Pineapple Energy Inc. (NASDAQ:PEGY) Q1 2023 Earnings Call Transcript May 12, 2023

Operator: Good morning, and welcome to the Pineapple Energy First Quarter 2023 Conference Call. As a reminder, today’s call is being recorded. All participants are in a listen-only mode. For opening remarks and introductions, I would now like to turn the call over to Gary Dvorchak of The Blueshirt Group. Mr. Dvorchak, please go ahead.

Gary Dvorchak: Thank you. Good morning, and welcome to Pineapple Energy’s conference call to discuss results for the first quarter of 2023. With me today are Kyle Udseth, our Chief Executive Officer; and Eric Ingvaldson, our Chief Financial Officer. Our call this morning will include statements that speak to the company’s expectations, outlook, and predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements except as may be required by law.

Please refer to our disclosures regarding risk factors and forward-looking statements in today’s earnings release, and our other SEC filings. A copy of our press release has been posted to the Investor Relations page of our website for reference. The non-GAAP financial measures disclosed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued last night. With that, I’ll turn the call over to our CEO, Kyle Udseth. Kyle, go ahead.

Kyle Udseth: Thanks, Gary, and thanks to everyone for joining us on the call today. Our first full quarter with SUNation was highly successful with strong results company-wide coming in ahead of our own internal plan. SUNation continued its momentum while HEC delivered a very solid quarter demonstrating great resiliency to quickly and fully recover from the December permitting challenges we spoke about on the last call. We entered the second quarter with great momentum in an integrated national business that is poised to continue both organic growth and acquisitions. Let’s start in Hawaii where we grew substantially versus both last year and last quarter on the key forward-looking metric of kilowatts sold. Installations declined sequentially, which is the normal seasonal pattern in Hawaii, but much more importantly, residential kilowatts installed in Q1 were up 14% versus Q1 of 2022, which is a great result that over delivered versus budget.

Battery attach rate in Hawaii remained outstanding at 85%. Our team there has years of experience helping homeowners choose solar paired with battery storage. The regulatory framework and local incentives in Hawaii are different than New York and more conducive to batteries, yet upcoming changes in the Long Island market should soon favor battery attachment there as well. Transferring this knowledge to our SUNation team from the experts at HEC should pay dividends in the quarters ahead as we increased battery attach rate versus the current low single-digit rate. Turning now to our New York business, SUNation’s momentum was strong in the quarter as well. Kilowatts sold were up around 30% versus last year, outstanding growth that resulted from our strong value proposition for homeowners on Long Island and in New York City, combined with solid execution from our SUNation team.

Despite the usual winter weather challenges, kilowatts install were up 65% versus last year, which was the biggest driver of our consolidated revenue growth. Notably, SUNation recently achieved a major milestone crossing 100 megawatts of lifetime solar installed. I’m grateful for the hard work of the team we have at SUNation. We are going to keep our foot on the gas to deliver strong growth throughout the year or I guess I should say, keep our foot on the accelerator of the electric vehicle. At the quarter-end, we have an estimated 38 million worth of pending installations giving us good visibility on revenue. That backlog, which should all be installed before year-end, is close to half of our 2023 revenue guidance. The strong performance in Q1 gives us even greater confidence in our stated full-year revenue range of 80 million to 85 million.

With the over performance in Q1 versus our plan, we’re now trending to the top of that range versus the midpoint. This revenue growth and better profitability enabled us to reach an important goal earlier than planned. On the last earnings call, we stated our objective to cross the positive cash flow from operations in the second half of 2023. In fact, we had positive operating cash flow from continuing operations this Q1. This is a really important achievement and it looks great on a spread sheet and in a press release, but to me personally, even more important is what it represents. We’ve been on this journey to sustainability as a company for almost 2.5 years now since I founded the business in November of 2020. And now we’ve gotten there ahead of schedule.

It’s something I think we all take pride in here and I’m grateful to all of our Pineapple employees for their hard work in getting us to this point. It’s a destination, but also just the starting point for the next phase of the company’s life. We are continuing to build on this momentum and we have tremendous optimism for the rest of the year and for the future of Pineapple. The financials are of course key, but our achievements in the quarter extended beyond the numbers as well. A key element of our strategy in the East is to penetrate the new build market and we got traction there with a contract to outfit homes and a subdivision being built by a leading local real estate developer Baiting Hollow. The initial deal is small at 25 homes, but is sophisticated because we will install full smart energy systems.

This means rooftop solar, battery storage, other efficiency systems to smart light bulbs, and a home energy management control system. As Baiting sees initial success in sales, we anticipate selling more of these smart home energy packages to them and other developers both on Long Island and around the country. Even as SUNation manages its current rapid growth, we are thinking ahead especially in terms of workforce. In some parts of the country and for some solar companies, high growth from heavy customer demand is bumping up against shortages in skilled field labor. While we have not experienced these shortages ourselves, we always want to be proactive. A great example of this is Brian Karp, one of our leaders at SUNation who spearheaded a public private partnership with [several] [ph] Community College, train people for solar industry jobs.

This joint training program will graduate people with the technical skills to succeed in our industry, ready to contribute on day one in various roles. This is a great example of how public private partnerships can drive economic growth and better the lives of our local community. Finally, I want to share a big win for our E-Gear subsidiary in Hawaii. We licensed our Energy Management Controller or EMC to Eguana who is a seasoned vendor of solar paired battery energy storage systems. Our EMC is a critical component and this deal holds the promise of high volume sales of our EMC. A key part of this deal is that it is capital light. We licensed the design to Eguana, but they will build it. We will collect royalty revenue on a per unit basis. This deal is a great starting point for us to gain traction on the devices side, which a high margin complement to our installation business.

We are very excited about the prospects for this segment. With that, I’ll now turn the call over to our CFO, Eric Ingvaldson, to walk through our financials. Eric, please go ahead.

Eric Ingvaldson: Thank you, Kyle. And I would also like to express gratitude to our employees in New York and Hawaii and Minneapolis for all of their hard work that has led to the results that we are presenting here in the first quarter. I will very quickly review the GAAP financials as required by the SEC, then review some pro forma numbers that will give you a better sense of the performance of our business. The GAAP numbers are not insightful because Q1 results last year consisted of only three days of operations, post-merger with CSI. Let’s start with the first quarter 2023 GAAP results, which includes a full contribution quarter from SUNation. Keep in mind that the legacy CSI businesses JDL and Ecessa are reported as discontinued operations.

Revenue was 22 million in the quarter, up 28% from the fourth quarter. Gross profit was 8 million in the first quarter, up 60% from the fourth quarter. Operating expenses were 10.2 million, up 19% from the fourth quarter. A net loss from continuing operations was 2.6 million, which includes 1.3 million of amortization expense and an 825,000 unfavorable fair value remeasurement of earn-out consideration. Revenue in the first quarter of 2022 was de minimis at $232,000. Now, let’s summarize our first quarter pro forma results, which assume we owned HEC, E-Gear, and SUNation for the full quarter in 2022. The comparisons are all year-over-year. Pro forma revenue was up [60%] [ph] from 13.8 million last year, with HEC up 39% and SUNation up 68%. Pro forma net loss of 2.6 million, improved 53% from the prior year net loss of 5.4 million, which included 2.7 million of transaction costs.

Pro forma adjusted EBITDA of positive $367,000 improved 142% from negative $871,000 in the prior year. Pro forma adjusted EBITDA includes adjustments for amortization expense of 1.3 million, an unfavorable fair value re-measurement of earn-out consideration of 825,000, an unfavorable fair value remeasurement of the contingent value rights of 250,000, and other items such as interest income, interest expense, depreciation, taxes, stock compensation, and a gain on sale of assets. Turning to the balance sheet, which represents GAAP figures, we ended the quarter in good shape. Cash available for use in our operating business was 3.4 million. We had another 4.2 million of restricted cash and liquid investments, which is reserved for the contingent value right holders.

We plan to raise capital in 2023 to refinance debt and fund acquisitions. Our performance in Q1 gives us confidence in our previously stated full-year revenue range and ability to generate meaningful cash flow from continuing operations this year. Now, we would like to open the call for any questions. Operator, please go ahead.

Q&A Session

Operator: Let’s see. Our first question comes from the line of Donovan Schafer of Northland Capital Markets. Please go ahead.

Operator: Thank you. [Operator Instructions] Your next question comes from the line of Chip Moore of EF Hutton. Please go ahead.

Operator: Thank you. Your next question comes from the line of Jeff Grampp of Alliance Global Partners. Please go ahead.

Operator: Thank you. [Operator Instructions] Seeing no more questions in queue. Let me turn the call back to Kyle for closing remarks. Please go ahead.

Kyle Udseth: Thank you, operator. Before we conclude, I want to mention some investor relations events we have coming up. Next Tuesday we’ll be in New York for one-on-one meetings at the Credit Suisse Renewables and Utilities Conference, then in early June we’ll present on a U.S. Residential Solar Panel and hold one-on-one meetings at the Cowen’s sustainability week conference, which is virtual. Those are private events for the clients of each brokerage firm, so please contact your sales rep to register and schedule meetings. Let me now wrap-up the call. We’re excited by the strong start to 2023 and are confident we will sustain this solid performance. We have great organic growth momentum and while we didn’t spend as much time in the scripted portion talking about M&A that inorganic growth continues to be core to our strategy.

We’ve been working diligently on sourcing our next acquisitions and there are abundant opportunities to bring in complementary businesses with strong financial profiles and a great cultural fit with Pineapple. We’ve reached the point where our national business has substantial revenue with positive cash flow from operations is run by an experienced management team and is building a pipeline of potential acquisitions to drive further growth. We look forward to reporting our progress at our next earnings call in August. Thank you again for joining us today and for your continued support. If you have any questions, please contact me, Eric, or Gary and Jenny with our Investor Relations team. This concludes our call today. You may all disconnect.

Thank you.