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Serial entrepreneur with exits under his belt, a huge sector that is growing, significant revenues and profit with a positive cash flow - is a good start towards success, but obviously does not guarantee anything. Zvi Alon, the CEO with impressive successes to his credit, is positive that Tigo (TYGO), which made its Wall Street debut this past May, is on the right track. Tigo was merged into a SPAC, at a value of $600 million, and it is a player in the renewable energy systems market.
Tigo is a provider of energy converters, products that secure the conversion (against electrocution) and products that significantly optimize the conversion process. The products offered by Tigo, which is traded at a value of $650 million, compete against the products produced by Israeli company SolarEdge and US company Enphase, which are traded at $9.2 billion and $17.7 billion, respectively, and lead the market with estimated sales of $3.7 billion and $2.7 billion, respectively. Tigo is growing at a faster pace and is expected to sell over $200 million this year.
Alon is a serial entrepreneur who is at the helm of the company, which is based in the US, with an Israeli R&D office. He came to Tigo by chance and very quickly took the reins. Alon is a very well-known figure in the local high-tech sector. He had success stories even before the internet age, and as the internet came into play, he founded Netvision and later NetManage, which was a company that produced integration software that was sold for approximately $70 million.
We don't need financing - “We generate money”
All the companies in this field have experienced a shakeup this past quarter. Anticipated future demand is incredible, the field is critical worldwide, but the pace of integrations in the first months of the year in California and other places was too high and along with good second quarter results led to relatively weak forecasts for the coming quarters.
Sales in the first few months of the year led to an accumulation of inventory with distributors. Regulatory authorities are making it difficult for consumers to obtain approval to sell electricity, and this clearly impedes growth. However, the analysts and managers of the companies are offering rosy forecasts for the medium-long term. The main reason for optimism is that these are systems needed worldwide to prevent pollution and harm to the climate. At the same time, they also make electric energy very lucrative.
The growing use of electric cars will require charging solutions to be found, and home converters will be able to provide charging with the help of storage systems and suitable batteries. So potential is strong. In the meantime, Tigo issued weak financials for the second quarter, and its shares took a 50% nosedive to $11.2. “The company's results in the second quarter were the best ever. Insane growth, we exceeded the forecasts,” said Alon. “However, our forecast for the third quarter is lower than the forecasts, but still double that in the corresponding quarter the previous year. It’s important to put things into perspective. The market is going through a tough time, but we are experiencing more growth than the others.
“The sharp decline in share prices is not because of our financial statements,” said Alon. “Along with the financial statements, there was a ‘call’ for the funds of those holding the options. As part of the SPAC merger, we had this type of option, and they required us to realize the options. In response, share prices dropped to around that price.”
Alon is actually providing a major clue to the fact that the option holders, who are the previous shareholders of the SPAC (total of 2% of the company's share capital) opted to close their position through a short sell as opposed to holding the option, and due to very low trading, it fell.
The analysts who cover the shares anticipate revenues of $212 million this year and $282 million next year. Profit per share next year will be $0.42 compared to a loss of $0.5 this year. This is the consensus of three forecasts, and in our conversation Alon says that the company is not burning, but generating cash and has $68 million in its coffers.
How do you improve marketability of the share?
“We are thinking and looking into what to do to increase trading volume.”
Most SPAC mergers trade far below the initial price of $10. Out of several hundred only 2-3, including you, are above $10. How is that?
“That's right. Tigo went public through a SPAC merger, which is not considered a very sexy move. We knew that the company was excellent and that the SPAC issue might have a negative impact, but we were confident in the path we took. In fact, we didn't need money from the SPAC, which is why we didn’t receive any. But there was a contract that stipulated that if the share exceeded $18, we could call the options. In the end, this relates to options for only 4 million shares, and the call to realize the options lowered the price.
“We chose a SPAC because the entire deal cost us far less than an IPO. That's the main reason we preferred going public this way and not through a standard public offering, despite the poorer image.”
A company worth billions
Tell us about your systems and market
“We provide hardware and software products that enable several things. First, we improve performance and safety of solar systems - we are the world leader in sales of safety units (rapid shutdown) for solar systems. In the US, it’s already a requirement. There is regulation according to which, in an emergency to which rescue forces such as the fire department are called in, you need to be able to shut down the panel to at least 30 watts in less than 30 seconds; this is also true for systems that float on water.
“Our product significantly reduces maintenance costs, and this refers to costs of 25-30 years for a system. One of the main problems with solar systems is that if there is a huge number of panels, it is challenging to find a problem in a short time. We are able to monitor the system every two seconds and to provide real-time reports. Additionally, we added a software system that makes it possible to predict how much energy the system will produce along with consumption of the energy (in other words, how much you will need to produce). The system operates at a very high level of precision.
Where do you stand in terms of competition? Who are your main competitors?
“The first and strongest is SolarEdge, but note that they produce different products. Tigo offers a product with a single platform - meaning that distributors only need to hold an inventory of a single product, and the installers can install the same product in any solar system. In other words, our products connect to other products. That's not the case with SolarEdge.
“The second company is Enphase - which is also a major player in the market. In terms of MLPE, we are the number three player globally and are growing nicely. Our target is to reach a company value of billions of dollars; we have an outstanding team. Management all came from big companies around the world. Today, we have 250 employees, of which 35 employees work at our headquarters in Ra’anana, and we are continuing to hire.”
How will you compete against giant SolarEdge which is well established in the market?
“We have contracts with hundreds of distributors worldwide. We focus on a relatively small number of distributors, but work with the strongest distributors in the various geographies. We work directly with major customers, companies like Sunrun, which is the largest in the US for home systems, or EDF. Because our systems work very well with other inverters and other panels, the other partners (such as the distributors) help us a great deal; when they sell theirs, they already sell them with Tigo's system. The combination of these three aspects/methods helps us develop the market more quickly than our size, and it’s important to understand that our products are better than those of our competitors.”
Tell us about the last quarter and the forecasts that shrunk
“We anticipate recovery before the end of the year; our weekly number of installations has peaked and continues to increase. Our units can be installed even without connecting to the
internet; they begin working automatically, and that's not the case with our competitors’ products.”
What are your target markets?
We sell in the US, South America, Europe and Southeast Asia. Last quarter, Europe accounted for 70% of our market value, the US slightly over 20% and the remainder the rest of the world; growth in percentage in Asia Pacific has recently shown significant growth.
“We expect sales in the US to grow more significantly, although the market is somewhat slow at the moment. When Europe becomes ‘normal’ again, growth will also resume at a good pace. Problems began in the US at the beginning of the year. California, the largest solar consumer, grew and lots of orders for inventory were made. Then, orders more or less stopped.”
How is competition from the East affecting you?
“The Chinese are a force you can't ignore, and they are always improving. Their way to penetrate the market is through price, because sentiment towards the Chinese is not very good - in contrast, we offer an attractive price in the market, but it isn't the lowest, because we are protecting our brand. On the other hand, at the same time, we make sure to maintain simplicity. The installation itself takes 10 seconds, and the installation and putting the storage system into use takes less than ten minutes. It takes much longer for our competitors, with installation taking 1-2 hours. The distributors and installers relate to time. It's important for them, and they like our solution.”
“Second, the Chinese are very good at copying, but not at integration. When you assemble a system and need integration between the components - their components don’t necessarily integrate well. The market knows this.”
Looking forward, where will you invest?
“We invest significantly in service. We’ve grown more in service than in any other field in the company. And this is an advantage over our big competitors, and naturally their size can sometimes have a negative impact on service. We invest in improving existing products - after all, the panels are growing in their ability to generate energy, and we make sure that our systems are already a good fit with the new panels. We are always working on development for the next generation of panels.
In addition, we are also investing in improving efficiency. When we sell a product for $30, we don't want to have to deal with it again for at least another 25 years. There are many other things the market requires. SolarEdge, for example, announced that it would offer electric vehicle chargers down the line, but when you think about home and society - everything related to energy production can be relevant. We already have these types of products.”
Will Tigo remain an independent company or will it at some point be sold to a large organization?
“I’ve learned in life that you build the best company that you can, and opportunities arise. So, you’ll either grow on your own and start acquiring or there will be a big player that will acquire you - I’m open to everything.”
What advice can you give to young entrepreneurs?
“Do whatever it takes to make your dream come true, everything possible. You enter ventures and push the belief that you know how to get from A to B. You’ll meet lots of people who will tell you that you can’t do it. If the others were good at giving feedback, they would be doing it themselves. Keep on pushing as much as possible. An entrepreneur needs deep faith, to convince others, to sell themselves. You need to enjoy, not suffer, even when things aren't going right. You need to enjoy the journey.”
By, Eden Sapir
