Pineapple Energy Inc. (NASDAQ:PEGY) Q1 2024 Earnings Call Transcript

Pineapple Energy Inc. (NASDAQ:PEGY) Q1 2024 Earnings Call Transcript May 10, 2024

Pineapple Energy Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to Pineapple Energy's First Quarter 2024 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 Ingvaldson, CFO, Pineapple Energy. Mr. Ingvaldson, please go ahead.

Eric Ingvaldson: Thank you, Benjamin. Good afternoon, and welcome to Pineapple Energy's conference call to discuss results for the first quarter of 2024. With me today is Kyle Udseth, 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 US 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 Udseth. Kyle, go ahead.

Kyle Udseth: Thanks, Eric. And thank you to everyone for joining us on the call this morning. The tone of today's call is going to be a bit different from prior quarters, although I would also say that one quarter of underperformance doesn't knock us off the longer-term path or fundamentally change our positioning in the marketplace. But if you go back and review the transcripts from all of our 2023 earnings calls, I've always tried to start and end with profitability. Generating positive EBITDA has been our North Star, because we wanted to differentiate ourselves from other larger public peers with hard to parse financial statements and bespoke metrics and run a business with a strong top line, healthy gross margin and discipline on OpEx to produce profit margin and operating cash generation.

Unlike in each of the four quarters in 2023, we were not able to deliver positive EBITDA in Q1 2024. It is a frustrating result in spite of a lot of effort from our teams in Hawaii New York and the corporate team in Minnesota. But what I can say is that we are committed to getting profitability back on track in Q2 and beyond. As Eric will share more in his section, Q1 of 2023 was a bit of an outlier for us due to the timing of projects we originally expected to hit in Q4 of 2022. So the year-over-year comps look worse. And it is not uncommon at all for rooftop solar businesses to have negative EBITDA in Q1 due to timing and seasonality. In fact, I think it's far less common for a rooftop solar company to have a profitable Q1. But it is also the case that we underperformed versus our own internal budget in Q1, so the culprit isn't just seasonality.

In our HEC business in Hawaii, revenue was down both year-over-year and versus budget. The lucrative battery bonus program that drove a large and sustained wave of demands on Oahu throughout 2023 crashed on the shore in December and confusion over the timing and details of the successor tariffs caused uncertainty and lack of action from customers throughout the first quarter of this year. We believe we are through the worst of the low and while the current incentives are not as lucrative as before, the economics of going solar with storage are still very strong. In addition to all of the resiliency and control and clean energy benefits that homeowners love and are becoming more prominent in the decision in Hawaii. Additionally, there are proceedings underway at the Public Utilities Commission that will influence the future of the grid and we believe it will be more connected with distributed energy resources playing a key role.

HEC in our technology arm each year are ready to lean in and help shape the grid of the future in Hawaii. Now turning to our SUNation business in New York, we also had misses on both the residential and commercial sides of the business year-over-year and versus budget. The residential story, especially though was pretty positive, as the year-over-year comp really wasn't meaningful due to noise from December of 2022 and the miss versus budget was very slight. Furthermore, new kilowatts sold in the quarter were up strongly year-over-year, which sets us up well for success going forward. We went through a significant transition in late Q3 and early Q4 of last year, changing marketing leadership, lead generation, budgeting, and approach, our marketing agency and the sales leadership approach.

These were big changes and took some time to stabilize, but they were the right moves and have resulted in better conversion at lower customer acquisition costs. And then our ability to get projects through the pipeline from a signed sales agreement to glass on roof to an activated system has continued to improve as well. Overall, the residential business on Long Island is in good shape. Turning now to the commercial business unit, this is where we saw the biggest underperformance versus budget. We had a number of projects slip due to extenuating circumstances. The good news is these projects are all still on our schedule for the remainder of 2024 along with many more that have been signed so far this year in a strong demand environment. We have a healthy pipeline on paper and now we'll come down to execution over the rest of the year.

We have implemented new project management, tracking and oversight processes, and we will get commercial back on track as the growth engine it can become. I just mentioned the strong demand environment for commercial solar in New York. Let me expand on that and reprise a bit a paragraph from last quarter's call. Demand is starting to rebound for residential and commercial rooftop solar all over the country. Although the real acceleration should pick up in the second half of the year as rate cuts begin. The desire for homeowners to go solar and ideally at a battery is as high in my opinion 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 they want backup and resilience in the face of increasingly severe weather and increasingly fragile grid.

That desire is not yet fully translated into demand this year and into closed sales as people have stayed on the sidelines due to interest rates, regulatory uncertainty, and some general economic malaise. But it's really important to parse out that first point, that this is the winning technology. It's the technology of the future and also the technology of the present. Consumers very much want solar, battery storage, and to further electrify their homes and transportation and lifestyles. On this as well as prior calls, you've heard a lot of discussion on organic growth and bottom line focus from our existing businesses. That is our foundation. It supports the strategic platform for Pineapple. But the broader vision is absolutely still intact to drive a roll-up of leading local and regional rooftop solar companies.

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 the right companies. With that, I'll now turn the call over to our CFO, Eric Ingleton to walk through our financials. Eric, please go ahead.

Eric Ingvaldson: Thank you, Kyle. Total revenue was $13.2 million in the first quarter of 2024, down $8.8 million or 40% from the first quarter of 2023. In addition to unfavorable market conditions in the first quarter of 2024, the first quarter of 2023 was a tough comparison for Pineapple. In late 2022, permitting issues in Hawaii and delayed equipment deliveries in New York led to a significant number of projects originally scheduled for the fourth quarter of 2022 being installed in the first quarter of 2023. These timing issues led to a robust first quarter in the prior year, during the period which is normally a seasonal low point for the business. Despite this decline in revenue and gross profit, we were able to minimize operating losses in the quarter, which I'll expand on in the preceding text.

So I mentioned total revenue was $13.2 million in the first quarter of 2024, down $8.8 million or 40% from the first quarter of 2023. Residential contract sales decreased $6.7 million or 37% due to a 29% reduction in residential kilowatts installed and also a decrease in average price per system installed as a result of lower financing fees and lower battery attachment rate. Commercial contract sales decreased $1.8 million or 65% due to a delay in the start of commercial pipeline projects. In addition, there was software revenue of 250,000 in the first quarter of 2023 that is related to a one-time licensing arrangement that did not recur in the first quarter of 2024. Total gross profit was $4.8 million in the first quarter of 2024, a decrease of $3.2 million or 40% from the first quarter of 2023.

Gross profit decreased due primarily to decreased revenue. Gross margin remained flat at 36% during the first quarter of 2024 as compared to the first quarter of 2023. Total operating expenses were $7 million in the first quarter of 2024, a decrease of $3.2 million or 31% from the first quarter 2023. The decrease in operating expenses was primarily due to lower amortization expense and lower sales and marketing expense including commissions on lower revenue in the quarter and decreased personnel expenses. Operating expenses in the first quarter of 2024 included $800,000 of amortization and depreciation expense, $197000 of share-based compensation expense, and a $350,000 favorable fair value remeasurement of earnout consideration. Other income was $3.4 million in the first quarter of 2024, an increase of $3.8 million from the first quarter of 2023.

This increase was primarily due to a $3.7 million fair value remeasurement gain on our warrant liability, and a $626,000 increase in the favorable fair value remeasurement of contingent value rights, which was partially offset by a $306,000 increase in interest expense because of debt financing we closed in the second quarter of 2023. Net loss from continuing operations attributable to common shareholders was $10.1 million or $0.26 per diluted share in the first quarter of 2024. This was a decline from the net loss from continuing operations attributable to common shareholders in the first quarter of 2023 of $2.6 million or $0.26 per diluted share. The net loss from continuing operations attributable to common shareholders in the first quarter of 2024 included $11.3 million in deemed dividends, attributable to common shareholders.

Net income from continuing operations in the first quarter of 2024 was a positive $1.2 million, a 146% increase from a net loss from continuing operations of $2.6 million in the first quarter of 2023. First Quarter 2024 adjusted EBITDA decreased $1.9 million, compared to the first quarter of 2023. This was due primarily to the decline in gross profit partially offset by the decline in operating expenses. As of March 31, 2024 cash, cash equivalents and restricted cash were $3.3 million. Of that, $1.5 million was held as restricted cash and investments that can be only be used for the legacy CSI businesses and will be paid to the holders of the CVRs, which stands for Contingent Value Rights. We are actively engaged in fundraising efforts to ensure that we have adequate capital to fund all of the company's obligations for the remainder of 2024.

Now, we would like to open the call for any questions. Operator, please go ahead.

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