Nextpower, Inc. Q2 FY2025 earnings call

• CEO Dan Shugar noted strong execution across products, sales, operations. • Upcoming U.S. election impact on solar: believed solar will grow regardless, as energy projects are economic. • Q2 had strong revenue growth, record backlog, new products launched, third global design facility opened, 100% U.S. manufactured tracker available, Foundation acquisitions on track. • Team has sector expertise, robust supply chain, good customer service. • R&D investments led to new products. • 13-acre facility in Hyderabad with state-of-the-art lab for PV tech incubation.

Q2 was a strong quarter with seventh consecutive quarter of double-digit revenue growth. First half of fiscal '25 had record revenue, up 29% y-o-y. Backlog increased to over $4.5 billion. New products like NX Horizon, NXTR 1.5, etc. were launched. Third global design facility in Hyderabad, India opened. 100% domestically manufactured tracker available for shipment this quarter. Two Foundation business acquisitions on track for integration. Revenue contribution: ~2/3 U.S. domestic, ~1/3 rest of world.

• Raised profit target for full fiscal year by $20 million at midpoint to $645 million. • Expect fiscal 2026 to be growth year with legacy products and new offerings. • Backlog of $4.5 billion provides confidence for growth. • Q4 expected to be robust with significant projects scheduled. • Will provide more color on FY '26 revenue plan in subsequent calls.

• Potential impact of election on solar market, but company believes growth will continue regardless. • Mix of regions with varying pricing and margins. • Shifts in project schedules on a project-by-project basis. • Uncertainties in international market competition. • Dependence on capital for large solar projects. • R&D and OpEx investments for software and new technologies have associated risks.

Q: Congrats on the very strong quarter. Wanted to check in on the bookings. Our math suggests bookings were close to, if not greater than $1 billion for the quarter. I was wondering if you could talk through what the margin profile looks like for the bookings.

A: Howard Wenger said 2/3 of business is U.S. domestic, 1/3 rest of world. New bookings mix consistent with that. Margin profile in line with profitability. Yes, have MSAs, VCAs in bookings.

Q: You mentioned that you expect to realize 90% of the backlog in eight quarters. So, I think that's a slight improvement from last quarter where you said you expect to realize 80% of the backlog in eight quarters. Can you talk about what's helping shrink that timeline?

A: Howard Wenger said it's both with shorter orders horizons from both U.S. and international contributing to backlog increase and metric improvement.

Q: Congrats on the quarter. On Page 5 of the shareholder letter, you talked about double-digit growth, revenue growth in fiscal '25, but then the growth in fiscal '26 -- maybe I'm splitting hairs here, but is there a reason that you're stopping short of saying double-digit growth in fiscal '26?

A: Dan Shugar said will provide more color on FY '26 revenue plan in subsequent earnings calls. Company in strong position with $4.5 billion backlog, multiple regions growing, but will provide more detailed info later.

Q: Can you please speak a little bit about some of the competitive dynamics, what we're seeing in terms of customer behavior, also ahead of elections versus rushing to kind of get some of the domestic product through the door. And then also a little bit about your new customer wins, is that more in the U.S. versus international?

A: Howard Wenger said strong demand across major regions, flight to quality for Nextracker due to differentiated tracker, strong balance sheet, and value proposition. New customer wins across regions, not just U.S.

Q: I thought maybe I would hit on margins. So, you guys are doing well above the high 20s guidance. And I realize this is the full year guide, and I know your mix shift to the U.S. is slightly higher than the 2/3 year-to-date. And I think your shareholder letter also talks about software coming in better at 2%. But other than that, is there anything else you would point to, to bridge the gap on where in the cost structure you might be doing better than you expected? Or alternatively, anything that should bring gross margins down in the back half of this year, other than the mix shift shifting back towards rest of world? And just lastly, when you say structural gross margin, can you help us better understand what that definition is?

A: Chuck Boynton said Q1 and Q2 strong due to execution, TrueCapture uptake, 45x benefits, and higher U.S. project share. Back half may have more competitive markets. Structural margin is average margin if blending 2/3:1/3 international:U.S. mix, expected to be high 20s to low 30s.

Q: Just a couple of questions I had. Just on the software piece, can you kind of speak to -- I don't know if you think about it in terms of attach rate, but this is the first time你 guys broke out the percent of sales, it seems like it could be an opportunity going forward. I remember you talking to this at the time of the IPO that was probably too small to break out. So just a sense of how you guys think about attach rate? And then maybe if you can quantify kind of the margin uplift, I mean, compared to the high 20% structural growth? Like where is software coming in at? And in situations where you aren't able to get a customer to sort of sign up for TrueCapture, what are some of the drivers there outside of maybe just the incremental cost?

A: Dan Shugar said attach rate of TrueCapture has increased, over 300 projects commissioned with it. TrueCapture has different revenue recognition. Chuck Boynton said software has higher R&D costs, high gross margin but with OpEx in R&D line. Uptake depends on customer comfort and feature release.

Q: Peer spoke on their earnings call last night. They're talking about shipping modules to warehouses for customers who aren't yet ready to accept the product. I don't know if you guys listen to that call, but just two questions on that is, have you seen any impact on your projects in your backlog specifically from those actions? And can you also just remind us what kind of recourse do you have when it comes to exercising contractual delivery rights should it be necessary?

A: Howard Wenger said impact is limited, project schedules shifting on a project-by-project basis but not concerted. Company manages flows based on project diversity. Recourse includes contractual delivery rights as per agreements.

Q: First, just on the revenue cadence. I think in the new that you've pointed to flattish in Q3. It's how this Q4 weighted. So, if you just talk about how many book and billings you still need to do for Q4 or the second half? And separately, on the structural margins or ratio of that, could you just talk about the structuring OpEx you expect? I think你 talked about higher OpEx in Q3, Q4 for R&D, but how should we think about that going forward?

A: Howard Wenger said solid FY '25 due to backlog. Q4 expected robust. Chuck Boynton said Q4 big quarter, pressure on supply chain. OpEx includes strategic R&D investments to deepen moat, with R&D spend increased in Q2 and planned to increase in Q3 and Q4.

Q: Turning to your 45x disclosure, I'd like to clarify. The 300 basis point uplift that you referred to is sort of the incremental credit. It does not refer to the totality of the 45x uplift. Am I reading your language correctly?

A: Chuck Boynton said 300 basis points was combination of TrueCapture, 45x and other, with 45x being part of it but not purely comparative year-over-year due to prior year GAAP only catch up.

Q: Great. Of all your instructions, just limit myself one. I'll also add my kudos to the quarter, the results. Just wanted to ask about project cancellations. You had mentioned last quarter, you had a customer who had canceled out. It was just a small customer. Just curious if you had anything like that this quarter?

A: Dan Shugar said no projects canceled this quarter, and the previous cancellation was one out of over 500 projects.

Q: Congrats on the quarter. So, my question is on NX Foundation. Just based on your analysis of your pipeline, I was wondering if you could discuss what proportion of sites fall under the definition of hard terrain that would be applicable to Ojjo? And then do you have any U.S. Foundation revenues, hard terrain or otherwise in fiscal '25? And then finally, when do you expect to start quantifying the Foundation backlog?

A: Dan Shugar said 20% to 30-plus percent of sites are difficult sites. Chuck Boynton said Q2 booked and reported revenue for Foundations, but dollars not significant this year, stay tuned for Analyst Day for more info.

Q: Perfect. Congratulations on the 100% U.S. domestic content capabilities. As you plan to ramp and ship that next year, just wondering if you could give us some thoughts or guidepost about what proportion of your U.S. business is that likely to be?

A: Dan Shugar said first 100% U.S. tracker scheduled for delivery this quarter. Proportion depends on customer needs and module mix, will address later.

Q: Just because the international opportunity is so big, and the U.S. opportunity is better margins. What do you guys optimize for? Sales growth or margin or EPS growth, cash flow?

A: Dan Shugar said optimized for growth profitably and accretively, evaluating new regions for accretiveness to the Company.

Q: I think Chuck, in an earlier comment -- in an earlier question, you talked to the efforts on the R&D side around expansion into new technologies and also into new markets. I just wanted to see if we could -- not to get into too many specifics, but any additional color we could get there on what sort of opportunities are attractive to you?

A: Dan Shugar said continuing to invest in R&D across mechanical, electronic, controls and software, with over 600 patents. Open to acquiring additive technologies, with R&D efforts focused on customer value and quantifiable monetization.

Q: Guys, can you hear me, okay? Just to follow up. Earlier on the U.S. content, how many points you qualifying for under the domestic content just to clarify the 100% product? And then just coming back to the margin question quickly here. Obviously, first half versus back half, as you think about that exit run rate in the back half year, is that kind of what you should be thinking about in terms of an EBITDA margin going forward for the remainder of that backlog? Or is the first half of this year really kind of a good indicator of what you can put up as you think about embedded in that backlog across the $4.5 billion?

A: Howard Wenger said 100% U.S. content tracker enables customers to qualify for ~24.7 points towards domestic content. Chuck Boynton said not going to provide outlook for next year today, factors like mix, TrueCapture attach rates, Foundations businesses affect EBITDA margin, more info at Analyst Day or Q4 call.