Q4 2022 Pineapple Energy Inc Earnings Call

Speaker 2: Good morning and welcome to the Pineapple Energy 4th Quarter 2022 Conference Call. As a reminder, today's call is being recorded. All participants are in a listen-only mode. For opening remarks and introductions, I would now like to turn the call over to Jennifer Lee of The Blue Shirt Group.

Jennifer Lee: Thank you, operator. Good morning, and welcome to Pineapple Energy's conference call to discuss results for Q4 and full year 2022. With me this morning are Kyle Udseth, our Chief Executive Officer, and Eric Ingvaldson, our Chief Financial Officer. Our call this morning will include statements that speak to the company's expectations, outlook, or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements except as may be required by law. Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release, our annual report on Form 10-K, and our other SEC filings.

Speaker 2: Ms. Lee, please go ahead.

Speaker 3: Thank you, operator. Good morning and welcome to Pineapple Energy's conference call to discuss the results for the 4th quarter and full year 2022. With me this morning, thank you for having us.

Speaker 3: Our call this morning will include statements that address the company's expectations, outlook, or predictions for the future, which are considered forward-looking statements.

Speaker 3: These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, and may cause our actual results to differ significantly from those expressed or implied by these statements.

Speaker 3: We are not obligated to revise or update any forward-looking statements, except as may be required by law.

Speaker 3: Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release, our annual report on Form 10-K, and our other SEC filings.

Jennifer Lee: A copy of our press release has been posted to the investor relations page of our website for reference. The non-GAAP financial measures disclosed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued yesterday. With that, I will turn the call over to our CEO, Kyle Udseth. Kyle, go ahead.

Speaker 3: Our press release has been posted to the investor relations page of our website for your reference.

Speaker 3: The non-GAAP financial measures disclosed in this call are reconciled to the US GAAP equivalent and can be found in the press release that we issued yesterday.

Kyle Udseth: Thanks, Jenny. Thanks to everyone for joining us on the call today. Although we went public last spring and have reported three quarters, this is our first conference call in conjunction with earnings. We're excited to report great news to you and to take your questions. We intend to maintain this practice, conducting a conference call with each quarterly report. What a difference a year makes, huh? As I look back on 2022, I'm proud of all that we've accomplished together. We started the year as a small private company with big ambitions. In March, we completed our merger with Communications Systems, Inc., launching Pineapple as a publicly traded company. Simultaneously, we completed our first acquisitions, bringing Hawaii Energy Connection and their technology company, E-Gear, under the Pineapple umbrella. We started public life with modest but real assets, an operating business, revenue, and capital.

Speaker 3: With that, I will turn the call over to our CEO, Kyle Uppsa. Kyle, go ahead.

Speaker 4: Thanks, Jenny, and thanks to everyone for joining us on the call today.

Speaker 4: Although we went public last spring and have reported three quarters, this is our first conference call in conjunction with earnings.

Speaker 4: We're excited to report great news to you.

Speaker 4: We intend to maintain this practice by conducting a conference call with each quarterly report.

Speaker 4: So, what a difference a year makes, huh?

Speaker 4: As I look back on 2022, I'm proud of all that we've accomplished together.

Speaker 4: We began the year as a small private company with big ambitions.

Speaker 4: In March, we completed our merger with Communications Systems Inc., launching Pineapple as a publicly traded company.

Speaker 4: Simultaneously, we completed our first acquisitions, bringing Hawaii Energy Connection and their technology company E-Gear under the Pineapple umbrella.

Speaker 4: We began public life with modest but real assets.

Kyle Udseth: Some investors and analysts were skeptical of our strategy and ability to execute, but we proved them wrong last autumn when we completed our second acquisition, Long Island-based SUNation. With that deal, we showed that we could continue to source deals, come to terms with owners, and assemble the financial resources to close in a repeatable manner. We exit 2022 with operations on both sides of the country, a revenue run rate of over $80 million annually, and line of sight to positive cash flow from operations later in 2023. Celebrating this amazing year, we rang the Nasdaq closing bell in late February, giving us welcome and deserved recognition for our employees and their accomplishments. I have never been more excited about the prospects for our company. Now, let's zoom in on SUNation, which was a transformational acquisition for the company.

Speaker 4: Operating business, revenue, and capital.

Speaker 4: Some investors and analysts were skeptical of our strategy and ability to execute.

Speaker 4: But we proved them wrong last autumn when we completed our second acquisition, Long Island-based Cenation.

Speaker 4: With that deal, we showed that we could continue to source deals, come to terms with owners, and assemble the financial resources to close in a repeatable manner.

Speaker 4: We exited 2022 with operations on both sides of the country, a revenue run rate of over $80 million annually, and a clear path to positive cash flow from operations later in 2023.

Speaker 4: Celebrating this amazing year, we rang the NASDAQ closing bell in late February, giving us welcome and deserved recognition for our employees and their accomplishments.

Speaker 4: I have never been more excited about the prospects for our company.

Kyle Udseth: In addition to tripling our sales, it expanded our footprint to the East Coast, added approximately 160 talented and dedicated employees, and meaningfully bolstered our management team. SUNation Founder and President, Scott Maskin, is a key leader within our company now and one of our largest shareholders. His vision and strategy in building SUNation are proving their value as he continues to drive its growth. We are utilizing these experiences and lessons learned as we pursue and diligence future acquisitions. SUNation executive, Jim Brennan, moved over to Pineapple corporate, taking on the role of SVP of corporate development. In his new role, Jim is applying his experience and expertise in sourcing, negotiating, and ultimately closing new acquisitions. SUNation is on a roll. Their residential kilowatts sold surged 63% last year, with installations up 25%.

Speaker 4: Now, let's zoom in on Cenation, which was a transformational acquisition for the company."

Speaker 4: In addition to tripling our sales, it expanded our footprint to the East Coast, added approximately 160 talented and dedicated employees, and significantly bolstered our management team.

Speaker 4: Cenation founder and president, Scott Maskin, is a key leader within our company now and one of our largest shareholders.

Speaker 4: His vision and strategy in building Sinatian have proven their value as he continues to drive its growth, and we are utilizing these experiences and lessons learned as we pursue and diligently assess future acquisitions.

Speaker 4: Cenation executive Jim Brennan moved to Pineapple Corporate, taking on the role of SVP of Corporate Development.

Speaker 4: And in his new role, Jim is applying his experience and expertise in sourcing, negotiating, and ultimately closing new acquisitions.

Speaker 4: Cenation is on a roll. Their residential kilowatts sold surged 63% last year

Kyle Udseth: This kickstarts 2023 for us with a meaningful backlog of $30 million of pending installs. Revenue grew 32%, and gross margin expanded. This resulted in adjusted EBITDA up 172% year over year for SUNation. As strong as they are, there's plenty of room for further growth. For example, battery attach rate was only 7% last year, giving us a huge revenue and margin opportunity going forward. In contrast, HEC's battery attach rate approaches 90%. While there are certainly structural differences in those two markets, there are also many similarities in customer needs and desires, and so we are actively working to cross-pollinate our battery approach from Hawaii to accelerate battery sales in New York. Furthermore, we are seeing initial success in our new home build strategy.

Speaker 4: This kick-starts 2023 for us with a meaningful backlog of $30 million worth of pending installs.

Speaker 4: Revenue grew 32% and gross margin expanded.

Speaker 4: This resulted in adjusted EBITDA up 172% year-over-year presentation.

Speaker 4: As strong as they are, there is plenty of room for further growth. For example, the battery attach rate was only 7% last year, giving us a huge revenue and margin opportunity going forward.

Speaker 4: In contrast, HEC's battery attach rate

Speaker 4: While there are certainly structural differences in those two markets, there are also many similarities in customer.

Speaker 4: And so, we are actively working to cross-pollinate our battery approach from Hawaii to accelerate battery sales in New York.

Kyle Udseth: In February, we had a significant win with home builder, Baiting Hollow Development Group, where we will outfit 29 of the homes in an upcoming development on Long Island's North Shore. This strategy has the potential to substantially increase our volume at an efficient customer acquisition cost. In March, we opened an office in Florida, establishing a foothold in one of the country's biggest residential solar growth markets. All in all, it's been an exceptional performance from the team at SUNation. Turning now to Hawaii, HEC performance was also solid, although that market faced some headwinds in the H2 of the year, which have now been resolved. Revenue was up 21% for the year, increased service expenses and permitting delays led to an adjusted EBITDA decline year over year.

Speaker 4: Furthermore, we are seeing initial

Speaker 4: In February, we had a significant win with HomeBuilder Baiting Hollow Development Group.

Speaker 4: where we will outfit 29 of the homes in an upcoming development on Long Island's North Shore.

Speaker 4: This strategy has the potential to significantly increase our volume at an efficient customer acquisition cost.

Speaker 4: Finally, in March, we opened an office in Florida, establishing a foothold in one of the country's largest residential solar growth markets.

Speaker 4: Overall, it's been an exceptional performance from the team at Cenation.

Speaker 4: Turning now to Hawaii, HEC performance was also solid, although that market faced some headwinds in the second half of the year, which have now been resolved.

Speaker 4: Revenue was up 21% for the year, but increased service expenses and permitting delays led to an adjusted EBITDA decline year over year.

Kyle Udseth: Kilowatts sold were up 30% and installations up 15%, which is a very strong result in the context of those obstacles. Battery performance continued to be outstanding, with the attach rate for the year reaching 88%, and we are sustaining this momentum through innovation. For example, we are ahead of competitors in installing the Franklin Whole Home Battery, an advanced next generation storage system. Even with that solid full year performance in Hawaii, revenue growth slowed there in Q4 as kilowatts installed were down. We grappled with a variety of issues, the most impactful of which was the freezing in December of a significant portion of installation permits on Oahu due to a federal investigation, which was completely unrelated to Pineapple at the Honolulu Department of Planning and Permitting. As if that wasn't enough, we and many other solar installers experienced significant hardware failures with certain vendor equipment during the quarter.

Speaker 4: Kilowatts sold were up 30 percent, and installations up 15 percent, which is a very strong result in the context of those obstacles.

Speaker 4: Battery performance continued to be outstanding, with the attach rate for the year reaching 88%. We are sustaining this momentum through innovation.

Speaker 4: For example, we are ahead of competitors in installing the Franklin Whole Home Battery, an advanced next-generation storage system.

Speaker 4: Even with that solid full-year performance in Hawaii, revenue growth slowed there in Q4 as kilowatts installed were down. We grappled with a variety of issues, the most impactful of which was the freezing in December of a significant portion of installation permits on Oahu due to a federal investigation.

Speaker 4: which was completely unrelated to pineapple at the Honolulu Department of Planning and Permitting.

Speaker 4: As if that wasn't enough, we, and many other solar installers, experienced significant hardware failures with certain vendor equipment during the quarter.

Kyle Udseth: This presented a sizable challenge, setting back revenue while also elevating COGS and OPEX. I am proud of how the HEC team pivoted quickly to focus on fixing these issues for our customers. I'm happy to report that these issues are now largely resolved and growth has resumed in 2023. HEC had $17 million of pending installs at year-end, partway through Q1 of this year, kilowatts sold are triple the level of a year earlier. We are confident that Hawaii will be a strong market for us for years to come. Complementing our installation business in Hawaii is E-Gear, our grid services technology company. E-Gear has historically been a small and steady business. In 2023, under the leadership of our head of product, Chris DeBone, we will push to productize and monetize this leading-edge technology and IP.

Speaker 4: This presented a sizable challenge, setting back revenue while also elevating COGS and Op-Eds.

Speaker 4: However, I am proud of how the HTC team pivoted quickly to focus on fixing these issues for our customers. I'm happy to report that these issues are now largely resolved, and growth has resumed in 2023.

Speaker 4: HTC had 17 million dollars of pending installs at year end, and part way through Q1 of this year, kilowatts sold are triple the level of a year earlier.

Speaker 4: We are confident that Hawaii will be a strong market for us for years to come.

Speaker 4: And complementing our installation business in Hawaii is E-Gear, our grid.

Speaker 4: E-Gear has historically been a small and steady business.

Speaker 4: But in 2023, under the leadership of our Head of Product, Chris DeBone, we will strive to productize and monetize this leading-edge technology and IP.

Kyle Udseth: The most tangible example to date is the licensing agreement with Eguana that we announced last week. Eguana's residential batteries will pair with the E-Gear energy management controller to create an advanced energy storage system that can balance between electricity consumption in the home, storing up backup power, and maximizing savings via time of use rates. Perhaps most exciting are the grid services capabilities that this hardware and software union can enable. It can create opportunities for recurring revenue streams as individual homeowners help stabilize the grid and power their neighborhoods in the face of extreme weather events and grid outages. We are also partnering with a leading supplier of utility side Distributed Energy Resource Management Systems. Together, we are pursuing the opportunity for E-Gear technology to serve as a dispatch agent under Hawaiian Electric's upcoming Bring Your Own Device program.

Speaker 4: The most tangible example to date is the licensing agreement with Iguana that we

Speaker 4: Iguana's residential batteries will pair with the EGEAR energy management controller to create an advanced energy storage system that can balance between

Speaker 4: storing up backup power, and maximizing savings via time of use rates.

Speaker 4: Perhaps most exciting are the grid services capabilities that this

Speaker 4: It can create opportunities for recurring revenue streams as individual homeowners help stabilize the grid and power their neighborhoods in the face of extreme weather events and grid outages.

Speaker 4: We are also partnering with a leading supplier of utility-side distributed energy resource management systems.

Speaker 4: Together, we are pursuing the opportunity for E-Gear technology to serve as a dispatch agent under Hawaiian Electric's upcoming Bring Your Own Device program.

Kyle Udseth: This is an important step to offering virtual power plants based on our customers' solar systems. Overall, we entered 2023 with optimism, and we're now exiting Q1 with great momentum. In spite of no shortage of challenges, they don't call it the solar coaster for nothing, we've managed to build a sustainable business and an exciting platform for profitable growth. We have a high-quality pipeline of acquisition candidates across a wide variety of strong residential solar markets, each of which meet our financial parameters. More importantly, these founder-led companies are solid cultural fits, and they share our passionate focus on delivering a great customer experience. We expect to accelerate our growth through complementary new acquisitions in the months and quarters ahead. With that, I'll now turn the call over to our CFO, Eric Ingvalson, to walk through our financials. Eric, please go ahead.

Speaker 4: This is an important step to offering virtual power plants based on our customers' solar systems.

Speaker 4: Overall, we entered 2023 with optimism and we're now exiting Q1 with great momentum.

Speaker 4: In spite of no shortage of challenges, they don't call it the solar coaster for nothing.

Speaker 4: We've managed to build a sustainable business and an exciting platform for profitable growth. We have a high quality pipeline of acquisition candidates across a wide variety of strong residential solar markets.

Speaker 4: each of which meet our financial parameters.

Speaker 4: But more importantly, these founder-led companies are solid cultural fits, and they share our passionate focus on delivering a great customer experience.

Speaker 4: We expect to accelerate our growth through complementary new acquisitions in the months and quarters ahead. With that, I'll now turn the call over to our CFO , Eric Ingelson, to walk through our financials.

Eric Ingvaldson: Thank you, Kyle. I will very quickly review the GAAP financials as required by the SEC, and then review some pro forma numbers that will give you a better sense of the performance of our businesses. The GAAP numbers are not very insightful because we had no operations a year ago, and because we had only partial period contributions due to the timing of the HEC and SUNation acquisitions. Let's start with the Q4 GAAP results, which includes 52 days of contribution from SUNation. Legacy CSI businesses, JDL and Ecessa, are reported as discontinued operations in the Q4. Revenue in the Q4 was $17.2 million, gross profit $5 million, and net loss from continuing operations was a bit over $500,000. Net loss from continuing operations includes a $3.3 million favorable fair value remeasurement of the Contingent Value Right liability.

Speaker 4: Eric, please go ahead.

Speaker 4: Thank you, Kyle. I will very quickly review the GAAP financials as required by the SEC, and then review some pro forma numbers that will give you a better sense of the performance of our businesses.

Speaker 4: The gap numbers are not very insightful because we had no operations a year ago and because we had only partial period contributions due to the timing of the HEC and Cenation acquisitions.

Speaker 4: Let's start with the fourth quarter gap results, which includes 52 days of contribution from the nation.

Speaker 4: Legacy CSI businesses, JDL and ESSESA, are reported as discontinued operations in the fourth quarter.

Speaker 4: Revenue in the fourth quarter was $17.2 million. Gross profit, $5 million, and net loss from continuing operations was a bit over $500,000.

Speaker 4: Net loss from continuing operations includes a 3.3 million dollar favorable fair value measurement, re-measurement of the contingent value right liability. Fourth quarter revenue nearly tripled sequentially and gross profit more than tripled due to the contribution of sonation. Revenue in the fourth quarter

Eric Ingvaldson: Q4 revenue nearly tripled sequentially, and gross profit more than tripled due to the contribution of SUNation. Revenue in the Q4 of 2021 was de minimis at $13,000. Now, let's summarize our Q4 pro forma results. Assuming we had SUNation for the full quarter in 2022 and had HEC, E-Gear, and SUNation for the full quarter in 2021. The comparisons are year-over-year. Company revenue would have grown 13% to $23.5 million, with HEC up 11% and SUNation up 32%. Company adjusted EBITDA would have declined slightly to -$170,000 due to the decline of HEC that Kyle mentioned earlier. Adjusted EBITDA shows a loss, without permitting delays in Hawaii, this number would be positive, which gives us confidence going into 2023.

Speaker 4: Now, let's summarize our fourth quarter pro forma results.

Speaker 4: assuming we had senation for the full quarter in 2022 and had HEC, e-gear and senation for the full quarter in 2021.

Speaker 4: The comparisons are year over year. Any revenue would have grown 13% to $23.5 million.

Speaker 4: with HEC up 11% and senation up 32%.

Speaker 4: company adjusted EBITDA would have declined slightly to a loss of $170,000 due to the decline at HEC that Kyle mentioned earlier.

Speaker 4: Although adjusted EVA shows a loss,

Speaker 4: Without permitting delays in Hawaii, this number would be positive, which gives us confidence going into 2023.

Eric Ingvaldson: Let's switch to full year GAAP results, which includes 52 days of contribution from SUNation and contributions from HEC and E-Gear since the merger on 28 March 2022. Revenue was $27.5 million, gross profit was $7.4 million, and net loss from continuing operations was $3.3 million. Total net loss of $10.5 million includes a $7.1 million loss from discontinued operations. Revenue for all of 2021 was de minimis at $38,000. Let's summarize full year pro forma results, assuming we had SUNation, HEC and E-Gear for the full years of both 2022 and 2021. Company revenue would have grown 18% to $73.9 million, with HEC up 21% and SUNation up 39%. Adjusted EBITDA would have shown an improvement of 14%. Turning to the balance sheet, we ended the year in good shape. Cash and investments, which are available for use in our business, the solar business, were $3.5 million.

Speaker 4: Let's switch to full year gap results.

Speaker 4: which includes 52 days of contribution from Cenation and contributions from HEC and EGEAR since the merger on March 28, 2022.

Speaker 4: Revenue was $27.5 million.

Speaker 4: Gross profit was $7.4 million and net loss from continuing operations was $3.3 million.

Speaker 4: Total net loss of $10.5 million includes a $7.1 million loss from discontinued operations.

Speaker 4: Revenue for all of 2021 was de minimis at $38,000.

Speaker 4: Now, let's summarize full year pro forma results.

Speaker 4: assuming we had Cenation, HEC and eGear for the full years of both 2022 and 2021.

Speaker 4: Company revenue would have grown 18% to $73.9 million, with HEC up 21%, and Cenation up 39%.

Speaker 4: Adjusted EBITDA would have shown an improvement of 14%.

Speaker 4: Turning to the balance sheet.

Speaker 4: We ended the year in good shape.

Speaker 4: cash and investments, which are available for use in our business.

Speaker 4: and investments which are available for use in our business, the solar business, or 3.5 million.

Eric Ingvaldson: We had another $4.5 million of restricted cash and liquid investments, which is reserved for the CVR holders. Debt is approximately $13 million, with the majority due to Pineapple board member and executive Scott Maskin in connection with the SUNation acquisition. We plan to raise capital in 2023 to refinance debt and fund our acquisition strategy. Looking ahead, we are confident and optimistic. In 2023, we expect to generate revenue of $80 million to $85 million before acquisitions. We anticipate attractive organic growth at both SUNation and HEC, and stability at E-Gear. Importantly, we expect cash flow from operations to flip positive in H2 of the year and to be positive for the full year. As you know, acquisitions are core to our strategy.

Speaker 4: We had another $4.5 million of restricted cash and liquid investments, which is reserved for the CBR holders.

Speaker 4: Debt is approximately $13 million, with the majority due to Pineapple board member and executive Scott Maskin in connection with the Cenation acquisition.

Speaker 4: We plan to raise capital in 2023 to refinance debt and fund our acquisition strategy.

Speaker 4: Looking ahead, we are confident and optimistic.

Speaker 4: In 2023, we expect to generate revenue of $80 to $85 million before acquisition.

Speaker 4: We anticipate attractive organic growth at both Cenation and HEC and stability at EGEAR.

Speaker 4: Importantly, we expect cash flow from operations to flip positive in the second half of the year and to be positive for the full year.

Eric Ingvaldson: We can't predict when, who, or what size of companies we will buy, but you can expect to see attractive growth as we complete deals in the quarters ahead. Let me mention one other detail before we go to Q&A. You will see today that we are filing an SEC Form 12b-25 election, meaning we're asking for a 15-day extension to file our 10-K. As you can see today, our books are closed, and our numbers basically set. Our situation was complex this year with a public listing and multiple acquisitions, one being in Q4. We are also presenting discontinued operations in Q4 due to the pending sale of JDL and Ecessa. There are no material issues outstanding, and we anticipate filing within the 15-day extension period. Now, we would like to open the call for any questions. Operator, please go ahead.

Speaker 4: As you know, acquisitions are core to our strategy. We can't predict when, who, or what size of companies we will buy, but you can expect to see attractive growth as we complete deals in the quarters ahead. Let me mention one other detail before we go to Q&A.

Speaker 4: You will see today that we are filing a form SEC form 12B25 election, meaning we are asking for a 15-day extension to file our 10K.

Speaker 4: As you can see today, our books are closed and our numbers basically set.

Speaker 4: Our situation was complex this year with a public listing and multiple acquisitions, one being in the fourth quarter.

Speaker 4: We are also presenting discontinued operations in the fourth quarter due to the pending sale of JDL and SSF. There are no material issues outstanding and we anticipate filing within the 15-day extension period.

Speaker 4: Now we would like to open the call for any questions. Operator, please go

Operator: The floor is now open for your questions. To ask a question at this time, please press star one on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star one again. You'll be provided the opportunity to ask one question and one further follow-up question. We'll now take a moment to render our roster. Our first question comes from the line of Donovan Schafer from Northland Capital Markets. Please proceed.

Speaker 2: The floor is now open for your questions. To ask a question at this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. You'll be provided the opportunity to ask one question and one further follow-up question. We'll now take a moment to render our roster.

Speaker 2: Our first question comes from the line of Donovan Shaffer from Northland Capital Markets. Please proceed.

Donovan Schafer: Hey, guys. Thanks for taking the questions. I want to start asking about the permitting delays in Hawaii. You gave some details. There was a federal investigation that's thankfully unrelated to you guys specifically. From a timing standpoint, is that something that really just hit in Q4 and closed out? You could see there was no impact in Q3, Q4 comes around, and there's this sort of an event or something or an announcement and that bogs things up, it clears before the start of Q1. Just sort of any other kind of qualitative details around what was going on there. That'd be helpful to know about.

Speaker 5: Hey guys, thanks for taking the questions. So I want to start asking about the permitting delays in Hawaii. You know, you gave some details. There's a federal investigation that's thankfully unrelated to you guys specifically. But um.

Speaker 5: You know, from a timing standpoint, is that something that really just, you know, hit in the fourth quarter and closed out? You know, is that?

Speaker 5: you could see there was no impact in the third quarter and then fourth quarter comes around and there's this sort of an event or Something or an announcement and that bogs things up and then it clears before the start of the first quarter And then just sort of any other kind of qualitative details around

Kyle Udseth: Yeah, absolutely. Thanks for being on, Donovan. I know it's early for you, so appreciate it. Yeah, it was an unfortunate situation, certainly. I think we were in line for a really tremendous year, and it's a testament to the leadership of Chris DeBone and the whole team out there. They worked incredibly hard throughout the year, taking care of customers. We were harvesting unprecedented top-of-funnel demand, had a really healthy backlog, install crews firing on all cylinders. It was, I think, mid to late November that Chris first talked to me about this. I don't know all the details, but you can find them online. I think there was a FBI ongoing investigation, including a sting and something out of a movie, like multiple people taking kickbacks and bribes and in federal prison now from this. It was not just solar.

Speaker 5: what was going on there. That'd be helpful to know about.

Speaker 6: Yeah, absolutely. And thanks for being on Donovan. I know it's early for you. So appreciate it.

Speaker 6: Yeah, it was an unfortunate situation, certainly. I think we were in line for a really tremendous year, and it's a testament to the leadership of Chris DeBone and the whole team out there. They worked incredibly hard throughout the year, taking care of customers. We were harvesting unprecedented top-of-funnel demand, had a really healthy backlog, install crews.

Speaker 6: partnering on all cylinders.

Speaker 6: It was, I think, late.

Speaker 6: mid to late November that Chris first talked to me about this. I don't know all the details, but you can find them online. I think there was a FBI ongoing investigation including a sting and.

Speaker 6: something out of a movie like multiple people taking kickbacks and bribes and like in federal prison now from this and It was not just solar it affected all types of permitting Island wide or at least countywide in Honolulu County the Commodification for us was that something like 70 or 80 percent?

Eric Ingvaldson: It affected all types of permitting island-wide, or at least countywide in Honolulu County. The ramification for us was that something like 70% or 80% of the permits are pretty standard and go through just the normal process. There's not much to have to look into. Something like 20%, maybe a bit more, are more complex. There's something going on that's just non-standard. Older home, older wiring requires a second layer, a third layer of diligencing on it. Those ones were no longer able to be expedited. My understanding is that the scandal overall was projects like that were allowed to be kind of bumped up to the top of the queue by people paying kickbacks or something like that. Rightfully so, I think when this happened, they came and said, Okay, let's lock things down.

Speaker 6: layer, third layer of diligently on it. And those ones were no longer able to be expedited. My understanding is that the scandal overall was projects like that were allowed to be kind of bumped up to the top of the queue by people paying kickbacks or something like that. And so, rightfully so, I think when this happened they came and said, okay, let's lock things down.

Eric Ingvaldson: Let's make sure everything's dotted I's crossed T's fully gone out. At the same time, literally bodies were going to jail, and people were doing early retirements, and so they were just short-staffed. It certainly hit over the following four or five weeks and really bit the most in December. I think at first it was 40 or 42 projects that we thought we were going to have permits on that got gummed up. Ultimately, we were able to pull forward something like 10 or 12 from our January install calendar and get those done before the end of the year. The net effect was something like 30 installations that were fully ready to go.

Speaker 6: weeks and really bit the most in December . You know I think at first it was 40 or 42 projects that we thought we were going to have permits on that got gummed up. Ultimately we were able to pull forward something like 10 or 12 from our January install calendar and get those done before the end of the year.

Eric Ingvaldson: Like funded, permitted interconnection, crews on the schedule ready to install, that got pushed out of Q4. That was over $1 million of revenue, and because you've already eaten all the overhead there, EBITDA to the bottom line is a lot more than just your typical gross margin. It was over half a million dollars of operating cash and just EBITDA that would've fallen to the bottom line. I think the very significant silver lining is, like you said, I think some aspects of the investigation are still winding down, but we've seen the permitting piece get solved and unclogged. As of now, I don't think we have a single one of those projects or ones like it that are still awaiting permits because of this issue. If so, it's a small handful, like three or four of them.

Speaker 6: But the net effect was something like 30 installations that were fully ready to go, like funded, permitted, interconnection, like crews on the schedule ready to install, that got pushed out of Q4. And so that was over a million dollars of revenue. And because you've already eaten all the overhead there, it's...

Speaker 6: EBITDA out of the bottom line is a lot more than just your typical gross margin. So it was over half a million dollars of operating cash and just EBITDA that would have fallen to the bottom line. I think the very significant silver lining is like you said, I think some aspects of the investigation are still winding down.

Kyle Udseth: We have been able to realize those installs in Q1, which bodes well, and we don't anticipate any additional challenges going forward from this.

Speaker 6: And so we have been able to realize those installs in Q1, which bodes well, and we don't anticipate any additional challenges going forward from this.

Donovan Schafer: Okay, great. That's super helpful color. I also want to ask about ASPs. I know the results in some ways are preliminary, and then there's these added layers or issues of pro forma versus there's the legacy CSI business and everything. You gave pro forma numbers for quarter-over-quarter gross in kilowatts installed in Q4, sorry, year-over-year growth at 23%. The pro forma revenue growth was 13%. If my math is correct, that implies an 8% ASP decline if you're just doing dollar per watt. Of course, there's also battery attachments and other things like that also complicate things here. Just checking in on this, if there really was this kind of year-over-year ASP decline in the markets that you are serving or and if there's something behind that.

Speaker 5: Okay, great. That's super helpful color.

Speaker 5: I also want to ask about ASPs. I know the results in some ways are preliminary and then there's kind of these added layers or issues of pro forma versus…

Speaker 5: There's the legacy CSI business and everything. But you gave pro forma numbers for quarter over quarter growth in kilowatts installed and in the fourth quarter, sorry, year over year growth.

Speaker 5: at 23%.

Speaker 5: And then the revenue, the pro forma revenue growth was 13%.

Speaker 5: So, if my math is correct, that implies an 8% ASP decline if you're just doing a dollar per watt. Of course, there's also battery attachments.

Speaker 5: other things like that that also complement – that complicate things here. So just checking in on this, there really was this kind of year-over-year ASP decline in the markets that you are serving or – and if there's something behind that, I mean, is it just elevated pricing before with polysilicon?

Donovan Schafer: Was it just elevated pricing before with polysilicon and other stuff?

Kyle Udseth: Yeah

Donovan Schafer: just come down? Any color would be helpful.

Kyle Udseth: It's a great question, and actually we were sitting here as a team about 7:30 PM last night, going through the script and looking at those same things and how the metrics triangulate. I think the short answer response to your question is that the kilowatts sold might've been up by less than the revenue or vice versa, but if you look at the actual kilowatts installed, it doesn't imply that. Is that right? I think Eric's got the sheet here. I think the key thing is that it's the revenue is recognized not when the kilowatts are sold, but when they're installed.

Speaker 6: and other stuff and that just come down, any color would be helpful. Yeah, it's a great question and actually we were sitting here as a team about 730 last night kind of going through the script and looking at the same things and how the metrics triangulate. I think the short answer response to your question is that the kilowatts sold might have been...

Speaker 6: up by less than the revenue, but if you look at – or vice versa, but if you look at the actual kilowatts installed, it doesn't imply that. Is that right? I think Eric's got the sheet here. Right? Because I think the key thing is that the revenue is recognized not when the kilowatts are sold but when they're installed. Correct. Yeah. And so I think that –

Donovan Schafer: Correct.

Kyle Udseth: Yeah. I think that we're not seeing ASP declines. I think there's a separate issue of gross margin, and I think in Q4 in Hawaii, we had some gross margin pressure because of elevated costs that stemmed from some service things. Also some supply chain stuff hitting from COVID. We made a conscious decision that there was so much demand top of funnel in Hawaii because of this Battery Bonus program that's been solid to the market and continuing this year. We decided we wanted to continue in our leadership position and take share. We didn't raise prices as aggressively as maybe we could have or some competitors did.

Speaker 6: We're not seeing ASPE declines. I think there's a separate issue of gross margin and I think in the fourth quarter in Hawaii we had some gross margin pressure because of elevated COGS that kind of stem from some service things. His Chairman Nick

Speaker 6: and also some supply chain stuff kind of hitting from COVID. But I think, and in a bit, we made a conscious decision that there was so much demand top of funnel in Hawaii because of this battery bonus program that's been solid for the market and continuing to this year. And we decided we wanted to continue in our leadership position and take share. And so we didn't raise prices as aggressively as we did in the past.

Kyle Udseth: I think we maintained a healthy margin generally, but I think specifically to the dynamic you were pointing out, the delta is just that the revenue went up more than the kilowatts installed went up.

Speaker 6: Maybe we could have or some competitors did, but I think we maintained a healthy margin generally. But I think specifically to the dynamic you were pointing out, the delta is just that the revenue went up more than the kilowatts installed went up.

Speaker 6: or some competitors did, but I think we maintained a healthy margin generally. But I think specifically to the dynamic you were pointing out, the delta is just that the revenue went up more than the kilowatts installed went up. Okay. That's helpful. And first thing we've done is update our platform. Oh, which one?

Donovan Schafer: Okay. That's helpful. Then I want to ask about the Eguana licensing deal. In the release you guys mentioned there's an upfront fee that they're paying you guys. Curious if you can quantify that at all. Then the other part to that is, if I recall correctly, some of the proprietary technology around what E-Gear has here is some of that is somewhat unique to the Hawaii market, telecom integration stuff there. Is that still the case? Is that correct? The licensing deal would really largely be a Hawaii market phenomenon, or is that something where it'd be valuable technology in other states?

Speaker 5: I want to ask about the Iguana licensing deal. In the release you guys mentioned, there's an upfront fee that they're paying you guys. I'm curious if you can quantify that at all. And then the other part to that is, if I recall correctly, some of the proprietary

Speaker 5: technology around what e-gear has here, some of that is somewhat unique to the Hawaiian market, kind of telecom integration stuff there. Is that still the case? Is that correct? The licensing deal would really largely be a Hawaii market phenomenon or is that something where it would be –

Kyle Udseth: In terms of the financials, I don't feel comfortable disclosing it now just because we haven't talked about that with Eguana and I want to respect the partnership. I think that some amount of that's probably going to be public or you can at least back into approximations when we file our Q1 results and you see the financials on certain line items.

Speaker 6: valuable technology in other states. Yeah, so in terms of the financials, I don't feel comfortable disclosing it now just because we haven't talked about that with Iguana. And I want to respect the partnership. You know, I think that some amount of that's probably going to be public or you can at least back into

Speaker 6: approximations when we file our Q1 results and you see the financials on certain line items, but just that or it's like D1 and we haven't talked about it. I don't really want to get too much into the terms, but you know it's a meaningful starting point amount of revenue for the E-Gear business and then in terms of the technology itself you know a couple things

Kyle Udseth: Just out of respect to Eguana, we haven't talked about it. I don't really want to get too much into the terms, but it's a meaningful starting point amount of revenue for the E-Gear business. In terms of the technology itself, a couple things. One, the technology has been in place and has been deployed across thousands of systems in Hawaii over the past couple years. Those are majority our own systems. It was one of the reasons Eguana's been such a good partner is because we have full access to the battery cabinet to deploy our hardware, our firmware, and our software aggregating the distributed energy resources and talking up to the cloud layer into the utility.

Speaker 6: One, the technology has been in place and has been deployed across thousands of systems in Hawaii over the past couple of years. Those are, majority, our own systems. It was one of the reasons Iguana has been such a good partner is because we have full access to the battery cabinet.

Speaker 6: to deploy our hardware, our firmware, and then our software aggregating the distributed energy resources and kind of talking up to the cloud layer into the utility. And so it's well proven and tested and I don't believe there's any device that can match our capability set for

Kyle Udseth: It's well proven and tested, and I don't believe there's any device that can match our capability set for being able to interface with the utility over as many standards, meet the needs of every different tariff and grid services program there, and control as many different states of the consumer battery, whether it's across Zigbee or Bluetooth or a Wi-Fi connection or that. It uses IEEE 2030.5 standards. It's really best-in-class technology, and it's in the field and proven. I think it has applications far beyond the Hawaiian market, and I think that's, in a sense, what this licensing deal is all about, is that Eguana has a strategy to go much more broadly than Hawaii or some of the markets that they've had the majority of the installs with these devices to date.

Speaker 6: being able to interface with the utility over as many standards, meet the needs of every different tariff and grid services program there and control as many different states of the consumer battery, whether it's across Zigbee or Bluetooth or a Wi-Fi connection or that. It uses IEEE 2030.5 standards. So it's really best in class technology.

Kyle Udseth: It's really why they wanted to do this, is they want to be able to have this best-in-class energy management control device and that hardware, firmware, software that they can now customize. That pairing together and go expand into other markets, both domestically and abroad.

Speaker 6: And it's really why they wanted to do this, is they want to be able to have this best-in-class energy management control device and that hardware, firmware, software that they can now customize and that pairing together and go expand into other markets, both domestically and abroad. Great.

Donovan Schafer: Okay. I'll jump back in the queue, or I guess you can just check in. Operator, if there are other questions in the queue, I'll let other people take a turn, and I'll jump back in line. Otherwise, I certainly have more questions. We can go either way. Operator?

Speaker 5: I will jump back in the queue or I guess you can just check in. Operator, if there are other questions in the queue, I will let other people take a turn and I will jump back in line. But otherwise, I certainly have more questions. We can go either way.

Speaker 5: I'll jump back in the queue or I guess you can just check in. Operator, if there are other questions in the queue, I'll let other people take a turn and I'll jump back in line. But otherwise, I certainly have more questions. We can go either way. Operator? Operator, if there are other questions in the queue, I'll let other people take a turn and I'll jump back in line. Operator, if there are other questions in the queue, I'll let other people take a turn

Operator: Feel free to finish your questions now, sir.

Donovan Schafer: Sure. Okay. For the guidance for 2023, $80 to $85 million. We're pretty much at the end of Q1. I'm curious if you can help us get some kind of cadence. You made comments around seasonality. In Long Island or New York, it's sort of Q2, Q3, and then Hawaii it's more Q3, Q4 are the peak seasons. You figure if you're a fast-growing company, that might override a lot of the seasonality anyway. Would we see sequential improvements in revenues throughout the year, or is it still going to be maybe a moderation in Q4 given SUNation's the bigger piece of things? Any kind of elaboration around cadence of revenue in the year. That'd be great.

Speaker 2: Feel free to finish your questions now, sir.

Speaker 5: Sure, okay. Yeah, so for the guidance for 2023, $80 to $85 million, now we're pretty much at the end of the first quarter. I'm curious if you can help us get some kind of cadence. You made comments around seasonality.

Speaker 5: Yeah, and I think in Long Island or New York, it's sort of the second quarter, third quarter, and then Hawaii it's more third quarter, fourth quarter are the peak seasons. But you figure if you're a fast growing company and everything, that might override a lot of the seasonality anyway.

Speaker 5: So would we see sequential improvements in revenue throughout the year or is it still going to be maybe like a...

Speaker 5: in the fourth quarter, given the donations, the bigger piece of things. Just any kind of elaboration around cadence of revenue in the year. That would be great. I'll start and then maybe Eric can share too.

Kyle Udseth: Yeah, I'll start and then maybe Eric Ingvaldson can share too, just from more of a plan or budget standpoint too. Quarter's going well. Don't want to say much beyond that. I think it supports the 80 to 85. We hadn't shared that guidance before, but it's what we came into the year expecting internally and haven't seen anything in Q1 to really make us change off of that, tracking towards that, and feeling good about both top of funnel demand, overall growth in those markets, and our own company's performance and ability to capture that. I think that from a seasonality standpoint, I think we see seasonality throughout the year, but with the caveat that there's a reset back from Q4 to Q1, right? Q4 is always a big quarter, so we wouldn't expect and won't see Q1 2023 being higher than Q4 2022.

Speaker 6: just from more of a planner or budget standpoint too.

Speaker 6: Quarters going well, you know, don't want to say much beyond that. I think it supports the 80 to 85. You know, we hadn't shared that guidance before, but it's what we came into the year expecting internally and haven't seen anything in Q1 to really make us change off of that, tracking towards that and feeling good about.

Speaker 6: both top of funnel demand, overall growth in those markets, and our own company's performance and ability to capture that. I think that from a seasonal standpoint up to starting at about started isn't always easy this much.

Speaker 6: Yeah, I mean I think we see seasonality throughout the year, but with the caveat that there's a reset back from Q4 to Q1, right? Q4 is always a big quarter, so we wouldn't expect and won't see Q1 of 23 being higher than Q4 of 22. So like Q4 of 22 is good, it drops down naturally every year with seasonality to Q1 of 23, and then I think sequentially will go up every quarter throughout the year. Eric, anything else you'd add on that?

Kyle Udseth: Q4 2022 is good. It drops down naturally every year with seasonality to Q1 2023. I think sequentially will go up every quarter throughout the year. Eric, anything else you'd add on that?

Eric Ingvaldson: Yeah. I guess on the first question, we can't give any guidance on Q1 other than the expectations that we've outlined. We do feel that we're performing in line with those, or we wouldn't have put those expectation guidelines out there. Regarding seasonality, as Kyle mentioned, Q1 is not as strong as Q4 historically. We do expect sequential quarter-over-quarter growth throughout the year.

Speaker 4: Yeah, I guess on the first question we can't give we can't give any guidance on the first quarter other than you know the expectations that we've

Speaker 4: outline, we are, you know, we do feel that we're performing in line with those or we wouldn't have put those expectation guidelines out there. Regarding seasonality, we, as Kyle mentioned, the first quarter is not as strong as the fourth quarter historically, but we do expect sequential quarter over quarter growth throughout the year.

Donovan Schafer: Okay. That's helpful. For the SG&A came in a little bit high. There's certainly impacts there from transaction costs and some other things, kind of one-time items in SG&A. Now you do have this acquisition of SUNation that happened. Can you give any kind of color around or indications of what we should expect going forward? What kind of a run rate we should anticipate for SG&A?

Speaker 5: Okay, that's helpful. And then for the SGA came in a little bit high.

Speaker 5: There are certainly impacts there from transaction costs and some other things, kind of one-time items in SG&A. But now you do have this acquisition estimation that happens. Can you give any kind of color around or…

Speaker 5: indications of what we should expect going forward, like what kind of a run rate we should anticipate for sG&I.

Kyle Udseth: Yeah. I'm not sure the best way to answer this. I think we probably internally need to sharpen the pencil on quantifying basis points improvements through synergies on certain line items. It's something that we're going to work on between now and the next call. I think from a thematic standpoint, there are a lot of different ways you can get synergies there. The big ones are economies of scale, kind of purchasing power on the hardware side, which we're actively looking at ways to do that across the businesses right now with some good initial results.

Speaker 6: Yeah, I'm not sure the best way to answer this. I think we probably internally need to sharpen the pencil on quantifying basis points improvements through synergies on certain line items. And it's something that we're going to work on between now and the next call. I think from a thematic standpoint, we're going to have to do a lot of work on

Speaker 6: There are a lot of different ways you can get synergies. The big ones are economies of scale, purchasing power on the hardware side, which we're actively looking at ways to do that across the businesses right now with some good initial results.

Kyle Udseth: We've got the financing side, which I think is top of mind for a lot of folks, just with this kind of relentless increase in dealer fees as interest rates are rising and certainly the desire in the industry to be able to pass more savings onto the homeowners, keep more of the profit for the companies that do the hard work of acquiring the customers and installing the systems, and not as much passed on to the guys who are just financing it. I think there's good economies of scale there. Just on corporate SG&A functions and what's a shared service out of corporate versus what's not. There's a level of just growing into that, too.

Speaker 6: We've got the financing side, which I think is top of mind for a lot of folks, just with this kind of relentless increase in dealer fees.

Speaker 6: as interest rates are rising and certainly the desire in the industry to be able to pass more savings on to the homeowners, keep more of the profit for the companies that do the hard work of acquiring the customers and installing the systems and not as much passed on to the guys who are just financing it. So I think there's good economies of scale there. And then just on kind of corporate SG&A functions and what's a shared service out of corporate versus what's not.

Kyle Udseth: It's a high-growth business. Instead of looking at it like redundancies and eliminating jobs or that, it's like you've got this starting platform, and then as you grow, you just don't have to scale the cost side as much. I don't know, Eric, there's probably not a whole lot more we can say financially, but any other color you want to give on the SG&A piece?

Speaker 6: There's a level of just growing into that too. It's a high growth business, so instead of looking at it like redundancies and eliminating jobs or that, it's kind of like you've got this starting platform and then as you grow, you just don't have to scale the cost side as much. I don't know, Eric, there's probably not a whole lot more we can say financially but like any other color you want to give on the S-gen.

Eric Ingvaldson: Yeah, I would just add that you see that we're reporting discontinued operations for two business segments that are legacy CSI. As we divest of those and continue to integrate SUNation, we certainly believe there's operating leverage to be attained there. I also would note that in Hawaii, due to some equipment failures, we did have a lot of additional truck rolls and service calls that ate into our EBITDA margins that we do not anticipate occurring in 2023. I can't comment specifically, but certainly do anticipate gaining additional operating leverage as we continue throughout the year.

Speaker 4: Yeah, I would just add that you see that we're reporting discontinued operations for two business segments that are legacy CSI. As we divest of those and continue to integrate Cenation, we certainly believe there are a huge amount of aggregate operations later.

Speaker 4: there's operating leverage to be attained there. I also would note that in Hawaii, due to some equipment failures, we did have a lot of additional truck rolls and service calls that aid into our EBITDA margins that we do not anticipate occurring.

Speaker 4: in 2023. So yeah, can't comment specifically, but certainly do anticipate gaining additional operating leverage as we continue throughout the year.

Donovan Schafer: Okay. I don't know, I'm not trying to back you guys into a corner or pick on you here, but I guess as logic behind it, does it make sense, in the Q4, you had the $6.4 million in SG&A, which is a partial quarter for SUNation? Does it make sense to think of that as something that would actually be more likely to be something that would be increasing? Does that include enough one-off or unusual things in SG&A where we would actually think SG&A would be relatively lower, just going north of that or headed upward or headed downward just near-term?

Speaker 5: Okay, and I don't know, to kind of, maybe I'm not trying to back you guys into a corner or pick on you here, but I guess, so just as logic behind it, does it make sense, you know, in the fourth quarter you had the 6.4 million in SG&A.

Speaker 5: which is a partial quarter for senation. So does it make sense to think of that as something that would actually be more likely to be something that would be increasing? Or does that include enough kind of one-off or unusual things in sGNA, where we would actually think...

Speaker 5: SG&I would be relatively lower, just kind of going north of that or headed upward or headed downward, just near term.

Eric Ingvaldson: I think it'll really vary depending on the quarter.

Donovan Schafer: Okay.

Eric Ingvaldson: As a percentage of revenue, though, we do feel that there is operating leverage to be attained.

Speaker 4: I think it'll really vary depending on the quarter.

Donovan Schafer: Got it.

Kyle Udseth: Yeah, right.

Speaker 4: Okay, okay. There's a percentage of revenue, though we do feel that there is operating leverage to be attained. Yeah, right. Okay. 12 percent 245 percent level.

Donovan Schafer: Okay. That is helpful.

Kyle Udseth: Yeah, there's corporate overhead that has some seasonality to it, but it's the fixed cost, and then there's the pieces of the operating businesses that flex more with revenue and the work being done. Yeah, I think that the top-line guidance is healthy. Company is performing well there. Gross margin strong. I think if anything, putting more of an eye to that going forward and just making sure we preserve that healthy margin into the future, and then certainly some opportunity to improve on SG&A.

Speaker 6: Yeah, there's kind of corporate overhead that has some seasonality to it, but it's kind of the fixed cost, and then there's the pieces of the operating businesses that flex more with revenue and the work being done. But yeah, I think that the top line guidance is healthy, the company is performing well there.

Speaker 6: Gross margin strong, I think, if anything, putting more of an eye to that going forward and just making sure we preserve that healthy margin into the future. And then certainly some opportunity to improve on. Okay.

Donovan Schafer: Okay.

Kyle Udseth: Hey, Donovan.

Donovan Schafer: Okay.

Kyle Udseth: Donovan, sorry, I think we've probably got to jump. I think I see Chip on the screen. I might be misreading this thing, but maybe if we could go to the queue.

Speaker 6: And then I want to... Donovan, I think we probably got a jump. I think I see Chip on the screen. I might be misreading this thing. But maybe if we could go to the queue and try to cut you off. But we're around after two if you don't get your questions. Absolutely. I will take the rest of my questions offline. Thank you guys.

Donovan Schafer: Sure.

Kyle Udseth: Sorry to cut you off, but we're around after 2:00.

Donovan Schafer: Absolutely. I will take the rest of my questions offline. Thank you, guys.

Kyle Udseth: Yeah. Thanks, Donovan.

Eric Ingvaldson: Thanks, Donovan.

Operator: Our next question comes from the line of Chip Moore from EF Hutton. Please proceed.

Speaker 2: Yeah, thanks. Our next question comes from the line of Chip Moore from EF Hutton. Please proceed.

Chip Moore: Morning. Hey, Kyle and Eric. Thanks for taking the question. Welcome to your first call. Just a couple from me to follow up on Donovan's. I guess first around guidance. Any way to help us think about line of sight on that cash to cash breakeven, particularly, I guess we touched on seasonality, but maybe around margins, given some of the moving pieces with Battery Bonus program and permitting in Hawaii you talked about?

Speaker 6: Morning. Hey, Kyle and Eric. Thanks for taking the question. Welcome to your first call.

Speaker 7: I'll just a couple for me to follow up on on Donman's, you know, I guess first around guidance

Speaker 7: Any way to help us think about line of sight on that path to cash break even particularly I guess

Speaker 7: We touched on seasonality, but maybe around margins, given some of the moving pieces with battery bonus program and permitted in Hawaii. You talked about.

Kyle Udseth: I guess what I would say, and then I'll defer to Eric, too, on maybe anything more we can provide on the timing of it, like in the year. Effectively, my view is once we closed on the SUNation acquisition 9 November, any 12-month period going forward from that point, the company is going to be +cash flow from operations. Within a given year, there is seasonality there. On which specific day of the year it flips from positive to negative or how much cash did you collect that day versus invoices going out. There's always a little bit of wiggle room, but I think the key thing and the trend is that any 12-month period you look at going forward, SUNation got us. We were subscale before, in a sense, where the operating cash flow wasn't covering the corporate overhead.

Speaker 6: I guess what I would say…

Speaker 6: And then I'll defer to Eric too on maybe anything more we can provide on the timing of it like in the year but

Speaker 6: Effectively, my view is once we close down the Sinatian acquisition November 9th,

Speaker 6: any 12-month period going forward from that point, the company is going to be positive cash flow from operations, but within a given year there's seasonality there. And on which specific day of the year it flips from positive to negative, or how much cash did you collect that day versus invoices going out. There's always a little bit of wiggle room, but I think the key thing and the trend is that

Speaker 6: any 12-month period you look at going forward, Cenation got us to, you know, we were subscale before in a sense, where the operating cash flow wasn't covering the corporate overhead. That flips when you get the second acquisition in place, where, you know, at or above minimum efficient scale now, and company will generate cash on 12-monthly.

Kyle Udseth: That flips when you get the second acquisition in place. We're at or above minimum efficient scale now. Company will generate cash on 12 monthly basis going forward. Eric, I don't know anything more you want to add just in terms of the timing within 2023?

Speaker 6: basis going forward. You know, Eric, I don't know anything more you want to add just in terms of the timing within 2023? Yeah, I think we we stayed in the earnings release that we anticipate

Eric Ingvaldson: Yeah, I think we stated in the earnings release that we anticipate breaking, kind of crossing the threshold in H2, and that is consistent with our seasonality and typically stronger Q3 and Q4.

Speaker 4: great, you know, kind of crossing the threshold in the latter half of the year, and that is consistent with

Speaker 4: our seasonality, it's typically stronger third and fourth quarters. So that would be the.

Eric Ingvaldson: Yeah

Eric Ingvaldson: additional color I would give.

Speaker 4: typically stronger third and fourth quarters. So that would be the additional color I would give.

Chip Moore: Yeah. Okay. No, that makes sense. On the installation backlog, I think you called out the $30 million and $17 million for SUNation in Hawaii. That year ends, I assume, and how has that trended and how does that compare with what they've seen in the past, when we think about visibility on that $80 million plus and what you need to book and burn?

Speaker 7: Yeah, okay, no, that makes sense. And then on the installation backlog, I think he called out the 30 million and 17 million per foundation in Hawaii. That year end, I assume, and how that trended and how does that compare? Let us hear that story before the floor. Good morning. Here we go.

Speaker 7: with what they've seen in the past. When we think about visibility on that 80 million plus and what you need to book and burn.

Kyle Udseth: Good question. I don't know offhand, but I think it's higher. Do you have that, Derek, or not? Do we know what the backlog was at the end of 2021?

Speaker 6: Good question. I don't know offhand, but I think it's higher. Do you have that? Okay.

Speaker 4: Eric, do we know what the backlog was at the end of 2021? We do not have that information due to all the acquisitions.

Eric Ingvaldson: We do not have that information just due to all the acquisitions.

Kyle Udseth: I feel like it's up, right? I think at both businesses, and sorry, we can verify this after, but I think at both businesses they had really great install years, but I think the top of funnel was even higher. While we were pushing through strong growth in revenues and kind of record revenues or recent record revenues and installs, I think the backlog was growing even at the same time because sale, like kilowatts sold for the year, were coming in even higher than kilowatts installed. There's, I guess, pricing stuff in there and battery attach rate stuff in there. I think the backlog is even larger year over year. I think that we've done some of that analysis before internally and looked at it.

Speaker 6: I want to I feel like it's up right. I mean, I think I think at both businesses and sorry we can Verify this after but I think at both businesses they had really great install years But I think the top of funnel was even higher. So while we were pushing through

Speaker 6: growth in revenues and kind of record revenues or recent record revenues in installs, I think the backlog was growing even at the same time because kilowatts sold for the year were coming in even higher than kilowatts installed. And there's, I guess, pricing stuff in there and battery attach rate stuff in there, but I think the backlog is even larger year over year. And I think that.

Kyle Udseth: I don't have it at my fingertips, but it's one of the things that gives us confidence in giving the guidance, is that so much of the revenue is already pre-sold and then at the point where people don't really cancel anymore. I think it's a dynamic that is different in our businesses than some other residential solar businesses. Our cancellation rates are single-digit percentages, whereas I know there are some where it's like 50% plus, right? I think a lot of that just comes down to when you ask the customer to sign something and what you say that is. I think that the revenue out of that backlog when we give these numbers, it's kind of an expected value weighted average of what we, based on historical cancellation rates, truly believe is going to install.

Speaker 6: You know, we've done some of that analysis before internally and looked at it. I don't have it at my fingertips, but it's one of the things that gives us confidence in giving the guidance is that so much of the revenue is already pre-sold and then, you know, at the point where people don't really cancel anymore. And I think it's a dynamic that is different in our businesses than some other residential solar businesses.

Speaker 6: our cancellation rates are single digit percentages, whereas I know there are some where it's like 50% plus, right, and I think a lot of that just comes down to when you ask the customer to sign something and what you say that is. And I think that, um,

Speaker 6: The revenue out of that backlog, when we give these numbers, it's kind of an expected value weighted average of what we, based on historical cancellation rates, truly believe is going to install.

Chip Moore: Got it. That's very helpful, Kyle. Thanks. Maybe another one on expansion. You talked about opening the Florida office. I think you were leveraging some of the SUNation capabilities. Just maybe talk about there, what kind of investment you need to go after that market and how you think about attacking it.

Speaker 7: That's very helpful, Kyle, thanks. And maybe another one on expansion, you talked about opening the floor to office. I think you were leveraging some of the sonation capabilities. Talk about there, what kind of investment you need to go after that market and how you think about attacking it.

Kyle Udseth: Yeah. Hey, I am really excited about that one because a lot of our sales team down there is a college hockey team, which as a Minnesotan is pretty exciting for Eric and me to see. No, I think it is a few SUNation-related and kind of ex- and now back SUNation employees. It is a couple who had done marketing lead gen and selling in New York and Long Island, and one or two of them, I think, went down to college in Florida and recruited a couple of their teammates and realized they could replicate that model and effectively sort.

Speaker 6: Yeah, hey, I'm really excited about that one because a lot of our sales team down there is a college hockey team, which as a Minnesotan is pretty exciting for Eric and me. No, I think it's a few Cenation related and kind of X and now Bacc, Cenation employees. So it's a couple who had done marketing lead gen and selling.

Speaker 6: in New York and Long Island and one or two of them I think went down to college in Florida and recruited a couple of their teammates and realized they could replicate that model and effectively.

Chip Moore: Perfect. That segues into maybe my last question. I'll take the rest offline. The acquisition funnel you talked a bit about it being pretty healthy, then just the balance sheet, the $5 million obligation, and obviously getting that dry powder to make some deals. What are you pursuing, and how are those negotiations progressing? Hello?

Speaker 7: Perfect. And that segues into maybe my last question. I'll take the rest offline. The acquisition funnel, you know, you talked a bit about it being pretty healthy. And then just the balance sheet, the $5 million obligation and obviously getting that dry powder to make some deals.

Speaker 8: Please stand by.

Operator: Please stand by. It appears we are having a minor technical difficulty. If you could please stand by and we'll be started again shortly.

Speaker 2: It appears we are having a minor technical difficulty. If you could please stand by and we'll be started again shortly.

Chip Moore: Great.

Operator: Okay. It does appear we are back online. We will continue with the question from Chip Moore from EF Hutton. If you can please proceed, sir.

Speaker 9: Great.

Speaker 2: Okay, so it does appear we are back online so we will continue with the question from Chip Moore from EF Hutton.

Kyle Udseth: Oh, hey, Chip. Sorry. Thanks. I was just asking my last one.

Speaker 7: If you can please proceed, sir. Hey, I'm sorry. Thanks. I was just asking my last one. Yeah. That's around. Please go. Just the M&A funnel and balance sheet. Thanks. Thanks.

Chip Moore: Yeah

Chip Moore: around-

Chip Moore: Please go.

Chip Moore: just the M&A funnel and balance sheet. Thanks.

Kyle Udseth: Yeah. M&A funnel, robust. We've been continuing while working on the performance of the existing businesses and focused on organic growth and margin improvement there. Certainly didn't want to take our eyes off the overall strategy too, of growing and continuing to grow by way of acquisition. We'd set an internal goal of doing an acquisition a quarter roughly in 2023. I think we knew we weren't going to get one done in Q1. I'd say that still remains the goal. I'd love to be able to do four in 2023. I think that we think about sizing of what's the Goldilocks number there. I think I say don't want to do something smaller than one we've done before in Hawaii. It's just probably not worth the effort of getting the audit done, and we want the contribution margin to be there. $25 million, $30 million.

Speaker 6: Yeah, so M&A funnel robust. We've been continuing while working on the performance of the existing businesses and focused on organic growth and margin improvement there.

Speaker 6: Certainly didn't want to take our eyes off the overall strategy too of growing and continuing to grow by way of acquisition. We'd set an internal goal of doing an acquisition a quarter roughly in 2023. I think we knew we weren't going to get one done in Q1. But I'd say that still remains the goal. I'd love to be able to do four.

Speaker 6: in 2023, I think that we think about sizing of what's the Goldilocks number there. I think

Speaker 6: They don't want to do something smaller than when we've done before in Hawaii. It's just probably not worth the effort of getting the audit done and we want the contribution margin to be there. So, you know, $25 million, $30 million probably needs to be bigger than that. I think that...

Kyle Udseth: Probably needs to be bigger than that. I think that $100 million is a maybe top-line number, probably more like $75 million, something like that, is where I think you don't have integration risk and it's the kind of cultural fit can be ascertained a little bit better and you can integrate it better. Profitable companies, I think more importantly it's the fit piece of it. It's just kind of focus on customer experience, kind of focus on growing at efficient CAC through referrals, experience with batteries. I think there are many companies out there that fit those criteria, and I think when we go talk to them, I think they are excited about the Pineapple story and the Pineapple vision and being part of something bigger and building it together. I think that we've got a healthy pipeline across a number of states.

Speaker 6: You know, 100 million is a maybe top line number, probably more like 75 million, something like that is where I think you don't have integration risk and it's like the kind of cultural. It can be ascertained a little bit better and you can integrate it better. Profitable companies, I think more importantly, it's the fifth piece of it.

Speaker 6: It's just kind of focus on customer experience, kind of focus on growing at efficient CAC, through referrals, experience with batteries. So I think there are...

Speaker 6: many companies out there that fit those criteria. And I think when we go talk to them, I think they are excited about the pineapple story and the pineapple vision and being part of something bigger and building it together. So I think that we've got a healthy pipeline across a number of states. We've got a good number of companies that we've been diligently seeing. We've got several of them.

Kyle Udseth: We've got a good number of companies that we've been diligencing. We've got several of them pretty deep down in the funnel. Realistically, are we going to close on four acquisitions this year? I certainly don't want to set the expectation that that's the case. I think that's more aspirational. I think we got to keep pushing ourselves to grow the business. I think maybe you asked about balance sheet. I think yeah, we don't have cash on hand to go do additional acquisitions, so we're going to have to raise capital if we're going to do other acquisitions.

Speaker 6: pretty deep down in the funnel. You know, realistically, are we going to close on four acquisitions this year? I certainly don't want to set the expectation that that's the case. I think that's more aspirational, but I think we've got to keep pushing ourselves to grow the business. And, you know, I think maybe you asked about balance sheet. I think, yeah, we don't have.

Speaker 6: cash on hand to go do additional acquisitions. So we're going to have to raise capital if we're going to do other acquisitions. But I think that when you look at where valuations are at and multiples, and I think when you look at the logic of putting the companies together.

Kyle Udseth: I think that when you look at where valuations are at and multiples, and I think when you look at the logic of putting the companies together and some of the synergies, and just the continued desire to have scale to compete against the Sunrun and Sunnova and SunPower of the world, I think that it's a pretty compelling scenario both for the companies we're looking to acquire and for potential capital partners who would fund those acquisitions.

Speaker 6: and some of the synergies and just the continued desire to have scale to compete against the sun runs and synovas and sun powers of the world. I think that it's a pretty compelling scenario, both for the companies we're looking to acquire and for potential.

Speaker 6: and just the continued desire to have scale to compete against the sun runs and synovas and sun powers of the world, I think that it's a pretty compelling scenario both for the companies we're looking to acquire and for potential capital partners who would fund those acquisitions. What do you do for a personal icon?

Chip Moore: Okay, great. I'll take the rest off the line. Thanks very much.

Speaker 2: Okay, great. I'll take the rest off the line. Thanks very much. Thank you, Jeff. Thanks, Jeff. Our final question comes from the line of Jeff Graham from Alliance Global Partners. Please proceed. Good morning, Eleanor. Thanks for squeezing me in. I was curious on the 23 Guide, the

Kyle Udseth: Thank you, Chip.

Eric Ingvaldson: Thanks, Chip.

Operator: Our final question comes from the line of Jeffrey Grampp from Alliance Global Partners. Please proceed.

Jeffrey Grampp: Morning, Conor. Thanks for squeezing me in. I was curious on the 2023 guide, what do you guys think will be the largest factors for that organic growth, whether that's growth in installs, ASP growth, size of system, things of that nature? Are there any of those individual components that you're seeing being an outsized driver of the growth in 2023?

Speaker 2: What do you guys think will be the largest factors for that organic growth? Whether that's growth in installs, ASP growth, size of system, things of that nature. Are there any of those individual components that you're seeing being an outsized driver of the growth in 23?

Kyle Udseth: Not necessarily. I think that there's still a decent amount of variability in it, right? We gave a $5 million range, not a $1 million range. I think that a lot of the year is still unwritten. As we talked about with the backlog already, those are signed up contracts and we know what those are and kind of probability weighted the likelihood of them installing. We've got good line of sight into a good proportion of it. We know how selling is going in Q1 as well. I think that none of the individual kind of components is out of above and beyond different than what we've seen before, right?

Speaker 6: You know, not necessarily. I think that it's.

Speaker 6: There's still a decent amount of variability in it, right? And we gave a $5 million range, not a $1 million range. So I think that a lot of the year is still unwritten. But as we talked about with the backlog already, those are signed up contracts and we know what those are and probability weighted the likelihood of them installing.

Speaker 6: So we've got good line of sight into a good proportion of it, and then we know how selling is going in Q1 as well. I think that...

Speaker 6: None of the individual kind of components is out of like above and beyond different than what we've seen before, right? I think it's just kind of a combination of solid, consistent, up into the right performance where the markets continue to grow through strong top of funnel demand.

Kyle Udseth: I think it's just kind of a combination of solid, consistent up into the right performance where the markets continue to grow through strong top-of-funnel demand, our ability to generate leads and close sales and win ours or better than our fair share, just through our go-to-market approach, our brand building, our customer experience, our consultative approach keeps serving us well. Hawaii battery attach rates are really strong and are going to continue that way. Continuing improvement in battery attach rates in New York. On the selling price side of it, I'd say that that's probably the lever we paid the least amount of attention to in an analytical, comprehensive way so far.

Speaker 6: Our ability to generate leads and close sales and win, you know, ours or better than our fair share just through our go-to-market approach, our brand building, our customer experience, our consultative approach keeps serving us well. Hawaii battery attach rates are really strong and are going to continue that way. Continuing improvement in battery attach rates in New York.

Speaker 6: And then on the selling price side of it, I'd say that that's probably the lever we paid the least amount of attention to in kind of an analytical comprehensive way so far. I think the operating businesses have had a way of pricing that's worked well for them in the past and balanced profitability with

Kyle Udseth: I think the operating businesses have had a way of pricing that's worked well for them in the past and balanced profitability with volume growth and taking care of customers and feeling good about the value prop we're offering. I think that as electric rates keep rising and financing costs keep rising, the monthly payment to the customer probably goes up, but does so in a way that still creates value versus the alternative of not having solar. Exactly what we do in terms of pricing in there and how we take a few more basis points out of it, yeah, I think there's probably some upside there, but I'd say we're more focused on just taking care of customers and helping more people go solar as rates keep rising.

Speaker 6: volume growth and taking care of customers and feeling good about the value-proper offering. I think that as electric rates keep rising and financing costs keep rising, the

Speaker 6: monthly payment to the customer probably goes up, but does so in a way that still creates value versus the alternative of not having solar. And exactly what we do in terms of pricing in there and how we take a few more basis points out of it. Yeah, you know I think there's probably some upside there, but I'd say we're more focused on

Kyle Udseth: From a modeling standpoint, I wouldn't say any of those drivers has outsized effect on the overall revenue guide.

Speaker 2: just taking care of customers and helping more people go solar as rates keep rising. So, you know, from a modeling standpoint, I wouldn't say any of those drivers has outsized effect on the overall revenue guide. Got it. I appreciate those details. And my only other question, can you guys touch on kind of supply chain component availability, how that's been trending and your comfort level with that as we progress through the year?

Jeffrey Grampp: Got it. I appreciate those details. My only other question, can you guys touch on supply chain component availability, how that's been trending, and your comfort level with that as we progress through the year?

Kyle Udseth: Yeah. It's not really been an issue that's impacted our businesses or necessarily the resi space as much. I remember the old Sunrun days when the main thing was no one could get batteries. That's not really the issue anymore. I think a lot of the module shortages over the past year, 18 months, 2 years, have really accrued more to the utility scale side of it. We did experience a transition in Hawaii last year when early in the year, LG had let us know that they were no longer going to be supplying US residential modules. We had enough heads up where we could pivot successfully both by snapping up as much of the LG panel backlog and inventory as we could find across the country and abroad. Also having a successful transition to a new panel vendor in Qcells.

Speaker 6: Yeah, you know, it's not really been an issue that's impacted our businesses or necessarily the RESI space as much.

Speaker 6: I remember the old Sunrun days when the main thing was no one could get batteries. That's not really the issue anymore. I think a lot of the module shortages over the past year, 18 months, two years, have really accrued more to the utility scale side of it. We didn't go home safe, we did experience stage changes.

Speaker 6: a transition in Hawaii last year when early in the year LG had let us know that they were no longer going to be supplying US residential modules. We had enough heads up where we could pivot successfully both by

Speaker 6: snapping up as much to the LG panel backlog and inventory as we could find across the country and abroad. And then also having a successful transition to a new panel vendor in Q-Cells. And so Chris and the team managed that really well. And so no disruptions from that. And as we look out going forward, it's really not something we talk about as a risk factor. We're certainly always keeping our eyes on the market. Again, mayth

Kyle Udseth: Chris and the team managed that really well. No disruptions from that. As we look out going forward, it's really not something we talk about as a risk factor. We're certainly always keeping our eyes on the market, whether it's modules, whether it's inverters, whether it's batteries, other balances systems. We haven't been impacted by supply chain, and don't anticipate that and don't really talk about that as a material risk factor in 2023.

Speaker 6: whether it's modules, whether it's inverters, whether it's batteries, other balance of systems. But we haven't been impacted by supply chain and don't anticipate that and don't really talk about that as a material risk factor in 2023. So thank you very, very much.

Jeffrey Grampp: Okay. Well, sounds good. Well, thanks for the time, guys.

Kyle Udseth: Yeah. Thanks for joining.

Eric Ingvaldson: Thank you, Jeff.

Kyle Udseth: Any questions?

Speaker 2: Okay, well, sounds good. Well, thanks for the time, guys. Yeah, thanks for joining. Thank you for having the questions.

Operator: I would now like to turn the call over to Kyle Udseth for closing remarks.

Speaker 6: I would now like to turn the call over to Kyle Utzseff for closing remarks. Thank you and thanks to everyone for being on today and for the engagement and the great questions.

Kyle Udseth: Thank you, thanks to everyone for being on today and for the engagement and the great questions. Okay, here we go. Before we conclude, want to mention some investor relations events we have coming up. In mid-May, we will present and have meetings at the Credit Suisse Renewables and Utilities, and also the EF Hutton Inaugural Global Conference, both in New York City. In early June, we'll present on a panel and hold one-on-one meetings at the Cowen Sustainability Week Conference, which is virtual. Those are private events for the clients of each brokerage firm, so please contact your sales rep to register and schedule meetings. We will wrap up our call now. As you can sense, we're excited about what we accomplished in 2022, and even more excited about the months ahead.

Speaker 6: Okay, here we go. Before we conclude, I want to mention some investor relations events we have coming up. In mid-May, we will present and have meetings at the Credit Suisse Renewables and Utilities, and also the EF Hutton Inaugural Global Conferences, both in New York City. And in early June , we'll present on a panel and hold one-on-one meetings at the Cohen Sustainability Week Conference.

Speaker 6: which is virtual. Those are private events for the clients of each brokerage firm, so please contact your sales rep to register and schedule meetings. We will wrap up our call now. As you can sense, we're excited about what we accomplished in 2022 and even more excited about the months ahead.

Kyle Udseth: We have a nationwide business with substantial revenue, a strong management team, and a pipeline of potential acquisitions to drive growth. We'll look forward to reporting our progress at our next earnings call in May. Thank you again for joining us today and for your continued support. If you have any questions, please contact me, Eric, or Jenny Lee with our investor relations team. This concludes our call today. You may all disconnect. Thank you.

Speaker 6: We have a nationwide business with substantial revenue, a strong management team, and a pipeline of potential acquisitions to drive growth. We'll look forward to reporting our progress at our next earnings call in May. Thank you again for joining us today and for your continued support. If you have any questions, please contact me, Eric, or Jenny Lee with our Investor Relations Team.

Operator: Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.