Q2 2022 SPI Energy Co Ltd Earnings Call
Good afternoon and welcome to SPI Energy's second quarter fiscal 2022 conference call. As a reminder, this call is being recorded and all participants are in a listen-only mode. The call will be open for questions and answers following the presentation.
I will now pass the call over to Randy Canone, Senior Vice President of Investor Relations and Finance. Mr. Canone, you may begin.
Thank you, Laura.
Joining me on the call today are SPI Energy's Chairman, CEO Dutton Peng, as well as our COO HK Chopp.
Before we begin, the company would like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. For more information, visit www.fema.gov
SPI cautions.
that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated.
including risks described in the company's filings with the FCC.
Any forward-looking statements made on this conference call speak only as of today's date, Tuesday, August 16, 2022, and the FBI does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today.
I would now like to turn the call over to SPI's Chairman and CEO , Denton Peng, for opening remarks. — Charginghee
Please go ahead, Jettin.
Thank you, Randy. And good afternoon, everyone. Our team continues to deliver its joint performance in the second quarter of 2022.
generating top-line growth across our divisions, and delivering our long-planned goals of carving out Phonix model in a NASDAQ IPO.
Meanwhile, our solar module facility at Sacramento has started pilot production and our first made in California solar module delivered to customers.
Overall, we have built solid foundations in high-growth markets that position SPI for accelerating growth moving forward as we capitalize on the rapidly expanding demand for renewable and clean energy solutions.
Our wordclass team is building on the multi-ticket track record of success.
We further augment this already impressive team in the second quarter with the addition of William Chen as Chief Operations Officer of Solar Juice.
William brings over 20 years of experience as an executive in the construction management area and was the CEO of one of the largest residential solar integrators in the U.S. for more than 10 years. For more information, visit www.fema.gov
He is not a great addition to our team and is already providing strong value as we continue to expand our solar juice operations.
I am confident that our strong foundation combined with growing industrial tailwinds place us in a great opposition to rapidly increase market share across each of our business union.
ultimately enabling us to unlock new value for our shareholders as we accelerate growth in the quarters ahead.
I now turn the call over to HK to cover our operations and key sectors in great detail. HK. Thank you.
Thank you, Denton, and good afternoon, everyone.
As Denton has noted, SBI had a strong quarter with multiple milestones achieved across all facets of our business.
I'll begin with some further insight into our accomplishments in our solar and battery storage business unit. We began another major solar project in our home state of California with the initiation of development for 7.2 megawatts.
8.39 megawatt DC community solar project on the 34 acres land in Southern California.
We also continue the expansion of our solar module manufacturing capacity at our flagship facility in McClellan Park, California and expect to reach a capacity of 650 megawatts of production capacity by the end of this year.
Indeed, we have already started solar module delivery to customers starting from quarter to three this year.
Our expanding capacity at these state-of-the-art solar module manufacturing facilities, which combines California highly skilled workers with machine-to-machine connectivity, features a high degree of precision automation that will drive continuous improvement of our solar module manufacturing. Also it's in our plan to further increase our solar module production capacity to 1.2 gigawatt. s
We also signed a 2-gigawatt supply agreement during the second quarter with Sangro, a global leading inverter solution supplier for renewables.
With COVID restrictions continue to win, we had an opportunity to meet face-to-face with buyers at two key events showcasing our latest solar use product offerings at Smart Energy 2022 Australia Premier event for solar storage and energy management as well as
Our solar and renewable energy products, including solar panels, residential energy storage system, and EV charger at the RE Plus Texas solar and energy storage threshold in San Antonio, Texas.
Lastly, I want to note we further strengthen our intellectual property within this division of the company through the filing of two provisional patents, one regarding machine learning technologies to improve solar module manufacturing processes and a second patent application for an innovative apparatus to improve the efficiency and accuracy of solar module IV testing processes.
On the easy side of our business,
Obviously, the major news was the completion of the Phoenix Moto IPO on NASDAQ, which raised gross proceeds of more than 15 million.
We continue to retain approximately 80% ownership in Phoenix Post IPO.
And importantly, we began delivery of our new FENIX™ Moto Lithium-Ion Sock Leads during the second quarter and have been very pleased with the initial customer response.
With a successful showcase of this next generation forklifts alongside our electric bus, solar power pickup truck, and EV charging solution at the ACT Expo in May, we anticipate continuous strong sales growth from this product line moving forward. We also relocated our corporate headquarters to Sacramento County during the second quarter, bringing our senior management into close proximity to our solar module manufacturing facility.
As fields continue to grow from our increased production capacity, we believe this will improve access, will provide tremendous strategic value creating positive synergies across our solar and renewable energy business development efforts.
I will now hand the call back to Randy for discussion of our financial performance in the second quarter as well as the review of our guidance for 2022. Over to you, Randy.
Thank you HK.
This is the company's second quarter filing as a U.S. company on Form 10Q.
and follows the filing of our first annual report on Form 10-K in March.
This translates to increased transparency and more timely reporting of our performance metrics compared to our previous requirements as a foreign pilot.
For the quarter ended June 30, 2022.
Our net sales increased 6% to $48.6 million, up from $45.8 million in Q2 of 2021.
Revenues continue to be mainly driven by increasing sales from our solar business lines, although we expect EV revenues to represent an increasing share of overall revenues moving forward.
our cost of revenues.
which consists primarily of raw materials and labor costs.
increased to $44.7 million in the second quarter, up from $40.6 million in Q2 of 2021.
Gross profit in the second quarter was $3.9 million, giving us a gross margin of 8%.
General and administrative expenses were $7.6 million, or 15.7% of net sales, in the second quarter of 2022.
compared to $7.7 million or 16.7% of net sales in the second quarter of 2021.
Total operating expenses in Q2 were $9.5 million, or 19.5% of net sales, moderately.
from $9.2 million or 20% of net sales in the second quarter of 2021.
The interest expense was $1.6 million during the quarter, with no significant changes in our convertible bonds and other borrowings.
Together, these and other factors resulted in a net loss of $2.3 million in the second quarter.
a significant improvement from the net loss of $6.6 million in the second quarter of 2021.
As of June 30, 2022, we had $21.3 million in cash, cash equivalents, and restricted cash.
Now turning to the year ahead.
As mentioned earlier,
Our solar and EV wholesale business.
coupled with our residential solar and roofing installation business and the new American Solar Module Manufacturing business.
are expected to be the primary revenue drivers in 2022.
with EV sales accelerating as the year progresses.
We believe this will ultimately drive our overall revenue.
to between $200 to $220 million for 2022.
This range takes into consideration ongoing logistics and supply chain challenges globally.
We look forward to sharing our ongoing successes with you in future updates.
We'll now open the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation film will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes to the line of...
Tate Sullivan with Maxim Group. You may proceed with your question. Thank you. On the solar module manufacturing facility in Sacramento, I believe you said that you started delivering to customers this current quarter. What needs to happen for you to get to capacity of 650 megawatts by the end of this year? Are there any additional testing or certification processes or do you need to install more equipment? How do you get to that 650 megawatt capacity?
1.1 gigawatts by the middle of next year. So the processes that we...
acquire and ship equipment over here, and then we have to install it and quality control it, and that equipment comes in several caches. So we've got some of the equipment in producing panels.
other pieces of the equipment are still being quality controlled and then still other pieces of equipment are in route over here. So it's a staging process, but the Sacramento should be at full capacity around the end of Q2 next year.
And then getting there and then providing what you can share, do you target operating at a portion, a percent of that capacity initially as you stage up? Or when do you expect to match capacity in terms of match production with that capacity?
Yes, we are educating the workforce for the operations side.
Yeah, I think this is actually speaking and I would like to add a bit of color as far as this solar module manufacturing in McLaren Park, California. So we are at phase one and phase one. Phase one, we have 100 megawatts now in production capacity and we have already started delivering products from this phase one production line. So we are in the process of installing the second phase.
which is a 550 megawatt kind of new M10 production line. So that will be completed by the early part of the quarter four. So we expect the ramp up starting from the year toward the November , December timeframe all the way until the next year. So we expect full capacity probably by the middle of next year of this phase two production capacity.
And we will start the expansion through the Phase III, another 550 megawatt of production line coming on board. So that will bring us the total of 1.2 gigawatts by the end of next year.
It's a ramp up process.
Absolutely. And just to make sure I understand, with that 650 to 1,100 to 1,200 megawatts, I mean, will you try to provide discount prices to the companies out there? I know some other solar equipment companies do give guidance per megawatt, but it does imply hundreds of millions of dollars for your type of facility. I mean, do we talk about a range of revenue here with that kind of megawatt capacity?
Yeah, I think I have a later date.
Yeah, I mean, certainly we are still in the phase one of the production. So when we ramp up, we will achieve the economy on scale. So we expect adjustment on our efficiency, productivity, as well as the volume. So that will reduce our costs progressively throughout the year.
Thank you very much.
Thank you. Thank you.
Our next question comes to the line of Tim Moore with EF Hutton. You may proceed with your question.
Thank you. It was nice to see what appeared to be about 8% organic sales growth in the quarter excluding the PDI acquisition contribution.
I saw that you reiterated your revenue guidance for the year despite the continued supply chain disruptions.
I'm wondering have the supply chain disruptions and logistic delays with port congestion
improve for you over the last couple months because I believe that was
a reason for the range on the guidance. I'm just wondering if it's gotten any better, if it's about the same.
Yeah, I think it's definitely improved, but I'll let the other guys come over the top.
Yes, we see some improvement in the logistics, but it depends on which item. I think we manage this challenge of a lot of these issues.
Great.
I have a follow-up question to...
the update on the Sacramento solar module manufacturing facility
I'm curious.
Given its very early stages, you mentioned phase one and...
It's just underway the last couple months.
Are you seeing more traction with any specific?
type of customer are municipalities showing more interest or is it corporate?
or home builders? Are you seeing any more demand from one of those types of parties that are
willing to pilot and check out the quality batches.
Yes, we are currently in the residential market for different distribution channels. We have already developed also contracts with several leading distribution companies in the nation.
for the residential market. And now we also see more and more commercial and utility customers coming to require making U.S. solar modules.
I see that the Senate has passed the bills that we're still waiting for to be signed that have additional incentive for the customers to buy more made in the U.S. products. I think this will give a lot more customers will be interested in the made in the U.S. products. I think we are in a very good spot to supply the made in the U.S. products from our segmental factory. So we are ramped up and we are ready.
I think more and more importantly, our capacity is increasing now.
That's helpful to hear. Thanks for sharing the color on that. My next question is...
I think it's a back to heart question.
Yeah.
Sorry, yeah, go ahead.
So also from the bill, they also have additional incentive to manufacturing for solar modules made in the US. We see that from the bill they also have about seven cents for incentives for manufacturing for solar modules made in the US. So these are additional incentives for the products made in the US. So I think also this is another thing to increase our capacity and also to get more customers empire.
We would like to buy the products made in California, especially from our facility in Sacramento.
I know that's helpful to hear and I know.
the tariffs.
There tend to be a lot from the imported ones, and it's nice to see them made in the US.
I was wondering for my next question.
Are you seeing pretty good initial traction on your 450 and 550 watt commercial modules? And when do you think the Sunro...
Supply agreement will start kicking in with shipments. Is that going to happen this summer?
I think we see sorry then go ahead.
Yeah, I think we start to see quite a bit of traction in the residential space, 400 watt, 410 watt for the residential rooftop application. And for the CNI space, we do see quite a bit of 550 watt, which are the two main products that we see quite a lot of traction. And in fact, our line are actually geared up to produce these two particular products. So, we're going to see a little bit of a difference in the overall quality of the commercial. And we're going to see a little bit of a difference in the overall quality
for the rooftop application. Certainly, the phase three will kick in for the bigger panel, 610 watts. But for our phase two, our focus has been on the 400-watt modules for the residential space and the 450-watt module for the CNI space.
And I was wondering if SunGrow, is that going to start this summer with shipments or how does that phase in? I know that was a two-figure – Oh, yeah. I mean SunGrow – SunGrow, in fact, we have a growing with SunGrow in Australia. So we have been – we signed a two-figure contract with a lot of SunGrow new products in Australia. So SunGrow has been the product for Australia focus. So SunGrow has been the product for Australia focus. So SunGrow has been the product for Australia focus.
Maybe, for those who focus.
Thank you for sharing that. I was just wondering if you can provide an update on the Maryland and Illinois solar projects and timing there. They're large projects. I'm just wondering is there any kind of estimate on an update there for – whites
Thank you for sharing that. And I was just wondering if you can provide an update on the Maryland and Illinois solar projects and timing there. Their large projects, I'm just wondering is there any kind of estimate on an update there for when they'll be more underway?
I think it's still in the development phase, so it will probably take a little while before we hit the NTP. So we'll be progressing as planned.
for these two utility scale projects in Maryland and Illinois.
Good.
Two more questions.
The first one is around the electric forklift. I read a lot about that a few months ago.
Great product. I saw that revenues were almost a million in the quarter, I believe.
How much in revenues do you think you can generate for that if you look out a year? And do you have enough production capacity to fulfill big orders?
some big major corporates come in and decide to order a fleet of them.
We see the demand for electric products, especially for logistic customers, and that for pieces increasing.
So we see we try to service more market, currently we only service the California market. So we also try to increase to service other markets. So definitely we'll be trying to do more for the electric to keep more inventory for these products and then try to service more customers. So the human will be increasing.
But if you're not having one or two months because you're building relation, building a channel, it always takes some time.
Understood. That makes sense.
My last question is how should I think about the general and administrative expense total for this year? It came down in the second quarter and I know that last year had integration costs.
PDI and there was some other one off last year. Do you think the recent quarterly?
off last year, do you think the recent quarterly number...
is more indicative of a run rate going forward, you think it'll go up as the year goes on.
Yeah, our car packs for the solar module.
Definitely, you know, we'll be increasing just for building and making your solar module manufacturing in Sacramento.
And our operation costs for the building because most of our buildings are starting moving to profitable, especially our solar project development buildings and our cell electricity buildings. We are now also moving to the solar insulation buildings, moving to profitable. And our solar panel is now open.
distribution business always be profitable. So of course we are still challenged for the EV business. We still put a lot of R&D, still need some time to be profitable. And I think our solar module manufacturing business will be very profitable in a few quarters. So I think the company is in a very good shape to moving totally to a profitable business in the short term.
I think things like headcount may go up a little, but it's gonna be, as the scale grows, especially in the solar module manufacturing, we should get quite a bit of operating leverage going forward. w
I appreciate you answering my questions, and that's it for my questions today.
Thank you.
Our next question comes from the line of Tate Sullivan with Maxam Group. You may proceed with your question.
I thank you. A couple follow-ups if I may. I heard you mention capital expenditures a couple of times by just looking at about two million in 2Q22 to get the pilot production started should it decline from from there or will actually increase based on the speed in what you're installing equipment.
And Q3, because of the most of the new equipment, will be in isolation Q3 and maybe early Q4. So this is some CAPEX will be...
spent for the solar module manufacturing. But this is already you'll see some prepayments of the equipment already done. So not too much impact of the cash flow, but the capex definitely will be increasing in Q3 and a little bit in Q4.
I would expect over time, not kind of weeks and months, but quarters and longer periods of time, the CapEx is going to go up. Our plan over time, once we get Sacramento up to full capacity, is to replicate it.
So, you know, the capex should keep growing over time.
Great. And then – well, replicating the facility and Denton also, I wanted to ask you about sources of financing for that. Is there – I mean, I think the Inflation Reduction Act and some previous acts indicate some funding for domestically manufactured solar modules. Is that a possibility that you may look to secure that type of funding in the future?
Yes, we are looking for this kind of possibility also. But currently, we have already, due to most of the funds already secured. And this is just our planning as our goings.
And of course, we will, through other ways, try to increase our capacity. When we increase the capacity, we will probably need to...
continue with some money to do some capex.
At the current stage, the solar module may be finished since it is very profitable.
Yeah, I think we're probably going to pursue both public money and then...
funds in the capital markets up and down the stack over time as we grow.
I just had one last financial question for me. Other income, maybe we could take it offline after, but other income was about $3 million on the income statement in the quarter. Is that related to some of your other businesses that you've had before? Is it foreign currency possibly?
I think it was about $5.5 million in the quarter.
Can I get back to you on that, Dave? Yeah. Yep.
Okay, well, thank you all for answering my question.
Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Randy Canone for closing remarks.
Thanks very much, Laura.
I want to highlight the extraordinary opportunities from projected growth in the solar and EV industries over the next decade.
SPI energy has tremendous revenue and earnings growth potential if we are able to capture even a small percentage of the solar and EV TAMs going forward.
Our company has a proven ability to generate revenue in the solar and EV markets.
and we are implementing several strategies to exploit the growth in those markets.
SPI Energy also has a history of making targeted deep value acquisitions of distressed assets and companies.
and we will continue to consider such transactions in this challenging economy as we generate more cash flow and raise additional capital.
SPI Energy, through its wholly-owned affiliate Edison Future, also owns approximately 80% of our EV division Phoenix motor cars.
which is publicly traded under the ticker PED and currently has a market cap of approximately $75 million.
SPI energy perceives significant synergies
between its solar and EV divisions going forward.
including opportunities to sell packages of solar, EV and green energy storage and battery equipment.
to customers seeking integrated green energy loops.
We also believe that the
that the new federal green energy legislation will be a tailwind to SBI Energy solar and EV operations.
and that complementary private sector financing will consequently increase to the green energy sector.
That concludes our remarks today. We're very glad you were able to join us.
and look forward to your continued interest in SPI energy.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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