@stenlis I’m in agreement with your take on the earnings and sold out after this report. There were a few red flags for me on this report and some yellow ones.
The biggest problems I saw,
- The CEO barely spoke before going into Q&A, and this compares to last quarter when there was almost 25 minutes of commentary from leadership! There’s a new CFO who was “participating” in the Q&A but he barely spoke. They moved everything to the shareholder letter, and I don’t like this move at all. It was not even explained by the CEO they were making this move to jam everything into the shareholder letter
- This is a company which has prided themselves on beating and raising guidance every quarter since being public and even with this quarter coming in well above street expectations guidance is completely flat
- As you mentioned they said Q2 will be mid single digits growth, but the comp is against 573M for the next quarter, and 10% year over year would be 630M, so they are guiding to the low 600s on revenue which would be a significant sequential decline. They also mentioned the next couple quarters are going to be more international, and like you pointed out this isn’t like they build the project on demand and move to the next, the backlog is filled out already
- There’s 47M in tax credits this quarter, and 121M was recognized last quarter in a one time transaction. This makes apples to apples comparisons on revenue challenging.
- They seem to start differentiating solar projects now on just “solar” and “solar + storage” when talking about queue positions in the USA. Maybe this was a misunderstanding on my part but I don’t think they were calling out this subtlety before.
Then there were a number of items which were smaller concerns for me but left questions,
- They are talking about getting a product to 100% US manufactured, because this gives an additional 10% tax credit. However, they mention reaching this in calendar 2025, exactly when there is guaranteed to be a new US administration. We don’t know how a new administration will change or keep the regulations.
- Two companies were acquired, Ojjo and Solar Pile International which make part of the base component going into the ground. Nextracker has partnered with Ojjo before and Ojjo was poorly capitalized so this seems like a good fit. However, I was more under the impression Nextracker has the innovation with their engineers in house to be able to build a top notch solution without going to the multiple acquisition route.
- The company is mentioning the headwinds more this quarter on the schedule of projects for construction permits and interconnection delays, and that it is “taking longer for projects”
- They mentioned “higher supply chain costs”
There were a few bright spots by not nearly enough to outweigh my concerns,
- International regulations are favorable in the EU with the regulation REPowerEU. Also India, Brazil, Australia and Canada all have favorable regulations they said
- The Agrivoltaics or AgriPV solution sounds interesting. It allows farm land to be turned into a solar farm while allowing for nature to be there as well. They mentioned a farm which had 1,500 sheep grazing but also solar panels installed
- The two acquisitions will allow the company to be more vertically integrated and have a 100% US supply chain, which is probably good for some end customers in the long run who want to buy US made
Overall I was disappointed they didn’t raise guidance. I thought the move to put all the commentary for the business in the shareholder letter was an awful decision and makes the company less shareholder friendly. It was the CFO’s first full quarter and we got no information about what metrics he’s focused on.