Nextracker (NASDAQ:NXT) Delivers Impressive Q3, Stock Jumps 14.9%

October 30, 2024 at 16:42 PM EDT

NXT Cover Image

Solar energy company Nextracker (NASDAQ: NXT) reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 10.9% year on year to $635.6 million. The company expects the full year’s revenue to be around $2.85 billion, close to analysts’ estimates. Its non-GAAP profit of $0.97 per share was also 60% above analysts’ consensus estimates.

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Nextracker (NXT) Q3 CY2024 Highlights:

Revenue: $635.6 million vs analyst estimates of $613.8 million (3.6% beat)
Adjusted EPS: $0.97 vs analyst estimates of $0.61 (60% beat)
EBITDA: $172.7 million vs analyst estimates of $127.1 million (35.8% beat)
The company reconfirmed its revenue guidance for the full year of $2.85 billion at the midpoint
Management raised its full-year Adjusted EPS guidance to $3.20 at the midpoint, a 7% increase
EBITDA guidance for the full year is $645 million at the midpoint, above analyst estimates of $624.3 million
Gross Margin (GAAP): 35.4%, up from 26% in the same quarter last year
Operating Margin: 21%, up from 16.4% in the same quarter last year
EBITDA Margin: 27.2%, up from 19.2% in the same quarter last year
Free Cash Flow Margin: 22.3%, up from 4.6% in the same quarter last year
Market Capitalization: $4.64 billion

“We’re very pleased with the company’s execution, driving a record first half of fiscal year 2025 with strong demand in Q2,” said Dan Shugar, founder and CEO of Nextracker.

Company Overview

With its technology playing a key role in the Noor Abu Dabhi project, one of the largest solar farms in the world, Nextracker (NASDAQ: NXT) provides solar tracker systems that help solar panels follow the sun.

Renewable Energy

Renewable 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 Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Nextracker’s sales grew at an incredible 23.3% compounded annual growth rate over the last four years. This is a great starting point for our analysis because it shows Nextracker’s offerings resonate with customers.

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Nextracker’s annualized revenue growth of 30.4% over the last two years is above its four-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. Nextracker Year-On-Year Revenue Growth

This quarter, Nextracker reported year-on-year revenue growth of 10.9%, and its $635.6 million of revenue exceeded Wall Street’s estimates by 3.6%.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and shows the market believes its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Nextracker has been an optimally-run company over the last five 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 5.3 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, Nextracker generated an operating profit margin of 21%, up 4.6 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Nextracker Trailing 12-Month EPS (Non-GAAP)

Nextracker’s EPS grew at an astounding 144% compounded annual growth rate over the last two years, higher than its 30.4% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into Nextracker’s earnings to better understand the drivers of its performance. Nextracker’s operating margin has expanded by 12.6 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Nextracker reported EPS at $0.97, up from $0.37 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’s full-year EPS of $2.78 to grow by 12.9%.

Key Takeaways from Nextracker’s Q3 Results

We were impressed by how significantly Nextracker blew past analysts’ revenue, EBITDA, and EPS expectations this quarter (especially when peers like First Solar called out a slowdown in demand). We were also excited it raised its full-year EBITDA and EPS guidance. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 14.9% to $36.75 immediately following the results.

Nextracker may have had a good quarter, but does that mean you should invest right now?If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.

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