SPI Energy Co., Ltd. (NASDAQ:SPI) Q4 2021 Earnings Conference Call April 4, 2022 4:15 PM ET
Randy Conone - Senior Vice President, Investor Relations and Finance
Denton Peng - Chairman and Chief Executive Officer
Hoong Khoeng Cheong - Chief Operating Officer
Conference Call Participants
Tate Sullivan - Maxim Group, LLC
Michael Samuels - Berthel Fisher
DJ Johnson - Private Investor
Greetings and welcome to SPI Energy's earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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, HK 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 strong double-digit top line growth again in year 2021. Importantly, we fortified our foundations in multiple business 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 burgeoning EV segment and strengthening our teams at all levels and across all of our organizations.
We have closed $14.7 million placement at $10.79 per share and also secured attractive financing to fuel our spending operations. Including four convertible promissory notes each with $20 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 forwards.
Over the many successes of 2021, we have significantly strengthened 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 sectors in greater detail. HK.
Hoong Khoeng Cheong
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 accomplishments in our various business units.
So, we continued to maintain strong market share in Australia for our SolarJuice business. SolarJuice provides end-to-end smart and clean energy solution to residential and commercial customers. We focus on roofing, solar, battery, EV charging product and services, and by developing a sustainable software and hardware platform, so we achieve 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 5000 B2B accounts since inception and maintain approximately 700 active customers [indiscernible]. We have delivered more than 900 megawatt solar modules, 2 gigawatts of inverters, and more than 75 megawatts in batteries. In addition to proprietary products, we distribute to many of the top brands, including Tesla, REC, Hyundai, Fronius, SMA and more.
Our acquisition of the assets of Petersen-Dean in February 2021 has accelerated our entrance into the US residential solar market. [indiscernible], Petersen-Dean is the largest residential roofing company in the US and the leading solar installer in California and other top markets, generating $345 million in sales in 2019 across five states. So, we were able to acquire the Petersen-Dean asset at extremely attractive terms after the company fell into bankruptcy in the wake of COVID in 2020.
So, with California leading the way with the mandate on homebuilders to pre-install solar systems beginning last year on all new home construction, we are in a great position to benefit from the market share wins.
Petersen-Dean's Solar4America brand is well-recognized in California and throughout the US. Building on this foundation of strength, we launched a new Solar4America website in 2021 that showcased our brand of solar modules, batteries, smart roofing product 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 businesses from their current installation and distribution focus to compete as 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 coming to our commercial and utility scale solar operations under SPI, 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 One Center in Sacramento, California.
Through long-term relationship with leading component suppliers, we are able to offer the best price to performance for our customers. Our current US development pipeline include a 117 megawatt solar project in Maryland, 78.4 megawatt solar project in Illinois, 10.24 megawatt across two tranches of solar project with Maui and Kona Island of Hawaii, 6.5 megawatt solar projects and 5.45 megawatt hour energy storage project in Massachusetts. Also, a project of 1 megawatt each in Central Greece of Europe.
To better capitalize our growing opportunities in both the US and Europe, we launched Orange Power in 2020. Orange Power owns and operates 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 plan to continue to acquire solar projects 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 US, and another project at an additional 440 megawatts over the next four years.
Our EV business, which was first launched in the second half of 2020, saw tremendous progress last year, thanks to the pioneering work of our all-star team. Phoenix Motorcars sped past 3 million all electric miles of its EVs last year, and we are continuing to move forward with the plan to spin this potential high growth business in an IPO as a way of unlocking additional value for our shareholders.
In addition to advancement in EV development, Phoenix launched the full ranges of EV charger installation for the US market last year, as well as the new long life cycle lithium ion electric forklift for warehouse operations.
Complementing the success of Phoenix model car, our EdisonFuture business debuted its first all-electric pickup trucks and delivery van at the LA Auto Show in the fourth quarter of last year, both vehicle employing our patent pending proprietary solar retractable roof 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 for the company's RideZoomers 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 scale operations moving forwards.
I will now turn 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 US 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 continued 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 cost, 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 to be the 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 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 2022 revenue guidance of $200 million to $220 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?
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. I think we were in the sort of $200 million range before, if I've not mistaken.
Can you talk a little bit about the decision to mention the 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?
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, where we're in the process of purchasing and installing equipment to do so, and that'll 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.
One more for me, please, for Phoenix, the 10-K indicated $11.1 million of backlog for both the blend of vehicles and electric drive systems. 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. I'm not exactly sure, but I think it's probably two or three quarters
Hoong Khoeng Cheong
[indiscernible], the backlog we will be delivering sometime this year.
[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 you think it'll be to profitability or free cash flow?
We're expecting to be, I would say, at the cusp of free cash flow later this year. By division, the solar division will 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 them for SPI, they offset somewhat. But as we mentioned, the solar division is much larger. So, it should have disproportionate impact.
We have two to three business. Utility solar business is already profitable because it's just selling electricity into the grids. And we have residential solar division. In Australia, it's always profitable. And now, it's Australia plus US. We are ramping up and we're going to be profitable very soon. And the EV business maybe it takes some time to be profitable because we still needed to invest a lot of money for engineering and R&D. But also in our – this is the part of our business for commercial, it's already starting. So, we probably in the near term can be profitable. But in the EV business, it takes some time. So, we have three businesses. Two businesses, very soon we'll be profitable. Another business, EV may take some time.
If you spin off the EV, then the solar side itself Could be doing very well at that point.
But even if we spin off the EV, we still make the shareholder – we still consolidate the book of the EV business.
Our next question comes from DJ Johnson [ph], private investor.
At the beginning of the call, you mentioned per share, if I remember the per share value, it was $10.50 something. I missed a little bit of that. Can you just comment on that a little bit more?
There was reference to a private placement where we raised some money at that amount. It's not a market price.
Okay, thank you. I just want to clear that private placement. Thank you.
Yeah, last year, we had equity raise about $10.79 per share.
Our next question is from Tate Sullivan From Maxim Group.
I think earlier in the call, did you mention Petersen-Dean had $345 million in revenue in 2019 from five states? Is it reasonable to expect it to get back to that level or much below that due to just the bankruptcy process? Did I hear that number correctly?
Yes, that's the number we quoted, Tate. It's possible we could exceed that number. It's going to take a few years to get there. But we're analyzing the current footprint, which is mostly West Coast and Western states and looking to expand that both in the existing geography and possibly to other places in the United States. The longer term expectation is that we'll be in many more states, and the goal is to get to an even larger number over several years, still very low. It's a single-digit percentage nationwide. So there's a lot of whitespace in this industry.
Thank you. There are no further questions at this time. I'd like to turn the floor back over to Randy Conone for any closing comments.
Thank you, Paul. I would just close by saying all of our divisions have very great potential both this year and over the next 5 to 10 years, both in the two solar divisions, residential and the larger scale commercial and utility division and in the electric vehicle division. There should be substantial growth in all of those areas. And the company is also contemplating some transactions that should unlock shareholder value over the next year or two. So, I would encourage actual and potential investors to keep apprised of the developments for the company. And we expect that there'll be some very positive developments both in the coming quarters and years.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.