Tigo Energy, Inc. (TYGO) Q3 2026 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Tigo Energy's Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Joining us today from Tigo are Zvi Alon, CEO, and Bill Roeschlein, CFO. As a reminder, the call is being recorded. I would now like to turn the call over to Mr. Roeschlein. Please go ahead.

Thank you, operator, and it's a pleasure to join you today. Also with us is Zvi Alon, our CEO. I'd like to remind everyone that some of the matters we'll discuss today are forward-looking. These include our expected business and financial outlook, revenue, and adjusted EBITDA guidance for the fourth quarter of 2026, our outlook for the full year, demand for our products, pricing, our ability to improve operating performance and achieve sustained -- and sustainable profitability, market recovery, and long-term growth in the solar and solar storage markets, anticipated ramp of GO ESS and opportunities for our MLPE business, the timing and anticipated benefits of our U.S. optimized inverter program and manufacturing partnership, potential impacts of tariffs and regulatory actions, including U.S. restrictions on foreign-produced power inverters, 45X or ITC benefits and tariff refunds and recoveries, and our strategy to grow our product portfolio and international business. These statements are subject to known and unknown risks and uncertainties, including those described in today's earnings release and in our filings with the SEC. These risks and uncertainties could cause actual results to differ materially from the expectations expressed on this call. Forward-looking statements speak only as of the date made. During today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP net income or loss. Reconciliations to the most directly comparable GAAP measures are included in our earnings release, which has been furnished on Form 8-K. These measures are supplemental and should not be viewed as a substitute for or superior to GAAP results. Finally, I would like to remind everyone that this call is being webcast and a recording will be made available for replay on Tigo's Investor Relations website at investors.tigoenergy.com. With that, I'd like to now turn the call over to Tigo CEO, Zvi Alon. Zvi?

Thank you, Bill. I will begin with an overview of the third quarter results, including developments in our markets and our U.S. optimized inverter program. Bill then will review the financial statements, explain the items that affected our efforts, reported results, and discuss our balance sheet and outlook. I will return for closing remarks before we open the call for questions. Third quarter revenue was $24 million, within our guidance range of $24 million to $26 million. We also delivered GAAP net income of $0.4 million and adjusted EBITDA of $1.5 million, exceeding the high end of our adjusted EBITDA guidance range of $0.5 million. Three items affected our reported results this quarter: a tariff refund related to prior periods, bad debt expense and an income tax benefit. Adjusted EBITDA included a $0.8 million tariff refund and $0.4 million of bad debt expense. Bill will cover all 3 in a moment. Third quarter results reflected the 3 dynamics we outlined last quarter: a more global market -- a more gradual market recovery in Europe, a slower-than-anticipated ramp of GO ESS, and a shift of our U.S. optimized inverter partner's launch to the fourth quarter. We expect them to continue into the fourth quarter. EMEA revenue declined 14.8% year-over-year as the market continues to adjust to a reduced subsidy environment. EMEA accounted for 76.5% of third quarter revenue, with the Czech Republic and Germany, our 2 largest markets, representing 19.6% and 19.3% of revenue, respectively. Poland and Spain grew 41.2% and 103.2% year-over-year, while revenue declined significantly in Italy and the United Kingdom. In Germany, [Technical Difficulty] is not expected this quarter. Under the current draft, only systems connected by year-end keep today's 20-year tariff, but with the draft still pending, we believe customers are waiting instead of rushing to install. GO ESS revenue remained below our expectations during Q3. Adoption is progressing more gradually than we even expected, but we are continuing our efforts to broaden market penetration through installer engagement and geographic expansion. One example is our October announcement highlighting GO Optimized ESS at the Smart Energy Forum in Prague. That initiative builds on our established Czech installer relationship, supported by approximately 80 megawatts of Tigo technology deployed in local commercial and industrial systems since 2024. We see this as an opportunity to introduce our residential storage offering to an existing network, broadening our adoption and repeat sales will take time. However, in the U.S., we recognized approximately $0.8 million in revenue from shipments of our optimized inverter partner. We expect revenue to exceed the amount in the fourth quarter. Our domestic manufacturing strategy remains relevant in light of regulatory developments, including the FCC restriction on future authorization of certain foreign-produced power inverters. We see a potential opportunity to serve demand for U.S.-manufactured products, but we are not assuming that regulatory changes will translate into an immediate increase in shipments. We believe our near-term performance will depend on the execution of our partner's commercial launch. By region, the Americas and LATAM represented a combined 16.5% revenue. U.S. revenue declined 51.4% year-over-year as the residential solar market continues to adjust following the expiration of the Section 25D tax credit. Our results in the U.S. are being mitigated to some degree by our growth in sales to repower customers. APAC contributed 7.0% of revenue, and APAC revenue grew 56.3% year-over-year, led by 121.1% growth in Australia. Stepping back, the softness in residential solar is not only a German story. Italy has phased out net metering and its renovation bonuses. The Czech Republic cut household subsidies and introduced a 50% export cap earlier this year, and the U.S. is absorbing the expiration of the 25D credit. Together with a higher interest rate environment, the lengthened homeowner payback. We believe this is a broad reset in how residential solar is supported rather than a change in demand, for what our products do. The direction of policy, including low smart meter thresholds and caps on grid export, also increases the value of self-consumption and storage over time. Against this backdrop, higher power prices and growing electricity demand are expected to drive continued long-term growth in the solar industry. Global electricity demand is expected to continue to grow in 2027, and solar is expected to be the largest single contributor to the new electricity supply. In 2027, we plan to invest in growing markets, where we already succeeding, such as Eastern Europe and Australia, to extend our market share. In addition, we plan to continue extending our GO ESS products into the additional countries within the Eastern Europe region. Our priorities are to support customers, work with our partners to advance product commercialization, align expenses with the current revenue environment and preserve balance sheet flexibility. We have made solid progress on costs and working capital, but we recognize that sustained profitability will also require a more consistent revenue trajectory. And with that, I would like to turn it over to Bill. Bill?

Thank you, Zvi. Turning now to our financial results for the third quarter ended September 30th, 2026. Revenue for the third quarter was $24.0 million, compared with $30.6 million in the prior-year period, a decline of 21.5%. Sequentially, revenue declined 5.4% from $25.4 million in the second quarter. Third quarter revenue was within our previously stated guidance range. Within our product portfolio, MLPE represented $22.1 million, or 92% of quarterly revenue. We shipped approximately 698,000 MLPE units, representing 517 megawatts. GO ESS revenue was $1.3 million, or 5.4% of total revenue, compared with $2.2 million in the second quarter, primarily due to lower shipments in the United States and Italy. EI platform revenue represented $0.6 million, or 2.6% of total revenue, with Predict+ annual recurring revenue of approximately $1.8 million at quarter-end. Gross profit was $11.1 million, or 46.2% of revenue, compared with $13.1 million, or 42.7%, a year ago and $10 million, or 39.3%, in Q2 of '26. To put the margin in context, U.S. Customs and Border Protection approved certain claims related to IEEPA tariffs, paid in prior periods. We recognized $872,000 of refund-related amounts and interest as receivable during the quarter. Of this amount, $826,000 was recorded as a reduction to cost of revenue, increasing reported gross profit and gross margin. The remaining $46,000 was recorded as interest income in other income with no effect on gross margin. These refunds relate to prior periods, and the benefit should not be considered recurring. Operating expenses were $11.2 million, compared with $12.4 million in the prior-year quarter and $11.7 million in the second quarter of 2026. That represents decreases of 10% year-over-year and 4.3% sequentially, with reductions in R&D, sales and marketing, and G&A. General and administrative expenses included $410,000 of bad debt expense, including a charge related to a single European customer. Of that charge related to that customer, $250,000 is covered by credit insurance, and we expect to record a recovery in a future period. Operating loss was $77,000, compared with operating income of $649,000 a year ago and an operating loss of $1.7 million in Q2. The $826,000 tariff refund benefit in cost of revenue and $410,000 of bad debt expense in general and administrative expenses, both affected the reported result. GAAP net income was $361,000, compared with a GAAP net loss of $2.2 million in the prior-year quarter. This was our second consecutive quarter of reported GAAP net income. The result included a $0.3 million income tax benefit, and on a pre-tax basis, we were essentially breakeven. The year-over-year comparison also benefited from a materially lower interest expense as a result of the retirement of our convertible note. Non-GAAP net income was $1.6 million, compared with a non-GAAP net loss of $260,000 a year ago. This measure excludes stock-based compensation from GAAP net income or loss. Adjusted EBITDA was $1.5 million, compared with $2.9 million in the prior-year quarter and $52,000 in Q2. Adjusted EBITDA included the $826,000 tariff refund benefit and $410,000 of bad debt expense. The $46,000 of interest income related to the refund was recorded in other income and is excluded from adjusted EBITDA. Sequentially lower operating expenses also supported our performance, but the tariff refund benefit is not recurring. As a reminder, adjusted EBITDA is a non-GAAP measure, representing earnings or loss before total other income or expense, net income taxes, depreciation, and amortization, as excluded -- as adjusted to exclude stock-based compensation and merger transaction-related expenses. Non-GAAP net income is also a non-GAAP measure. It excludes stock-based compensation. These measures are intended to supplement, not replace, our GAAP results and the reconciliations are provided in our earnings release. Weighted average basic shares outstanding during the quarter were approximately 77 million. Now turning to the balance sheet, accounts receivable, net, increased to $15 million from $13.6 million at the end of Q2 and $13.9 million at year-end 2025. We continue to monitor receivables as part of our working capital management. Inventory was reduced to $18.1 million from $20.6 million at the end of Q2 and $31.3 million at year-end 2025. That is a sequential reduction of approximately $2.5 million and a year-to-date reduction of approximately $13.2 million, or 42.1%. Inventory discipline remains a priority as we balance supply requirements with the current demand environment. Cash and cash equivalents totaled $16.8 million at September 30th, compared with $16.9 million at June 30th and $7.7 million at year-end 2025, supported by the approximately $14 million in net proceeds from our February registered direct offering. Borrowings outstanding under our revolving credit facility declined to $2.5 million from $4.1 million at the end of Q2. Borrowings under the facility were 0 as of December 31st, 2025. During the quarter, we reduced borrowings by $1.6 million, while keeping cash essentially flat, supported by continued inventory reduction. Turning now to our financial guidance for the fourth quarter of 2026 and our outlook for the full year. As in prior quarters, we provide guidance for revenue and adjusted EBITDA, as we believe these are useful measures for assessing business performance. For the fourth quarter ended December 31st, 2026, our expected ranges are as follows: We expect fourth quarter revenue to range between $20 million and $22 million. We expect fourth quarter adjusted EBITDA to range between a loss of $3 million and a loss of $1.5 million. For the full year, we expect a range -- revenue to range approximately between $95 million and $97 million. This compares with our prior outlook of $100 million to $110 million. Our fourth quarter outlook reflects a continuation of the dynamics that affected the third quarter. Actual results may differ materially from our guidance. That completes my summary, and I'd now like to turn the call back over to Zvi, for final remarks. Zvi?

Thanks, Bill. Our fourth quarter outlook reflects the market and timing factors we discussed today. We've concentrated investments in growing regions, where Tigo is seeing success. Coupled with a scalable cost structure, we believe we are well positioned to deliver profitable growth as volumes recover. We believe the strategy laid out for 2027 will yield top-line growth for Tigo in 2027. We look ahead, I'm encouraged by the progress we are making in the areas within our control. We have strengthened our balance sheet, positioning Tigo to operate more efficiently, as market conditions improve. With that, operator, please open the call for Q&A.

Our first question comes from the line of Sameer Joshi with H.C. Wainwright. Please go ahead.

So we understand the lower guidance for the 4Q, but how do you see from where you're sitting right now, the 2027 figuring out, what will be the contributors to 2027 revenues that may not have come through in this year?

So thank you for the question, Sameer. Projections in general for 2027 by various analysts and what we hear from the market are flat to a slight increase, that's in general. We have demonstrated that despite the market conditions, we continue to grow market share, so we do believe that we will see the benefits of that. In addition, we did mention in the prior quarter in Q2 that we missed due to 3 factors: 2 of them were large projects and 1, which is the partnership we have. So the partnership is projected to get back online in Q4, and the 2 projects, one of them, which I believe, I mentioned, it was in Japan is going to happen most likely in Q1 of 2027 or early Q2, mainly because of weather conditions. So we don't expect to see that, but that will be in addition to our projected being within the market. So we are not providing any guidance for 2027, but we do believe that we have still the factor of those large projects.

Understood. Thanks for that color. So next year also includes the efforts to expand the GO ESS adoption by the market. Does this imply higher costs on the marketing front, going into 2027?

It would not mean higher marketing or sales costs. We've made some internal changes and focus to make sure that we are able to actually convert it to additional potential income from those products, and we do believe that those changes will help us improve the results. In addition, we might have couple of or 3 hires in specific strategic regions, but we do believe it will be within the cost structure that we've outlined. We are very careful about operational efficiencies, very, very careful.

Got it. And then just one more on tariff refunds. Are we expecting additional -- I mean, I know Bill clarified that these were onetime and non-recurring, but is there any chance of -- is there anything outstanding that you are yet to receive on the tariff refund front?

Yes. So we have applied for another $400,000, that we have not heard back on yet, so we don't have the timing nailed down on it. And so we're -- the guidance essentially reflects at the low end, not receiving it, at the high end receiving some of it. So we'll either -- it will either -- given that we received the initial refund. We believe that we'll have the second refund accepted and if it's -- once it's accepted, then we'll accrue a receivable for it.

Got it. Thanks for taking my questions. I'll step back.

Thank you.

Our next question comes from the line of Eric Stine with Craig-Hallum Capital Group.

Maybe we could just talk about EG4. You mentioned the revenue recognized in the quarter, and you're clearly talking about it in current tense, in terms of that things are going there in the fourth quarter launch. But could you just dig into that a little bit? I mean, though, are we still kind of in pre-launch mode, what kind of visibility do you have into that starting and when might you think the contribution becomes apparent in your business in 2027?

So we -- I mean, like as we've mentioned on previous calls, we do have a contractual arrangement with them. It does have minimum order quantities and we have delivered. Now this Q2, we delivered some of it, some of our optimizers as well as Q3 and we expect to ship even more in Q4. But you have to appreciate that the ultimate timing on the go-to-market is not within our control; it's completely up to them. Our belief is that we are tracking towards a go-to-market late here in the fourth quarter and early in '27. But again, the ultimate timing is going to be dictated according to our partner, not us. We think that it's positive news that they're placing POs and that we're shipping product to them. So I wouldn't expect that they would be ordering product just so that it could sit in a warehouse. So that wouldn't be very wise on their part, so.

Got it. But just to clarify, I mean, in Q4, you do expect a contribution, but it still should be pretty minor. I mean, this is more about it would be a start here, and then it just depends on what the cadence is of that launch.

Yes, what we said was that we expect revenues to be higher than they were in the current quarter, and so we're expecting to ship more product this quarter. And as we -- we'll see what happens. We'll get through RE+, our partner may have some update on their own, that they may wish to talk about. And then as we move into late in the year and then '27, and it's our expectation that our product is not going to just simply build up in the warehouse, but that they will launch. That's what we would expect.

Understood. Okay. Just maybe last thing for me then, just on the cost side. I mean, you've obviously had to adjust to some market changes over the last couple of years, and you've shown the ability to kind of flex down on the cost side. You came down on OpEx in this quarter, and I know there were some one-timers in there. Any further downside there, thoughts dictated on business seasonality early in the year? This number that we should expect for the foreseeable future?

So as with many companies, this is now budget season as we look into 2027 and we finalize our budgets, here in the fourth quarter, in early December. And we -- as Zvi mentioned, we are taking some existing resources and committing some new resources to certain growth geographies, where we've done really well and where there's expected market growth next year and we mentioned Eastern Europe and Australia specifically, because we've seen some pretty tremendous growth, that we mentioned in the earnings and the script Poland, Czech Republic, Australia, phenomenal growth. And there are some other regions that we're going to be concentrating on further to get the top-line trajectory moving up, and we have a cost structure that can flex with that. It doesn't have to grow with that and so that's pretty much the scalability that you mentioned and you talked about that we run with here. That being said, if the market turns, we would make cost adjustments as we did in '23 and early '24. That demonstrates that we can scale up or down, and so we've done that in the past and continue to have that attitude going forward.

Thank you for your questions, Eric. At this time, I'm seeing no further questions in the queue, so this concludes our question-and-answer portion of the call. I'd now like to turn the call back over to Mr. Alon for closing remarks.

Thanks again, everyone, for joining today. I especially want to thank our dedicated employees for their ongoing contribution, as well as our customers and partners for their continued hard work. I also want to thank our investors for their continued support. Operator?

Thank you for joining us for Tigo's third quarter 2026 earnings conference call. You may now disconnect. Thank you.