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

Good afternoon, and welcome to SPI Energy's Second Quarter 2023 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; CFO, Janet Chan; and 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 purpose of the 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's date, Tuesday, August 22, 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 SPI Energy's Chairman and CEO, Denton Peng. Mr. Peng?

Thank you, Diego, and thank you to everyone for joining us today on our second quarter earnings call. We generated strong double-digit growth during the second quarter, with net sales increasing more than 21% over the second quarter of 2022 to nearly $59 million and gross profit improving more than 35% to $5.2 million. Importantly, when we subtract out the operating loss of our Phoenix Motor EV division, which we spent out on NASDAQ last year, our core business line passed the broken-even points during the second quarter, underscoring the strength of our rapidly growing solar operation, this exceptional performance further demonstrates our continued ability to drive growth and improve profitability as we execute our strategy with diligence and forecast. In recent years, we have established a solid change of strong revenue growth that has placed us on a clear pace to near-term profitability, especially our solar manufacturing capacity based on Sacramento, California. This business has been profitable since quarter 4 last year. We are in the process to build additional capacity in Sumter, South Carolina to meet local strong demand. We are also in the process to build 1.5 gigawatt solar wafer and 500 megawatts [ outcome ] solar cell manufacturing capacity in the U.S. We anticipate these trends will accelerate moving forward as we benefit from strong industry tailwinds including incentive under the inflation Reduction Act in the U.S. and other provisions that continue to boost the global renewable energy market. We believe we are extremely well positioned in our sector with a diverse portfolio spanning solar and EV technologies. Our establishing of strong growth and improving profitability metrics place us on a clear path to near-term net profitability. We believe that the combination of our strong financial performance, strategically positioning and exceptional leadership team will enable us to continue executing on our mission of creating a sustainable energy solutions, while also deliver strong returns for our shareholders. SPI Energy is committed to create a brighter, more sustainable future powered by renewable energy, and we are confident that with your continued support, we will achieve great success together. Thank you. I'll now pass the call over to our Chief Operating Officer, H.K. Cheong. H.K.?

Thank you, Denton, and good afternoon to everyone on this call. So over the past four years, SPI Energy has consistently achieved impressive revenue growth, demonstrating our ability to adapt and thrive in a rapidly evolving market and remain on track to accelerate this growth even further in 2023. As Denton noted at the beginning of today's call, we have a highly compelling value proposition for investors, so we are well positioned in the renewable sector with a diverse portfolio in the solar, EV and hydrogen fuel cell technologies, while our operating assets generating consistent cash flow and our solar project pipeline in the U.S. is robust and continues to grow. Additionally, we believe we have the opportunity to unlock significant additional value for our shareholders as we continue to pursue our plan to spin off key business lines. So we began this process in 2022 with a successful IPO of Phoenix Motor on NASDAQ and has already [ fired ] for second spin-off [indiscernible], which will also trade on NASDAQ under the ticker [ FTA], so we plan to follow this with the spin off of our independent power producing business unit, Orange Power as well. In each of these spinoff, we have over half retained majority ownership of the new entities. So in the case of Phoenix Motors, we currently hold more than 80% ownership of its share. So while we have many exciting business line and a wealth of opportunity to capitalize on. So we are particularly proud to have launched a new state-of-the-art 500-megawatt impact TOPCon solar cell manufactured in the U.S. through our Solar4America subsidiary. So with the launch of the solar cell manufacturing facility in South Carolina, it will support the production of the Solar4America making the U.S. Pioneer4 of 430-watt black module for residential market and Pioneer5 580-watt bifacial module for commercial and utility scale market. So this Pioneer series of American-made solar cells and modules are expected to be available for delivery to customers in the first half of 2024. Looking ahead, a key growth driver for the remainder of the year and into 2024 will be the continued ramping of our American-made solar module manufacturing capacity. So we are currently based in Sacramento, California with a 700-megawatt capacity in mass production and delivering latest 410-watt and 550-watt American-made solar module to residential, commercial and utility customers in the U.S. So we are proud to say that this business has been profitable since quarter 4 of 2022. Our 2023 capacity expansion of an additional 700-megawatt is underway and we expect to be up and running by the first half of 2024. So with the completion of this expansion then, we will have 1.4 gigawatt per year capacity at our existing facility in California. In addition, the continued growth of our Australian solar distribution business throughout Australia and Asia Pacific saw us delivering 448-megawatt of [ inverters ], 105-megawatt solar modules and 83-megawatt of battery to Australian [ dollar], which is equivalent to 15% of rooftop PV and residential storage installation in Australia in 2022. So we also expect steady revenue growth from other business. Our current solar project pipeline has been stable, which is expected to drive improved profitability. Our Orange Power business has also consistently provided a stable cash flow for the company, and that will further strengthen our overall profitability. So as I mentioned on the prior calls, the Inflation Reduction Act of 2022 provide attractive incentive for companies to produce solar cell and solar modules in the U.S. currently our manufacturing division in California and South Carolina [indiscernible] to receive $0.07 per watt of solar modules produced and $0.04 per watt of solar cell produced. So our U.S. customers will also benefit from additional 10% tax rate, which should increase our ASP and our gross margin. Overall, the strong foundation we have established in key areas of renewable sectors including American solar manufacturing battery storage, electric vehicle, have positioned us extremely well to capitalize on a wave of opportunities to expand our project pipeline grow consistent cash flow from our operating assets and increase our gross margin and profitability moving forward. So before I pass the call over to Janet to discuss our second quarter financial performance in greater detail, I'd like to conclude my comments by noting that our [indiscernible] is building on a multi-decade track record of success. I'm confident that our strong foundation, combined with growing industry tailwinds place us in a great position to rapidly increase market share across each of our business units, ultimately enable us to unlock new value for our shareholders as we accelerate growth in the quarter ahead. So I'd like to hand over the call over to our CFO, Janet Chan, Janet, over to you.

Thank you, H. K. Good afternoon, everyone. Thanks for joining our call today. For the second quarter ended June 30, 2023, our net revenue increased 21.1% to $58.9 million, up from $48.6 million in Q2 of 2022. 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 $53.6 million in the second quarter, up from $44.7 million in the prior year period and consistent with our increase in net revenue. Our gross profit was $5.2 million in the second quarter, up 35.3% from our gross profit of $3.9 million in Q2 of 2022, giving us a gross margin of 8.9% for the quarter, up from 8% in the comparable period year -- prior year period. General and administrative expenses declined to $6.3 million or 10.7% of net sales in the second quarter, a strong improvement from G&A expenses of $7.6 million or 15.7% of net sales in Q2 2022. This decrease was a result of our continuous expenses control efforts. Total operating expenses in the second quarter decreased to $8.3 million or 14.1% of net revenues, down from $9.5 million or 19.5% of net revenues in Q2 2022. As Denton noted earlier, our overall operating loss of just over $3 million, improved $3.2 million operating loss from Phoenix Motor, which was spun off on NASDAQ in 2022. Subtracting this outpaces our core business lines passed the operational breakeven point, a major milestone on our path to what we believe will be sustained profitability. Lastly, interest expenses was $2.4 million in the second quarter, up from $1.6 million in Q2 2022. Together, this and other factors resulted in a net loss attributable to shareholders of SPI of $2.5 million for the second quarter. As of June 30, 2023, our total assets was $230.5 million, with $5.9 million in cash, cash equivalents and restricted cash. Thank you all again for joining us on this call today, and we will now open up the floor for any questions that you may have. Thank you.

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

You maintained 2023 net income guidance of $29 million to $35 million versus the first half net loss of $12 million. Does your guidance assume like an accrual for the $0.07 solar panel U.S. manufacturing tax credit? And have you seen any other companies recognizing or accruing for that benefit?

Yes. Thank you for your questions. So our guidance is including $0.07 in the Inflation Reduction Act, but for some reason for the [indiscernible] and $0.07 do not clear. So in our current financial report, we're not including the $0.07, but this should be -- we are eligible for getting $0.07 in the future. And now our current report is not including this $0.07. And secondly -- and we are still confident that we generate our guidance for the revenue and also for the profitability for this year.

With how much of this accumulated credit year or what percent of your U.S. solar panel sales? Is there any sort of context to what you recognize the U.S. solar manufacturing that you can give up today or better [indiscernible]?

We don't know how we will -- to generate this by also revenue or as additional other income or other, because now we have not to get it clear, which kind of -- this is a $0.07 will be putting in our financial report, because we need to get it more clear. And also, we try to give information from other competitors since now this is -- information is not clear, because the guidance is still is working on, but everybody is still waiting on that.