SUNation Energy, Inc.

Hello and thank you for standing by. My name is Bella and I will be your conference operator today. At this time, I would like to welcome everyone to SU Nation Energy Third Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to David Sullivan, Managing Director of Equity Group. You may begin.

Thank you, Bella. Thank you, everyone, for joining us today for Sun Nation's 2025 Third Quarter Financial Results Conference Call. Our speakers for today are Scott Maskin, Chief Executive Officer, and James Brennan, Chief Financial Officer. Mr. Maskin will open with prepared remarks, followed by a question and answer session. Before we get started, I'd like to remind everyone that prospects at Sun Nation Energy are subject to uncertainties and risks. Remarks on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Act of 1934. The company intends that such forward-looking statements be subject to the safe harbor provisions provided by the foregoing sections. These forward-looking statements are based largely on the expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the control of management. Therefore, actual results could differ materially from the forward-looking statements contained during this call. The company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. Participants should consider statements that include the words believes, expects, anticipates, intends, estimates, plans, projects, should, or other expressions that are predictions of or indicate future events or trends to be uncertain and forward-looking. We caution investors not to place undue reliance upon any such forward-looking statements. The company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events, or otherwise. Additional information respecting factors that could materially affect the company and its operations are contained in the company's filings with the SEC, including its Form 10-K, and in subsequent filings, which can be found on the SEC's website at www.sec.gov. With that, I'd now like to turn the call over to Scott Maskin, CEO of SunNation Energy. Scott, please go ahead.

Thank you, Devin, and good morning, everybody. Happy Monday. Thank you all for joining me today. This is a call that I've truly been looking forward to for quite some time. Since Jim and I took the helm of Sun Nation about 18 months ago, it's felt at times like steering through unpredictable conditions, keeping steady, staying focused, and making sure everyone on the team understood where we were headed and why. Now, I won't tell you things have calmed down. They absolutely have not. As we look ahead to 2026, there's still a lot of movement in the industry and uncertainty. But the difference is that we're no longer reacting, we're leading. We've got structure, direction, and a team that's completely aligned on the mission. And this quarter represents a turning point. For the first time in a long while, our results, our work, reflect the impact of our hard work, the discipline, and the cultural rebuilding that's taken place inside this organization. If I had to sum up Q3 in one phrase, it's this. We delivered it on our promises. Sales rose, costs came down, margins improved, and profitability strengthened. Our capital structure is squeaky clean, and our balance sheet is the strongest it's been in years. That didn't happen by chance. It took tough calls, long hours, and people who refused to give up. But it proves what happens when we stay focused and we execute. While many in our industry have struggled to find direction, Sunnation has moved forward, stronger, leaner, and ready for what's next. Those of us who've been in solar for a while know the ride never really smooths out. The one big beautiful bill and the upcoming sunset of Section 25D have created new challenges and new opportunities, and our team has handled both with focus and professionalism. The rush to complete residential installations before the end of 2025 has been intense, and our teams in New York and Hawaii have been extraordinary and really stepped up to the plate. These are two of the most expensive energy markets in the country, and our people have helped homeowners take control of both their power and their costs. Residential sales in those markets were up 54% year over year in Q3. I want to say that again. Residential sales in those markets were up 54% year over the year in Q3, and we expect that momentum to continue right through the year end. At the same time, we're not focused on this surge. We're preparing for what comes after. We've been developing new financing options and lease-to-own programs that will carry us not just in 2026, but far beyond. Tried and true approaches that have been part of Sun Nation's success story for more than two decades. On the commercial side, we're continuing to see steady demand from institutions and municipalities across Long Island and downstate New York. High energy costs and the longer runway for federal tax credits have supported a solid project pipeline and we're executing efficiently. Our advantage continues to be our diversification in our people, our markets, and our services. And it's what gives us balance and stability moving forward. We stand unique by offering residential solar and storage, commercial solar, roofing, and our ever-growing expanding service division. We intend to expand into the energy-efficient HVAC market and standalone roofing while we double down on our service and O&M side, helping both our long-term customers and those left without support when their original installers disappeared. We're also evaluating strategic M&A opportunities that make sense. one to bring scale efficiency or exposure to fast-growing sectors like AI, crypto, and data centers. These are reshaping how power is used, and we're positioning SunNation to play a meaningful role in the future. Through all of this, one thing hasn't changed. We stay calm, focused, and deliberate. Running a business, much like captaining a ship, isn't about avoiding rough conditions. It's about knowing your course, trusting your crew, and making steady progress no matter what's ahead. Every day I'm driven by three things. Our team who show up with great purpose, our customers who trust us to deliver on the promise of solar, and of course our shareholders whose patience and confidence we're determined to reward. Sunnation is stronger than it's been in a long time. We understand the challenges ahead, but we also see tremendous opportunity in front of us. We built a company that can adapt, grow, and lead through whatever comes next. And I'll close with this. God willing, the market will begin to acknowledge and reward our efforts, our resilience, and the results that this incredible team has delivered for you in Q3. Thank you all for your time and trust and your continued confidence in SunNation. With that, I'll turn it over to our COO, CFO, and my steady co-captain, Jim Brennan, who'll take us through the numbers. Jim?

Thank you, Scott, and good morning, everyone. I appreciate you joining us today, and especially those on the West Coast that are joining us at 6 a.m. We are joined today by Kristen Lofka, SunNation's Chief Accounting Officer and Corporate Treasurer, as well as Ms. Summer, SunNation's Corporate Controller. We filed our 10-Q on November 7th and issued our earnings release on Monday, November 10th. As we reflect on our performance for the third quarter, I am pleased to report that the actions that we have taken have delivered significant improvements throughout the business, as we promised. We ended the third quarter in the strongest financial position in recent history. Through in-depth planning, disciplined execution, and sharp focus on operational efficiencies by the regional leadership teams in both New York and Hawaii, we strengthened our balance sheet, expanded our margins, and improved profitability. These much improved results are a direct outcome of the hard work of the entire team and the commitment to deliver value to our shareholders in the midst of a rapidly evolving market environment. We are on track to report strong results in the current fourth quarter and have reiterated our 2025 full-year financial guidance for higher total sales and a return to positive adjusted EBITDA as compared to full-year 2020. On to the review of our Q3 2025 results. Total Q3 sales rose by 29% to 19 million from 14.7 million last year. Sales at Sunnation in New York and Hawaii rose by 22% and 47% respectively, with residential sales rising 54% and service sales increasing by 72%. This was driven by an accelerated pace of system installations prior to the expiration of the federal tax credits on December 31st, 2025. Although commercial sales declined by 1.7 million, we expect continued stability in this sector as businesses and institutions such as churches and schools continue to take advantage of the longer runway that the One Big Beautiful bill has offered. Inherently, the commercial sector is more complex and nuanced than residential, so these projects tend to take more time to develop and install. On a consolidated basis, overall kilowatts installed on residential projects increased by 52% in the third quarter of 2025. Revenue per installation increased by 25%. Consolidated gross margin improved to $7.2 million. or 38 percent of sales, from gross margin of 5.2 million, or 35.6 percent of sales, driven by higher residential margins. Sunnation New York's gross margin improved to 40.7 percent from 37.9 percent, while Hawaii's gross margin increased to 32.1 percent from 29.5 percent. We continue to effectively manage costs throughout our organization. While total operating expenses rose 7.5 percent from 6.8, I'm sorry, 7.5 million from 6.8 million as a percentage of sales, the total operating expenses declined to 39.3 percent from 46.5 percent. And we expect the total operating expenses in 2025 to be lower than 2024. Interest expense, in the third quarter of 2025 declined to $143,000 from a whopping $812,000 last year, reflecting the continuing benefits of paying off the expense of debt earlier this year. We continue to expect our annual interest expense to decline by approximately $2 million for 2025 as compared to 2024. We operated just below breakeven for the quarter with a net loss of approximately $393,000, which is a $2.9 million improvement from a net loss of $3.3 million in last year's third quarter. Taking all of this into account, Q3 adjusted EBITDA improved to a positive $898,000 from an adjusted EBITDA loss of a million dollars in last year's third quarter. With respect to the balance sheet, cash and cash equivalents rose to $5.4 million on September 30th, which is our largest or highest cash level since 2022. Our total debt decreased by over $11 million, falling to $7.9 million compared to $19.1 million at the end of 2024. This total debt included an earn-out consideration of $1 million. Other areas of improvement this year through September 30th include accounts payable improved 7.3 million from 8 million on December 31st, 2024. Current liabilities improved to 19.0 million from 27.2 million on December 31st, 2024. And lastly, shareholders' equity improved to $21.7 million from $8.5 million on December 31, 2024. Based on these Q3 results, solar projects pipeline, and general business environment, we are reiterating our guidance for 2025 as follows. Total sales are expected to rise to between $65 and $70 million, a projected increase of 14% or 23% from total sales of 56.9 million in 2024. Adjusted EBITDA is expected to improve to between $500,000 and $700,000 from an adjusted EBITDA loss in 2024. Before turning things back to Scott, I want to again thank the entire SunNation team, both in Hawaii and New York, for their hard work and dedication. This process has not been easy. Over the past six months, our financial health has improved dramatically. Sales are up, costs are down, profits are higher, and our financial position is strong. It's no secret that our industry is in a state of transition and that the challenges we all face are significant. But that's okay. We are embracing these challenges as an opportunity to redefine Sunnation as a whole and the value we can deliver to our shareholders. The global demand for energy is accelerating, and Sun Nation has over two decades of experience in delivering clean, sustainable solar energy. As we look ahead to 2026, we will continue to address these opportunities from a renewed and, we believe, sustainable position of financial strength. We are optimistic about our future and look forward to keeping you apprised of any news and progress. I want to thank you for your time, and we'll now turn things back to the most handsomest guy in solar, Scott Maskett.

Thanks, Jim. Are we taking calls now, guys? All right. Fire away.

All right. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Julian Dumlin-Smith with Jefferies. Your line is now open. Please go ahead.

Hey, good morning. You have Hannah Velazquez on for Julian. Thanks for the update this quarter. I had a quick question or rather, yeah, just an update on 25D expiration. I'm curious to see what you all are seeing out there in the market in terms of any pull forward effect and then also any reactions to the advent or, you know, I suppose the introduction of this new concept the prepaid lease plus loan bundle. I think you alluded to it on your call, but any additional detail you can provide there in terms of if it's viable as a replacement of 25D and if you would consider pursuing it.

Sure, thanks for the time today. So, listen, 25D has certainly, you know, the sunset of that tax credit certainly has a meaningful impact, especially in markets like New York and Hawaii with high cost of kilowatt hour. We've traditionally been loan markets, we have done some leasing, and there's been a lot of different tools that are out there. So, what I would say is that we're driving to the end of the year. Pull forward? Yeah. There's a ton of people that sat on the fence for a long time that got off the fence. And they're just, you know, I mean, there's a lot of angry elves out there that, you know, were on the fence for too long and we just simply could not get them installed. I mean, my teams in both states are running, you know, six days a week plus to get this work done. That being said, I believe that there are some significant advances in a lot of different financing tools other than just traditional leasing and loans. So I think a lot's going to evolve as more information comes out on fiat. You know, when I look at our markets today, we can still make a damn fine financial model for a loan and for owning it. So I don't think it's going to slow things. I think that we're in a trough right now of people that rush to move forward and then when they couldn't, they're in pause mode and And then what's going to happen is we'll figure out ways to get them back on the fence through some of these other tools. I think they're all going to be viable. I think that people that are coming out with new and unique financing options are really making sure that their I's are dotted and their T's are crossed on the on the tax side of it. And that's been I'd say that's been a slower than they anticipated process. Did that answer your question?

Yeah, that was perfect. And then maybe just as a follow-up there, so we're hearing with 25D expiring, you're having new entrants, I suppose, in the competitive market, maybe more so on the TPO side. But can you just double-click in terms of what you're seeing out there? Are you seeing new TPOs enter, trying to take advantage of this shift towards the leasing market? I know Tesla also joined the space. And so just what are you seeing from a competitive perspective?

When you mention the T word, never count Elon Musk out for anything. He's got the sheet that he can upend this entire industry on a moment's notice. But I think that as somebody who's been involved for 20 some odd years, I have seen so many players, financial players, kind of circle and circle. And, you know, they take advantage of opportunities when they're there. And then some get smacked down and then they reinvent themselves and they come back. I mean, this all boils down to capital and available capital and available tax equity. Right. So, you know, my understanding in the market, you know, raising capital in solar is difficult right now. Doesn't mean that it's non-existent. But I think that there's going to be a little bit of a lull. People still want solar, but the players, they, some of them rename themselves, some of them, you know, retreat and then come back. I mean, I'm mindful of how SunPower, you know, and I'm, you know, I'll say that, you know, SunPower exited bankrupt and now they're coming back in as a player. So, and, and, you know, acquiring companies and stuff. I look at some other companies that, you know, were in the, in the You know, the LMI market that just couldn't get the capital and imploded. Right. So it's just like a big it's kind of a big vortex, a big circle. But ultimately, everybody comes back to the top. The same players that are involved in the space are the same players that keep rising. They may rename themselves. And, you know, listen, we're going to go back again. All that needs to happen is the cost of energy continues to rise. It makes every decision even easier and more palatable.

I would add to that that some of the newer tools that are becoming available based on some of the financial wizards in this market, prepaid leases, synthetic cash, you name it, there's a lot of buzzwords circulating around. But I love it. As long as we have the ability to deliver to these customers some sort of approach that works for them, even though the recent stupidity in Washington got it 100% wrong, we are pivoting to continue to survive. As Scott mentioned, there are companies in the industry that won't. The reality is New York and Hawaii are not alone with expensive power. Some of the target acquisition markets that we're looking at have even more expensive power than Long Island, which is hard to believe. But those folks are predicting higher prices revenue this year than 20, next year than 2025 because their math continues to work in a purchase to own market even in the absence of the 30% federal ITC.

Okay, and if I could just have one more follow-up question. On that point, you know, maybe on a consolidated basis, how are you thinking about market growth in 2026? I mean, you hear the consultants all over the place, right, talking about a 10% decline, best case scenario. and then up to a 20% to 30% decline all in just given 25D expiring. And as like a secondary question there, what's the latest you're hearing on FEOC? Thank you.

So the first part of your question was about 2026 guidance, and I'm not prepared to give that today. We do predict a lower than normal Q1. So as I say those words, I was recently pleasantly surprised from the New York team that they've already booked nearly 100 deals for January, which was surprising given the new set of circumstances that we're dealing with. But by the way, that's the normal cycle of our business. Q1 and Q2 are always low in both New York and Hawaii for different reasons. And then Q3 and Q4, just like this year in 2025, Q3 and Q4 were cranking. so much so that we're having trouble keeping up with all the work. And so I suspect that a very similar model will follow in 2026 as well.

And Scott, you want to talk about FEOC? it's still it's still happening right every day there's a change every day somebody's coming out with different you know securing different equipment on different avls and stuff like that i don't think that anybody can securely say this is where it's going to be on january 1st because just the guidance is just it's too fuzzy um i think that we will adapt We will find product, and cash is king also. Those with strong balance sheets are going to be able to get equipment, and others are going to implode. I just want to touch on what Jim said. I have often, and the thesis of Sunnation has always been a regional company. When the analysts say 10% decline, 40% decline, 50%, It's really unfair because, you know, you look at some, you know, you look at California, who's just a gut punch after gut punch. But last year, you know, they blew it out of the door, right? Like, you know, with the exit of NEM 3. But, you know, North Carolina is growing. Massachusetts is growing. So it's hyper-regional markets and hyper-regional. I've always said we're very, we're exposed by utilities and state politics. So find the estate that is... really pro-energy, find me a state that's going to see a growth of data centers and AI, and I'll show you a state that is going to grow revenue-based, because the cost of power is going to be so high.

Great question.

Thank you.

Thank you. At this time, I would like to turn the call back over to Devin Sullivan.

Thank you, Bella. We do have a couple of questions from Sun Nation stakeholders that I'd like to ask on their behalf. And the first one to the management team is, what is your long-term vision for Sun Nation following the passage of the One Big Beautiful Bill Act?

Thanks, Devin. And to whoever that shareholder is, thank you. You know, I think harping on the diversification of Sun Nation as, you know, one of our strengths. Maybe it's our greatest strength. For my shareholders and for our company, We see a rush to the end of the year. We're figuring out a lot of things for 2026 and moving forward, but we see the commercial industry really growing. We see the service industry growing. Residential is going to figure itself out. We've been through these cycles before. There's a lot of confidence. Sometimes things like this are also a good gut check. You know, where can we be better? Where can we be more efficient? and take advantage of that thing. And that's not just with Op-Ed, you know, that's not just with employees and stuff like that. I mean, you know, over time you kind of float and you look at your software stack and you look at, you know, all kinds of things that you spend money on as you're growing and growing and growing. And sometimes it's a good exercise to retool and reshape the company so that you can come back. It's almost like going into the corner of a prize fight so that you can come out punching, you know, after somebody splashes water on you. So I'm not concerned, overly concerned about 26 and 27 because we're in a good spot for it. We have a lot of different revenue streams. You know, there's a lot of different opportunities out there to add revenue, you know, to the shareholder, you know, to the company, to the listing, to Sun Nation as a whole that may be in the energy field, maybe not, right? So those are the things that give me a lot of confidence moving forward into 2026 and 2027. And at 62 years old, you know, I need those pearls to keep me going.

Devin, I would add to that answer that just for clarification, revenue diversification has been our strength for a long time. The companies that we've seen that have failed... over time are ones that have a single source of revenue. And you can name them off the top of your head, I'm sure. In our case, we went out of our way to have six or seven, hopefully even more, sources of revenue. So we have a residential revenue stream, commercial service, roofing. We actually do electrical work for some of our solar customers. We have community solar. And in the future, hopefully if the moons align, we'll add HVAC and some high-efficiency solar HVAC tools and so on. So that, because as Scott mentioned, we will see in the future a time where another part of our revenue stream slows down. That's fine. That's part of the cycle that we all live through, but we'll have a backfill from other revenue streams. Just like in 2025, the commercial team had lower than expected revenue, but I doubt that will be the discussion in 2026 because there's a ton of work that those folks are are cranking through right now.

Thank you. Thanks, Scott and Jim. And actually, Jim, that's a good segue into our final question is can you – how would you describe the market for commercial in 2026?

Yeah, so I'll start with that one. I see that we've – In New York, we positioned ourselves very well with national developers. We've always taken the approach that it's great to originate your own work, but I make money when trucks roll. Our shareholders win when trucks roll and money comes in, so I don't really care who sells the job, but we're really good at executing on those things. Because of that diversification with the national developers, we're seeing a big inrush in schools, institutional type things, and we're really, really well suited to execute on that kind of stuff. I'm not saying that traditional rooftop solar on an industrial building is going to go away. But, you know, we have a very strong pipeline, and that's going to be a major focus for us moving forward, you know, because, listen, that's kind of where the, you know, where the sweet spot is in the industry right now also, at least until through 2027. So, you know, that's, you know, all, there's nothing, damn the torpedoes, full speed ahead on that kind of stuff.

Kevin, I would just add to that that because we do a lot of work for these large national developers and we do a pretty damn good job at delivering on those projects, we are now getting asked or actually we've been throughout the year being asked to do work in other states. So, you know, we historically have had an acquisition view on growth into new markets and But this is an organic view just simply because the commercial team does a good job at delivery. And then, you know, next thing you know, that national developer wants us to go into a different state because they have another project. And so that'll definitely be some growth into next year that we'll see on the commercial side.

Thank you both. That is our final question. So I'll turn things back over to Scott for closing comments.

Well, thanks for everybody that spent a beautiful, sunny Monday morning with us. Customers are happy. They're making money today because the sun's out in New York and soon Hawaii. I want to wish everybody a happy holiday season. Let's not forget what's important as we move forward. Revenue and shareholders and business is important, but family first, and that's how we treat our business. So I want to thank everybody for the time and the confidence, and Man, am I looking forward to that end-of-year report. Okay, so thanks, Devin. Thanks, team.

All right, ladies and gentlemen, that concludes today's conference call. Thank you all for joining, and you may now disconnect, everyone. Have a great day.