the Arizona Public Services.

Using AI to get some approximate answers of the scale of solar plants and how the Nextracker sales improve overall yield,

  • A 100 MW solar plant built by an EPC in the United States is estimated to cost 90-130M
  • A 100 MW solar plant takes up 400-450 acres, or 17M-21M sqft
  • Adding a solar tracker to a solar panel increases the cost of the panel between 10-30% depending on which tracker (there are single and double axis trackers)
  • The increased wattage yield from adding a tracker is between 15-40% also depending on the tracker

In practice it works like a 100 MW solar plant that would have cost $100M without trackers would cost $110M but now yield 120 MW. While it sounds very incremental at first glance, it makes sense for these projects to always add the tracker.

There are other intangibles to the tracker, such as avoiding hail damage which regular equipment cannot do. Additionally, Nextracker devices now can make the solar plants up to 30% more carbon efficient. Pointing this out because not all of the gains from using a tracker on the solar panel is because of increased wattage.

The Arizona Public Services using solar panels built with Nextracker tracker devices.

From September 2023, the Arizona Public Services,

This summer, APS flipped the switch on its largest solar power plant. The Agave Solar Plant southwest of Phoenix is providing 150 megawatts (MW) of capacity to the APS electric system. That’s enough power for 24,000 homes.

“With 400,000 panels tracking the sun across the sky, soaking it up and converting it into electricity for customers, Agave Solar Plant is a new resource in our energy mix. Combined with other renewables and Palo Verde Generating Station, the largest nuclear plant and clean energy resource in the country, APS is already more than 50% clean today”, said APS President Ted Geisler. “Most importantly, we are transitioning to 100% clean in a manner that prioritizes reliability and affordability, maintaining a balanced energy supply to ensure customers have the power when they need it most.”

Here’s an article detailing the building of the Agave Solar Plant and shows adding the trackers. The article details below,

Workers will assemble, install and wire horizontal Nextracker single-axis trackers supporting approximately 424,000 First Solar Series 6 modules. U.S. solar tracker manufacturer Nextracker recently expanded and reconfigured a facility from Atkore in Phoenix with a production line dedicated to Nextracker. The facility is producing steel tracker components for utility-scale solar projects, including for the Agave Solar Plant. In addition, the Agave Solar project is using Sungrow Inverters, ABB inverter transformers and working with trade partners at Blount Contracting for civil work and American Fence for fencing the project.

Here’s another story about Nextracker in Arizona,

Looks like Nextracker is going into the next round of Arizona solar plants as well.

The 220 MWdc solar and 214 MWac / 855 MWh Serrano solar-plus-storage project will also feature Powin’s BESS, Sungrow inverters, and Nextracker trackers… Nextracker is supplying trackers for the project and Sungrow is supplying the solar inverters.

What’s nice about this business model is it’s win-win for everybody. Nextracker increases the yield of the plant and is more green. The utility company gets to promote they are switching to clean and green energy. The EPC company takes credit for revitalizing the industrial economy domestically.

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296  289  292  318
341  339  338  440
403  467  513  518
480  573  710  737

That’s the full 4-year revenue history. While the last 2 quarters look great, I would point out that YoY growth in Q3 last year (from 338m to 513m) was 52%…and then they grew at sub-20% for a couple quarters. It’s lumpy.

They had some adjustments (including a big one from tax credits helping them in Q4), so the adj EBITDA was:

84 → 110 → 168 → 160

A little flatter, and Q4 actually took a step back rather than exploding higher. And in the call they discussed how their adjusted Gross Margin was 30% in Q3 and Q4, but that they’d be lowering prices and even with the tax credits they only expect a high-20’s GM this coming year. They talked about expected pricing pressure.

For the full year, GM was 28% of revenue and EBITDA was 21% of revenue. Sounds unlikely they’ll wring out more in either place. So profits will grow about like revenue does.

That is awesome news for volumes, but I think they’ve probably already seen some of this included in Q4 (ending March) revenue, and probably Q3 (Q ending December) too…installer customers buying stuff in Oct-Dec that would be actually installed in 2024. These were NXT’s two $700m+ revenue quarters, a big jump. Seems plausible this 2024 demand was part of that.

Revenue grew 21.9% in f2022, 30.5% in f2023, and 31.4% in f2024. If they can grow that fast again, and keep margins, I would expect the stock to do pretty well. It’s just maybe not as exciting as I’d hoped it would be when I started looking into it. With a PE in the teens, it’s not crazy expensive, so you could hope for a little multiple expansion, but I wouldn’t bet on it with a solar stock, as investors probably won’t overlook the always-falling sales prices in the solar world.

That pricing pressure is what will keep me out, but to anyone who wades in, I hope they crush it for you!

And this goes without saying, but please correct me if I’m missing something!

Bear

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