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spk03: Greetings and welcome to the ISON Energy second quarter 2023 earnings conference call. At this time all participants are in a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Mary Conway. Ma'am, you may begin.
spk00: Thank you, operator, and good morning. We are pleased to welcome you to ISUN's conference call, where we will discuss financial and operating results for the second quarter of 2023. Jeffrey Pack, Chairman and Chief Executive Officer, will provide an update on our operating performance in the quarter, along with our outlook for 2023. John Sullivan, Chief Financial Officer, will provide an overview of the second quarter 2023 financial results. After our prepared remarks today, we will open the lines to address any questions. As a reminder, the earnings release that was issued this morning, and which can be found on ISUN's investors website at www.isunenergy.com, includes financial disclosures and reconciliations for non-GAAP financial measures. Any comments that we make on today's call may include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of today and management undertakes no obligation to update these forward-looking statements in the future. Such statements 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. Jeff.
spk06: Thank you. Good morning, everyone, and thanks for joining us today. I'm pleased to share an update on Iceland's progress in the second quarter of 2023 and review our plans for the remainder of this year. We are pleased with the strong performance our team has generated in the second quarter of 2023. It was a terrific quarter. We had a robust beat on the top line with revenues up more than 50% year over year, well above the street's consensus, and importantly, we are doing precisely what we said we would do, scale the business, reduce our losses as we serve our customers and win new business. Our commercial and industrial group is driving excellent results, and our residential group, Sun Common, continues to see high customer satisfaction and referrals despite a short-term slowdown in residential demand. And we are seeing continued opportunities in the EV infrastructure segment and our origination team is helping to ensure that we continue to build backlog to sustain that growth. Our success in winning significant contracts in solar and EV infrastructure, as well as more residential business, despite some of the headwinds in that segment, provides us with heightened confidence in our ability to meet the annual financial targets that we shared earlier, and we are affirming those today, both in revenue and profitability. We remain dedicated to executing on our strategic plan to achieve our mission and help accelerate the adoption of solar energy. Today I want to touch on a few points that illustrate what makes ISUN different in the solar energy industry and what has been driving our recent success. I also want to share some thoughts on trends we are seeing and how we believe we are well-positioned for continued growth as we continue to scale our business. It starts with our platform approach. encompassing the full life cycle of providing solar energy solutions from origination and development to construction and management across industry segments. We maintain that this approach is a competitive differentiating advantage that positions us for long-term sustainable growth. We see the proof of this strategy and execution in the meaningful year-over-year revenue growth we have generated in the first half of this year, increasing revenues more than 34% compared to the first half of 2022. Quickly reviewing our second quarter results, revenue increased by 51.8% to 25 million. Gross margins rose by 90 basis points to 23.7%, up from 22.8% in 2022's second quarter. As our efficiency efforts have enabled more of the top line, it dropped to the bottom line. In the second quarter, 37% of our revenue came from the residential segment, where gross margin tends to be higher. We remain confident that as we scale and drive synergies and efficiencies throughout the organization, we will continue to expand our margins. As of June 30, 2023, our total backlog was 161.8 million, and our pipeline remained at 1.6 gigawatts of projects as of the end of the second quarter of 2023. The size of the backlog and pipeline underscore the increased customer demand we are experiencing, as well as the effectiveness of our efforts to originate more projects and expand to more states, all part of our ongoing strategic initiatives. Our success also reflects a high level of customer satisfaction, specifically in the residential segment, which generates strong referrals, creating a lower customer acquisition Similarly, we see a referral impact in our CNI group as developers elect to work with us again and again on their projects because they see how our involvement keeps them on track, reducing unnecessary delays and, of course, costs. Let me share a few words about the performance of our three divisions in the past quarter. The residential division did well despite the backdrop of a more sluggish residential segment across the industry, reflecting the impact of higher interest rates on home improvement loans. We continue to build more business and expect a heavy period of installations in the coming quarters as we move into continuous states beyond New England and New York. The commercial and industrial division, which we have combined as of the beginning of 2023, is generating very strong results this year. More than 62% of our revenue in the second quarter. Our origination team, which is based in our utility segment, is assisting in this effort. as it focuses on initiating projects that are then turned over to the CNI Division to execute. We are continuing to work through our backlog and adding more business to the backlog through contract wins. Based on the results we've seen thus far, including enhancing our labor utilization, we are quite pleased with the decision to combine the commercial and industrial segments. Our Utility and Development Division continues to face delays, once again something we've seen across the industry. Although we continue to increase the backlog, the group is addressing. These project delays around expected implementation depressed revenues generated in the second quarter. We continue to believe the projects will move forward beginning this year, enabling the resulting revenues to be recognized later on this year or early in 2024. The development and engineering team has provided invaluable support to our residential and C&I divisions as we continue to integrate and drive operating efficiency throughout the organization. Our teams bring proven expertise and knowledge, which is more valuable in these volatile times than ever before. This creates a strong customer relationship, leading to contract awards across our business. In the second quarter, we added $8 million in new business. In terms of the solar landscape, we remain optimistic and enthusiastic. We've seen strong evidence that the CNI segment is scaling nicely, responding effectively to increased customer demand with expanded teams while ensuring that our labor utilization is optimized. That customer demand is not slowing, and we are finding it all over the country. The residential segment has been more sluggish, as I described, but the back half of the year is typically a more intensive one for residential installs in our markets. And we have ample backlog to execute in this segment. Our origination team is producing more opportunities that will eventually be executed largely by our C&I segment, and the Utility and Development Division continue to push projects forward and provide valuable services throughout the organization. In sum, we remain convinced that the IRA legislation passed last year will afford Iceland and the industry genuine benefits, even as we wait to finalize language and rules from the Treasury Department regarding tax credits and other elements. We do expect more specific rules, and the removal of uncertainty will increase the value of solar assets, those in development as well as those under construction, which in our case will lead to a higher valuation of our pipeline as it spurs increased demand that we will address in 2024 and beyond. In 2023, considering all of the evolving macroeconomic factors, we expect to continue to demonstrate strong growth and attain operating profitability along with expanded margins. Thus, we are affirming our expectations for total revenues in fiscal year 2023 of between $95 and $100 million, reflecting a 24% to 31% increase over total revenues in 2022. along with gross margin expansion on an annual basis and full-year EBITDA profitability. With that, I'll now turn the floor over to John.
spk05: Thank you, Jeff. We are pleased with the robust revenue growth we produced in the second quarter as we continue to execute on our backlog. 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 second quarter 2023 revenue of $25 million, up 51.8% from Q2 2022 revenue of $16.5 million. For the first six months of 2023, revenue was $42.4 million, representing a $10.8 million or 34.2% increase over the same period in 2022. Revenue growth in the quarter and first half was driven by effective execution of our commercial and industrial backlog, as well as fulfillment of our residential consumer demand. As Jeff mentioned, in the second quarter of 2023, 37% of our total revenues were in the residential segment, which tends to carry the highest margin. While we continue to execute against our existing backlog, We also generated new demand and added 8 million in new business during Q2 for a total of 40 million added so far in 2023, effectively replenishing the revenue earned year to date. Total backlog was 161.8 million as of June 30, 2023. By segment, Our residential division generated revenue of $9.3 and $16.2 million in the second quarter and year-to-date, respectively. Customer orders of approximately $13.1 million are expected to be completed within three to five months. Our commercial and industrial divisions, which were consolidated as of January 1, 2023, generated revenue of $15.6 and $25.9 million in the second quarter and year-to-date, respectively. The division has a contracted backlog of approximately $140.7 million expected to be completed within 10 to 18 months. Our Utility and Development Division generated revenue of $0.1 and $0.3 million in the second quarter and year-to-date, respectively. The utility division has a contracted backlog of approximately 8 million and 1.6 gigawatts of projects currently under development expected to achieve NTP in 2023 and early 2024. Gross profit in the second quarter was 5.9 million, up 58.2% from 3.8 million in the second quarter of 2022. Gross margin for the quarter was 23.7%, up 90 basis points from 22.8% in the same period in 2022. Our C&I segment accounted for approximately 62% of the quarter's revenue. Margin improvement was a result of efficiencies generated through the consolidation of our teams, leading to more efficient utilization of our labor. Year-to-date gross profit was $9.5 million, up 37% compared to $6.9 million during the same period in 2022. Year-to-date gross margin was 22.4%, up 50 basis points compared to 21.9% during the same period in 2022. Margin is expected to remain strong in the second half of 2023 as we continue to scale operations as well as an increase in residential implementations. As part of the strategy to expand gross margin each year, we will continue to drive synergies as our segments grow. The operating loss in the second quarter was $1.8 million, a 68.8% improvement compared to a loss of $5.6 million in 2022 second quarter. primarily reflecting the higher revenues and lower operating expenses as part of the company's focus on efficiency. Year-to-date operating income was a loss of 4.4 million, a 61.1% reduction compared to a loss of 11.3 million during the same period in 2022. Non-cash depreciation and amortization expenses were 0.8 million in the second quarter of 2023 compared to 1.8 million in the prior year period. Year-to-date non-cash depreciation and amortization expenses were 1.5 million compared to 3.5 million in the same period in 2022. ISUN reported a net loss of 2.5 million, or 13 cents per share, in the second quarter of 2023 compared to a net loss of 5.7 million, or 40 cents per share, in the same period in 2022. Year-to-date net loss was 5.5 million, or 31 cents per share, compared to a net loss of 8.6 million, or 64 cents per share, in the same period in 2022. Adjusted EBITDA for the second quarter of 2023 was a loss of $0.3 million, or $0.01 per share, compared to a loss of $3.2 million, or $0.23 per share, in 2022's second quarter. New to date adjusted EBITDA was a loss of $1.8 million, or $0.10 per share, compared to $3.4 million, or $0.25 per share, in the same period in 2022. We are continuing to focus our efforts on operational integration and creating systems and processes that allow for efficient and effective growth. The second quarter of 2023, we reduced operating expenses by approximately 1.7 million or 18% from the same quarter of 2022. So far in 2023, we have reduced total operating expenses Even while our revenues have increased more than 34% by 4.7 million or 24%. We expect these positive trends to be sustained throughout the rest of 2023. Now turning to the balance sheet. Total debt decreased 2.3 million to 10.7 million as of June 30th, 2023. Down from 13 million at March 31st, 2023. reflecting the ongoing repayment of our long-term debt. Our cash position of 6.1 million as of June 30, 2023, improved from 5.5 million as of December 31, 2022, through higher revenues and diligent collections, although it was slightly higher at 7.2 million as of March 31, 2023, with a difference reflecting timing of vendor deposits required for project execution. We are aware of the downward pressure on our valuation that exists because of our outstanding convertible note. Our strong operating performance during the first half of the year allows us to accelerate our efforts to refinance our debt facility. We are actively engaged in conversations to provide an asset-based line of credit, as well as a new long-term non-convertible note. And with that, I will turn it back over to Jeff. Thank you, John.
spk06: Let me reiterate how pleased I am with our performance, especially in the second quarter, where we well exceeded the street consensus. Our diversification strategy was on full display as the growth in C&I offset the national downward trends in the residential segment. The level of growth we are producing, as well as our continuing ability to win new contract awards, ensures that we will remain well positioned for success as we move through 2023. Our team is cohesive and focused on what they need to do to execute on the many different opportunities we have created within this continually evolving and dynamic energy market. We have diversified our revenue mix across different segments, and we are executing on our strategy efficiently as we pursue our target of obtaining operating profitability in 2023, supported by the investments we have made to create recurring revenue opportunities, as well as the positive impacts from the Inflation Reduction Act. We remain confident that the best is yet to come for ISON and our stakeholders. And I'll turn it back over to the operator to open the lines for questions.
spk03: Operator? Thank you. At this time, we will be conducting a question and answer session. If you would 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 would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Jeff Gramp with Alliance Global Partners. Your line is live.
spk01: Good morning, guys.
spk03: Hi.
spk01: I want to start first on the gross margin front. It's really interesting to see such a strong result there, especially given the strength in C&I relative to residential. So curious if you guys could, what would you attribute that margin expansion to, if there's a couple kind of main contributors there, and is it fair to expect margin expansion further in the back half as residential kind of accelerates, or how are you guys kind of thinking about gross margin trajectory for the remainder of the year relative to Q2 levels?
spk06: You know, we made a concerted effort to consolidate our commercial operations. We had a real big focus in the first half of the year on and making sure that we did that because, number one, we saw the industry headwinds and were concerned, and we wanted to make sure that our labor utilization was high. As we move forward through the year, and even the second half has always been busy on the residential solar install side, we expect to see the revenue mix change a little bit more towards where it was last year in the second half, high gross margins on the residential side, so we'd expect... I expect we could see further margin enhancement there. Additionally, we continue to build efficiencies throughout the organizations and consolidate operations where we can to lower our overall G&A expenses.
spk01: Great. Thank you. And my follow-up is just kind of one of the get a temperature check on your thoughts on the residential market. So, obviously, C&I had a great quarter, which I think is a nice validation of your model of really having exposure across the solar market. But, you know, Red Sea still grew year over year, a little bit slower, obviously. What's kind of the visibility in that market for continued growth in the second half and beyond? Like, how do you guys really view the trajectory for ISUN's residential business?
spk06: Yeah, we were pleased that our strategy of diversifying among the sectors sort of has proved itself out here a couple of years in a row. And we've seen, you know, last year we saw some softness and slowdowns in the C&I sector. And, you know, this year we anticipated some of that. We're seeing some of that in the residential side. So we're happy with that strategy. You know, we do believe it's an evolving energy market that this transition to EVs is going to increase demand significantly. As we move forward in the residential market, we're pleased with what the team has done. We've consolidated and minimized some of our offerings to become more efficient. We're increasing our throughput on the residential side, so we're pleased with that. We certainly have the backlog for a $13.1 million backlog in the residential sector, and so we expect a strong second half. We're also looking at leasing opportunities to... to help moderate some of the headwinds. Got it. Understood. Appreciate the thoughts, guys. Thank you.
spk03: Thank you. Our next question is coming from Amit Dayal with HC Wainwright. Your line is live.
spk04: Thank you. Good morning, everyone. Good morning. Yeah. Hi, guys. With respect to the EV infrastructure, you know, opportunity, you know, how much contribution from these deployments is part of your 2023 outlook?
spk06: So, we're seeing a lot of opportunities in the EV infrastructure sector. The EV infrastructure rolls up into our CNI division, and we're seeing risk. We don't break that number out specifically, but it's a fairly substantial part of our overall CNI, maybe 3% to 5% of its overall total CNI number, and we expect as decisions are made and EV infrastructure continues to grow, we expect that percentage as the overall operation to continue to grow.
spk04: And, you know, along those lines, is there any particular player you are working with that is giving you more of that business? Or are you, um, are you spread across, you know, all of the, all the providers in that space?
spk06: Yeah, I know we're pretty, we're pretty spread out. We're working with several different providers and companies on their plans. And there's a lot of, uh, you know, a lot of various projects in the work. We consistently see RFPs and, you know, I think some of the acceleration will come in this part of the industry as final decisions are made by the various OEMs on how they want to approach it and vary the infrastructure going forward.
spk04: Understood. Thank you. With respect to, you know, benefits from the IRA legislation, is that beginning to show up in your backlog and financials yet, or is that something that will probably take place a little further down?
spk06: Well, I mean, it was certainly projects that have, project development has increased and the valuations on these projects have increased with the IRA. So we are seeing, developers and partners try to accelerate projects as they move through. So we don't think we've seen the full benefits of the IRA yet. I think there's still some language we're waiting on there to help solidify things for everyone. But, yeah, certainly we're seeing an uptick in opportunities and demand based on the IRA. Understood.
spk04: This last one, you know, on the storage side of these deployments, is storage already becoming sort of, you know, meaningful part of these deployments, or is that an additional opportunity for you in terms of improving revenues and margins down the line?
spk06: Yeah, on the CNI side, storage has not been as impactful as it has on the residential side. On the residential side, we're seeing 35% plus attachments rates, and certainly as we move forward, I think the attachment rates on the larger scale, both commercial and industrial, and beyond, we'll start seeing much higher attachment rates as well.
spk04: Okay. That's all I have, guys. Thank you so much. Thank you.
spk03: Thank you. Our next question is coming from Noel Parks with TUI Brothers. Your line is live.
spk02: Hi, good morning. How are you? Doing well. Great. Actually, I had some similar questions to those that have come up, but I just wanted to drill down a couple of specific things. So you talked about, of course, a factory you might have a little more control over in the near term, which is achieving margin expansion through efficiencies from the second half of the year and looking forward. So I guess, could you talk a bit more about what pricing is like, what you're seeing in terms of trends there, and also just kind of as a reality check for projects that you're executing on now, roughly, I imagine it varies by segment, but roughly what era was the pricing set in? What time did you arrive at the pricing contractually for work that you're actually in the middle of executing now?
spk06: I guess I'm not sure I fully understand the second half of that question. How did we arrive at pricing?
spk02: I guess I'm talking about sort of lead time. So in other words, for example, for a CNI project that you're actually executing on now, typically when was the contract established and that pricing signed? Is it like six months ago, 18 months ago? Yeah, yeah.
spk06: We see, you know, so the, you know, a residential project from, you know, sale to installation, will vary between 30 to 60 days to six months, depending on designs and customer and utility and things like that. So commercial is a little bit longer than that. And the larger industrial ones, if we provide pricing last July for some of the projects we're working on now, we've certainly seen some commodity prices come down, panel prices come down and ease a bit.
spk02: Okay. Okay. And I guess I'm also thinking around type of business. You know, for example, storage was mentioned. And I'm wondering if you can sort of tease out a bit, you know, there are, of course, projects that people are pursuing for, you know, for example, on the residential side even, you know, where they're very mindful of sort of longer term ESG goals. And then I'm thinking on CNI and then there are projects where people are particularly attuned to the issues of resiliency, for instance, and maybe are thinking towards, you know, their own solar usage and eventually maybe towards sort of a micro grid type application. And so when we could talk a little bit about maybe what you're seeing in current business drivers now, as far as sort of customer motivation for timing to transact now.
spk06: Yeah, we're seeing a strong demand on the residential side for storage. I think every single sales opportunities, storage is discussed, and we continue to see high attachment rates. And I think we'll continue to see those grow. On CNI side, it becomes more of a, you know, much more of a longer conversation, more design work, more financial considerations. But we think resiliency will continue to be a big part of considerations for companies. having operations down due to power outages or time of use rates that will come into play. I certainly believe that storage and opportunities in the storage area will continue to grow. With our customer base and the people that we've served, we certainly think there's wide-ranging opportunities to go back and and work with these companies to add storage to them. And certainly as technology improvements happen and prices come down, it'll, it'll continue to be, uh, a compelling opportunity.
spk02: Right. Right. And, um, and I guess also sort of for the geographical concentration of, of most of your business, um, I wonder if you could, uh, you, you mentioned, uh, in terms of timing factors, for example, on residential was, um, the, um, you know, what the time looks like as far as interacting with the utility. Can you just talk a little bit about sort of what sort of backlog or timing people are seeing for if they need participation from the utility in order to make a project go forward? how well or poorly is sort of that utility piece of the lead time doing in New England, for instance?
spk06: Yeah, sure. You know, that really varies by utility. We are not seeing long lead times in any of the markets that we service with the utilities. There's certainly a lot of preparation that's gone into from the utilities solar and upgrades that have been ongoing, and so we have not seen widespread long delays on interconnections or utility work.
spk02: Okay, great. Great. Thanks a lot. That's all for me. Thank you, Noel.
spk03: Thank you. We have reached the end of our question and answer session, so I will now turn the call back over to Mr. Jeffrey Peck, our chairman and CEO, for closing comments.
spk06: Thank you, everybody, for joining the call today. We appreciate your time to hear about the progress and the performance. In the future, we plan to participate at the H.C. Wainwright Conference in mid-September and the Think Equity Conference in mid-October, both in New York City, as well as the RE Plus in Las Vegas in mid-September. Please let us know if you'd like to meet us there or anytime to discuss our business and our ongoing efforts. If you have any questions, please reach out to IR at isenenergy.com. Thank you, and have a great day.
spk03: Thank you. This concludes today's conference, and you may disconnect your lines at this time. And we thank you for your participation.
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