Q1 2022 Sunworks Inc Earnings Call
Greetings. Welcome to the Sunworks first quarter 2022 results conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Greetings and welcome to the Sun works first quarter of 2022 results conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star 0 on your telephone keyboard keypad.
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I will now turn to conference over to you, CFO Jason Bondfig, maybe in. Thank you, operator.
I'll now turn the conference over to your host CFO , Jason Badri may begin.
Thank you operator.
I'm, Jason Barker, Chief Financial Officer of Sun works on behalf of our entire team I would like to welcome you to our first quarter 2022 results conference call.
On behalf of our entire team, I'd like to welcome you to our first quarter 2022 results conference call.
Leading the call with me today is our president and CEO , Galen Moore.
Leading the call with me today is our president and CEO scaling Morris.
Today's discussion contains four looking statements about future business and financial expectations.
Today's discussion contains forward looking statements about future business and financial expectations actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the FCC.
Actual results may differ significantly from those projected in today's poor-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC.
Except as required by law, we undertake no obligation to update our forward looking statements ethics.
As we accept as required by law, we undertake no obligation to update our forward-looking state.
ethics inclusion of our prepared remarks, we will open the line for questions. With that, I'm...
That's the conclusion of our prepared remarks, we will open the line for questions.
I'd like to over to Galen.
Thank you, Jason and welcome to those joining us today for our first quarter results conference call.
Thank you, Jason, and welcome to those joining us today for our first quarter results.
Before we move into a discussion of our first quarter results, I'd like to begin with a high level overview of the progress we're making to advance sun works ongoing business transformation, together with those key areas of strategic focus that our team at Pryor.
Before we move into a discussion of our first quarter results I'd like to begin with a high level overview of the progress we're making to advance some works ongoing business transformation together with those key areas of strategic focus that our team is prioritized.
Demand within our residential end markets exceeded our expectations during the first quarter, as recent investments in marketing and business development capabilities resulted in strong new project originations, particularly in the West and Midwest region.
Demand was in our residential end markets exceeded our expectations during the first quarter as recent investments in marketing and business development capabilities resulted in strong new project originations, particularly in the west and Midwest regions.
Demand was in our commercial end markets took a pause in the first quarter at several customers deferred projects due to uncertainty related to them three point out.
Demand within our commercial and markets took a pause in the first quarter as several customers deferred projects due to uncertainty related to them 3.0. Importantly, early in the second quarter, commercial activity has accelerated meaningfully while our pipeline of new project opportunities remains held.
Accordingly.
Early in the second quarter commercial activity has accelerated meaningfully while our pipeline of new project opportunities remains healthy.
On balance, we anticipate an acceleration in quoting, bookings and backlog across the business in the second quarter that should exceed both prior quarter and prior year
On balance, we anticipate an acceleration in quoting bookings and backlog across the business in the second quarter it should exceed both prior quarter and prior year levels.
While the revenue story was positive in the first quarter, our margin capture was impacted by upfront investments in labor together with component cost of play.
While the revenue story was positive in the first quarter, our margin capture was impacted by upfront investments in labor together with component cost inflation.
In response to rising labor and supply chain costs, we introduced a series of price increases in the first quarter and are introducing additional increases in the second quarter. These price increases together with a continued focus on reduced lead times, improved closure rates, and disciplined expense management are expected to help offset many of the inflationary headwinds evident across the market.
In response to rising labor and supply chain costs, we introduced a series of price increases in the first quarter and are introducing additional increases in the second quarter. These price increases together with a continued focus on reduced lead times improved closure rates and disciplined expense management or expect.
To help offset many of the inflationary headwinds evident across the market.
Although inflationary pressures exist in the solar industry, we believe that customers will continue to pursue solar investments in the face of rising utility.
No inflationary pressures exist in the solar industry, we believe that customers will continue to pursue solar investments in the face of rising utility rates.
In March, the Department of Commerce received a petition filed by California-based solar module manufacturer, Oxon Solar. The petitioner requested that the DOC review solar panel imports from Chinese companies working in Cambodia, Malaysia, Thailand, and Vietnam related to anti-dum.
In March the Department of Commerce received a position petition filed by a California based solar module manufacturer auction solar.
The tissue of requested that the D. O C reviews solar panel imports from Chinese companies, working in Cambodia, Malaysia, Thailand, and Vietnam related to anti dumping.
Many in our industry, including CEA or trade Association are concerned that the investigation could have an adverse impact on payroll pricing and or availability for the U S solar supply chain affecting everyone print panel producers and easily six to developers and other P. Pes.
Many on our industry, including SEA, our trade association, are concerned that the investigation could have an adverse impact on panel pricing and or availability for the US solar supply chain, affecting everyone from panel producers and easing C's to developers and IPP.
While these developments are potentially ahead wind to the entire solar industry, reflecting a lack of support for the energy transition as a whole, we see no near-term impact from this investigation on our...
While these developments or potentially a headwind to the entire solar industry, reflecting a lack of support for the energy transition as a whole we see no near term impact from this investigation on our business.
Beginning late last year, we began to build our solar module inventory above historical levels. A strategic action intended to mitigate supply chain risk in advance of growing customers.
Beginning late last year, we began to build our solar module inventory above historical levels of strategic action intended to mitigate supply chain risk in advance of growing customer demand as part of this initiative, we expanded our direct and third party supply relationships with both domestic and foreign partners.
As part of this initiative, we expanded our direct and third party supply relationships with both domestic and foreign partners.
So while we couldn't have foreseen the potential for the D. O C investigation on panel pricing and availability our decision to create an inventory cushion during a period of pandemic led supply chain volatility benefited us ensuring a stable supply of comparatively low cost panels to support rising customer demand.
So while we couldn't have foreseen the potential for the DOC investigation on panel pricing and availability, our decision to create an inventory cushion during a period of pandemic-led supply chain volatility benefited us, ensuring a stable supply of comparatively low costs panels to support rising customer demand.
Currently, a barring any significant additional supply chain issues between our existing module inventory and contractual supplier commitments. We expect to have sufficient inventory to support anticipated customer demand well into Q220.
Currently barring any significant additional supply chain issues between our existing module inventory and contractual supplier commitments, we expect to have sufficient inventory to support anticipated customer demand well into Q2 'twenty three.
Turning now to a discussion of our strategic priorities as we look at the remainder of 2022 and beyond.
Turning now to a discussion of our strategic priorities as we look at the remainder of 2022 and beyond.
Market fundamentals, including rising utility costs, remain strong across our key geographic markets as residential and commercial adoption of reliable, low cost, renewable energy continues to accelerate. Some works is uniquely positioned to capitalize on this generational shift, leveraging our scale in what remains a highly fragmented market.
Market fundamentals, including rising utility costs remained strong across our key geographic markets as residential and commercial adoption of reliable low cost renewable energy continues to accelerate some works is uniquely positioned to capitalize on this generational shift leveraging our scale and what remains a highly fragmented market.
Looking ahead, our team remains focused on five key strategic priors.
Looking ahead, our team remains focused on five key strategic priorities.
First, we remain focused on rapidly growing scale within the residential solar installation market, building upon our 2021 platform acquisition of solar.
We remain focused on the rapidly growing scale within the residential solar installation market building upon our 2021 platform acquisition associates.
Over the next five years, we anticipate annual residential PV megawatts installed will increase by 50% from 2022 levels driven by increased consumers adoption of renewables.
Over the next five years, we anticipate annual residential PV megawatts installed will increase by 50% from 2022 levels driven by increased consumer adoption of renewables.
Within commercial, we expect the US market will experience year-to-year double-digit growth in Megawatt's install supported by broad-based mangroves, together with a completion of planned and in progress upgrades to Grid Intercontinental.
Within commercial we expect the U S market will experience year over year double digit growth megawatts installed supported by broad based demand growth together with the completion of planned and in progress upgrades to grid Interconnects.
Our organic growth focus includes further expansion of our multi-channel sales force, the introduction of new products and solutions together with the demand-led pricing model.
Our organic growth focus.
<unk> further expansion of our multichannel sales force the introduction of new products and solutions together with a demand led pricing model.
While inorganic growth is not a near-term priority, we do continue to evaluate potential bolt-on acquisitions that could accelerate expansion within specific regional markets.
While inorganic growth, there's not any near term priority. We do continue to evaluate potential bolt on acquisitions that could accelerate expansion within specific regional markets.
Second, we remain focused on expanding the percentage of revenue derived from our direct sales channel. Historically, the company's residential segment has relied heavily on third-party sales channel partners to originate new businesses.
Second we remain focused on expanding the percentage of revenue derived from our direct sales channel.
Astoria Li the company's residential segment has relied heavily on third party sales channel partners to originate new business beginning in 2020. One we launched an initiative to develop a more robust internal sales capability.
Beginning in 2021, we launched an initiative to develop a more robust internal sales capability, one designed to increase project origination while reducing compensation expense.
One designed to increased project origination, while reducing compensation expense.
By the end of 2022, we expect that approximately 25% of our residential revenue will be originated from our direct sales force up from a 10% run rate exiting 2021. Third, we intend to build and develop a lean operating culture, one that will adopt an increasingly efficient approach to sourcing and procurement as well as project execution.
By the end of 2022 we expect that approximately 25% of our residential revenue will be originated from our direct sales force up from a 10% run rate exiting 2021 third we intend to build and develop a lean operating culture, one that will adopt an increasingly efficient approach to sourcing and procurement as well as project execution.
This year, we intend to source more materials and equipment directly from US-based original equipment manufacturers, while lessening our reliance on third-party distributors. We believe this approach will allow for improved surety of supply at a lower F.
This year, we intend to source more materials and equipment directly from U S. Based original equipment manufacturers, while lessening our reliance on third party distributors. We believe this approach will allow for improved surety of supply at a lower average cost force even during a period of raw materials and labor inflation, we will seek to drive.
Fourth, even during a period of all materials and labor inflation, we will seek to drive margin expansion. Margin expansion is central to our business transformation thesis and remains a significant catalyst, capable of driving a positive re-rating and a reference.
Margin expansion margin expansion is central to our business transformation thesis remains a significant catalyst capable of driving a positive re rating indirectly.
Multiple margin-enhancing actions are currently underway in our business, including the implementation of programmatic price increases.
Multiple margin enhancing actions are currently underway in our business, including the implementation of programmatic price increases Tom.
targeted market share gains, optimization of our sales channel partner network and direct sales.
Targeted market share gains optimization of our sales channel partner network indirect direct salesforce.
increased productivity resulting from recent head count investments, and the adoption of lean principles to reduce costs, and lead times, and drive continuous improvement, which we would expect to reduce cancellation rates, and improve margin.
Increased productivity, resulting from recent head count investments and the adoption of lean principles to reduce cost and lead times and drive continuous improvement, which we would expect to reduce cancellation rates and improve margin.
Finally, during a period of transformation, we will continue to maintain adequate liquidity to support beyond going growth.
Finally during this period of transformation, we will continue to maintain adequate liquidity to support the ongoing growth of the business during.
During the first quarter of 2022, we sold 2.8 million shares of common equity, under and existing at the market agreement, resulting in net cash proceeds to the company of $7.8 million.
During the first quarter of 2022 we sold two 8 million shares of common equity under an existing at the market agreement.
And net cash proceeds to the company of $7 $8 million.
Cash proceeds were invested in working capital investments, including the purchase of additional inventory to support increasing demand, together with headcount investments as we build our direct sales for.
Cash proceeds were invested in working capital investments, including the purchase of additional inventory to support increasing demand together with head count investments as we build our direct sales force.
With that, I will hand the call over to Jason for a view of our first quarter financial resources.
With that I will hand, the call over to Jason for a review of our first quarter financial results.
Thank you, Gail. During the first quarter, our team continued to advance the multi-year business transformation, designed a position set of solar business of scale, with both domestic residential and commercial markets.
Thank you Galen during.
During the first quarter, our team continued to advance our multi year business transformation designed to position Sun solar business. It's a scale, that's both domestic residential and commercial markets.
Before we discuss our financial performance, please note that we have implemented a change in our segment reporting. When we believe we'll better reflect how we evaluate and manage our business.
Before we discuss our financial performance. Please note that we have implemented a change in our segment reporting one we believe will better reflect how we evaluate and manage our businesses.
The primary change is that the previously reported submersed segment is now separated into corporate costs and commercial solar.
The primary changes that the previously reported submarine segment.
We've now separated into corporate costs and commercial solar.
which will show the financial performance of our commercial, industrial and public works.
Which will show the financial performance of our commercial industrial and public works business.
You will not be able to provide year-over-year performance evaluation for the commercial solar and corporate overhead segments below gross profit.
We will not be able to provide year over year performance evaluation or the <unk>.
Commercial solar and corporate overheads segments below gross profit.
Our Solcius Leibnett has been renamed to residential solar.
Our associates segment has been renamed to residential solar.
Net sales, gross profit, bookings, and backlog all increased materially on the year-rear basis in the first quarter. As strong residential demand, more than offset lower-comer hivots.
Net sales gross profit bookings and backlog all increased materially on a year over year basis in the first quarter as strong residential demand more than offset lower commercial activity.
For the three months ended March 31, 2022, some reports reported total revenue of $31.2 million versus $6.2 million in the prior year period.
For the three months ended March 31 2022.
Reported total revenue of $31 $2 million versus $6 $2 million in the prior year period.
The year-over-year growth was attributed mainly to increased contributions from the residential segments, which offset a revenue decline in the commercial solar segments.
Year over year growth and what's attributable mainly to increased contributions from the residential segments.
Which offset a revenue decline in the commercial solar segment.
during the first quarter, residential and commercial revenues represented 87% and 13% of total revenue, respect.
During the first quarter residential and commercial revenues represented 87% and 13% of total revenue respectively.
So, girls profit increased to $14 million in the first quarter versus $100,000 in the prior year period.
Total gross profit increased to $14 million in the first quarter versus $100000 in the prior year period.
The year-be-year variance is primarily trivial to the contributions from the social acquisition.
The year over year variance is primarily attributable to the contributions from the sole Seattle Associates acquisition.
Additionally, improved estimating cost management and execution led to margin improvement in our commercial solar segment. Despite the reduction in components.
Additionally, improved estimating cost management and execution led to margin improvement in our commercial solar segment.
Despite the reduction in comparable period revenue.
As a result of these impacts, scrolls margin increased to 45% in the first quarter, versus 1.5% in the prior year period.
As a result of these impacts gross margin increased to 45% in the first quarter versus one 5% in the prior year period.
You reported an operating loss of $8.2 million in the first quarter versus a 4.8 mind hour loss in the prior year period.
We reported an operating loss of $8 $2 million in the first quarter.
Versus a $4 $8 million loss in the prior year period.
The European variance was primarily attributable to 4.4 million hours of non-cash expenses associated with the solaceous acquisition.
The year over year variance was primarily attributable to $2 $4 million of noncash expenses associated with the associates acquisition.
and continue strategic investments in building our direct sales team and onboarding COGS Labor to support anticipated growth throughout the year. As well as the impacts of-
And continued strategic investments in building, our direct sales team and on boarding Cogs labor to support anticipated growth throughout the year.
As well as the impacts of inflationary pressures.
We reported a loss of 28 cents per basic share.
We reported a loss of 28 cents per basic share.
versus a net loss of 19 cents per basic share in the prior year period.
Versus a net loss of 19 cents per basic share in the prior year period.
Adjusted even was a loss of $5.6 million in the first quarter 2022.
Adjusted EBIT was a loss of $5 $6 million in the first quarter 2022.
Compared to an adjusted EBITDA loss of $3.9 million in the first quarter of 2021.
<unk> adjusted EBITDA loss of $3 $9 million in the first quarter 2021.
Turning to review of our residential segment, which is our solstice business.
Turning to a review of our residential segment, which is our solstice business.
Segment revenue increased 7.1% year-over-year on a pro-former basis to $26.4 million.
Segment revenue increased seven 1% year over year on a pro forma basis to $26 $4 million driven.
driven by market expansion and executing our strategy of building a direct sales platform.
Driven by market expansion and executing our strategy of building a direct sales platform.
In Q1 2022, approximately 10% of our revenue was generated through our Direct Sales Channel Platform, compared to less than 1% of our business prior to the acquisition.
In Q1, 2022, approximately 10% of our revenue was generated through our direct sales channel platform compared to less than 1% of our business prior to the acquisition.
We have grown our direct sales horse to over 250 representatives within the past six months.
We have grown our direct sales force to over 250 representatives within the past six months.
and our encourage that our pipeline of opportunities from this channel is now approaching 20%. Second EBITDA loss was $2.3 million.
And are encouraged that our pipeline of opportunities from this channel is now approaching 20%.
Segment, EBITDA loss was $2 $3 million.
Driven by continued investments in our direct sales function.
expanding our direct labor force to meet growing demand, as well as inflationary pressures, which we expect to offset throughout the year, through price actions, and the positive effects of leverage.
Expanding our direct labor force to meet growing demand.
As well as inflationary pressures, which we expect to offset throughout the year through price actions and there are parts of our socks up leverage.
Within our commercial segment, revenue declined 22% year-to-four point eight million dollars driven by a pause in recent orders given NEM 3.0 uncertainty.
Within our commercial segment revenue declined 22% year over year to $4 $8 million driven by a pause in recent orders given three pointed out uncertainty.
Our pipeline of opportunities is increasing and we are encouraged that we have secured over $9 million of new projects.
Our pipeline of opportunities is increasing and we are encouraged that we have secured over $9 million of new projects at the end of Q1.
Daegman Girls Margin improved to 16.4% in the first quarter versus 1.6% in the prior year period during by the impacts of improved estimating an operational performance.
Segment gross margin improved to 16, 4% in the first quarter versus one 6% in the prior year period, driven by the impacts of approved estimating and operational performance.
Second EBITDA loss was 1.5 million dollars. Primarily due to volume.
The segment EBITDA loss was $1 $5 million, primarily due to volume.
Turning to our balance sheet, our cash and cash equivalence balance as of March 31, 2022 was $19.5 million compared to $19.7 million at the end of the fourth quarter, 2021.
Turning to our balance sheet our.
Our cash and cash equivalents balance as of March 31, 2022 was $19 $5 million compared to $19 $7 million at the end of the fourth quarter 2021.
Total inventory at the end of the first quarter was $14 million, compared to $10 million at the end of the year, 2021.
Total inventory at the end of the first quarter was $14 million compared to $10 million at the end of the year 2021.
Given the AD, CBD issues Galen referenced earlier, we'll continue to make investments in inventory from our expansive list of module suppliers and distributors who are not producing modules in the...
Given the a D C V D CVD issues Galen referenced earlier, we will continue to make investments in inventory from our extensive list of module suppliers and distributors.
Who are not producing modules in the impacted countries.
We have made both firm commitments and negotiated orders to be flexible with demand. And we believe.
We have made both firm commitments and negotiated orders to be flexible with demand.
We believe.
that the sum of the commitments will support our demand into 2023.
But the some of the commitments will support our demand into 2023.
Yeah.
Operator that concludes our prepared remarks.
We open the line for questions as we begin our question and answer session.
Open the line for questions is as we begin our question and answer session.
Thank you and at this time we will be conducting a question and answer this.
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One moment, please while we poll for questions.
Our first question comes from the line of Donovan Schaeffer with Northland Capital Markets. Please proceed with your question.
Our first question comes from the line of Donovan Schafer with Northland Capital markets. Please proceed with your question.
Hi, guys.
I like the new segmentations that you've put together. I'm curious if you can talk through...
I like the new segmentation that you put together I'm curious if you can talk through them.
kind of how we should look at that, you know, as investors are externally, you know, of course, it helps you managing for internal purposes and for performance assessment. But, you know, one thought that my initial thought is the corporate segment might be something we would look at as sort of an isolated...
Kind of how we should look at that you know as investors are externally. Your you know of course that helps you managing for internal purposes and for performance assessment, but you know one thought about my initial thought is the corporate segment might be something we would look at as sort of an isolated.
an isolated overhead sort of, you know, metric or number, where that's what needs to be absorbed with growth. And then maybe...
And isolated overhead sort of you.
You know metric or number where that's what needs to be absorbed with gross and then maybe.
the C and I and the residential segments on their own could be, you know, break even without additional growth just from other, you know, in a normalized environment or, you know, improving the customer acquisition cost through the DECD DREX sales effort. So I'm just trying to think about.
The C&I and the residential segments on their own could be.
You know breakeven without additional growth just your mother.
You know in a normalized environment or you know improving the customer acquisition cost in the direct sales effort.
So I'm just trying to think about.
how, as looking at that externally, should we kind of look at that and think about those different pieces and how they're going to be addressed to, you know, reach, to progress towards profitability?
How are you looking at that externally should we kind of look at that and think about those different pieces and how theyre going to be addressed to reach our two progress towards profitability.
I can start, I can start Donovan, good morning. Yeah, the sun works, the legacy sun works segment that we reported before was.
I can start I can start Donovan good morning, Yeah.
Sun works the legacy Sun work segment that we report it before was was I think it was difficult for external readers to understand that the commercial and industrial business and how that interplay with our.
was I think it was difficult for external readers to understand that the commercial industrial business and how that interplayed
with our corporate overhead costs and the cost of being a public company. And as we moved into 2022, we said, hey, we want to move towards profitability and EBITDA positive in all of our...
With our corporate overhead costs and the cost of being a public company and we as we moved into 2022, we said hey, we want to move towards profitability and EBITDA positive in in all of our all of our businesses and this was a reporting change that we've made internally. So that we can begin to evaluate them.
And this was a reporting change that we made internally so that we can begin to evaluate our execution on that strategy. So what you see in corporate overhead costs today are really people that aren't tied to still into the day-to-day operations. They're, you know, this is really the executive team, which is the lead marketing legal.
Our execution on that strategy. So what you see in corporate overhead costs today are really people that arent tied necessarily into the day to day operations there.
The executive team, which is the lead marketing legal.
myself and my team and then game on as well. So fairly small set of costs and our course are board overhead as well. So I think it helps us from a comparability across when we evaluate our business and performance and that was really the the widely changed structure for the business.
Myself with my team and then came on as well so a fairly small set of costs and corporate of course, our board overhead as well. So I think it helps us from a comparability across when we evaluate our business and the performance and that was really the cause.
Why we changed the structure for the business.
Okay, and I guess maybe they kind of rephrase it a little bit. Do you feel that the residential segment and the CNI segments, as you are now reporting them under this new segmentation? Are they at a scale where with the other changes like the direct sales, moving, improving direct sales on the residential side and improving margins?
Okay, and I guess, maybe that kind of rephrase that a little bit you know do you feel that the residential segment in the C&I segment, you know as they as you are now reporting them under this new segmentation you do you are they at a scale where with the other changes like the direct sales.
Moving improving direct sales on the residential side and improving margins through quoting and bidding on the C&I side. Yeah are those at a scale I know you want to increase their scale, but are they already sort of at a scale where was those changes they can be they can they cover their own overhead and.
to quoting and bidding on the CNIside. Yeah, are those at its scale? I know you want to increase their scale, but are they already sort of at its scale, where with those changes?
they can be, they cover their own overhead. And so the corporate overhead is kind of this isolated variable or is that reading too much into this?
So the corporate overhead is kind of isolated variable or is that reading too much into this.
I'll just add that we believe we have the resources, the leadership and the overhead resources in place to scale these business to be generating free cash flow.
I'll just add that we believe we have the resources the leadership and the overhead resources in place to scale this business to be generating free cash flow.
Okay. And then I want to ask about, you know, a lot had happened in the first quarter just sort of, you know, macroeconomically as you politically. And, you know, well, I get real quick first is you mentioned a 17% backlog increase in residential. And residential, was that quarter of a quarter of your year?
Okay.
And then I want to ask about you know a lot has happened in the first quarter just sort of a macroeconomic.
And honestly as you politically.
And you know well I guess real quick first just you mentioned, the 17% backlog increase in raws and residential was that quarter over quarter year over year.
Just to clarify.
That was just a sequential improvement. That was right. And again, that was really driven by across all sales channels, effectively so we're seeing growth in our sales channel partner and the result of the direct sales channel.
That was just a sequential improvement.
Right again, and again that yes, that's really driven by across all sales channels effectively so we're seeing growth in our sales channel partner and the and the result of the direct sales channel.
So, you know, in the middle of the first quarter, you know, there's the invasion of Ukraine, and then there's also, you know, inflation is in the news every day. And those, I think, from just talking to people, a lot of people look at the Ukraine situation as just another proof point that we need to get off fossil fuels. You know, I know inflation can be a powerful sort of sales pitch in terms of saying, you know, purchase system now lock it in and control against.
So you know in the middle of the first quarter you know, there's the invasion of Ukraine and then there's also yeah inflation is in the news every day.
And those I think are from just talking to people a lot of people look at the Ukraine situation is just another proof point that we need to get off fossil fuels.
You know what I know inflation can be a powerful sort of sales pitch them in terms of saying you know purchasers just now lock it in and in control again.
rising, rising like Trisier rates. And so, you know, inflation being in headlines and everything. So, are you seeing these items like these, or maybe even other ones I haven't thought of, actually translating into, you know, higher close rates, or maybe more inbound calls from customers? Or is that part of where you're seeing the 17% backlog increase? Or are there certain key specific phenomena that are helping drive that?
Rising rising electricity rates and so you know with inflation being in the headlines and everything so are you seeing these.
Items like these or maybe even the other ones I haven't thought of.
Actually translating into higher close rates are or maybe more inbound calls from from customers or is that part of where you're seeing the 17% backlog increase or are there certain key specific phenomena that are helping drive that.
I think there's a number of things that are contributing. And you mentioned a few of them energy independence, certainly being one of them and the theme that we pitch often.
I think there's a number of things that are contributing and you mentioned a few of them energy independence, certainly being one of them and a theme that we pitch are often.
But at the same time, inflation is not only a pressure on people's finances from a cash availability standpoint, but also we see utilitarianizing.
But at the same time inflation is not only a pressure on people's finances from a cash availability standpoint, but also we see utility rates rising dramatically sometimes in excess of the predictions of inflation. So I think it's still a very safe bet for people if they want to preserve the cash.
sometimes in excess of the predictions of inflation. So I think it's still a very safe bet for people if they want to preserve the capital that have available to them to move towards clean renewable energy versus due to pending on the grid. And I will say that everybody we're talking to on the lending side.
Capital they have available for them to move towards clean.
Renewable energy versus you're dependent on the grid.
And yeah, I will say that everybody, we're talking to them on the lending side.
The messages that we're hearing are very consistent with ours. We are seeing increased demand.
Editors.
The messages that we're hearing are very consistent with ours, we are seeing increased demand increases.
We are saying more people reaching out to us more referrals from neighbors and friends. And then of course our direct sales channel.
We are seeing more people, reaching out to us more referrals from neighbors and friends.
And then of course, our direct sales channel as well.
Method mechanism that we haven't had before and it's driving quite a bit of businesses in the front door as well. They have the telechiles group that does a very good job of messing by phone. And then it got a human, you know, out in the streets type of group that's following a more traditional sales model in between the two of those where we're definitely seeing it increasing.
Hum.
That's the mechanism that we haven't had before and it's driving quite a bit of business in the front door as well they have a telesales group that does a very good job of canvassing My phone and then they've got a human.
Out on the streets type of group that that's following more of a traditional sales model in between the two of those where we're definitely seeing an increase in customer demand.
Okay, and following up on the direct sales effort. So, I know you had a significant head count increase because of that, and it goes about 250 employees. I think most of them are added this quarter. And so, I guess two part question would be one.
Okay and following up on the direct sales effort. So yeah. I know you had a significant head count increase because of that I think it was about 250 employees I think most of them are added this quarter and so I guess two part question would be what.
How should we think of that in relation to styling and marketing as a percentage of revenue? Because there was an uptick there, but of course, when somebody's new, they hired, they're not necessarily going to be, there's a learning curve in terms of becoming a more and more effective sales person.
One how should we think of that in relation to your selling and marketing as a percentage of revenue because you know there there was an uptick there but of course, you know when somebody's new they hired they're not necessarily going to be.
Yeah, Theres, a learning curve in terms of becoming a more and more effective salesperson.
And then, how should we expect that to trend? And kind of related to that, do you expect significant or meaningful headcount additions through the rest of the year? Should we expect another hundred sales people or so to be added before the end of this year or is this kind of what you wanted to build up to train them and then improve the performance of this cohort, if you will?
And then so should we sort of how should we expect that to trend.
And kind of related to that do you expect significant or meaningful head count additions through the rest of the year. You know should we expect another another hundred salespeople or so to be added before the end of this year or is this kind of what you wanted to build up to train them and then improve.
Yeah and improve the performance of this cohort if you will.
So Neil and I can I can talk to that.
Go ahead, go ahead.
Go ahead.
I can take a, I can start. So most of the sales reps that we're talking about are 1099s.
I can take it I can start so the most of the sales reps that we're talking about our 10 90 nines.
So majority of that growth is not really salary related or compensation related.
So a majority of that growth is not really salary related or our compensation related.
There's a piece of that certainly embedded in as we're building the leadership for the inside sales group. But I would say that as you think about modeling out the rest of the year, you know, we'd like to be, we were in the residential segment. We were around around 42% of sales.
There, there's a piece of that certainly embedded in as we're building the leadership for the inside sales group.
But I would say that as you think about modeling out the rest of the year.
We'd like to be we were in the in the residential segment, we were around around 42% of sales.
We'd expect that to come down slightly throughout the year. I think historically we've been at the 38 to 40 percent range. But again, we're going to continue to make these investments to build out this direct sales force. We think it's...
We'd expect that to come down slightly throughout the year I think historically, we've been at a 38% to 40% range, but again, where we're going to continue to make these investments to build out. This direct sales force. We think it's the right strategy for the company and its a good diversification play as well.
the right strategy for the company and it's a good diversification play as well.
Okay.
And then I want to talk, I want to turn to, you know, now we're faced with a prospect of rising interest rates. And I know I think you do a decent amount of cash sales, but, you know, I think you also do some lease and loan. Could you remind us kind of the lease loan cash mix of your residential sales? And if possible, you know, what?
And then I wanted to talk I want to turn to you know now we're faced with the prospect of rising interest rates and I know.
You do a decent amount of cash so but you know I think you also do some lease alone.
Could you remind us kind of the lease loan cash mix of your residential sales.
And if possible.
You know what.
A lot of times with what's presented to a prospect or a customer, it's presented in what your monthly payments would be, and comparing that to a utility rate. And some curious if you can give us any sense for...
A lot of times with these I think a lot of times with what's presented to a prospect or a customer.
Presented and you know what your monthly payments would be comparing that to the utility rate and so I'm curious if you can give us any sense for how much you know if.
how much, you know, it's $100 a month, $130 a month, or whatever, how much would that increase?
It's a $100 a month $130 a month or whatever how much would that increase based on you know like 100 basis point increase in interest rates from the federal reserve.
based on a 100 basis point increase in interest rates from the federal reserve.
Okay.
Just going back to the first part of your question.
Just going back to the first part of your question.
The first part of your question is, you know, what's our mix? We're predominantly loaned. There are, we do offer all three options to our customers and they have that choice. But again, most of them moved towards the loan, the loan equation.
The first part of your question is what's our mix.
We're predominantly loan there there are we do offer all three options to our customers and they have that choice.
But again most of them moved towards the loan the phone equation.
Yeah.
Okay, and then, yeah, if interest rates increase, you know, for your maybe most popular loan product, whatever maturity that is in seven year, you have a sense for the sensitivity of those, the monthly payments to rising interest rates.
Okay, and then yeah, if interest rates increase you have for your maybe most popular loan product.
Whatever maturity that is the seven year, Yeah do you have a sense for the sensitivity of those the monthly payments to rising interest rates.
Okay.
I think the easiest way to put it is that we are confident that the utility rates and the customer demand is going to increase in the face of those.
I think the easiest way to put it is that where we are confident that our utility rates and the customer demand is going to increase in the face of those well in the face of those changes.
And in the face of those changes, as you know, I'm sure we pay the lending companies of fee to keep the interest rates at a certain point. And you know, it didn't end if we end up paying a spent in larger fee, that fee gets passed on in the sales price of the product. So it isn't necessarily that the payment per month is going to go up necessarily or it's not going to go up, you know, literally with the increase, but rather the fee will be rolled into the project.
As you know I'm sure, we we we pay them the.
So lending companies a fee to keep the interest rates at a certain point.
And you don't need it and if we end up paying a certain larger fee that he gets passed on in the sales price.
So it isn't necessarily that the payment per month is going to go up necessarily where it's not going to go up you know literally with or with the increase but rather the fee will be rolled into the project cost.
So it really kind of messed up. There's a number of, I guess what I say is there's a number of moving parts there. And it's kind of hard to for each individual homeowner with each individual homeowner's financial situation to kind of understand even a trend what 100 basis points change would do. I mean, this is relatively unprecedented time from inflation standpoint. And I think everybody's trying to anticipate where things are going.
So it really.
There's a number of them I guess I'm trying to say is there's a number of moving parts there.
It's kind of hard to for each individual homeowner with each individual homeowners financial situation to kind of understand even in a trend what 100 basis points change would do I mean, this is relatively unprecedented times from an inflation standpoint, and thank you.
Everybody's trying to anticipate where things are going well.
We're staying focused on the strong demand despite the interest rate changes and the inflationary pressures. And we're right now, at least for the medium to medium term, it seems as though demand is being on effective.
We're staying focused on the strong demand despite the interest rate changes and the inflationary pressures.
<unk> right now.
At least for the immediate short to medium term it seems as though demand is being affected by this change.
Okay, that's helpful. And then with modules, you know, if you guys are building up inventory and that seems like the right move, especially in this environment, but I'm curious to know, you know, if you have some perspective there, since you are doing both, you know, CNI projects and residential projects, when you're going out there in the market to procure modules and with what's going on in the ADCED, Deo Oxen solar chase
Okay.
That's helpful.
And then with modules you know if you guys are building up inventory and it seems like the right move, especially in this environment.
But I'm curious to know you know if you have some perspective, there since you're doing both you know C&I projects and residential projects.
When you're going out there in the market to procure modules and with what's going on with 80, CVD oxen solar case.
Are you seeing any differences? Yeah, the narrative among analysts is sort of about it. It should be easier to get residential modules and maybe harder to get larger modules. Are you seeing any sort of differences in procurement? It's easier to build an inventory of one or the other.
Are you seeing any differences yeah, the narrative among analysts and sort of but it should.
It should be easier to get residential modules and may be harder to get larger modules are you seeing any sort of differences and in procurement, it's easier to build an inventory of one or the other.
Hum.
I would say that the, we haven't had an incredible amount of difficulty in sourcing either. It has been more challenging, don't get me wrong. We are definitely making more phone calls and dealing with changing price that we didn't necessarily deal with, but rates have changed. We've been dealing with rates of change and we weren't used to dealing with.
Well I would say that the we havent had an incredible amount of difficulty in sourcing either.
It has been more challenging don't get me wrong, we are definitely making more phone calls and dealing with changing price.
We didn't necessarily deal with the rates have changed a bit.
We're dealing with rates of change that we weren't used to deal with it.
But right now we're not having...
But right now we're not having it sounds like we're out of luck on either.
It's not like what we're out of luck on either commercial or the residential through the end of this year and well into 23. That said, if the oxen solar situation becomes different, come August when the decision is supposed to be made to preliminary decision, that could change things. That could make it more difficult. But for now, the modules continue to flow. We are well committed with the Tier One providers well under it.
Commercial or residential through the end of this year and well into 'twenty three that said if if the auction solar situation becomes different differ H come August when the decision is supposed to be maybe a preliminary decision that we're not in that could change things that could make it more difficult but for now.
The modules continue to flow, we are well committed with the tier one providers well into next year.
Okay. And then my last question, and then I'll take the rest offline is just, you know, industry forecasters for the US market seem to expect a pretty healthy surge for the C&I sector in kind of 2022, 2023.
Okay and then my last question and then I'll I'll take the rest offline. It's just.
Industry forecasters for the U S markets.
Seem to expect a pretty healthy surge for the C&I sector and kind of 2022 'twenty three.
You know, some of its this idea that I think that there have been more permitting and interconnects challenges on C9, so that's kind of created a bit of a, you know, bottleneck or a backlog that's accumulated. And then as that gets worked through, you can get this real accelerated or kind of a more impressive surge on the C9 side versus even residential utility.
Yeah. Some of it's this idea that I think that there are there have been more permitting and interconnection challenges on C&I and so that's kind of created a bit of a.
Bottleneck or a backlog that's accumulated and then as that gets worked through you could get this real.
Accelerated or kind of a more impressive surge on the C&I side versus even residential and utility.
So I'm wondering, is that something you expect that you guys could benefit from, or does it only apply to projects that have already been constructed and are just waiting on the interconnects so that they can get counted among these forecasts? And you mentioned upgrades to grid interconnects. I'm wondering if that's kind of tied into the thing, if that's related to the same issue, kind of how does that play out? What does that look like for you guys?
So I'm wondering you know is that something you expect that you guys could benefit from them or does it only apply to projects. That's New York I've already been constructed and are just waiting on the interconnects. So that they can get counted among these forecasts.
Yeah, and you know you mentioned upgrades to grid Interconnects I'm wondering yeah, that's kind of ties into the same if that's related to the same issue kind of how does that play out and what what does that look like for you guys.
I think it is related to the question that you asked. The grid is maturing, and even though we hear all the time about instability and weaknesses, work is being done all the time to make the grid.
I think it is it is related to the question that you asked.
The grid is maturing and even though we hear all the time about instability and weaknesses work is being done all the time to make the grid.
It may not be where we want it to be, but it is improving. And as it improves, that is beneficial for us as an installer who hooks up into the pretty commercial industrial public work zone.
It may not be where we want it to be but it is improving and how does it improve status beneficial for us as an installer, who hooks up into the premier commercial industrial and public workshop.
Additionally, solar-still-with-matureing market on the CNI sign. And where you see that every day is permitting authorities becoming more comfortable with them, understanding better and being more willing to standardize the requirements for permitting for commercial.
Additionally, so we're still a maturing market on the C&I side.
And where you see that every day as permitting authorities, becoming more comfortable with and understanding better and be more willing to standardize the requirements for permitting for commercial industrial and similar projects. So we are seeing an easing of pressure, even going above and beyond just people going back to work after COVID-19 and the permitting offices.
industrial and similar projects. So we are seeing, you know, an easing of pressures, even when above and beyond, just people are not to work after COVID and the permitting offices are such. What we're actually seeing an easier time getting things through those offices because we're having to explain last, we as a vendor or a perception company better understand the individual requirements of the individual regulatory bodies.
As such what we're actually seeing an easier time getting things through those offices, because we're having to explain last week.
Under our construction company better understand the individual requirements would be individual regulatory bodies and the IH Jayson there and their requirements are becoming more standardized English individual.
and the HJs and their requirements are become more standardized unless individual.
So that all of those are things that are willing to make this an easier business for us to be in. Rising rates of course are going to drive demand. I see a lot of numbers that talk about 24, 25, 26 being the Renaissance for commercial solar and really taking off. We think it's going to be a little sooner than that, but we're certainly going to be well prepared for 24, 25, 26 when it really does take off. OK, great.
All of those are things that we're going to make this an easier business for us to be in.
Rising rates of course are going to drive demand I see a lot of numbers that talk about 'twenty four 'twenty five 'twenty six being the Renaissance for commercial solar it really taking off.
Yeah, we we think it's gonna be a little sooner than that but we're certainly going to be well prepared for 'twenty four 'twenty five 'twenty six when it really does take.
Okay, great. Thank you very much you guys I'll I'll take the rest offline.
Uh huh.
And we have reached the end of the question and answer session. Now now turn the call back over to get it more. It's for close remarks.
And we have reached the end of the question and answer session I will now turn the call back over to Gary Morris for closing remarks.
So once again, everybody, thank you for joining our call. Should you have any questions? Feel free to contact us at IR, that's in the go Romeo, at someworksusa.com, and a member of our team will follow up with you. This concludes our call today.
So once again everybody. Thank you for joining our call should you have any questions feel.
Feel free to contact us at IR, that's M D O Indigo Romeo.
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