SUNation Energy Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Profitability Focus: Generating positive EBITDA has been the North Star, but Q1 2024 did not deliver positive EBITDA. However, the team is committed to getting profitability back on track in Q2 and beyond.
• Hawaii Segment: The battery bonus program ended in December 2023, causing Q1 2024 revenue issues, but the economics of solar with storage remain strong, and grid proceedings offer future opportunities for HEC and E-Gear.
• New York SUNation: Residential had positive aspects with new kilowatts sold up YOY, though it missed budget slightly. Commercial had project slips but has a healthy pipeline for the rest of 2024 with new project management processes.
• Growth Strategy: The broader vision of rolling up leading local and regional rooftop solar companies remains intact, with the current environment presenting a buying opportunity for consolidators.
• Financials: Total revenue in Q1 2024 was $13.2 million, down 40% YOY. Gross profit was $4.8 million, operating expenses decreased by 31%, and net loss from continuing operations attributable to common shareholders was $10.1 million.

Segment Performance

• HEC in Hawaii: Revenue down year-over-year and versus budget. The lucrative battery bonus program in Hawaii ended in December 2023, and tariff uncertainty caused customer inaction in Q1 2024. However, the economics of solar with storage remain strong, and proceedings at the Public Utilities Commission could influence the future grid where distributed energy resources play a role.
• SUNation in New York:
  • Residential: New kilowatts sold were up strongly year-over-year, though it missed budget slightly. A significant transition in marketing and sales leadership in late 2023 has led to better conversion at lower customer acquisition cost.
  • Commercial: Saw the biggest underperformance versus budget due to project slips. However, projects are still on schedule for the rest of 2024, and there is a healthy pipeline, with new project management processes implemented. Total revenue in Q1 2024 was $13.2 million, down 40% from Q1 2023. Gross profit was $4.8 million, a decrease of 40% from Q1 2023. Operating expenses decreased by 31% from Q1 2023, but net loss from continuing operations attributable to common shareholders was $10.1 million.

Guidance

• Q2 and Beyond: Committed to getting profitability back on track in Q2 and subsequent quarters.
• Full Year 2024: There is a fighting chance that Q2-Q4 2024 combined could outperform Q2-Q4 2023. Focus on gross profit dollars rather than revenue as the top-line metric, and control operating expenses, particularly personnel costs.
• Key Focus: Need to keep selling, installing at healthy margins, and drive gross profit dollars for Q2-Q4 at or above the prior year's same period while maintaining OpEx discipline.

Risks

• Market Conditions: Seasonality, regulatory uncertainty, and interest rates can impact demand and sales.
• Project Delays: Commercial projects in New York were delayed due to project-specific issues, though projects are still on schedule for the rest of 2024.
• Capital: Actively engaged in fundraising efforts to ensure adequate capital to fund obligations for the remainder of 2024.

Question and Answer

• Q: With the commercial business down in New York/Long Island as a result of delays, can you elaborate on what's driving those delays and if it's a temporary headwind or if there's a growing backlog? A: Kyle Udseth: Projects are idiosyncratic; no broad theme across them. Commercial is different from residential as projects are larger and unique. There are successes with nonprofits in New York, and efforts are ramping up in Hawaii. Optimistic about commercial business going forward as the market opens up with Inflation Reduction Act changes.
• Q: Given no full year 2024 guidance, can you give a rough sense of full year 2024 performance? A: Kyle Udseth: Fighting chance Q2-Q4 2024 combined could outperform Q2-Q4 2023. Focus on gross profit dollars, control OpEx, keep selling and installing at healthy margins. Eric Ingvaldson adds that residential kilowatts sold were pretty much flat YOY, indicating a decent indicator of future installs.
• Q: Comparing with other big solar companies, what's the outlook on battery attachment rates and strategy? A: Kyle Udseth: Mix shifts and geography play a role. Hawaii has high battery attach rates due to incentives, while New York's local market incentives impact it. Some of the battery attach rate change is due to mix shifts between Hawaii and New York markets. Need to do better in selling storage on Long Island, but local incentives are key.