iSun, Inc.

Q1 2021 Earnings Conference Call

5/25/2021

spk00: Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the ISUN earnings conference call for the first quarter of 2021. All lines have been placed on mute to prevent any background noise. If you should need assistance during the call, please press star, then zero, and an operator will come back online to assist you. I would now like to turn the call over to Chase Jacobson, ISUN's investor relations advisor, and Managing Director with Vallum Advisors. Please go ahead.
spk02: Thank you and good morning. We are pleased to welcome you to ISUN's conference call where we will discuss financial and operating results for the first quarter of 2021. Jeffrey Peck, Chairman and Chief Executive Officer, will provide an update on ISUN and key highlights from the quarter. And John Sullivan, Chief Financial Officer, will provide an overview of the first quarter of 2021 financial results. In addition, management will provide its outlook for 2021 and beyond and discuss in more detail ISUN's unique position in the market and its long-term growth strategy. After our prepared remarks today, we will open the lines to address any of your questions. As a reminder, the earnings release, which can be found on ISUN's website, includes financial disclosures and reconciliations for non-GAAP financial measures that should help you analyze results. Comments and answers to questions during the call will include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of the date of this call, and management is under no obligation to update these forward-looking statements in the future. They are subject to risks and uncertainties that could cause actual results to differ from management's expectations. With that, I will now turn it over to our CEO, Jeff Peck.
spk03: Good morning. and thanks to everyone who dialed in today. I'm happy to be speaking with you today to provide you an update on our first quarter results, strategy, and our 2021 outlook. We had a strong start to the year with record first quarter revenue and strong backlog growth. Although our gross profit was impacted by COVID-related shutdowns and a procurement issue that has now been addressed, importantly, we continue to invest in the future with multiple strategic investments that further establish iSun as a leading player in the solar energy and e-mobility markets, positioning us for robust growth in 2021 and beyond. Our first quarter revenue grew 82% year-over-year, driven by the robust backlog growth that we experienced in 2020 in both our traditional geographic markets in the northeastern United States as well as new geographic locations throughout the East Coast. Backlog grew to $81 million, nearly doubling compared to the first quarter of 2020, and up 33% from the end of 2020. Backlog growth was driven by new project awards in our core commercial and industrial New England markets, as well as our largest project win ever in Tennessee. This $25 million project in Jackson, Tennessee, with northern reliability and community development enterprises, is currently the largest solar energy and storage microgrid project in the United States. Importantly, this project combines expertise from our legacy EPC business and ISM's deep relationships in the solar energy market. Further, working with community development enterprises whose mission is to provide green energy solutions and economic relief to cities that have been hit by natural disasters and economic challenges, emphasizes our commitment to the transition to clean energy from dirty energy in creating jobs in American cities. We look forward to pursuing further opportunities with CDE in the future. While the broader operating environment is improving following a number of pushouts and delays in 2020 due to the COVID-19 pandemic, we continue to experience the impact from the pandemic in the quarter. With the safety of our employees and contractors as a top priority, we experienced several COVID-related work stoppages at one of our largest projects during the quarter, driving higher costs and lower productivity. Despite the work stoppages, We maintained our employee base and are now fully back to work. Additionally, we experienced a procurement issue on another project, which has now been addressed, and work is progressing on schedule. As our company grows and we take on larger projects, including in these states, we have taken action to reduce the similar issues going forward. John will provide more details on the financial impact of these events. As it stands today, we believe ISUN offers the most comprehensive package of services to the solar energy and e-mobility infrastructure markets, and we are continuing to build on that, including with multiple strategic investments during the quarter. First, to provide some perspective and refresh everyone on what we discussed in our last earnings call, in January, we acquired ISUN Energy LLC, a provider of innovative solar power and e-mobility solutions. and subsequently rebranded the company under the ISUN name. While the core of our company has been in the construction markets for over 50 years, we are also a company that embraces innovation in new markets. ISUN's flagship solution is the ISUN Energy and Mobility Hub, an electric vehicle carport charging system offering both grid-connected and off-grid battery-backed solutions to charge electric vehicles. It also brought ISUN OS, an operating system that provides owners the ability to monitor and analyze key metrics of their solar assets, allowing for more efficient operations and cost savings over time. This acquisition was a prime example of a 50-year-old construction company embracing innovation, and we are committed to building on that foundation. In March, we announced two investments to enhance our already strong e-mobility offering we invested 1.5 million in gemini electric mobility corporation gemini is an electric vehicle car sharing company for the gig driver drivers for companies like uber lyft doordash and many others over the next several years gemini will be building a network of electric vehicles first in california and then another state Our investments position us well to participate in their network build-out, which will require dedicated charging stations, which we believe we are well positioned to benefit from with the ISUN Electric and Mobility Hub carport charging solution. Secondly, we invested $1 million in Ampop, an electric vehicle software company that improves charging efficiency for EV fleet operators. This investment is complementary to the ISUN operating system and provides us another competitive advantage as we work to grow our presence in the e-mobility market. In early April, we expanded into the utility scale solar EPC market with a $2.7 million acquisition of the intellectual property of Oakwood Construction Services. With $1 million due immediately and the remaining $1.7 million, due upon the achievement of certain milestones. This acquisition significantly expands our large project capabilities and materially grows our addressable market, as there are currently over $69 billion of unconstructed utility-scale solar projects that are already executed power purchases agreements. As part of this acquisition, we have the option to acquire all rights to provide EPC services for the Hartzell Solar Project, which is approximately $100 million solar development in Colorado. Hartzell is currently in early development, and as it progresses, we will provide additional updates on our potential participation in this project. Importantly, the acquisition of OCS also improves our position in other areas as we seek to work on larger commercial and industrial projects and in our partnership with Green Bond Advisors. which continues to develop its pipeline of potential projects. Green Bond and its affiliates are working with a number of solar energy developers and are reviewing or bidding on over 20 projects representing 5,500 megawatts of solar power, which combined with their financing commitments could lead to meaningful EPC projects and project ownership opportunities for ISUN in the near future. With that, I will turn the call over to John to discuss our financials in the quarter, and I will be back to discuss our go-forward strategy and our 2021 outlook.
spk04: Thank you, Jeff. As you have likely seen, on April 12th, the staff of the SEC issued a public statement regarding the treatment of accounting for public and private warrants issued by SPAC companies, stating that these warrants should be accounted for as liabilities as opposed to equity. Since our acquisition by Jensen Acquisition Corp in 2019, we were accounting for our warrants as equity and therefore had to restate our financials for prior periods. The restatement has no effect on our cash balances or adjusted EBITDA. You can find more information on this and our 10Q for the period ended March 31st, 2021 filed with the SEC. More importantly, All of our public warrants have been exercised or redeemed as of April 12th, 2021. I will now turn to a discussion of first quarter 2021 operating results. Then I will give an update on our balance sheet and liquidity position. ISUN reported record first quarter 2021 revenue of $7.3 million, up 82% year over year. Revenue growth was driven by strong project awards, and the robust backlog growth we experienced in the second half of 2020 and in early 2021, including multiple projects and new regions. Gross profit in first quarter 2021 was 0.1 million or 1.6% of revenue, down from 0.3 million or 7.9% of revenue in first quarter 2020. As Jeff mentioned, Gross margin in the quarter was impacted by two main factors. First, we had several COVID-related shutdowns at one of our large projects in the quarter that impacted productivity and required additional overhead to meet previously agreed upon timelines, which importantly, we remain on track to meet. Secondly, we experienced the procurement issue on another project that required the purchase of additional equipment to meet the design requirements. We move the original purchased equipment into inventory and expect to be able to use it on future projects. Without these issues, we believe our gross margin would have been in line with our seasonal averages. In a normalized environment, based on our current mix of business, we continue to expect annual gross margins to be in the 17 to 19% range, with seasonality related to volume and mix causing first quarter to be lower than the annual rate. Operating income was a $2.6 million loss in the quarter compared to $0.5 million loss in the first quarter 2020. The lower operating income was mainly the result of lower gross profit and higher general and administrative costs to support our growth initiatives, including the ISUN acquisition, which was completed in January 2021. Our general and administrative costs are highly fixed and we will continue to pursue the acquisition of recurring revenue solar assets to offset the growth in our overhead. ISUN reported a first quarter 2021 net loss of $3.1 million, or $0.41 per share. Adjusted EBITDA in the quarter was a $1.4 million loss. Now turning to the balance sheet. We ended first quarter 2021 with a strong balance sheet. The total cash was 20.2 million at the end of the quarter. We received cash proceeds of approximately 17.4 million from the exercise of public warrants and an additional 9.6 million from a registered direct offering in January 2021. These proceeds were offset by a $6 million use of operating cash in the quarter given by an increase in accounts receivable, costs in excess of billings, and inventory. The use of cash was partially due to timing based on operational needs, and we expect improved cash flow from operations over the next several quarters. Total debt at the end of the first quarter was $5.6 million. Total debt includes $3.7 million on our revolving line of credit that supports working capital and $1.9 million of long-term debt that is supported by our recurring revenue stream generated by our solar assets. Our strong cash position, together with approximately $2.3 million of availability under our line of credit, gives us significant capacity to support the execution of our backlog and to pursue both organic and inorganic growth. With that, I will turn the call back over to Jeff.
spk03: Thank you, John. We are optimistic about the future of Iceland. We had isolated operating challenges that affected our earnings in the first quarter, but our strong revenue and backlog growth and our robust cash balance positioned us well for significant growth in 2021 and beyond. When we entered the public markets in 2019, we introduced a three-prong growth strategy, which we have actively been executing on and remain committed to going forward. First, we will continue to pursue organic growth opportunities across the northeastern United States and other key regional markets, seeking to win projects with new customers as demand for solar energy and e-mobility infrastructure continue to grow. We had success with entering new markets this quarter with our large project win to date in Tennessee and are pursuing opportunities in other new markets as well. Secondly, we will look to grow through accretive M&A and strategic investments. Year-to-date, we completed the ISUN energy acquisition in January, and we have continued to expand our e-mobility presence with the strategic investments in Gemini and Ampop. Further, we completed the OCS acquisition, which expanded our large project capabilities and provided entry into the underserved utility-scale solar market. We continue to seek opportunities to further establish ISUN as a leader in the solar market through expanding our energy as a service offering or expanding our EPC services into new regions and service areas throughout the country. With a much stronger balance sheet, we have the flexibility to act quickly on future growth opportunities. Third, we will continue to expand on our ownership of solar assets. by building solar assets to own, as well as leveraging our green bond partnership to invest in solar assets. This not only provides us with new EPC opportunities, but also provides a solid base on long-term cash flows for the company and asset owners. Turning to the 2021 outlook. Trends in the solar energy market remain strong. We continue to see record demand for our services, and ISUN is committed to enabling the transition from dirty energy to clean energy, and our comprehensive portfolio of services will allow us to meet the demands of the expanding solar market. We ended the first quarter 2021 with a backlog of 81 million, which is work that we expect to be completed in the next 12 to 18 months. We have a robust pipeline of future project opportunities, many of which we expect to convert in the coming months and are pursuing larger opportunities such as the previously mentioned Hartzell project, as well as opportunities through our Green Bond Advisors relationship that could significantly grow our backlog. Based on this, we continue to expect at least a doubling of revenue in 2021 compared to 2020. We expect improving gross margins and EBITDA performance throughout the year, driven by higher volume and improved project execution compared to the first quarter of 2021. In conclusion, we are optimistic about the future of ISUN. We have 50 years of experience as an electrical and solar contractor and are continuing to build on that experience and embrace innovation. We have the most comprehensive portfolio service offerings to the solar market with energy of the service, e-mobility, and EPC and offer solutions from solar carports for EV charging up to large utility-scale solar projects. We are committed to growing our service offerings, expanding our geographic footprint, and capitalizing on strong market trends as we seek to become a premier player in the solar energy market. With that, we will now open the line for questions and answers.
spk00: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Jeffrey Campbell with Alliance Global Partners. Please proceed with your question.
spk05: Good morning, and congratulations on the increase in the backlog. Good morning. Thank you. I wanted to ask, regarding Gemini, California is a very competitive market for anything renewable. I was just wondering what particular advantages you see Gemini possessing that's going to enhance their plan to expand the ride-sharing network that you referenced in your opening remarks.
spk03: Well, Gemini has a long history of working with the gig operators, Uber and Lyft and others, and coming out as one of the early adopters in a business model to allow the gig drivers a platform to access EVs quickly. I think we'll allow them to build on this and scale pretty quickly. Okay.
spk05: And similarly, could you expand on the AMP-UP acquisition? My impression was that ISUN software at the time of the acquisition was considered an important asset. So I was wondering how you see AMP-UP expanding on that capability. Absolutely.
spk03: You know, we're pretty focused on fleets. And we think as our customers begin the transition from dirty energy to clean energy, we'll see that through the operation of their fleets, converting from ICE vehicles to EVs. And working and having an investment in AMPUP will allow us some, I think, some competitive advantages on customizing software to help fleet owners manage the transition of their vehicles over time. Okay.
spk05: And finally, Assuming it's successful, what's a reasonable timeline for green bonds to consummate a project and when might such a win become an opportunity for ISUN? Sort of try to get a timeline on when this becomes something that's material.
spk03: Yeah, so we initiated our green bond partnership about a year ago now. The project sizes that they are involved in are larger and and do take a little more time to get from development to execution. So I would anticipate them having projects to execute on within the next six months.
spk05: Okay, great. Thanks. I appreciate that, Keller. You're welcome.
spk00: Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Chris Souther with B Reilly Securities. Please proceed with your question.
spk01: Hey, guys. Thanks for taking my question here. I just want to see if we could talk a little bit about the backlog and maybe break that down between carport, EV charging, commercial solar EPC, and some of the other projects that you guys typically would be doing. I think that would be helpful.
spk03: Yeah. The substantial part of our business, probably 80%, is solar EPC work. So the EV charging portion and the carport portion of that might be a 5% range. We do expect to see the growth in that area continue and probably grow at a faster pace, being at... of our revenue mix, seeing how it's a new market for us.
spk01: Understood. And maybe just walk through some of the puts and takes between some of those different segments from a margin front, I think would be helpful as well.
spk04: Sure. So on the commercial and industrial projects, we're typically seeing margins in that 15% to 17% range. On the carports, we are seeing a significantly higher margin, which helps allow us to improve our overall gross margin into the 17% and 19% range.
spk01: Okay, that's helpful. And then you mentioned about six months start to see some of the projects from the green bonds there. Maybe just talk about the timelines for when you think projects would start to get onto your balance sheet and be kind of completed. Just wanted to understand what kind of timelines we're talking about there to start to hit that recurring revenue EBITDA stuff that you've talked about.
spk03: Sure. So if a project would execute in the next six months, a utility scale project is typically up to a year to construct and complete. We would be recognizing those construction revenues over that time and then have a minority ownership stake in that recurring revenue. So I would say somewhere between 12 to 18 months, we should start seeing recurring revenue from their projects, depending on the size and execution speed the project comes off.
spk01: Perfect. Well, I appreciate you guys taking the questions here. I'll hop in the Q&A.
spk03: Thank you. Thank you.
spk00: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Peck for any final comments.
spk03: Thank you, everyone, for joining us today. We look forward to providing you with future updates on the execution of our growth strategies and our operational performance. Thank you.
spk00: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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