Pineapple Energy Inc.

Q4 2022 Earnings Conference Call

3/31/2023

spk07: Good morning and welcome to the Pineapple Energy fourth quarter 2022 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 now like to turn the call over to Jennifer Lee of the Blue Shirt Group. Ms. Lee, please go ahead.
spk00: Thank you, Operator. Good morning and welcome to Pineapple Energy's conference call to discuss results for the fourth quarter and fall year 2022. With me this morning are Kyle Udseth, our Chief Executive Officer, and Eric Engelson, our Chief Financial Officer. Our call this morning will include statements that speak to the company's expectations, outlook, or 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, our annual report on Form 10-K, and our 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 disclosed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued yesterday. With that, I'll turn the call over to our CEO, Kyle Edsa. Kyle, go ahead.
spk03: Thanks, Jenny, and thanks to everyone for joining us on the call today. Although we went public last spring and have reported three quarters, this is our first conference call in conjunction with earnings. We're excited to report great news to you and to take your questions. We intend to maintain this practice, conducting a conference call with each quarterly report. So, what a difference a year makes, huh? As I look back on 2022, I'm proud of all that we've accomplished together. We started the year as a small private company with big ambitions. In March, we completed our merger with Communications Systems Inc., launching Pineapple as a publicly traded company. Simultaneously, we completed our first acquisitions, bringing Hawaii Energy Connection and their technology company E-Gear under the pineapple umbrella. We started public life with modest but real assets, and operating business, revenue, and capital. Some investors and analysts were skeptical of our strategy and ability to execute, but we proved them wrong last autumn when we completed our second acquisition, Long Island-based Sanations. With that deal, we showed that we could continue to source deals, come to terms with owners, and assemble the financial resources to close in a repeatable manner. We exit 2022 with operations on both sides of the country, a revenue run rate of over 80 million annually, and line of sight to positive cash flow from operations later in 2023. Celebrating this amazing year, we rang the NASDAQ closing bell in late February, giving us welcome and deserved recognition for our employees and their accomplishments. I have never been more excited about the prospects for our company. Now, let's zoom in on Senation, which was a transformational acquisition for the company. In addition to tripling our sales, it expanded our footprint to the East Coast, added approximately 160 talented and dedicated employees, and meaningfully bolstered our management team. Senation founder and president Scott Maskin is a key leader within our company now, and one of our largest shareholders. His vision and strategy in building Senation are proving their value as he continues to drive its growth, and we are utilizing these experiences and lessons learned as we pursue and diligence future acquisitions. Senation Executive Jim Brennan moved over to Pineapple Corporate, taking on the role of SVP of Corporate Development. And in his new role, Jim is applying his experience and expertise in sourcing, negotiating, and ultimately closing new acquisitions. Sanation is on a roll. Their residential kilowatts sold surged 63% last year, with installations up 25%. And this kick starts 2023 for us with a meaningful backlog of $30 million of pending installs. Revenue grew 32% and gross margin expanded. This resulted in adjusted EBITDA up 172% year over year for Sanation. As strong as they are, there's plenty of room for further growth. For example, battery attach rate was only 7% last year, giving us a huge revenue and margin opportunity going forward. In contrast, HEC's battery attach rate approaches 90%. While there are certainly structural differences in those two markets, there are also many similarities in customer needs and desires, and so we are actively working to cross-pollinate our battery approach from Hawaii to accelerate battery sales in New York. Furthermore, we are seeing initial success in our new home build strategy. In February, we had a significant win with home builder Fading Hollow Development Group, where we will outfit 29 of the homes in an upcoming development on Long Island's North Shore. This strategy has the potential to substantially increase our volume at an efficient customer acquisition cost. Finally, in March, we opened an office in Florida, establishing a foothold in one of the country's biggest residential solar growth markets. All in all, it's been an exceptional performance from the team at Cination. Turning now to Hawaii, HEC performance was also solid, although that market faced some headwinds in the second half of the year, which have now been resolved. Revenue was up 21% for the year, but increased service expenses and permitting delays led to an adjusted EBITDA decline year over year. Kilowatts sold were up 30% and installations up 15%, which is a very strong result in the context of those obstacles. Battery performance continued to be outstanding with the attach rate for the year reaching 88%, and we are sustaining this momentum through innovation. For example, we are ahead of competitors in installing the Franklin whole home battery, an advanced next generation storage system. Even with that solid full year performance in Hawaii, revenue growth slowed there in Q4 as kilowatts installed were down. We grappled with a variety of issues, the most impactful of which was the freezing in December of a significant portion of installation permits on Oahu due to a federal investigation, which was completely unrelated to pineapple, at the Honolulu Department of Planning and Permitting. As if that wasn't enough, we and many other solar installers experienced significant hardware failures with certain vendor equipment during the quarter. This presented a sizable challenge, setting back revenue while also elevating COGS and but I am proud of how the HTC team pivoted quickly to focus on fixing these issues for our customers. I'm happy to report that these issues are now largely resolved and growth has resumed in 2023. HTC had $17 million of pending installs at year end, and partway through Q1 of this year, kilowatts sold are triple the level of a year earlier. We are confident that Hawaii will be a strong market for us for years to come. And complementing our installation business in Hawaii is E-Gear, our grid services technology company. E-Gear has historically been a small and steady business, but in 2023, under the leadership of our head of product, Chris DeBone, we will push to productize and monetize this leading-edge technology and IP. The most tangible example to date is the licensing agreement with Iguana that we announced last week. Iguana's residential batteries will pair with the E-Gear energy management controller to create an advanced energy storage system that can balance between electricity consumption in the home, storing up backup power, and maximizing savings via time of use rates. Perhaps most exciting are the grid services capabilities that this hardware and software union can enable. It can create opportunities for recurring revenue streams as individual homeowners help stabilize the grid and power their neighborhoods in the face of extreme weather events and grid outages. We are also partnering with a leading supplier of utility-side distributed energy resource management systems. Together, we are pursuing the opportunity for E-Gear Technology to serve as a dispatch agent under Hawaiian Electric's upcoming Bring Your Own Device program. This is an important step to offering virtual power plants based on our customers' solar systems. Overall, we entered 2023 with optimism and we're now exiting Q1 with great momentum. In spite of no shortage of challenges, they don't call it the solar coaster for nothing, we've managed to build a sustainable business and an exciting platform for profitable growth. We have a high-quality pipeline of acquisition candidates across a wide variety of strong residential solar markets, each of which meet our financial parameters. But more importantly, these founder-led companies are solid cultural fits and they share our passionate focus on delivering a great customer experience. We expect to accelerate our growth through complimentary new acquisitions in the months and quarters ahead. With that, I'll now turn the call over to our CFO, Eric Ingleson, to walk through our financials. Eric, please go ahead.
spk05: Thank you, Kyle. I will very quickly review the GAAP financials as required by the SEC and then review some pro forma numbers that will give you a better sense of the performance of our businesses. The GAAP numbers are not very insightful because we had no operations a year ago, and because we had only partial period contributions due to the timing of the HEC and CINATION acquisitions. Let's start with the fourth quarter GAAP results, which includes 52 days of contribution from CINATION. Legacy CSI businesses, JDL and Assessa, are reported as discontinued operations in the fourth quarter. Revenue in the fourth quarter was $17.2 million, gross profit $5 million, and net loss from continuing operations was a bit over $500,000. Net loss from continuing operations includes a $3.3 million favorable fair value measurement, re-measurement of the contingent value right liability. Fourth quarter revenue nearly tripled sequentially and gross profit more than tripled due to the contribution of Sanation. Revenue in the fourth quarter of 2021 was de minimis at $13,000. Now, let's summarize our fourth quarter pro forma results. Assuming we had Sanation for the full quarter in 2022 and had HEC eGear and Sanation for the full quarter in 2021, the comparisons are year over year. Company revenue would have grown 13% to $23.5 million, with HEC up 11% and senation up 32%. Company adjusted EBITDA would have declined slightly to a loss of $170,000 due to the decline at HEC that Kyle mentioned earlier. Although adjusted EBITDA shows a loss, without permitting delays in Hawaii, this number would be positive. which gives us confidence going into 2023. Let's switch to full year gap results, which includes 52 days of contribution from Sanation and contributions from HEC and eGear since the merger on March 28, 2022. Revenue was $27.5 million, gross profit was $7.4 million, and net loss from continuing operations was $3.3 million. Total net loss of $10.5 million includes a $7.1 million loss from discontinued operations. Revenue for all of 2021 was de minimis at $38,000. Now let's summarize full-year pro forma results, assuming we had Sanation, HEC, and E-Gear for the full years of both 2022 and 2021. Company revenue would have grown 18% to $73.9 million, with HEC up 21% and senation up 39%. Adjusted EBITDA would have shown an improvement of 14%. Turning to the balance sheet, we ended the year in good shape. Cash and investments, which are available for use in our business, the solar business, were $3.5 million. We had another $4.5 million of restricted cash and liquid investments, which is reserved for the CBR holders. Debt is approximately $13 million, with the majority due to Pineapple board member and executive Scott Maskin in connection with the Sanation acquisition. We plan to raise capital in 2023 to refinance debt and fund our acquisition strategy. Looking ahead, we are confident and optimistic. In 2023, we expect to generate revenue of 80 to 85 million before acquisitions. We anticipate attractive organic growth at both Sanation and HEC and stability at eGear. Importantly, we expect cash flow from operations to flip positive in the second half of the year and to be positive for the full year. As you know, acquisitions are core to our strategy. We can't predict when, who, or what size of companies we will buy, but you can expect to see attractive growth as we complete deals in the quarters ahead. Let me mention one other detail before we go to Q&A. You will see today that we are filing a SEC Form 12B25 election, meaning we are asking for a 15-day extension to file our 10-K. As you can see today, our books are closed and our number is basically set. Our situation was complex this year with a public listing multiple acquisitions, one being in the fourth quarter. We are also presenting discontinued operations in the fourth quarter due to the pending sale of JDL and Assessa. There are no material issues outstanding and we anticipate filing within the 15-day extension period. Now we would like to open the call for any questions. Operator, please go ahead.
spk07: The floor is now open for your questions. To ask a question this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. You'll be provided the opportunity to ask one question and one further follow-up question.
spk06: We'll now take a moment to render our roster.
spk07: Our first question comes from the line of Donovan Schaefer from Northland Capital Markets. Please proceed.
spk01: Hey, guys. Thanks for taking the questions. So I want to start asking about the permitting delays in Hawaii. You know, you gave some details. There was a federal investigation, thankfully unrelated to you guys specifically. But, you know, from a timing standpoint, is that something that really just, you know, hit in the fourth quarter and closed out? You know, is that... you could see there was no impact in the third quarter and then fourth quarter comes around and there's this sort of an event or something or an announcement and that bogs things up and then it clears before the start of the first quarter. And then just sort of any other kind of qualitative details around what was going on there. That'd be helpful to know about.
spk03: Yeah, absolutely. And thanks for being on Donovan. I know it's early for you. So appreciate it. Yeah, it was an unfortunate situation. Certainly. I think we were in line for a really tremendous year and it's a testament to the leadership of Chris to bone and the whole team out there. They worked incredibly hard throughout the year, taking care of customers. We were harvesting. unprecedented, top of funnel demand, had a really healthy backlog, install crews firing on all cylinders. It was, I think, late, mid to late November that Chris first talked to me about this. I don't know all the details, but you can find them online. I think there was a FBI ongoing investigation, including a sting and something out of a movie, like multiple people taking kickbacks and bribes in federal prison now from this. And it was not just solar. It affected all types of permitting island-wide or at least county-wide in Honolulu County. The ramification for us was that something like 70% or 80% of the permits are pretty standard and go through just the normal process. There's not much to have to look into, but something like 20%, maybe a bit more, are more complex. You know, there's something going on that's just nonstandard. Older home, older wiring requires a second layer, third layer of diligencing on it. And those ones were no longer able to be expedited. You know, my understanding is that the scandal overall was projects like that were allowed to be kind of bumped up to the top of the queue by people paying kickbacks or something like that. And so rightfully so. I think when this happened, they came and said, OK, like, let's lock things down. Let's make sure everything's dotted I's cross T's fully gone out at the same time. Literally bodies were going to jail and people were doing early retirements. And so they were just short staff It certainly hit over the following Five four or five weeks and really bit the most in December, you know, I think at first it was 40 or 42 projects That we thought we were going to have permits on that got gummed up ultimately we were able to pull forward something like 10 or 12 from our January install calendar and get those done before the end of the year. But the net effect was something like 30 installations that were fully ready to go, like funded, permitted, interconnection, like crews on the schedule ready to install, that got pushed out of Q4. And so that was over a million dollars of revenue. And because you've already eaten all the overhead there, EBITDA to the bottom line is a lot more than just your typical gross margin. So it was over half a million dollars of operating cash and just EBITDA that would have fallen to the bottom line. I think the very significant silver lining is, like you said, I think some aspects of the investigation are still winding down, but we've seen the permitting piece get solved and unclogged. And as of now, I don't think we have a single one of those projects or ones like it that are still awaiting permits because of this issue. If so, it's like a small handful, like three or four of them. And so we have been able to realize those installs in Q1, which bodes well, and we don't anticipate any additional challenges going forward from this.
spk01: Okay, great. That's super helpful, Keller. And then I also want to ask about ASPs. you know, the results in some ways are, you know, preliminary, and then there's kind of these added layers or issues of, you know, pro forma versus, you know, there's the legacy CSI business and everything. But you gave pro forma numbers for quarter-over-quarter growth in kilowatts installed in the fourth quarter, sorry, year-over-year growth at 23%. and then the pro forma revenue growth was 13%. So if my math is correct, that implies an 8% ASP decline if you're just doing dollar per watt. But, of course, there's also battery attachments and other things like that that also complicate things here. So just checking in on this, there really was this kind of year-over-year ASP decline in the markets that you are –
spk03: serving or um and if there's something behind that i mean was it just elevated pricing before with polysilicon and other stuff and that just come down any color would be helpful yeah it's a great question and actually we were sitting here as a team about 7 30 last night kind of going through the script and looking at the same things and how the metrics triangulate i think the the short answer response to your question is that um the kilowatts sold might have been up by less than the um revenue but if you look at or vice versa but if you look at the actual kilowatts installed it doesn't imply that is that right i think eric's got the sheet here right because so i think the key thing is that it's the revenue is recognized not when the kilowatts are sold but when they're installed correct yeah and so i think that we're we're not seeing asp declines um i think there's a separate issue of gross margin and i think in The fourth quarter in Hawaii, we had some gross margin pressure because of elevated costs that kind of stem from some service things and also some supply chain stuff kind of hitting from COVID. But I think in a bit, we made a conscious decision that there was so much demand top of funnel in Hawaii because of this battery bonus program that's been solid for the market and continuing to this year. And we decided we wanted to continue in our leadership position and take share. And so we didn't raise prices as aggressively as maybe we could have or some competitors did. But I think we maintained a healthy margin generally. But I think specifically to the dynamic you were pointing out, the delta is just that the revenue went up more than the kilowatts installed went up.
spk01: Okay. That's helpful. And then I want to ask about the iguana licensing deal. So in the release you guys mentioned, um, there's like an upfront kind of fee that they're paying you guys. Seriously, if you can quantify that at all. And then the other part to that is if I recall correctly, some of the proprietary technology around, um, what you gear has here, Some of that is somewhat unique to the Hawaiian market, kind of telecom integration stuff there. Is that still the case? Is that correct? The licensing deal would really largely be a Hawaii market phenomenon, or is that something where it would be valuable technology in other states?
spk03: Yeah, so in terms of the financials, I don't – feel comfortable disclosing it now just because we haven't talked about that with iguana and i want to respect the partnership you know i i think that some amount of that's probably going to be public or you can at least back into approximations when we file our q1 results and you see the financials on certain line items but um just out of respect iguana and we haven't talked about it i don't really want to get too much into the terms but you know it's a meaningful starting point amount of revenue for the e-gear business And then in terms of the technology itself, a couple of things. One, the technology has been in place and has been deployed across thousands of systems in Hawaii over the past couple of years. Those are majority our own systems. It was one of the reasons Iguana has been such a good partner is because we have full access to the battery cabinet to deploy our hardware, our firmware, and then our software aggregating the distributed energy resources and kind of talking up to the cloud layer into the utility. And so it's well proven and tested and I don't believe there's any device that can match our capability set for being able to interface with the utility over as many standards, meet the needs of every different tariff and grid services program there and control as many different states of the consumer battery. whether it's across Zigbee or Bluetooth or a Wi-Fi connection or that. It uses IEEE 2030.5 standards. So it's really best-in-class technology, and it's in the field and proven. I think it has applications far beyond the Hawaiian market. And I think that's, in a sense, what this licensing deal is all about, is that Iguana has a strategy to go much more broadly than Hawaii or some of the markets that they've had the majority of the installs with these devices to date. And it's really why they wanted to do this, is they want to be able to have this best-in-class energy management control device and that hardware, firmware, software that they can now customize and that pairing together and go expand into other markets, both domestically and abroad.
spk01: Okay. And I'll jump back in the queue, or I guess you can just check in, operator, if there are other questions in the queue. I'll let other people take a turn and I'll jump back in line. But otherwise, I certainly have more questions. So we can go either way. Operator?
spk07: Feel free to finish your questions now, sir.
spk01: Sure, okay. Yeah, so for the guidance for 2023, 80 to 85 million, you know, now we're pretty much at the end of the first quarter. Um, I'm curious, you know, if you can help us get some kind of cadence that you, you made comments around seasonality. Yeah. And, uh, I think in, in Long Island or New York, it's sort of the second quarter, third quarter. And then Hawaii, it's more third quarter, fourth quarter are the peak seasons. But, um, You know, really, you figure if you're a fast-growing company and everything, that might override a lot of the seasonality anyway. So would we see, like, sequential improvements in revenue throughout the year, or is it still going to be maybe, like, moderation in the fourth quarter, given the nation's the bigger piece of things? Just any kind of elaboration on color. I mean, sorry, like, cadence of revenue in the year. That'd be great.
spk03: Yeah, I'll start, and then maybe Eric can share, too, just from more of a plan or budget standpoint, too. Quarter's going well. Don't want to say much beyond that. I think it supports the 80 to 85. We hadn't shared that guidance before, but it's what we came into the year expecting internally and haven't seen anything in Q1 to really make us change off of that, tracking towards that, and feeling good about both top of funnel demand, overall growth in those markets, and our own company's performance and ability to capture that. I think that from a seasonality standpoint, yeah, I mean, I think we see seasonality throughout the year, but with the caveat that there's a reset back from Q4 to Q1, right? Q4 is always a big quarter, so we wouldn't expect and won't see Q1 of 23 being higher than Q4 of 22. So like Q4-22 is good. It drops down naturally every year with seasonality to Q1-23. And then I think sequentially we'll go up every quarter throughout the year. But Eric, anything else you'd add on that?
spk05: Yeah, I guess on the first question, we can't give any guidance on the first quarter other than the expectations that we've outlined. We do feel that we're performing in line with those or we wouldn't have put those expectation guidelines out there. Regarding seasonality, as Kyle mentioned, the first quarter is not as strong as the fourth quarter historically, but we do expect sequential quarter over quarter growth throughout the year.
spk01: Okay, that's helpful. And then for the SG&A came in a little bit high. There's certainly impacts there from transaction costs and some other things. you know, kind of one-time items in SG&A. But, you know, now you do have this acquisition estimation that happens. And so can you give any kind of color around or indications of what we should expect going forward? Like what kind of a run rate we should anticipate for SG&A?
spk06: Yeah, I'm not...
spk03: sure the best way to answer this I think we probably internally need to sharpen the pencil on quantifying like basis points improvements through synergies on certain line items and it's something that that we're going to work on between now and the next call you know I think from a thematic standpoint there are a lot of different ways you can get synergies there like the big ones are economies of scale kind of purchasing power on the hardware side and which we're actively looking at ways to do that across the businesses right now with some good initial results. We've got the financing side, which I think is top of mind for a lot of folks just with this kind of relentless increase in dealer fees as interest rates are rising and certainly the desire in the industry to be able to pass more savings on to the homeowners. keep more of the profit for the companies that do the hard work of acquiring the customers and installing the systems and not as much pass time to the guys who are just financing it. So I think there's good economies of scale there. And then just on kind of corporate SG&A functions and what's a shared service out of corporate versus what's not. You know, there's a level of just growing into that too. It's a high growth business. So instead of looking at it like redundancies and eliminating jobs or that, it's kind of like you've got this starting platform and then as you grow, you just don't have to scale the cost side as much. I don't know, Eric, there's probably not a whole lot more we can say financially, but like any other color you want to give on the SG&A piece.
spk05: Yeah, I would just add that you see that we're reporting discontinued operations for two business segments that are legacy CSI. As we divest of those and continue to integrate Sonation, we certainly believe there's operating leverage to be attained there. Would note that in Hawaii, due to some equipment failures, we did have a lot of additional truck rolls and service calls that ate into our EBITDA margins that we do not anticipate occurring in 2023. So, yeah, can't comment specifically, but certainly do anticipate gaining additional operating leverage as we continue throughout the year.
spk01: Okay. And I don't know, to kind of... Maybe I'm not trying to back you guys into a corner or pick on you here, but I guess just as logic behind it, does it make sense, you know, in the fourth quarter you had the $6.4 million in SG&A, which is a partial quarter for Senation. So does it make sense to think of that as something that would, you know, actually – be more likely to be something that would be increasing? Or does that include enough kind of one-off or unusual things in SG&A where we would actually think SG&A would be relatively lower, you know, just kind of going north of that or headed upward or headed downward, just near term?
spk05: I think it'll really vary depending on the quarter. Okay, okay, so the is a percentage of revenue though. We do feel that there is operating leverage to be attained.
spk03: Yeah Yeah, there's kind of corporate overhead that you know has some seasonality to it But it's kind of the fixed cost and then there's the pieces that the operating businesses that flex more with revenue and the work being done but yeah, I think that You know the top line guidance is healthy companies performing well there and gross margin, strong, I think, if anything, putting more of an eye to that going forward and just making sure we preserve that healthy margin into the future, and then certainly some opportunity to improve on SG&A. Okay. And then I want to... Donovan, I think we probably got to jump. I think I see Chip on the screen. I might be misreading this thing, but maybe if we could go... to the queue and try to cut you off. But we're around after 2 if you don't get your questions.
spk01: I'll do it. I will take the rest of my questions offline. Thank you, guys. Yeah, thanks, Donovan. Thanks, Donovan.
spk07: Our next question comes from the line of Chip Moore from EF Hutton. Please proceed.
spk04: Morning. Hey, Kyle and Eric. Thanks for taking the question. Welcome to your first call. Just a couple for me to follow up on Donovan's. First, around guidance, any way to help us think about line of sight on that path to cash break-even, particularly, I guess, we touched on seasonality, but maybe around margins, given some of the moving pieces with the battery bonus program and permitting in Hawaii you talked about?
spk03: I guess what I would say, and then I'll defer to Eric, too, on maybe anything more we can provide on the timing of it, like in the year. But effectively, my view is once we close down the Senation acquisition November 9th, any 12-month period going forward from that point, the company is going to be positive cash flow from operations. But within a given year, there is seasonality there. you know, on which specific day of the year it flips from positive to negative or, you know, how much cash did you collect that day versus invoices going out. There's always a little bit of wiggle room, but, you know, I think the key thing and the trend is that any 12-month period you look at going forward, Sanation got us to, you know, we were subscale before in a sense where the operating cash flow wasn't covering the corporate overhead. That flips when you get the second acquisition in place where, you know, at or above minimum efficient scale now, and company will generate cash on a 12-monthly basis going forward. You know, Eric, I don't know anything more you want to add just in terms of the timing within 2023.
spk05: Yeah, I think we stated in the earnings release that we anticipate, you know, kind of crossing the threshold in the latter half of the year. And that is consistent with our seasonality. It's typically stronger third and fourth quarters. So that would be the additional color I would give.
spk04: Yeah. Okay. No, that makes sense. And then on the installation backlog, I think he called out the $30 million and $17 million for SunNation in Hawaii. That year end, I assume, and how is that trended and how does that compare?
spk06: with what they've seen in the past, you know, when we think about visibility on that 80 million plus and what you need to book and burn. Good question.
spk03: I don't know offhand, but I think it's higher. Do you have that, Eric, or not? Like, do we know what the backlog was at the end of 2021? We do not have that information.
spk05: due to all the acquisitions.
spk03: I feel like it's up, right? I mean, I think at both businesses, and sorry, we can verify this after, but I think at both businesses, they had really great install years, but I think the top of funnel was even higher. So while we were pushing through strong growth and revenues and kind of record revenues or recent record revenues and installs, I think the backlog was growing even at the same time because sale like kilowatts sold for the year were coming in even higher than kilowatts installed. And, you know, there's, I guess, pricing stuff in there and battery attach rate stuff in there. But I think the backlog is even larger year over year. And I think that, you know, we've done some of that analysis before internally and looked at it. I don't have it at my fingertips, but it's one of the things that gives us confidence in giving the guidance is that so much of the revenue is already pre-sold and then, you know, at the point where people don't really cancel anymore. And I think it's a dynamic that is different in our businesses than some other residential solar businesses. Our cancellation rates are, you know, single digit percentages, whereas I know there are some where it's like 50% plus, right? And I think a lot of that just comes down to when you ask the customer to sign something and what you say that is. And I think that the revenue out of that backlog, when we give these numbers, it's kind of an expected value weighted average of what we, you know, based on historical cancellation rates, truly believe is going to install. Got it.
spk04: That's very helpful. Kyle, thanks. And maybe another one on expansion. You talked about opening the Florida office. I think you were leveraging some of the nation funds capabilities, just maybe talk about there, what kind of investment you need to go after that market and how you think about attacking it.
spk03: Yeah. Hey, I'm really excited about that one because a lot of our sales team down there is a college hockey team, which as a Minnesotan is pretty exciting for Eric. Um, no, I think it's, uh, it's a few Sinaitian related and kind of X and now back Sinaitian employees. So it's a couple who had done, you know, marketing lead gen and selling. in New York and Long Island, and one or two of them, I think, went down to college in Florida and recruited a couple of their teammates and realized they could replicate that model and effectively .
spk06: Perfect. And that segues into maybe my last question.
spk04: I'll take the rest offline. The acquisition funnel, you talked a bit about it being pretty healthy, and then Just the balance sheet, the $5 million obligation and obviously getting that dry powder to make some deals. What are you pursuing and how are those negotiations progressing?
spk06: Hello? Please stand by.
spk07: It appears we are having a minor technical difficulty.
spk06: If you could please stand by and we'll be started again shortly. you Okay. Great.
spk07: Okay, so it does appear we are back online, so we will continue with the question from Chip Moore from EF Hutton. If you can please proceed, sir.
spk04: Oh, hey, sorry. Thanks. I was just asking my last one around just the M&A funnel and balance sheet.
spk06: Thanks. Yeah, so M&A Funnel, robust.
spk03: We've been continuing while working on the performance of the existing businesses and focused on organic growth and margin improvement there. Certainly didn't want to take our eyes off the overall strategy, too, of growing and continuing to grow by way of acquisition. We'd set an internal goal of doing an acquisition a quarter roughly in 2023. I think we knew we weren't going to get one done in Q1. But I'd say that still remains the goal. I'd love to be able to do four in 2023. I think that we think about sizing of, you know, what's the Goldilocks number there. I think they don't want to do something smaller than one we've done before in Hawaii. It's just probably not worth the effort of getting the audit done and we want the contribution margin to be there. So, you know, 25, 30 million probably needs to be bigger than that. I think that, you know, 100 million is a maybe top line number, probably more like 75 million, something like that is where I think you don't have integration risk and it's like the kind of cultural, it can be ascertained a little bit better and you can integrate it better. Profitable companies, I think more importantly, it's the fit piece of it It's this kind of focus on customer experience kind of focus on growing at efficient CAC through referrals experience with batteries, so I think there are Many companies out there that fit those criteria and I think when we go talk to them I think they are excited about the pineapple story and the pineapple vision and being part of something bigger and building it together So I think that we've got a healthy pipeline across a number of states. We've got a good number of companies that we've been diligencing. We've got several of them pretty deep down in the funnel. Realistically, are we going to close on four acquisitions this year? I certainly don't want to set the expectation that that's the case. I think that's more aspirational, but I think we've got to keep pushing ourselves to grow the business. I think maybe you asked about balance sheet. I think, yeah, we don't have cash on hand to go do additional acquisitions. So we're going to have to raise capital if we're going to do other acquisitions. But I think that when you look at where valuations are at and multiples, and I think when you look at the logic of putting the companies together and some of the synergies and just the continued desire to have scale to compete against the Sunruns and Sunovas and Sunpowers of the world, I think that It's a pretty compelling scenario, both for the companies we're looking to acquire and for potential capital partners who would fund those acquisitions.
spk04: Okay, great. I'll take the rest off the line. Thanks very much.
spk03: Thank you, Jeff. Thanks, Jeff.
spk07: Our final question comes from the line of Jeff Graham from Alliance Global Partners. Please proceed.
spk02: Good morning. Thanks for squeezing me in. I was curious on the 23 guide, what do you guys think will be the largest factors for that organic growth, whether that's, you know, growth in installs, ASP growth, size of system, things of that nature? Are there any of those individual components that you're seeing being an outsized driver of the growth in 23?
spk03: You know, not necessarily. I think that it's – there's still – a decent amount of variability in it, right? And we gave a $5 million range, not a $1 million range. So I think that a lot of the year is still unwritten. But as we talked about with the backlog already, those are signed up contracts and we know what those are and kind of probability weighted the likelihood of them installing. So we've got good line of sight into a good proportion of it. And then we know how selling is going in Q1 as well. I think that none of the individual kind of components is out of like above and beyond different than what we've seen before. Right. I think it's just kind of a combination of solid consistent up into the right performance where the markets continue to grow through strong top of funnel demand, our ability to generate leads and close sales and win, you know, ours or better than our fair share of, Just through our go-to-market approach our brand building our customer experience our consultative approach Keeps serving us. Well Hawaii battery attach rates are really strong and are going to continue that way Continuing improvement in battery attach rates in New York and then on the selling price side of it I'd say that that's probably the lever we've paid the least amount of attention to in kind of an analytical comprehensive way so far and I think the operating businesses have had a way of pricing that's worked well for them in the past and balanced profitability with volume growth and taking care of customers and feeling good about the value prop we're offering. I think that as electric rates keep rising and financing costs keep rising, the you know, monthly payment to the customer probably goes up, but does so in a way that still creates value versus the alternative of not having solar. And, you know, exactly what we do in terms of pricing in there and how we take a few more basis points out of it. Yeah, you know, I think there's probably some upside there, but I'd say we're more focused on just taking care of customers and helping more people go solar as rates keep rising. So... You know, from a modeling standpoint, I wouldn't say any of those drivers has outsized effect on the overall revenue guide.
spk02: Got it. I appreciate those details. And my only other question, can you guys touch on kind of supply chain component availability, how that's been trending and your comfort level with that as we progress through the year?
spk06: Yeah.
spk03: You know, it's not really been an issue that's impacted our businesses are necessarily the resi space as much. I remember the old Sunrun days when the main thing was no one could get batteries. That's not really the issue anymore. I think a lot of the module shortages over the past year, 18 months, two years, have really accrued more to the utility scale side of it. We did experience transition in Hawaii last year when early in the year LG had let us know that they were no longer going to be supplying US residential modules we had enough heads up where we could pivot successfully both by snapping up as much to the LG panel backlog and inventories we could find you know across the country and abroad and then also having a successful transition to a new panel vendor and in Q cells, and so Chris and the team manage that really well, and so no disruptions from that. As we look out going forward, it's really not something we talk about as a risk factor. We're certainly always keeping our eyes on the market, whether it's modules, whether it's inverters, whether it's batteries, other balances systems, but we haven't been impacted by supply chain uh and don't anticipate that and don't really talk about that as a as a material risk factor in 2023 okay well sounds good well thanks for the time guys yeah thanks for joining thank you joe any questions i would now like to turn the call over to call adsev for closing remarks thank you and thanks everyone for being on today and for the engagement and the great questions um Okay, here we go. Before we conclude, I want to mention some investor relations events we have coming up. In mid-May, we will present and have meetings at the Credit Suisse Renewables and Utilities and also the EF Hutton Inaugural Global Conferences, both in New York City. And in early June, we'll present on a panel and hold one-on-one meetings at the Cohen Sustainability Week Conference, which is virtual. Those are private events for the clients of each brokerage firm, so please contact your sales rep to register and schedule meetings. We will wrap up our call now. As you can sense, we're excited about what we accomplished in 2022 and even more excited about the months ahead. We have a nationwide business with substantial revenue, a strong management team, and a pipeline of potential acquisitions to drive growth. We'll look forward to reporting our progress at our next earnings call in May. Thank you again for joining us today and for your continued support. And if you have any questions, please contact me, Eric, or Jenny Lee with our investor relations team. This concludes our call today. You may all disconnect. Thank you.
spk07: Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.
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