Q2 2023 Pineapple Energy Inc Earnings Call

Okay.

Good morning, and welcome to the Pineapple Energy's second quarter 2023 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'd like to turn the call over to Eric.

Yep.

<unk> Energy Inc.

That's it.

Please go ahead.

Okay.

Thank you.

Good morning, and welcome to Pineapple Energy's conference call to discuss results for the second quarter of 2023.

With me today is Khalid <unk>, our Chief Executive Officer.

Our call. This morning will include statements that speak to the company's expectations outlook and 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 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 and other SEC filings a copy of our press release has been posted to the Investor Relations page of our website for reference.

non-GAAP financial measures discussed in this call are reconciled to the U S. GAAP equivalent can be found in the press release that we issued yesterday.

With that I will turn the call over to our CEO Kyle Kyle.

Kyle Please go ahead.

Thanks, Eric and thanks to everyone for joining us on the call. This morning I know this is early especially for your west coast folks.

Today, I'm happy to be able to share another strong quarter of operational and financial results at Pineapple energy.

In the second quarter, Hawaii business continued its great sales and installation momentum and exceeded both prior year and our internal plan.

Arc business showed strong year over year growth and we continued deepening their integration into pineapple and.

And in the corporate office, we effectively contained overhead costs, while continuing to build out our shared services center of excellence model.

The U S residential solar industry has not been without its challenges this year as evidenced by weak Q2 earnings results from many of our public peers.

Find out, but we were able to buck that trend and deliver both strong top line growth and another quarter of positive adjusted EBITDA.

We are continuously improving and by no means finished but we've made great progress in cultivating a lean and hungry mentality with a focus on execution and delivering on goals.

I think everybody at the company now understands what's expected of them and the cultural improvements, we've made and holding each other accountable give me confidence that we will continue to perform and thrive over the rest of this year and into 2024.

For a more detailed look at our performance, let's start in Hawaii, or Krista bone and his team turned in a truly excellent quarter Kelly.

Kilowatts installed which are the largest driver of in quarter revenue recognition were up 36% year over year.

This was a monster quarter and I want to give a shout out to all of our install crews in Hawaii, who worked so hard to help homeowners go solar and deliver this great result.

Battery attach rate in Hawaii remained outstanding at 89%, which is so important as we continue building out the foundation for the greater the future where people can produce store and consume their own electricity.

And in Q2 in Hawaii is 75% of our system sold came via customer referrals, which is just a phenomenal number and a testament to the great customer experience that Chris and all of our Hec team deliver every day.

Yeah.

Turning now to our New York business, Scott masking and his team also delivered a really strong second quarter.

Kilowatts installed were up 26% year over year, and I want to give a shout out as well to our New York Installers for working hard to help the company hit our goals and to help the people in their communities go solar.

Battery attach rates in New York, where only 5% in the quarter, although that's not unexpected and is consistent with historical levels in that market.

We do expect batteries paired with solar to really take off starting in January of 2024, when time of day rates are implemented in our long island market.

When this happens we'll be poised to capitalize by leveraging our years of experience and know how from the team in Hawaii.

And 35% of all New York sales in the quarter came from customer referrals.

This may appear small just relative to the Hawaii number, but it's truly a great result, as well and just think about that for a minute over a third of our new business comes from existing satisfied customers.

That's a great number I used to run their referral programs at both Sunrun and Sonoma and I don't think we ever had a month, where we topped 30% at either company. So this number shows how great of a job Scott and the whole team do have taken care of our customers and delivering on expectations in New York as well.

Okay.

As of quarter end, we have an estimated $38 million of probability weighted installation backlog, giving us good visibility on revenue.

Taken together with the revenue numbers, we've already delivered in the first half of the year that backlog gives us continued confidence in our stated full year revenue range of $80 million to $85 million.

Additionally, while Eric will provide more details I'll just state again here that we were able to deliver another quarter of positive adjusted EBITDA like we didn't want as well and.

And so we're continuing to guide to positive adjusted EBITDA for full year 2023.

That's something that we as a leadership team are extremely focused on and I think it's a big differentiator versus competitors in other public comps.

The second quarter had a big focus on driving operational excellence and deeper integration across our existing businesses.

That will always be our foundation in that organic same store sales growth style metric is a critical kpis for us but.

But I founded this company with our strategy of driving a rollout leading local and regional residential solar companies.

And we've kept our foot on the accelerator on that front as well.

While we didn't announce any new deals during the quarter, we've made great progress in filling and diligence in our M&A pipeline and I will say that at this moment in my faith in our strategy is as strong as it's ever been this environment in our industry is ripe for consolidation and I believe in our ability to find the right companies you have separated themselves from the pack.

The benefit of being a part of something bigger.

To come on this front.

With that I'll now turn the call back over to our CFO , Eric Angleton to walk through our financials in more detail Eric. Please go ahead.

Thank you Kyle.

It certainly has been a busy quarter.

On June 1st we closed the debt financing round with the cap on capital partners.

This financing was important for pineapple as it required retired destination short term sellers note with no equity dilution.

Allowed us to fully move forward with the integration of the <unk> nation and begin to fully realize both the cost and revenue synergies of the deal.

Then on June 30th we completed the sale of substantially all the assets of the legacy subsidiaries J D. L technologies incorporated and assess a corporation.

This sale substantially completed the monetization of all the legacy assets remaining from the CSI merger.

It allows pineapple to proceed forward as solely a solar company.

<unk> the results of J D O S S and will not be included in pineapple results and all historical results from data analysis J D. L. A necessity will be presented as discontinued operations and prior period comparisons.

Now I will review the GAAP financials as required by the SEC and then review certain pro forma numbers that will give you a better sense of the year over year performance of our business.

The GAAP numbers are lessons cycle, because Q2 results last year included only the results of our Hawaii operations and not the result of sedation, which was acquired in the fourth quarter of 2022.

Let's start with the second quarter 2023 GAAP results.

<unk> revenue was $19 8 million up $15 6 million or 370% from the second quarter of 2022.

The increase in revenue was a result of destination acquisition in Q4 of 2022 and strong organic growth in Hawaii.

Our total gross profit was $7 1 million, an increase of $6 2 million or 691% year over year.

Gross profit increased due to increased revenue.

And an improved gross profit margin.

Gross profit margin improvements were a result of the cynical sedation acquisition normalization of the supply chain and better buying power as a larger organization.

Total operating expenses were $8 $6 million, an increase of $4 7 million or 122% year over year. The increase in operating expenses was primarily a result of destination acquisition in Q4 of 2022.

Operating loss, which includes $1.2 million of amortization expense and a $105000 unfavorable remeasurement of the Phoenician earn out was $1 4 million, an improvement of $1 5 million or 52% year over year.

Other income was 1.1 million.

A decrease of $3 6 million or <unk>, 77% year over year.

Other income declined due to the $4 7 million favorable fair value remeasurement of the merger earn out consideration.

The $1 2 million gain on sale of assets.

And $1.2 million unfavorable fair value remeasurement of contingent value rights in the second quarter 2022, offset by the $1 6 million favorable fair market value remeasurement of the contingent value rights and an increase in interest expense in the second quarter of 2023.

Net loss from continuing operations attributable to common stockholders was 334000 or a loss of three cents per diluted share in the second quarter of 2023.

This was a decline from net income from continuing operations of $1 7 million in the second quarter of 2022.

The decline was the result of the $1 5 million operating loss improvement offset by a $3 6 million dollar decline in other income.

We will not comment on year over year U S. GAAP results for the six months ended June 30th as the comparable results aren't meaningful due to only three days of operations post merger with CSI reps.

<unk> represented in the first quarter of 2022.

Now, let's summarize the second quarter pro forma results, which assumes we owned sensation for the full quarter in 2022.

The comparisons are year over year and better represents the operational performance of the business versus acquired growth.

Q2 pro forma revenue was up 23% from $16 1 million last year with Hec up 55% insulation up 12%.

Pro forma revenue was up 23% due to an increase in residential revenue of 31% an increase in service and other revenue of 31% offset by a decline in commercial revenue of 3%.

The increase in residential revenue of 31% as a result of an increase in residential kilowatts installed of 29%.

And an increase in residential battery attach rate of 13% from 38% in the second quarter of 2022% to 43% in the second quarter of 2023.

Average selling price per kilowatt installed remained relatively flat while the increase in battery attach rate led to a residential revenue increased at outpaced kilowatts installed.

The 31% increase in service and other revenue.

As a result of the success of our service and roofing divisions.

As well as the increase in licensing revenue from eager products.

The decline in commercial revenues is due to the timing of the completion of commercial projects.

The average selling price of our installed systems remained relatively flat the costs of these systems declined resulting in gross profit margin improvement.

Pro forma adjusted EBITDA of positive 319000 improved 119% from negative $1 7 million the prior year.

This improvement was achieved through growth margin improvement and operating leverage gained by aggressively managing interrogating and interrogating the operating costs of the business.

Year to date pro forma revenue was up 40% from $29 9 million last year to $41 9 million for the six months ended June 30th 2023.

Year to date pro forma adjusted EBITDA of 936000 improved 137% from negative $2 5 million in the prior year.

Pro forma adjusted EBITDA includes adjustments for fair value remeasurement of earn out and contingent value right obligations.

Stock compensation gain on the sale of assets and impairment losses.

We ended the quarter with cash available for pineapple operations of $2 4 million compared to $3 4 million available at the end of the first quarter.

We had another $5 6 million of restricted cash and liquid investments, which is reserved for the CVR holders.

Net cash used in operating activities was the result of changes in networking capital.

Notable changes in net working capital for the year were due to the decrease in other accrued liabilities.

Accounts payable and customer deposits.

The decrease in other accrued liabilities was result of a reduction in deferred revenue due to the timing of commercial projects.

This is expected to improve with expansion of the commercial backlog.

The decline in customer deposits as a result of deferred milestone payments from our financing partners and the general seasonality of the business the.

The customer deposit balances anticipated to improve consistent with the prior year as we accelerate the collection of deposits from customers, who want to secure an installation date prior to the end of the year.

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

Yeah.

Thank you.

At this time I'd like to remind everyone in order to ask a question Christa and the number one on your telephone keypad.

Firstly, just a moment to compile the Q&A roster.

Okay.

With that your first question comes from the line of Jonathan Schaffer from Northland capital markets.

Your line is open.

Hey, guys. Thanks for taking the questions and congratulations on the quarter, it's nice to see the gross margins.

Be good.

I wanted to first ask about.

You know the headlines right now they're they're these wildfires in Hawaii I think they made the front page of the Wall Street Journal yesterday.

You know I think it's somewhat isolated.

And I don't really actually know, Hawaii, particularly well.

But within that market.

Curious, if I think as I understand the fires themselves or.

Caused by some weather events dorms it looks like it has caused like an elevated level of power outages.

In parts of Hawaii.

So I'm just kind of curious.

Just in general when you get an event like this in Hawaii, where it increases headline exposure.

And outages, even if that's.

I think it was like.

No no.

On the order of 5% or something of customers without power.

But getting.

Getting that plastered all over the daily news and everything from drive interest and part of what you do provide is backup power. So I'm just kind of curious with how that if you have an experience with that in Hawaii.

Headline events like this and help drive.

A significant upticks in demand.

This event in particular, it would just be too small to matter, even if it does get headline exposure just kind of any.

Details are helping me understand things there would be great.

Yes, Sharon Thanks, Donovan from being on so early although with the new Baby. Maybe this is just your normal pattern every day. So I appreciate you making breast imaging.

The start to the new family.

I appreciate you asking about the fires that I, probably should've mentioned this just in the release, but we've certainly been paying a lot of attention to what's going on there and have talk to Chris and the team in Hawaii.

We're not on Maui with operations, Ron Oahu, but some of our folks have family members and certainly friends on Maui.

And so.

For us Fortunately you know nobody has been directly impacted by it everybody is safe and Thats, great to hear and a big relief, but it's obviously tragic and so our hearts go out to those folks I think that it does.

It does just underscore in general the importance of what we're doing right.

It's hard to tie the specifics of any one event to any one thing, but severe weather events are getting more extreme we're seeing more of this not less and it's going to continue.

And it really is.

Big motivation for why I wanted to get into this space why we wanted to found this company, it's not just to help individual homeowners.

Go solar to save money right. This is where the grid needs to get to you. This is what de carbonization looks like and you can't just rely on regulated monopoly utilities.

To move in this direction. This has to be distributed generation. This is the creator of the future and it's what spurs, the broader industry to decarbonize and get to where we need to get for the planet.

And for the climate.

To your specific question.

I wouldn't say, we've seen a huge influx in Leeds just over the last two days on Oahu, but yes, the more extreme weather events that happen like you can correlate that and tie that back in you.

Back in the data of rising trends in top of the final demand I think it's probably just from my.

Broader experience in this space tomorrow acute for somebody like <unk> with home standby generators right and you see this in places like Texas, or Florida, or the eastern Seaboard, when there's a hurricane but yeah. I mean, you see these things in it.

Strange aspect of the industry right, where you absolutely are horrified when you see these things and you never want to root for it but you know at some level like it moves the business model forward.

I don't think of it again like it's tied to when a few thing, but I think it's just people have woken up to the fact that this is the new normal there's going to be more and more extreme at this and the best thing you can do to get some peace of mind and take some control over the situation is.

Take some agency and make a decision to produce your own power store your own power consume your own power and that helps you directly and it helps your neighbors in the health care community and it helps the grid so.

Paying attention to the situation certainly hope it ends quickly here and it just reinforces the mission that we're on and I know others in the industry feel too.

Okay. That's helpful.

And then I wanted to ask about.

You mentioned peers are seeing weakness in Canada, the U S market.

A lot of I know.

A lot of that's tied to like nine 3.0 in California, where you guys don't really have any of that exposure.

Some others talking about weakness in like the South Houston, Texas, where you also don't really have.

Much exposure I think you did so sudden nation at least kind of had the very beginnings of doing some expansion in Florida, but I imagine that's pretty small at this point.

But I'm curious.

Looks like revenue declined sequentially lower this quarter than last quarter and I don't think so.

That's a seasonal thing but.

Try as hard as I tried to remember or somehow seem to keep getting seasonality patterns rock.

So are you totally kind of immune from some of that weakness or is the sequential decline.

Reflecting some of it may be more broadly kind of macroeconomic leaders as consumer behavior.

<unk>.

Uh Huh yeah.

Yeah.

The question of sequential decline and if you really totally been immune so far are you seeing anything there.

Yeah, I think it it wasn't unexpected for US I think we talked about on the last call how we had some.

With the right term pull back some residential projects.

In New York, and Hawaii, as well that we had been expecting to install in December of 2022 and for different reasons in each market those got delayed and we were able to recognize them.

Because they've got completed in Q1 of this year. So we had a stronger Q1 than we otherwise would have.

And we have baked that into the revenue range. So no it's not evidence of.

Weakness in the market demand.

I think everybody in this space is impacted to a bit by rising interest rates I think that in Hawaii.

The demand is just so strong given the fundamentals and the value prop there that we've continue to power through it and take share there and the team there is doing a great job of capitalizing on that.

<unk>.

You mentioned markets like Texas, and Florida, Yeah, I think that those.

I've been in this space for nine years, and when we always talked about though is the sleeping giants in the states with huge populations and sunny in.

Part a lot of it just the use and eventually they wake up and you'd start to see that penetration take off and it seemed like we finally got there at the end of last year and the start of this year, but the economics were always close to get to positive savings in there with rates going up in those states.

It's kind of pushed back down below it so we're not directly impacted by it although we're ambitious and aspire to grow into each of these markets and so we've kept an eye on those markets and we've got various M&A target companies that we look at in those places and we've been able to see kind of secondhand through that some of those impacts I think those are.

<unk> in those states.

But no our our demand in our markets has continued to be strong and I think that yet.

I think we touched on this a little on the last call.

Rising interest rates aren't good.

What their homeowner is comparing the.

Two we're making a decision based on is just what would my.

Electric utility Bill continue to be if I don't go solar versus what will it be if I do go solar and interest rates are a big variable in that calculus determines the size of the monthly payment for the same system, but what you're comparing it to is the alternative is the utility bill and just the rising rates that have just continued to go up.

Up double digits year over year.

Places and maybe some moderating on that with gas prices kind of leveling out a little bit, but I think if you look at.

The grid and it is just ask yourself at a high level of life is the grid in good shape or bad shape I think the answer is really bad.

And I think it was a couple of weeks ago I read a study where they estimated $150 billion billion 150 of annual Capex that needs to go into the U S. Create every year for the next 10 years just to keep the lights on.

Like you don't have to be a deep policy expert to understand that means that gets rate base and put into your bills and so I think customers nowhere things are at right now, but it's not as much just about the month, one bill savings, it's about thinking about this over the life of the product and it gives your savings and it also just gives you stability over year costs. So.

I think those are some of the factors that have mitigated rising interest rates, but yeah I will say.

Hard to predict obviously, what the fed's going to do but it does seem like there's to me, there's a better chance than not that they don't raise rates at the next meeting in that maybe rates have topped out and we're seeing inflation start to.

Cool a little bit so I think that's probably going to provide a tailwind to the industry over the next few quarters.

Yes, I would just add that the add the reason we do the pro forma.

Numbers that are compare.

The actual operating performance of the businesses that we've acquired and if you look at our first quarter results, Yes, we did.

Our revenue number was higher but the pro forma results of the underlying operating businesses had a 60% increase Q1 of 'twenty three over Q1 of 'twenty, two which is quite substantial and in the second quarter here, we did it up 23%.

Q2 of 'twenty three for Q.

Two of 2022 so.

Part of it part of the sequential decline is just the results that massive growth number that we had in the first quarter normalized to 23% in the second quarter.

Okay, Yes.

Good about.

The exceptional circumstances for the first quarter. So that's very helpful. Thank you.

And then on the same kind of theme of the weakness in.

Other parts of the U S.

Can you comment on this.

That has had an impact.

On kind of.

Either as the deal flow or opportunities that come across your desk from an M&A standpoint, or maybe the pricing there.

Potential targets are looking for.

I think you said <unk> <unk>.

<unk> been able to get some insight into those markets because you have been actively reviewing opportunities.

Just kind of incrementally versus where we were.

A quarter ago are you getting for proposals or maybe more people answering your calls are more interest where you can kind of.

Zig when everyone else is zagging. So when there is a weakness youre kind of opens up those opportunities.

Just any kind of color.

Any details around that would be helpful.

Yeah, I think it's a great question and I think it certainly has made this space dynamic and interesting over the last three months I think for us the key thing.

More than anything else is it's we've got to find fit.

We got to find the right companies and I think there are a bunch of <unk> components to that.

In no particular order the company has to be healthy and growing.

Financially and profitable I think theres, a revenue sweet spot, we look at but we're not totally dogmatic and tied down to that but we want to make sure that we can integrate well and the new company doesn't swamp the existing company and buy something that's <unk> the size, although we look at all the opportunities but.

I think as the sizing piece, there's kind of a financial.

Top line growth and an EBITDA piece, but I think that the cultural fit is really really really important and I think it's because it's one of the reasons why right up there with the revenue growth, we talk about referral rates and we talk about battery attach rates like that is the thesis that that's how we grow we don't just buy.

Company, we find that has this topline growing or that's profitable. We look for companies that are committed in the same way that we are to delivering a great customer experience, because we think that that customer experience begets referrals and that is the virtuous cycle, where you're able to continue to grow efficiently at a low customer acquisition cost.

And it opens up even more opportunities down the line for upsell and cross sell and distributed.

Energy Resources', turning into grid services, and virtual power plants and recurring revenue.

Streams, and then you have a potentially software piece that you can bring into our hardware like that's the medium and long term vision and the model. So that fit piece is key so I'd say, yes.

Got more looks at more opportunities from companies that have struggled to manage that transition both from maybe not as much demand in their market coming in because interest rates are higher and also working capital crunch, because the finance companies did away with the M zero or M. One milestone payments and they don't get.

All the cash now until they install at the end.

And.

It's great to have those looks but.

We only want to buy like healthy strong companies that are the right fit for US and then the other piece to the fifth is it's not a founder or an owner who is looking to <unk>.

Cash out and ride off into the Sunset and buy a boat right like we're looking for people, who are hungry and motivated and want to keep pushing and keep building this industry and want to keep having the chance to go head to head against the bigger players and win more than their fair share and.

It wasn't our language we came up with it's we heard this language time after time when we talk to these folks and the fit was right is that we want to be a part of something bigger and so I think those are the companies, we're looking for and so I think that.

Yes, we have gotten more looks and more opportunities, but I think we kind of had a perspective on who the right companies where to go after before and that Hasnt changed just because it's become maybe more of an opportunistic environment I do think multiples have come down a bit.

As just valuations have come down and there's been a bit more concern.

From some quarters about the industry, but I think we're in a.

We're in a good position.

Here and we continue to want to find the right companies and input fair deals out there and then get them across the finish line and they have to be audit audit ready because republic too.

Sure. Okay and then just my last question is around storage.

The highest asking rates in Hawaii, and the growth Youre, certainly deploying a lot of extra batteries and.

I remember if I recall correctly you.

You really like the Franklin whole home product and have been kind of deploying that.

I believe you either.

I can't recall, if there's either an exclusive relationship with you guys.

Hawaii market or if it's more just youre one of the limited number of folks that are kind of certified with that.

Curious if we can get an update on.

How are you liking that product without really is.

Dominantly what is getting deployed what you guys are deploying right now.

And kind of how that relationship is going and what.

Benefits are competitive advantages or not you get through offering a product versus some of the more mainstream perhaps better known products.

Yeah, I'd say, the Franklin whole home.

<unk> system is a fantastic product and.

I think they entered the U S market.

With a mission to produce.

In their words, the Tesla power wall Keller and I don't know that its done that quite yet, but it's impressive piece of hardware.

And it looks cool too.

Not one of ours, but just on linked in yesterday I saw a picture of somebody who had four of them installed in their garage and it just looks cool.

It's a great product and Franklin has been.

An excellent partner customers have been incredibly happy with them.

The product availability in the supply chain is great pricing is great. The commissioning time is great.

We are taking a look at these for the New York market as well and so it's.

It's been a great <unk>.

And hats off to Chris and the team for finding this early in and being one of the first scale installers in the U S. I think that.

We always want to be a little bit.

Cautious and prudent to make sure we're not single threaded just from a redundancy in a risk management standpoint.

We always want to have multiple partners.

And I think that.

Maybe not really my place to say, but some of if you look at what happened with Enphase This quarter.

You can get complacent when you're in a duopoly for a long time and you are the only choice and you might think that you've got leverage well the person on the other side of the table is just sitting there frustrated after every interaction because they had a choice right and they just keep getting pricing stuck to them. So I.

I think it's the beauty of the.

The market system right is like we're always out there looking for the next product and the next best thing on the inverter side.

We've installed a lot of Enphase, it's a good product, but Tesla string inverters are really interesting.

The right applications in New York, we've been installing those.

Tie goes out Hawaii miles is coming on strong right I think that.

I have to step back sometimes like I've been doing this for nine years.

That makes me.

A veteran in this space kind of although compared to Chris and Scott.

But I think you can get in this mentality of Hey, it's been this way for a while and this is how it's always going to be and it's always going to be this product set.

But if you look out over the next 10 years and seven years in two years, and just especially with what's happening with supply chains and onshoring with inflation reduction Act like my goodness, it's an exciting time, just in the products and solutions and innovation space too. So Franklin has been fantastic love working with those guys and I think it's.

It's just a harbinger of what's going to come in the industry.

Okay, so more kind of like a reflection.

Being a knowledgeable versus four.

Kind of.

Home home integrator in that sense, so not taking into one product, but here. We are showing we were able to get out ahead of an exciting product.

In a market, where it's doing well and demonstrates what we can kind of keep doing similar things in the future. So I kind of more of the appropriate way to look at it.

Yeah, I think in a sense were hardware agnostic.

Unlike what the brand is we're not agnostic on we need really good product that is going to be reliable and delivery that good experience for the customer. So we're always.

Keeping our finger on the pulse of whats out there. We're always shopping we're always trying to craft the right product and solution set for homeowners and that can be different and AC coupled versus.

D C coupled application that can be different by markets, depending on the tariffs and the use cases for the batteries.

Et cetera, et cetera, we're starting to install stand panels and New York those are really cool I want one of my house in Minnesota and no one installs in here.

Our guys have offered to fly out here and do it for me.

Integrating EV charging more.

Certainly excited to go to already plus and have a good slate of meetings already and then just understanding what's what's new and what's coming next so.

Yes, I think that we.

We'd like to work with good partners. So we've got a track record where do we think a reliable, but theres a lot of innovation happening in this space too and it's only going to benefit homeowners from.

Choice and quality of product and cost.

Okay.

Great. Thank you guys I'll take the rest of my questions offline and congratulations on the quarter.

Thanks, a lot Donovan congratulations on the new baby that's awesome. Thank.

Thank you Donovan.

Thank you.

Again, if you'd like to add.

I ask a question press star and the number one on your telephone keypad.

The next question comes from the line of Jeff Grant from Alliance Global Partners.

Your line is open.

Good morning, guys.

So questions on a couple of questions on the margin front for you.

Again really nice last quarter on the gross margin front, despite a little bit lower revenue sequentially. As you guys already talked about in the mid <unk>, but how sustainable do you view that and what might be kind of the gives and takes to that changing for the better for the worst over the coming quarters. Thanks.

Just on the on the margin side specifically.

Yeah, just your view of gross margins I mean, I think it's a super competitive number which obviously is a testament to how you guys run your business and the efficiencies, but just wondering the sustainability of that in the coming quarters.

Yes.

I would say that.

It is a sustainable margin number.

Sure.

We are continuing to see better deals out there in the space, but being able to buy panels.

Panels and Inverters at better prices.

The supply chain has normalized the distributors are willing to negotiate.

And as a larger organization with the relationships we have both in <unk>.

In Hawaii, and New York and the relationships that are.

Future partners have that we will.

Do acquisitions with we just continue to gain leverage and buying power against <unk>.

Against our vendors so.

We definitely know Theres, a ton of manufacturing capacity coming online as a result of the inflation reduction act in the United States.

And as Karl mentioned continued innovation in new new entrants to the market such as Franklin whole homes.

And so we see the the pricing.

The equipment that we're purchasing to continue to be very competitive.

Okay, great. Thanks for that and I am curious with the changes coming in 'twenty, four and the New York market for you guys.

Is there kind of a ballpark number in terms of the delta in contribution margin from an install with and without a battery. So I the way I'm kind of thinking I assume it's going to be a nice tailwind on revenue.

But just thinking about the margin impact if any to the extent battery attachment rates in New York have kind of a step change here.

If we certainly expect.

The battery attach rate to go up in New York as we mentioned in some of the comments. They are they are converting to time of use rates.

I believe in the first part of 'twenty four.

We have not yet kind of forecasted out the margin impact and the pricing of that yet so I can't really comment on that intelligently, but we certainly do anticipate.

Better attach rates to go up in New York with the time of use rates being deployed.

Okay, I guess I was more thinking Eric.

Eric just kind of on an installed today.

How does the contribution margin profile look like if a customer has a battery or does not is it a material I assume obviously the revenue is higher but is the contribution margin.

Materially different if at all with or without a battery for you guys.

I think that.

I don't have the number in front of me and I think we can follow up with you.

As we pull a little bit more I would say, it's better and especially in a new battery market. I think you have a question about <unk>.

How you want to price.

And in a lot of markets apart from Hawaii, historically, where just because of the non export tariffs you kind of have to habits, you just bake it into the overall margin of the project.

<unk> had a decision about do you.

They're not in markets like long island and traditionally its the reason why it's been low single digit attach rates.

Not really a quote unquote savings product right, there's not really an ROI on adding the battery historically to the PV. It's like the solar has savings the solar has an.

And NPV, but then if youre going to add the battery onto its more for resilience backup peace of mind, and so people almost think of it in a whole like well, okay I'm going to add the battery and I'm going to use some of the savings from the solar to pay for the battery in markets like that I think as things flip to time of day.

And more people are going to want batteries, but especially at the start.

<unk>.

It's not going to be just like us.

Screaming glaring I don't think huge ROI financially just to add the batteries. So we'll try to be thoughtful about how we price it.

We're not necessarily looking for this to be an add on right away, where there's this huge extra margin I think it's more trying to design systems for people that meet their use cases, and just holistically with the PV.

Still a product where they save some money and where you make a good margin so.

Understand that's not specific but I E.

I wouldn't expect it to be a cigna.

Significantly higher.

Like gross margin product than just the PV itself, but we're also not going to just sell them install them at cost on top of the solid.

Understood. Okay. I appreciate the commentary if I can just sneak one more in any any material update on the Florida expansion opportunity that you guys were kind of organically pursuing.

Yes, it's early still.

That will start to see some of those results filter through in three months when we report on Q3.

We got a lease signed down there we're starting our lead Gen efforts were starting our sales efforts.

So we're building up I think that.

Rightfully so I think we viewed it as a test the entire time right and I think it's part of that we mentioned being data driven and metrics based we talked about accountability.

I think another part of the culture and just the mindset, we're trying to bring to this company is a test and learn approach to it.

It's not just do things.

Not just.

Do what we think is best and if it doesn't work.

You get in trouble for it it's being thoughtful about laying out in.

And experimental plan and that can.

Showcase and a lot of areas you know marketing is my background and something I'm passionate about and it's like the whole premise of marketing. Nowadays is you have to be analytical and you have to have a test and experiment planned testing control plant test and learn I think in Florida at the same rate, we viewed it as a kind of low inverse.

<unk> test to see if we could build outside of our core market in a non adjacent geography, and I think the verdict still out on it but whether it takes off like a rocket ship or whether it doesn't.

I think it's that mentality about kind of testing and learning different things thats going to serve us well and we're going to keep trying that.

In other markets as well, but.

I think we've got we're approaching it the right way where its capital.

On intensive but good personnel, who have the tie back just a nation.

And I'm confident that Scott and John <unk> and the team in New York are going to be able to make it successful.

Okay, Great sounds good thanks for the time guys.

Yes, thanks for joining thanks, Jeff.

Thank you seeing no more questions in the queue, Let me turn the call back over to Mr. I'll just to conclude the call.

Yes.

Yes.

Thank you operator.

Before we conclude just a quick mention I'd said this before but with the detail Eric and I assume most of you as well will be in Las Vegas with already plus Convention September 11 through the 2014.

Welcome the chance to connect with all of you in person there with the time change I'm sure I'll be up early.

I will say that it's a surreal that cool experience to run a few miles on the strip in the morning is the Sun is coming up so if anybody wants to join me for one of those and bringing my running shoes.

Alright back to business speaking on behalf of the entire Pineapple leadership team. We are excited by the strong first half the company has been able to deliver in 2023 and while at this 0.3 months ago. I told you I had confidence we'd be able to sustain our strong performance. After the hard work, we put in this past quarter to build out better.

More connected and more real time reporting analytics and scorecards across the entire business now I can say that we have that same confidence, but with even more robust data to back it up.

We're building a data driven metrics based company, where accountability is key for each and every employee that is what will enable pineapple to continue growing and growing profitably. We're.

We're on track to deliver our 2023 guidance, while continuing to pursue transformative acquisitions, we look forward to reporting our progress at our next earnings call in November .

Thank you again for joining us this morning and for your continued support.

You have any further questions. Please contact Eric Army. This concludes our call today.

You may all disconnect. Thank you.

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