Sunlight Financial Holdings Inc. Q4 2022 Earnings Call
[music].
[music].
Yes.
Okay.
[music].
Greetings and welcome to the Sun life financial fourth quarter and full year 2022 earnings call. At this time all participants are in a listen only mode. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is.
Now my pleasure to introduce your host Lucia Dempsey head of Investor Relations for Sun life financial grip. Thank you, let's say you may begin.
And welcome to Sun life, Financial's fourth quarter, and full year 2022 earnings call.
After the close of the market today, we filed our 2022 Form 10-K announced fourth quarter and full year 2022 financial results and posted an earnings presentation to our Investor Relations website IR Dot for my financial Dotcom.
Before we begin I'd like to remind everyone that this webcast may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations beliefs estimates plans and prospects such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.
Forward looking statements include but are not limited to some financials expectation or predictions of financial and business performance and conditions and competitive in the industry outlooks.
Forward looking statements speak as of the day. They are made and are subject to risks uncertainties and assumptions and are not guarantees of performance.
So my financial is under no obligation and expressly disclaims any obligation to update alter or otherwise revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
The company also refers participants on this call to the press release issued by the company and filed today with the SEC. The supplemental presentation posted to Sun life Financial's website, and somebody Financial's SEC filings for a discussion of the risks that can affect our business.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in both our press release and the supplemental presentation.
Joining me today are macro Terry semi financials, Chief Executive Officer, and Rodney Yoder, Chief Financial Officer.
Matt will discuss our recently announced financing agreement.
Our fourth quarter and full year 2022 performance and provide a preview of our first quarter 2023 operational metrics right.
Rodney will then share additional detail on our financial results before Matt closes with an update on our key priorities for our ongoing success.
Given the timing of this call in relation to our first quarter 2023 quiet period, we will not be hosting a Q&A session. Following these prepared remarks.
It is now my pleasure to turn the call over to Matt for Terry.
Thank you Lucy and thank you all for joining us before I discuss our fourth quarter and full year of 2022 results I'd like to briefly summarize the comprehensive financing agreement, we announced earlier this fall and closed last week with crossover Bank, Our third party bank partner at warehouses blended indirect channel launch before there.
Sold to investors.
This agreement builds on our long standing relationship with crossroads Burbank to strengthen our balance sheet and bolster our liquidity.
<unk> got to remain well positioned to continue to support our contractor partners.
The agreement includes a commitment for a new $89 million first lien secured term loan which was used to repay outstanding borrowings under the company's revolving credit facility with Silicon Valley Bank and will fund the accrued expenses and deferred proceeds that we owe to cross refer back.
Portion of the loan will also be used for general corporate purposes with the funding of the term loan and termination of the revolving credit facility. So it will have no debt maturities in 2023 or 2024.
We have also modified the cross River Bank warehouse facility to increase origination capacity reduce our cost to use the facility and extended its maturity by nearly two years, improving our ability to continue originating indirect channel launch.
Despite a challenging macroeconomic environment.
Unlike funded $2 $9 billion of Stoller and home improvement loans in 2022.
Well I think a 15% increase over 2021.
Funded volume in the fourth quarter of 2022 with $753 million, that's up 18% year over year.
Solar volume came in 13% higher than in the fourth quarter of 2021.
Home improvement volume was particularly strong with $118 million funded in the fourth quarter of 2022.
61% increase relative to the same period last year.
We consistently hear that salespeople and homeowners continue to appreciate the ease and efficiency.
Orange platform provides for financing solar installations at home improvement projects.
We funded loans with over 19000 borrowers in the fourth quarter up 6% from the same period a year ago.
Throughout the full year, we funded loans for over 79000 homeowners, a 12% increase over full year 2021, and we look forward to bringing frictionless financing to even more borrowers in 2023.
Average loan balances also continue to rise throughout 2022, driving additional revenue without incurring additional cost.
Total loans averaged over $47000 in the fourth quarter of 2022.
13% increase over the prior year period, while home improvement loans were up 23%.
Bridging nearly $18000.
We also continue to maintain strong relationships with our network of contractors.
<unk> hundred 17, new active contractors to our platform in the fourth quarter.
Throughout 2022, 88, new solar installers, and 400, new home improvement contractors became active users on our platform increasing.
Our total contracted relationships by 32% just under 2000 at the end of the year.
While we're not providing full year 2023 guidance metrics at this time I would like to provide you a short preview of the first quarter of 2020 Three's operational results demonstrate our continued operational strength.
Throughout the past three months, we've continued to execute on our core business funding $627 million in loans in the first quarter of 2023, representing loans to nearly 16000 borrowers.
This volume reflects a 6% increase relative to the first quarter of 2022 were 12% increase when normalizing for the impact of the solar installer that filed bankruptcy in late 2022.
Within the first quarter. We also added 73, new contractors, bringing our total active contractor count to 2017 at March 31st of this year.
With that I'd like to turn the call over to Rodney Yoder sunlight CFO .
Thanks, Matt.
<unk> generated total revenue of $6 $3 million in the fourth quarter of 2022 relative.
Relative to $36 6 million in the prior year period.
This decrease was primarily due to negative platform fees on indirect channel loans, including a $22 million loss associated with an indirect channel alone sale in December 'twenty two.
For the full year total revenue was $101 $1 million a decrease from full year 2021 total revenue of $126 million as an increase in direct channel platform D was more than offset.
Significantly decrease indirect channel platform fees.
Adjusted EBITDA for the fourth quarter was a loss of $23 $3 million relative to an $18 5 billion profit in the fourth quarter of 2021.
In addition to decreased platform fees adjusted EBITDA for the fourth quarter was impacted by higher cost revenues related to higher origination fees and increased provision for losses, partially offset by higher interest income.
Adjusted EBITDA for full year 2022 was a loss of 30 $517 million relative to a $52 9 million profit in 2021.
This decrease is primarily driven by a $24 million reduction in gross margin and.
And a $49 million increase in provisions for losses.
$33 million of which is related to the previously disclosed installer, who declared bankruptcy in the third quarter of 2022.
Adjusted net income for the fourth quarter was a loss of $3 $1 million or a loss of two cents per fully diluted share relative to $10 $3 million profit or six cents per fully diluted share in the fourth quarter of 2021.
Adjusted net income excludes the impact of the $61 $4 million noncash.
Noncash goodwill impairment.
In the fourth quarter of 2022.
Driven by macroeconomic market conditions.
For full year 2022, adjusted net income was a loss of $22 $2 million or a loss of 14 cents per fully diluted share relative to a $45 million profit 13 cents per fully diluted share for full year 2021.
We ended the fourth quarter of 2022 with a direct channel platform fee margin of six 2% up 50 basis points from five 7% in the fourth quarter of 2021.
We also saw a 50 basis point increase in our full year 2022 direct channel platform fee margin at five 6%.
From five 1% for the full year 2021.
These margins reflect the work we've done to update pricing with our capital providers and contractors since the end of 2021.
Our indirect channel platform fees, however were impacted by the significant increase in interest rates in the second half of 2022, which occurred much more rapidly than expected leading to loan approvals in the second and third quarters of 2022 that were below current market pricing.
Referred to these loans back book loans and indicated that the sale of people.
Will result in a loss.
In December 'twenty, two we sold $228 million of indirect chattel loans, resulting in indirect channel margins of negative 10, 5% in the fourth quarter of 2022 relative to four 2% in the prior year period.
Our full year 2022 indirect channel platform fee margin was negative two 4%.
Driven by negative indirect channel margins in the third and fourth quarters of 2000.
'twenty two.
Relative to a three 1% indirect channel margin for full year 2021.
Following the closing of the crossover bank financing agreement on April 20 <unk>.
We completed a $296 million sale of indirect channels solar loans on April 28.
Jeremy associated deferred payments to the new term loan are specified in the Cross River Bank agreement.
While we expect the sale of remaining back book loans to negatively impact indirect channel margins in 2023.
Currently originating and funding profitable direct and indirect channel loans, which went through a platform fee margins throughout the year.
I'll now turn the call back to Matt to discuss an update on our key priorities.
Thanks Rodney.
We believe that with the new financing arrangement with crossover bank sunlight is well positioned to support our contractor and capital partners over the next year as we've made significant progress toward addressing six key areas of focus.
First enhancing our indirect channel execution.
Second bolstering our liquidity third ensuring profitable pricing.
Fourth right sizing our expense base fifth reducing our contractor advanced program and finally six.
Addressing the SPD revolver maturity in April 2023.
The rapid rise of interest rates in the second half of last year alongside other factors increased our reliance on the indirect channel and impacted its profitability leading to a growing balance of indirect channel logs.
We enhanced our execution of indirect channels as Rodney mentioned earlier in December of 2022, with the sale of $228 million of indirect loans.
Continuing to reduce that balance starting with the sale of $296 million in April as Rodney mentioned as well.
Crossover of bank financing agreement further improves our indirect channel execution by increasing our funding capacity and extending the facility's maturity.
To bolster our liquidity to finance agreement enables us to complete back book loan sales, while maintaining liquidity is up to $49 million of proceeds owed to cross river. Upon the sale of back book loans can be deferred under the new term loan.
Proceeds of this term loan were also used to pay fees and accrued interest owed to cross refer back.
We've been taking actions since the third quarter of last year to ensure profitable pricing, including the elimination of a number of unprofitable products and he really raising the interest rate of new loans that are being originated to ensure that they are profitable in both the direct and indirect channels. As a result, we believe the law.
One is that we are approving today are profitable.
Tandem with improving revenue is right sizing our expense base without impacting our ability to provide high quality service to our contractors and capital providers since the fourth quarter of 2022, we have taken a number of steps to reduce costs related to the crossover bank fees reduce our vendor expense technology.
And compensation as well, including implementing a head count reduction completed in March of 2023.
In the fourth quarter of 2022, we also took steps to tighten the advanced criteria to mitigate our risk and our contractor advanced program and in March of 2023, we suspended the program indefinitely.
Actions have enabled us to significantly reduce the total outstanding about advances in September 32022.
And finally, as we've mentioned already we utilized proceeds of the new term loan with crossover bank to repay any remaining balance under the SBB revolving credit facility, which was set to mature in April 2023, marking the completion of our relationship with Silicon Valley Bank.
I look forward to providing updates to these ongoing key priorities over the coming months as we continue to strengthen our operations and improve our profitability.
While market challenges in the second half of 2022 have negatively impacted our recent financial performance I'm pleased with our progress towards mitigating these challenges and I am excited about returning to a profitable cash flow positive operation with a goal of generating long term value for our partners in this attractive industry.
Yeah.
Thank you for joining us on our call today.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Okay.
[music].
Yeah.
[music].
Uh huh.
[music].