TIGO ENERGY INC

Previous wording

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto included in our 2023 Annual Report. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors” in the 2023 Annual Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us,” “the Company” or other similar terms refer to the business and operations of Tigo Energy, Inc. and its subsidiaries prior to the Business Combination (“Legacy Tigo”) and Tigo Energy Inc. following the consummation of the Business Combination. References to “ROCG” refer to Roth CH Acquisition IV Co. prior to the consummation of the Business Combination.

Current wording

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto included in our 2023 Annual Report. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q, including those set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors” in the 2023 Annual Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us,” “the Company” or other similar terms refer to the business and operations of Tigo Energy, Inc. and its subsidiaries prior to the Business Combination (“Legacy Tigo”) and Tigo Energy Inc. following the consummation of the Business Combination. References to “ROCG” refer to Roth CH Acquisition IV Co. prior to the consummation of the Business Combination.

Previous wording

Demand for Products. The demand for our products in Europe and the United States experienced a notable slowdown beginning in the second quarter in 2023 and continued into the first quarter of 2024. In Europe, the slowdown was primarily due to elevated inventory levels with distributors and an overall channel inventory correction as they responded to a slower demand environment. Additionally, there has been uncertainty surrounding the net energy metering policies and solar export penalties in the European markets, such as Germany, Belgium, Italy and the United Kingdom, which also contributed to the overall slowdown in demand in Europe. In the United States, the slowdown was primarily attributable due to higher interest rates than recent prior periods and the transition from the second iteration of net metering (“NEM 2.0”) to the third iteration of net metering (“NEM 3.0”) in California. The factors noted above have led to elevated inventory levels with distributors and installers in both regions. Given these factors, revenues have been, and may continue to be, adversely affected in 2024.

Current wording

Demand for Products. The demand for our products in Europe and the United States experienced a notable slowdown beginning in the second quarter in 2023 and continued into the first half of 2024. In Europe, the slowdown was primarily due to elevated inventory levels with distributors and an overall channel inventory correction as they responded to a slower demand environment. Additionally, there has been uncertainty surrounding the net energy metering policies and solar export penalties in the European markets, such as Germany, Belgium, Italy and the United Kingdom, which also contributed to the overall slowdown in demand in Europe. In the United States, the slowdown was primarily attributable due to higher interest rates than recent prior periods and the transition from the second iteration of net metering (“NEM 2.0”) to the third iteration of net metering (“NEM 3.0”) in California. The factors noted above have led to elevated inventory levels with distributors and installers in both regions. Given these factors, revenues have been, and may continue to be, adversely affected in 2024.

Previous wording

We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe the operating and financial metrics presented are useful in evaluating our operating performance, as they are similar to measures used by our public competitors and are regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects.

Current wording

We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe the operating and financial metrics presented are useful in evaluating our operating performance, as they are similar to measures used by our public competitors and are regularly used by securities analysts, institutional investors, and other interested parties in analyzing operating performance and prospects.

Previous wording

Net revenue decreased by $40.3 million or 80.4% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to the solar industry experiencing a broad-based slowdown in both the U.S. and European markets, that resulted in elevated inventory with distributors and installers, and as a result the overall demand for our products and services decreased as distributors and installers responded to this slower demand environment. In the Americas region, this slowdown was primarily the result of higher interest rates and the transition from NEM 2.0 to NEM 3.0 in California. In the EMEA region, this slowdown was primarily the result of a decrease in customer purchases in Europe after a surge of sales were realized in 2022 and going into the first half of 2023 due to higher energy prices in Europe related to the onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction.

Current wording

Net revenue decreased by $56.1 million or 81.5% for the three months ended June 30, 2024, and by $96.4 million or 81.1% for the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases are primarily due to the solar industry experiencing a broad-based slowdown in both the U.S. and European markets, which resulted in elevated inventory with distributors and installers, and as a result the overall demand for our products and services decreased as distributors and installers responded to this slower demand environment. In the Americas region, this slowdown was primarily the result of higher interest rates and the transition from NEM 2.0 to NEM 3.0 in California. In the EMEA region, this slowdown was primarily the result of a decrease in customer purchases in Europe after a surge of sales were realized in 2022 and going into the first half of 2023 due to higher energy prices in Europe related to the onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction.

Previous wording

EMEA - Net revenue for the EMEA region decreased by $34.5 million or 85.6% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a slowdown in demand in the region due to elevated inventory levels at distributors and installers.

Current wording

EMEA - Net revenue for the EMEA region decreased by $48.1 million or 87.3% for the three months ended June 30, 2024, and by $82.6 million or 86.6% for the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases are primarily due to a slowdown in demand in the region due to elevated inventory levels at distributors and installers.

Previous wording

Americas - Net revenue for the Americas region decreased $4.2 million or 60.8% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to demand for our solutions slowing as a result of higher interest rates impacting customers’ investment decisions and the transition from NEM 2.0 to NEM 3.0 in California.

Current wording

Americas - Net revenue for the Americas region decreased by $8.3 million or 74.6% for the three months ended June 30, 2024, and by $12.6 million or 69.4% for the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases are primarily due to demand for our solutions slowing as a result of higher interest rates impacting customers’ investment decisions and the transition from NEM 2.0 to NEM 3.0 in California.

Previous wording

Cost of revenue decreased by $24.7 million or 77.8% and gross profit decreased by $15.6 million or 84.9% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an 80.4% decrease in net revenue for the three months ended March 31, 2024 compared to the same period in 2023.

Current wording

Cost of revenue decreased by $34.1 million or 79.4% and gross profit decreased by $22.0 million or 85.1% for the three months ended June 30, 2024, compared to the same period in 2023. Cost of revenues decreased by $58.7 million or 78.7% and gross profit decreased by $37.6 million or 85.0% for the six months ended June 30, 2024, as compared to the same period in 2023. The decreases are primarily due to an 81.5% and 81.1% decline in net revenues for the three months and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

Previous wording

Gross margin decreased by 8.5% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to sales promotions and discounts related to the Company’s GO ESS product line.

Current wording

Gross margin decreased by 7.2 percentage points for the three months ended June 30, 2024, and by 7.7 percentage points for the six months ended June 30, 2024, as compared to the same periods in 2023. The decreases are primarily due both to lower sales volume due to the unfavorable macroeconomic and market conditions noted above and sales promotions and discounts related to the Company’s GO ESS product line.

Previous wording

Research and development expense increased by $0.3 million or 11.6% for the three months ended March 31, 2024, as compared to the same period in 2023. Research and development expense as percentage of net revenue increased to 25.2% for the three months ended March 31, 2024, compared to 4.4% for the same period in 2023. The overall increase was primarily driven by higher personnel-related expenses attributable to higher personnel-related stock-based compensation expenses, in addition to an increase in consulting expense. The amount of research and development expenses may fluctuate from period to period due to differing levels and stages of development activity.

Current wording

Research and development expense increased by $0.5 million or 11.6% for the six months ended June 30, 2024, as compared to the same period in 2023. The increase was primarily driven by an increase in consulting and facility expenses. Research and development expense as percentage of net revenue increased to 23.0% for the six months ended June 30, 2024, compared to 3.9% for the same period in 2023 which is primarily due to a decrease in net revenue during the six months ended June 30, 2024, compared to the same period in 2023.

Previous wording

Sales and marketing expense remained consistent for the three months ended March 31, 2024, as compared to the same period in 2023. Sales and marketing expense as a percentage of net revenue increased by 37.5% primarily due to a decrease in net revenues for the three months ending March 31, 2024 compared to the same period in 2023.

Current wording

Sales and marketing expense decreased by $1.1 million or 21.5% for the three months ended June 30, 2024, as compared to the same period in 2023. The decrease is attributed to reduced payroll and travel expenses resulting from a lower headcount during the three months ended June 30, 2024, compared to the same period in 2023. Sales and marketing expense as a percentage of net revenue increased by 24.4% primarily due to a decrease in net revenues for the three months ending June 30, 2024, compared to the same period in 2023.

Previous wording

Interest expense increased by $2.0 million or 263.2% for the three months ended March 31, 2024, as compared to the same period in 2023. This increase is primarily due to the amortization of the debt discount of $23.5 million that was recorded upon the bifurcation of the conversion options at the time of the Business Combination. Please see Note 9, “Long-Term Debt,” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the conversion options.

Current wording

Interest expense increased by $1.3 million or 80.3% for the three months ended June 30, 2024, as compared to the same period in 2023. This increase is primarily due to the timing of the amortization of the debt discount of $23.5 million that was recorded upon the bifurcation of the conversion options at the time of the Business Combination. Please see Note 9, “Long-Term Debt,” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the conversion options.

Previous wording

Other income, net decreased $0.3 million or 61.5% for the three months ended March 31, 2024, as compared to the same period in 2023. This decrease is primarily due to a decrease in interest income from the Company’s marketable securities, as the underlying asset base generating interest income decreased during the three months ended March 31, 2024 compared to the same period in 2023.

Current wording

Other income, net decreased $0.7 million or 99.9% for the three months ended June 30, 2024, as compared to the same period in 2023. This is primarily due to a decrease in interest income from the Company’s marketable securities, as the underlying asset base generating interest income decreased during the three months ended June 30, 2024, compared to the same period in 2023.

Previous wording

Change in fair value of preferred stock warrant and contingent shares liability decreased by $0.7 million or 138.3% for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a decrease in mark-to-market expense associated with the contingent shares related to the fSight acquisition.

Current wording

Change in fair value of preferred stock warrant and contingent shares liability decreased by $3.3 million or 105.0% for the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in mark-to-market expense associated with the contingent shares related to the fSight acquisition.

Previous wording

The loss on debt extinguishment for the three months ended March 31, 2023, is primarily related to the repayment of our Series 2022-1 Notes.

Current wording

The loss on debt extinguishment for the six months ended June 30, 2023, is primarily related to the repayment of our Series 2022-1 Notes.

Previous wording

Our principal sources of liquidity are cash, cash equivalents and marketable securities. As of March 31, 2024, the Company held $21.9 million in cash, cash equivalents and marketable securities which were held primarily for working capital purposes. Our working capital, which we define as current assets less current liabilities, decreased by $4.1 million to $74.2 million as March 31, 2024 compared to $78.3 million as of December 31, 2023. The decrease in working capital during this period is primarily attributable to lower marketable securities and inventory balances, and is partially offset by a decrease in accounts payable and accrued expenses and other current liabilities. During the first quarter of 2024, revenues stabilized on a sequential quarter basis but declined on a year over year basis. While we have been actively working on reducing our inventory levels, these efforts will depend on our ability to increase future quarterly revenues, maintain a minimal level of inventory purchases with suppliers, and our ability to recover the book value of inventory. In the first quarter of 2024, we reduced our inventory levels by $5.6 million from December 31, 2023, and expect lower inventory levels and positive working capital cash conversion throughout the remainder of 2024. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Current wording

Our principal sources of liquidity are cash, cash equivalents, restricted cash and marketable securities. As of June 30, 2024, the Company held $20.4 million in cash, cash equivalents, restricted cash and marketable securities which were held primarily for working capital purposes. Our working capital, which we define as current assets less current liabilities, decreased by $10.7 million to $67.6 million as of June 30, 2024, compared to $78.3 million as of December 31, 2023. The decrease in working capital during this period is primarily attributable to lower marketable securities and inventory balances and is partially offset by a decrease in accounts payable and accrued expenses and other current liabilities. Revenues stabilized on a sequential quarter basis in both the first and second quarters of 2024 but declined on a year over year basis. While we have been actively working on reducing our inventory levels, these efforts will depend on our ability to increase future quarterly revenues, maintain a minimal level of inventory purchases with suppliers, and our ability to recover the book value of inventory. In the first half of 2024, we reduced our inventory levels by $10.1 million from December 31, 2023, and expect lower inventory levels and positive working capital cash conversion throughout the remainder of 2024. We believe that our cash position is sufficient to meet our capital and liquidity requirements for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q.

Previous wording

Management closely monitors expenditures and is focused on obtaining new customers and continuing to develop our products and services. Cash from operations and our liquidity could also be affected by various risks and uncertainties, including, but not limited to, economic concerns related to interest rates, inflation or the supply chain, including timing of cash collections from customers and other risks which are detailed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors” in the 2023 Annual Report.

Current wording

Management closely monitors expenditures and is focused on obtaining new customers and continuing to develop our products and services. Cash from operations and our liquidity could also be affected by various risks and uncertainties, including, but not limited to, economic concerns related to interest rates, inflation or the supply chain, including timing of cash collections from customers and other risks which are detailed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q, including in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors” in the 2023 Annual Report.

Previous wording

Operating cash flows consists primarily of net loss adjusted for certain non-cash items and changes in operating assets and liabilities. Cash used in operating activities increased by $6.2 million for the three months ended March 31, 2024, as compared to the same period in 2023, which was primarily driven by a higher net loss in the first quarter of 2024 compared to the same period in 2023, which is a result of the negative macroeconomic factors that are noted above. The increase in net cash used in operating activities was partially offset by increases in non-cash expenses related to stock-based compensation and accretion of interest expense.

Current wording

Operating cash flows consists primarily of net loss adjusted for certain non-cash items and changes in operating assets and liabilities. Cash used in operating activities increased by $7.9 million in the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to an increased net loss for the six months ended June 30, 2024 compared to the same period in 2023, which is a result of the negative macroeconomic factors that are noted above, in addition to an increase in non-cash items during the six months ended June 30, 2023, primarily due to the change in fair value of the derivative liability, contingent shares liability and preferred stock warrants.

Previous wording

Cash Flows Used in Investing Activities

Current wording

Cash Flows Provided by (Used in) Investing Activities

Previous wording

Net cash provided by financing activities decreased by $28.4 million in the three months ended March 31, 2024, compared to the same period in 2023. For the three months ended March 31, 2024, we received proceeds of $0.3 from the exercise of stock options by employees. For the three months ended March 31, 2023, we received proceeds of $50.0 million from the Convertible Promissory Note, which was partially offset by the $20.8 million repayment of the Series 2022-1 Notes.

Current wording

Net cash provided by financing activities increased by $30.8 million in the six months ended June 30, 2024, compared to the same period in 2023. For the six months ended June 30, 2024, the Company received proceeds of $0.3 million from the exercise of stock options by employees. For the six months ended June 30, 2023, the Company received proceeds of $50.0 million from the Convertible Promissory Note and proceeds of $2.2 million from the Business Combination, which was partially offset by the $20.8 million repayment of the Series 2022-1 Notes.