Sunworks, Inc.

Greetings and welcome to the Sunworks first quarter 2023 results conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Jason Bonfit, Chief Financial Officer. Thank you, Jason. You may begin.

Thank you, Operator. I'm Jason Bonfit, Chief Financial Officer at Sunworks. On behalf of our entire team, I'd like to welcome you to our first quarter results of 2023 conference call. Leading the call today 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 risks described in our periodic reports filed with the SEC. Except as otherwise required by law, we undertake no obligation to update our forward-looking statements. Following our prepared remarks, we'll open the line for questions. With that, I'll turn the call over to Galen.

Thank you, Jason, and welcome to those joining us today. The first quarter was a challenging period for Sunworks as we managed through inclement weather conditions in many of our primary geographic markets, which impacted the timing of project completions. We also experienced disruptions created by net energy metering transition in California and the tightening credit market negatively impacted working capital. For those not familiar, net energy metering, or NEM, is utilized in California to allow consumers to participate in selling unused solar power generated from their power systems back to the grid. This power sharing relationship is the defining incentive that has led many households to invest in rooftop solar. In December of 2022, the California Public Utility Commission, or CPUC, issued a final decision to update its NEM policies, which adversely impacted the economic benefits of residential and commercial solar by lowering the export rate or the price at which a consumer sells their power back to the utility by approximately 75%. While the reduction in the export rate is significant, the cost of solar relative to current electricity bills and ongoing inflationary pressures on future utility rates are expected to continue to justify the economics of solar consistent with our long-term market view. Additionally, homeowners may augment their solar systems with batteries to ensure that excess power generated during the day offsets their power needs during the evening peak pricing period. In advance of the well-publicized NEM transition, customers who submitted their solar applications through solar providers, including Solstice and Sunworks, by the April 14th deadline are expected to qualify under the prior, more economically beneficial NEM 2.0 regulations. This change in regulation by the CPUC resulted in a surge of applications prior to the mid-April 14th deadline, the mid-April deadline that has caused significant delays, with the average utility interconnection application wait time increasing from less than a week to the eight weeks or more we are currently experiencing. In plain terms, this backlog of applications contributed to a short-term spike in new project demand, but extended interconnection application approval wait times have resulted in delays to project permitting and completion. With these project delays, in-process component inventories have stayed on our books longer than is typically the case, resulting in higher working capital balances and slower cash conversion cycle times. While our first quarter results were clearly challenged, Demand conditions remain strong across our end markets through April, giving us optimism for improved results as we move throughout the year. In the first quarter, our residential solar segment revenue and backlog increased 14.6% and 12.7% respectively versus the prior year period. Order rates increased at an accelerated pace, given an influx of new applications for rooftop solar installations ahead of the NEM deadline. California represented more than 50% of our new residential originations in the first quarter. Direct sales contributed to more than 40% of new originations in the period versus 18% in the first quarter of 2022, contributing to a 450 basis point decline in segment selling and marketing costs as a percentage of revenue. As before, we continue to employ a disciplined pricing strategy into a period of rising demand. Within our commercial solar energy segment, revenue and backlog increased more than 64 and 119% respectively versus the prior year period. First quarter results included an order for a 1.5 megawatt rooftop and carport solar installation with a 2,000 kilowatt hour energy storage system located in Southern California with a Fortune 250 company. The $5 million order represents an important strategic entry point with a large corporation with a nationwide footprint. The project, which will commence in the third quarter of 2023 and should conclude in the first quarter of 2024, is expected to provide significant long-term energy savings for the customer, consistent with their renewable energy objectives. Turning to a discussion of our balance sheet and liquidity. Following the banking crisis earlier in the year, and as several other solar companies have gone out of business, credit markets have tightened for rooftop solar financing. Historically, milestone payments have been provided by lenders at various stages of the project's life cycle. Lenders are reducing risks by shifting payments to later stages of the project, negatively impacting working capital. During the second quarter, we took coordinated actions to enhance our liquidity and reduce our fixed overhead costs. Our liquidity enhancing actions, which Jason will discuss in more detail shortly, increased our available liquidity position by $8 million in May of 2023. This cash infusion, together with the nearly $3 million of cash on hand we had as of March 31st, will help to further bolster our liquidity profile as we navigate the current operating environment. Following the NEM transition in April 2023, we anticipate CPUC utility application rates and project completion times should normalize over the next quarter. In that scenario, we expect working capital requirements to stabilize and capacity utilization to improve. As before, the market opportunity for solar remains significant across our geographic footprint, positioning SunWorks to play a leading role in the transition towards affordable, clean, and independent energy production. With that, I will hand the call over to Jason for a review of our first quarter financial results.