SUNation Energy, Inc. Q3 FY2025 Earnings Call

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to SUNAtion Energy Third Quarter 2025 Financial Results Conference Call. I would now like to turn the conference over to Devin Sullivan, Managing Director of Equity Group. You may begin.

Thank you, Bella. Thank you, everyone, for joining us today for SUNAtion's 2025 Third Quarter Financial Results Conference Call. Our speakers for today are Scott Maskin, Chief Executive Officer; and James Brennan, Chief Financial Officer. Mr. Maskin will open with prepared remarks followed by a question-and-answer session. Before we get started, I'd like to remind everyone that the prospects of SUNAtion Energy are subject to uncertainties and risks. Remarks on today's call may contain 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 the safe harbor provisions provided by the foregoing sections. These forward-looking statements are based largely on the expectations or forecasts 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 during this call. The company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements 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 and in subsequent filings, which can be found on the SEC's website at www.sec.gov. With that, I'd now like to turn the call over to Scott Maskin, CEO of SUNAtion Energy. Scott, please go ahead.

Thank you, Devin, and good morning, everybody. Happy Monday. Thank you all for joining me today. This is a call that I've truly been looking forward to for quite some time. Since Jim and I took the helm of SUNAtion about 18 months ago, it felt at times like steering through unpredictable conditions, keeping steady, staying focused, and making sure everyone on the team understood where we were headed and why. Now I won't tell you things have calmed down. They absolutely have not. As we look ahead to 2026, there's still a lot of movement in the industry and uncertainty. But the difference is that we're no longer reacting; we're leading. We've got structure, direction, and a team that's completely aligned on the mission. This quarter represents a turning point. For the first time in a long while, our results and our work reflect the impact of our hard work, the discipline, and the cultural rebuilding that's taken place inside this organization. If I had to sum up Q3 in one phrase, it's this: we delivered on our promises. Sales rose, costs came down, margins improved, and profitability strengthened. Our capital structure is squeaky clean, and our balance sheet is the strongest it's been in years. That didn't happen by chance. It took tough calls, long hours, and people who refused to give up, but it proves what happens when we stay focused and execute. While many in our industry have struggled to find direction, SUNAtion has moved forward, stronger, leaner, and ready for what's next. Those of us who've been in solar for a while know the ride never really smooths out. The One Big Beautiful Bill and the upcoming sunset of Section 25D have created new challenges and new opportunities, and our team has handled both with focus and professionalism. The rush to complete residential installations before the end of 2025 has been intense, and our teams in New York and Hawaii have been extraordinary and really stepped up to the plate. These are two of the most expensive energy markets in the country, and our people have helped homeowners take control of both their power and their costs. Residential sales in those markets were up 54% year-over-year in Q3. I want to say that again: residential sales in those markets were up 54% year-over-year in Q3. And we expect that momentum to continue right through the year-end. At the same time, we're not focused on this surge. We're preparing for what comes after. We've been developing new financing options and lease-to-own programs that will carry us not just in 2026, but far beyond, tried and true approaches that have been part of SUNAtion's success story for more than two decades. On the commercial side, we're continuing to see steady demand from institutions and municipalities across Long Island and downstate New York. High energy costs and the longer runway for federal tax credits have supported a solid project pipeline, and we're executing efficiently. Our advantage continues to be our diversification in our people, our markets, and our services. And it's what gives us balance and stability moving forward. We stand unique by offering residential solar and storage, commercial solar, roofing, and our ever-growing expanding service division. We intend to expand into the energy-efficient HVAC market and standalone roofing, while we've doubled down on our service and O&M side, helping both our long-term customers and those left without support when their original installers disappeared. We're also evaluating strategic M&A opportunities that make sense, ones that bring scale, efficiency, or exposure to fast-growing sectors like AI, crypto, and data centers. These are reshaping how power is used, and we're positioning SUNAtion to play a meaningful role in the future. Through all of this, one thing hasn't changed: we stay calm, focused, and deliberate. Running a business much like steering a ship isn't about avoiding rough conditions. It's about knowing your course, trusting your crew, and making steady progress no matter what's ahead. Every day, I'm driven by three things: our team who show up with great purpose, our customers who trust us to deliver on the promise of solar, and of course, our shareholders whose patience and confidence we're determined to reward. SUNAtion is stronger than it's been in a long time. We understand the challenges ahead, but we also see tremendous opportunity in front of us. We've built a company that can adapt, grow, and lead through whatever comes next. And I'll close with this. God willing, the market will begin to acknowledge and reward our efforts, our resilience, and the results that this incredible team has delivered for you in Q3. Thank you all for your time and trust and your continued confidence in SUNAtion. With that, I'll turn it over to our COO, CFO, and my steady co-captain, Jim Brennan, who will take us through the numbers.

Thank you, Scott, and good morning, everyone. I appreciate you joining us today and especially those on the West Coast that are joining us at 6:00 a.m. We are joined today by Kristin Hlavka, SUNAtion's Chief Accounting Officer and Corporate Treasurer; as well as Mitch Sommer, SUNAtion's Corporate Controller. We filed our 10-Q on November 7 and issued our earnings release on Monday, November 10. As we reflect on our performance for the third quarter, I am pleased to report that the actions that we have taken have delivered significant improvements throughout the business as we promised. We ended the third quarter in the strongest financial position in recent history through in-depth planning, disciplined execution, and sharp focus on operational efficiencies by the regional leadership teams in both New York and Hawaii. We strengthened our balance sheet, expanded our margins, and improved profitability. These much-improved results are a direct outcome of the hard work of the entire team and the commitment to deliver value to our shareholders in the midst of a rapidly evolving market environment. We are on track to report strong results in the current fourth quarter and have reiterated our 2025 full-year financial guidance for higher total sales and a return to positive adjusted EBITDA compared to full-year 2024. On to the review of our Q3 2025 results. Total Q3 sales rose by 29% to $19 million from $14.7 million last year. Sales at SUNAtion in New York and Hawaii rose by 22% and 47%, respectively, with residential sales rising 54% and service sales increasing by 72%. This was driven by an accelerated pace of system installations prior to the expiration of the federal tax credits on December 31, 2025. Although commercial sales declined by $1.7 million, we expect continued stability in this sector as businesses and institutions such as churches and schools continue to take advantage of the longer runway that the One Big Beautiful Bill has offered. Inherently, the commercial sector is more complex and nuanced than residential. So these projects tend to take more time to develop and install. On a consolidated basis, overall kilowatts installed on residential projects increased by 52% in the third quarter of 2025. Revenue per installation increased by 25%. Consolidated gross margins improved to $7.2 million or 38% of sales from a gross margin of $5.2 million or 35.6% of sales driven by higher residential margins. SUNAtion New York's gross margin improved to 40.7% from 37.9%, while Hawaii's gross margin increased to 32.1% from 29.5%. We continue to effectively manage costs throughout our organization while total operating expenses rose to $7.5 million from $6.8 million. As a percentage of sales, the total operating expenses declined to 39.3% from 46.5%, and we expect the total operating expenses in 2025 to be lower than in 2024. Interest expense in the third quarter of 2025 declined to $143,000 from a whopping $812,000 last year, reflecting the continuing benefits of paying off the expenses of debt earlier this year. We continue to expect our annual interest expense to decline by approximately $2 million for 2025 compared to 2024. We operated just below breakeven for the quarter with a net loss of approximately $393,000, which is a $2.9 million improvement from a net loss of $3.3 million in last year's third quarter. Taking all of this into account, Q3 adjusted EBITDA improved to a positive $898,000 from an adjusted EBITDA loss of $1 million in last year's third quarter. With respect to the balance sheet, cash and cash equivalents rose to $5.4 million on September 30, which is our largest cash level since 2022. Our total debt decreased by over $11 million, falling to $7.9 million compared to $19.1 million at the end of 2024. This total debt included an earn-out consideration of $1 million. Other areas of improvement this year through September 30 include accounts payable improved by $7.3 million from $8 million on December 31, 2024. Current liabilities improved to $19.0 million from $27.2 million on December 31, 2024. And lastly, shareholders' equity improved to $21.7 million from $8.5 million on December 31, 2024. Based on these Q3 results, solar projects pipeline, and general business environment, we are reiterating our guidance for 2025 as follows: total sales are expected to rise to between $65 million and $70 million, a projected increase of 14% or 23% from total sales of $56.9 million in 2024. Adjusted EBITDA is expected to improve to between $500,000 and $700,000 from an adjusted EBITDA loss in 2024. Before turning things back to Scott, I want to again thank the entire SUNAtion team, both in Hawaii and New York for their hard work and dedication. This process has not been easy. Over the past six months, our financial health has improved dramatically. Sales are up, costs are down, profits are higher, and our financial position is strong. It's no secret that our industry is in a state of transition and that the challenges we all face are significant, but that's okay. We are embracing these challenges as an opportunity to redefine SUNAtion as a whole and the value we can deliver to our shareholders. The global demand for energy is accelerating, and SUNAtion has over two decades of experience in delivering clean, sustainable solar energy. As we look ahead to 2026, we will continue to address these opportunities from a renewed, and we believe, sustainable position of financial strength. We are optimistic about our future and look forward to keeping you apprised of any news and progress. I want to thank you for your time, and we'll now turn things back to the most handsome guy in solar, Scott Maskin.

Thanks, Jim. We're taking calls now, guys. All right. Fire away.

Hannah Velásquez on for Julien. I had a quick question or rather, yes, just an update on 25D expiration. Curious to see what you all are seeing out there in the market in terms of any pull-forward effect? And then also any reactions to the advent or I suppose the introduction of this new concept prepaid lease plus loan bundle. I think you alluded to it on your call. But any additional detail you can provide there in terms of if it's viable as a replacement for 25D and if you would consider pursuing it?

Thank you for having me today. The expiration of the 25D tax credit definitely has a significant effect, especially in high-cost markets like New York and Hawaii. We've primarily focused on loan markets, although we've engaged in some leasing as well. As we approach the end of the year, there are many people who have finally made decisions after a long period of indecision. We also have many dissatisfied customers who were waiting too long for installations, and my teams are working hard, operating six days a week to complete these projects. I believe we will see considerable progress with various financing options beyond just traditional loans and leases. As we gather more information regarding FIAC, I think we can still establish a strong financial model for loans and ownership in our markets. While there seems to be a current lull due to the recent rush from customers, I anticipate we will find ways to re-engage them with new financing solutions. I believe these options will be effective, and those introducing innovative financing methods are diligently ensuring all tax considerations are addressed, though this process has been slower than expected. Did that address your question?

Yes, that was perfect. And then maybe just as a follow-up there. So we're hearing with 25D expiring, you're having new entrants, I suppose, in the competitive market, maybe more so on the TPO side. But can you just double-click in terms of what you're seeing out there? Are you seeing new TPOs enter trying to take advantage of the shift towards the leasing market? I know Tesla also joined the space. And so just what are you seeing from a competitive perspective?

When you mentioned the T-word, never underestimate Elon Musk. He has the ability to disrupt this entire industry at any moment. Having been involved for over 20 years, I've observed many financial players circle the market, seizing opportunities as they arise, facing setbacks, and then reinventing themselves to return. This ultimately comes down to capital and available tax equity. My understanding is that raising capital in solar is currently challenging. It doesn't mean there is no capital, but I believe there will be a slight pause. Demand for solar remains, but some players rebrand, while others retreat and then re-enter. For instance, SunPower exited through bankruptcy and is now returning as an acquirer. There are other companies in the residential market that couldn't secure capital and failed. It's like a big cycle, but ultimately, the same players continue to emerge at the top, even if they change their names. As the cost of energy keeps rising, making decisions becomes easier and more acceptable.

I would add to that, that some of the newer tools that are becoming available based on some of the financial wizards in this market, prepaid leases, synthetic cash, you name it, there's a lot of buzzwords circulating around. But I love it. As long as we have the ability to deliver to these customers some sort of approach that works for them, even though the recent legislative changes got it 100% wrong, we are pivoting to continue to survive. There are, as Scott mentioned, companies in the industry that won't. The reality is New York and Hawaii are not alone with expensive power. Some of the target acquisition markets that we're looking at have even more expensive power than Long Island, which is hard to believe. But those folks are predicting higher revenue this year than next year because their math continues to work in a purchase-to-own market even in the absence of the 30% federal ITC.

Okay. And if I could just have one more follow-up question. On that point, maybe on a consolidated basis, how are you thinking about market growth in 2026? I mean, you hear the consultants all over the place, right, talking about a 10% decline, best-case scenario, and then up to a 20% to 30% decline all in just given 25D expiring. And as a secondary question there, what's the latest you're hearing on FIAC?

So the first part of your question was about 2026 guidance, and I'm not prepared to give that today. We do predict a lower-than-normal Q1, although as I say those words, I was recently pleasantly surprised from the New York team that they've already booked nearly 100 deals for January, which was surprising given the new set of circumstances that we're dealing with. And by the way, that's the normal cycle of our business. Q1 and Q2 are always low in both New York and Hawaii for different reasons. And then Q3 and Q4, just like this year in 2025, Q3 and Q4 were cranking so much so that we're having trouble keeping up with all the work. I suspect that a very similar model will follow in 2026 as well. And Scott, do you want to...

Yes. Regarding FIAC, it continues to evolve daily, with new equipment and different ABLs being introduced regularly. No one can confidently predict where it will stand on January 1, as the guidance remains unclear. However, I believe we will adapt and locate products, with strong balance sheets allowing some to secure equipment while others may struggle. I'd like to echo what Jim mentioned. I've consistently stated that SUNAtion operates as a regional company. The analysts' projections of declines, whether 10%, 40%, or 50% seem unfair, especially when considering states like California, which has faced multiple challenges yet performed exceptionally well last year, particularly with the changes brought by NEM 3. In contrast, states like North Carolina and Massachusetts are experiencing growth. It's crucial to recognize the significance of regional markets and the influence of local utilities and state politics. Identify a state that supports energy initiatives and anticipates growth in data centers and AI, and you'll find one that is likely to increase its revenue due to the rising energy costs.

Thank you, Bella. We do have a couple of questions from SUNAtion stakeholders that I'd like to ask on their behalf. And the first one to the management team is, what is your long-term vision for SUNAtion following the passage of the One Big Beautiful Bill Act?

Thanks, Devin. And to the shareholder, thank you. I believe that the diversification of SUNAtion is one of our key strengths, perhaps even its greatest strength. As we approach the end of the year, our focus is on planning for 2026 and beyond. We observe significant growth in both the commercial and service industries, while the residential sector is expected to stabilize on its own. We have navigated these cycles previously, so I feel confident. Situations like this can serve as valuable reminders for improvement; they prompt us to consider how we can enhance our efficiency and capitalize on opportunities. This extends beyond just operational expenses and staffing. Over time, it is vital to evaluate your software tools and all other expenditures as the company grows. Occasionally, it’s beneficial to reassess and restructure in order to emerge stronger, similar to a boxer taking a moment to regroup before re-entering the ring. I’m not overly worried about 2026 and 2027 because we are positioned well. We have multiple revenue streams and numerous opportunities to generate income for the company, which may or may not involve the energy sector. These factors provide me with great confidence as we look towards 2026 and 2027. At 62 years old, I definitely need those motivators to keep me driven.

Devin, I would add to that answer that just for clarification, revenue diversification has been our strength for a long time. The companies that we've seen that have failed over time are ones that have a single source of revenue, and you can name them off the top of your head, I'm sure. In our case, we went out of our way to have six or seven, hopefully, even more sources of revenue. So we have a residential revenue stream, commercial service, roofing. We actually do electrical work for some of our solar customers. We have community solar. And in the future, hopefully, if the moons align, we'll add HVAC and some high-efficiency HVAC tools and so on. Because as Scott mentioned, we'll see in the future a time where another part of our revenue stream slows down. That's fine. That's part of the cycle that we all live through, but we'll have a backfill from other revenue streams. Just like in 2025, the commercial team had lower-than-expected revenue. But I doubt that will be the discussion in 2026 because there's a ton of work that those folks are cranking through right now.

And actually, Jim, that's a good segue into our final question. How would you describe the market for commercial in 2026?

Yes, I'll begin by saying that in New York, we have positioned ourselves effectively with national developers. Our philosophy has always been that while it's beneficial to originate our own projects, our revenue comes when operations are active. Our shareholders benefit when operations are active too. Therefore, the seller of the project isn't my main concern; we excel in executing these projects. Due to our partnerships with national developers, we are experiencing a significant increase in schools and institutional projects. We are particularly well-equipped to manage these types of projects. While traditional rooftop solar on industrial buildings will not disappear, we have a robust pipeline in place, and this will be a key focus for us moving ahead, as it aligns with current industry trends, at least until 2027. We are fully committed to these initiatives.

Devin, I would just add to that, that because we do a lot of work for these large national developers, and we do a pretty good job at delivering on those projects, we are now getting asked or actually we've been throughout the year being asked to do work in other states. So we historically have had an acquisition view on growth into new markets. But this is an organic view just simply because the commercial team does a good job of delivering. And then the next thing you know that national developer wants us to go into a different state because they have another project. And so that will definitely be some growth into next year that we'll see on the commercial side.

Thank you both. That is our final question. So I'll turn things back over to Scott for closing comments.

Well, thanks for everybody that spent a beautiful sunny Monday morning with us. Customers are happy. They're making money today because the sun is out in New York and soon Hawaii. I want to wish everybody a happy holiday season. Let's not forget what's important as we move forward. Revenue and shareholders and business are important, but family first, and that's how we treat our business. So I wanted to thank everybody for their time and the confidence. And man, am I looking forward to that end-of-year report, okay? So thanks, Devin. Thanks, team.

All right, ladies and gentlemen, that concludes today's conference call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.