SPI Energy Co., Ltd. (SPI) Earnings Call Transcript & Summary

Greetings, and welcome to SPI Energy's Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Randy Conone, Senior Vice President of Investor Relations and Finance. Randy?

Thank you, Paul. Joining me on the call today are SPI Energy's Chairman and CEO, Denton Peng; as well as our COO, H.K. Cheong. 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, Monday, April 4, 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's Chairman and CEO, Denton Peng, for opening remarks. Please go ahead.

Thank you, Randy, and good afternoon, everyone. I'm proud to report our team delivered a strong double-digit top line growth again in year 2021. Importantly, we fortified our foundations in multiple building segments, including expanding our residential solar operations and the product offerings, developing new utility and commercial scale solar projects, driving innovation and commercial success in our Virginia EV segment as strengthening our team at all levels and across all of our organizations. We have closed $14.7 million placement at a $10.79 per share and also secured attractive financing to fuel our expanding operations, including 4 convertible promissory notes each with $10 per share conversion price, reaching a total of nearly $70 million. Our strengthened position across both our solar and EV operations has enabled us to attract and retain highly experienced team members to driving new innovations and growth moving forward. Over the many successes of 2021 have significantly exchanged our foundation for future growth. I believe SPI is now stronger than it's ever been. We are in a great position to unlock value as we accelerate growth in the quarters ahead. I will now turn the call to our Chief Operating Officer, HK, to cover our operations and the key success in great detail. HK?

Thank you, Denton, and good afternoon, everyone. As Denton has noted, we achieved many milestones across all facets of our business in 2021. I'll begin with some further insight into our accomplishment in our various business units. So we continue to maintain strong market share in Australia for our SolarJuice business. SolarJuice provide end-to-end smart and clean energy solution to residential and commercial customers. We focused on roofing, solar, battery, EV channel, product and services and by developing a sustainable software and hardware platform, so we achieved a high degree of standardization and fast penetration into the marketplace. With whole value chain expertise, we are able to provide low-cost and high performance products and solutions. We have signed more than 5,000 B2B accounts since inception and maintained approximately 700 active customers ordering monthly, so we have delivered more than 900-megawatt solar modules, 2 gigawatt of inverters and more than 75 megawatts in batteries. In addition to proprietary products we distribute for many of the top brands, including Tesla, REC, Hyundai, Fronius, SMA and more. Our acquisition of the asset of Petersen-Dean in February 2021 has accelerated our entrance into the U.S. residential solar market. As we speak, Petersen-Dean is a large residential roofing company in the U.S. and the leading solar installer in California and other top markets, generating $345 million in sales in 2019 across 5 states. So we will be -- we were able to acquire the Petersen-Dean at extremely attractive terms after the company fell into bankruptcy in the wake of COVID in 2020. So with California leading the way with a mandate on home builders to pre-install solar system beginning last year on owning home construction, we are in a great position to benefit from the market tailwinds. Petersen-Dean Solar4America brand is well recognized in California and throughout the U.S., building on this foundation of strength. We launched a new Solar4America website in 2021 that showcase our brand of solar modules, batteries, smart roofing products and services. We also launched our high-efficiency solar modules, our residential battery storage solutions, C&I outdoor energy storage cabinet solution as well as a new cloud-based solar monitoring and maintenance program all under Solar4America. Moving forward, we plan to evolve our SolarJuice and Solar4America's businesses from their current installation and distribution focus to complete a smart home energy solution provider with in-house sales and installation complemented by a growing franchise and dealership model to provide quick expansion into new markets. Now turning to our commercial and utility scale solar operation under SPI Solar and Orange Power. SPI Solar started business in California in 2006 and has delivered some of the most recognizable solar PV project in the world, including the Staples Center in Los Angeles and the Golden 1 Center in Sacramento, California. Through long-term relationship with leading component suppliers, we are able to offer the best highest performance for our customers. Our current U.S. development pipeline includes of 117 megawatts project in Maryland, 78.4 megawatts of project in Illinois, 10.24 megawatts across 2 tranches of solar project in Maui and Kona Island of Hawaii, 6.5 megawatts solar project and 5.45 megawatt hour energy solar project in Massachusetts, also 10 project of 1 megawatt each in Central East of Europe. To better capitalize our growing opportunities in both the U.S. and Europe, we launched Orange Power in 2020. Orange Power owns and operate a portfolio of distributed energy resources, including solar PV and storage. Through long-term power purchase agreements, Orange Power sells energy to creditworthy offtakers, resulting in stable and predictable cash flows. Moving forward, we aim to continue to acquire solar project in various stages of development, including new construction project to increase the asset base and drive the growth. We currently have approximately 16.8 megawatts in operation under Orange Power, 20 megawatts under construction in the U.S. and our partner project would add up additional 440 megawatts over the next 4 years. Our EV business, which was first launched in the second half of 2020, saw tremendous progress last year, thanks to the tireless work of our all-star team, Phoenix Motorcars surpassed 3 million all electric miles for its EV last year, and we are continuing to move forward with the plan to see in this potential high-growth business of in an IPO as a way of unlocking traditional value for our shareholders. In addition to advancement in EV development in Phoenix launch, a full ranges of EV charging station for the U.S. market last year as well as the new long life cycle lithium-ion electric forklift for warehouse operations. Complementing the success of Phoenix Motorcar, our EdisonFuture business debuted its first all-electric pickup trucks and delivery van partake at the LA Auto Show in the fourth quarter of last year, both vehicle employing our patent pending for battery solar retractable growth technology. We also entered the electric scooter market last year through EdisonFuture's acquisition of Shared Technologies assets, launching the Zoomer 2 scooters and opening an Amazon store either for the company right in electric scooter business. Lastly, important to our facet of our EV business, we secured a long-term supply agreement with a leading global battery manufacturer last year, which will be key as well as key operation moving forward. I will now hand the call back to Randy for a discussion of our financial performance in 2021 as well as our guidance for 2022. Randy, over to you. Thank you.

Thank you, HK. This is the company's first year filing as a U.S. company on Form 10-K. Meanwhile, we moved our headquarters to California last year. We look forward to providing investors with the increased transparency and timeliness of reporting our performance on a quarterly basis. For fiscal 2021, our net sales increased nearly 17% to $162 million, up from $138.6 million in 2020. Revenues continue to be mainly driven by increasing sales from our solar business lines, although we expect EV revenues to represent an increasingly larger share of overall revenues moving forward. Our cost of revenues, which consists primarily of raw materials and labor costs, increased to $151.4 million in 2021, up from $121.8 million in 2020 and in line with our increased sales. Our gross profit decreased to $10.6 million in 2021 with gross margins coming in at 6.6% for the year. The decrease in gross margin was primarily a result of negative gross margins from inefficient operations of our new roofing and solar systems installation business when we first acquired these assets. General and administrative expenses were $41.8 million or 25.8% of net sales in 2021, up from $13.5 million in 2020. The increase was mainly due to increased expenses from our expanding EV business as well as the increased expenses related to our roofing and solar installation business unit that was acquired in February 2021. Total operating expenses were $52.1 million in 2021, representing approximately 32% of net sales. The Petersen-Dean contracts acquisition also drove an increase in our sales, marketing and customer service expenses, which were $7.6 million in 2021, up from $2.2 million in 2020. Interest expense was $5.1 million in 2021, up from $3.8 million in 2020, mainly due to an increase in our convertible bonds and other borrowings. Together, these and other factors resulted in a net loss of $4.8 million in 2021, up from a net loss of $6.3 million in 2020. As of December 31, 2021, we had $17.8 million of cash, cash equivalents and restricted cash and the total book value of our assets was $228 million. Now turning to the year ahead. Our residential solar business is expected and a primary revenue driver in 2022, with EV sales accelerating as the year progresses, and we estimate an overall revenue range of $200 million to $220 million for 2022. This range takes into consideration the ongoing logistics and supply chain challenges. We look forward to sharing our ongoing successes with you in future updates. We'll now open the call for questions.

[Operator Instructions] Our first question is from Tate Sullivan with Maxim Group.

First question on the '22 revenue guidance of $200 million to $220 million, and you gave details on the accelerating revenue growth. Can you talk about what changed? I believe your guidance range increased from March to $200 million to $220 million from $190 million to $210 million. Can you talk about what changed in the last month, please?

I think it's been fairly consistent. So in percentage terms, as we mentioned in the call, the EV contribution should go up a little bit, but it's an estimate. And I think we are in the sort of $200 million range before, if I'm not mistaken.

Okay. And then can you talk a little bit about the decision or mention us solar manufacturing business in the United States and where you plan to have capacity go and what are you selling mostly to external customers? Are you selling partly to SolarJuice? Can you talk more about that solar manufacturing business, please?

Sure. That's a new initiative of SolarJuice, the residential and small commercial division of SPI. And initially, we're going to be manufacturing the solar panels in Sacramento, California. We're in the process of purchasing and installing equipment to do so, and that will be an ongoing project through the rest of this year. We'll produce some solar panels this year, and we expect to produce a much larger number next year once all the equipment gets installed and is operating.

Okay. And then one more for me, please, for Phoenix and the 10-K indicated $11.1 million of backlog for both the blended vehicles and electric drive systems. Can you give a rough -- is that a 12-month backlog? Or what are the variables to deliver that backlog, please, in terms of timing?

I think it's less than that. It's probably -- I'm not exactly sure, but I think it's probably 2 or 3 quarters.

Okay, the backlog will be delivering vehicles sometime this year?

Right.

[Operator Instructions] Our next question is from Mike Samuels with Berthel, Fisher.

It looks like a great quarter, guys. Could you just go over a little bit in terms of like how long do you think it will be to profitability or free cash flow?

So we're expecting to be, I would say, at the cusp of free cash flow later this year. By division, the solar division, we'll be generating cash flow, and the EV division is going to be burning some cash in the near term as we ramp it up. So when you blend it for SPI, they offset somewhat. But as we mentioned, the solar division is much larger, so it should have a disproportionate impact.