Q2 2021 Sunworks Inc Earnings Call
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Please standby were about to begin.
Good day, ladies and gentlemen, and welcome to the Sun works second quarter 2021 earnings call. After the presentation there'll be a question and answer session. He should require assistance during the call. Please press star zero and an operator will assist you.
At this time, it's my pleasure to turn the floor over to Mr. Rob Fink of F. N K I R. Sir the floor is yours.
Thank you operator, good morning, everyone. Thank you all for joining <unk> second quarter 2021 earnings conference call hosting the call today are <unk>, Chief Executive Officer, and Paul Mcdonnel, Chief Financial Officer.
Before we start I would like to remind everyone that during this call managements remarks may contain forward looking statements, which are subject to risks and uncertainties and management may make additional forward looking statements during the Q&A session.
Therefore, the company claims the protection of the Safe Harbor for forward looking statements that is contained in the private.
Securities Litigation Reform Act of 1995 actual results could differ materially from those contemplated by the forward looking statements because of certain factors, including but not limited to general economic and business conditions competitive factor changes in business strategy or development plans integration and operational risks associated.
With the acquisition of associates.
Ability to attract and retain qualified personnel and changes in the legal and regulatory environment.
In addition, any projections as to the Companys future performance represent management's estimate as of today August 13, 2021 son works assumes no obligations to update these projections in the future as market and business conditions may change with all that said I'd like to turn the call over to Sun works and CEO Galen Marlin Morris.
Gail the call's yours.
Thank you Rob good morning, everyone and thank you for joining our call.
I had been the CEO of some works for approximately seven months in that short period, we have changed the face the trajectory and the culture of the company, we are a larger and more mature and more efficient company, we have endeavored to improve all facets of our business.
Associates combination has brought energy scale and effectiveness to our residential projects.
Creased rigor and accuracy has improved our margins in our commercial and industrial projects.
Combined with regulatory and market tailwind, we are positioned to progress towards profitability and we have many opportunities to maintain and accelerate our growth I'm excited to speak to our stockholders today to discuss the transformation of some works and speak to our go forward strategy.
First on the residential side of our business. All work is now being sold under the associates management team for more than seven years Associates has been a recognized leader in residential solar solutions and we are benefiting from their processes.
Their expertise and their energy.
Partly due to increased availability and partly due to our greater scale and resulting purchasing power. We have seen an increase in our access to batteries. This has enabled us to advance more than projects, which have been stuck in backlog awaiting batteries.
<unk> Associates is now offering energy storage solutions in each sale.
I'm, a geography standpoint, we are now offering solar and storage solutions in the radio, Texas, expanding our upper our residential operations to 19 markets and 10 States, we plan to expand into Dallas in September in Houston by the end of the year significantly expanding our presence in Texas.
[noise] excuse me from a sales channel partner standpoint, we just signed an exclusive two year extension with our largest sales partner, which will continue to contribute a significant portion of our residential sales and revenue.
Actually we have added 22, new sales channel partners since closing the acquisition on April seven, bringing our total number of sales channel partners to 57, we are continuing to actively recruit produce sales channel partners throughout the United States.
To that end earlier this month <unk> launched a new select program for new and existing sales channel partners, which will allow us to be extremely competitive on base rate installs.
By streamlining what is included in the base rate to our most popular offerings and shifting more specialized selections to list of add ons. This will help us to increase the number and locations of our sales channel partners expanding our indirect revenue streams.
We will continue to support and grow our sales channels in an effort to further improve our growth while we continue to support and grow our sales channels in an effort to improve our growth outlook and be able to move more quickly and effectively into new geographies associates kicked off a dedicated direct sales effort. This summer hiring sales leaders in mulch.
People geographies, who will build teams of local direct sales agents, allowing us to deploy increased sales coverage in local markets. Additionally, some works residential sales team has transitioned to become associates tell us sales team focused on selling to why geographies via telephone and virtual sales efforts.
To support this effort we are now running TV ads radio ads and are increasing our focus on all of our marketing and branding efforts. This is a large reason why our costs have increased as we are investing in marketing programs to drive brand awareness and revenues. In addition, we have hired a new senior Vice President of marketing starting in September she brings extensive.
I've experienced not only in modern marketing methods, but also in brand management and acquisition integration.
Turning now to our commercial and public works businesses, we have made significant progress in our efforts to improve margins to achieve this our highest priority has been increasing our focus on improving our estimating and quoting and enhancing our deployment execution to avoid costly project overruns Sim.
Simply put some works is now a margin focused organization.
Our team is measured on margin margin not just run revenue. In addition, as our business matures. We are increasingly focused on process improvement throughout the business.
We have put additional processes in the turnover between sales and operations to improve integration.
Avoid miscommunication when we have started conducting post project profitability reviews to identify and learn from our successes and our Mrs.
Sure. We believe we have finally succeeded in getting away from revenue for revenue sake.
As a result, our forecasted gross margin for public works projects is now over 15% and for commercial projects. It is over 20%. This is on projects that are in our backlog and already or already in construction.
Not unquoted work.
We have a very clean backlog right now with almost all of our work scheduled for execution in the past 18 months, partially as a result of COVID-19, we have experienced project delays that have made more difficult. The timely completion of projects scheduling delays can also make quoting a challenge in an environment where material prices change frequently actively work.
To avoid delays has been an important initiative for submarines.
In the near term I have started a search for national sales leader with a goal of injecting new energy and focus into our commercial and industrial sales efforts on.
On the operations and maintenance front, we have decided to put significant energy in determining our O&M group into a profit center servicing all users of solar and storage, including residential and utility customers as well as the commercial and public works customers. The group currently serves I expect we will sign several new accounts in Q4 of <unk>.
<unk> 21 in Q1 of 'twenty 'twenty, two with that I will ask Paul to provide more specifics related to our financial results in the quarter.
Thank you Galen and Hello, everyone.
For the second quarter of 2021.
Installation revenue was $32.1 million.
Compared to $9.7 million in the year ago quarter.
So also gets operations accounted for $22.8 million of the revenue increase.
Combined so here from thunberg residential revenue totaled $24.9 million per quarter.
Or 78% of quarterly revenue comps.
Compared to $1.8 million or 19% of total revenue in the prior year.
Prior year Covid impacted second quarter <unk>.
Commercial and public works installation revenue was $7.2 million or 22% of total second quarter revenue.
Versus $7.9 million or <unk>, 81% of total revenue in the prior year quarter.
Gross margin for the second quarter of 2021 was 47, 2% compared to 24, 9% for the second quarter of 2020.
As Stephen said this gross margin improvement was due to operational enhancements in all areas of our business.
We have had a particular focus on improving accuracy and are estimating processes and.
And in meeting project schedules and deployments.
This gross margin improvement also reflects the positive contribution of <unk>.
<unk> to the margin mix.
Total operating expenses for the second quarter of 2021 were $19.9 million compared to $3.7 million for the second quarter of last year.
The increase in the market and operating expenses was primarily due to the addition of Sofia.
Breaking down operating expenses.
Our selling and marketing expense was $10.2 million compared to $1.3 million in the year ago quarter.
This quarter includes the costs associated with maintaining the associates channel partner network for sourcing customers.
And also includes the increased marketing spend for radio and TV advertising related to growing our residential business.
G&A expense.
$6.7 million compared to $2.4 million primarily related.
Through expenses from associates.
Stock based compensation was $1.1 million compared to 23000 in the prior year, reflecting.
Reflecting this stock option and restricted stock unit grants to key employees that joined us from Celsius.
These retention program grants clip vest in April of 2022 and are being Expensed. During the first year following the acquisition of associates.
Okay.
Depreciation and amortization was $1.9 million in the quarter compared to 83000 in the prior year quarter.
Reflecting the amortization of the $15.6 million of intangible asset identified as part of the associates acquisition.
These intangible assets are being amortized over lives ranging from nine months.
For our project backlog acquired to 10 years for trademarks and trade names.
Detailed the future amortization expense is included in the notes to the condensed consolidated financial statements included in the 10-Q to be filed later today.
Other income was $2.9 million for the quarter.
The bulk of this current quarter other income.
From a gain on forgiveness of the two 8 million patrons.
Paycheck protection program loan in there.
Crude interest.
All right.
Interest expense declined from 137000 to 20000.
A decrease in interest expense is the result of having paid off with promissory note to crowd out capital in the fourth quarter of 2020.
Finally, we recorded nonrecurring gain on disposal of property and equipment of 51, reflecting an increase in market value for used vehicles disposed of used vehicles during the quarter.
Our net loss for the quarter was $1.9 billion.
Per share okay.
Okay.
One or not.
Nine and procure equipment.
If you look at the 2020.
And the balance sheet.
Cash and cash equivalents balance as of June 32021 was $26.9 million.
Compared to $30 million.
At March 31st 2020.
This reflects the money raised in late 2020 and in early 2021 through our at the market offerings.
The cash raised was used to acquire Celsius and for operating and working capital needs. During the first six months of 2021.
With that we're now happy to answer any questions.
Yes.
Thank you, Sir ladies and gentlemen, if you would like to ask a question at this time. It is star one on your Touchtone telephone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again Thats star one on your Touchtone telephone at this time, if you'd like to ask a question.
We'll go first to Philip Shen with Roth Capital partners.
Hey, Good morning, guys. This is Justin Clare on for Phil today.
Good morning, Justin.
Good morning, So I guess first off.
You indicated.
In the press release that you are expecting strong year over year growth in residential revenue.
In line with.
Market trends.
I wanted to make sure we have the baseline correct I believe.
<unk> plus Celsius revenue for the resi segment was $103 million in 2020.
So I just wanted to make sure that's right and then also we're seeing market growth in a range of let's say, 20% plus up to maybe even 30% is possible. This year. So how are you thinking about your growth relative to.
Kind of those numbers.
Paul do you have the year over year pro forma from last year to answer the first part of that question.
Not immediately in front of me Galen.
Okay. Adjusting your number sounds accurate I wouldn't want to go back and validate that and I can send you and fill an update on exactly what the revenue residential revenues were for 2020, when you combine the pre acquisition associates numbers and some worse numbers.
With regards to market trends I think we indicated in our last call. Our press release that we were looking at a 15% year over year growth I understand a lot of people in the market are talking 20 plus percent.
But.
Like to think that when they talk that number they're talking pretty holistically about the entire market.
When we measure it purely from a revenue standpoint, I'm, a little more conservative than that.
Okay. That's that's helpful.
So then just looking at.
The performance of the business for Q1 and Q2.
The gross margin level here has been at this 47% for both quarters when looking at both the businesses combined so Q1 pro forma is that a decent gross margin to kind of think about as we move forward here or are there key.
Key factors that might move that either higher or lower.
We move into Q3 and Q4.
I'd like to see that I would like to be able to say that's been an increase.
We certainly are making tremendous efforts to increase that.
We have Q1, and Q2 that 47% gross margin still had baked into that projects that were.
One during the Covid period, where we were being very aggressive on pricing.
I think that we will see some improvement on the commercial side.
That will drive that a little bit higher on the residential side.
Specifically as we continue to increase our efforts in direct sales that should contribute a little bit more margin to the bottom line as well so sure.
You're not paying another companies to provide you with those leads.
Okay, Great. That's helpful and then shifting to Opex.
Also looking at the last couple of quarters that has been reasonably consistent a little bit of change, but selling and marketing it that maybe $10 million G&A, a little bit below $7 million are those decent number to think about going forward here or so BBB and anticipating any meaningful change.
As I indicated in my comments, there's a new senior Vice president of marketing starting I'm looking for our sales leadership position, so there'll be a there'll be a little bit more on the.
On the sampling <unk> G&A expense side, depending on where they fall in the structure.
But we're not we're not.
Anticipating a large hiring trend or renting any new facilities or anything like that so I think I think I would say, it's going to be fairly consistent with the possibility of just a little bit more salary in there to support our growth.
Got it got it Okay and then just one more one more for me, we've seen cost inflation affecting the industry kind of broadly here, whether it's modules or steel or inverters.
Can you talk about how you're managing it.
The potential for costs to further increase and how you are.
Quoting C&I projects with that potential so.
So that you don't get caught with a particular quote and then cost increase later down the down the road.
Sure sure. So first half of that question with regards to how we're managing our supply chain.
Say aggressively.
We have Fortunately we are fortunate in that we're sitting on.
Some cash reserves were able to make intelligent purchases.
Enable to buy inventory up in advance at current rates and.
While negotiating current rates, so I would say at least through the end of this year, we are operating at a lower cost basis than maybe some other people.
With regards to how we are quoting projects.
We have been building in some small material price increases specifically on steel for Carports for instance.
As our suppliers have pushed those.
Those increases with potential increases to us.
We've also made some revisions to our contracts to make it.
Easier for us to.
To talk with our customers about those price increases and to be able to push some of those price increases over.
Okay, Great that does it for me I'll pass it along.
And that is the final question in our queue today, Mr. Morris I'd like to turn the call back over to you for any closing remarks.
Thank you and thank you all for joining our call and for your continued interest and support I believe we have delivered significant progress in a short period of time and I am increasingly optimistic about our prospects for the future.
Please don't hesitate to reach out to Paul or myself, or Rob Fink and F. N K IR team at any time, if you have further questions. Thank you.
Ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may disconnect at this time and have a great day.
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