TIGO ENERGY INC

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 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.

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 has continued into 2024. Although our net revenue has increased on a sequential basis in each quarter of 2024, our quarterly and year-to-date results remain substantially lower than comparable periods of the prior year. 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. In response to these factors, we reduced staffing levels across all geographies in December 2023 by approximately 15%, and in April 2024 by approximately 10%. In addition, our inventory levels have continued to remain elevated in 2024 compared to historical norms. As a result, we recognized charges of $3.4 million and $4.0 million to write down inventories to their estimated net realizable value for the three and nine months ended September 30, 2024, respectively. Further write-downs of inventories and additional cost reduction measures in future quarters could occur if market conditions do not improve or deteriorate.

Previous wording

Expansion of New Products and Services. We have made substantial investments in research and development and sales and marketing to achieve a leading position in our market and revenue growth. While a majority of our revenue is generated from the sale of our MLPE products, we intend to continue the development and promotion of our GO Energy Storage Systems (“GO ESS”) and Predict+ product and service lines.

Current wording

Expansion of New Products and Services. We have made substantial investments in research and development and sales and marketing to achieve a leading position in our market and revenue growth. While a majority of our revenue is generated from the sale of our MLPE products, we also generate revenue from our offerings of GO Energy Storage Systems (“GO ESS”) and Predict+ service, and the Company intends to continue developing and promoting these product and service lines.

Previous 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.

Current wording

EMEA - Net revenue for the EMEA region decreased by $1.6 million or 15.6% for the three months ended September 30, 2024, and by $84.2 million or 79.7% for the nine months ended September 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. 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

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.

Current wording

Americas - Net revenue for the Americas region decreased by $0.6 million or 17.8% for the three months ended September 30, 2024, and by $13.3 million or 60.9% for the nine months ended September 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

APAC - Net revenue for the APAC region increased by $0.3 million or 11.9% for the three months ended June 30, 2024, and decreased by $1.2 million or 22.3% for the six months ended June 30, 2024, as compared to the same periods in 2023. Net revenue remained consistent for the three months ended June 30, 2024, compared to the same period in 2023. The decrease in net revenue for the six months ended June 30, 2024, compared to the same period in 2023 was primarily driven by a 66.1% decline in sales in China.

Current wording

APAC - Net revenue for the APAC region decreased by $0.6 million or 19.1% for the three months ended September 30, 2024, and decreased by $1.8 million or 21.1% for the nine months ended September 30, 2024, as compared to the same periods in 2023. The decrease in net revenue for the three months ended September 30, 2024, compared to the same period in 2023 is primarily due to an overall decline in sales in Asia of $1.3 million, which is partially offset by an increase in sales in Australia of $0.7 million. The decrease in net revenue for the nine months ended September 30, 2024, compared to the same period in 2023 was primarily driven by a $1.6 million decline in sales in China.

Previous 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.

Current wording

Cost of revenue decreased by $0.5 million or 3.7% and gross profit decreased by $2.4 million or 57.3% for the three months ended September 30, 2024, compared to the same period in 2023. Cost of revenues decreased by $59.2 million or 67.6% and gross profit decreased by $40.0 million or 82.6% for the nine months ended September 30, 2024, as compared to the same period in 2023. The decreases are primarily due to a 16.8% and 73.0% decline in net revenues for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decrease is offset by increases in inventory reserves of $3.4 million and $4.0 million during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023 due to slow-moving inventory as a result of the macroeconomic factors noted above.

Previous 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.

Current wording

Gross margin decreased by 11.8 percentage points for the three months ended September 30, 2024, and by 12.7 percentage points for the nine months ended September 30, 2024, as compared to the same periods in 2023. The decreases are primarily due to an increase in the Company’s inventory reserves due to slow-moving inventory, 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 remained consistent for the three months ended June 30, 2024, as compared to the same period in 2023. Research and development expense as percentage of net revenue increased to 21.3% for the three months ended June 30, 2024, compared to 3.5% for the same period in 2023 which is primarily due to a decrease in net revenue during the three months ended June 30, 2024, compared to the same period in 2023.

Current wording

Research and development expense remained constant for the three months ended September 30, 2024, as compared to the same period in 2023.

Previous 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.

Current wording

Research and development expense increased by $0.5 million or 7.7% for the nine months ended September 30, 2024, as compared to the same period in 2023. The increase was primarily driven by an increase in consulting and facility expenses.

Previous 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.

Current wording

Sales and marketing expense decreased by $1.2 million or 21.8% for the three months ended September 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 September 30, 2024, compared to the same period in 2023.

Previous wording

Sales and marketing expense decreased by $1.3 million or 12.9% for the six 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 six months ended June 30, 2024, compared to the same period in 2023. Sales and marketing expense as a percentage of net revenue increased by 30.1% primarily due to a decrease in net revenues for the six months ending June 30, 2024, compared to the same period in 2023.

Current wording

Sales and marketing expense decreased by $2.5 million or 16.1% for the nine months ended September 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 nine months ended September 30, 2024, compared to the same period in 2023.

Previous wording

General and administrative expense decreased by $4.1 million or 42.9% for the three months ended June 30, 2024, as compared to the same period in 2023. The decrease is primarily related to legal expense associated with the Business Combination that occurred during the three months ended June 30, 2023.

Current wording

General and administrative expense decreased by $2.0 million or 26.8% for the three months ended September 30, 2024, as compared to the same period in 2023. The decrease is primarily related to a decline of bad debt expense associated with the Company’s accounts receivable for the three months ended September 30, 2024, compared to the same period in 2023.

Previous wording

General and administrative expense decreased by $2.9 million or 22.1% for the six months ended June 30, 2024, as compared to the same period in 2023. The decrease is primarily related to legal expense associated with the Business Combination that occurred during the three months ended June 30, 2023, and is partially offset by an increase in personnel-related stock-based compensation expenses.

Current wording

General and administrative expense decreased by $4.9 million or 23.8% for the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease is primarily related to a decline of bad debt expense associated with the Company’s accounts receivable for the nine months ended September 30, 2024, compared to the same period in 2023, in addition to a decline in legal expense which were higher in 2023 due to the Business Combination that occurred in May 2023, and is partially offset by an increase in personnel-related stock-based compensation expenses.

Previous 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.

Current wording

Other income, net decreased $0.5 million or 74.2% for the three months ended September 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 September 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 $2.6 million or 98.4% for the three months ended June 30, 2024, as compared to the same period in 2023, primarily due to an increase in the fair value of the Series C convertible preferred stock and contingent shares related to the fSight acquisition. The Series C convertible preferred stock was converted to shares of Common Stock on May 23, 2023, as part of the Business Combination. See Note 3, “Merger with Roth CH Acquisition IV Co.,” 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.

Current wording

Change in fair value of preferred stock warrant and contingent shares liability decreased by $0.3 million or 206.3% for the nine months ended September 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. The final tranche of the contingent shares was released on July 25, 2024. See Note 4, “Acquisition of Foresight Energy, Ltd.,” 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.

Previous wording

The change in fair value of derivative liability for the six months ended June 30, 2023, is related to the Convertible Promissory Note which contained conversion options that met the requirements for separate accounting and was accounted for as a convertible note derivative liability. The derivative instrument was recorded at fair value upon recognition on the Merger Date and was subject to remeasurement at the end of the reporting period. On September 24, 2023, we entered into the Convertible Note Amendment (as defined above) with L1 Energy (as defined above) to modify the conversion terms of the Convertible Promissory Note and, as a result of such amendment, the conversion options no longer meet the requirements to be bifurcated in accordance with ASC Topic 815, Derivatives and Hedging. 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.

Current wording

The change in fair value of derivative liability for the nine months ended September 30, 2023, is related to the Convertible Promissory Note which contained conversion options that met the requirements for separate accounting and was accounted for as a convertible note derivative liability. The derivative instrument was recorded at fair value upon recognition on the Merger Date and was subject to remeasurement at the end of the reporting period. On September 24, 2023, we entered into the Convertible Note Amendment (as defined above) with L1 Energy (as defined above) to modify the conversion terms of the Convertible Promissory Note and, as a result of such amendment, the conversion options no longer meet the requirements to be bifurcated in accordance with ASC Topic 815, Derivatives and Hedging. 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.

Previous 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.

Current wording

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

Previous wording

Interest expense increased by $3.3 million or 140.5% for the six 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.

Current wording

Interest expense increased by $3.3 million or 63.1% for the nine months ended September 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 $1.0 million or 82.6% for the six 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 six months ended June 30, 2024, compared to the same period in 2023.

Current wording

Other income, net decreased $1.5 million or 79.7% for the nine months ended September 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 nine months ended September 30, 2024, compared to the same period in 2023.

Previous wording

Income taxes increased $10.9 million to an income tax expense of $16,000 for the three and six months ended June 30, 2024, compared to an income tax benefit of $10.9 million for the three and six months ended June 30, 2023, primarily due to the release of the valuation allowance against the Company’s U.S. federal net deferred taxes during the second quarter of 2023. Please see Note 15, “Income Taxes,” 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 valuation allowance release during the second quarter of 2023.

Current wording

Income tax expense decreased $11.0 million for the three months ended September 30, 2024, compared to the same period in 2023, which was primarily due to recording a valuation allowance against the Company’s U.S. federal net deferred tax asset during 2023. Please see Note 15, “Income Taxes,” 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 valuation allowance.

Previous 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.

Current wording

Our principal sources of liquidity are cash, cash equivalents and marketable securities. As of September 30, 2024, the Company held $19.5 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 $19.5 million to $58.8 million as of September 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 over the first three quarters of 2024 but declined on a quarter over quarter and year over year basis.

Previous wording

In the future, our ability to sustain operations and invest in new technologies may necessitate seeking additional equity or debt financing. Our capital needs will be influenced by several factors, including our revenue growth rate, the success of our future product development and capital investments, and the timing and extent of spending to support further sales and marketing and research and development efforts. In addition, we have incurred and expect to continue to incur additional costs as a result of operating as a public company. In the event that additional financing is required from outside sources, we cannot be certain that any additional financing will be available to us on acceptable terms, or at all. If we are required but unable to raise additional capital or generate cash flows to sustain or expand our business, our business, operating results, and financial condition could be adversely affected.

Current wording

In the future, our ability to sustain operations, pay outstanding obligations, including repayment of the Convertible Promissory Note when due, and invest in new technologies will likely necessitate that we seek additional equity or debt financing. Our capital needs will be influenced by several factors, including the amount of our revenue and our revenue growth rate, the success of our current products and services and future product development and capital investments, and the timing and extent of spending to support further sales and marketing and research and development efforts. In addition, we have incurred and expect to continue to incur additional costs as a result of operating as a public company. The Company intends to secure additional funding from either public or private financing sources, however as the plans are outside of management’s control, the Company cannot ensure they will be effectively implemented. In the event that additional financing is required from outside sources, we cannot be certain that any additional financing will be available to us on acceptable terms, or at all. If we are required but unable to raise additional capital, meet our obligations, or generate cash flows to sustain our operations, meet our outstanding obligations, including repayment of the Convertible Promissory Note when due, or expand our business, our business, operating results, and financial condition could be adversely affected.

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 $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.

Current wording

Operating cash flows consists primarily of net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities. Cash used in operating activities decreased by $16.0 million in the nine months ended September 30, 2024, as compared to the same period in 2023. This is primarily due to a decrease in purchases of inventory for the nine months ended September 30, 2024, compared to the same period in 2023 as a result of the negative macroeconomic factors that are noted above.

Previous wording

Net cash provided by investing activities was $23.4 million for the six months ended June 30, 2024, which is primarily attributable to the sale and maturities of marketable securities. Net cash used in investing activities was $52.1 million for the six months ended June 30, 2023, which is primarily attributable to the purchase of marketable securities and property and equipment.

Current wording

Net cash provided by investing activities was $18.3 million for the nine months ended September 30, 2024, which is primarily attributable to the sale and maturities of marketable securities and was partially offset by the purchase of additional marketable securities and property and equipment. Net cash used in investing activities was $40.9 million for the nine months ended September 30, 2023, which is primarily attributable to the purchase of marketable securities and property and equipment and was partially offset by the sale and maturities of marketable securities.

Previous 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.

Current wording

Net cash provided by financing activities decreased by $34.7 million in the nine months ended September 30, 2024, compared to the same period in 2023. For the nine months ended September 30, 2024, the Company received proceeds of $0.3 million from the exercise of stock options by employees. For the nine months ended September 30, 2023, the Company received proceeds of $50.0 million from the Convertible Promissory Note, proceeds of $3.7 million from the redemptions of common stock warrants 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.