Sunworks, Inc.

Greetings. Welcome to the Sunworks first quarter 2022 results conference call. At this time, all participants are in a listen-only mode. 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 keyboard, keypad. Please note this conference is being recorded. I will now turn the conference over to your host, CFO Jason Bonvick. You may begin.

Thank you, operator. I'm Jason Bonsit, Chief Financial Officer of Sunworks. On behalf of our entire team, I'd like to welcome you to our first quarter 2022 results conference call. Leading the call with me today is our President and CEO, Galen Morris. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risk described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. After conclusion of our prepared remarks, we will open the line for questions. With that, I'd like to go over to Galen.

Thank you, Jason, and welcome to those joining us today for our first quarter results conference call. Before we move into a discussion of our first quarter results, I'd like to begin with a high-level overview of the progress we're making to advance SunWorks' ongoing business transformation, together with those key areas of strategic focus that our team has prioritized. Demand within our residential end markets exceeded our expectations during the first quarter, as recent investments in marketing and business development capabilities resulted in strong new project originations, particularly in the West and Midwest regions. Demand within our commercial end markets took a pause in the first quarter as several customers deferred projects due to uncertainty related to NEM 3.0. Importantly, early in the second quarter, commercial activity has accelerated meaningfully while our pipeline of new project opportunities remains healthy. On balance, we anticipate an acceleration in quoting, bookings, and backlog across the business in the second quarter that should exceed both prior quarter and prior year levels. While the revenue story was positive in the first quarter, our margin capture was impacted by upfront investments in labor together with component cost inflation. In response to rising labor and supply chain costs, we introduced a series of price increases in the first quarter and are introducing additional increases in the second quarter. These price increases, together with a continued focus on reduced lead times, improved closure rates, and disciplined expense management, are expected to help offset many of the inflationary headwinds evident across the market. Although inflationary pressures exist in the solar industry, we believe that customers will continue to pursue solar investments in the face of rising utility rates. In March, the Department of Commerce received a petition filed by California-based solar module manufacturer Auxin Solar. The petitioner requested that the DOC review solar panel imports from Chinese companies working in Cambodia, Malaysia, Thailand, and Vietnam related to anti-dumping. Many in our industry, including SIA, our trade association, are concerned that the investigation could have an adverse impact on panel pricing and or availability for the U.S. solar supply chain, affecting everyone from panel producers and agencies to developers and IPPs. While these developments are potentially a headwind to the entire solar industry, reflecting a lack of support for the energy transition as a whole. We see no near-term impact from this investigation on our business. Beginning late last year, we began to build our solar module inventory above historical levels, a strategic action intended to mitigate supply chain risk in advance of growing customer demand. As part of this initiative, we expanded our direct and third-party supply relationships with both domestic and foreign partners. So while we couldn't have foreseen the potential for the DOC investigation on panel pricing and availability, our decision to create an inventory cushion during a period of pandemic-led supply chain volatility benefited us, ensuring a stable supply of comparatively low-cost panels to support rising customer demand. Currently, barring any significant additional supply chain issues, Between our existing modular inventory and contractual supplier commitments, we expect to have sufficient inventory to support anticipated customer demand well into Q2 23. Turning now to a discussion of our strategic priorities as we look at the remainder of 2022 and beyond. Market fundamentals, including rising utility costs, remain strong across our key geographic markets as residential and commercial adoption of reliable, low-cost renewable energy continues to accelerate. Sunworks is uniquely positioned to capitalize on this generational shift, leveraging our scale in what remains a highly fragmented market. Looking ahead, our team remains focused on five key strategic priorities. First, we remain focused on rapidly growing scale within the residential solar installation market, building upon our 2021 platform acquisition of Solscience. Over the next five years, we anticipate annual residential PV megawatts installed will increase by 50% from 2022 levels, driven by increased consumers' adoption of renewables. Within commercial, we expect the U.S. market will experience year-over-year double-digit growth in megawatts installed, supported by broad-based demand growth, together with the completion of planned and in-progress upgrades to grid interconnects. Our organic growth focus includes further expansion of our multi-channel sales force, the introduction of new products and solutions, together with a demand-led pricing model. While inorganic growth is not a near-term priority, we do continue to evaluate potential bolt-on acquisitions that could accelerate expansion within specific regional markets. Second, we remain focused on expanding the percentage of revenue derived from our direct sales channels. Historically, the company's residential segment has relied heavily on third-party sales channel partners to originate new business. Beginning in 2021, we launched an initiative to develop a more robust internal sales capability, one designed to increase project origination while reducing compensation expense. By the end of 2022, we expect that approximately 25% of our residential revenue will be originated from our direct sales force, up from a 10% run rate exiting 2021. Third, we intend to build and develop a lean operating culture, one that will adopt an increasingly efficient approach to sourcing and procurement, as well as project execution. This year, we intend to source more materials and equipment directly from U.S.-based original equipment manufacturers, while lessening our reliance on third-party distributors. We believe this approach will allow for improved surety of supply at a lower average cost. Fourth, even during a period of raw materials and labor inflation, we will seek to drive margin expansion. Margin expansion is central to our business transformation thesis and remains a significant catalyst capable of driving a positive re-rating in our equity. Multiple margin enhancing actions are currently underway in our business, including the implementation of programmatic price increases, targeted market share gains, optimization of our sales channel partner network and direct sales force, increased productivity resulting from recent headcount investments, and the adoption of lean principles to reduce costs and lead times and drive continuous improvement, which we would expect to reduce cancellation rates and improve margin. Finally, during this period of transformation, we will continue to maintain adequate liquidity to support the ongoing growth of the business. During the first quarter of 2022, we sold 2.8 million shares of common equity under an existing at-the-market agreement, resulting in net cash proceeds to the company of 7.8 million dollars. Cash proceeds were invested in working capital investments, including the purchase of additional inventory to support increasing demand, together with headcount investments as we build our direct sales force. With that, I will hand the call over to Jason for a view of our first quarter financial results.