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

Good afternoon, and welcome to SPI Energy's Fiscal Year 2022 Conference Call. As a reminder, this call is being recorded. [Operator Instructions] On today's call, are SPI Energy's Chairman and CEO, Denton Peng; COO, H.K. Cheong; and George Milionis. 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 the 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's date, Tuesday, April 18, 2023, and SPI does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. I will now pass the call over to Denton Peng, Chairman and CEO. Mr. Peng?

Thank you, [indiscernible], and thank you to everyone for joining us today on our fiscal year 2022 earnings call. We are pleased to report we exceeded the top end of our guidance in 2022, generating of $177.5 million in revenue, up nearly 10% over fiscal year 2021. We are [indiscernible] guidance with revenue expected in the range of $250 million to $300 million in the year 2023. And this near-term expectation for positive EBITDA and net profitabilities, we are confident that we will deliver between $29 million and $36 million net income for the fiscal year 2023. These monumental milestones for SPI were made possible due to years of hard work for our teams who have been instrumental in tapping to building our renewable energy company platforms. This achievement is even more significant when considering our continued investment in our EV and our solar wafer manufacturing business in U.S., which are expected to further accelerate our overall growth in the quarters ahead as we strive to meet rapid growing demand. Thanks to the Inflation Reduction Act passed last year [indiscernible] given that our proud world-class team with multi-decade proven record of success have been built the strong foundation, particularly our American-made solar module and SEM Wafertech manufacturing business. It will place us in a great position to rapidly increase market share across each of our business units. Ultimately, it will enable us to unlock new value for our shareholders as we excel in growth in the quarters ahead. The last but not least, our independent power producing company, Orange Power and Australian distribution being SolarJuice have been profitable growth in the last 3 years. Our American module manufacturing business, Solar4America have been growing with ramping up capacity and tend to be profitable since Quarter 4 of 2022. And our solar project developing company, SPI Solar also expected to contribute profit to the group this year. With all our near-term expectations, we are confident that we will be EBITDA positive and net profitable and [indiscernible] deliver between $29 million and $36 million in net income for fiscal year 2023. I will now hand the call over to our Chief Operations Officer, H.K. Cheong, for further details of our operation performance in 2022. H.K.

Thank you, Denton. I would like to provide a quick recap of some major accomplishments by business units. Our solar project development business, SPI Solar accomplished multiple major milestones in 2022, including the completed sales of a 5-megawatt project in Hawaii. So we begin the development for 7.2 megawatts community solar project or the 34 acres land in Southern California and also begin the development on the second phase of our 32.4 megawatts show with solar projects on the 167 acres of land in Illinois. Additionally, we secured 473 acres of land in Maryland, for 78-megawatt utility scale solar project and 465 acres of land in Illinois, for 54-megawatt of utility scale projects. So on the Orange Power, our independent power producer IPP business produced approximately 55.9 million kilowatt hours of renewable energy from solar projects in the U.K., Italy, Greece and in Hawaii during 2022 and offsetting approximately 38,000 tons of greenhouse vessels. So Orange Power revenue were up by 30%, and net income increased 83% in 2022 when compared to the previous year. On Solar4America, our solar module manufacturing business after beginning production of our mix in U.S. solar modules in the second quarter of 2022, we finished strong with net profitability in this segment in the fourth quarter of 2022. Now we have 700-megawatt production capacity, providing high efficiency to a module for our residential, C&I and UTT customer. We set the stage for accelerated revenue and profit growth in 2023 as we continue to run production capacity at our supplemental facility as well as our second new release facility in South Carolina towards our previously stated goal of 2.4 gigawatts of production capacity. On SolarJuice Australia, the SolarJuice Australian recent business has been the leading distributor for our renewable product in Australia, and the business has been profitable growth in the last 3 years. The business expect to grow -- continue to grow in coming years with the cooperation with strategic partners such as Tesla, SMA, Fronius and Sungrow. Then the SCM wafer formation was one of our key achievements during the second half of 2022 as demand for solar continues to grow in the U.S., there is an increasingly need for locally make solar wafer. We are targeting delivery and production of solar vessel in the U.S. this year with capacity ramping to 3 gigawatts by 2024. Lastly, our EV business series smart cars was spun off last June, under the ticker, PEV. So Phoenix provides sustainable and zero-emission medium-duty transportation with a range of products available to our customers, including shuttle and 20 buses, school buses, delivery vans and work trucks. Phoenix also has been developing EdisonFuture brands with the light-duty pickup trucks, SUVs and delivery vans. So overall, the strong foundation we have established in key area of the renewable sector, including Solar project development, American solar module manufacturing, Australian distribution and growing American wafer as well as electric vehicle have positioned us extremely well to capitalize on the wealth of opportunity to grow consistent cash flow and increase our gross margin and profitability in the years ahead. So looking ahead, our solar module and solar wafer manufacturing business are expected to remain strong growth lever in upcoming quarters. And importantly, with the passing of the Inflation Reduction Act of 2022, with great attractive incentive for companies to produce solar modules in the U.S., so our manufacturing division in California will now receive $0.07 per watt of incentive for the solar modules for that facility. Overall, the strong foundation we have established a key area of the renewable sector, including American solar manufacturing, battery storage and electric vehicle had positioned us well to expand our project pipeline now consistent cash flow from our operating assets and increase our gross margin and profitability moving forward. On our R&D effort, we also secured 2 groundbreaking provisional patents in 2022, one regarding machine learning technology to improve solar module managing process and a second patent application for an innovative apparatus to further automate the solar production lines and reduce the human errors. I will now hand the call over to George for further details of our financial performance in 2022. Over to you, George.

Thank you, H.K. So this was our second 10-K filing and our first full year as a U.S. reporting company. This translates to increased transparency and more timely reporting of our performance metrics compared to our previous requirements as a foreign filer. For the year ended December 31, 2022, our net revenues increased 9.6% to $177.5 million, up from $162 million in 2021. Revenues continue to be mainly driven by increasing sales from our solar business lines. Our cost of revenues, which consist primarily of raw materials and labor costs, increased to $163 million in 2022. That's up from $151.4 million in the prior year and consistent with our increase in net revenues. Our gross profit was $14.5 million in 2022 compared to a gross profit of $10.6 million in 2021, giving us a gross margin of 8.2% for the year, which is up from 6.6% in the prior year. As for general and administrative expenses, they declined to $35.6 million or 20% of net sales in 2022 compared to $41.8 million or 25.8% of net sales in 2021. This decrease was mainly due to the decrease in stock-based compensation expense. For total operating expenses in 2022, they decreased to $43.1 million or 24.3% of net revenues. This was down from 51 -- I'm sorry, $52.1 million or 32.2% of net revenues in 2021. Interest expense was $7.2 million in fiscal year 2022, up from $5.1 million in 2021. Together, these and other factors resulted in a net loss of $33.4 million for the full year, which is an improvement of more than $11 million from the net loss of $44.8 million in fiscal year 2021. As of December 31, 2022, our total assets were $231.1 million, and we had $3.5 million in cash and cash equivalents. As Denton has already mentioned, we hereby reaffirm previously issued guidance with revenues expected in the range of $250 million to $300 million in 2023 and with near-term expectations for positive EBITDA and net profitability. We are confident we will deliver between $29 million and $36 million net income for fiscal year 2023. I thank you all for taking part in this call today, and we'll now hand it over to the operator who will open up the floor for any questions that you may have at this time. Thank you.

[Operator Instructions] Our first question comes from the line of Tate Sullivan with Maxim Group.

An impressive increase in gross profit margin in 4Q 22 to 22%. Can you talk about what drove that increase in gross profit margin? Was it possibly some sales in the commercial solar business? Or what parts of that are sustainable going into 2023, please?

Thank you for question. The gross margin improvement, I think, is driving for the different business sequence. The first one, the most important is our promotion to module manufacturing U.S. simple investment with already 700-megawatt capacity. This is already profitable in last year in Quarter 4 that goes net margin growing [indiscernible] and the operations in a few months. [indiscernible] capacity is 700-megawatt, demand is very strong. This will be the first driver of the gross margin improvement. And also, we see our business of solar project development [indiscernible] some projects also will be in progress. I think with this, especially second quarter, third quarter. And I mean this year, our solar project is -- also we are driving gross margin improvements from Q4. And the number 3 is our gross margin of our [indiscernible] is also increasing year by year, and gross margin also improving per year every year. And also a big driver or distribution is and because benefit consumers demand and even level gross margin normally compare our module manufacturing being lower, but still the business is growing well and also the gross margin and to improve. I think generally, this is a main factor of our gross margin and growing. So especially [indiscernible] for this.

Great. I mean you talked a bit before about pricing for U.S. made solar modules. Has it still been at consistent levels. Has it been increasing? And has demand continued to increase this year, for U.S.-made solar modules, please?

We are -- for the solar module business, our products are actually for the residential and also small C&I projects. So we are looking into mid-50s for the residential and probably in the low 50s for the C&I space as the volume for the C&I project will be much larger than the residential in our distribution business.

Our next question comes from the line of Tim Moore with EF Hutton.

And it was nice to see the narrowing of the net loss in the fourth quarter and for the year. I have several questions for Denton, H. K. and George. I was wondering just first, for your net profit guidance range for this year, can you walk us through that in terms of does it exclude any possible net loss from Phoenix Motor? Does it exclude stock-based compensation? And does it actually include your forecast for the $0.07 per watt of solar module incentive from the Inflation Reduction Act or even at $12 [indiscernible]?