iSun, Inc. (NASDAQ:ISUN) Q4 2022 Earnings Call Transcript

iSun, Inc. (NASDAQ:ISUN) Q4 2022 Earnings Call Transcript March 30, 2023

Operator: Greetings and welcome to the iSun Energy Fourth Quarter and Full Year 2022 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now turn the conference over to your host, Mary Conway . 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 fourth quarter and full year 2022. Jeffrey Peck, Chairman and Chief Executive Officer, will provide an update on the overall solar energy landscape and how our broad solar platform addresses opportunities there today, along with our outlook for 2023. John Sullivan, Chief Financial Officer, will provide an overview of the fourth quarter and full year 2022 financial results and operating performance. After our prepared remarks we will open the line to address any questions. As a reminder, the earnings release that was issued this morning which can be found on iSun’s investor 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. Jeff?

Jeffrey Peck: Good morning, everyone. Thanks for joining us today. I’m happy to be here to share iSun’s recent progress and our plans for the coming year with the investment community. During our last call, we discussed some of the project delays we were facing due to CPG extensions and utility delays in our key markets. At the time, we were confident that these projects were just delayed and not canceled. And I’m excited to report that since that last call, and as we had expected, we have seen $70 million of our backlog transition to signed contracts and active projects. Due to this positive development and other factors that I will discuss today, I’m confident that we are executing on our strategic plan in advancing the company towards achieving our mission to accelerate the nation’s adoption of solar energy.

In the fourth quarter of 2022, we made significant advances across our operations. The proof of our consistent execution and focused approach is clear in our strong 2022 revenue, which increased by 69% from 2021 and exceeded our guidance as well as the Street’s guidance. However, before I comment on our fourth quarter and full year results, I want to review our strategic plan and our progress in executing on it. Our strategic plan upon going public was based upon executing our three-pronged approach to growth within each segment of the solar and electrification industry. This approach included organic growth, growth via acquisitions and growth of owned solar assets to generate recurring revenue. In just a few short years, we are now operating in the EV infrastructure, residential, C&I, and utility segments, and providing services to our customers from project origination to completion, as well as ongoing O&M services.

During this period, we expanded geographically, made acquisitions and made key investments both internally and externally. These external investments were designed to supercharge our growth, create recurring revenue, and expand asset ownership. The internal investments were made to build our team and systems, the infrastructure we need to support our growth plans and enable us to effectively execute on the recurring revenue opportunities created by these external investments. As we’ve said before, this platform approach is a competitive and differentiating advantage for us and positions iSun for long-term sustainable growth. As important and focused as we have been on growing our top line, we also know how important it is to have process improvement and drive higher efficiency throughout the organization.

With that in mind, we’ve begun several recent initiatives to increase our efficiency. On the residential front, we have improved our sales and marketing efforts by streamlining our sales offering to the most popular and in demand offerings for our customers, reducing SKUs, improving our inventory, and decreasing delays as customers confront what can be a new and complicated energy market. Earlier this year, we combined our SunCommon and legacy commercial operations, expanding the sales efforts, streamline our design and engineering process, and eliminated duplicative operational roles. We believe that these steps will create an improved customer experience, provide us better flexibility, and will expand our labor utilization that will speed our delivery of services to customers and increase our efficiency and enhance our margin performance over time.

We also continue to implement a shared services model to drive down costs throughout the organization. John will provide greater details on how internal investments will prepare us for the growth ahead and provide these savings and efficiencies needed to the organization. Now moving to the fourth quarter and the full year of 2022. For the full year, our revenues increased by 69% to a record $76.5 million, above the revenue range we provided in November of 2022 despite the industry dynamics and exceeding the Street’s consensus. Our fourth quarter revenue of $25.9 million grew sequentially by 36% from the third quarter. On a year-over-year basis, fourth quarter 2022 revenue was down slightly from what was a strong fourth quarter in the prior year at $27 million, and that benefited from end of year transaction surge.

Our gross margin was strong in the fourth quarter at 21.0%, and our full year gross margin increased 680 basis points to 20.9% compared to 14.1% for the full year 2021. This partly reflects the higher proportion of our revenues from the Residential segment where gross margins tend to be higher and better project performance in our C&I division. Moreover, we remain confident that as we scale, drive synergies and efficiencies throughout the organization, we will continue to generate margin expansion in 2023. As of December 31st, 2022, our total backlog was $164.2 million, and our pipeline reached 1.6 gigawatts of projects at the end of 2022, up an impressive 1.1 gigawatts from the end of 2021. These backlog and pipeline numbers underscore the extent of the increased customer demand we are experiencing across the business, as well as the effectiveness of our strategic initiatives that I’ll focus on further in a moment.

We are very proud of the team’s hard work in attaining these results. Much of the success is due to the high level of customer satisfaction, specifically in the Residential segment, which generates a large referral business, which creates a lower customer acquisition cost. We also have strong customer relationships developed over years of collaboration through the depth of knowledge and services available from our team. The depth of services and knowledge and strong customer relationships have led to many recent contracts. Let me share additional details on a few of them. The first is the $16.4 million development project transaction signed late last year, which includes both the sale of the developed project to a partner for $4.8 million, as well as the execution of an EPC contract by at $11.6 million.

This project is a concrete example of our ability to use internal expertise to develop an asset that we can then sell while retaining the implementation capabilities, bringing our end-to-end approach to bear. We’re delighted with the success. We expect the final closing and EPC contract to begin in the third quarter of 2023. Similarly, another recent award for 5.9 megawatts, part of a three contract win for us secured late last year, demonstrates our ability to work with significant new partners for sizable community solar projects in Northern New England. Deepening our relationships with current customers and introducing new customers to our collaborative approach as how our team operates, and this is a key element of our strategic plan to drive growth and achieve our company’s mission.

Again, we’re pleased with the team’s hard work in achieving these important milestones. Lastly, as you may have seen earlier this week through our most recent contract wins, we gained seven new projects with two existing customers in different locations. The first series of five projects amounts to 6.5 megawatts and $5.1 million in value. On the second of the two significant C&I project comprises of 6.0 megawatts and value at $4.9 million. We’re very pleased to continue this high pace of contract wind this year, especially since all of these are expected to begin this spring and be completed this year or early in 2024. I just want to share a few words about the impact of the climate legislation enacted last summer. We said repeatedly that we believe that the long-term support and stability provided by the legislation removes uncertainty and impediments to financing and constructing solar energy projects.

This should make it easier for customers to make the necessary commitments to build the alternative energy our country needs. Quite specifically, our mission is to make clean renewable energy simple and affordable, and the IRA’s focus on ensuring access to alternative energy, particularly for more economically vulnerable communities, aligned very well with our mission. We remain convinced that this legislation will afford iSun and the industry genuine benefits as we move forward, even as we await finalized language and rules from the Treasury Department regarding the tax credits and other elements. While we had hoped that the rules would be finalized earlier this year, it appears that the timeline for finalization has been extended. Our entire industry is monitoring the situation closely, and once new language and rules are disseminated, we expect to evaluate them closely and share any updates as they impact our operations this year.

Nonetheless, we remain convinced that more specific rules and the removal of uncertainty will increase the value of solar assets, those in development, as well as those under construction, which in our case will lead to a higher value of our pipeline as it spurs increased demand that we will address in 2024 and beyond. In 2023, considering all the evolving macroeconomics factors, we expect to continue to demonstrate strong growth and attain operational profitability along with expanding margins. Thus, we are reaffirming our expectations for total revenue in fiscal year 2023 of between $95 million to $100 million, reflecting a 24% to 31% increase in total revenues from 2022, along with gross margin expansion and full year EBITDA profitability.

With that, I’ll turn the floor over to John. After John provides his update, I’ll follow up with an update on our external investments designed to expand our pipeline and supercharge our growth, before we over the line for questions. John?

John Sullivan: Thank you, Jeff. We are pleased with the solid revenue we produced in the fourth quarter as a demand we had anticipated earlier continue to be recognized. 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 fourth quarter 2022 revenue of $25.9 million, slightly lower than 2021’s strong Q4 revenue of $27 million, but sequentially $6.9 million or 36% higher than the $19 million we produced in Q3, 2022 and above Street consensus. For the full year 2022 revenue was a record $76.5 million, representing a $31.2 million or 69% increase from 2021. Revenue growth in 2022 and the fourth quarter particularly was driven by the continued fulfillment of higher residential consumer demand and effective execution of our commercial and industrial backlog.

We ended 2022 with 50% of our total revenues in the Residential segment up from 28% in 2021. While we continue to execute against our existing backlog, we also generated new demand and added $11 million in new business during Q4. Total backlog, as Jeff noted, was $164.2 million as of December 31st, 2022. By segment, our Residential division generated $11.8 million and $38.3 million in the fourth quarter and full gear 2022, respectively. Customer orders are approximately 20.5 million and are expected to be completed within four to six months. Our Commercial division generated $0.4 million and $3.8 million in the fourth quarter and full year 2022, respectively, and has a contracted backlog of approximately $11.2 million expected to be completed within six to eight months.

Our Industrial division generated revenue of $13.3 million and $30.2 million in the fourth quarter and full year 2022, respectively, and has a contracted backlog of approximately $132.5 million, expected to be completed within 12 to 18 months. Lastly, our Utility and Development division generated revenue of $0.4 million and $4.2 million in the fourth quarter and full year 2022, respectively. Our Utility division has 1.6 gigawatts of projects currently under development, with a project expected to achieve NTP in 2023. Gross profit in the fourth quarter was $5.4 million compared to $5.6 million during the fourth quarter of 2021. For the full year 2022, gross profit was $16 million compared to $6.4 million in 2021. Gross margins for the fourth quarter of this year was 21% compared to 20.7% during the same period in 2021.

And for the full year, as Jeff noted, gross margin in 2022 was 20.9%, up 680 basis points from 14.1% in 2021. While our C&I operations were still impacted by industry-wide inflationary pressures, our improved gross margin benefited from the increased diversification provided by our Residential, Utility and Development divisions. As the synergies among our segments increase, we expect overall margin expansion to continue. As Jeff mentioned, beginning in 2023 we are combining our Commercial and Industrial divisions to more effectively utilize our labor and increase our purchasing power, which we anticipate over time will increase our efficiencies and contribute to expanding margins. Operating income in the fourth quarter was a loss of $2.1 million compared to a loss of $3.6 million in 2021’s fourth quarter.

For full year 2022, operating income was a loss of $18.3 million compared to a loss of $10.6 million in 2021. Non-cash depreciation and amortization expenses were $1.8 million in the fourth quarter of 2022 compared to $4 million in prior year period. Full year 2022, non-cash depreciation and amortization expenses were $7.1 million compared to $1 million in 2021. ISun reported a net loss of $3.1 million or $0.12 per share in the fourth quarter of 2022, also better than Street consensus compared to a net loss of $1.1 million or $0.07 per share in the same period in 2021. Full year 2022 net loss was $16.6 million or $1.18 per share compared to a net loss of $6.2 million or $0.67 per share in 2021. Adjusted EBITDA for the fourth quarter of 2022 was $0.3 million or $0.02 per share compared to adjusted EBITDA of $0.9 million or $0.14 per share in the same period in 2021.

Full year 2022 adjusted EBITDA was a loss of $5.6 million or $0.40 per share compared to a loss of $3.9 million or $0.42 per share in 2021. As Jeff referenced, we have made steady progress in the integration of the entities acquired during 2021. Our initial focus was taking advantage of an overlap in services. During 2022, we were able to reduce administrative expenses by consolidating redundancies in the management of our employee benefits programs, our business insurance portfolios, and our treasury functions. We will continue to evaluate our finance and administrative functions to optimize our shared services across each operating segment during 2023. In addition, we successfully implemented our ERP platform across all entities, which provide us greater visibility into financial performance and allows us to utilize available information to make proactive decisions across each operating segment.

We will continue to optimize our systems for each operating segment to provide our business leaders with real-time data access. As we continue to grow our team and geographic service areas, we are creating an expansion playbook that will allow us to enter new markets and territories in an efficient and effective manner. Now turning to the balance sheet. Total debt decreased $2.7 million to $13.6 million as of December 31st, 2022, down from $16.3 million at December 31st, 2021, reflecting the repayment of the bridge loan, and ongoing repayment of long-term debt offset by use of our line of credit. You will recall we finalized a new debt facility of $25 million in total that closed after the end of third quarter 2022, allowing us to consolidate our debt and offering us access to working capital for operational execution as needed.

We utilized the initial tranche of $12.5 million to consolidate our debt and improve cash availability, which is evident by the increase in our cash position to $5.5 million as of December 31st, 2022 compared to $2.2 million at December 31st, 2021. The second tranche of $12.5 million remains available to the company during the second half of 2023, although we have not yet determined whether we will utilize it at that time. We also recognize that there have been some concerns about banking relationships in the alternative energy sector following the Silicon Valley Bank closure. We maintain diversified banking relationships based upon the specific project needs, but any exposure we may have had to SVB or Signature Bank was immaterial and indirect.

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

Jeffrey Peck: Thank you, John. Despite the industry challenges and specific delays in our key geographical areas, I am pleased with the progress that we’ve made in 2022. As I look to 2023 and beyond, it is very encouraging to see some of our key strategic initiatives come to fruition. In 2020 and 2021, we made strategic investments into companies that we believe would provide both demand for our services and an ongoing robust pipeline for projects to iSun. Once such investment was made through forming a joint venture with Fusion Renewable. Through this joint venture, we provide project origination, development, and engineering services through various task orders for a fee. As these projects move through the development process and achieve notice to proceed, iSun retains the EPC rates of these projects in an ownership stake in them as they’re interconnected and put into service.

We then share in the net proceeds from that operating asset. We currently have 930 megawatts in our pipeline with Fusion, and our near-term pipeline is 126 megawatts. This near-term pipeline has anticipated NTP dates in 2023 or 2024. The projects are located in the Southeastern United States and in addition to this near-term pipeline, we also have $11.4 million in active projects with Fusion that will be constructed throughout 2023 and into 2024. Building on this concept, in November of 2021, we made a strategic investment into Encore Renewable Energy, a leading solar project developer. With this investment, iSun secured the rights to construct all of Encore’s projects. With additional investments that Encore received, coupled with securing iSun as a partner in the EPC portion of the project, they’re transitioning their business to an independent power producer.

Encore will now own all of the assets they develop. As a leading developer, encore has historically seen a very high percentage of their projects achieving notice to proceed, so becoming an IPP with a natural transition for that and one that we were glad to take part in both as a strategic investment, but also to secure their expanding pipeline of projects. We are happy to report that Encore’s successful growth is continuing. During a recent joint planning meeting, Encore shared with us that their current pipeline is at 2 gigawatts of which 1.2 gigawatts is considered long-term, 500 megawatts is considered medium term and 300 megawatts is near-term pipeline. This near-term pipeline consists of more than 60 separate projects located in eight different states concentrated in the Northeast with target NTP dates in late 2023 and throughout 2024.

Through our established partnership, we expect to secure contracts to work on these projects, which assures us of an even more substantial pipeline than we have previously shared. I’m extremely excited about the total impact of what we’ve created over the last several years. Since going public, our growth and evolution as a company has been transformational. We have grown revenue over 500%. We have expanded from operating in a single state, having projects in over a dozen states. We have evolved from a C&I firm to a fully integrated renewable energy and electrification company serving each interconnected segment of the solar industry. While accomplishing all of that, we expanded our gross margins on an annual basis for three straight years.

We have made key investments designed to create a pipeline with partners that will generate recurring opportunities and recurring revenue, but at the same time investing in our team and systems to serve and support those expanding opportunities. We have an amazing team to execute on these opportunities within this evolving and dynamic energy market. We’ve diversified our revenue mix between the different segments, and we are focused on executing our goals in an efficient manner to obtain operating profitability in 2023. This is supported by the positive landscape provided by the Inflation Reduction Act. We are confident the best is yet to come for iSun and its stakeholders. And I’ll turn it back over to the operator to open the line for questions.

Operator?

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Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. Thank you. Our first question is coming from Jeff Grampp with Alliance Global Partners. You may proceed.

Jeff Grampp: Good morning, guys. Thanks for the time.

Jeffrey Peck: Good morning.

Jeff Grampp: I was curious, maybe — morning. When we’re thinking about your 2023 growth projections, do you guys see any particular end market being a disproportionate driver of that growth? Or do you have pretty good line of sight towards growth across all of the main end markets?

Jeffrey Peck: Yeah. We’ve got pretty good line of sight. I mean, certainly, we’ve spoke about the delays in some of the C&I projects that we were experienced last year in some of our key markets. So, that’ll be a large area for growth for us. But we have a really good line of sight for the projects that we’re projecting to be constructed and built this year, yes, across all the segments.

Jeff Grampp: Got it. Thank you. On the utility side specifically, any kind of update or progress towards getting any of those larger projects towards NTP? Do you think that’s potentially a 2023 event, or are you guys seeing that potentially playing out, understanding that obviously the majority that’s out of your hands?

Jeffrey Peck: Yeah. We’ve got some near-term projects that are close. We’re calling them maybe potential 2023 NTP or into 2024. In our projections, we haven’t really — we’re taking a more conservative approach. We’re assuming that that won’t be a 2023 project where we will have revenue on. So, it is possible to come into 2023, but these projects of that size take a little bit longer to move through the entire process.

Jeff Grampp: Understood. Of course. If I can sneak one more, and I think I’m a prepared remarks, you referenced an expansion playbook to expand into new markets. Can you maybe peel the onion back on that a little bit more? What does that entail? And do you guys have any kind of markets currently identified for expansion in 2023?

John Sullivan: Hello, Jeff. This is John. I’ll jump in for that one. So, when we’re talking about building out a playbook, what we’re really doing is building out our processes and our procedures that would allow us to either enter into a new market effectively or acquire a opportunistic company and bring our systems and our way of doing business into that organization to help spur that growth. At this point, we do not have any markets specifically targeted, but as those opportunities do come above, we now have the ability to move in very efficiently and effectively based off of the work and the playbook that we’re building out.

Jeff Grampp: Understood. That’s really helpful. Appreciate the time guys.

Jeffrey Peck: Thank you.

John Sullivan: Thank you.

Operator: Thank you. Our next question is coming from Noel Parks with Tuohy Brothers. You may proceed.

Noel Parks: Good morning.

Jeffrey Peck: Morning, Noel.

Noel Parks: Just had a few questions. You mentioned that among your recent initiatives that some of them were expected to improve utilization of on the labor front. I was wondering if you could talk a little bit about that, just what your utilization trends were like over the course of the year and what you’re seeing going forward.

Jeffrey Peck: I don’t know. Yeah. So, what we’re really talking about there is the combination of our commercial and our industrial teams. When we went through 2021 and acquired a few entities, we had separate commercial teams at each of those operating companies. So, during 2022, we reassessed. And in 2023, we pushed the initiative to consolidate those teams into one operating segment. What that does is that really allows us to flex that labor based off of project volume and labor needs, as opposed to having that labor underutilized in an operating segment if the project volume wasn’t there. So, we do feel very strongly that that will enhance our margin moving forward and really allow us to better utilize and flex that labor pool, which is the core of the business and the installation of work that they’re doing.

Noel Parks: Great. Thanks. And you also mentioned that the residential business generates a lot of referral business and how that in turn helps the customer acquisition cost. Is that something that is always from the case or you’ve seen that more recently?

Jeffrey Peck: No, that’s always been the case. We’ve — one of the things we loved about SunCommon when we made that acquisition was the way they treat their customer, which generated a lot of referrals and a low customer acquisition cost. And so, we continued continue to see that trend with them, both in the Vermont, the New York markets where they operate.

Noel Parks: Gotcha. Gotcha. And I guess turning back for a second to the commercial and industrial business, I — with the divisions being combined, as a practical matter, are there really just not particularly meaningful differences between the two business lines at this point? Or I totally understand what you’re saying about combining the labor forces you can I guess move people across what used to be the two divisions. But going forward, I guess, maybe thinking about from a sales and marketing perspective, essentially are they — do they comfortably fit as sort of, I guess, the single strategy in terms of how you approach customers in each of those?

Jeffrey Peck: Yes. So, what we’ve done is by combining the commercial and — the two commercial themes into our C&I, one C&I division, is we’ve reduced redundancies and it allows us to flex labor through what would’ve been various organizations throughout one organization to create improved efficiencies and then align the sales process throughout the company as well. So that you — we’re really moving from multiple companies to one entity solution here. And so, we align every — we want to align productivity, align sales with the operations and engineering teams, and create efficiency throughout the organization.

Noel Parks: Great. And would you say that the sales process and sales cycles for them are essentially the same at this point between an industrial site as a potential customer and commercial location?

Jeffrey Peck: Yeah. The residential is the shortest, commercial is a little bit longer, and then industrial to utility, I mean, really by the size of the project. Typically the projects are longer to get through the process. But really, our focus is to accelerate the transition to solar energy. And with that, by combining these teams, we believe we’ll move projects through the process quicker sales through design and engineering, and into operations to be installed and shorten the time period from sale to installation.

Noel Parks: Great. Thanks for the extra detail. That’s all for me.

Jeffrey Peck: You’re welcome. Thank you for joining us.

Operator: Thank you. Okay. As there are no further questions in queue, I will hand the call back to Jeff Peck for any closing comments.

End of Q&A:

Jeffrey Peck: Thank you everybody for joining the call today. We appreciate your time to allow us to share our progress and performance. If there any further questions, please feel free to reach out to 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. We thank you for your participation.