Good afternoon and welcome to Tigo Energy's Fiscal Fourth Quarter and Full-Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. Joining us from Tigo are Zvi Alon, CEO, and Bill Roeschlein, CFO. As a reminder, this call is being recorded. I would now like to turn the call over to Bill Roeschlein, Chief Financial Officer.

Thank you, operator. We would like to remind everyone that some of the matters we'll discuss on this call, including our expected business outlook and anticipated costs and marketing trends; statements about our current and future inventory levels, its impact on future financial results; inventory supply and its impact on our customer shipments and our revenue for the fiscal fourth quarter and full-year 2023; our ability to penetrate new markets and expand our market share, including expansion in international markets; expand our continued expansion of, and investments in, our product portfolio are all forward-looking statements and, as such, are subjected to unknown and known risks and uncertainties, including, but not limited to, those factors described in today's press release and discussed in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended December 30, 2023 and other reports we may file with the SEC from time to time. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. These forward-looking statements are made only as of the date when made during the call. We will reference certain non-GAAP financial measures. We include non-GAAP to GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. Non-GAAP financial measures provided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Finally, I'd like to remind everyone that today's conference call is being webcast and a recording will be made available for replay at Tigo's investor relations website at investors.tigoenergy.com. I would like to now turn the call over to Tigo's CEO, Zvi Alon.

Thank you, Bill. To begin today's discussion, I will give some background on our company recent performance and market trends before turning the call over to our CFO, Bill Roeschlein. He will discuss our financial results for the quarter and the year in more depth as well as provide our outlook for 2024. After that, I will share some closing remarks before opening the call for questions. All right, let's begin. For those of you who may be new to our story, Tigo Energy is a global provider of intelligent solar and energy storage solutions. Founded in 2007, our mission is to deliver smart hardware and software solutions that enhance safety, increase energy yield, and low operating costs for residential, commercial and utility scale systems. Tigo's offerings include three main product categories – Tigo TS4 MLPE; GO ESS energy and storage solutions and our Energy Intelligence or EI software platform. Our Tigo TS4 is our largest selling product, consisting of a series of flexibly designed MLPE solutions to meet particular needs of a broad base of installers. Our superior MLPE design provides a number of important benefits to customers. First, our MLPE has an energy efficient design that operates on an as needed duty cycle, which optimizes the MPPT of solar strings when compared to solutions requiring constant optimization and high duty cycle. Our design is so efficient, in fact, that it is housed in a plastic casing instead of a metal one that uses a heatsink. Second, our MLPE solution provides customers with a higher reliability product and a very low failure rate. High reliability is driven by the lower component count duty cycle and design. Third, our MLPE are quick and easy to install, in about 10 seconds each. You literally clip the MLPE to the back of…

Thanks, Zvi. Revenue for the fourth quarter 2023 decreased 70% to $9.2 million from $30.9 million in the prior-year period. By geography, EMEA revenue was $3.7 million or 40% of total revenues. Americas revenue was $3.4 million or 37% of total revenues and APAC was $2.1 million or 23% of total revenues for the quarter. GO ESS represented 14% of total revenues in the quarter compared to 8.4% last quarter and 7.3% in the prior year comparable period. Revenue for the full-year 2023 increased 79% to $145.2 million from $81.3 million in the prior-year period. By geography, EMEA revenue was $109.3 million or 75% of total revenues, Americas revenue was $25.2 million or 17% of total revenues, and APAC revenue was $10.8 million or 7% of total revenue for the year. GO ESS for the year represented 9.2% of total revenues in the year compared to 4% in the full year 2022. Gross profit in the fourth quarter of 2023 was $2.9 million or 31.1% of revenue compared to $10 million or 32.2% of revenue in the comparable year-ago period. On a sequential quarter basis, gross margins increased by 6.8 gross margin points, due primarily to lower warranty costs and the sale of fully reserved inventories. Gross profit in the full year 2023 was $51.3 million or 35.3% of revenue compared to $24.8 million or 30.5% of revenue in the comparable year-ago period. On an annual basis, gross margins increased by 4.8 gross margin points. The year-over-year increase was primarily due to cost-down initiatives and leveraging our fixed costs across the larger revenue base. Total operating expenses for the fourth quarter were $16.4 million compared to $7.8 million in the prior-year period. The increase was primarily driven by higher headcount expenses compared to the year-ago period. Total operating expenses for…

Thanks, Bill. Although we are confident in our team's ability to manage the current macroeconomics environment and in the longer term growth perspective for our business, we look forward to providing additional updates in the coming quarters. With that, operator, please open the call for questions.

[Operator Instructions]. Our first question comes from Phil Shen With ROTH Capital Partners.

I wanted to get through the destocking outlook. And I think, Zvi, you mentioned that you should be done by the end of Q1. I was wondering if you could talk through what the sell-out was in Q4 and then what you expect it to be in Q1. Our check suggests that your stock in Rotterdam still seems quite high. And so, how much longer do you think that gets worked through? And what kind of risk is there that this carries over into Q2?  Zvi Alon: First of all, for clarification, what goes down is our own inventory. That's part of the $61 million we mentioned that inventory we have. The inventory in the distribution continues to get depleted. As I've highlighted – actually, I started – I believe Tigo was the first one to actually highlight that back in September last year, and we are consistently continuing. Our rate of installations is steady. It did not come down. And as a result, we've seen a depletion, a lowering of the inventory at our distribution, both in Europe and other locations. And we indicated that we believe that we will get close to normal towards the end of Q1, and we're still maintaining that position. I don't want to make any preannouncements here. But I can tell you we're very confident that the business is starting to turn around for us in the different regions.

Can you talk about from a cash flow standpoint? You have $33 million of cash at the end of Q4. There was 13-ish-million of burn in Q4, I think. So, what kind of cash could you generate from inventory in Q1? And what kind of burn overall should we expect for Q1?  Bill Roeschlein: There's three factors of in liquidity. The first being the improved economic environment, which we all know about, which like Zvi mentioned, we're seeing that improve. The second is that we have dramatically been able to reduce the amount of required purchases from our contract manufacturers, such that we can be in a position to convert the $61.4 million into cash. And the third I'll mention is that we are in discussions with certain parties around credit facilities to enhance our balance sheet flexibility. So the combination of all three, we believe, will provide us with ample, sufficient liquidity. As a general rule, given the guidance, 60% of the revenue is cost of goods sold. So, I'll leave it to you to be to calculate what that conversion to cash looks like. But it's essentially 60% of the $9 million to $14 million that we guided.

Can you talk through timing of the credit facilities and those negotiations? And then, are we talking about a $30 million credit line? Or maybe $70 million? What kind of ballpark could it be?  Bill Roeschlein: I can't go beyond what I mentioned at this point since they're fluid, negotiations? Sorry.

Back to the sell-through, do you think sell-through is at a bottom? I think you kind of talked through that a little bit already in you. So, you're talking about, Zvi, that things are improving? But can you give any quantification or remind us again what your biggest market is? Is it Netherlands? Or is it Germany? And some of the kind of metrics from some of the countries that can give us some confidence that you have that visibility?  Zvi Alon: In Europe, Germany is the largest market. We have a fairly strong footprint in Italy, in the Netherland. Eastern Europe, we have several countries. Czech Republic has been fairly strong supporter and provider of revenue for us. As far as the depletion of the inventory, we see basically, in all territories we see, in number of distributors, not just a small number, is coming down. And also, the number of installations continues at the same pace in the different geographies. So, it's not in just one location, which gives us confidence by the numbers that we're tracking what we've seen now for the last four or five months, six months.

When you think about the trajectory of revenue by quarter, so you've given us Q1 official guidance, but with the seasonal strength that comes from Q2 and Q3, what do you think we could see for Q2 and Q3? Without giving guidance, maybe you can point us to some qualitative description of what the year might look like?  Bill Roeschlein: I'll just start off by saying I think it's more than what's in your model, Phil.  Zvi Alon: This is very [Multiple Speakers].

And one other thing, some of our checks suggest the Chinese are actually doing quite well. So, think of Sungrow, Huawei, Growatt. And their channel inventory was cleared, has been cleared. And so, they're not dealing with that anymore. It seems like they're maintaining price. But I've heard from distributors that their mix of their business, like the Chinese inverter mix of the overall European business, is increasing. What are your thoughts on the competitive dynamics there? We're also hearing that some of them might be launching optimizers. That might challenge you guys, maybe like a Sungrow. Just talk to us about the risks you see and the competitive dynamics.  Zvi Alon: First of all, if you recall back in, I think, the summer last year, that promotion to try and drive market changes started by Huawei. There were one or two additional suppliers who tried the same and we know, at least from facts we're collecting, that that didn't produce the expected result. And they stopped and actually prices stabilized. And now, it's really just depletion of inventory, which is really the key. We do see, however, that the glut of Chinese suppliers is still dominating the market, and not necessarily with new products as much as just the depletion of the inventory. And as such, our optimizers work with pretty much all of them and we don't prefer one or the other. Yes, Huawei has been pushing an MLPE now for the last six or seven years. Sungrow might be a newcomer to the market, at least they announced it. In both cases, their optimizers work only with the one inverter and, as a matter of fact, not with all their inverters, only with a subset of the inverters. So, from a competitive perspective, we fill and see that our position is actually fairly good. In addition, I will say that we see an increase in demand for rapid shutdown standalone, [Technical Difficulty] in the residential, but also C&I and larger scale systems. And we are the number one supplier in that space. And neither SolarEdge, Huawei or Sungrow have a rapid shutdown solution only. So we still maintain that our position is going to continue to be fairly strong. And the fact that the two of them – actually, the latest one is Sungrow. Huawei has been around for quite some time. But the fact that they are jumping in is only to demonstrate that the MLPE market is vibrant, vivid and needed. And so, we believe as an independent supplier in this space, we will maintain our leverage.

Next question comes from Eric Stine with Craig-Hallum.

Maybe I'll just get at some of the previous questions. Just ask them differently. Do you have an estimate of how much maybe over the last quarter or two you have under shipped as you try to help the process of the channel clearing? Just trying to get an idea of kind of where true demand might be as we think about Q1 and then, obviously, improvement going forward.  Zvi Alon: We normally did not measure it this way because we don't under-ship. We have plenty of inventory. And so, unless we will able to supply from existing backlog or new orders we have received, we did not under-ship. And so, whatever the shipment, it was the true demand.

Right. So true demand, but a thought of what would it be. Let's say that the inventory was somewhat normalized. The $9 million you did this quarter, any thoughts you have, even from a high level, that $9 million would have been X, whatever that number may be. I'm just trying to get a sense of kind of that level set demand under a more normalized environment.  Zvi Alon: We took more than a 50% haircut from the Q2 highs as a result of this environment. And so, just a really broad brushstroke would suggest at least 50% or more.

I know you're not getting to Q2. I guess I'll have to take a look at where Phil's estimates are to get a line on that. But, okay, that that helps. Maybe then just coming back to working capital, helpful what you're talking about…  Zvi Alon: As Bill said, better than his estimates.

Correct. Yes, I heard that. Loud and clear.  Bill Roeschlein: I'll add one more. I'll just I'll just add that we continue to make the investment and have purposely been very thoughtful in how we instituted our cost restructuring in the last quarter. And it's a reasonable number. It's sort of in line with what our competitors have done. But in the same vein, it reflects our expectation is a much more promising outlook.

I would assume that if things, for whatever reason, don't play out that way, there would be more that you could do. I guess I'm curious. Is that fair? Do you think there is more room if needed? Or do you feel like this kind of strikes a good balance between cutting costs here, near term, but also keeping the situation in place for growth, which you, obviously, expect to come going forward?  Bill Roeschlein: There are a couple of things. There is [Technical Difficulty] grew our top line and our OpEx in 2023 and 79% growth for the year. So, things that we want to be cognizant of are that the market is turning, our product is selling, the monitoring solutions are steady, the end demand is steady, and we don't want to miss out. If the market turns one way or the other, we'll react. But there's still some questions about true demand. And as we get further along into this quarter, us along with others, we'll have some more commentary on where we think that is. But we know it's much higher than what we're guiding to right now.

Understood. Maybe just last one for me. Working capital, obviously, as you kind of laid out, we can back into how much you worked down that inventory here in Q1, but maybe just thinking about it longer term, it's obviously going to depend on what your sales expectations are, but do you have kind of a number that you think is the right number? Clearly, as things kind of turned down in the second half, you were unable to shut off the – as you said, some of the automatic purchases from the contract manufacturer. Is there a number, whether it's a percentage of the $61 million, that you think is a more realistic level based on where the business stands today and the outlook?  Bill Roeschlein: We have been thinking about this frequently. And our inventory position of sixty-one-point-four-and change should be at $30 million or below. $30 million or below gives us $50 million a quarter or $200 million in revenue at a 1 turn per quarter. So at least $30 million is where inventory levels should be, which would generate cash of $30 million, obviously, for us. From there, we can [Technical Difficulty]. But the fact that we're – again, we're thinking – that's how we're thinking of being able to support $50 million in revenue. But then, again, we don't want to come up short when the market turns. We want to be able to respond and take advantage of the market upturn.

[Operator Instructions]. Our next question comes from Gus Richard with Northland.

I'm just wondering if you could talk a little bit about your market share as we went through this shortage period beginning of 2022. And as it was a shortage, your revenues ramped relative to your competitors a little bit faster. And then it's come down a little bit faster. And I'm wondering, is it a reasonable assumption that, before that surge in demand, that you had X percentage of market share relative to your competitors. Are you [indiscernible] to that level or coming back to that level? Could you just talk a little bit about that?  Bill Roeschlein: We don't look at every competitor in the landscape, and there is a lack of third party data to tie that all together. But within MLPE, you look at SEDG, and we look at what they report. And we do note that, in 2022, they only had 23.8 million in MLPE units. And as we disclosed, we had 2.6 million. That was 11% of SEGE's total. We also look at 2023 with some [Technical Difficulty] forecasting done by the analysts. With SEGE, it's somewhere around 17.3, 17.5-ish. And we sold almost 4.2 million units. That puts us at 24% of the MLPE units that SEDG had. So, clearly, we've gained share.

Now, post that bubble, are you going to maintain that share, you think? Or are you going to kind of go back to where you were before? Or is it somewhere in between? And then, I've done the math on this, it feels like your revenue is kind of stable around or sell out, if you will, demand around 20 million to 25 million, are those numbers kind of correct? And what do you think your end state market share might be?  Bill Roeschlein: I don't know if I can give you full answers on those questions precisely. Again, I don't [Technical Difficulty] third party reports that put the largest amount of share with SEDG and Enphase and but we are third, but a distant third. But as I just mentioned, we have gained share, and we believe will continue to gain share, as we've outlined in this call and in our release. And that, along with just the greenfield revenue coming from GO ESS and our software EI, that's completely new revenue. So, we went from 2.5 million in GO ESS to more than 13.5 million. And so, that's 100% market share gain. That's all new stuff. So the combination of our base business MLPE, as I mentioned, goes from 11% to 24%, and when tack on going from two and change to 13.5, that's very significant. So I don't really see a world where we're not gaining share.

Ladies and gentlemen, this concludes the Q&A portion of today's call. Thank you for joining us today for Tigo's fourth quarter and full-year 2023 earnings conference call. You may now disconnect.