SPI Energy Co., Ltd. (NASDAQ:SPI) Q2 2023 Earnings Call Transcript
SPI Energy Co., Ltd. (NASDAQ:SPI) Q2 2023 Earnings Call Transcript August 22, 2023
Operator: Good afternoon, and welcome to SPI Energy's Second Quarter 2023 Conference Call. As a reminder, this call is being recorded and all participants are in a listen-only mode. [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?
Denton 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 structured out the operating loss of our Phoenix Motor EV division, which we spun out on NASDAQ last year, our core business plan passed the broken-even point 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 focus.
In recent years, we have established a solid chain of strong revenue growth that has placed us on a clear path to near-term profitability, especially our solar manufacturing capacity based in Sacramento, California. This business has been profitable since quarter four 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 gigawatts solar wafer and 500 megawatts TOPCon 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 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.?
Hoong Khoeng Cheong: 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. And 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 the successful IPO of Phoenix Motor on NASDAQ and have already passed for second spin-off SolarJuice, which will also trade on NASDAQ under the ticker SJA. 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 spinoffs, we have over half retained majority ownership of the new entities. So in the case of Phoenix Motor, 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 n-type TOPCon solar cell manufacturing 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 made in the U.S. by year 4 of 430-watt net module for residential market and by year 5, 580-watt bifacial module for commercial and utility scale market. So this pioneer series of American-made solar cell 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 M10 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 four of 2022.
Our '23 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 installer, 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 and 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 are positioned 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 credit, 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 has positioned us extremely well to capitalize on a wealth 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 world-class team is building on a multi-decade track record of success. I'm confident that our strong foundation, combined with growing industry tailwinds, places 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.
Janet Jie Chan: 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 include $3.2 million operating loss from Phoenix Motor, which we spun out 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.
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Q&A Session
Operator: [Operator Instructions] Our first question comes from Tate Sullivan with Maxim Group.
Tate Sullivan : 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?
Denton Peng: Yes. Thank you for your questions. So our guidance is including $0.07 in the Inflation Reduction Act but for it there is some reason in the current environment and [$0.07] is still not clear. So our current financial report is not including the $0.07, but this should be -- we are eligible for getting $0.07 in the future. For now, our current report is not including this $0.07. And secondly -- and we are still confident that we will generate our guidance for that revenue and also for the profitability for this year.
Tate Sullivan : With how much of this accumulated credit here or what percent of your U.S. solar panel sales? Or is there any sort of context to what you recognize the U.S. solar manufacturing that you can give up today or better than what you think?
Denton Peng: We don't know how we will generate this, by other revenue or as additional other income or other? Because now we have not get it clear which kind of -- this $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. We think this now -- this information is not clear because the guidance is still on pace and working on, but everybody is still waiting on that.
Tate Sullivan : Okay. Do you also assume in your guidance any additional sales of commercial solar power projects or any resolution of the dispute with SinSin on previously concrete acquisition as well please?
Denton Peng: Yes. We are working on that. We will see. In last quarter, we were just selling some portfolio in Oregon and to Brookfield. So we are still working on other portfolio in Oregon, Massachusetts, probably Hawaii and also other portfolios. So this business line is coming on more as we generate more revenue and profit from asset sales for this year. So this year, we will see then much more improving on SPI Solar for the solar project development business.
Tate Sullivan : And can you comment on the dispute with the SinSin and could you potentially resolve that? Or is there a timeline or any guidance on that that's positive?
Denton Peng: Yes, SinSin because it's a long time business, already in our balance sheet more than $60 million other payable and so the finance is already for the worst situation. So we are still working on to find the result to resolve the SinSin issue. So the company has continued dialogue with SinSin. And currently, we have a big chunk of cash more than EUR 30 million in the assets in Greece. It's not consolidated in the book. But in the meantime, we have shown more than $60 million payable in the book. So we try to resolve this one as soon as possible. We are still working on that, but we cannot provide a timeline for that. But the company definitely will put to resolve this legal issue in a first priority.
Operator: [Operator Instructions] And our next question comes from Mark Anderson, Sacramento Business Journal. Mark Anderson, are you on the line? Looks like he put his line on hold, my apologies, and that's the music that you were hearing. [Operator Instructions] There appears to be no additional request for questions. I'll hand the floor back to management for closing remarks. Thank you.
Denton Peng: Thank you for everybody joining today's conference call. So I hope we see you next time. Thank you.
Hoong Khoeng Cheong: Thanks very much.
Operator: Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.
