iSun, Inc. (NASDAQ:ISUN) Q1 2023 Earnings Call Transcript May 15, 2023

iSun, Inc. misses on earnings expectations. Reported EPS is $-0.23 EPS, expectations were $-0.2.

Operator: Greetings, and welcome to the iSun First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Mary Conway. Ma’am, you may begin.

Unidentified Company Representative: Thank you, operator, and good morning. We are pleased to welcome you to iSun’s Conference Call, where we will discuss financial and operating results for the first quarter of 2023. Jeffrey Peck, Chairman and Chief Executive Officer, will provide an update on the overall solar energy landscape and our operating performance in the quarter, along with our outlook for 2023. John Sullivan, Chief Financial Officer, will provide an overview of the first quarter 2023 financial results. After our prepared remarks today, we will open the lines to address any questions. As a reminder, the earnings release that was released this morning and which can be found on iSun’s Investors website at www.isunenergy.com, includes financial disclosures and reconciliations for non-GAAP financial measures.

Any comments that we make on today’s call may include forward-looking statements that refer to management’s expectations or future predictions. These statements are made as of today, and management undertakes no obligation to update these forward-looking statements in the future. Such statements are subject to risks and uncertainties that could cause actual results to differ from management’s expectations. With that, I will now turn it over to our CEO, Jeff Peck.

Jeffrey Peck: Thank you, good morning, everyone. Thank you for joining us today. I’m pleased to share iSun’s progress during the first quarter of 2023 and update you on our plans for this year. We are pleased with the energy and the success our team has achieved out of the gates in 2023. While there are always seasonal challenges, I’m excited to report that we continue to see our backlog transition as signed contracts and active projects. As I said, we reported our full year results a month ago. The continuation of this trend and our success in winning important new contracts in solar and EV infrastructure provides us with confidence in our ability to execute effectively against our strategic plan, to achieve our mission to accelerate the nation’s adoption of solar energy.

Last quarter, I spoke in detail about the work we’ve done over the past year to establish the infrastructure we need to support our growth plans and execute on the recurring revenue opportunities that we created through our investments in our platform approach. This platform approach is a competitive, differentiating advantage for us and positions iSun for long-term sustainable growth. We see the proof of this strategy and execution in the first quarter year-over-year revenue growth. We’ve also made good strides in improving our efficiency and the initial results from those efforts are clear in our first quarter results with lower operating expenses, improved productivity and a lower net loss. We have made operational improvements on the residential side to accelerate project execution.

Similarly, the combination of our commercial industrial divisions at the beginning of this year are also showing good results with higher labor productivity, better utilization coordination and while it’s not reflected in our results just yet, we continue to make good progress on our project pipeline front that I described last quarter. I’ll share an update shortly on that. Quickly reviewing our first quarter results. Revenue increased by 15% to $17.4 million. Gross margins were 20.5%, down slightly from 21% in 2022’s first quarter, mostly reflecting ramped-up efforts ahead of our implementation to drive installations on the residential side in Q2 this year. In the first quarter, 39% of our revenues came from the Residential segment where gross margins tend to be higher.

We remain confident that as we scale and drive synergies and efficiencies throughout the organization, we’ll continue to expand our margins on an annual basis. As of March 31, 2023, our total backlog was $178.8 million. Our pipeline remained at 1.6 gigawatts of projects as of the end of the first quarter of 2023. The backlog and pipeline underscore the increased customer demand that we are experiencing as well as the effectiveness of our ongoing strategic initiatives. Our success reflects a high level of customer satisfaction, specifically in the Residential segment, which generates strong referrals, creating lower customer acquisition costs. Let me share a few words about the performance of our 3 divisions in the past quarter. The Residential division did very well, even though this is a seasonally slower period in the Northeast since we are limited in installations during unfavorable weather and shorter days.

We continue to build more business and expect a heavy period of installation in the coming quarters. The Commercial and Industrial division, which we combined as the beginning of 2023 is off to a strong start. It generated more than half of our revenues this quarter as we begin to work through our backlog and add more business in the backlog through competitive contract wins. We’re pleased with the division’s productivity in the quarter and financing our labor utilization was a major rationale for the combination. Our Utility and Development division is off to a slower start, although the backlog, the group, and the remains large. Product delays around expected implementation, especially on the utility side, affect revenue generation, but delay simply mean that the work will appear later and resulting revenues will be recognized later this year.

The expertise and knowledge that our teams bring and the strong customer relationships they’ve established have led to many recent contracts. We’ve added $32 million in new deals won over the past quarter across our business lines, including both solar and EV infrastructure. Let me share a few details on a few of them. We were recently awarded a 2.2-megawatt Solar Carport Project for a major financial institution. This project is expected to be the first of many for this financial institution. As has been our approach with all of our customers, we hope to cultivate this relationship to create recurring opportunities. Additionally, at the end of the first quarter, we were awarded 7 separate solar projects valued at $10 million for existing customers.

We take great pride in building these long-term relationships and working collaboratively with our customers to accelerate the adoption of solar. We remain convinced that the IRA legislation passed last year will afford iSun’s and the industry’s genuine benefit even as we await to finalize language and rules from the Treasury Department regarding tax credits and other elements. Once those rules are disseminated, we expect to provide an update as to how they will impact our operations this year and years ahead. We expect more specific roles and the removal of uncertainty will increase the value of the solar assets of those both in development as well as those under construction, which, in our case, will lead to a higher valuation of our pipeline as first increased demand that we’ll address in 2024 and beyond.

In 2023, considering all of the evolving macroeconomic factors, we expect to continue to demonstrate strong growth and obtain operating profitability along with expanded margins. Thus, we are affirming our expectation for total revenues for fiscal year 2023 of $95 million to $100 million, reflecting a 24% to 31% increase for the total revenues in 2022, along with gross margin expansion on an annual basis and full year EBITDA profitability. With that, I’ll turn the floor over to John. John?

John Sullivan: Thank you, Jeff. We are pleased with the solid revenue we produced in the first quarter as we continue to execute on our backlog. I’ll provide an overview of our statement of operations as well as provide details on our segments before turning to the balance sheet. iSun reported first quarter 2023 revenue of $17.4 million, up 15% from Q1 of 2022 revenue at $15.1 million. Revenue growth in the quarter was driven by the continued fulfillment of residential consumer demand and effective execution of our commercial and industrial backlog. As Jeff mentioned, in the first quarter of 2023, 39% of our total revenues were in the residential segment, which tends to carry the highest margin, a bit lower than the 46% this division represented in Q4 of 2022.

While we continue to execute against our existing backlog, we also generated new demand and added $32 million in new business during Q1. Total backlog was $178.8 million as of March 31, 2023. By segment, our Residential division generated revenue of $6.85 million in the first quarter of 2023. Customer orders are approximately $17.9 million and are expected to be completed within 3 to 5 months. Our Commercial and Industrial division, which was consolidated as of January 1, 2023, generated revenue of $10.3 million in the first quarter, and has a contracted backlog of approximately $152.9 million, expected to be completed within 10 to 18 months. Lastly, our Utility and Development division generated revenue of $0.2 million in the first quarter.

Our Utility division has contracted backlog of $8 million and 1.6 gigawatts of projects currently underdevelopment, expected to achieve NTP in 2023 and early 2024. Gross profit in the first quarter was $3.5 million, up 12% from $3.2 million in the first quarter of 2022. Gross margin for the first quarter this year was 20.5% compared to 21% during the same period in 2022. With the 50 basis point decline, largely due to our revenue mix as our C&I division accounted for approximately 60% of total revenue in Q1. As the synergies among our divisions increased our labor utilization and efficiencies, we expect our overall margin expansion to continue. The operating loss in the first quarter was negative $2.7 million, a 54% improvement compared to a loss of negative $5.7 million in 2022’s first quarter.

Noncash depreciation and amortization expenses were $0.8 million in the first quarter of 2023 compared to $1.8 million in the prior year period. iSun reported a net loss of $3 million or negative $0.19 per share in the first quarter of 2023 compared to a net loss of $2.9 million or negative $0.23 per share in the same period in 2022. Adjusted EBITDA for the first quarter was a loss of $1.5 million or $0.10 per share compared to an adjusted EBITDA loss of $0.1 million or negative $0.01 per share in the same period in 2022, which had the benefit of the nonrecurring $2.6 million or $0.21 per share PPP loan forgiveness. We focused our efforts in 2022 on integration and creating systems and processes that allow for efficient and effective growth.

While revenue grew approximately 15% during the first quarter of 2023, we were able to reduce operating expenses by approximately $2.7 million or 30% from the first quarter of 2022. We are focused on continuing these positive trends throughout the rest of 2023. Now turning to the balance sheet. Total debt decreased $0.5 million to $13 million as of March 31, 2023, down from $13.5 million at December 31, 2022, reflecting the ongoing repayment of long-term debt. Our cash position of $7.2 million as of March 31, 2023 improved from $5.5 million as of December 31, 2022, through higher revenues and diligent collections. In addition, the second tranche of $12.5 million from our $25 million debt facility remains available during the second half of 2023, although we have not yet determined whether we will utilize it at that time.

And with that, I’ll turn it back over to Jeff.

Jeffrey Peck: Thanks, John. I’m pleased with how we are positioned as we move through 2023. We have an amazing team to execute on the many different opportunities we have created within this evolving and dynamic energy market. We have diversified our revenue mix across different segments, and we are executing on our goal efficiently to attain operating profitability in 2023 and supported by the positive landscape provided by the investments we’ve made to create these recurring opportunities as well as the Inflation Reduction Act. We remain confident the best is yet to come for iSun and our stakeholders. I’ll now turn it back over to the operator to open the lines for questions. Operator?

Q&A Session

Operator: [Operator Instructions]. Our first question is coming from Jeff Grampp with Alliance Global Partners.

Operator: As we have no further questions in queue at this time, I will hand it back to Mr. Peck for any closing remarks.

Jeffrey Peck: Thank you, everyone, for joining the call with us today. We appreciate your time to hear about the progress on our performance. If you have any questions, please feel free to reach out at ir@isunenergy.com. Thank you, and have a good day.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time, and we thank you for your participation.