iSun Inc (ISUN) 2021 Q2 法說會逐字稿

Good morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the iSun's earnings conference call for the second quarter 2021. (Operator Instructions)

I would now like to turn the call over to Tyler Barnes, iSun's Investor Relations Consultant. Please go ahead.

Thank you and good morning. We're pleased to welcome you to iSun's conference call, where we will discuss financial and operating results for the second quarter 2021.

Jeffrey Peck, Chairman and Chief Executive Officer will illustrate iSun's strategy in the context of its mission and capabilities. Following Jeff's remarks, John Sullivan, Chief Financial Officer, will provide an overview of the second quarter 2021 financial results. Jeff will then return to provide an update on iSun's progress towards its growth plan and outlook for 2021 and beyond.

After our prepared remarks today, we will open the lines to address any of your questions. As a reminder, the earnings release and updated investor presentation, which can be found on iSun's website, include financial disclosures and reconciliations for non-GAAP financial measures that should help you analyze results.

Comments and answers to questions during the call will include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of the date of this call and management is under no obligation to update these forward-looking statements in the future. They are subject to risks and uncertainties that could cause actual results to differ from management's expectations.

With that, I will now turn the call over to our CEO, Jeff Peck.

Good morning, and thanks to everyone who have dialed in today. I'm excited to share with you the reasons why the solar industry presents such a remarkable growth opportunity, as well as iSun's mission and our strategy to accelerate the adoption of solar energy. I'll then turn the call over to John, who will update you on our results for the quarter before returning with an update of our progress as a public company and how we plan to execute on the growth presented by the evolving energy market.

To that point, we are just beginning the electrification of everything. We are seeing this transition happen before our eyes, specifically with investments in the auto industry and infrastructure. The Senate recently passed their infrastructure bill, which includes a $65 billion investment to upgrade transmission lines to facilitate renewable energy expansion, a $7.5 billion to build a national network of electric vehicle chargers to encourage the transition to electric vehicles. This transition is accelerating.

There are currently 100 battery-powered EVs playing by 2024. And there are dozens of startup electric vehicle companies entering this space. Most major auto companies have announced their plans to convert to EVs. GM announced its Ultium battery platform to support their EV expansion. Ford has launched the Mustang Mach-E and announced the F-150 EV pickup for 2022. Mercedes Benz, backed by $47 billion in funding is preparing for all EVs by 2030. Volkswagen has a goal of 300 EVs, their hybrid models by 2030.

And of course, there's Tesla. They recently announced plans to open their supercharging network to other automakers. All of this will accelerate the adoption of electric vehicles.

And first in context, the average electric vehicle requires 30 kilowatt hours to travel 100 miles, essentially the same amount of electricity used each day for the average American home. Imagine the implications. Overnight, household electricity demand could double or triple. At the same time, there will be a retreat from coal and other fossil fuels. According to SEIA, there will be a need for more solar power installed each and every year between now and 2031 than has been installed in the United States through 2020.

iSun exists to accelerate the adoption of proven technological innovations capable of improving lives. This is not a new concept for iSun. This has been our approach to business since 1972, from building semiconductor clean rooms to installing structured cabling and fiber optics, to transitioning our focus on the solar industry. We have always embraced innovative ideas to best serve our customers.

Today, iSun believes that clean renewable solar energy is the most important investment we can make. And we are laser-focused on using our capabilities to accelerate the transition from dirty to clean energy.

iSun's experience and capabilities perfectly position us to accelerate the transition in every sector of our industry. iSun has unmatched experience and capabilities to develop and construct solar projects across every solar market sector. We understand the specific customer needs in each solar sector. We know how to add value in each sector. And we are currently positioned to help each sector respond to and support this energy transition. We believe that the electric vehicle adoption will be the gateway to accelerating the renewable energy transition in each of these solar markets.

For most, purchasing an electric vehicle will be the time that they really start thinking about where their power is coming from. And as people charge their electric vehicles at home and their electric build rise, there will be a growing desire to invest in solar energy for their home. So they are charging their vehicle from a renewable source, decreasing their carbon footprint or creating resiliency for their home, and future-proofing against increased power costs.

At the same time, businesses and institutions will also begin to transfer their fleets to EVs and will naturally want to invest in solar for both the environmental aspects, as well as to utilize the tax credits, the accelerated depreciation, and to lower and stabilize their power costs.

iSun is uniquely qualified to provide a customized solution to best fit their needs of their specific business. Because we provide EV charging solutions, including our branded carports, which can also provide resiliency and serve as a visual representation of an organization values, we can design and construct custom solar arrays for both their roofs and undergrounds. And we help businesses and institution's structure and create power purchase agreements as needed.

Oftentimes, institutions don't have tax credits available to them or businesses have multiple entities for their real estate and businesses, and we have experience in helping structure these power purchase agreements. Naturally, this will also drive the industrial sector, specifically the 1-megawatt to 50-megawatt sized systems that are built for independent power producers, as well as solar asset owners who create group net metering projects, micro grids, and community solar projects where iSun has a depth of experience and a robust recurring customer list. Again, this increase in demand is coming at a time when we will see a reduction in the use of coal and other fossil fuels.

Utilities throughout the country are just beginning to prepare for this transition and will continue to replace coal and other fossil fuels with solar power. There is a $69 billion opportunity ahead in utility scale solar sector.

iSun streamlines development services. For volume origination, project site diligence, we bet technical feasibilities, execute internal engineering packages on a turnkey basis, and run project finance processes, all to assist with the speed of transaction and to move quickly to construct the solar asset. By serving every individual solar sector, all of our customers will benefit from our shared services and economy of scale.

iSun, with its combination of capabilities and experience, is uniquely capable of accelerating the transition required to meet our nation's increasing clean energy demands. We combine the capabilities of a utility and industrial scale EPC with those of a consumer-facing residential and commercial EPC and an EV charging solutions provider. These capabilities allow us to both enter new markets and scale within existing markets at a lower customer acquisition cost that allows us to leverage economies of scale and improve margin performance within each sector and capitalize on the increase in solar investments resulting from the transition to electric vehicles.

Having discussed the scale of this opportunity and iSun's unique ability to capitalize, I'd like to turn the conversation towards our progress thus far in 2021. Our second quarter has not been immune to market conditions. While we remain 57% ahead of our prior-year gross revenues for the quarter and 71% year-to-date, the ongoing industry challenges presented by COVID, specifically supply chain delays to labor availability, slowed our progress in executing on our solar project backlog. These delays ultimately resulted in non-linear cash flows and compressed margins.

Although delays due to the supply chain issues are appreciable, stable backlog of $76.8 million at the end of the second quarter means the cash flow generation of the business will be substantial over several quarters and next year. Simultaneously, the strength of our balance sheet enabled us to remain focused on our growth strategy for 2021 and beyond.

John will now share with you the details of these quarterly results. After his remarks, I'll return to discuss our growth plans and how we will execute on this once in a lifetime opportunity that exists in our industry.

Thank you, Jeff. As you may have seen, on April 16, 2021, we announced that iSun has successfully completed that the de-SPACing process of the original 4,125,000 public warrants issued as part of the Jensyn Acquisition Corp.'s original initial public offering. 3,671,236 warrants were exercised and converted to 1,835,618 shares of common stock. And the remaining 453,764 public warrants were redeemed for $0.01. The exercise of the public warrants generated total net cash proceeds to the company of approximately $21 million.

I'll now turn to a discussion of our second quarter 2021 operating results before turning to an update on our balance sheet and liquidity position.

iSun reported second quarter 2021 revenue of $4.3 million, representing a 57% increase over the same period in the prior year. Year-to-date 2021 revenue was $11.6 million, representing a 71% increase over the same period in the prior year. Revenue growth was driven by the continued execution of our project backlog consisting primarily of projects awarded in previous years. Our geographic growth continued with projects based throughout New England and the Mid-Atlantic regions.

Gross profit in the second quarter was a negative $0.6 million compared to breakeven during the second quarter in the prior year. Year-to-date gross profit was a negative $0.5 million compared to $0.3 million during the same period in the prior year. We have seen industry wide material and component prices increase significantly. We have also seen a labor shortage in all markets due to the ongoing carryover issues related to the COVID-19 pandemic.

As noted above, many of our project contracts were entered into prior to the COVID pandemic, with commitments on pricing made to our customers. We value our long-term relationships and honor the commitments made which came at the expense of our short-term gross margin erosion. We have adjusted our estimating process to account for the increase in material and labor costs moving forward and are confident that we have mitigated the short-term margin deterioration. However, we anticipate ongoing margin pressure related to material pricing and labor shortages on previously executed contracts.

Operating income was $2.8 million loss in the second quarter and a $5.4 million loss year to date, compared to a $1 million loss in the second quarter and a $1.5 million loss in 2020. The operating loss was mainly due to the margin challenges noted above.

In addition, we executed on several strategic opportunities that led to an increase in general and administrative expenses. The acquisition of iSun Energy LLC and the acquisition of Oakwood Construction Services highlight those strategic initiatives with anticipated future revenue streams materializing in the upcoming quarters.

iSun reported a second quarter loss of $1.3 million, or $0.15 per share compared $0.8 million loss, or $0.16 per share for the same period 2020. Adjusted EBITDA for the quarter was a $1.8 million loss, compared to a $1.1 million loss for the same period 2020. iSun reported a year-to-date loss of $4.5 million, or $0.53 per share, compared to a loss of $1.6 million, or $0.31 per share for the same period 2020.

Now turning to the balance sheet. Our balance sheet remains strong at the end of Q2 2021. Total cash position was approximately $20.2 million at the end of the quarter. Cash collections remain strong as our accounts receivable decrease approximately $2.2 million from year end despite the 71% increase in revenue for the six months ending June 30, 2021. Total inventory is scheduled to be deployed to projects in the second half of the year, helping to protect against the margin erosion on select projects.

Total debt at the end of the second quarter was $5.3 million. Total debt includes $3.5 million on our revolving line of credit used to support working capital and $1.8 million of long-term debt that is supported by our recurring revenue stream generated by our solar assets. Our strong cash position, together with approximately $2.5 million of availability under our line of credit for operating activities, is a significant capacity to support the execution of our $77 million backlog and to pursue strategic growth opportunities.

And with that, I will turn the call back over to Jeff.

Thanks, John. As we enter the second half of the year, our balance sheet and cash position remain strong. This is important context as I share with you our growth strategy for the balance of the year and beyond.

Before I do that, I'd like to review how we are executing on our growth strategy and highlight our accomplishments in our two-year history as a public company and update you on our plans for explosive growth. When we entered the public markets in 2019, we set out to create a solar energy platform to accelerate the transition to solar energy in every sector. With that in mind, we introduced our three-pronged growth strategy.

First, as a C&I solar company, we were focused on organic growth throughout New England and then the East Coast. Just two years later, we've done just that. We are executing projects in every state in New England and the projects in our pipeline throughout the East Coast.

Second, as a company, we own solar arrays for recurring revenue, which increases net margins. And we want to expand our ownership of these solar assets. With that in mind, we made an investment in GreenSeed Investors in April of 2020. We've seen significant progress in this investment.

GreenSeed has been reviewing over 5 gigawatts of utility-scale projects across the country that are now in due diligence stage for the acquisition of four utility-scale projects. The details of these projects are currently confidential. But consistent with our previous communications, iSun will have the exclusive right to construct these projects through iSun utility. iSun will also retain an ownership stake in these projects once in operation.

We also announced our intent to pursue accretive M&A, our M&A strategy with focus on strengthening and expanding our capabilities across all industry segments. In January of this year, we acquired iSun Energy LLC for their branded carport and EV charging products and rebranded our company to iSun, Inc. We have seen immediate success from this acquisition.

We recently were awarded the contract to build 18 of our branded iSun Roam off-grid solar carport and EV charging stations. These will replace the trailheads to support electric vehicle charging in remote areas. We expect demand for our grid-tied and off-grid battery back solar charging stations to increase with EV adoption.

Next, in April, iSun acquired the intellectual property of Oakwood Construction Services and entered the utility-scale solar business. iSun Utility delivers solar development and construction services to asset owners and developers and targets, build, operate, transfer projects directly for utilities.

Additionally, we provide development services to third parties early in the project lifecycle and gain captive rights to constructing these projects. We are focused on reducing costs and moving projects more quickly through the pipeline and providing value to our clients by in-sourcing engineering. We have seen the immediate benefits of this acquisition.

Within 30 days of launch, iSun Utility closed the development services agreement for eight project sites totaling 118 megawatts, with an initial development services contract for $1.25 million. With these contracts, we also obtained the EPC rights for a potential of $120 million in future EPC contracts. These potential EPC contracts, however, are not included in our current pipeline.

We are also in the late stages of other development services and EPC agreements with several investors with over 800 megawatts in development. We anticipate strong demand for our government services and associated EPC contracts going forward. We are pleased with the progress we've made towards building out our solar energy platform and executing on our three-pronged approach to growth. However, our work here is not done. iSun has installed nearly 3,000 residential systems. Moving forward, we will strengthen our presence in this sector.

So with that in mind, I would like to announce our M&A strategy to create a market leader with iSun Residential. We have a very specific list of criteria we are looking for as we execute these strategies. These are companies with $5 million to $15 million in revenue and profit located in the Eastern United States, who are residential-focused with commercial sales, outstanding operators with strong local brands and reputation, who have ultra-high-touch long-term customer relationships, and provide multiple services, including solar, storage, O&M, community solar, and others. They would also have expansion plans outside of their base territory and be market leaders within their territory who compete with national companies and win on a regular basis and who would benefit from scale.

Our goals related to this M&A strategy for 2022 include a $75 million revenue run rate with 75 megawatts of residential installation in 7,500 customers. We believe this highly segmented market sector will benefit from consolidation, and that we will create a market leader in this space.

With that, I'll turn to our outlook. As John illustrated, our second-quarter results reflect our ability to execute against both our strategy and growth plan. While we expect lumpy cash flow for the next few quarters, our backlog has remained resilient while positioning us for multiple strong quarters into 2022. And because non-linear cash flow hasn't affected our balance sheet, we remain well positioned to aggressively pursue M&A opportunities.

We continue to anticipate doubling of revenues from 2020 to 2021, and also expect improvements in gross margins and EBITDA performance through the year, driven by improved project execution compared to the first half of 2021. We expect our backlog to continue to grow as we see growth from our solar EV charging opportunities, our C&I business, as well as development service contracts in our new utility division. We expect additional M&A activity in the second half of 2021. This activity will further enable iSun to accelerate solar adoption across all sectors.

I have previously mentioned the magnitude of the opportunity our industry currently presents. With the electrification of everything and the increase in demand for clean energy, creates what is truly a once in a lifetime opportunity. Our nation hasn't seen an energy transition of this magnitude since we stopped using whale oil to light our homes and we moved away from the horse and buggy.

We believe iSun's 50-year legacy of accelerating the adoption of advancements in electrification technology perfectly complements the market's increasing demand for solar energy. iSun's capability as an EV charging solutions provider and EPC capable of executing projects across the scale and spectrum and a services provider is unique in the marketplace and perfectly positions iSun to capitalize on this once in a lifetime opportunity. These capabilities will propel our growth and drive value for our shareholders.

With that, we will now open the line for questions and answers. Operator?

(Operator Instructions) Jeffrey Campbell, Alliance Global Partners.

Good morning.

Hi, Jeff.

In reference to your margin commentary this morning, can you articulate what proportion of backlog represents those pre-COVID commitments that presumably do not include cost inflation pass-throughs as opposed to those projects that will allow you to better address market conditions?

Yeah. We estimate approximately 10% to 15% of the existing backlog are from contracts previously signed that would be impacted.

Okay. That's very helpful. Thank you.

Historically, residential solars tended to be more labor intensive and lower margin than utility-scale solar installations. I was wondering what -- if there are primary reasons, I was wondering what things to motivate the creation of iSun Residential?

Yeah. We view the -- viewing the adoption of the EVs and the increase in demand in residential energy as a major driver for people to embrace solar. I think that they had there in Harris Poll out recently that said that 70% of new residential solar installations are approach from an investor point of view. And we think that if we can drive lower customer acquisition costs with some white glove ultra-high-touch service with those customers, that we have the ability to resell and cross-sell and upsell each one of these customers to generate a long-term customer that we can continue to go back to and service over time.

That's helpful. I was also wondering if the decision embraced the residential might represent some sort of a hedge to expose yourself in distributed energy in addition to grid solar. And here, I'm thinking about something in your neighborhood, which is the continued struggle to get the NECEC approved in Maine. It seems like no matter how much people like clean energy, there's still a high-voltage power lines.

Yeah. Certainly, the large-scale solar projects are not immune to the [newly] factor that exists there. I wouldn't necessarily call it a hedge. I think what we're seeing is a massive transition in the way that we're going to be consuming electricity in the future. And a lot of that will happen at home. With batteries and software in the transition to EVs, there's going to be this evolving opportunity that will exist.

And we think it's really important for a company like ours as we're building this platform out to really be touching each one of those different sectors and serving each one of those customers. That will help us better understand both the industry and the customer needs and then how to look ahead and better serve our customers.

And I'll ask one, last one then turn it over. I thought a lot of off-grid solar carport effort is an interesting niche. I wanted to ask about the continued efforts to develop iSun with commercial customers to include it in any of the solar projects in your backlog, and also for an update regarding the acquisitions that you made earlier this year with iSun carports in mind, [mainly] about software acquisitions.

Yeah, absolutely. So we view the carports and certainly the off-grid as a massive opportunity. As EV adoption accelerates, there's the -- I think every EV driver would say that there's always this ranging value that exists. And having the ability to have resiliency available for reduced grid interruptions or natural disasters or even in remote areas for the EV driver, I think is incredibly important.

We also think that this will translate well to the commercial and business markets. As these businesses and institutions transition their fleets to EVs, there's naturally going to be this desire to reinvest in solar energy and stabilize their costs. And software will be a big component of that and how we use the batteries in the future and how we transition to those.

So obviously, with that in mind, our investment in AmpUp, which just had a follow-on investment from Goodyear Tire, that was important for us that we were making sure that we are innovative in providing solutions to our customers as we made this transition. So that was a big part of those decisions.

Okay, great. Thanks very much for the color.

You're welcome.

Thanks, Jeff.

Noel Parks, Tuohy Brothers.

Good morning.

Morning, Noel.

I had just a few things. Before the supply chain issue that you've seen, a lot of the industry have seen, I'm just curious, when you're communicating with the vendors, generally, if they're letting you know that there will be a delay of some sort, do they generally come through on the revised dates they give you, or is it more a matter of them sort of pushing off a little -- pushing up a little bit and they sort of slide in slide. I don't know if it's possible to characterize it across all your vendors, but I was just curious how that's unfolding.

Yeah. I think it is a challenge we're seeing different approaches by different vendors. I think what we've seen recently are the dates slipping -- dates have slipped a little bit on delivery timelines. And I think that's primarily due to -- maybe there were some over-promising and under-delivering earlier on in the pandemic.

And now, we feel like we're getting a more accurate representation of actual delivery dates as we move forward. This may be -- certainly it may be from the vendors not knowing, being aware of their specific timelines and have now taken a, I would call it a much more conservative approach on how they're estimating their delivery schedules.

Okay, great. Thanks. And you've mentioned just -- I think when you're on the topic of utility scale projects that you had a focus on reducing costs and moving projects more quickly to the pipeline, I'm just wondering what are the main steps that you need to go through in order to accomplish that.

Yeah. So we will provide land origination in developed sites. That tend to come to feasibility as quickly, provide engineering packages, and in-source engineering as well to assist developers and asset owners through that process as they have bandwidth issues and problems pushing projects as quickly as they would like to be ready to build. So we are there to provide those services really, with the approach to constructing these assets once they're through those services.

Got you. Thanks. I'm just wondering also on the commercial side; you of course have a crop of early adopters you've probably been thinking about and in the past is finding solar for some time. I'm just curious about the customers you're seeing now who are maybe just now getting serious about solar. Just wondering who they. Are they from particular industries? And I'm curious about what those conversations are like.

Yeah, absolutely. Yeah. I think we're seeing a renewed embracing of solar power by our customers I think, for a couple of reasons. Number one, the environmental aspect and how it represents their brand. So if you're a business out there and your consumers are coming to you having renewable energy and being able to point towards that as part of your values, I think it's helpful in your brand and how companies are represented in the marketplace. So we're seeing a lot of that.

In addition, it's about making these investments and getting return on that investment, and really future proofing against electricity costs.

Okay.

So we're seeing that as well.

Okay, great. And are there any implications -- again, as you get from the guys who are just now coming to the table, are there anything in the implications for your sales cycle? The companies that are just coming to the table now, do they need more handholding? And I was wondering is that something you're thinking about when you're forecasting your customer acquisition costs going forward?

Yeah. One of the reasons why we like the residential market, and the commercial market is that ultra-high-touch customer interaction. And when you're a business and you're going to spend hundreds of thousands of dollars in an investment to stabilize your energy costs in the future, that ultra-high-touch matters. And the residential and small commercial companies really have that down. And we want to be able to take what they've learned in the residential market and apply that to the commercial market so we can help these companies make their decisions quickly, know that they're contracting with a company that will do quality work and allow their asset and their investment to stand the test of time.

And so, yeah, I think as people are transitioning their fleets and thinking about renewable energy and looking to make that investment, I do believe that ultra-high-touch customer interaction is going to be incredibly important in commercial market. And so, our reach into the residential and small commercial market to build our strength there, I think it's incredibly important.

Great. Thanks a lot. That's all for me.

Thank you.

Thank you. We have no further questions in the queue with this time. Do you have any closing remarks you'd like to finish with?

Yes. I'd like to thank everybody for hopping on the call today and listening to our quarterly report, and hearing about our goals for the rest of 2021 and beyond. And we look forward to updating you on our progress in the future. Thank you.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.