Q2 2025 Earnings Summary
- Record Backlog and Strong Demand Across All Regions: Nextracker reported a significant increase in backlog to over $4.5 billion, marking a new record. The company is seeing strong demand for its products globally, with a consistent mix of two-thirds U.S. and one-third rest of the world. Notably, the international opportunity is vast, with regions like India targeting 500 gigawatts of renewables by 2030, translating to 50 gigawatts per year. This strong demand and backlog give confidence in achieving double-digit revenue growth in fiscal '25 and continued growth in fiscal '26.
- High Margins and Profitability Driven by Execution and Software Sales: Nextracker achieved strong margins in the first half of the year due to excellent execution, delivering projects on time with quality, and a significant uptake in their software product, TrueCapture, which has high margins. The attach rate of TrueCapture has increased over time, and it is operating in over 300 projects worldwide. While margins may adjust due to mix shifts, the company expects structural gross margins in the high 20s to low 30s range, maintaining strong profitability.
- Introduction of Innovative Products Enhancing Competitive Position: Nextracker has introduced its 100% U.S. manufactured tracker, with customer orders received and first deliveries scheduled for this quarter. This product can enable customers to achieve 24.7 points towards the domestic content requirement for the 10% bonus ITC, significantly enhancing project economics. Continuous investment in R&D across mechanical, electronics & controls, and software is deepening the company's technological moat, with new products like NX HailPro75 and advancements in software features such as Zonal Diffuse and Split Boost in TrueCapture.
- Margins are expected to decrease in Q3 and Q4 due to non-recurring benefits that boosted Q2 results, such as higher-than-normal TrueCapture software sales and accumulated 45x tax benefits, which will not repeat in the back half of the year. Additionally, a higher mix of international projects in competitive markets with lower margins will contribute to margin compression.
- Operating expenses are increasing due to strategic investments, with the company reporting a $3 million increase in R&D spend in Q2 and plans to continue investing in R&D and sales in the second half of the year. This could impact earnings and profitability.
- Uncertainty regarding future growth and margins, as the company refrained from committing to double-digit revenue growth in fiscal 2026 and indicated it's too early to project margins for next year due to various factors like market mix and product attach rates. This may signal potential slowing growth and profitability challenges ahead.
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Margins and Structural Gross Margin
Q: Can you explain margin drivers and structural gross margin?
A: Margins were strong due to excellent execution, increased uptake of high-margin TrueCapture software, and 45x benefits, leading to 300 basis points overachievement in Q2; however, these factors won't repeat in the second half, and we expect structural gross margins to be in the high 20s to low 30s. -
Q4 Revenue and OpEx Investments
Q: Can you discuss Q4 weighting and OpEx expectations?
A: We expect Q4 to be the single biggest quarter in the company's history, with strong bookings and shipments; we're investing strategically in R&D and sales to deepen our technology moat, with R&D spend up by $3 million in Q2 and plans to continue increasing in the second half. -
Fiscal 2026 Growth Outlook
Q: Any reason you don't expect double-digit growth in FY26?
A: We'll provide more details on FY26 later, but we're confident in our position with a $4.5 billion backlog and steady growth across regions; we're hitting our revenue plan and raising profitability expectations. -
Bookings and Margins Outlook
Q: Can you discuss the bookings and margin profile this quarter?
A: We raised our backlog to a new record of over $4.5 billion; new bookings mix is consistent with 2/3 U.S. and 1/3 rest of world, and the margin profile is in line with our profitability going forward; we also have new MSA and VCA agreements in the backlog. -
Clarification on 45x Impact
Q: Is the 300 bps uplift only the incremental 45x credit?
A: The 300 basis points overachievement was due to a combination of factors: TrueCapture, 45x credits (about one-third of it), and great execution; 45x was not in our prior year numbers, so comparisons aren't purely comparative. -
TrueCapture Software Margins and Attach Rate
Q: Can you discuss TrueCapture's attach rate and margin impact?
A: The attach rate of TrueCapture has increased significantly over time, with over 300 projects commissioned; it has high gross margins but also higher R&D costs; we've increased R&D investment to enhance TrueCapture features, which drives additional value. -
100% U.S. Content Tracker
Q: What proportion of U.S. business will be 100% U.S. content?
A: We've accelerated delivery of our first 100% U.S. tracker to this quarter due to demand; while we anticipate stronger demand than expected for this product, we'll provide more guidance on the proportion of our U.S. business using it in future updates. -
Growth Strategy: International vs. Margins
Q: Do you optimize for sales growth or margins?
A: We aim to grow responsibly and profitably, focusing on accretive opportunities; while the U.S. offers better margins, there's vast international potential, like India's 500 GW renewables target by 2030, and we're tapping into global clean energy growth responsibly. -
Project Schedule Stability
Q: Have you seen impacts on projects due to peers' actions?
A: We're seeing consistent project activity with some schedule shifts, but no significant impact; our diversity in projects and customers allows us to manage changes effectively, and we're seeing more stability in shipping schedules compared to last quarter. -
R&D Investments and New Technologies
Q: What R&D efforts are you focusing on?
A: We're investing in innovations across mechanical, electronic controls, and software, with over 600 patents issued and pending; we assess opportunities based on customer value and risk, have increased our R&D budget, and are open to acquiring additive technologies.