Pineapple Energy Inc. (NASDAQ:PEGY) Q3 2023 Earnings Call Transcript

Pineapple Energy Inc. (NASDAQ:PEGY) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Good morning. And welcome to the Pineapple Energy Third 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 like to turn the call over to Eric Ingvaldson, CFO of Pineapple Energy. Mr. Ingvaldson, please go ahead.

Eric Ingvaldson: Thank you Audra. Good morning. And welcome to Pineapple Energy’s conference call to discuss results for the third quarter of 2023. With me today is Kyle Udseth, our Chief Executive Officer. This quarter we also had the pleasure of being joined here at our Minnesota headquarters by Scott Maskin, a Pineapple Board Director and the Founder of our SUNation Business in New York State. 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 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 discussed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued yesterday. With that, I will turn the call over to our CEO, Kyle Udseth. Kyle, please go ahead.

A residential home showcasing the success of a solar energy system installation.

Kyle Udseth: Thanks, Eric, and thanks to everyone for joining us on the call this morning. We did push this back one hour this quarter, which I hope has given our West Coast participants the chance to grab a second cup of coffee. As always, we appreciate them joining so early. Today I’m happy once again to share another strong quarter of operational and financial results from Pineapple Energy, but I won’t say it came easy. This is my ninth year in rooftop solar and I don’t recall a more trying quarter for our industry broadly, and I think, you see the effects of that showing up in the earnings results so far of some of our larger public peers. But in spite of the macro challenges and headwinds, we were able to rally our Pineapple teams to deliver another quarter of positive adjusted EBITDA.

We kept a tight focus on disciplined execution and cost containment, while sharpening the pencil on positive ROI growth investments. We’ll share more detail in later sections, but in sum, both our Hawaii Energy Connection and SUNation businesses were able to grow gross profit dollars year-over-year in Q3, which is a huge accomplishment in this interest rate environment. And while it’s still only a cost center and not yet a revenue driver in its own right, we were also able to effectively contain corporate costs, feeding budget, while continuing to build up our shared services capabilities. We strive to keep improving every quarter and our culture of high performance, data centricity, and accountability has never been stronger. Delivering results and hitting our goals will continue to be the focus in Q4 and into 2024.

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Q&A Session

Now for a more detailed look at our performance, let’s start in Hawaii, where Chris DeBone and his team turned in another excellent quarter. Revenue was up 6% Q3 year-over-year, but the real success story is gross profit increasing 40% year-over-year, due to holding the line on pricing while realizing significant decreases in procurement cost. And battery attach rate remained at a tremendous 90%. This is so important as we continue building out the foundation for the grid of the future, where people can produce, store and consume their own electricity. Due to that expense and the length of the trip, we don’t get to spend as much time visiting HEC as we would like to do. I think it had been 18 months since the last time I’d been able to be out there with the team.

But Eric and I did get the chance to go in October for a 2024 strategy and planning session, and it was just such a great reminder of how solid our team is there and how hard everyone works to help people go solar and save on their electric bills. And one place you see that reflected is in the referral rate. In Q3, 79% of our systems sold came via customer referrals, which is just a phenomenal number and a testament to the great customer experience that Chris and all of our HEC team deliver every day. Let’s turn now to New York, where Scott Maskin and the team also delivered a strong quarter. Revenue was down 16% Q3 year-over-year, but that was against a very strong 2022 comp. And much more importantly, we managed to grow gross profit dollars by 1%, which is a solid result in such a challenging interest rate environment.

This impressive result was possible because dealer fees, which are essentially loan origination fees, are included in the revenue number and those have come down significantly as we’ve pivoted to new financing partners in the current aggressive interest rate environment. And then the other key driver is the significant decrease in product costs we were able to negotiate. Battery attach rates in New York were only 3% in the quarter, but we expect that to grow in 2024 when time-of-day rates are implemented in our Long Island market. When this happens, we’ll be poised to capitalize by leveraging our years of experience and knowhow from the Hawaii market. And 40% of all New York sales in the quarter came from customer referrals, which is truly a great result.

This number shows how strong of a job Scott and the whole team do at taking care of customers and delivering that great customer experience. As of quarter end, we have an estimated $40.7 million of probability-weighted installation backlog, giving us good visibility on revenue. Taken together with the revenue numbers we’ve already delivered through the first three quarters of the year, that backlog gives us continued confidence in our stated full year revenue range of $80 million to $85 million. Additionally, while Eric will provide more details, I’ll just state again here that we were able to deliver another quarter of positive adjusted EBITDA, our third in a row and so we’re continuing to guide the positive adjusted EBITDA for full year 2023.

That’s something we as a leadership team are extremely focused on and that I think is a big differentiator versus competitors. On this and the last call, you’ve heard a lot of discussion on organic growth and bottomline focus at our existing businesses and that is our foundation and it is really the support for the whole strategic platform of Pineapple. But the broader vision is absolutely still intact to drive a roll-up in consolidation of leading local and regional, residential and commercial solar companies, and we’ve made steady progress on that front as well. This current environment presents a tremendous buying opportunity for experienced and savvy consolidators you can find and integrate the right companies. With that, I’ll now turn the call over to our CFO, Eric Ingvaldson to walk through our financials in more detail.

Eric, please go ahead.