PowerBank Corp (SUUN) 2025 Q3 法說會逐字稿

All right, hello everyone. So thank you for standing by. Good afternoon and welcome to the SolarBank fiscal third-quarter 2025 financial results and corporate update conference call. My name is Megan Haley.

At this time, all participants are in a listen-only mode. And after today's presentation, there will be a question-and-answer session, which will feature previously received questions. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet, and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call and accessible on the Investor Relations portion of our website for access for 30 days.

Today, the company issued a press release for its financial results for the fiscal third quarter ended March 2025. A copy of that press release can be found on the company's website at solarbankcorp.com, under the Investor tab.

Joining me on today's earning call from SolarBank's management team are Dr. Richard Lu, Chief Executive Officer; and Sam Sun, Chief Financial Officer.

During this call, management will be making forward-looking statements, including statements that address SolarBank's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

For more information about these risks, please refer to the risk factors described in SolarBank's annual information form, most recently filed annual report on Form 40-F, and subsequent periodic reports filed with the SEC, SEDAR and SolarBank's press release that accompanies this call, particularly the cautionary statements in it.

The content of this call contains time-sensitive information that is accurate only as of today, May 15, 2025. Except as required by law, SolarBank disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It is now my pleasure to turn the call over to CEO, Dr. Richard Lu.

Thank you, Megan. Good afternoon to everyone on the call. Prior to turning this call over to our CFO, Sam Sun, I'd like to highlight some of our existing progress to accompany our filing and financial report for the year to date and the fiscal third-quarter 2025. We're going to focus our presentation today on our nine months year to date results.

As of today, we are sitting with project representing approximately 146 megawatts that are expected to reach notice to proceed within the next 12 months, which we believe has the potential to grow by an order of magnitude in the coming years. Solar power is undeniably a source of energy that has unique significant cost and environmental benefits to power producers and consumers alike, as technology continues to propel solar's proliferation across the globe.

For the first nine months of fiscal 2025, we reported $29 million in revenue, down $21 million compared to last year's same period. Our largest category last year, EPC, Engineering Procurement Construction services, was down approximately $27 million to $20 million. As discussed the last quarter, the SolarBank went public for the purpose of being able to own more assets and grow its independent power producer business. This strategy is going to provide a high margin recurring long-term revenue to the company.

The historical develop to sell model, which will produce higher revenue has been successful, but the revenues can be lumpy. So by keeping more of the assets that we are developing as an owner is necessarily going to mean a reduction in the EPC revenue. So it's not -- the revenue reduction is not because of projects development or execution, but rather than changing policy from build to sell to build to own.

We raised the funding from Highbridge, which is owned by JP Morgan, who invested 140-plus in energy companies and is a very high quality institutional investor that is closed during the quarter with almost all of those funds allocated to grow our IPP portfolio.

The IPP production generated the $6.5 million in high margin revenue. This is a significant increase compared to $215,000 in the prior fiscal nine-month period. This revenue represents recurring asset-based revenue for zero-emitting electricity supplied to our customers, such as electrical system operators and municipal governments. To end the score, believe IPP revenues will grow over time. In lockstep with the solar power plants, we built that we choose to own upon completion.

I'd like to also highlight some of the announcement events and milestones in the quarter that support the conviction that we are well positioned for growth.

We announced among many projects that our 3 megawatts Camillus solar project has been sold to and will now under construction for solar advocate a wholly-owned subsidiary of Charleys for valued at $7.3 million. That's a revenue addition.

We commenced the construction of our first large scale battery storage projects with a ISO ELT-1 contract for 21 years. That's a capacity contract. That project is located in Ontario, Canada, known as the SFF-06 project. That project is financed with long-term debt from Royal Bank of Canada and equity from ourselves. And that will be our first large-scale battery-stored project that added to our RPP fleet.

We also have a significant portfolio of community solar projects in New York and Nova Scotia that are advancing supporting our total development pipeline of more than 1 gigawatt.

Worth mentioning is that the announcement in Canada, giving the overall background that geopolitics, that Canadian government is heavily investing in Canada and our team working with AI renewable which flows through fund have obtained the first batch of community solar projects in Nova Scotia. We will continue to explore that any opportunities in the renewable energy in Canada.

We complete a registered direct offering with a single institution investor, which is Highbridge owned by JP Morgan for aggregate growth proceeds approximately USD8.5 million. And that's up to an additional $10.7 million may be funded upon full cash exercise of the warrant at a 20% premium. That warrant has been issued to Highbridge at the closing of this financing.

We also have entered into a mandate letter, as you see from our announcement, with the CIM Group, which is a $60 billion company in the West Coast, that they have heavily invested in real estate, in renewable energy, in battery storage, and other long-term assets. And that commitment letter gave us up to $100 million preferred equity to own project that is going to be used to finance a portfolio of 97 megawatt solar power project located in the United States.

So those are the significant milestones and events. You can see the company, even though our revenue being reducing because we purposely decide to keep the project while, you know, establish ourselves as a stronger IPP provider owning and operating assets going forward.

I also want to comment on the recent announcement of the increased tariff on those Southeast Asian countries and our plan to manage its supply chain. SolarBank has not been importing solar panels from any of the four countries that are subject to the tariffs announced by the US Department Commerce on April 21, 2025.

As a result, our present operations are not affected by this announcement. And in addition, SolarBank has been exploring sourcing solar panels from other international markets and also from North America. Our relationship with Qcells, not only selling projects to Qcells for them to deploy their made in the US panels, but there's also a relationship we start to establish going forward, move our supply chain to the US where domestic assembled solar panels are becoming more cost competitive with the panels imported from international market.

SolarBank also has significant development opportunities in Canada, as I mentioned, specifically in Nova Scotia, in Ontario, in BC, and other provinces, including Alberta, which we are building for Fiora on the commercial and the industrial buildings where solar panels are not subject to the same tariffs.

So finally, I am expecting that electricity cost will increase in response to those tariffs, which will further mitigate the financial impact on our projects. Overall, SolarBank is well positioned to manage this risk.

Now, I'd like to turn the call over to Sam Sun, who is our CFO, who will review our financial results in more detail. Sam, please.

Thank you, Richard. First, please note that all figures are in dollars, and again, we are going to cover the nine month numbers with the quarter numbers available in filings.

As was submitted today, Our total revenue for the nine months was $29 million versus approximately $50 million in the prior year period time, a decrease of approximately 42%. As Richard just mentioned, the decline in revenue was primarily due to a $27 million decline in EPC service revenue, partially offset by over $6.5 million in IPP revenue, which compared with $267,000 in the prior year.

Revenue from dividend fees and other sources were relatively up-changed. The gross margin for nine months lowered approximately 19.9% compared to 20.4% in the last year same period. There was $1.5 million depreciation in fixed assets included in the gross margin, which is non-cash item and for about 5% margin. Additionally, due to signal factors, the margin contribution from IPP revenue tend to be lower during the winter and the spring months.

We anticipate a significant improvement in both revenue and gross margin in the fourth quarter. Excuse me.

Our operating expenses were approximately $12.6 million for nine months compared to $8.1 million in the prior year period. Lower sales in the first three quarters has increased our operating expenses as a percentage of sales, but we are targeting a continued decrease in operating expenses as a percentage of sales as we scale and continue to maintain a careful eye over our operating costs.

As noted in the press release we were issued today, the just the EBITDA of minus $23,000 as compared to the positive $2.3 million in the prior year's period.

Net loss for the nine months was approximately $9 million, or $0.29 per share, basic share, compared to the net income of $5.5 million, or $0.20 per basic share in the prior year period.

For the period ending March 31, 2025, SolarBank reported $45 million in current assets. an increase of $28 million compared to the end of fiscal 2024. The increase is mainly due to an increase in cash, receivables, and inventory. Current liabilities increased $27 million to $40 million as of March 31, 2025, mainly due to an increase in payables and the current portion of long-term debt, which is almost entirely non-required. project level debt assumed as part of the solar flow through acquisition.

Long-term debt as of March 31, 2025 was $59 million, an increase of approximately $54 million from year end. Our debt consists of primarily of project debt, which is non-recourse, and our projections out in 2025 indicate that the current level of debt is certainly manageable relative to the projected adjusted EBITDA and other key balance sheet metrics that we monitor very closely.

We'd like to point out that our largest lenders of top North American financial institutions such as RBC, which we announced back in last November, provided a loan for $25 million for 24.7 megawatt by 4 hours battery system project to be located in Ontario. We continue to be able to achieve very favorable financing terms, particularly considering our firm's size, which you can find detailed in our filings.

Our cash and short-term investment was approximately $25 million at March 31, 2025, compared to $6 million at the end of last fiscal year. A portion of the cash position is required to be maintained in pursuit of term of credit agreement assumed as part of the solar flow through acquisition. We continue to believe we can execute on our strategic growth for the remainder of 2025 and beyond, which includes continued growth of IPP portfolio and execution on the development pipelines.

That concludes my remarks and I will turn it back to Richard for remaining comments. Thank you.

Thank you, Sam. That's great. And before we open up for questions and answers, I'd like to make some remarks on the market and SolarBank's current conditions.

To start with, listeners here probably thinking, wow, the company actually had a huge revenue reduction. What's going on? Is the company in difficulties?

It is not. It is not. So the first remark I'd like to make is about what is SolarBank's strategy going forward to grow as a North American renewable energy player, okay? In our corporate deck and in the discussions or road shows that I have been performing, that we always shared from day one that this company's growth strategy are twofold.

Number one is the model, is the traditional model as we started back to 2013 is develop, build, operate, and sell. In other words, we don't take ownership. And because of the nature that the revenue is very high, as you can see last year, it $60 million. Now, we are $40 million. That function is truly designed to meet corporate Americans' needs.

As you know, our customers are Charleys Philly Cheesesteak, and they are a premium fast food chain and the owner has a desire to do something for the environment, while very philanthropic in the renewable energy area.

Our customers have been Honeywell, as you know, in addition to their investment and the tax management needs. They do care about environment, so that was for their super fund site and also help them to achieve their ESG goals.

We have, you know, QCell as our customer. And not only they are a US manufacturer in the solar equipment, but also they want to contribute to the owning and assets to develop renewable energy, right? So when you look at those ones, that are the corporate requirement of our project that will always be there. So we will always have a component to service our existing and future customers, like the names I mentioned.

On the other hand, when we went to public that through the travels that we'll hear clearly and loudly from the investment community, that this company needs to have recurrent revenue, which we need to shift our model from develop, build, operate and sell to develop, build, operate and own. So we have very methodically looking at those strategy shift.

As you can see that our revenue from a couple of hundred thousand, now is in the millions. And you will see going forward that that part of business will grow significantly that in parallel matching our revenue side of things. So the revenue deduction is by design through the technical shift from built to sell, to build to own. So that's the first comment on the our strategy.

The second comment was really about the risk mitigation. through vertical integration. As everyone on this call realize that North American is going through a huge fundamental change because of the geopolitics, because of the new administration. I think overall that we are very comfortable with the initiative to make American great again, especially when they talk about make the US as a energy dominant country. and recall all the manufacturing facilities.

So that's in the long run will have a benefit. However, what about short term? The first concern is tariff. As I mentioned before, the tariff announcement did not impact us, because we have never taken any delivery from mainland China. We have been taking delivery from Southeast Asia for some time.

Now we are moved to other international market and also moved to the states. Giving the increase the cost matched with the increase the incentive and also giving the increase of electricity price because utilities cannot absorb the tariff that your electricity price will increase which means our revenue increase. So from that perspective that the tariff you know to our impact is neutral, minimum or too positive.

And then we also achieved negotiations with our long-term suppliers. Any tariff will be shared 50-50 going forward. So that's on the tariff side. The second one on the political risk is the investment tax credit. As you can see, yesterday or two days ago, the Means and Waste Committee published their RTC reduction schedule. For residential, it's very detrimental, could be end of this year, 2025.

However, for commercial, industrial, and other community, even large scale, the schedule won't start until 2028 or 2029. And I think we're fully baked into those scheduling into our operation and we will continue to deliver the strategies that we have been discussing. So that's on the RTC.

The third one under this risk mitigation is really the energy market. As I always share with you that energy market participants operating in a price-taking environment, which requires the operators such as SolarBank to manage their costs and to increase their production.

So we have a vertically integrated system, we call it, production line from development to construction to operation maintenance and all the way to asset management. Because we have the capability from A to Z that all those in-house activities will allow us to managing our cost to simplify our process and focus on our cost reduction on especially at this moment cost on productivity and increase of the volume, right?

So now if you look at energy market, the demand is increasing more than ever because of the digital economy. The supply is really slow coming online. As you can see that the old thermal plants are at the end of the service life. The new gas plants takes about five years to build. SMRs are in the 10-year horizon.

What's really can deliver now is really in the next three to five years is really solar, wind, natural gas, and other, in a smaller degree, thermal plants. So the approach about all above approach in energy truly plays to our favor because we with 1.2 gigawatts of pipeline continue in the area of mergers and acquisitions, we'll be able to deliver energy at a cost that is competitive with the market in the short term, hence, producing further investor returns to our investors.

So that's the second comment in terms of risk mitigation and our defensive mechanism as the vertical integrated company. The third one comment is really about the company's strong cash position and financial sustainability, right? Compared to the same year last year, we have about the $6 million cash and today we're sitting on $25 million cash, right? So that's how careful or how skillful that we found this company in a very, very defendable position.

So If you look at broader case, our relationship with financial institutions are very strong and are growing. Traditionally, we take long-term debt from PNC, continue to be a good partner. We are working closely with Royal Bank of Canada in Canada. And M&T Bank in the States has been great in terms of helping us in terms of operating needs. Seminole Financials being a good partner with us on the ITC on the project financing.

Now with Highbridge, a JP Morgan fund, be a major institutional investor and continue to invest in us. Further strengthens that our connection with the institutional investors and the financial world. And of course, the CIM, a $60 billion company, offered us $100 million of preferred equity was certainly a top it up in securing our strong financial environment.

On the other hand, we -- operating in the renewable energy business. As you know, we don't do residential business, right? On the large scale, we only do projects when it's paired with a strong demand customers such as data centers. Our core business in this area is really about commercial industrial. We're working with Pure Industries, which is a BlackRock-owned company.

We're working with Fiora, which is a $7 billion or $8 billion real estate company. We, of course, the community solar is our bread and butter, right? So all of those things, if you look at the quality of customers, right? not to mention the name that I mentioned, the Fiora or Pure Industries and so on; Honeywell, example, Charley's, example, the ISO, for example, Qcell, for example.

So when you look at our strong cash position, we're sitting on $24 million cash that will give us 15 months of runway matched with strong financial connections and the customers. So this company is well positioned to whether any of the foreseeable financial or market volatilities. And I'm really excited and I will say time will tell.

Certainly, this company is slowly but surely will achieve our technical shift from build to sell to build own and balance the needs of Copper American and also the needs of our investors.

I'd like to turn over to the operator, Megan, so that we can begin some of the questions and answers.

Okay, great. Thank you, Richard. So we're now going to conduct a Q&A session. I did notice a hand up currently, and as everyone on the call will need to remain on mute, please do submit the question through the Q&A function on the call. So now to get started with the first question, this is for Richard. So could you please elaborate more about the Trump government's impact on the business?

I touched upon on Carrefour RTC, but I will say, you know, if you look at, you know, Trump's government, what they want, right? They want to make American great again. They want to make an American ape. energy dominant country, right? And they want to bring manufacturing to reestablish manufacturing mighty of the United States, right? So from us, if you look at our business, we have been purposely focusing in on the Canada and the US market.

We did not go global as most of our competitors went, right? That is the purpose that we'll say as the countries, both US and Canada become stronger and stronger, so will be our business. So that's the first one, make American grid again, benefit our business.

Secondly, he talked about, you know, the domesticate of the manufacturing, right? We understand that today, China probably is a dominant party in renewable energy in other areas of so and so forth. They supply the majority of the materials in solar, in wind and so so forth. but those technologies are easily transferable. The same as more than 20, 30 years ago when we transfer technologies to the Far East, right?

So we have been in touch with at least a dozen manufacturers, whether they from China or from other countries that in sales, in modules, in inverters and so on and so forth. Because of the CIM connection, we actually are in term sheet discussions with US companies where solar cells is made, where modules made. So from that perspective, as you bring the manufacturing back to the USA, that will give us a stronger connection, at least at this moment, taking advantage of the ITC and the PTC.

So that's the second implication of this recall of the manufacturing back to the US. Of course, the last one he talked about is that make us a energy dominant in the country. Not only he likes to drill baby drill, as you know, in North American, the production probably is less profitable if the oil price is less than $70 a barrel and currently I believe is around 56. There's no drill, right?

So where's the power coming from, right? So obviously we can do natural gas. Obviously we can extend the life of the thermal plants. Obviously we can refurbish the existing nuclear reactors. Obviously we can continue our pursuit for fusion in the near term SMRs. What is in hand is the momentum of renewables, whether it's the solar and the wind. and to deliver in the next three to five years. So this is all above approach. In the background of making US an energy dominant country, help us give us a reminder that we are in a business that keeps lights on. We are in the business to keep people connected.

As the data center business going forward and we are part of as their power partner, that will further strengthen the need for the product produced by our RTP fleet and also indirectly through our customers such as Honeywell, such as QCEL, such as Charities that will make the all the above energy approach more profitable and prevalent in the States. So I know it's a long answer, but I will say the policy benefits companies like us in the long run.

Okay, fantastic. Thank you so much. And just a couple more questions have come in here for you, Richard. So the first is, are you able to provide any color on the critical path forward to definitive documentation under the CIM funding agreement? So as a public company, they obviously will comply with the disclosure requirement of the CIM documentation, right?

As you can see, I can give you a high level But I think on further details, was certainly was working with our corporate council to make it available as allowed, right? So effectively speaking is that the CIM is a takeout financing that enable us to engage of a bridge loans or other means to fund the construction of 97 megawatts of community solar project in Upper State New York.

As the project is achieving mechanical completion, 20% of the revolvers or the bridge loan will be paid out. And shortly after mechanical completion, as the project is closed, connected into commercial operation, that the remaining 80% will be paid out. So from there, the project will be owned by CIM for a period of, let's say, five years.

And eventually, SolarBank will be the long-term owner It's almost the same as a part and flip model that happened very often in the United States. Okay, thanks very much. And the last question for you here is looking at the revenue mix, should we expect the IPP segment to continue to take a larger share of the mix in the coming quarters? Or is this more of a calendar 2026 type development?

So historically, if you look at the back to 2020, 2013, all the way, I would say till 2020, our revenue are purely by building to sell, right? So that's the increasing The year we went public, went to $60 million. And that's where, based on the input from our investors, that we decided to do a technical shift from build to sell to build to own. So you will see that the revenue side that will continue to service the corporate Americans needs.

And now the recurring revenue become a more and more significant. component of the total revenue. Last year was a couple of hundred thousand dollars. This year is already in the millions. Next year will be in the tens of millions and so on and so forth. Our goal is to have a balanced approach in the next, I would say, two to three years and to balance our income so that we can both service corporate American, also service our shareholders.

Okay, great, thank you so much. So our next question here is for Sam. So Sam, could you tell us why is the three month IPP revenue only $1.1 million, which is only one sixth of our nine month IPP revenue?

This is very typical in the solar industry called a peak sun hours. That's the crucial factor impact our IPP revenue. Usually in winter time and spring time, the peak sun hours much lower than in summertime. So if we're looking at the $10 million annual revenue in the IPP portfolio, typically we're looking at probably $1 million, $1.5 million on the revenue holder in winter or hot spring time versus the three to four million dollars for revenue in summertime. So that's the rating.

Thank you. Okay, thank you. And our next question here, why has the percentage of operating expenses to the total revenue increased compared to the last fiscal year?

That's very good question. So if we look at the. The bigger picture on the major reasons that there are twofold. The first is the revenue decrease by $20 million.

As Richard mentioned, we do have this is not here and also one thing I would like to mention here. So before we can recognize the revenue based on the accounting and FRS policy. the team needs to do a tons of work, non-financial work to bring the project to start the construction, the engineering and procurement. So for the past few months, the team has done tons of work to prepare the four projects we sold to kill cells to ready to build.

So the team is ready and a lot of equipment has been procured. So we anticipated there will be a huge catch up of the revenue in Q4. And the second factor here is the depreciation.

Compared to the last fiscal year, there were only $300,000 depreciation. We incurred almost $4 million depreciation in the first nine months this year, which decreased the percentage of or increase the percentage of the operating expense compared to the total revenue. So in summary, anticipate the company will improve those financial metrics in Q4 and the next fiscal year.

Thank you. Great, thank you so much, Sam. And our last question just coming in from the chat here is to either Sam or Richard, how might state level policies, community initiatives and corporate buyers counterbalance any federal level uncertainty around sustainable energy goals?

So as the audience know that energy is a state or provincial jurisdiction. So at the federal level or at the top level, they are really about the policies such as the taxation policies and overall inflation reduction policies, so on and so forth. So that's a broad application of it. But at the end of the day, each of the states decide how to proceed with the energy needs.

In Canada, for example, We are in Ontario. We used to own half of the market of the small fit tariff program, right? We play in the ELT-1 program, so on and so forth. Those are all provincial programs enable us to participate to grow, right? Our team went to Nova Scotia because realizing Nova Scotia, New Brunswick, and Alberta are higher carbon content energy provinces and they have a better need. So their provincial policy encourages the development of lower or zero carbon electricity development, right?

So that's how much that state level or provincial level policy driven this. In the states as you know, we are only focused on the 22 states where community solar policy is there and we're not into the remaining states because there is no such a policy. You know, not to see the other states don't have renewable energy initiatives, just from a policy perspective, we feel more comfortable if the states that stated as law clearly and loudly that they support such an initiative and that we will move our resources, people, money and time into those states, right? So states policy is where we taking more action and in the backdrop of the federal level policies.

Wonderful. Thank you. So for that, Megan, I think you said that's the last question. I think I'm sure there's more questions, dear audience. Let us know. Email us. We will certainly want to continue to engage with our dear investment bankers, analysts, and our broader shareholders.

So at this moment, I want to thank all of you. for participating in today's call and for your interest in SolarBank. Thank you so much and you all have a wonderful evening.