SPI - SPI Energy Co. Ltd. (SPI) Q4 2022 Earnings Call Transcript
2023-04-18 20:30:19 ET
SPI Energy Co., Ltd. (SPI)
Q4 2022 Earnings Conference Call
April 18, 2023, 16:30 PM ET
Company Participants
Denton Peng - Chairman and Chief Executive Officer
Hoong Khoeng Cheong - Chief Operating Officer
George Milionis - Chief Legal Officer
Conference Call Participants
Tate Sullivan - Maxim Group
Tim Moore - EF Hutton
Presentation
Operator
Good afternoon, and welcome to SPI Energy's Fiscal Year 2022 Conference Call. As a reminder, this call is being recorded and all participants are in a listen-only mode. The call will be open for questions-and-answer following the presentation. 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 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, today 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'll now pass the call over to Denton Peng, Chairman and CEO. Mr. Peng?
Denton Peng
Thank you, Shermdi [ph]. Thank you to everyone for joining us today on our fiscal year 2022 earnings call. We are placed 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 referring previous issued guidance with the revenue expected in the range of $250 million to $300 million in the year 2023. And with near term expedition for positive EBITDA and net profitability, we are confident that we will deliver between $29 million and $36 million net income for the fiscal year 2023.
This monumental milestone for SPI made possible by years of hard work for our teams who have been instrumental in helping to building our renewable energy company platforms. This achievement is even more significant when considering our continued investment in our EV and 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 growth growing demands. Thanks to the Inflation Reduction Act passed last year, rapid growing industrial tailwind also give that our proud world class team with multi-decade proven record of success have been built the strong foundation, particularly our American make solar -- American brand module and SEM Wafertech manufacturing business will place us in a great position to rapid increase market share across each of our business units, ultimately enable us to unlock new value for our shareholders as we started growth in the quarters heads.
The last, but not the least, our independent power producing company Orange Power and Australian distribution SolarJuice have been profitable growth in last three years. Our American module manufacturing business Solar4America have been growing with ramping up capacity and tend to be profitable since quarter four 2022. And our solar project developing company SPI Solar also expected to build profit to the group this year. With all about near term expectations, we are confident that we will be EBITDA positive and net profitable and aim to delivery between $29 million and $36 million in net income for fiscal year 2023.
I will now handle the call over to our Chief Operating Officer, H.K. Cheong, for further details of our operation performance in 2022. H.K.?
Hoong Khoeng Cheong
Thank you, Denton. I would like to provide a quick recap of some major accomplishment by business unit. Our solar project development business, SPI Solar, accomplished multiple major milestone in 2022, including the completed sales of a five megawatt solar project in Hawaii. So we begin the development for a 7.2 megawatt community solar project on the 34 acres land in Southern California and also begin the develop development on the second phase of our 32.4 megawatt show with solar project on the 167 acre of land in Kendall. Additionally, we secure 473 acre of land in Maryland for a 78 megawatt utility scale solar project and a 465 acre of land in Illinois for a 54 megawatt of utility scale project.
So on the Orange Power, our independent power producer PPP business produced approximately 55.9 million kilowatt hours of renewable energy from solar project in the U.K., Italy, Greece, and in Hawaii during 2022 and offsetting approximately 38,000 tons of the greenhouse gases. So Orange Power revenue were up by 30% and its net income increased 83% in 2022 when compared to the previous year.
On Solar4America, our solar module manufacturing business after beginning production of our making USA solar modules in the second quarter of the 2022, we finished strong with that profitability in this segment in the fourth quarter of 2022. Now we have 700 megawatt production capacity providing high efficiency solar modules for our residential C&I and UDD customer. We set the stage for accelerated revenue and profit growth in 2023 as we continue to run production capacity at our Sacramento facility as well as our second newly lease facility in South Carolina towards our previously stated goal of 2.4 gigawatt of production capacity.
Our SolarJuice Australia, the SolarJuice Australia distribution business has been the leading distributor for our renewable product in Australia, and the business has been profitable growth in the last three years. The business expect to grow -- continue to grow -- growing in coming years with the corporation with strategic partners such as Tesla and Fronius and Sungrow. Then the SEM wafer formation was one of our key achievement during the second half of 2022 as demand for solar continue to grow in the U.S. there is an increasingly need for locally make solar wafers. We are targeting delivery and production of solar wafer in the U.S. this year with capacity ramping to three gigawatt by 2024.
Lastly, our EV business, Phoenix Motorcars, was spun off last June under [indiscernible]. So Phoenix provides sustainable and zero emission medium duty transportation with a range of product available to our customers, including shuttle and transit buses, school buses, deliver vans and work trucks. Phoenix also has been developing EdisonFuture brands with the light duty pickup trucks, SUV, 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 make wafer as well as electric vehicle, have positioned us extremely well to capitalize on the wave 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, which create attractive incentive for companies to produce solar modules in the U.S. So our manufacturing division in California were now received $0.07 per watt incentive for the solar modules produced in that facility. Overall, the strong foundation we have established in key area of the renewable sector, including American solar manufacturing, battery storage, and electric vehicle, have positioned us well to expand our project pipelines, grow consistent cash flow from our operating asset, increase our gross margin and profitability moving forward.
On our R&D effort, we also secure two groundbreaking provisional patents in 2022, one regarding machine learning technology to improve solar module manufacturing process and a second patent application for an innovative apparatus to further automate the solar production line and reduce human errors.
I will now hand the call over to George for further detail of our financial performance in 2022. Over to you George.
George Milionis
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 31st, 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 consists primarily of raw materials and labor costs, increased to $163 million in 2022. That's up 150 -- 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 point -- 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 31st, 2022, our total assets were $231.1 million and we had $3.5 million in cash in cash equivalents.
As Denton has already mentioned, we hear by reaffirmed 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.
Question-and-Answer Session
Operator
Thank you. And at this time we will be conducting a question-and-answer session. [Operator Instructions]
Our first question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.
Tate Sullivan
Thank you. Impressive increase in gross profit margin in fourth -- in 4Q 2022 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?
Denton Peng
Thank you for questions. The gross margin improvement I think driving for a different business segment. The first one most important is our promotional module manufacturing U.S. [technical difficulty] investment. Now already hundred megawatt capacity. This is already profitable in both last year Q4 and [technical difficulty] margin growing every month you see, and we operation in a few months [indiscernible] is 700 megawatt few month of that ratio [ph]. This will be the first driver of the gross margin improvement.
And also that we see our business of solar project development business, we have some project. We also -- we'll be in the progress I think with this year especially second quarter and this year our solar project increase also, we are driving gross margin improvement from this. And the number three is our gross margin of Orange Power. This is also increasing year-by-year and gross margin also improving per year every year. And also a big driver was our Australian distribution and benefits consume demand, even gross margin normal compare our module manufacturing business lower, but still the business is growing well and also gross margin and even improve. I think generally this the main factor of our gross margin [technical difficulty] and growing. So I especially also [technical difficulty] for this year.
Tate Sullivan
You talked great. Thank you. And you've 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?
Denton Peng
H.K.?
Hoong Khoeng Cheong
Thanks. We have -- for the solar module business, our product are actually care for the residential and also small C&I project. So, we are looking into mid 50 for the residential and probably in the low 50 for the C&I space as the volume for the C&I project would be much larger than the residential our distribution business.
Tate Sullivan
Okay. Thank you very much.
Hoong Khoeng Cheong
Thank you.
Operator
Our next question comes from the line of Tim Moore with EF Hutton. Please proceed with your question.
Tim Moore
Thanks. 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., Jen 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 that $12 per square meter for wafers?
Hoong Khoeng Cheong
Yeah. This is -- revenue of course is including all the business we have combined. For net income and also we consider the loss continuing investment of our business in the EV and also for the possible investment on our wafer business this year because the first year always you need the investment in the business. And, of course, the net income will consider that we should receive $0.07 for the grant -- for the benefiting grant for the solar modeling in U.S. So this is considered all in the factors of all business total.
So I think generally our solar business for the net profit may do better and especially the solar module manufacturing, our solar electricity producing and also solar distribution business that the net profit should be -- and also sort of project development business. The net profit should be more than what we guided, but we consider that we need to continue investment in EV business and also wafer business for the first year.
Tim Moore
Okay. That, that's helpful. I just have one other question related to that for the net income guidance. So I just want to make sure that when I'm building my model, does it exclude stock-based compensation for the year? That could be a few million and it does include in that $29 million to $36 million guidance, it includes what you're projecting for $0.07 per watt times the volume you sell from California.
Hoong Khoeng Cheong
Yeah. This is including $0.07 because we are eligible to receive this grant according Inflation Reduction Act, but this is guidance, not including like stock-based compensation. Basically this is really just not relating to operation. So -- and this is also time to time, one time since where we cannot expect it, we can only do the best effort from [indiscernible] to see the operation side.
Tim Moore
Okay. And that's helpful. Yeah. I'm forecasting 110 to 200 million of watt sold based on your sales guidance. I mean, it seemed like that could be $10 million to $14 million of gross profit from the incentives. And does it include any from the wafer incentive of $12 per square meter? Is that in your guidance for the net income?
Hoong Khoeng Cheong
And wafer because this year we are in the process to construction and the facility build. So I don't expect any meaningful revenue come from this year. And the wafer business should be this year, just expenses. You should be some revenue definitely coming from next year. It takes turns time to building a facility for manufacturing U.S. even starting from last year.
Tim Moore
Okay. That makes sense. No, that's really helpful on timing. And now the March quarter is pretty much done. You give us a sense of -- as we look at the ramp up for revenues from your in-house solar modules manufacturing in California, I mean, could it be $10 million of sales in the March quarter, and was it more than $5 million in the December quarter that you reported?
Hoong Khoeng Cheong
Yes. I think it’s in q4, a quarter is a little less than $5 million and the quarter -- for the first quarter I think should be normally, nearly double. I think we expect our revenue could be easy to double every quarter and many driving by -- when you train employee and you hire employee in U.S. is a challenge, it's always. You need -- you hire enough employee and training them and then you need ramp capacity for capacity. So this takes some time for the employee hire, training and to ramp them up to full capacity. But we expect current -- because we have enough orders, a lot of demand only we try to get our capacity to be ramp them up to 90% or even 100%. But now we are much lower than that because we are in the process to ramp them up to full capacity. But definitely the number will be -- we see will be almost close to double every quarter, quarter by quarter in the next few quarters.
Tim Moore
Good. That's very helpful cadence H.K. And my last question is, I'm forecasting $90 million to $95 million of sales this year from your module manufacturing in California. How do you expect to fund that working capital? Are you getting deposits from some big orders? And do you think because it doubles every quarter that you could self-fund a lot of it until you get to the end of the year?
Hoong Khoeng Cheong
Yeah. Currently, we have our own resource of funding, the current operation and in meantime, we are very profitable, so we reinvest our profit to the business. And of course, now more and more customers, they want to secure the volume, they help us to build a new capacity, so they will help us to increase our capacity. Even some customers they thinking about help us building the second factory in South Carolina. So definitely we will get a support for post operation and CapEx from different source and many -- sometimes even for our customers.
Tim Moore
Great. Well, thank you for that explanation. That was it for my questions. Thanks.
Hoong Khoeng Cheong
Thank you.
End of Q&A
Operator
And we have reached the end of the question-and-answer session. This also concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Denton Peng
Thank you.
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SPI Energy Co., Ltd. (SPI) Q4 2022 Earnings Call Transcript