Q4 2023 Pineapple Energy Inc Earnings Call

Okay.

Good afternoon, and welcome to find out <unk> fourth quarter and full year 2023 conference call.

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.

Infliction CFO pineapple energy Mr Dunson.

Alright.

Thank you good afternoon, and welcome to Pineapple Energy's conference call to discuss results for the fourth quarter of 2023.

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

Our call. This afternoon 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 earlier today.

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

Oh go ahead.

Thanks, Eric and thank you to everyone for joining us on the call. This afternoon.

Today I am once again happy to share another quarter of solid operational and financial results for pineapple energy, which capped off an excellent full year 2023.

But once again I'll also say it didn't come easy.

And writing a script I was reviewing our call from Q3 and in that call I said that in my nine years in rooftop solar I couldnt recall more trying quarter.

Well, we just went through an even more challenging.

<unk> long standing operators in this space have gone bankrupt.

The rate cut signaled by the fed did not yet materialize due to stubborn inflation.

Public equity valuations in our sector are near all time lows.

However, if you dig a bit below the surface there are signs of green shoots starting to emerge.

Demand is starting to rebound, although the real acceleration should pick up in the second half of the year as rate cuts.

But even if you parse that statement for a second.

Demand is like a technical economics term I think of it more like the desire for homeowners to go solar and ideally at a battery is in my opinion as high as it's ever been.

People want control and predictability over their electric bills. They want a way out of crushing annual bill inflation, they want to produce their own clean power and it went back up and resilience in the face of increasingly severe weather and an increasingly fragile grid.

That desire is not yet fully translated into context book demand.

As people have stayed on the sidelines some due to interest rates regulatory uncertainty and some general economic malaise.

But I think it's really important to parse out that first point the desire is as strong as ever. This is the winning technology. It's the technology of the future. It's also the technology of the president.

The consumer is very much wants solar battery storage and to further electrify their homes.

And then additional green shoots.

Unfortunately for everyone, who pays an electric bill but helpful for our industry utilities keep raising electric rates double digit percentages each year.

This trend shows no sign of abating, and they don't seem to see a problem with it.

Pacific gas and electric announcing a 25% annual profit increased to $2 $2 billion.

With a b.

On the heels of I believe 17% rate increases and then claiming that you werent related.

This monopoly behavior is why our industry will keep winning over the long run we offer consumers choice and control.

And then green shoots on the equity markets and valuation front.

Oh appears to have had a successful DS back recently and we welcome them to the public markets is another rescue solar company.

And valuations are coming back for Sunrun in Sonoma after their strong fundamental performance in Q4 was far overshadowed by some enforced errors in their last earnings calls regarding capital raising.

I think investors are starting to move past that although the hedge fund shorts is still out there.

But that just sets up for a bigger short squeeze as value and long term investors focus on the fundamentals that have been strong and keep improving.

Let's now zoom in from these broader industry discussions and focus on pineapple, where in spite of these macro challenges and headwinds our teams were able to rally and deliver another quarter of positive adjusted EBITDA.

Four for four with every quarter in 2023 coming in with positive adjusted EBITDA.

That is no easy feat for a company like us with sub $100 million of revenue, while bearing all of the public company costs.

I'm incredibly proud of the whole team and grateful to all of our employees for their hard work and sacrifices throughout the year, making this EBITDA result happens.

We've talked a lot so far about demand and of course revenue generation is critical for any company critical for growth and continuing to realize our long term vision.

But one thing I believe really sets us apart of pineapple for many of the companies who didn't make it in our industry is a relentless focus on cost containment and margins.

Cash is the lifeblood of any company in our focus on profitability as well as disciplined forecasting and cash management has really shown out in our results.

Delivering on our performance metrics and hitting our goals will continue to be the focus into 2024.

On this as well as prior calls you've heard a lot of discussion of organic growth and bottom line focus for our existing businesses. They are our foundation and they support the strategic platform for pineapple.

But the broader vision is absolutely still intact as well to drive the roll up of leading local and regional residential solar and storage companies across the country.

And we've made steady progress on that front as well.

The current environment presents a tremendous buying opportunity for experienced and savvy consolidators, who can find and integrate direct companies.

With that I'll now turn the call back over to our CFO, Eric Angleton to walk through our financial results. Eric. Please go ahead.

Thank you Carl.

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 Q4 results last year.

We did a full quarter of our Hawaii operation and a partial quarter in the results of <unk>, which was acquired in November of 2022.

Let's start with the fourth quarter 2023 U S GAAP results.

Total revenue was $19 4 million.

Up $2 3 million or 13% from the fourth quarter of 2022.

The increase in revenue was primarily a result of destination acquisition in Q4 of 2022.

Total gross profit was $5 5 million, an increase of 515000 or 10% year over year.

Gross profit also increased.

Primarily due to the sudden Asian acquisition and an increase in revenue.

Total operating expenses were $7 9 million for the quarter Thats, a decrease of 692000 or 8% year over year.

The decrease in operating expenses was primarily a result of transaction related expenses due to the closing of <unk> of destination acquisition in the fourth quarter of 2022.

Offset by only a partial quarter of <unk> operating expenses represented.

Operating expenses in the fourth quarter of 2023 included $1 1 million of amortization and depreciation expense.

<unk> hundred 46000 of stock based compensation expense and.

190000 unfavorable.

Fair value remeasurement of earn out consideration.

Operating loss in the fourth quarter was $2 3 million, a decrease of $1 2 million and a 34% improvement from the prior year.

Other income was 781000.

A decrease of $2 2 million from the prior year.

Other income decreased primarily due to a $1 8 million decrease in the favorable fair value remeasurement of contingent value rights over the prior year and an increase in interest expense.

Net loss from continuing operations was $1 7 million.

Or a loss of 16.

Per diluted share in the fourth quarter of 2023.

This was an improvement from the net loss from continuing operations after taking into effect $16 9 million in deemed dividends.

In the fourth quarter of 2022, a $17 4 million or $2 58.

<unk> of loss per diluted share in the fourth quarter of 2022.

Please refer to the press release filed earlier today for full year U S. GAAP comparisons for the 12 months ended December 31.

Please note that 2022 results only include the post merger operations from the CSI merger in Hec acquisition, beginning on March 22022.

It's an Asian operations beginning on November 9th of 2022.

Now, let's summarize the pro forma results, which assumes we owned foundation in Hec.

For the full year in 2022.

The pro forma year over year comparisons better represents the operational performance of the business.

<unk> growth because of the timing of acquisitions.

Q4 pro forma revenue declined 17% compared to the prior year.

This was due to a 20% decline in residential revenue.

A 6% decrease in commercial revenue offset by a 6% increase in service and other revenue.

The decrease in residential revenue of 20%.

Of a decrease in residential kilowatts installed of 17%.

The average price per residential kilowatt installed declined 6% due to the impact of lower equipment costs and financing fees on customer pricing.

However, this decline was offset by additional revenue, resulting from an improved battery attachment rate.

Q4 pro forma gross profit decreased 28% compared to the prior year as a reduction in equipment cost and financing fees was outpaced by an increase in indirect costs that are included in gross profit.

And the increase in the battery attachments, which are at a slightly lower margin.

Q4 pro forma net loss increased by $2 7 million compared to the prior year.

Primarily due to a $1 8 million decline in favorable fair value remeasurement of the contingent value right liability.

And increase in interest expense.

Pro forma adjusted EBITDA of positive 208000 improved.

Improved 222% from negative 171000 in the prior year.

This improvement was achieved.

Primarily through operating leverage gained by actively managing the operating costs of the business.

Okay.

Year to date pro forma revenue was up 8% from $74 million last year to $79 6 million for.

For the 12 months ended December 31 2023.

Full year pro forma revenue increased due to an 8% increase in residential revenue.

A 4% increase in commercial revenue and a 15% increase in service and other revenue.

Year to date pro forma gross profit increased 16% due to an increase in revenue and margin improvement because of reduced equipment costs and financing fees.

Year to date pro forma adjusted EBITDA of 1.2 million improved by $4 5 million or 137%.

From negative $3 3 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 compensation gain.

Gain on the sale of assets impairment losses, and the employee retention credit.

We ended the quarter with cash available for pineapple operations of $3 6 million compared to $3 4 million available at the end of the third quarter.

We had another $1 8 million of restricted cash and liquid investments, which is reserved for the CVR holders.

Net cash generated from operating operating activities during the fourth quarter of 160000 was the result of changes in net working capital.

Notable changes in networking capital were due to a decrease in inventory and other assets and.

An increase in accrued compensation and benefits in the quarter offset by a decrease in customer deposits and other accrued liabilities.

We are actively engaged in fundraising efforts to ensure we have adequate capital to fund all of the company's obligations in 2024.

Now we would like to open the call for any questions.

Operator go ahead.

Thank you and the floor is now open for your questions. So to ask a question at this time. Please press Star then number one on your telephone keypad.

So given the time will just fast for a few moments.

Compile the Q&A roster.

Okay.

Okay.

Our first question comes from the line of Donovan Schafer with Northland Capital markets. Your line is now open.

Hey, guys. Thanks for taking the questions.

I wanted to start off talking about gross margins so.

You know it looks like.

<unk> quarter over quarter, they were down about 10 percentage points 38, 5% last quarter and 24 point, sorry to 28, 4% this quarter.

Uh huh.

And so.

None: Just curious if you can talk about what drove that difference on a on a quarter over quarter basis.

Yes.

Eric: This is Eric.

Eric: I know none of them the increase quarter over quarter sequentially is really related to.

No not necessarily direct cost, but indirect costs at our.

Allocated into gross margin. So these are things like.

Rent indirect labor and insurance and other costs that are attributable to jobs.

We put into place a more.

Consistent methodology to make sure that we're allocating those indirect costs.

The same way throughout the company.

And we've also seen increases in those costs as we've gone throughout the year. So it's.

It's not necessarily results from increasing equipment costs.

Eric: Or direct labor, it's more related to the indirect allocations.

Moving to gross margin due to U S GAAP accounting requirements.

Okay, and you're saying, that's mostly like some of that customer acquisition cost and.

Or are you most insurance I mean, just the change from a quarter over quarter basis is kind of more abrupt so.

None: What were the specific items, you said insurance and what were the other ones.

So I mean, we.

Indirect indirect.

Allocations to gross margin our.

Anything that's kind of indirectly attributable to the job so it would be overhead costs of any type.

And you're just saying those those just did increase sequentially.

Correct like from Us.

Okay. Okay.

And then talking about just in terms of what we've talked about.

Four.

Uh huh.

So nova in Sunrise and other companies, we have some sense of what.

How the market is doing across the United States, but could we go a little bit more in depth on and get sort of updates on Hawaii, and New York are long island's specifically.

In terms of what trends Youre seeing and is there anything are you getting any tailwind from like the fires with in Hawaii Chico may have to raise rates.

Yeah. It was a big lawsuit liability or the city updates that are specific to those regions.

None: I think I mean.

We can talk about trends through 12 31, right. We're almost on April 1st So I don't think we want to talk.

Too much about market by market breakouts of anything that's happened since 12 31, because we haven't filed that yet I would say.

In general.

Hawaiian market.

And this is no different than what Youll hear from anybody else who's active in the market I think the Hawaiian market had a strong fourth quarter to finish out the year I think there was this battery bonus program that was in place through the.

The end of last year to help in our emergency backfill the Miss capacity that wine electric was unable to bring online.

From their own utility scale projects to backfill the coal plant that shut down and so consumers stepped in and provided a lot of generation and storage and resilience to the grid like they always do.

And that was a good program. It should have continued I think get cut off.

Sooner than people are expecting because of some miscommunication in queuing the utility but.

I think that was a big demand support last year I think the successor tariff this year around bring your own device.

<unk> is not as lucrative and I think customers are kind of on the sidelines waiting to see exactly how that gets implemented and then you always see in Hawaii.

Kind of a lull in demand after the end of the year until tax day and people get their refunds back from last years. So I think Hawaii is holding up fine but.

It's you don't have quite the support that you had from a battery bonus program last year I think long island continues to be a healthy market.

I think that.

There should be a shift to increase battery storage as people shift out and more time of use rates I think that was supposed to come with some customers on January one and I think it's been delayed because of <unk> issues at the utility.

But I think both of those markets are holding up pretty well.

I think it's hard to disentangle said trends state by state sometimes in the narratives you read more broadly from the Netherlands refi now wipe out in California, but.

Yes, I think both of those markets are holding up well.

Okay, and then in the past you've given annual guidance I'm. Just curious do you have like do you anticipate.

And then apologies if I missed it but do you anticipate giving.

Yes.

Guidance for 2025 or.

Net or something maybe you wait a while to do or just curious.

<unk>.

What are your current state of thought is on that.

Yeah.

We're not doing it this quarter.

I think we'll revisit that.

Decision next quarter.

Okay. Okay. So.

Potentially next quarter, but just depends on how how what.

What kind of visibility.

None: Yeah, I think that's what I mean.

Sure I think we did guidance this year and we added almost right on the nose.

[laughter] Stockton zinger respond investors didn't really seem to care, one way or the other like any given quarter. When we did it so.

I think.

You know we have our own budgets, we have around forecasting we track towards those.

Yeah on the question of public guidance and giving it for full year, giving it quarterly I think we have a bit more discussion to do internally here and potentially go out with our board before we make a decision for what to share on the next call.

Okay, Okay and then.

I have a question for Eric so in the.

Adjusted EBITDA, a pro forma EBITDA reconciliation I saw that in the fourth quarter of 'twenty three.

There was about $1 million write offs for legacy GSI receivables.

<unk>.

And of course, you know that has to do.

The legacy company that there's the reverse merger into that and so operationally. It has absolutely no tie to what you guys do but I guess I'm curious is there any way of recovering that at all is it or is it for you is it a receivable so it would be a claim for pineapples versus.

Yes.

CSI is a former owners and shareholders or is it a claim of CSI from its legacy business to our customer.

And just kind of what happened there can still be right, but anyway.

The receivable was written off its a long standing receivable due from.

The government entity.

That we received.

News in the fourth quarter that the likelihood of collection was drastically.

Reduced.

It is related to.

None: The subsidiaries.

Of which we sold the assets already.

But it will it is an asset of the CVR.

The CVR holders.

So if we are to collect that money that money would be in the wood.

It would be distributed to the CVR holders.

We were we wanted to include it in discontinued operations, but accounting guidance had it in our continuing operations since those legacy assets had already been sold.

But unlikely it will be collected and if it is it would be it would be distributed to the CVR holders.

Yeah.

Okay.

Seeing no more questions in the queue, let me turn the call back over to Mr. <unk> to conclude the call.

Thank you operator.

To conclude.

Speaking on behalf of the entire Pineapple leadership team. We're pleased with the strong results, we were able to deliver in 2023 on the revenue front, and especially with four quarters of positive adjusted EBITDA.

So I would say pleased but never satisfied we need to continue pushing forward to help more homeowners go solar we're holding the line on costs and pursuing growth by acquisition as well.

Thanks to everyone listening to or reading this for your ongoing engagement. These past two quarters have presented a challenging operating environment and have been a really tough time for pretty much everyone I know in the industry.

But for better or worse, we are on the solar coaster and I think the rival become fun again in the second half of the year for the company that can make it through.

Utility rates keep going up solar costs keep coming down and interest rate cuts are on the horizon.

None: That's a winning setup for consumers and a winning set up for rooftop solar and battery storage pineapple.

Pineapple will be there to keep helping homeowners and leading the industry forward.

Thank you again for joining us this afternoon for your continued support.

None: Do you have any questions. Please contact Eric or me. This concludes our call today you may all disconnect. Thank you.

Yes.