Q3 2023 Pineapple Energy Inc Earnings Call
Yeah.
Good morning, and welcome to the Pineapple energy third 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 would like to turn the call over to Eric Angleton CFO of Pineapple energy Mr. Ingo.
Please go ahead.
Thank you Andre good morning, and welcome to Pineapple Energy's conference call to discuss results for the third quarter 2023.
With me today is Kyle <unk>, our Chief Executive Officer. This quarter. We also had the pleasure of being joined here out of Minnesota headquarters by Scott Masking, It Pineapple Board director and the founder of origination business and New York State.
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 are not obliged to revise or update any forward looking statements, except as may be required by law.
Please refer to our disclosures regarding risk factors and forward looking statements in today's earnings release and other SEC filings.
A copy of our press release has been posted to the Investor Relations page of our website for reference.
The non-GAAP financial measures discussed in this call are reconciled to the U S. GAAP equivalent and can be found in the press release that we issued yesterday.
With that I will turn the call over to our CEO Kyle.
Kyle Please go ahead.
Thanks, Eric and thanks to everyone for joining us on the call. This morning, we.
We did push this back one hour this quarter, which I hope is given our west coast participants a chance to grab a second cup of coffee.
We appreciate them joining so early.
Today I'm happy once again to share another strong quarter of operational and financial results from Pineapple energy.
But I won't say it came easy.
This is my ninth year in rooftop solar and I don't recall, a more trying quarter for our industry broadly and I think you see the effects of that showing up in the earnings results. So far some of our larger public peers, but.
But in spite of the macro challenges and headwinds we were able to rally our pineapple teams to deliver another quarter of positive adjusted EBITDA.
We kept a tight focus on disciplined execution and cost containment, while sharpening the pencil on positive ROI growth investments.
Well share more detail in later sections, but in some both our Hawaii energy connection insulation businesses were able to grow gross profit dollars year over year in Q3, which is a huge accomplishment in this interest rate environment.
And while it's still only a cost center and not yet a revenue driver in its own right. We were also able to effectively contain corporate cost beating budget, while continuing to build up our shared services capabilities.
Strive to keep improving every quarter and our culture of high performance data Centricity and accountability has never been stronger.
Delivering results and hitting our goals will continue to be the focus in Q4 and into 2024.
Now for a more detailed look at our performance, let's start in Hawaii, where Christa bone and his team turned in another excellent quarter.
Revenue was up 6% Q3 year over year, but the real success story as gross profit increasing 40% year over year due to holding the line on pricing, while realizing significant decreases in procurement cost.
And battery attach rate remained at a tremendous 90%. This 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.
Due to that expense and the length of the trip, we don't get to spend as much time visiting AUC as we would like to do.
It had been 18 months since the last time I've been able to be out there with the team.
But Eric and I did get the chance to go in October for 2020 for strategy and planning session and it was just such a great reminder of how solid our team is there and how hard everyone works to help people go solar and save on their electric bills in one place you see that reflected in the referral rate in Q3, 79% 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 everyday.
Yes.
Let's turn now to New York, where Scott mask and and the team also delivered a strong quarter.
Revenue was down 16% Q3 year over year, but that was against a very strong 2022 car and much more importantly, we managed to grow gross profit dollars by 1%, which is a solid result in such a challenging interest rate environment.
This impressive result was possible because dealer fees, which are essentially of loan origination fees.
Included in the revenue number and those have come down significantly as we pivoted to new financing partners and the current aggressive interest rate environment.
And then the other key driver is a significant decrease in product costs, we were able to negotiate.
Battery attach rates in New York were only 3% in the quarter, but we expect that to grow in 2024, what 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 Hawaii market.
And 40% of all New York sales in the quarter came from customer referrals, which is truly a great result.
This number of shows how strong of a job Scott and the whole team do at taking care of customers and delivering that great customer experience.
As of quarter end, we have an estimated $47 million of probability weighted installation backlog, giving us good visibility on revenue.
Taken together with the revenue numbers, we've already delivered through the first three quarters 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, our third in a row and so we're continuing to guide to positive adjusted EBITDA for full year 2023.
That's something we as a leadership team are extremely focused on and that I think is a big differentiator versus competitors.
Yeah.
On this in the last call you've heard a lot of discussion on organic growth and bottom line focus at our existing businesses and that is our foundation and it is really the support for the whole strategic platform of pineapple.
But the broader vision is absolutely still intact to drive a roll up and consolidation of leading local and regional residential and commercial solar companies and we've made steady progress on that front as well.
This current environment presents a tremendous buying opportunity for experienced and savvy consolidator as you could find and integrate the right companies.
With that I'll now turn the call over to our CFO, Eric Angleton to walk through our financials in more detail Eric. Please go ahead.
Thank you Kyle.
I will 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 less insightful because Q3 results last year included only results of our Hawaii operations and not the results of <unk>, which was acquired in the fourth.
<unk> 2022.
Let's start with the third quarter 2023 GAAP results.
Total revenue was $18 3 million up $12 4 million or 211% from the third quarter of 2020 to the.
The increase in revenue was a result of destination acquisition in Q4 of 2022 and organic growth in Hawaii.
Total gross profit was $7 million, an increase of $5 6 million or 401% year over year.
Gross profit increased due to increased revenue and an improved gross profit margin.
The gross profit margin improvements were a result of destination acquisition and an improvement in equipment costs and financing fees.
Total operating expenses were $8 6 million, an increase of $4 8 million or 125% year over year. The increase in operating expenses was primarily a result of the <unk> acquisition in Q4 of 2022.
Operating expenses in the third quarter of 2023 included $1 3 million of amortization and depreciation expense.
354000 of stock based compensation.
And a 230000 unfavorable fair value remeasurement of earn out consideration.
Operating loss in the third quarter was $1 6 million a decrease of 859000, and it's 35% improvement over the prior year.
Other expenses were 769000, an increase of 650000 from the prior year. Other expenses increased primarily due to an increase in interest expense due to debt financings closed in the second quarter and $240000 unfavorable fair value remeasurement of the contingent value rights.
Net loss from continuing operations attributable to common stockholders was $2 3 million or a loss of 23 cents per diluted share in the third quarter of 2023.
This was an 8% improvement from the net loss from continuing operations of $2 5 million in the third quarter of 2022.
And a 32% improvement from a diluted loss per share of 34 cents in the third quarter 2022.
We will not comment on year over year U S. GAAP results for the nine months ended September 30, as the comparable results arent meaningful due to only three days of operations post merger with CSI represented in the first quarter of 2022.
Now, let's summarize the pro forma results, which assumes we owned Phoenician in Hec for the full year in 2022.
The pro forma year over year comparisons better represents the operational performance of the business versus growth is the result of acquisitions.
Q3 pro forma revenue declined 10% compared to the prior year with Hec revenue up 6% insulation revenue down 16.
Pro forma revenue declined 10% due to a 12% decline in residential revenue offset by a 1% increase in commercial revenue and a 3% increase in service and other revenue.
The decrease in residential revenue of 12% as a result of a decrease in residential.
Kilowatts installed at 10% the average price per residential kilowatt installed declined 3%.
Due to the impact of lower equipment costs and financing fees and customer pricing.
Q3 pro forma gross profit, however, increased 9% compared to the prior year as rejection and equipment costs and financing fees outpaced the slight decline in average selling price.
Of our installed systems, resulting in gross profit margin improvement.
Q3 pro forma net loss increased by $2 1 million compared to the prior year due to income from the employee retention credit of $1 9 million recognized explanation in the third quarter of 2022.
Pro forma adjusted EBITDA of positive 336000 improved 156% from negative 602000 in the prior year.
This improvement was achieved through growth margin improvement and operating leverage gained by closely managing the operating cost of the business.
Year to date pro forma revenue was up 20% from $50 2 million last year to $60 2 million for the nine months ended September 32023.
Year to date pro forma adjusted EBITDA of 1 million improved by $4 $1 million or 133% from negative $3 1 million in the prior year.
Pro forma adjusted EBITDA includes adjustments for fair value remeasurement of earn out consideration and contingent value rights obligations stock.
Stock compensation.
On sale of assets impairment losses, and the employee retention credit.
We ended the quarter with cash available for pineapple operations of $3 4 million compared to $2 4 million available at the end of the second quarter.
We had another $2 2 million of restricted cash and liquid investments, which is reserved for the CVR holders.
Net cash generated from operating activities during the third quarter.
Of $870000.
Was the result of positive improvements in networking capital.
Notable changes in networking capital were due to an increase in AP and customer deposits in the quarter offset by an increase in other assets.
Net cash used in financing activities for the quarter was $3 2 million due to a $3 million payment to the contingent value rights holders, which reduced our restricted cash balance.
Now we'd like to open the call for any questions. Operator. Please go ahead.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll go first to Jonathan Schaffer at Northland capital markets.
Hey, guys. Thanks for taking the questions.
To first ask about the long island time of you spelling are you seeing anything do you have any sort of like leading indicators that you track, whether maybe quoting activity.
Or inbound.
Anything that gives you a sense of whether you're already seeing that seeing signs of an uptick there whether it's a battery or attachment inquiries.
Or new installs and then.
With that or potentially in the absence of that.
Do you have a sense for 2024 of whether you expect that to be.
Have an impact earlier in the year or more towards the end of the year.
Yeah, I mean, I would say.
The full answer is kind of in the absence of that right. We are still going through 2020 for budgeting right now.
And so we haven't fully put pen to paper on all of this in the assumptions I think it's going to be built.
Build over time, because they are chunking it out.
Like how broadly it's rolled out and what.
Tariffs are customer.
Groups get it over time, so I think it's certainly going to build up through the year.
<unk>.
I don't know we've got Scott here.
Knows more about this in all of US at all you've got a point of view on this sure. So January one rollout was slightly delayed for it issues from the utility January one.
All new meters, new customers will be automatically enrolled in time of day rates.
<unk> territory.
There'll be doing chunks throughout the.
The rest of the year in probably 50 60 $70000 customer group.
Groups that will be but the goal is I believe that by the end of <unk> at the beginning of 2025.
750000 rate payers will.
Have to opt out of time of day rates.
Yeah, and we were talking about this even just yesterday with Scott here about how.
<unk>.
Starting next week right is going to be back in the office, we're going to be through.
Earnings earnings release earnings call as we had a board meeting still to prep for it but it was one of the top priority items. We said is let's make sure we get our analytics team our sales leadership team together and we start looking at our pricing book, we start looking at our sales materials and we make sure that we've got the right training the right <unk> the right pricing in place.
To make sure that.
It's different right, but you look at the <unk> market in California, and you look how that's evolved since and you look at from what we're seeing this real bifurcation and companies that we're prepared for it and had expertise in house and work savvy, and we're able to pivot and start selling in a post <unk> world with solar.
Battery storage and then a lot of work and we're going to make sure that were in the group who can then I think it's a great opportunity to differentiate and separate and elevate yourselves and take share and I think we've got.
Todd are experiencing our 20 years in the market.
In long island, helping customers there and then like we mentioned in the script. We've also got the expertise in Hawaii to draw and so I'm confident that we'll have a great offering and be able to effectively presented to customers, but like literally just yesterday, we were talking about how this becomes a priority right away.
Okay. That's helpful. Thank you and then.
Turning to revenue.
You guys were down sequentially in Q2, and then you down again in Q3.
On the last call.
We've talked about how Q1 was that sort of an elevated level due to some of the push outs from the Hawaii building Department issue from from late last year.
But I wouldn't think that would kind of be a fact.
Factor going from Q2, Q3, I know you talked about.
That's the.
And we know from all the other residential companies its certainly a challenging environment. So I guess the question is sort of in light of all of that what gives you the confidence for Q4, you've got there's sort of a backlog there.
Are you getting cases of anything getting canceled or pushed out or is it what youre seeing there makes you feel like the timeline for the stuff. That's in the backlog is firm and Wouldnt slip from Q4 to Q1 is it is it skewed to C&I or something what is it about all of that that makes you feel like feel confident yes.
It's there and it's going to land in Q4.
Yeah.
Confidence is I guess.
Oh relative I was thinking about this a little bit.
When you give a guidance range.
Statistically speaking what are you actually doing youre trying to pick a midpoint and youre trying to say you know, it's plus or minus on this side and it's within one standard deviation or two standard deviations or whatever and what the confidence interval is.
So it's never a slam dunk, obviously, but I think that we've got nine.
Nine months.
<unk> closed out we've got the backlog like we mentioned and we've got visibility in our CRM and our project management systems of what the installed calendars look like.
You know in October and for November and December So far and we can track that against historical and then in New York. There's also the C&I pipeline. So I think that we have good visibility and analytics into how the year's going to end, but it's not guaranteed.
But theres downside Theres, maybe also upside.
I think with 2024 like I said, we're going through the budgeting exercise still.
And.
One of the things that we've been talking about.
Lately is it's just a it's a store.
Strange it's a good thing, but it's a strange business to be in or maybe a time in the business to be in a declining.
Cost basis industry right because.
It's great because it helps margins at great. It's great because it lowers prices for the end consumer is that it increases the value prop overall, but it kind of screws up how you think about revenue and what growth should look like right. Because there is number of jobs, you do where there's kill.
Kilowatts installed, but if prices are going down like that can make it look like your revenues flatter shrinking even if thats like all in line are growing and so we are grappling with that a little bit into 2024, but it's why you one of the reasons you've heard us emphasize gross profit and gross profit dollars more on this call then.
We have before I think we've really resolves kind of a round two at the end of the day.
Fuel prices go up your prices go down like your costs go up your cost go down dealer fees kebab dealer fees go down.
You sell it and so what you do it all comes out in the wash of what are the actual and not even the percentage what are the actual quantity of gross profit dollars generated and then what was your Opex and that's your EBITDA Scott was even saying yesterday one of his colleagues is it five years ago made a shared that <unk> growth.
And I think I'm going to make a shirt like that whereas two breweries on the weekend or something.
But.
Yeah I guess.
That's how we're thinking about the rest of the quarter and what gives us confidence in that.
And the things, we're working through our 2020 for budgeting.
We will take our next question from Jeff Grant at Alliance Global Partners.
Morning, guys and appreciate the the delay in the call on our.
Hey, Jeff.
I know he come first when you guys think about planning thanks.
Sure.
A question on the on the margin performance now that continues to be very strong.
Is there any more room for growth there given the tailwind on the equipment pricing in hardware and things of that nature or do you feel we're kind of topping out here around these levels.
Hi.
Let me go first and then I'll turn it over to Eric and maybe even Scott has a perspective on that too.
Higher is better right in the short term, but I almost worry that our gross margins are starting to get to high grade its always that delicate balance of how are you priced relative to competitors and what's the price elasticity and if you go a little bit lower on pricing and cede a little bit of gross margin do more of that.
That up in volume, which is something we're going to look at.
Our teams have done a tremendous job in both Hawaii and New York is supported by some great corporate work on negotiating and realizing discounts and procurement certainly a trend across the industry, but I am proud of what we've been able to accomplish on the cost basis on that and so you see that come through.
Okay.
You know where it's at.
It's again to go back to just the 2020 for budgeting, we're trying to form a perspective on what we actually want the gross margin percentage to be.
In 2024, and where are the opex needs to be and how that allows us to get 10% or higher EBITDA margin.
At each of the operating businesses and that's also a benchmark we look forward at new companies to acquire.
So I think there is continued room to drive cost out of the business and keep lowering the cost basis and then the margin is kind of a question of what we want to do on pricing and where the elasticity is at an all equity.
Add on to that.
I think that in today's kind of inflationary environment consumers are used to cost increasing so we've been able to maintain or just slightly reduced our selling prices, while taking advantage of lowering.
Equipment costs and dealer fees to enhance our margins. So that we are closely watching.
Our market share numbers to make sure to see what are what are our competitors are doing we want to make sure that we are.
We're still competitive.
Each market that we're in but so far we've been able to maintain pricing.
And take advantage of lower equipment and financing costs.
To date.
Okay.
Yes, yes.
Yeah.
Great.
Thank you.
For my follow up I'll ask the obligatory M&A question and just get an update for what you guys are seeing in that in that market.
Yeah.
Potentially opportunity rich, but obviously a lot of macro uncertainty. So just wondering how you guys are thinking about.
Potentially executing something in this market.
We absolutely want to remain focused on it and.
The absence of announcing a closed deal this quarter and last quarter.
It should not be.
Interpreted to mean, an absence of activity there we've been incredibly active on it it's a big part of what we.
Focus on and I think the.
I will say our pipeline.
Is.
Okay.
The biggest I don't know if that's the right term the healthiest, it's ever been right because you start with a lot of companies entering the funnel and then you get to know the more you diligence them and then you have a front row seat to how they perform over time through good times and through some of the challenges more recently and then it really shakes out and you get a greater confidence level and who the right company.
He is the right fit for you the best operators and I think we've made a ton of progress on that and we're really excited about the short list of companies that I say are lower down in the funnel.
It is.
It is.
Good time to be buying right I think if you can raise the money and I think that it's the only silver lining of the <unk>.
Mass of drop in the stock prices in the public equity valuations in the solar companies is that that trickles down to the valuations of private companies as well and so if youre a consolidator its a great time to be buying if you have confidence in your ability to identify and diligence the Ryan companies and then go fundraise for it.
I think we've mentioned this before but in fund raising.
The point of being public was to use stock to be able to be a currency and M&A and also to raise the cash the cash consideration with the stock price where it is right now.
Just too dilutive to do that so that's not what we want to do so we're thinking about that as the tool to do it and I think it's why it's been so critical to get I mean, when you are size and starting out every acquisition is critical but the Hawaii acquisition was Keith's was our first one this nation acquisition was key because it tripled the size of the comes.
<unk> got the company too.
EBITDA positive and generating cash and then that puts us in the position of the next acquisition is totally accretive and fall straight to the bottom line because we're looking at healthy well run businesses that have strong bottom line and EBITDA.
We think we can raise debt to offer those multiples, but we have a few different capital raising tools at our disposal.
Great maybe just a quick follow up on that.
Are you seeing you guys. As you mentioned you get Mark to market every day, where the public equity private companies don't.
Do you feel that there is a sufficient narrowing in terms of buyer seller expectations to where there is transactions to be done or does.
Some more market therapy would need to kind of.
Matriculate through on the private side.
Okay.
No I think we're getting really good feedback like we have constructive conversations with people they are different value or consideration leverage in a deal.
Cash upfront.
Seller notes.
Earn outs like what their roles are of individuals' going forward.
Stock right. So there's a lot of different tools in the toolkit and I think different sellers have different motivations or put a different values on those things. So I think we there's a lot of ways to negotiate in a mutually beneficial way.
And I think in terms of just where overall multiples are at and where upfront cash consideration is that I think the adjustment is there we're at a really healthy place.
And then as a public company.
These.
The acquisitions are probably going to be material.
And just the size you look at and so Theres an audit component that has to happen is a fundraising component that has to happen.
But it's a it's a good environment for doing what we're trying to do.
Yes.
Okay, great. Thank you guys for the time.
Yes.
Thanks for joining thanks, Jeff.
Seeing no more questions in the queue, let me turn the call back to Mr. It's up to conclude the call.
Thank you operator.
Before we conclude I wanted to mention a few upcoming events next Thursday, the 16th Eric and I will be joining James West of Evercore for a virtual fireside chat at <unk> eastern.
Later this month on November 30th will be in New York for the Bank of America flagship Renewables conference and will be joining Julian for a fireside chat at for eastern.
And then we will be attending the Janney clean energy investment Symposium in New Orleans December 5th through the seventh I know I'm going to eat well on that one it's an amazing food city definitely need to pack their running shoes for sure.
We look forward to connecting with anyone who's able to attend those events and please reach out to your contact at those firms if you'd like to schedule a one on ones.
Now to conclude speaking on behalf of the entire pineapple leadership team. We're excited by the strong first three quarters. The company has been able to deliver in 2023.
Thanks to everyone listening to or reading this for your ongoing engagement.
The past quarter has been a challenging operating environment and a tough time for pretty much everyone I know in the industry.
And it's hard when you see two huge oil companies both through $50 billion acquisitions, while renewable stocks are kicking around five year lows, but we keep fighting the good fight and writing the solar coaster and as higher interest rates pass through.
The ever increasing utility rates in the next round of their rate cases, while our equipment costs keep declining our fundamental value proposition to homeowners is just going to continue to grow and grow.
Thank you again for joining us this morning and for your continued support if you have any questions. Please contact Eric Army. This concludes our call today you may all disconnect. Thank you.
Okay.
[music].