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Solar energy company Nextracker (NASDAQ:NXT) beat analysts' expectations in Q2 CY2024, with revenue up 50.1% year on year to $719.9 million. On the other hand, the company's full-year revenue guidance of $2.85 billion at the midpoint came in slightly below analysts' estimates. It made a non-GAAP profit of $0.93 per share, improving from its profit of $0.14 per share in the same quarter last year.
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Nextracker (NXT) Q2 CY2024 Highlights:
- Revenue: $719.9 million vs analyst estimates of $616.4 million (16.8% beat)
- EPS (non-GAAP): $0.93 vs analyst estimates of $0.65 (42.9% beat)
- The company reconfirmed its revenue guidance for the full year of $2.85 billion at the midpoint
- EPS (non-GAAP) Guidance for the full year is $2.99 at the midpoint, missing analysts' estimates by 2.1%
- EBITDA Guidance for the full year is $625 million at the midpoint, in line with analysts' expectations
- Gross Margin (GAAP): 33%, up from 23.7% in the same quarter last year
- Free Cash Flow of $118 million, up from $109.2 million in the previous quarter
- Market Capitalization: $7.04 billion
Used in numerous power plants around the world, Nextracker (NASDAQ:NXT) provides solar tracker systems, which are advanced systems that help solar panels follow the sun.
Renewable EnergyRenewable energy companies are buoyed by the secular trend of green energy that is upending traditional power generation. Those who innovate and evolve with this dynamic market can win share while those who continue to rely on legacy technologies can see diminishing demand, which includes headwinds from increasing regulation against “dirty” energy. Additionally, these companies are at the whim of economic cycles, as interest rates can impact the willingness to invest in renewable energy projects.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last three years, Nextracker grew its sales at an incredible 30.2% compounded annual growth rate. This is a great starting point for our analysis because it shows Nextracker's offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Nextracker's annualized revenue growth of 34.3% over the last two years is above its three-year trend, suggesting its demand was strong and recently accelerated. Nextracker's recent history shows it’s one of the better Renewable Energy businesses as many of its peers faced declining sales because of cyclical headwinds.
This quarter, Nextracker reported magnificent year-on-year revenue growth of 50.1%, and its $719.9 million of revenue beat Wall Street's estimates by 16.8%. Looking ahead, Wall Street expects sales to grow 7.6% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Nextracker has been an optimally-run company over the last four years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.1%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, Nextracker's annual operating margin rose by 8.4 percentage points over the last four years, as its sales growth gave it immense operating leverage.
This quarter, Nextracker generated an operating profit margin of 22.2%, up 6.8 percentage points year on year. This increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by the company's larger rise in gross margin.
EPS Analyzing revenue trends tells us about a company's historical growth, but earnings per share (EPS) growth points to the profitability of that growth–for example, a company could inflate sales through excessive spending on advertising and promotions.
Nextracker's EPS grew at an astounding 158% compounded annual growth rate over the last two years, higher than its 34.3% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Nextracker's quality of earnings can give us a better understanding of its performance. Nextracker's operating margin has expanded 14.9 percentage points over the last two years while its share count has shrunk 21.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
In Q2, Nextracker reported EPS at $0.93, up from $0.14 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Nextracker to grow its earnings. Analysts are projecting its EPS of $2.05 in the last year to climb by 53.3% to $3.14.
Key Takeaways from Nextracker's Q2 Results We liked how the company beat on revenue and EPS. On the other hand, its full-year revenue guidance was underwhelming, and this is impacting the stock. The stock traded down 3.9% to $45 immediately following the results.
