Q2 2023 iSun Inc Earnings Call
Greetings and welcome to the are used on energy second quarter 2023 earnings Conference call.
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A question and answer session will follow the formal presentation.
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I will now turn the conference over to your host.
Mary Conway Ma'am you may begin.
Thank you operator and good morning, we are pleased to welcome you to Iphones conference call, where we will discuss financial and operating results for the second quarter 2023, Jeffrey Pack, Chairman and Chief Executive Officer will provide an update on our operating performance in the quarter along with our outlook for 2023.
John Sullivan, Chief Financial Officer will provide an overview of the second quarter 2023 financial results. After our prepared remarks today, we will open the line to address any questions.
As a reminder, the earnings release that was issued this morning, which can be found on iphones investors website at www Dot ice energy iPhone energy Dot Com includes financial disclosures and reconciliations for non-GAAP financial measures any comments that we make on today's call may include forward looking statements that refer to.
<unk> expectations or future predictions. These statements are made as of today and management undertakes no obligation to update these forward looking statements in the future.
Such statements are subject to risks and uncertainties that could cause actual results to differ from management's expectations with that I will now turn it over to our CEO , Jeff <unk> Jeff.
Thank you good morning, everyone and thank you for joining us today I'm pleased to share an update on <unk> progress.
In the second quarter.
2023, and review our plans for the remainder of this year.
We are pleased with the strong performance our team has generated in the second quarter of 2023, it was a terrific quarter we.
We had a robust beat on the topline with revenues up more than 50% year over year, well above the street consensus and importantly, we're doing precisely what we said we would do.
The other business reduced our losses as we serve our customers and win new business.
Our commercial and industrial group is driving excellent results.
Electro groups uncommon continues to see high customer satisfaction and referrals. Despite a short term slowdown in residential demand.
And we're seeing continued opportunities in the infrastructure segment and our origination team is helping to ensure that we continue to build backlog to sustain that growth.
Our success in winning significant contract and solar and EDI infrastructure as well as more residential business. Despite some of the headwinds in that segment.
It provides us with heightened confidence in our ability to meet the annual financial targets that we shared earlier, we are affirming knows today, both in revenue and profitability.
We remain dedicated to executing on our strategic plan to achieve our mission to help accelerate the adoption of solar energy.
Today I want to touch on a few points that illustrate what makes us different in the solar energy industry.
And what has been driving our recent success I also want to share some thoughts on trends, we are seeing and how we believe we are well positioned.
Our continued growth as we continue to scale our business.
It starts with our platform approach encompassing the full lifecycle.
Providing solar energy solutions from origination and development construction and management across.
Industry segments.
We maintain that this approach is a competitive differentiating advantage.
This is up for long term sustainable growth.
We see this proof we see the proof of the strategy and execution and the meaningful year over year.
Revenue growth, we have generated in the first half of this year, increasing revenues more than 34%.
Compared to the first half of 2022.
Quickly reviewing our second quarter results revenue increased by 51, 8% to $25 million.
Gross margins.
Rose by 90 basis points to 23, 7% up from 22, 8%.
In 2020 two's second quarter.
As our efficiency efforts have enabled more of the top line dropped.
Dropped to the bottom line.
In the second quarter, 37% of our revenue came from the residential segment, where gross margin.
It has to be higher.
We remain confident that as we scale and drive synergies and efficiencies throughout the organization, we will continue to expand our emergence.
As of June 32023, our.
Total backlog was $161 8 million.
Pipeline remained at one six gigawatts of projects as of the end of the second quarter of 2023.
The size of the backlog and pipeline underscores the increased customers customer demand, we are experiencing as well as the effectiveness.
Our efforts to originate more projects expand to more states all part of our ongoing strategic initiatives.
Our success also reflects the high level of customer satisfaction, specifically in the residential segment, which generates strong referrals, creating a lower customer acquisition costs.
Really we see a referral impact in our C&I group as developers elect to work with US again and again on their projects because they see how our involvement keeps us on track reducing unnecessary delays.
And of course Scott.
Let me share a few words about the performance of our three divisions in the past quarter the.
The residential division did well despite the backdrop of a more sluggish residential segment across the industry, reflecting the impact of higher interest rates and home improvement loans.
We continue to build more business and expect a heavy period of installations in the coming quarters.
As you move into and through continuous states beyond New England, and New York.
The commercial and industrial Division.
Which we have combined as of the beginning of 2023 is generating very strong results. This year.
62% of our revenue in the second quarter.
Original origination team, which is based in our utility segment is assisting in this effort.
It focuses on initiating projects.
And then turn it over to the C&I division to execute.
We are continuing to work through our backlog and any more business to the backlog through contract wins.
Based upon the results, we've seen thus far including enhancing our labor utilization. We are quite pleased with the decision to combine the commercial industrial segments.
Our utility and development Division continues to face delays once again, something we've seen across the industry.
We continue to increase the backlog of the group and address it.
These project delays or unexpected implementation depressed revenues generated in the second quarter. We continue to believe the projects will move forward beginning this year.
Enabling the resulting revenues recognized later on this year or early in 2024.
Development and engineering team has provided invaluable support for our residential and C&I divisions as we continue to integrate <unk>.
Drive operating efficiencies throughout the organization.
Our kingsbury proven expertise and knowledge, which is more valuable in these volatile times than ever before it's.
This creates a strong customer relationships, leading to contract awards across our business.
The second quarter, we had $8 million in new business.
In terms of the thorough landscape, we remain optimistic and enthusiastic.
<unk> seen strong evidence that the C&I segment is scaling nicely responding effectively to increased customer demand with expanded teams, while ensuring that our labor utilization is optimized.
That customer demand is not flowing and we are finding it all over the country.
The residential segment has been more sluggish as I described but the back half of the year is typically more intensive and more intensive on for residents were installed in our markets.
Ample backlog to execute in this segment.
Our origination team is producing more opportunities.
Actually be executed largely by our C&I segment in the utility and development Division continue to push projects forward and provide value certain valuable services throughout the organization.
In sum we remain convinced.
At the IAA legislation passed last year will afford of Iceland, and the industry genuine benefits, even as we wait to finalized language and rules from the Treasury Department regarding tax credit and the other elements.
We do expect more specific rules and the removal of uncertainty.
Kris the value of solar assets those in development as well as those that are construction, which in our case.
Due to a higher valuation of our pipeline as it Spurs increased demand we.
We will address in 2024 and beyond.
In 2023, considering all the evolving macroeconomic factors, we expect to continue to demonstrate strong growth and operating profitability along with expanded margins. Thus we are affirming our expectations for total revenues in fiscal year 2023.
With 95, and $100 million, reflecting a 24% to 31% increase.
Total revenues in 2022.
Along with gross margin expansion on an annual basis and full year EBIT profitability.
With that I'll now turn the floor over to John .
Thank you Jeff.
We are pleased with the robust revenue growth we produced in the second quarter as we continue to execute on our backlog.
I will provide an overview of our statement of operations as well as provide details on our segments before turning to the balance sheet.
I Sun reported second quarter 2023 revenue of $25 million.
Up 51, 8% from Q2, 2022 revenue 16 5 million.
For the first six months of 2023 revenue was $42 4 million, representing a $10 8 million or 34, 2% increase over the same period in 2022.
Revenue growth in the quarter and first half was driven by effective execution of our commercial and industrial backlog as well as fulfillment of our residential consumer demand.
As Jeff mentioned in the second quarter of 2023, 37% of our total revenues were in the residential segment, which tends to carry the highest margin.
While we continue to execute against our existing backlog. We also generated new demand and added $8 million of new business. During Q2 for a total of 40 million added so far in 2023.
Effectively replenishing the revenue earned year to date.
Total backlog was $161 8 million as of June 32023.
By segment, our residential division generated revenue of 9.3, and $16 2 million in the second quarter and year to date, respectively.
Customer orders of approximately $13 1 million are expected to be completed within three to five months.
Our commercial and industrial Division.
Which were consolidated as of January one 2023 generated revenue of 15.6, a $25 9 million in the second quarter and year to date, respectively.
The division has a contracted backlog of approximately $140 7 million expected to be completed within 10 to 18 months.
Our utility and development Division generated revenue of 0.10 point $3 million in the second quarter and year to date, respectively.
The utility division has a contracted backlog of approximately $8 million and one six gigawatts of projects currently under development expected to achieve and GP in 2023 in early 2024.
Gross profit in the second quarter was $5 9 million up 58, 2% to $3 8 million in the second quarter of 2022.
Gross margin for the quarter was 23, 7% up 90 basis points from 22, 8% in the same period in 2022.
Our C&I segment accounted for approximately 62% of the quarter's revenue.
Margin improvement was a result of the efficiencies generated through a consolidation of our team leading to more efficient utilization of our labor.
Year to date gross profit was nine 5 million up 37% compared to $6 9 million during the same period in 2022.
Year to date gross margin was 22, 4% up 50 basis points compared to 21, 9% during the same period in 2022.
Margin is expected to remain strong in the second half of 2023, as we continue to scale operations as well as an increase in residential implementations.
As part of the strategy to expand gross margin each year, we will continue to drive synergies as our segments grow.
The operating loss in the second quarter was $1 8 million, a 68, 8% improvement compared to a loss of $5 6 million in 2022 second quarter.
Primarily reflecting the higher revenues and lower operating expenses as part of the company's focus on efficiency.
Year to date operating income was a loss of $4 4 million, a 61, 1% reduction compared to a loss of $11 3 million during the same period in 2022.
Noncash depreciation and amortization expenses were 0.8 million in the second quarter of 2023 compared to $1 8 million in the prior year period.
Year to date noncash depreciation and amortization expenses were $1 5 million compared to $3 5 million in the same period in 2022.
I found reported a net loss of $2 5 million or <unk> 13 per share in the second quarter of 2023.
Parent to a net loss of $5 7 million or <unk> 40 per share in the same period in 2022.
Year to date net loss was $5 5 million or <unk> 31 per share compared to a net loss of $8 6 million or <unk> 64 cents per share in the same period in 2022.
Adjusted EBITDA for the second quarter of 2023 was a loss of <unk> 3 million or <unk> <unk> per share compared to a loss of $3 2 million or <unk> 23 per share in 2020 two's second quarter.
Year to date adjusted EBITDA was a loss of one 8 million or 10 cents per share compared to $3 4 million or 25 cents per share in the same period in 2022.
We are continuing to focus our efforts on operational integration and creating systems and processes that allow for efficient and effective growth.
The second quarter of 2023, we reduced operating expenses by approximately $1 7 million or 18% from the same quarter of 2022.
So far in 2023, we have reduced total operating expenses, even while our revenues have increased more than 34% by $4 7 million or 24%.
We expect these positive trends to be sustained throughout the rest of 2023.
Now turning to the balance sheet.
Total debt decreased $2 3 million to $10 7 million as of June 32023.
Down from $13 million at March 31, 2023.
Reflecting the ongoing repayment of our long term debt.
Our cash position of $6 1 million as of June 32023 improved from $5 5 million as of December 31, 2022 through higher revenues and diligent collection.
Although it was slightly higher at $7 2 million as of March 31, 2023.
With a difference reflecting timing of vendor deposits required for project execution.
We are aware of the downward pressure on our valuation that exist because of our outstanding convertible notes.
Our strong operating performance during the first half of the year allows us to accelerate our efforts to refinance our debt facility.
We are actively engaged in conversations to provide an asset based line of credit as well as a new long term non convertible note.
And with that I will turn it back over to Jeff.
Thank you John .
Let me reiterate how pleased I am with our performance, especially in the second quarter.
Where are we well exceeded the street consensus our diversification strategy was on full display as the growth in C&I offset.
The national down.
Downward trends in the residential segment.
The level of growth, we're producing as well as our continuing ability to win new contract award ensures that we will remain well positioned for success as we move through 2023.
Our team is cohesive and focused on what they need to do to execute on the many different opportunities. We have created within this continually evolving and dynamic energy market.
We have diversified our revenue mix across different segments, and we are executing on our strategy efficiently as we pursue our target of obtaining operation operating profitability in 2023.
By the investments we have made to create recurring revenue opportunity as well as the positive impact from the inflation reduction here.
We remain confident that the best is yet to comprise sun and our stakeholders.
And now I'll turn it back over to the operator to open the lines for questions.
Yeah.
Thank you at this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
Yeah.
Thank you.
Our first question is coming from Jeff Gramm with Alliance Global Partners. Your line is life.
Good morning, guys.
Good morning, Jeff one of the sub debt.
I want to start first on the gross margin front and it was really interesting to see such a strong result, there, especially given the strength in C&I relative to residential so curious if you guys could you.
What would you attribute that margin expansion too if there's a if there's a couple of kind of main contributors there.
And is it fair to expect margin expansion further in the back half is as residential kind of accelerates or how.
How are you guys kind of thinking about gross margin trajectory for the remainder of the year relative to Q2 levels.
Yes.
We made a concerted effort to consolidate our <unk>.
Commercial operations.
The real big focus in the first half of the year.
And making sure that we did that because.
Number one we saw the industry headwinds and were concerned and we wanted to make sure that our labor utilization was high as.
As we move forward through the year and you know the second half has always been a busy other residential solar install side, we expect to see the revenue mix.
You know changed a little bit more towards.
Where it was last year in the second half.
Higher gross margins on the residential side, so we would expect a.
I expect we could see further margin enhancement there.
Currently we're you know we're always we continue to build.
Those efficiencies throughout the organizations and.
Holidayed operations, where we can do to lower our overall G&A.
G&A expenses.
Great. Thank you and my follow up is.
Just kind of wanted to get a temperature check on your thoughts on that residential market. So obviously C&I had a had a great quarter, which I think is a nice validation of your model, it's really have an exposure across the solar market, but.
Right. They still grew year over year, a little bit slower obviously, what's kind of the visibility in that market for continued growth in the second half and beyond how do you guys really view the trajectory for ice SUNS residential business.
Yeah. We were we're pleased that our our strategy of diversifying among the sectors sort of its proven itself out here a couple of years in a row. When we've seen you know last year, we saw some softness and slowdowns in our stacked in the C&I sector in India. This year, we had anticipated some of them some of that.
We're seeing some of that in there in the residential side. So we're happy with that strategy.
You know we we.
We do believe it's an evolving energy market that this transition to E vs is going to increase demand.
As we move forward in the residential market.
We're pleased with what the team has done we've consolidated.
And minimize some of our offerings to become more efficient.
We're increasing our throughput on the residential side, so where we're pleased with that and we're expecting Oh.
We certainly have the backlog for Oh.
$13 1 billion dollar backlog in the residential sector and so we expect a strong second half.
And we're also looking at our leasing opportunities to.
To help moderate some of the headwinds.
Got it understood person thoughts guys.
Thank you.
Thank you. Our next question is coming from Amit Dayal with H C. Wainwright Your line is life.
Thank you and good morning, everyone.
Good morning.
Yeah, Hey, guys are with respect to the EV infrastructure, you know opportunity you know how much contribution from these deployments is part of your 'twenty going into your outlook.
So so the.
We're seeing a lot of opportunities and the infrastructure sectors.
The EV infrastructure rolls up into our C&I Division.
You know, we're seeing brisk Oh, we don't break that number out specifically, but it's.
It's a fairly substantial part of our.
Overall, C&I, maybe 3% to 5%.
Overall total C&I number and we expect.
As decisions are made and EV infrastructure.
He used to grow we expect that.
Percentage as the overall operation to continue to grow.
And along those lines is there any particular player you are looking at.
And that is giving you more of that business are you.
Ah you're spread across you know all of the.
All the providers in that space.
Yeah, No, we're pretty we're pretty spread out we're working with several different providers.
Companies on their plans and we have a lot of.
You know a lot of various projects in the work, we consistently see rfps and I.
I think some of the acceleration will come in this part of the industry as final decisions are made.
By the various Oems on how they want to approach it.
Their EV infrastructure going forward.
Understood. Thank you.
With respect to the benefits from the I already legislation is that beginning to show up in your backlog and financials, yet or is that something that can probably thickness.
So their dog.
Well I mean it was.
Certainly projects that have.
The project development has increased and the valuations on these projects have increased.
With the I R. A so we are seeing a developers and partners try to accelerate projects.
As they move through so we think we don't think we've seen the full benefits of the IRA yet I think there's still some language we're waiting on there.
Can help solidify things for everyone, but certainly we're seeing.
An uptick in opportunities and demand based on the IRA.
Understood.
Just last one.
On the storage side of these deployments storage already becoming sort of you know.
Meaningful part of these deployments or is that's an additional opportunity for you in terms of improving revenues and margins down the line.
Yeah on the C&I side storage.
I have not.
Ben as impactful as it has on the residential side on the residential side were seeing 35% plus attachment rates and.
Certainly as we move forward I think the attachment rates on the larger scale, both commercial and industrial.
And beyond we will start seeing much higher attachment rates as well.
Okay, well, that's all I've got thank you so much.
Thank you.
Thank you. Our next question is coming from Noel Parks with Tuohy Brothers. Your line is life.
Good morning, Hi, good morning.
Good morning, how are you.
Doing well.
Great actually I had some some similar questions are those that have come up but I just.
Wanted to drill down a couple specific things. So you talked about of course the effect you might have a little more control over in the near term which is.
Margin expansion through our through efficiencies.
Efficiencies.
And from second half of the year looking forward. So I guess could you talk a bit more about what pricing is like what you're seeing in terms of trends there and I'm also just kind of as a reality check for for projects you're executing on.
Now, we I imagine it varies by segment, but roughly what Earl was the pricing set and you know what.
What time did you arrive at the pricing you know contractually for work that you're.
We're actually in the middle of executing now.
Yeah.
I guess I'm not sure I fully understand the second half of that question how did we arrive at pricing.
I guess I'm talking about sort of lead times. So in other words for example for a CNI project that you're you're actually executing on now typically when was the contract establishing that pricing signed or is it like six months ago 18 months ago. Yeah. Yeah, We see you know to the residential.
Our residential a project from self installation.
Well you know it will vary between.
You know 30 to 60 days to six months, depending on you know designs and customer and utility and things like that so.
Commercial is a little bit longer than that in a.
Larger industrial ones.
Yeah.
If we provide pricing.
And the last July for some of the Brexit we're working on now.
Certainly seen.
Certainly seen some you know commodity prices come down in panel prices come down and ease a bit.
Okay.
Hum.
And.
I guess I'm Oh.
Also thinking along type of business.
You know for example, storage was mentioned and I'm I'm wondering if you can.
Sort of tease out.
You know there are of course projects that that people are pursuing.
Or.
For example in the on the residential side either.
Where they were very mindful of sort of longer term.
E S. G coal and then I'm thinking on C&I and then there are projects where.
People aren't particularly up to them to issues of resiliency for instance, and and maybe are thinking towards their own solo usage and eventually maybe towards sort of a micro grid type application.
And I'm wondering if could talk a little bit about maybe maybe what your small business driver right now as far as startup customer motivation for timing to transact now.
Yeah, we're seeing a strong demand in the Reds are exercise for storage.
And I think every single show's opportunities storage as discussed and where we continue to see high attachment rates.
And I think we're continuing to see those grow.
On the C&I side, it's it becomes more of a.
You know much more of a longer conversation more design work more.
Financial considerations.
But we think resiliency will continue to be a big part of our considerations for companies are.
Having operations down.
That'd be the power outages.
Or kind of abuse.
Rates that will come into play certainly believed that storage and opportunities in the storage area.
We will continue to grow.
You know with our customer base and the people that we serve we certainly think there's a wide ranging wide ranging opportunities to to go back and.
And work with these companies to add storage to them. It certainly as technology improvements have been and prices come down it'll it'll continue to be a victim.
The compelling opportunity.
Right right and I guess also sort of for the geographical concentration of most of your business.
I Wonder if you could argue you've mentioned.
In terms of tightening basket it yourself on residential was.
The you know.
What the lead time, it looks like as far as the interactive was what the utility can you just talk a little bit about sort of.
What sort of backlog.
Backlog on timing.
People are seeing for if they if they need us.
Yeah, they need participation from the utility and are to make the project go forward house, how how well or poorly is sort of at your you're totally piece of the lead time doing and in new England for instance.
Yes sure.
Really varies by utility we are not seeing long long lead times on any of the markets that we service.
With the utilities.
There's.
Well certainly a lot of preparation that's gone into two.
From a utilities for.
Solar and upgrades that have been ongoing and so.
We have not seen them.
Widespread long delays out of interconnections or utility work.
Okay, Okay great.
Great. Thanks, a lot that's all for me.
But you know.
Thank you we have reached the end of our question and answer session. So I'd like to turn the call back over to Mr. Jeffrey Peck, our chairman and CEO for closing comments.
Thank you everybody for joining the call today, we appreciate your time to hear about the progress and the performance.
In the future we plan to participate at the H C. Wainwright conference in mid September and I think equity conference in mid October both in New York City as well as the E plus in Las Vegas in mid September .
Please let us know if you'd like to meet us.
There are anytime to discuss our business and our ongoing efforts do.
You have any questions. Please reach out to IR at <unk>.
Energy got Com, Thank you and have a great day.
Thank you. This concludes today's conference and you may disconnect. Your lines at this time and we thank you for your participation.