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

Thank you for standing by, and welcome to the SPI Energy's Q1 earnings call. [Operator Instructions] As a reminder, this conference is being recorded, Monday, May 16, 2022. I would now like to turn the conference over to COO, H.K. Cheong. Please go ahead.

Thank you. Thank you. Joining me on the call today are SPI Energy 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 provision 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 the actual results to differ materially from those indicated, including we described in the company filings with the SEC. Any forward-looking statements made on this conference speak only as of today's 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 the opening remarks. Please go ahead, Denton.

Thank you, H.K., and good afternoon, everyone. Our team continued to deliver strong performance in the first quarter of 2022, generating double-digit top line growth alongside meaningful margin improvement. We have built solid foundation in high-growth markets that positioned SPI for accelerating growth as we capture on a rapid expanding demand for renewable energy and clean energy solutions. Our world-class team is building on a multi-dedicate track record of success. We further augmented this already impressive team in the first quarter with the addition of a former Daimler and Karma Auto Executive, Lance Zhou as the CEO of Phoenix Motors. Lance Zhou is a tremendous addition to our team and his experience and resource will have Phoenix Motor expanding to the next level, as this grows operations globally. I'm confident that our strong foundation, combined with growing industrial tailwinds places us in a great position to rapidly increase 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, H.K., to cover our operations and the key success in greater detail. H.K.?

Thank you, Denton. As Denton has noted, SPI had a strong first quarter with multiple milestones 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 -- Made-in-USA solar modules 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 facilities and expect to reach 1.1 gigawatts 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 are also excited to have launched new 380 watts and 410 watts 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 continues to wane, we had an opportunities 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 sales of a 5-megawatt solar plant in Hawaii during the first quarter and secured 2 large parcel of land 473 acres in Maryland and 465 acres in Illinois. On the Maryland parcel, we are moving forward with a 78-megawatt solar project and in Illinois, we are developing the 54-megawatt AC or 78.4 megawatt DC project. On the EV side of our business, we opened 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 an improved customer experience and better service options. Our new storefront is ideally located in a high-traffic area and complements 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 at Intersolar, our EV segment was extremely well received during the first quarter of both CES, where we showcased our EdisonFuture solar EV pickup truck and delivery van as well as the MODEX in Atlanta, where we featured our new line of Phoenix Motorcars, lithium-ion power, electric forklifts and pellet jacks. The electric forklifts 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 1 year compared to traditionally powered forklift units, which typically have longer payback periods. We believe this provides a great competitive advantage, as we look to drive sales growth in the quarter ahead. After successfully leading our EF1-T and EF1-V, solar pickup and delivery van at the Los Angeles Auto Show in the fourth quarter of last year, we will able to build on that momentum at CES, gathering a great level of interest in this exciting and innovative vehicles. Built on the same chassis, this next-generation EVs serve as an effective cleaner options for cargo and delivery needs that we believe will help many companies expand their sustainability of batteries. Lastly, subsequent to the quarter end, we relocated our corporate headquarters to Sacramento County in close proximity to our solar module manufacturing facility. As 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's first quarter filing as a 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 increased transparency and more timely reporting of our performance metric compared to our previous requirement as a foreign filer. For the quarter ended March 31, 2022, our net sales increased 14.6% to $38.5 million up from $33.6 million in quarter 1 of 2021. Revenues continue to be mainly driven by increasing sales from our solar business lines, although we expect EV revenues to represent an increasingly 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 1 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 the year ago period. The improvement in gross margin was primarily a result of significant indirect costs 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 a decrease in stock-based compensation expenses, which was partially offset by increased expenses related to the February 2021 acquisition of our roofing and solar installation business. Total operating expenses in quarter 1 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 expense was stable year-over-year at $1.4 million with no significant changes in our convertible bonds and other borrowings. Together, these and other sectors 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 31, 2022, we had $12.9 million in cash, cash equivalents and receipted 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 progressed. We believe this will ultimately drive our overall revenue to $200 million to $220 million for the year. This range takes 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 Instructions] Our first question comes from the line of Tate Sullivan with Maxim Group.

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 a Petersen-Dean acquisition last year. Can you remind me of the timing of when you close that acquisition, and how much of the year-over-year revenue growth was organic, if you can please?

Yes, we closed the acquisition of assets of Petersen-Dean [indiscernible] brand. So the assets we acquired at the end of February. So we are now in the process to build the business in other brands. We use the brand as Solar4America that we acquired from the asset to produce solar Made-in-USA module for business. So this will be a total business rebuilds in a different argument. The solar roofing insulation we acquired from Petersen-Dean is -- the business is growing and now starting from California, and we're now expansion to the business there in Florida and Texas, Colorado and also Nevada.

Great. Yes. 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? Will those be the Petersen-Dean installations? Are those commercial customers? Can you comment on the target customers for the Sacramento solar modules?

Yes. We started updating our first Made-in-USA modules at Sacramento facility in early this year. We started to produce and delivery to different customers. Some of course use our own installation and some use national level, other states also many installer also buy from us, also reselling through some commercial distribution company and also for commercial installation company. So now we have a different customer in California also in Washington State and also in other states. So it seems like demand is growing. We have received almost everything. Many customers visit our Sacramento facility. So demand is very strong. Maybe H.K., you can add any more color about that.

Yes. Yes, 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 in coming quarters, especially with the new line installation by the third quarter of this year. So we expect the capacity will be up to 700 megawatts by the third quarter and moving towards a 1.1 gigawatt target production capacity.

Can you -- what could that mean in terms of the revenue capacity of the facility? I know prices will fluctuate by the end of the year, but roughly, can you translate that gigawatts to potential revenue or can you at this time?

Yes. 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 40s to mid-50s. So with that capacity view up, we do expect significant growth in this solar module sales.

[Operator Instructions] And our last question comes from the line of Tim Moore with EF Hutton.

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 as 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?

Yes, I think that problem more really depend on how challenged of the logistics challenge. Do you understand this year, a lot of challenge for the EV sector and also solar sector for logistics. So this is really depending on how the logistics affect delay. Sometimes it's taken maybe 3 or 4 weeks just waiting on the port; even the material on the U.S., you're still waiting 3 or 4 weeks. Sometimes there are a lot of uncertainty for the supply chain, so -- both for EV sector and solar sector.

Understood. That's helpful. Regarding the ramp-up of the solar manufacturing, I saw a couple of 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?

In current situation, many customers, especially in EV sector and the solar module sector, many customers really now is thinking about the standing long-term contracts, maybe for years. And we see this is a really very, very good positive for manufacturing in U.S. And for the roofing solar installation business, normally, we deal with different kinds of the long-term customer relation that we acquired the asset before. So this is a business now when we have more capability to deliver from more markets, I think the business also continued growth.

Understood. 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?