Pineapple Vitality Inc. (PEGY) This fall 2023 Earnings Name Transcript

Pineapple Vitality Inc. (NASDAQ:PEGY) This fall 2023 Earnings Convention Name March 28, 2024 4:15 PM ET

Firm Contributors

Kyle J. Udseth – Chief Govt Officer, Director
Eric Ingvaldson – Chief Monetary Officer

Convention Name Contributors

Donovan Schafer – Northland Capital Markets

Operator

Good afternoon, and welcome to Pineapple Vitality’s Fourth Quarter and Full-Yr 2023 Convention Name. As a reminder, at this time’s name is being recorded. All contributors are in a listen-only mode.

For opening remarks and introductions, I wish to flip the decision over to Eric Ingvaldson, CFO, Pineapple Vitality. Mr. Ingvaldson, please go forward.

Eric Ingvaldson

Thanks. Good afternoon, and welcome to Pineapple Vitality’s convention name to debate outcomes for the fourth quarter of 2023. With me at this time is Kyle Udseth, our Chief Govt Officer.

Our name this afternoon will embody statements that talk to the corporate’s expectations, outlook and predictions of the long run, that are thought of forward-looking statements. These forward-looking statements are topic to dangers and uncertainties, a lot of that are past our management, which can trigger our precise outcomes to vary materially from these expressed in/or implied by these statements. We’re not obliged to revise or replace any forward-looking statements, besides as could also be required by legislation.

Please confer with our disclosures relating to threat components and forward-looking statements in at this time’s earnings launch and different SEC filings. A replica of our press launch has been posted to the Investor Relations web page of our web site for reference. The non-GAAP monetary measures mentioned on this name are reconciled to the U.S. GAAP equal and may be discovered within the press launch that we issued earlier at this time.

With that, I’ll flip the decision over to our CEO, Kyle Udseth. Kyle, go forward.

Kyle J. Udseth

Thanks, Eric, and thanks to everybody for becoming a member of us on the decision this afternoon. At this time, I am as soon as once more completely satisfied to share one other quarter of stable operational and monetary outcomes from Pineapple Vitality, which capped off a superb full-year 2023. However as soon as once more, I will even say it did not come straightforward.

In writing the script, I used to be reviewing our name from Q3 and in that name, I stated that in my 9 years in rooftop photo voltaic, I could not recall a extra making an attempt quarter. Effectively, we simply went by an much more difficult one. Quite a few longstanding operators within the house have gone bankrupt. The speed lower signaled by the Fed haven’t but materialized as a result of cussed inflation, and public fairness valuations in our sector are close to all-time lows. Nonetheless, when you dig a bit under the floor, there are indicators of inexperienced shoots beginning to emerge.

Demand is beginning to rebound, though the actual acceleration ought to choose up within the second half of the yr as fee cuts start. However even when you parse that assertion for a second, demand is sort of a technical economics time period. I consider it extra like the need for owners to go photo voltaic and ideally add a battery is for my part as excessive because it’s ever been. Folks need management and predictability over their electrical payments. They need a method out of crushing annual invoice inflation. They wish to produce their very own clear energy, and so they need backup and resilience within the face of more and more extreme climate and an more and more fragile grid.

That want has not but absolutely translated into Econ textbook demand as individuals have stayed on the sidelines, some as a result of rates of interest, regulatory uncertainty and a few normal financial malaise. However, I feel it is actually vital to parse out that first level, the need is as sturdy as ever. That is the successful expertise. It is the expertise of the long run. It is also the expertise of the current. And shoppers very a lot need photo voltaic, battery storage and to additional electrify their properties.

After which, extra inexperienced shoots. Sadly for everybody who pays an electrical invoice, however useful for our business, utilities preserve elevating electrical charges double-digit percentages every year. This pattern exhibits no signal of abating, and so they do not appear to see an issue with it. See Pacific Fuel and Electrical asserting a 25% annual revenue improve to $2.2 billion that is billion with a B, on the heels of, I imagine, 17% fee will increase after which claiming the 2 weren’t associated.

This monopoly habits is why our business will preserve successful over the long term. We provide shoppers alternative and management. After which, inexperienced shoots on the fairness markets and valuation entrance. [Zion] (ph) seems to have had a profitable de-SPAC lately and we welcome them to the general public markets as one other resi photo voltaic firm.

And valuations are coming again for Sunrun and Sunnova after their sturdy basic efficiency in This fall was far overshadowed by some unforced errors on their final earnings calls relating to capital elevating. I feel traders are beginning to transfer previous that, though the hedge fund shorts are nonetheless on the market, however that simply units up for an even bigger brief squeeze as worth and long-term traders deal with the basics which were sturdy and preserve enhancing.

Let’s now zoom in from these broader business discussions and deal with Pineapple, the place despite these macro challenges and headwinds, our groups have been capable of rally and ship one other quarter of constructive adjusted EBITDA. That is four-for-four with each quarter in 2023 coming in with constructive adjusted EBITDA. That’s no straightforward feat for an organization like us with sub a $100 million of income, whereas bearing all the public firm prices.

I am extremely pleased with the entire crew and grateful to all of our workers for his or her onerous work and sacrifices all year long in making this EBITDA end result occur. We have talked loads thus far about demand, and naturally, income era is vital for any firm and significant for progress and persevering with to appreciate our long-term imaginative and prescient. However, one factor I imagine actually units us aside at Pineapple for lots of the corporations who did not make it in our business is a relentless deal with price containment and margins.

Money is the lifeblood of any firm, and our deal with profitability in addition to disciplined forecasting in money administration is absolutely proven out in our outcomes. Delivering on our efficiency metrics and hitting our targets will proceed to be the main focus into 2024. On this in addition to prior calls, you’ve got heard numerous dialogue about natural progress and backside line focus from our present companies. They’re our basis and so they help the strategic platform for Pineapple. However, the broader imaginative and prescient is completely nonetheless intact as nicely to drive the roll up of main native and regional residential photo voltaic and storage corporations throughout the nation, and we have made regular progress on that entrance as nicely. The present setting presents an incredible shopping for alternative for skilled and savvy consolidators who can discover and combine the best corporations.

With that, I will now flip the decision again over to our CFO, Eric Ingvaldson, to stroll by our monetary outcomes. Eric, please go forward.

Eric Ingvaldson

Thanks, Kyle. I’ll evaluation the GAAP financials as required by the SEC after which evaluation sure professional forma numbers that will provide you with a greater sense of the year-over-year efficiency of our enterprise.

The GAAP numbers are much less insightful as a result of This fall outcomes final yr included a full quarter of our Hawaii operation and a partial quarter of the outcomes of SUNation, which was acquired in November of 2022. Let’s begin with the fourth quarter 2023 U.S. GAAP outcomes.

Whole income was $19.4 million up $2.3 million or 13% from the fourth quarter of 2022. The rise in income was primarily results of the SUNation acquisition in This fall of 2022. Whole gross revenue was $5.5 million, a rise of $515,000 or 10% year-over-year. Gross revenue additionally elevated primarily because of the SUNation acquisition and a rise in income.

Whole working bills have been $7.9 million for the quarter, that is a lower of $692,000 or 8% year-over-year. The lower in working bills was primarily a results of transaction associated bills because of the closing of the SUNation acquisition within the fourth quarter of 2022, offset by solely a partial quarter of SUNation working bills represented.

Working bills within the fourth quarter of 2023 included $1.1 million of amortization and depreciation expense, $246,000 of stock-based compensation expense, and $190,000 unfavorable truthful worth remeasurement of earnout consideration.

Working loss within the fourth quarter was $2.3 million, a lower of $1.2 million and a 34% enchancment from the prior yr. Different earnings was $781,000 a lower of $2.2 million from the prior yr. Different earnings decreased primarily as a result of a $1.8 million lower within the favorable truthful worth remeasurement of contingent worth rights over the prior yr and a rise in curiosity expense.

Internet loss from persevering with operations was $1.7 million, or a lack of $0.16 per diluted share within the fourth quarter of 2023. This was an enchancment from the web loss from persevering with operations after taking into impact $16.9 million in deemed dividends within the fourth quarter of 2022 of $17.4 million or $2.58 of loss per diluted share within the fourth quarter of 2022.

Please confer with the press launch filed earlier at this time for full-year U.S. GAAP comparisons for the 12 months ended December 31. Please notice that 2022 outcomes solely embody the post-merger operations from the CSI merger and HEC acquisition starting on March 22, 2022, and the SUNation operations starting on November 9, 2022.

Now, let’s summarize the professional forma outcomes, which assumes we owned SUNation and HEC for the full-year in 2022. The professional forma year-over-year comparisons higher symbolize the operational efficiency of the enterprise versus progress due to the timing of acquisitions.

This fall professional forma income declined 17% in comparison with the prior yr. This was as a result of a 20% decline in residential income, a 6% lower in business income, offset by a 6% improve in service and different income. The lower in residential income of 20% is the results of a lower in residential kilowatts put in of 17%. The typical value per residential kilowatt put in declined 6%, because of the affect of decrease gear prices and financing charges on buyer pricing. Nonetheless, this decline was offset by extra income ensuing from an improved battery attachment fee.

This fall professional forma gross revenue decreased 28% in comparison with the prior yr, because the discount in gear prices and financing charges was outpaced by a rise in oblique prices which are included in gross revenue and the rise within the battery attachments, that are at a barely decrease margin. This fall professional forma internet loss elevated by $2.7 million in comparison with the prior yr, primarily as a result of a $1.8 million decline in favorable truthful worth remeasurement of the contingent worth proper legal responsibility and improve in curiosity expense.

Professional forma adjusted EBITDA of constructive $208,000 improved 222% from adverse $171,000 within the prior yr. This enchancment was achieved primarily by working leverage gained by actively managing the working price of the enterprise. Yr-to-date, professional forma income was up 8% from $74 million final yr to $79.6 million for the 12 months ended December 31, 2023. Full yr professional forma income elevated as a result of an 8% improve in residential income, a 4% improve in business income and a 15% improve in service and different income.

Yr-to-date professional forma gross revenue elevated 16%, as a result of a rise in income and margin enchancment due to lowered gear prices and financing charges. Yr-to-date professional forma adjusted EBITDA of $1.2 million improved by $4.5 million or 137% from adverse $3.3 million within the prior yr. Professional forma adjusted EBITDA consists of changes for truthful worth remeasurement of earnout consideration and contingent worth rights obligations, inventory compensation, acquire on the sale of belongings, impairment losses and the worker retention credit score.

We ended the quarter with money accessible for Pineapple operations of $3.6 million in comparison with $3.4 million accessible on the finish of the third quarter. We had one other $1.8 million of restricted money and liquid investments, which is reserved for the CVR holders.

Internet money generated from working actions through the fourth quarter of $160,000 was the results of modifications in internet working capital. Notable modifications in internet working capital have been as a result of a lower in stock and different belongings and improve in accrued compensation and advantages within the quarter, offset by a lower in buyer deposits and different accrued liabilities. We’re actively engaged in fundraising efforts to make sure we’ve got sufficient capital to fund all the corporate’s obligations in 2024.

Now, we wish to open the decision for any questions. Operator, go forward.

Query-and-Reply Session

Operator

Thanks. And the ground is now open on your questions. [Operator Instructions] Our first query comes from the road of Donovan Schafer with Northland Capital Markets. Your line is now open.

Donovan Schafer

Hey, guys. Thanks for taking the questions. I wish to begin off speaking about gross margins. So, it appears like sequentially, quarter-over-quarter, they have been down about 10 share factors, 38.5% final quarter and 28.4% this quarter. And so, I am simply curious when you can discuss what drove that distinction on a quarter-over-quarter foundation?

Eric Ingvaldson

Sure. That is Eric. How are you doing, Donovan? The rise quarter-over-quarter sequentially is absolutely associated to, not essentially direct prices, however oblique prices which are allotted into gross margin. So, these are issues like lease, oblique labor and insurance coverage and different prices which are attributable to jobs. We have put into place a extra constant methodology to be sure that we’re allocating these oblique prices, the identical method all through the corporate. And, we have additionally seen will increase in these prices as we have gone all year long.

So, it isn’t essentially a end result from improve in gear prices or direct labor, it is extra associated to the oblique allocations which are given to gross margin as a result of U.S. GAAP and accounting necessities.

Donovan Schafer

Okay. And also you’re saying that is principally like, is a few of that buyer acquisition prices and or is essentially the most insurance coverage? I imply, simply the change on a quarter-over-quarter foundation is sort of extra abrupt. So, what have been the particular gadgets you stated insurance coverage and what have been the opposite ones?

Eric Ingvaldson

So, I imply, oblique allocations to gross margin are something that is sort of not directly attributable to the job. So, it will be overhead prices of any sort.

Donovan Schafer

And, you are simply saying these simply did improve sequentially?

Eric Ingvaldson

Right.

Donovan Schafer

Like from final quarter, okay, okay. After which, speaking about, simply by way of what we have talked about for Sunnova and Sunrun and different corporations, we’ve got some sense of what, how the market is doing throughout the US. However, may we go just a little bit extra in-depth on and get kind of updates on Hawaii and New York or Lengthy Island particularly, by way of what traits you are seeing? And, is there something, are you getting any tailwinds from just like the fires with the, in Hawaii? HECO might have to boost charges in the event that they get hit with an enormous lawsuit legal responsibility, or simply any updates which are particular to these areas?

Kyle J. Udseth

I feel, I imply, we are able to discuss traits by [12/31] (ph), proper? We’re virtually performed April 1. So, I do not assume we wish to discuss an excessive amount of about market-by-market breakouts of something that is occurred since 12/31 as a result of we have not filed that but.

I might say, typically, the Hawaiian market, and that is no totally different than what you will hear from anyone else who’s lively out there. I feel the Hawaiian market had a robust fourth quarter to complete out the yr. I feel there was this Battery Bonus Program that was in place by the top of final yr to assist sort of emergency backfill the missed capability that Hawaiian Electrical wasn’t capable of convey on-line from their very own utility scale tasks to backfill the coal plant that shut down.

And so, shoppers stepped in and offered numerous era and storage and resilience to the grid like they at all times do. And, that was an excellent program. It ought to have continued. I feel it lower off earlier than individuals have been anticipating due to some miscommunication in queuing with the utility. However, I feel that was an enormous demand help final yr.

I feel the successor tariff this yr round convey your personal machine, shouldn’t be as profitable. And I feel prospects are sort of on the sidelines ready to see precisely how that will get carried out. And, you then at all times see in Hawaii, sort of a low on demand after the top of the yr till tax day and other people get their refunds again from final yr’s.

So I feel, Hawaii is holding up tremendous, but it surely’s you do not have fairly the help that you simply had from the Battery Bonus Program final yr. I feel Lengthy Island continues to be a wholesome market. I feel that there needs to be a shift to elevated battery storage as individuals shift on extra time and use charges. I feel that was supposed to return for some prospects on January 1, and I feel it has been delayed due to IT points on the utility. However, I feel each of these markets are holding up fairly nicely.

I feel it is onerous to disentangle the traits state-by-state typically within the narratives you learn extra broadly from the NEM 3.0 wipeout in California. However sure, I feel each of these markets are holding up nicely.

Donovan Schafer

Okay. After which previously, you’ve got given annual steering. I am simply curious, do you might have plan like, do you anticipate giving, and apologies if I missed it, however do you anticipate giving like income steering for 2025 or one thing possibly you wait some time to do or simply curious what your present state of thought is on that?

Kyle J. Udseth

Sure. We’re not doing it this quarter. I feel we’ll revisit that call subsequent quarter.

Donovan Schafer

Okay. Okay. So, probably subsequent quarter, however simply will depend on how, what sort of visibility you get?

Kyle J. Udseth

Sure, I feel that is, nicely, I imply, certain, I feel we did steering this yr and we hit it virtually proper on the nostril and inventory did not appear to reply, and traders did not actually appear to care in some way, like, any given quarter after we did it.

So, I feel we’ve got our personal budgets, we’ve got our personal forecasting, we monitor in direction of these. On the query of public steering and giving it for full yr, giving it quarterly, I feel we’ve got a bit extra dialogue to do internally right here and probably discuss with our Board earlier than we decide for what to share on the following name.

Donovan Schafer

Okay. Okay. After which, I’ve a query for, Eric. So, within the adjusted EBITDA or professional forma EBITDA reconciliation, I noticed that within the fourth quarter of 2023, there was this a couple of $1 million write-off for legacy CSI receivables. And naturally, that has to do, that is with the legacy firm that there’s the reverse merger into that. And so operationally, it has completely no tie to what you guys do. However, I suppose I am curious, is there any method of recovering that in any respect? Is it for you, is it a receivable there will be a declare for Pineapple versus CSI’s former house owners and shareholders? Or is it a declare of CSI from its legacy enterprise to a buyer? And simply sort of what occurred there, if it may nonetheless be recorded in any method?

Eric Ingvaldson

Sure. The receivable was, it is a lengthy standing receivable due from the federal government entity that we acquired information within the fourth quarter that the probability of assortment was drastically lowered. It’s associated to the subsidiaries of which we bought the belongings already. However, it will, it’s an asset of the CVR holders. So, if we’re to gather that cash, that cash could be distributed to the CVR holders.

We needed to incorporate it in discontinued operations, however accounting steering had it in our continued operations since these legacy belongings had already been bought. However, unlikely will probably be collected and whether it is, it will be distributed to the CVR holders.

Operator

Seeing no extra questions within the queue, let me flip the decision again over to Mr. Udseth, to conclude the decision.

Kyle J. Udseth

Thanks, operator. To conclude, talking on behalf of your complete Pineapple management crew, we’re happy with the sturdy outcomes we have been capable of ship in 2023 on the income entrance and particularly with 4 quarters of constructive adjusted EBITDA. So, I might say happy however by no means happy. We have to proceed pushing ahead to assist extra owners go photo voltaic, holding the road on price and pursuing progress by acquisition as nicely.

Because of everybody listening to or studying this on your ongoing engagement. These previous two quarters have offered a difficult working setting and have been a very powerful time for just about everybody I do know within the business. However, for higher or worse, we’re on the photo voltaic coaster, and I feel the journey will develop into enjoyable once more within the second half of the yr for the businesses that may make it by.

Utility charges preserve going up, photo voltaic prices preserve coming down, and rate of interest cuts are on the horizon. That is a successful setup for shoppers and a successful setup for rooftop photo voltaic and battery storage. Pineapple might be there to maintain serving to owners and main the business ahead.

Thanks once more for becoming a member of us this afternoon and on your continued help. When you have any questions, please contact Eric or me. This concludes our name at this time. You might all disconnect. Thanks.