Q1 2023 Pineapple Energy Inc Earnings Call

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Good morning, and welcome to the Pineapple Energy first quarter 2023 conference call. As a reminder, today's call is being recorded all participants are in listen only mode for opening remarks, and introduction I would like to turn the call over to Gary Voracek of Blue shirt group Richard.

Jack Please go ahead.

Thank you good morning, and welcome Pineapple Energy's conference call to discuss results for the first quarter of 2023 with me today are our Chief Executive Officer, and Eric Kingbolt, Chen 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're not obliged to revive.

Or update any forward looking statements, except as maybe required by law. Please refer to our disclosures regarding risk factors importantly statements in today's earnings release and other SEC filings.

A copy of our press releases are posted to the Investor Relations page of our website.

The non-GAAP financial measures discussed in this call are reconciled to the U S. GAAP equivalent can be found in the press release issued last night with that I'll turn the call over to our CEO pilots Oh go ahead.

Yes.

Thanks, Gary and thanks to everyone for joining us on the call today.

Our first full quarter with the nation was highly successful with strong results companywide coming in ahead of our own internal plan.

<unk> continued its momentum while Hec delivered a very solid quarter, demonstrating great resiliency to quickly and fully recover.

Permitting challenges we spoke about on the last call.

We entered the second quarter with great momentum and an integrated national business that is poised to continue both organic growth and acquisitions.

Let's start in Hawaii, where we grew substantially versus both last year and last quarter on the key forward looking metrics kilowatt stone.

So.

Installations declined sequentially, which is the normal seasonal pattern in Hawaii, but much more importantly residential kilowatt installed in Q1 were up 14% versus Q1 of 2022, which is a great result, and over delivered versus budget.

Battery attach rate in Hawaii remained outstanding at 85%.

Our team there has years of experience, helping homeowners choose solar paired with battery storage.

The regulatory framework and local incentives in Hawaii are different than New York more conducive to batteries, yes upcoming.

Upcoming changes in the long island market should soon favor battery attachment there as well.

Transferring this knowledge to our nation team from the experts at ACC should pay dividends in the quarters ahead, as we increase battery attach rate versus the current low single digit rate.

Turning now to our New York business <unk> momentum was strong in the quarter as well.

Kilowatt solar out around 30% versus last year outstanding growth that resulted from our strong value proposition for homeowners on long Island and in New York City combined with solid execution from origination team.

Despite the usual winter weather challenges kilowatts installs were up 65% versus last year, which was the biggest driver of our consolidated revenue growth.

Notably the nation recently achieved a major milestone crossing 100 megawatts of lifetime solar installed.

I am grateful for the hard work of the team we have it's nation, we're going to keep our foot on the gas to deliver strong growth throughout the year or I guess I should say keep our foot on the accelerator of the electric vehicles.

As the quarter end, we have an estimated $38 million worth of pending installations, giving us good visibility on revenue.

That backlog, which should all be installed before year end is close to half of our 2023 revenue guidance.

The strong performance in Q1 gives us even greater confidence in our stated full year revenue range of $80 million to $85 million.

The over performance in Q1 versus our plan, we're now trending to the top of that range versus the midpoint.

This revenue growth and better profitability enabled us to reach an important goal earlier than planned.

On the last earnings call. We stated our objective to cross the positive cash flow from operations in the second half of 2023.

In fact, we had positive operating cash flow from continuing operations. This Q1.

This is a really important achievement and it looks great on a spreadsheet and in our press release, but to me personally even more important is what it represents.

Been on this journey to sustainability as a company for almost two and a half years now since I founded the business in November of 2020, and now we've gotten there ahead of schedule.

I think we all take Friday here and I'm grateful to all of our pineapple employees for their hard work in getting us to this point.

It's a destination, but also just the starting point for the next phase of the company's life.

We are continuing to build on this momentum and we have tremendous optimism for the rest of the year and for the future.

The financials are of course key but our achievements in the quarter extended beyond the numbers as well.

Key element of our strategy in the east is to penetrate the new build market and we got traction there with a contract to outfit homes in a subdivision being built by a leading local real estate developer trading hub.

The initial deal is small at 25 homes, but as sophisticated because we will install the whole smart energy systems.

This means rooftop solar battery storage other efficiency systems, just smart light bulbs and home energy management control system is.

<unk> initial success in sales, we anticipate selling more of these smart home energy packages to them than other developers.

Both on long island and around the country.

Even as the nation manages its current rapid growth, we're thinking ahead, especially in terms of workforce.

In some parts of the country and for some solar companies high growth from heavy customer demand is bumping up against shortages in skilled skilled labor.

While we have not experienced any shortages ourselves, we always want to be proactive.

A great example of this is Brian Karp, one of our leaders explanation, we spearheaded a public private partnership with several community College train people for solar industry jobs.

Joint training program will graduate people with the technical skills to succeed in our industry ready to contribute on day one in various roles. This is a great example of how public private partnerships can drive economic growth and better the lives of our local.

Finally, I want to share a big win for our <unk> subsidiary in Hawaii.

We license, our energy management controller or EMC, two iguana, who is a seasoned vendor of solar paired battery energy storage systems.

Our AMC is a critical component in the steel holds the promise of high volume sales of our AMC.

A key part of this deal is that it is capital light.

We licensed the design iguana, but they will build it.

We will collect royalty revenue on a per unit basis.

This deal is a great starting point for us to gain traction on the devices side, which is a high margin compliment to our installation business.

We are very excited about the prospects for this segment.

With that I'll now turn the call over to our CFO , Eric Ingalls Ben to walk through our financials. Eric. Please go ahead.

Thank you Kyle.

I would also like to.

Express gratitude to our employees in New York.

And Hawaii and Minneapolis for all of their hard work that has led to.

The results that we're presenting here in the first quarter.

I will very quickly review the GAAP financials as required by the SEC then review some pro forma numbers that will give you a better sense of the performance of our business.

The GAAP numbers are not insightful because Q1 results last year consisted of only three days of operations post merger with CSI.

Let's start with the first quarter 2023, GAAP results, which include a full contribution.

Quarter from <unk>.

Keep in mind that the legacy CSI businesses J D. L necessity are reported as discontinued operations.

Revenue was $22 million in the quarter up 28% from the fourth quarter.

Gross profit was $8 million in the first quarter up 60% from the fourth quarter.

Operating expenses were $10 2 million up 19% from the fourth quarter.

Net loss from continuing operations was $2.6 million, which includes $1 3 million of amortization expense and.

And an 825000 unfavorable fair value remeasurement of earn out consideration.

Revenue in the first quarter of 2022 was de Minimis at $232000.

Now, let's summarize our first quarter pro forma results.

Which assume we owned Hec easier installation for the full quarter in 2020 to the.

The comparisons are all year over year.

Pro forma revenue was up 66 zero percent from $13 8 million last year.

With Hec up 39% intonation up 68%.

Pro forma net loss of $2 6 million improved 53% from the prior year net loss of $5 4 million, which included $2 7 million of transaction costs.

Pro forma adjusted EBITDA of positive $367000.

Improved 142% from negative $871000 in the prior year.

Pro forma adjusted EBITDA includes adjustments for amortization expense of $1 3 million.

An unfavorable fair value remeasurement of earn out consideration of 825000.

Favorable fair value remeasurement of the contingent value rights.

Of 250000, and other items such as interest income interest expense depreciation taxes.

Stock compensation and a gain on sale of assets.

Yeah.

Turning to the balance sheet, which represents GAAP figures, we ended the quarter in good shape.

Cash available for use in our operating business was $3 4 million.

We had another $4 2 million of restricted cash and liquid investments, which is reserved for the contingent value right holders.

We plan to raise capital in 2023 to refinance debt and fund acquisitions.

Our performance in Q1 gives us confidence in our previously stated full year revenue range and ability to generate meaningful cash flow from continuing operations. This year.

Now we would like to open the call for any questions. Operator. Please go ahead.

Yeah.

Let's see your first question comes from the line of Donovan Schafer of Northern capital market. Please.

Please go ahead.

Hey, guys. Thanks for taking the questions.

I see you you reiterated the full year guidance and it was nice to hear about the bookings you have that gives you some visibility there.

I'm curious.

Sure Yeah, those kinds of I guess in that backlog are in progress installations.

Can you give us any color on kind of your.

Your sense of the cadence for the year for the remainder of the year.

Yes trending as we head into the second quarter should we expect steady sequential growth.

Quarter over quarter through the year or you know like a seasonal dip in the fourth quarter or anything like that I'm, just trying to figure out kind of the shape through the year.

Yes, sure good morning, Donovan, thanks for being on.

Early on the West coast for sure.

Yes.

It's a good question and it's one that we worked through internally on our forecast as well.

Free market is different but.

Certainly in Hawaii, but even in New York as well.

You tend to see.

Installation volumes and revenue build throughout the year Q4 is a really strong quarter and then Q1 declined sequentially, we saw that here as well.

I believe we were down 5% or something like that sequentially on revenue, but that is a smaller decline than we would've anticipated previously and when we reference over delivery versus our internal plan.

We had a stronger Q1, because there was less of a kind of a seasonal dip I think there is maybe.

Maybe one time idiosyncratic factors on that both in.

Hawaii, we talked about that.

Hartman, our planning and permitting issue in December on the last call that delayed some of the revenue that should have installed been recognized last December and instead.

Pushed forward into Q1, Similarly, we had something not quite as big but.

In New York, There were I think it was eight or 10 or 12 jobs, we had module sitting in a shift in part they couldnt get in so they should have been.

<unk> installed in December and got pushed to Q1, so I think that in a typical year you would have seen relatively more.

In the last Q4 and relatively less in this first Q1.

But.

Really happy with the growth overall in the year over year in Q1, I think as we look at.

Q2, Q3 Q4.

In secular terms like yes, Q2 will be higher than Q1, Q2 will be higher than Q2, and Q4 will be higher than Q3, and then it will get back down to Q1 because of some of those onetime shifts that I just mentioned from Q4 into this Q1.

We don't really want to give quarter to quarter guidance, but.

It would be reasonable to expect Q2 to not see quite as big of a ramp up over Q1 as you might in another year.

But yes, just the shape of the curve throughout the year as like you said kind of sequential growth up to.

Q4, and then a big Q4 and then.

A little bit of a decline to Q1 of 2024, although because we are overall in the up into the right trajectory organically, that's going to be muted a bit.

Okay. That's helpful.

And then I want to also talk about battery attachment rates. You know you guys gave that as I think 40% in the press release, which is great.

And then you also mentioned Hawaii is at 85%.

And so I'm wondering if we can kind of.

Think about it as like a pro forma like apples to apples.

How how things are trending broadly I think the attach rates a lot slow lower installation. So if you if you kind of tick probe.

Or maybe that's not even maybe that's too confusing because they're kind of opposite ends of the spectrum, but are you seeing a general like improving trend as it basically saturated in Hawaii, and so you don't really get improvement there but.

Trying to move finish in that direction and if you could talk about the policy. It sound like you said there was a a policy of some kind of a change in long island that would drive more attachment there.

Yeah definitely.

Some of it is just the math like how do you get to the 40% is just the weighted average of like the high rate in Hawaii, and the lower rate in New York and so we kind of tend to view each of those.

In their own Standalone silo, but then depending on the relative install volumes of sales items whichever metric you are looking at you'll get to that weighted average and even that in Hawaii that itself is a weighted average you have approaching 100% battery attach rate on our new greenfield or green.

Rousseau should we call it.

Our brand new install on a route that doesn't have any solar on it already and.

And it's been that way in that market for at least five years.

The PUC switch over to a non export tariffs.

It really only became economic to continue doing solar paired with battery storage. So you can sell consume.

Youre on access and so what you have is almost every brand new solar install.

On Oahu has a battery paired with it but you do have a healthy business.

Retrofitting and upsizing old systems that are grandfathered in under the prior.

Tariff so.

<unk> and some of that is TV that we're putting on to those all the systems that don't have batteries. So even at 85% is a weighted average of like 99, 9% and <unk>.

Percent.

And long island, it's low single digits, right, it's like 5% or less.

Then that and I think we all look at that and think there is a ton of opportunity to grow there.

I've mentioned this 100 megawatt install I was out there two weeks ago with the team at the customer's home it was really a tremendous event.

I got.

See the good work the crew is doing in real time, but also work with the homeowner in two of the house and so the panels on the roof that a Tesla power wall in the garage. They also had installed a span panel.

With us as well as expand EV charger.

They recently switched over to a heat pump, which.

Which we don't yet install but it's something that we talk about and potentially on our roadmap as well. So this is a homeowner is really going down that electrify everything path.

Talk to them about the battery and why.

Policies the utility here like it doesn't necessarily pencil just not an ROI.

Use rates.

And that electric utility territory, I'm, not 100% sure on the timing, but it will come within the next 12 months and there were even a couple of the utility <unk>.

This ceremony and I think everybody just had a lot of excitement for.

This switch where it just makes it much more economic to impair battery storage with solar So I think <unk> got that can influence of supportive regulatory and public policy with momentum starting with is no longer like the bleeding edge, it's kind of getting into the cutting edge and then you get into the early majority I think thats starting to come.

Just combined with our own opportunity to continue sharing best.

Best practices and kind of spreading the knowledge transfer from Hawaii to just really great at talking to homeowners about this how to think about it and understand different consumer need. So we're optimistic about the battery growth, we're going to see it and they are.

Thank you.

If you have a question you can press star one on your telephone keypad. Your next question comes from the line of Chip Moore of Es.

Please go ahead.

Good morning, Thanks for taking the question Kyle and Eric.

And congrats on Hey, Kyle and congrats on that.

Positive cash flow milestone that's great to see.

I guess <unk>.

To the question around the revenue cadence maybe.

Speak to.

Sustainability of that near term was there anything in terms of mix or anything else that.

It was an outsized helped in the quarter.

Your full year outlook.

Even higher than say you thought.

When we talked in Q4.

Yes, I think we talked about this internally yesterday and you know some of this is that we.

The last time, we spoke wasn't actually that long ago, you think in your head you're going to do this every quarter and so it will be three months between these but our prior call as on March 31, and so we had pretty good line of sight into Q1 revenue at that point, even though the results. We were sharing we're just through 2031.

But.

Top line was great. Some of it was some of those one time nonrecurring shifts I talked about about delays at the end of December in both businesses that spilled over into Q1, I think that we are.

Okay.

We over delivered a bit just broad based in both markets on.

Top of funnel demand lead generation, our ability to gain more than our share conversion rates on leads into sales.

Being efficient at getting us through the pipeline. It was just kind of an across the board when and then we manage to control.

Control costs, as well and I think be a little bit ahead of the curve on.

Some of the cost containment and some of the synergy efforts and so from that standpoint, I think it's definitely sustainable we're on.

And when you give guidance.

The expected value of it and.

We.

Just a bit ahead of schedule on kind of a lot of metrics across the board.

Yeah.

So I guess, that's what I'd say on that I think the margin performance is certainly sustainable and I think we're set up for a really good rest of the year.

That's great Kyle and I guess the follow on there is given that and that visibility.

On the fund raising side and would there be some of the near term obligations all of those.

<unk> progressing does this open up some some more opportunity.

In that realm.

Yes, great question.

I suppose we didn't touch on fundraising.

Much in the script I think that.

Talk about that talk about equity both pads are available to us I think when we look at the stock price right now.

Don't love, where it's at.

Add that dilution is not appealing.

I feel like we've got good line of sight and a great slate of initiatives to continue creating value for the company.

Putting wins on the board and hopefully driving that up before we really tapped that as the capital raising source. So then you look at that and I think that.

We've been engaged in multiple conversations ongoing with.

With different lenders I think that we had a really solid model we had confidence in for the year previously and then this strong performance in Q1, just reinforces that it makes it even more appealing so don't have any specific detail to share on that right now, but I will say that the operating.

Also the business give us confidence that we're going to be a really appealing credit for multiple different lenders.

Thank you. Your next question comes from the line of Jeff Gramm of Alliance Global patterns. Please go ahead.

Good morning, guys.

Colorado.

Yeah.

Understanding the comments that you guys are expecting a continuation of the gross margins can we kind of peel the onion back there a little bit more what do you see as kind of the main drivers. If I just look understanding on the GAAP numbers are a little noisy quarter to quarter, but like the incremental margins look pretty impressive Q4 to Q1. So just kind of wondering if you can kind of talk on the main drivers.

Impacting the gross margins.

Yes, I'll take that one.

Yeah sure so sequentially.

Gross margins were up on a GAAP basis, 60%.

A lot of that has to do with showing a full quarter of nation.

In the first quarter that was not presented in in the fourth quarter of last year.

If you do Peel, the onion back a little bit.

Margins are fairly fairly consistent if you look at the pro forma the pro forma numbers.

You did see.

A slight.

Slight increase in price per watt installed.

Sequentially from the fourth quarter to the first quarter.

And cost of goods or outlook on that is that panel costs will stay stay flat or even decline so.

We are confident in.

And maintaining healthy margins going forward.

Awesome, that's great to hear I appreciate that and.

Colin I'm curious given your background, obviously strong marketing sales customer experience.

When you guys are looking at M&A opportunities how much.

Do you guys kind of spend thinking about okay, here's an.

An interesting brand.

But we don't think Theyre doing X y Z as efficiently as we have pineapple could and maybe kind of lean into an opportunity where you see a lot of.

Synergies are opportunities for improvement versus say buying a brand thats already operating pretty efficiently like how much time do you guys kind of spend on that.

And maybe kind of leaning into some opportunities to two.

To improve our brand versus say buying a brand thats already operating efficiently how do you evaluate those tradeoffs.

Yes, Jeff I think Thats, a great question and I think that we spend a lot of time on it and there are multiple different lenses, we view any potential acquisition or merger partner through different criteria. We look at in diligence I think there is.

Kind of a general size criteria that we think.

The juice is going to be worth the squeeze on going through audit going through diligence, but not too big where it presents potential integration risk with the business.

We have a lot of confidence about the model, but we don't want to get overconfident and have hubris about it and we want to make sure. We can integrate the next one and the one after that as well as we've been able to integrate Hawaii and New York. So just kind of that size component certainly a financial component.

We look at businesses that have around.

Or even better than our current blended gross margin like that gross margin is really important for us so as.

Cost containment and managing the business well for cash flow so that EBITDA margin is important.

We look at the multiples that we can pay for it because we've got to make sure it's accretive and we can fund raised for it.

Look at cultural fit which is a huge thing for us because of the integration, but also we just want somebody who shares that vision and that is what we found is the companies that sit on a lot of the other dimensions. They tend to like us and we tend to like them. So I think those are all really important but the customer acquisition piece of it is so so critical.

<unk>.

And in my view and I think it's we all share this view here.

In a way like our thesis.

The companies that are committed to delivering a great customer experience are the companies that are going to win over time.

As we're still in the early innings of this energy transition and on this path to electrifying everything so it's not just producing the power on your roof is producing it and storing it in the batteries in your home it's consuming it in your home with more and more devices electrifying.

Induction Cook tops air source heat pumps geothermal heat pumps.

Its mobility electric vehicles with the charger to produce the energy star of the energy consumed energy you move the energy around and then ultimately you also sell it back to the grid.

In virtual power plants of grid services revenue.

Crux of all of that is that the company that has the trusted relationship with the homeowner and is the closest to that homeowner is going to win and see do the acquisition cost one time, but then you deepen the relationship and grow the lifetime value of the customer to those upsell cross sell and ancillary opportunities and so a company that.

<unk> is committed to that customer experience doesn't view things. The same way does it have high referral rates right now has high cancellation rates.

Those are not appealing to us so we spend a ton of time on that those are some of our key metrics. When we look at these businesses and so some of it is just making sure. We find ones that are there already and then I think to your point, we do believe that and that's kind of the broader shared services model and extends beyond the sales and marketing that's my background, but Eric Scott.

Tremendous background.

And driving synergies through shared services and integrating acquisitions on the finance and accounting and to kind of back office functions to theres different synergy paas, but I think our view of.

Kind of optimizing lead generation what lead sources do you prioritize how do you kind of do this inverted pyramid, starting with the lower cost ones. How do you performance managed sales for conversion how do you just really keep a close eye on those unit economics around CAC and LTV.

Definitely something we'd look at it.

The only other thing I would say at the end of this.

Maybe long responses.

Maybe when I say all this it sounds like it's going to be hard to clear all those hurdles and we are discerning certainly, but there are over 4000.

Sales and installation companies in this long and medium tail.

And there are abundant.

Abundant.

Net of opportunities to find these REIT companies and bring them in even that that meet all of those high bars that we just mentioned it.

Yeah.

Thank you again, if you would like to ask a question press the star followed by the number one on your telephone keypad.

Seeing no more questions in queue, let me turn the call back to Kyle for closing remarks. Please go ahead.

Thank you operator before we conclude I want to mention some investor relations events, we have coming up next Tuesday, we'll be in New York for one on one meetings at the credit Suisse Renewables and utilities conference than in early June will present on a U S residential solar panel.

And holding 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 scheduled meetings.

Let me now wrap up the call. We're excited by the strong start to 2023 and are confident we will sustain this solid performance, we have great organic growth momentum and while we didn't spend as much time in there.

The scripted portion talking about M&A that inorganic growth continues to be core to our strategy. We've been working diligently on sourcing our next acquisitions and there are abundant opportunities to bring in complementary businesses, our strong financial profiles and a great cultural fit with pineapple.

We've reached the point, where our national business has substantial revenue with positive cash flow from operations is run by an experienced management team is building a pipeline of potential acquisitions to drive further growth.

We look forward to reporting our progress at our next earnings call in August .

Thank you again for joining us today and for your continued support do you have any questions. Please contact me, Eric or Gary in January with our Investor Relations team.

This concludes our call today you may all disconnect. Thank you.

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