iSun, Inc.

Good day, ladies and gentlemen, and welcome to the ISON Inc. Q1 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Tyler Barnes, Investor Relations at ISON. Sir, the floor is yours.

Thank you, and good morning. We are pleased to welcome you to ISON's conference call where we will discuss financial and operating results for the first quarter 2022. Jeffrey Peck, Chairman and Chief Executive Officer, will provide an update on the deployment of ISON's recently completed solar platform and illustrate how the platform both addresses opportunities within the solar marketplace and creates value for shareholders. John Sullivan, Chief Financial Officer, will provide an overview of the first quarter 2022 financial results and operating performance. 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. Good morning, everyone.

It's a pleasure to be speaking with all of you today. I always appreciate the opportunity to share Iceland's progress with our shareholders and the investment community. I'm encouraged and excited by the progress we are making towards our mission to accelerate the nation's adoption of solar energy. We've made exceptional progress in creating a platform capable of providing our full suite of services, development and design services, engineering, procurement, installation, storage, monitoring, and maintenance to the entire solar market. We're excited about how quickly our individual teams have embraced a culture of collaboration as we learn from our diverse backgrounds. We remain focused on building long-term value for our shareholders and confident that our team will execute on our mission. We continue to see exceptional growth with the doubling of our revenue in Q1 over the same period in the prior year. We expect to see this growth continue into Q2 as we transition out of the seasonality of the Northeast. Our customer demand continues to accelerate, evidenced by the growth of our overall backlog totaling 128.3 million with new demand of 41.2 million generated in the quarter. I'm also very happy with our progress to return to profitability by delivering an approximate break-even EBITDA in Q1. I'm pleased with the execution of our strategic plan so far. We created a platform capable of servicing customers in every segment of the marketplace. Our comprehensive suite of solar services provides an opportunity to create value for our customers across the residential, commercial, industrial, and utility segments. The demand for EVs is accelerating the need for new infrastructure to support consumers at home and on the road. Our commercial and industrial customers are adapting to this transition. ISM is uniquely positioned to utilize the skills and expertise of our divisions to serve these customers. This was evident with our recent $30 million contract award to provide EV infrastructure support across the United States. We are in a rapidly evolving energy market, and we are prepared to accelerate the adoption of solar and meet the demand as it occurs in each segment. Our residential division has seen a tremendous increase in demand in Q1, with a 37% increase in customer orders from December 31st, 2021. Equally important, these orders maintained a 30% attachment rate for storage. In addition, storage sales to existing customers increased 40%. This illustrates how our people first customer service culture creates value for the customer and will provide us multiple opportunities to service residential customers as innovations improve and their needs change. Our commercial and industrial divisions have seen an increase in demand in Q1 with a 23% increase in backlog from December 31, 2021. The sales and marketing expertise acquired through Sun Common and the digital marketing tools will be leveraged to continue to grow our backlog. This combined with the installation efficiency of our existing teams will drive profitable growth. Our utility division provides an expertise in development and professional services that has led to the execution of an $8.25 million contracts that will generate solar project assets requiring procurement and installation services. Currently, we have 120 megawatts of projects in development that we will retain the installation services of our commercial and industrial divisions, and 550 megawatts of projects in development that we will retain the installation services of for our utility division. We expect to see increasing demand for our development and professional services going forward. This multi-segment strategy positioned us to meet the evolving demand as well as diversifying our revenue stream, which insulates us from challenges created by economic and political uncertainty impacting the global energy market. While we are insulated, we are not immune from industry dynamics. And based on the current environment, we are adjusting our 2022 revenue guidance to $125 million. We remain committed to our mission in returning the company to profitability and cash flow positive in 2022. With that, I'll turn things over to John.

John? Thank you, Jeff. We are excited to have continued our growth trajectory into Q1 2022. I'll provide an overview of our statement of operations as well as provide details on our segments before turning to the balance sheet. ISUN reported first quarter 2022 revenue of $15.1 million, representing a $7.8 million or 107.8% increase over the same period in 2021. Revenue growth was driven by the continued fulfillment of residential consumer demand and execution of our commercial and industrial backlog. While we continue to execute against our existing backlog, we also generated new demand and added $41.2 million in new business during Q1. Gross profit in the first quarter was $3.2 million compared to $0.1 million during the first quarter of 2021. Consolidated gross margin for the quarter was 21% compared to 1.6% over the same period, 2021. The margin improvement represents the third consecutive quarter in which our margin has improved. As we grow synergies among our segments, the strengthening of our margin is expected to continue. Consolidated operating income was a loss of 5.7 million compared to a loss of $2.6 million over the same period 2021. We acquired several companies in 2021 and capitalized significant intangible and fixed assets that began to amortize in 2022. Our non-cash depreciation and amortization expense of $1.8 million compared to $0.1 million in Q1 2021 is included in our overall operating expenses. ISUN reported a $2.9 million net loss, or $0.23 per share, in the first quarter of 2022, compared to a $3.1 million loss, or $0.41 per share, over the same period 2021. EBITDA for the quarter was approaching break-even with a loss of $0.12 million, or $0.01 per share, compared to a loss of 1.4 million or 18 cents per share in the same period in 2021. We are encouraged by these results, particularly with the variability of the seasonal impact to our installation schedules during Q1. Our residential division generated revenue of approximately 6.7 million during Q1 and grew customer demand to 26.2 million with execution anticipated over three to five months. Our commercial and industrial division generated revenue of approximately 6.9 million during Q1 and grew contracted backlog to 102.2 million with execution anticipated over 12 to 18 months. Our utility division generated revenue of approximately 1.5 million during Q1 and has 550 megawatts of utility-scale projects and 120 megawatts of commercial and industrial-scale projects under development. As these projects transition to the installation phase, they will be added to the respective backlogs. Now turning to the balance sheet. We continue to focus on strengthening the balance sheet. While we use the capital markets to support our 2021 acquisition strategy, there are currently no plans to conduct an equity raise in the foreseeable future. Overall, the balance sheet remains healthy, with improvements to our liquidity ratios during the quarter, as well as improvements to our working capital position. Accounts receivable and collections remain strong, as we've seen an improvement in our turnover to an approximate seven times per year. Inventory is designed to support our residential levels and increase consistent with overall customer demand. Total debt decreased $8.1 million at March 31, 2021, from $16.3 million at December 31, 2021, representing a decrease of $8.2 million due to the repayment in full of the B. Reilly note. Debt consists of $5.4 million on our revolving line of credit used to support working capital and $2.7 million of long-term debt related to our solar assets and operating fixed assets. And with that, I will turn it back over to Jeff.

Thanks, John. I'm excited about the progress that we have made over the last six months where we were able to deploy our full platform. We have assembled a great team that can utilize their combined experience to execute on the opportunities within this evolving and dynamic energy market. We're excited to leverage our experience and capabilities to both accelerate the adoption of solar and drive value for our shareholders. Thanks for your time today. I'll turn it back over to the operator, who will open the lines for questions. Operator?

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 on your touchtone phone if you wish to ask a question. Please hold while we poll for questions. And your first question today is coming from Jeffrey Campbell from Alliance Global Partners. Jeffrey, your line is live.

Thank you. Good morning. Good morning, Jeff. John mentioned installation challenges during first quarter 22. Could you provide some detail on this point?

Yeah, this is related to the weather and seasonality of the Northeast. The challenges getting on roofs during bad weather, weather below zero degrees and snow.

Okay. With your revised guidance, what's the expected revenue cadence for 2022, including the first quarter 22 result?

Can you repeat that?

You're looking for... Sure. We now have revised guidance of $125 million. I'm trying to get some sense of what you expect the revenue cadence of that $125 million to be.

Yeah, the modification in guidance is due to utility projects pushed into 2023. And so, as we had looked at these projects, we had communicated that we thought we'd achieved NTP in late Q3 and recognized revenue in Q4. So, the change there would be to Q4. revenue expectations. Okay. Yeah, that's helpful. Thank you.

Despite the 44% drop in revenues quarter over quarter, gross margin improves. John touched on this briefly in his remarks, but I wondered if you could expand on this trend a bit.

Yeah. You know, we're focused on profitable growth and, you know, the combined skill sets of our organization, the availability of a skilled workforce, we think will help us continue to drive margins. As we move forward, also, we've seen some pricing power in our ability to provide pricing on projects really since the end of last year. We're starting to see that now.

I found the backlog growth of $41.2 million based on new demand simultaneous to the $40 million drop in annual guidance oil confusing. And I'd appreciate a little bit of expansion here.

Yeah, absolutely. So we build our backlog based on projects that are under LOI or Notice to Proceed that have NTP. And so the utility scale projects do not currently exist in our backlog. Those are in our pipelines. And so as we assess those projects and the ability to recognize revenue in this year, it still remains in our pipeline, not in our backlog. We had just become less confident in our ability to both get MTP this year on those projects or secure panels to recognize revenue this year.

Okay, so, but I appreciate that. I guess what I'm finding confusing is if we have 41.2 addition in the backlog, that would seem like it'd be enough to cover the whole for the 40 million and drop. So is it that the 41.2 and backlog is going to stretch into 2023, and this is why we still have a downward revision in the guidance?

Yeah, absolutely. Yeah, some of that's... The bulk of that $41 million increase in backlog is industrial projects where we project 12 to 18 months before we recognize that revenue. Okay, now that helps.

Okay, thanks very much. I appreciate it.

You're welcome. Thanks, Jeff. Thank you. And the next question is coming from Justin Clare from Roth Capital Partners. Justin, your line is live.

Hey, good morning. Thanks for taking our questions.

Good morning, Justin.

So I guess first off here, I also wanted to ask about the guidance. I was just wondering, was the guide lowered really only due to the utility scale segment, or were there any changes to the other divisions here? Because you had previously provided expectations by division. So just wondering if we could get an update there on expectations for each division for revenue for 2022.

Yeah, the adjustment in the guidance was due specifically to the utility division and our ability to access panels by Q4 and some of the information back that we've seen that we may not have NTP by the end of Q3 as we had anticipated.

Okay, got it. And then for that utility scale project, what is the current expectation for when that will get panels and commence construction? And then what is the uncertainty there at this point? Do you have visibility into getting panels into early 2023, or is there still a fair bit of uncertainty? I know there's the Department of Commerce case that is still ongoing, so... Yeah, I guess what's your visibility in the module supply?

Yeah, the module supply that we're seeing right now is Q1, Q2 of 2023. And these projects will officially move into our backlog once we receive NTP. And so, you know, there's timing from the utility on when these projects will achieve NTP.

Okay, got it. And then the, you know, previously you had provided outlook for gross margins in 2022 by division. Just wondering if those expectations remain the same outside of the utility scale division? You know, should we expect, you know, the same Essentially, would you say that you're reiterating the margin guidance for the other segments, or should we expect any change there?

No, yeah, no change on margin guidance.

Okay, great. And then just on the backlog, you know, demand looks to be accelerating here. I was wondering if you could just talk a bit more about what you think is driving that acceleration and you know, maybe geographically where you're seeing the most strength?

Sure. On the residential side, I think we're seeing strong demand really across the board, more so in our New York market as some of the utility rates have already adjusted. Those have not happened in Vermont yet. So I would anticipate as we move forward, there could be some additional demand in Vermont coming from higher utility rates. We've seen strong pricing power growth. in the residential market as well. Our ability to use our workforce between organizations, I think, will help us drive additional commercial demand as well. On the industrial and utility side, we're seeing lots of projects starting to come through out of Maine, and on the development and design services and future work, we're seeing a lot of the red states embracing solar. I've seen a lot of projects in the southeast.

Okay, great. And then I just did want to go back to module supply for one more question here, just on the other divisions that you have. What is the, well, I guess, do you have all the module supply in inventory needed for the other divisions for 2022 or if you could just talk about your access to panels for those divisions. Are there any challenges?

Yeah, we have increased the amount of inventory from Q4 to Q1 to meet that demand. We have purchase orders in and a good line of sight on product for the residential and commercial markets on our industrial side. Most of the projects that we have, they had already purchased panels for tax equity, and so we don't anticipate any issues on those projects.

Okay. That's it for me. I'll pass it on. Thank you.

Thanks, Justin. Thank you. And the next question is coming from Noel Parks from Tuhi Brothers. Noel, your line is live.

Hi, good morning.

Good morning, all.

I was wondering if you could talk about the commercial sector and if you could characterize maybe what's going on between sort of the current wave of adopters and maybe the early adopters, if you could just sort of talk about just any differences or trends you see in those.

Yeah, on the commercial side, we're seeing certainly the EV infrastructure drive some of that demand. I think companies are beginning to assess, certainly now with the price of oil and diesel, how they move forward with their vehicle fleets. And that's creating conversations around having clean, renewable energy to charge those vehicles. It's always going to be, for businesses, It'll be the total cost of operation on these vehicles. And as they make this transition, they're going to look to add solar and future-proof their electric costs.

Sure, sure. Great, that's helpful. And sticking with the EV infrastructure, it sounds like, is it safe to say that that's really just a part of the commercial sales effort or in in your other segments is EV infrastructure sort of like a separate sales and marketing task or team you have the infrastructure will take place we think across all sectors where they'd be the the residential rollout and some of the commercial stations

and then there'll be the support that the utility will want on that. And so we really see it impacting each of the different segments that we service.

Okay, great, thanks. And you also mentioned that you had seen an uptick in, I think, CNI projects in Maine, and I was just curious whether there were any particular drivers about the timing of those coming now?

No, you know, there's been a large backlog pipeline of projects in Maine that have been coming through the utilities and some of the projects that we've been working on have come through already to begin construction. So I don't think any specific drivers there, but there is a large pipeline of projects in Maine that we've been working on and we think we'll start to see those flow through. Okay, great.

And just the last one for me. Just as you've been talking about, you know, panel availability and so forth. If you look at all the factors that have to be in place to move forward with implementations, could you just talk a little bit about the labor piece of that when you catch up with panels? Are there any other potential bottlenecks or maybe relative to your expectations seeing anything with costs that we would want to be thinking about?

Yeah. You know, I think our multi-segment platform and one of the reasons we built this is that we'd have some flexibility in labor and our ability to use that skilled labor where the demand sort of comes through. And so we are focused on that. We are seeing, you know, the same inflationary pressures that everyone else in the industry is seeing. There is some labor inflation and commodity inflation. The nice part about that is we've also seen 11% year-over-year average increase in utility rates, which will continue to drive this desire to have low-cost renewable solar power. So while we think there are inflationary pressures, the price of power is also going up, which makes even a strong driving for solar going forward.

Great. Thanks a lot. That's all for me.

Thank you, Noel. Thank you. And there were no other questions at this time. I would now like to hand the call back to Jeff Peck for closing remarks.

Thank you. Thank you, everybody, for coming on our conference call today. We appreciate your time and engagement, allowing us to share our progress and performance with you. And we look forward to providing you updates in the future.

Thank you.

Bye.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.