Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the SUNation's Corporate Update Conference Call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Conor Rodriguez of Investor Relations. You may begin.
Thank you, Desiree. Thank you for joining us today for SUNation's Corporate Update Call. Our speakers for today are Scott Maskin, Chief Executive Officer, and James Brennan, Chief Financial Officer. Mr. Maskin will open up with prepared remarks followed by a question-and-answer session. Before we get started, I want to remind everyone that prospects at SUNation Energy Inc are subject to uncertainties and risks. Statements and remarks on today's call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Act of 1934. The company intends that such forward-looking statements be subject to safe harbor provided by the foregoing sections.
These forward-looking statements are based largely on the expectations or forecast of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the control of management. Therefore, actual results could differ materially from the forward-looking statements contained in this presentation. The company cannot predict or determine after the fact what factors could would cause actual results to differ materially from those indicated by the forward-looking statement or other statements. Participants should consider statements that include the words believes, expects, anticipates, intends, estimates, plans, projects, should, or other expressions that are predictions of or indicate future events or trends to be uncertain and forward-looking. We caution investors not to place undue reliance upon any such forward-looking statements.
The company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events, or otherwise. Additional information respecting factors that could materially affect the company and its operations are contained in the company's filings with the SEC, including its Form 10-K filed with the Securities and Exchange Commission on April 15th, 2025, which could be found on the SEC website at www.sec.gov. With that, I will turn the call over to Scott Maskin. Scott, please go ahead.
Thank you, Conor, and good morning, everyone. First, I want to say thank you for joining us today and for your time, and to acknowledge how difficult the past year has been for our company, for our industry, and especially for our shareholders. I include myself in that last category, a shareholder just like you. Today is about transparency, honesty, and your opportunity to ask questions. Before we get there, I'd like to offer a little context. Early in 2024, Pineapple Energy was facing a hard truth: either join the long list of solar companies declaring bankruptcy, many as collateral damage of the Silicon Valley Bank bankruptcy in late 2023, or take decisive action to survive and rebuild. I am talking about some of the biggest companies in the space, both public and private, including SunPower, Suntuity, Pink Energy, Infinity, and even ADT, the alarm giant.
These are companies that fight in a weight class much heavier than us. The list of smaller companies that couldn't survive continues to grow. Let me be clear, SUNation was facing many of the same difficulties as those companies, which could have ultimately resulted in the same fate for our company. We also faced difficulties that many of them did not have to overcome. I've never backed down from a challenge, and I wasn't about to start then or now. It's important to mention the Silicon Valley Bank disruption as it set the stage for what most industry experts consider the most challenging times on this solar coaster, as we call it, in 20 years, which you'll hear from our CFO later.
I founded SUNation in 2003 and built it into one of the most trusted solar brands, not just on Long Island, but nationally ranked as best in class through our relentless effort, customer focus, and surrounding myself with great people aligned through ethics, integrity, and purpose. I stepped into the role of interim CEO in 2024 and later became permanent CEO in December of 2024 in an earnest attempt to fix what needed fixing. Across New York and Hawaii, SUNation has installed nearly 20,000 residential and commercial solar and storage systems over the past two decades. That's more than 175 MW or saving over $50 million annually for our customers. That's money staying in their pockets. We also employ over 200 people or families, as we think of them, on a full-time basis. We've also stepped in to maintain over 25,000 solar systems abandoned by other installers.
It's a responsibility we take seriously. No leader fixes a company alone, and I didn't. Together, we rebuilt our leadership team and board from the ground up. We brought in experienced, committed professionals who not only understand our industry but have the financial, operational, and pub co-experience to guide us through such a turnaround. Jim Brennan, our COO and CFO, is one of the hardest-working executives I've ever partnered with. He has been tireless in managing operations and stabilizing our financial position. Our board, revamped and reinvigorated, has challenged us at every turn and made sometimes difficult decisions while supporting the company and our shareholders alike. The leaders of both SUNation in New York and Hawaii Energy Connection have shown tremendous resolve under pressure. We quickly cut costs at every level, right-sized operations, and simplified a bloated capital structure that was holding us back.
We recently also raised $23 million in gross proceeds, significantly reducing our debt and setting us up for a healthier future cash flow. The result: a more agile and more investable company. We are already seeing the payoff in our Q1 2025 results: lower operating expenses, improved liquidity, higher margin, and momentum we can build on. What is next? That is what you guys are all here for today. In my humble opinion, the bleeding is over, and we believe the solar industry will rebound in 2025 based on what we are seeing and in broader industry reports. Thankfully, we only scraped the iceberg, but the ship is steady and back on course. There are still dents in the hull, but mechanically we are sound and better prepared to move forward than anybody else.
Despite political noise dating back to 2023, including solar import tariffs that were imposed in 2024 and the potential for additional policy disruptions, the U.S. is making a significant push to become a major player in global solar panel and inverter manufacturing. Driven by the Inflation Reduction Act and other policies, the U.S. has experienced a surge in domestic solar manufacturing, aiming to reduce reliance on foreign imports, particularly from China. This shift is fueled by billions of dollars of investments in new factories, several of which have been built or expanded existing facilities. This has also led to the creation of many jobs across the country, particularly in states like Ohio, Georgia, North Carolina, and Texas, where jobs are expected to increase by up to 40% in 2025, with related industry projections of up to five-fold increase in capacity in the next few years.
Like I said, in my humble opinion, regardless of the noise, there is simply no way you can stop this solar and storage train, and we're in the right place to capitalize. More locally in New York, our commercial backlog is the largest it's ever been. Residential is rebounding as financing conditions improve. Hawaii is on the verge of a new battery program launching on May 1st, which we expect will reignite a strong, mature market that lost momentum due to poor utility policy in 2024. This is not to say there may not be new or added turmoil in the solar industry, but that's why we call it the solar coaster, and our diversification is a massive differentiator. Meanwhile, our service and O&M business continues to expand as more customers turn to us, being left behind by other providers. That drives referrals, upgrades, and lower acquisition costs.
In 2025, we expect to explore additional verticals like HVAC, particularly in our core states. Above all, we're staying grounded in the fundamentals. Treat people right. Do what you say you're going to do. Deliver and be transparent. That's what has always set SUNation apart, and it's what will carry us forward. Our Net Promoter Score rivals the best in any sector. When I first joined what was then Pineapple Energy nearly three years ago, it was to be part of something bigger. Today, we are that something bigger. We're no longer just a piece of somebody else's roll-up. We are the company others want to join. With a reset industry and a stronger capital position, we're ready to pursue smart acquisitions and strategic combinations that expand our footprint while staying true to our core values. We've taken the hits.
We've rebuilt from the inside out, and now we're ready to grow again with the right team, the right structure, and what we believe to be the right strategy. I'll now turn things over to our recently appointed CFO, James Brennan, to discuss some of the other results. James.
Thank you, Scott, for the kind words, and thanks to each of you for participating today. We filed our 2024 annual 10-K report last week, and I hope that all of you have had an opportunity to review it. We expect to file the Form 10-Q for the first quarter ending March 31st, 2025, on or before the filing deadline, May 15th, 2025. As Scott noted, 2024 was a challenging year for SUNation and our industry as a whole. Even so, our results included several encouraging highlights, as well as work done so far in 2025, providing notable signs of momentum that we believe bode well for SUNation moving forward. For those EPCs, which stands for Engineering, Procurement, and Construction Companies, that survived 2024, most report 25%-40% declines in revenue.
The total 2024 revenue of $56.9 million declined as expected from 2023's revenue of $79.6 million, driven by a decrease in residential and commercial solar projects, as well as lower service revenue. We were hit especially hard on the residential side of our business as rising interest rates delayed decision-making. However, the revenue increased on a consecutive basis for each quarter of 2024, with Q4 2024 revenue of $15.4 million, up 16.3% from Q1 2024 revenue of $13.2 million. Commercial revenue also experienced a decline in revenue due to project delays driven by election uncertainty. However, the 2025 commercial pipeline, as Scott just mentioned, and backlog are the strongest in the company's history. In addition, we have seen elevated consumer interest on the service side of SUNation's business.
In the wake of various bankruptcies of our competition, consumers within the markets that we serve are now looking for established partners to maintain and repair those now orphaned photovoltaic or PV systems. SUNation is filling that role and more and seeing increased instances of older systems that are being upgraded and replaced with the latest components. We've begun to see our teams sell roofing exclusive of solar in cases where PV isn't a good fit for the home due to siding conditions, shading, and other factors. Both the roofing and service divisions offer alternative sources of revenue, which helps to mitigate the general market oscillations. Gross margins for 2024 improved to 35.9% from 34.8%, reflecting tighter controls over direct costs. I'm excited to share that a series of cost optimization and efficiency measures implemented in 2024 produced a 7% decline in selling, general, and administrative expenses.
The same measures are expected to produce annual SG&A expense cost savings in 2025 of over $2 million. Total operating expenses declined by nearly 7% to $32.7 million from $35.2 million. Operating expenses in 2024 increased $3.1 million. Non-cash goodwill impairment charge associated with Hawaii Energy Connection and a $750,000 non-cash intangible asset impairment loss related to technology assets within the Hawaii segment. There are no such charges realized in 2023. Absent these charges, annual operating expenses declined by more than 18%. Operating loss from continued operations was $12.3 million compared to $7.5 million in 2023, which included the above-mentioned $3.9 million non-cash charges. In addition, we absorbed extraordinary expenses to complete the corporate restructuring over the last 11 months since Scott took over as CEO. As part of the corporate restructuring, we terminated the operating lease of our former corporate office in Minnesota.
The termination of the lease is expected to save the company approximately $480,000, taking into account the remaining years of the terminated lease and other related expenses. Moving to the balance sheet, the capital we raised this year allowed us to eliminate $12.6 million of secured debt and other long-term contractual obligations. This included the repayment in full of $9.4 million of senior and junior secured debt that removed an average annual cash drain of approximately $3.4 million through 2027, the payment in full of a $2.5 million earnout consideration. This reduction in debt has produced material benefits, including lowering our annual interest expense for 2025 by an estimated $1.4 million, while enhancing cash flows that provide the flexibility necessary to invest in our long-term expansion and other strategic options.
Looking ahead a bit, we expect that our financial position for the first quarter ending March 31st, 2025, will reflect the positive effects of deleveraging and the cost containment initiatives that began in 2024. This will include cash and cash equivalents of approximately $1.4 million, up from $0.8 million on December 31st, 2024. Cash on March 31st, 2025, did not include the $5 million in gross proceeds raised as part of the offering that closed in early 2025. Total debt should approximate $9.3 million at the end of Q1, a $9.8 million reduction from the $19.1 million on December 31st, 2024. This substantial reduction does not include the full impact of the above-mentioned $2.5 million earnout payment, part of which was paid in Q1 2025, and the rest will be reflected in our balance sheet for Q2 2025.
More recently, we entered into a new line of credit financing agreement with MBB Energy, an affiliate of the company, in the amount of $1.0 million as we seek new commercial banking relationships that will include its own commercial line of credit. The line of credit, if utilized, will be used primarily for working capital and corporate purposes. Our ability to access this fresh capital on favorable terms provides us with greater flexibility to invest in areas that support our long-term growth initiatives. In addition, we have significantly restructured the debt that is associated with our second acquisition from November 2022. This long-standing obligation has impeded our movement forward. As part of our ongoing efforts to cleanse the balance sheet, this restructuring amended the original long-term note on April 10th, 2025 to include a restructured repayment plan across 36 consecutive monthly payments.
Restructuring this debt will better position SUNation Energy in the days ahead and grant us the flexibility that is needed for future growth. Additional details on the significant step for the company can be reviewed in our recent public filings. I want to thank you for your time, and we'll turn things back over to Scott.
Thank you so much, Jim. We are officially off-script, folks. Let's open it up for questions. Please keep all questions concise as possible and keep in mind that I can't discuss or provide any material non-public information. I've certainly taken a lot of hits in the last couple of months personally, so I'd like to keep it nice and clean. The first question that I have comes from—sorry. What am I doing? Okay. We're going to open up the floor for questions. We have one hand raised.
Thank you very much. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question. Thank you. Our first question comes from the line of Justin Claire with Roth Capital. Your line is open.
Hey, guys.
Hey, man.
Thanks for taking the question. Good to talk to you.
Sure, man. Thanks for your time today.
Yeah, definitely. I wanted to start off. Tariffs have obviously been something that has garnered a lot of focus recently. I just wanted to see if you could provide some insight into how the tariffs might affect your cost structure here and maybe your ability to source materials within the U.S. to mitigate some of the effects here.
Yeah. First of all, the tariff structure is not something new to us. I mean, a few years ago, we were set for there were some tariffs imposed. It did not hit us all too hard because we were not really into utility-scale stuff. We are starting to see a lot of chatter from some of our battery manufacturers that get their cells from China. What I can say is that it is minimal right now, and my peer set is all kind of looking at this individually, meaning that the work that we have on hand right now, we are already in good shape. We have commitments. Everything is going to be pretty good for them. It is not going to negatively impact us. We are starting to revamp our pricing structure a little bit to take some of that into consideration, but we are not going to do a panic mode.
That's just going to set the wrong message to the industry. I think this is a short-term thing that's happening, and we'll start to work through the problems one at a time instead of globally looking at it like the sky is falling.
Okay. Sounds good. I guess just on that, it does sound like the batteries might be subject to a higher tariff than other components that you would use. Do you anticipate that affecting the attach rate for storage going forward, or do you have a certain amount of inventory that can get you by for some time ahead here?
Yeah, we do. I mean, in Hawaii, where Hawaii had—again, I can speak from authority in New York and Hawaii specifically. Hawaii has a great attachment rate, had a great one in 2023. We took a little bit of a plummet, but pretty much 80%, maybe a little higher percentage of everything we install in Hawaii does have storage. I won't give a plug to the manufacturer that we use, but they are going to face some increases. We have what we need to get through, and we'll see what happens. Again, I think that it's like tariffs will go up, but domestic content will give us a little bit of relief. I think that the cost of financing could also help mitigate some of and offset some of those things. I'm a little bit more concerned on the commercial side right now.
A lot of the grunt stuff, like racking and railing and things like that, that comes from Canada, we're already starting to see that we have to make a shift in the commercial sector to maybe more domestically produced racking. Unfortunately, the racking that's available in the United States may not be as labor-efficient as the stuff that we can get elsewhere. We go project by project, and we just make sure that we're staying tight to our margins, working effectively. Yeah, our company is pretty well situated in our two markets to get through if the tariffs really start to smack us around.
Right. Okay. I guess related to that, you did improve your gross margins in 2024. Maybe you could just speak to how you see margins potentially trending in 2025. The tariffs could be a factor here, but then also wondering if you see ability to increase your productivity and potentially offset some of the tariff impact.
Justin, this is Jim Brennan. By the way, back to the prior question, out of the 100+ vendors that we buy stuff from, as you can imagine, installing a solar system, there's a lot of parts to it. So far, only three have identified some tariff increases. We do have some increases, a little heavier on the battery side, but we're able to navigate through that. Back to your gross margin question. In New York, we're expecting relatively flat gross margin. As you can see in the 10-K, we published about a 38% gross margin in New York. In Hawaii, there'll be something, maybe a point of additional gross margin will come out of Hawaii this year. They're a little lower on gross margin at around 31%-32%.
Okay. Got it. That's all I had. Appreciate your time, guys.
Thanks for calling in, Joe.
Appreciate you, man.
Our next question comes from the line of Michael Mertgener, our individual investor. Thank you. Your line is open.
Good morning, Michael.
Hey. Good morning. Good morning. I just had a quick question in regards to the recent 10-K. You announced that there's going to be $100 million in potential shares, warrants, etc. My question is just in regards to that, how do you expect the share price to continue to rise with the potential dilution that might happen from that? Can you give any insights there?
Without releasing any MNPI, Material Non-Public Information, I would share that every public company on the planet should have some sort of an S-1 or an S-3 on file, and we're no different. We've updated our S-3 recently to include potentially up to another $100 million of investment needed for something. As we've stated right in the beginning of the 10-K, we are in the business of rolling up regionally strong companies like Hawaii Energy Connection in Hawaii and SUNation Energy here in New York. That's our business model. To do all that, we need capital to do it. Each one of those potential acquisitions is accretive, so they all add healthy EBITDA and gross margins to the overall performer of the company. That's our plan.
If at all possible, which depending on the market gyrations that go on from week to week, as you probably know better than anybody, we will try to keep it as close to at the market as possible so there is minimal dilution. We do not always have total control over that. The market is the drivers drive it, and sometimes the company is just a participant in the discussion. One of the things we have to fix overall is our overall market cap. It is stupidly low and has been in the past. Because of that ridiculously low, in 2023, we are an $80 million revenue business, and we had a $300,000 market cap recently, which was silly.
As we begin to repair that and the systems finally catch up on the number of shares issued and all of that math starts to get fixed in the systems out there, we'll see an increased market cap, which even today is a lot higher than it was even two weeks ago.
Did that answer your question?
Yeah, I think so. I appreciate it. I guess a follow-up to there is, and maybe this is just a lack of my understanding, but is there a way when you do make a strategic move and leverage that? Is there a way for us to know when that happens?
The SEC rules are that any kind of material event like that, we have four days, I think it's four trading days, to announce those events. We can't, we're not allowed to pre-announce them, no.
Yeah. No, pre-announcing, I completely understand. I guess post-announcing, you would.
Yeah, yeah. We're required to. Any material event, whether it's an acquisition or an investment or anything, has to be announced within four days is the SEC guidelines.
Okay. Thank you.
In most cases, we do it the same day as the event because it's a positive event. Worst case, you have up to four days.
Yeah. I can't tell you how much we appreciate our shareholder base. I know it's been brutal, but we're really excited about the changes that we've made. Listen, I was probably one of the largest shareholders in the company. I never ask somebody to carry something up a ladder that I wouldn't carry myself. We operate the business as if it's still our own business. It's important to do that.
Yeah. Good question, Michael. I appreciate that. Thank you.
Thank you.
Now I'd like to turn the call over to Conor to read out the submitted questions.
Thank you. We have one question coming in through email. Can you share your vision for how SUNation will achieve revenue growth and profitability in 2025? What specific milestones we can look forward to that will create strong value for us as shareholders this year?
Wow, that's a great question. Thanks for putting it out there. The long-term vision is to go back to basics. There is a strategic need in the solar space for companies like SUNation that do it the right way. It's always been a very fragmented industry, very top-heavy with large public companies that really they're—I’m not going to say we're all driven by making money, but are driven by third-party ownership, leases, PPAs, and not always taking the end user, the end customer in consideration. I would probably say that 50% or 60% of the actual industry is linked with a whole bunch of HECs in Hawaii and SUNations in New York. There are mom-and-pops in the $20 million-$100 million range that are really part of the community, part of the growth of the industry, and they're trusted.
Linking those companies has always been what my goal was and my vision, and that's what we're getting back to now. What we're seeing over the time is we're seeing those large companies—and I'm not going to go against door-to-door knocking and stuff like that—but we have a ridiculously high referral rate, which keeps our cost of lead acquisition low. Those are the companies that I want to have under the hood of SUNation. I also specifically want to bring in companies that are diversified between residential, commercial, and also storage and service. Service is going to emerge as one of the most important factors. When we talk about revenue growth, it's a diversified path of revenue growth. If you're just going to be a resi company, boy, you're going to struggle. Commercial-only companies are really going to struggle because the money flow is so lumpy.
Service is just a natural growth opportunity, but it's about gaining trust. The long-term goal of this company is to roll up strong, aligned businesses in very strategic areas that have good policy, are heading into that have strong utilities, strong policy that is pro-solar or are going to be pro-solar. There is also a lot of small-cap Pubco companies. I won't rule out that there is a lot of small-cap Pubcos out there that all struggle with the same operating costs that we do. There should be a realignment of verticals, of small Pubcos when they make sense and where they make sense. That is kind of how I see 2025. I came into 2025 thinking it was going to be a ridiculous bounce-back year. I'm sort of thinking like there's just so much noise.
When we left 2023, 2024, there's so much uncertainty because of federal government and tariffs. I'm 22 years in this industry, and we have survived and thrived through every single administration. We're much more vulnerable at state and utility level than at federal level. We were all prepared for a ramp-down from the tax credit from 30% to 25% to 22%. Years ago, the IRA came in. There's always pluses and minuses in this industry, but the vision for revenue growth in 2025 is to stay to core competencies, be absolutely lean and mean, and take advantage of the opportunities that are out there right now as so many of these larger companies are stranding assets and stranding companies. That is where we can come in like the white knight. I hope that answered that question.
I don't know who asked that question, but it was a great question. Operator, back to you.
Thank you. Our next question comes from the line of Carl McCoy, our investor. Your line is open.
Good morning. How are you?
Good morning. It may be morning or afternoon my time. I am in Florida, and I'm just wondering on the stocks that—so say, can you explain to us, say if somebody had 1,000 shares and then they go back on there and then only got 500 shares? Can you explain that to the audience?
You're talking about the reverse split?
Yes.
Sorry, Jim, you want to explain that?
Sure. The way a forward split or reverse split works is basically that the company took for every 200 shares that you had before, you now have one share. The price per share has just gone up by 200, and so a multiple of 200. To the investor, there's absolutely zero change in the economic value of the shares that you had before versus the shares that you had the minute after reverse stock split took place on Monday at 12:01 A.M.
Did that answer that for you?
Oh, yeah, yeah. I was just looking at it and wondering, okay, how long is this going to last?
Yeah. That's a good question, Carl. We often hear from investors, as soon as they hear the word reverse stock split, "Oh my God, I'm going to lose all my value." That's not at all the case. There's zero change in the value of the shares that you hold. It's just the ratio changes from, in your case, 200 shares down to one, but the price per share goes up by 200. It's the same value. Otherwise, by the way, the NASDAQ and the SEC wouldn't allow any company to do it if we lost value in your shares by doing a reverse stock split.
Yeah, I understand.
Great.
I was just wondering how long it might—I was just wondering how long it may last or are we going to go back or is it what we're going to do? I'm not going to—
Yeah, man. I appreciate that.
I like that.
Thank you.
Thank you so much.
I appreciate that position. It's our job now. I think that we did what we needed to do to make sure that the company was sound, and now we can really focus on restoring shareholder value. It's been a tough ride. I'm the biggest loser when it comes to that. I share the pain.
Yeah. I understand. Everybody's like, "Sell, sell, get out of there." I'm like, "Nah, we're going to hold stead here because if you look at it and you see what's going on, yeah, I think it'll be good.
You know what?
Energy.
You know what?
It's always needed.
Yeah. What you got to keep in context also is that we are not an anomaly in the economy, right? The SUNation stove doesn't make its grits any faster than anywhere else. We're all facing the same things and the same thing. I do appreciate your help.
Yep. Thank you, Carl.
All righty. Y'all have a good one.
You too.
Thank you.
That concludes the question and answer session. I would like to turn the call back over to our CEO, Scott Maskin, for closing remarks.
Thank you again for your time today, everybody. Like I said, we believe SUNation's value prop of energy independence and our sterling reputation, customer-centric, and diversified service portfolio will help us navigate a tough industry, the macroeconomics, the environment, tariffs, government subsidies, and the interest rates. We've been doing this a long time, and we have a lot more work to do. I always say you got to bet. If you're in a race, you got to bet on the right pony. I've always believed that SUNation is the best pony out there. I'm very optimistic about the future of solar and storage. I don't think you can stop this train if you even tried. I'm committed to capitalizing on the opportunities inherited in our industry, delivering long-term value to the shareholders.
I remain ridiculously accessible to the shareholders, the investors, and everybody else. Sometimes I pay the price for that. That is just how I roll, all right? Appreciate everybody's time today. You all have my email. You know how to get a hold of me if you have any other questions.
Ladies and gentlemen, this concludes today's conference call. Thank you all for joining, and you may now disconnect.