SPI Energy Co., Ltd. (SPI) on Q1 2022 Results - Earnings Call Transcript
Operator: Thank you for standing by and welcome to SPI Energy's Q1 Earnings Call. During the presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Monday, May 16, 2022. I'd now like to turn the conference over to COO, HK Cheong. Please go ahead.
Hoong Khoeng Cheong: Thank you. Joining me on the call today are SPI Energy's Chairman and CEO, Denton Peng. So, before we begin, the company would like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. SPI cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the company's filings with the SEC. Any forward-looking statements made on this conference call speak only as of today date Monday, May 16, 2022, and SPI does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. I'd now like to turn the call over to SPI Chairman and CEO, Denton Peng, for opening remarks. Please go ahead, Denton.
Denton Peng: Thank you, HK and good afternoon, everyone. Our team continued to deliver strong performance in the first quarter of 2022, generating double-digit top line growth, along side meaningful margin improvement. We have built solid foundation in high growth market that positioned SPI for accelerating growth to be capitalized on rapid expanding demand for renewable energy and clean energy solutions. Our world-class team is building on multi dedicate track record of success. We further augmented this already impressive team in the first quarter with the addition of former Daimler and Karma Automotive executive Dr. Lance Zhou as the CEO of our Phoenix Motor. Dr. Lance is Chairman addition to our team and his experience and resource will have Phoenix Motor expanded to the next level as it grows operation globally. I'm confident that our strong foundation combined with growing industrial tailwinds placed us in a great position to write the increased market share across each of our business units, which will automatically enable us to unlock new value for our shareholders as we accelerate growth in the quarters ahead. I will turn the call over to our Chief Operating Officer, HK, to cover our operations and the key success in a greater detail. HK?
Hoong Khoeng Cheong: Thank you, Denton. As Denton has noted, SPI had a strong first quarter with multiple milestone achieved across all facets of our business. I will begin with some further insight into our accomplishment in our solar and battery storage business units. Most importantly, we began production of our make in use -- Made-in-USA solar module at our Sacramento facility during the first quarter. And delivery of finished products to local customer is now underway. With more demand that we can supply, we are already expanding our manufacturing capacity at these flagship facilities and expect to reach 1.1 gigawatt of production capacity. Our expanding capacity at this state-of-the-art solar module manufacturing facility, which combines California highly skilled workers with machine-to-machine connectivity features a high degree of precision automation that will drive continuous improvement of our PV modules manufacturing. We also excited to have launched new 380 watt and 410 watt solar panel for residential customer under our Solar4America brand during the first quarter, as well as the 450 and 550 watt commercial solar modules also under our brand of Solar4America. So, with COVID restrictions continued to vain, we had an opportunity to meet face-to-face with buyers at the Intersolar trade show during the first quarter, showcasing our Made-in-USA solar modules. Based on interest generated at the show, we are confident this product will perform very well as we continue to scale manufacturing capacity. Turning to our commercial and utility-scale operation under SPI Solar and Orange Power, we completed the deal of a 5 megawatt solar plant in Hawaii during the first quarter and secure two large parcel of land 473 acres in Maryland and 465 acre in Illinois. On the Maryland parcel, we are moving forward with the 78 megawatt solar project in Illinois we are developing the 54 megawatt AC or 78.4 megawatt DC project. On the EV side of our business, we open a retail shop and service center for our RideZoomers electric scooters in Fremont, California. The Bay area is a very large market opportunities for our products and right in our backyard. By opening the RideZoomers shops, we now have a way to directly connect with consumers while providing and improved customer experience and better service options. Our new storefront is ideally located in the high traffic area and compliments our expanding in-house direct-to-consumer sales program and the wide reach of our Amazon store strengthening our brand image and fast-tracking sales growth for this exciting business unit. Additionally, similar to the success we saw showcasing our solar product Intersolar, our EV segment was extremely well received during the first quarter of both CS, where we showcase our EdisonFuture solar EV pickup truck and delivery van, as well as MODEX in Atlanta, where we features our new line of Phoenix Motorcars lithium iron power, electric forklift, and pallet jacks. The electric forklift industry is rapidly expanding, and we are excited to be adding this green energy solution to our existing product portfolio, with the efficiency of this unit and the competitive pricing we provide customers can expect payback in less than one year compared to traditionally powerful late units, which typically have longer payback periods. We believe this provides a great competitive advantage as we look to drive sales growth in a quarter ahead. After successfully reading our EF1-T and EF1-V, solar pick up and delivery van at the Los Angeles Auto Show in the fourth quarter of last year, we were able to build on that momentum at CS, gathering a great level of interest in these exciting and innovative vehicles. Built on the same chassis, this next generation EVs stuff has effective cleaner options for cargo and delivery needs that we believe will help many companies expand their sustainability objectives. Lastly, subsequent to the quarter-end, we relocated our corporate headquarters to Sacramento County in close proximity to our solar module manufacturing facility. Sales continue to grow from our increasing production capacity. We believe this close proximity will provide tremendous strategic value, creating positive synergies across our solar and renewable energy business development efforts. So, this is the company first quarter filing as the U.S. company on Form 10-Q and follows the filing of our first annual report on Form 10-K in March. This translates to increase transparency and more timely reporting of our performance metric compared to our previous requirement as a foreign filer. For the quarter ended March 21st, 2022, our net sales increased 14.6% to $38.5 million, up from $33.6 million in quarter one of 2021. Revenues continued to be mainly driven by increasing sales from our solar business lines. Although, we expect EV revenues to represent an increasing large share of overall revenue moving forward. Our cost of revenues, which consists primarily of raw materials and labor costs, increased to $35.8 million in the first quarter, up from $31.5 million in quarter one of 2021. This led to gross profit increasing to $2.7 million in the first quarter, with gross margin increasing to 7.02% up from 6.36% in a year ago period. The improvement in gross margin was primarily a result of significant indirect cost incurred in the first quarter last year related to the acquisition of our roofing and solar business units. General and administrative expenses were $9.1 million or 23.7% of net sales in the first quarter of 2022 compared to $9.6 million or 28.5% of net sales in the first quarter of 2021. The decrease was mainly due to -- decrease in stock-based compensation expenses, which was partially offset by increased expenses related to the February 20th, 2021 acquisition of our roofing and solar installation business. Total operating expenses in quarter one were $9.7 million or 25.1% of the net sales, down from $10.6 million or 31.6% of net sales in the first quarter of 2021. Interest experience was stable year-over-year at $1.4 million, with no significant changes in our convertible bonds and other borrowings. Together these and other factors resulted in net loss of $6.8 million in the first quarter or 17.6% of net sales, a $1.3 million improvement from the net loss of $8.1 million or 24.1% of net sales reported in the first quarter of 2021. As of March 31st, 2022, we had $12.9 million in cash, cash equivalents and restricted cash. Now turning to the year ahead. As mentioned earlier, our residential solar business is expected to remain a primary revenue driver in 2022, with EV sales accelerating as the year progress. We believe this will ultimately drive our overall revenue to $200 million to $220 million for the year. This range fits into the consideration ongoing logistic and supply chain challenge globally. So, we look forward to sharing our ongoing success with you in future updates. We will now open the call for questions. Thank you.
Operator: Thank you. Our first question comes to line of Tate Sullivan with Maxim Group. Please proceed with the question.
Tate Sullivan: Hi. Thank you and great to see the 10-Q with all the detail on the revenue and gross profit breakdown. And if I may starting with the revenue from roofing and solar systems installations in the United States, and I believe that's mostly from the Petersen-Dean acquisition last year. Can you remind me of the timing of when you closed that acquisition, and how much of the year-over-year revenue growth was organic, if you can please?
Denton Peng: Yeah. We closed the acquisition of assets of -- sine just assets because it was just assets . Most business we rebuild and use Solar4America brand. So the asset we acquired end of February. So, we are now in the process to rebuild the business in other brands. We use the brand -- the Solar4America that we acquired from asset to produce solar Made-in-USA module for business. So, this will be a total business rebuilds and in a different argument. The solar roofing installation we acquired from is -- the business is growing. And now we starting from California and we are now extension to business there in the Florida and the Texas, Colorado, and also Nevada.
Tate Sullivan: Great. Yeah. I mean, just with backing into the number, the end of February close, still good year-over-year growth to $8.8 million. And then the Made-in-USA products for the solar modules, Denton, who are the primary customers for those modules? Were those be the Petersen-Dean installations? Are those commercial customers? Can you comment on the target customers for the Sacramento solar modules?
Denton Peng: Yeah. We started as beating our first Made-in-USA module at Sacramento facility in early this year. We're starting produced and it's delivery to different customers. Some, of course, use our own installation and some is a national level other states, also many installer also buy from us. Also, we selling through some commercial distribution company and also for all commercial installation company. So, now we have a different customer in California, also in Washington State and also in other states. So, seems like demand is growing. We have -- almost every week, many customers visit our Sacramento facility. So, demand is very strong. Maybe HK, you can add more about that.
Hoong Khoeng Cheong: Yeah. As Denton mentioned, we started the production in early -- in the first quarter and we are actually increasing in the second quarter. We expect more closing incoming quarters, especially with the new line installation by the third quarter of this year. So, we expect the capacity will be up to 700 megawatt by the third quarter and moving toward a 1.1 gigawatt target production capacity.
Tate Sullivan: Thank you. Can you -- what could that mean in terms of the revenue capacity of the facility? I know prices may flex -- will fluctuate by the end of the year, but roughly can you translate that gigawatts to potential revenue, or can you at this time?
Hoong Khoeng Cheong: Yeah. I mean, the pricing is a fluctuation, but we do see -- the pricing for watt based on the market today is probably in the high 40 to mid-50s. So, with that capacity view up, we do expect significant growth in this solar module sales.
Tate Sullivan: Great. Thank you for the time. And thank you for taking the questions.
Hoong Khoeng Cheong: Thank you. Thank you.
Operator: And our next question comes from the line of Tim Moore with EF Hutton. Please proceed with the question.
Tim Moore: Thanks. It was nice to see your operating loss narrow and gross margins expand. And to echo Tate's comments about shifting to quarterly filing. That's very helpful for investors. I guess, my first question, with your sales guidance range for the year after supply chain disruptions is a potential factor for the difference between the high-end and the low-end of the range. What else would maybe be the next factor that could maybe help you achieve the higher end? Is it roofing installations, or do you think it's more dependent on the solar panel manufacturing revenues later in the year?
Denton Peng: Yeah. I think that problem more really, really depend on the how challenge of the logistic challenge. You understand, this year a lot of challenge for EV sector and also solar sector for logistic. So, this is really depends how the logistics affect delay. Sometimes, it's taken maybe three or four weeks just waiting on the port, even the material or even in U.S., you see waiting three or four weeks. Sometimes, they have a lot of uncertainty for the supply chain. So, both for EV sector and solar sector.
Tim Moore: Understood. That's helpful. Regarding the ramp of the solar manufacturing, I saw a couple pictures from a trade show. Can you maybe share an example of your approach to winning new customers and gaining traction there? Do you think you're going to have to maybe discount it, 20% to maybe get a few customers to switch and sign up initially?
Denton Peng: Yeah. Current situation, many customers, especially in the EV sector and the solar module sector, many customers really now is thinking about signing long-term contract, maybe for years. And we see this is really very, very good positive for manufacturing in U.S. And for roofing solar installation business, normally, we deal with different kind of like long-term customer relations that we acquired assets before. So, this is a business now when we have a more capability, from more markets, I think the business also continue to grow.
Tim Moore: Okay. Understood that. That's good. Glad the production. And thanks for the commentary on the third quarter line installation. Just switching gears. Can you provide an update or commentary on separating the EV side from the solar side? And if there's possible timing for that later this year?
Denton Peng: Sorry. I didn’t get your question. Sorry.
Tim Moore: Sure. I was wondering if there's an update on possibly separating or spinning off the EVs side from the solar side, either splitting up SolarJuice or the electric vehicle sides, separate entities to really unmask the profit and free cash that's there on the solar side?
Denton Peng: Yeah. So, in our operation in the solar side, especially the SolarJuice Australian is already profitable for last three years is -- I think they will combine the U.S. business, especially solar module manufacturing. The business will be very profitable for coming years. So, this is growing business. And recently they have signed two gigawatt supply side with Sacramento. And also they're very good relation with solar power with Tesla to business in Australia and this business very, very profitable. So, I think the solar business in generally will come to very profit very soon. So we are in the process try to spin off this SolarJuice business for EV business, for the -- already public filing, if you see that few weeks ago. So we will be -- we had just set up a Tesla to have a price range. So, we are still target to listing our IPO as soon as possible as we can.
Tim Moore: Good. Yes, I did see that updated filing compared to late last year. I was wondering on general and administrative expense this year, could it come in similar to last year's because $42 million last year included some integration expenses and some investments that you were doing and money you had to put in behind the rolling the roof installation business. Do you have any kind of guidance or thoughts on how high the general and administration expense could be this year?
Denton Peng: Yeah. I think last year, because we have acquisition asset from the PST, the roofing and solar installation company. We also have a lot of IPO expenses and especially we have some non-cash base of share option for the accounting for both the EV company IPO and all these things. I think this year, our -- all these IPO related to the share base compensation, we'll be in last year. And also like, especially, this year, the solar solution business, there are no more one time cost of operation. So, it is also the billing size for, so SolarJuice will be turning to profitable. So, I think all expenses will be go down a lot compared to last year.
Tim Moore: Good. No, that's helpful. I was just wondering about the G&A expense line. My last question is about Phoenix, is the backlog similar to -- I believe it was $11 million at the end of December. And I'm just wondering, how has the interest been there for electric drive systems and vehicles the last few months, while stock market and just the global macro has been a little under pressure?
Denton Peng: Yeah. The demand for EV is still very strong. We have see -- our backlog still increasing, and of course, they have some change -- definite market evaluation of EV sector is going down a lot compared to last year and supply chain still a issue. But generally the demand for EV is very, very strong. So, our customers now is more -- have more customers interesting, especially some very meaningful customers. They want to really want starting -- probably want to have very big orders for futures. And this is -- as we see the demand for EV is getting stronger, stronger, and stronger. And we have delivered several product to the market and to some very good customers. So, I think we are in position to grow into very good level for the EV sector, especially next few years.
Tim Moore: Great. Thank you for that color and the details on that. That is it for my questions.
Denton Peng: Thank you.
Operator: Our next question is a follow-up from the line of Tate Sullivan with Maxim Group. Please proceed.
Tate Sullivan: Hi. Thank you for taking my question. Just first one balance sheet question, that you increased inventory by almost $4 million in the first quarter. Among your businesses, can you talk about what is that most of that inventory increase related to your Sacramento related expansion? Or can you comment on the inventory increase, please?
Denton Peng: Yes. So, this a challenge of, because of logistic issue, now you need increase in inventory for both EV production and also the solar module production. So, this inventory, we may increase for EV sector and also for the module manufacturing. But also for other material we normally -- so for you also need increase a little bit on inventory also, because to face the challenge of a logistic. Normally you order -- sometimes you order, just -- for just in time delivery, you order can order less, but now in try you meet our . So we need to order little more than before.
Tate Sullivan: Okay. Thank you. And one more for me, if I may. For your Australia versus U.S. exposure Denton, can you talk about -- a bit about what solar trends in your business in Australia versus the opportunity in the U.S.? Can you apply some of your expertise in the Australia solar market to the U.S.? Can you compare the two markets please?
Denton Peng: Yeah. Australia market is more focused on the residential and small commercial business. So U.S., we also -- we are expecting U.S. for some purpose. So, we see the Australia have a lot of relation with the supply chain. So, definitely we will be benefiting for the U.S. when we grow in the business here. And especially, U.S., we have a -- the many markets, especially California and also other very important solar markets. We see this relation -- we will happy to grow the U.S. business. But for Australia also -- we also have a plan to expansion to New Zealand and other Pacific Island also. So, definitely we will be -- this means is also growing probably like Caribbean Island also, it'll be very similar to Australia. So, this will have a lot to further increase the business internationally.
Tate Sullivan: Great. Thank you very much. Have a great rest of the day.
Denton Peng: Thank you.
Operator: There are no further questions at this time.
Denton Peng: Thank you very much. Thank you.
Hoong Khoeng Cheong: Thank you.
Operator: That does conclude the conference call for today. We thank you for your participation and ask you to please disconnect your lines.
Denton Peng: Thank you very much. Thank you.
