Sun Nation Energy improves Q2 margins and cash position, reiterates 2025 guidance amid shifting solar landscape.

OPERATOR - (00:01:51)

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 Sun Nation Energy Second Quarter 2025 Financial Results Conference call. All lines have been placed on mute to prevent any background noise. After the 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 Devin Sullivan of the Equity Group. You may begin.

Devin Sullivan - (00:02:27)

Thank you, Desiree and good morning everyone. Thank you for joining us today for SUNation's 2025 second quarter financial results Conference call. Our speakers for today are Scott Maskin, Chief Executive Officer, and James Brennan, the Company's Chief Financial Officer. Mr. Maskin will open with prepared remarks followed by Mr. Brennan and then a question and answer session. Before we get started, I'd like to remind everyone that 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 21 of the securities act of 1934. The company intends that such forward looking statements be subject to the safe harbor provided by the foregoing section. 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 in today's call. The Company cannot predict or determine after. The factors that would cause actual results. 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. 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 10K and subsequent filings which can be found on the SEC's website at www.sec.gov. with that said, I'd now like to turn the call over to Scott Maskin, Chief Executive Officer of SUNation Energy. Scott, please go ahead.

Scott Maskin - Chief Executive Officer - (00:04:34)

Good morning, everyone. I want to thank everybody for this opportunity today. As you know, we just released our Q2 filing, so welcome to our earnings call. I look forward to answering your questions at the end. Feel free to throw hard balls or softballs and I'll be answering them. So I want to take a few minutes to talk about where SUNation stands today, what we're seeing across the solar industry and where I believe we're headed in the back half of 2025 and into early 2026. Let's start at the top. I couldn't be prouder of the progress that we've made as a business. We've avoided more than a few icebergs, navigating through fabricated headwinds and economic noise, and SUNation has come out stronger. We're stable, we're lean, and in my view, we're set up to outperform our peer set. That said, this industry just doesn't quit throwing curve balls. You hear me referring to our industry as riding the solar coaster. And before each earnings call, I look backwards and I asked myself, did I see this coming? Could I have seen this coming? And what changes would I have made? Honestly, nothing could have prepared us for what the post election solar landscape would look like. But the results of the one big beautiful bill and its impact to the solar industry would have been like predicting Covid coming off a brutal 2024 where SunNation and many others saw sales drop 25 to 40% if they even stayed afloat. I came into this year very optimistic. Not because of politics, but because of fundamentals. Job growth, domestic manufacturing, energy independence. It just made sense. Solar and storage brought Americans back to work faster than any other sector post Covid. We deliver the cheapest per kilowatt hour of any energy source, provide grid benefits and diversification, while adding benefits unmatched to the environment and the local communities we serve. Elon Musk is even in the game. I felt like we're finally going to get a seat at the big table, but instead we got lumped in with wind and the Green New Deal narrative. And that political baggage has hurt us. I spent the last two months in D.C. side by side with other industry leaders and lobbyists fighting to preserve key tax credit provisions, and so far, no luck. The fragmentation in our sector left us exposed and we're paying for it. A lesson to be learned for sure. It also didn't help that some of the biggest names in Solar collapsed SunPower filed for bankruptcy in August of 24. Sonova and Mosaic followed in 2025. And even though those events were all finalized in June, investor confidence started tanking back in Q1, and it created a ripple effect that dragged down the entire sector. But through it all, one thing has remained true. Our greatest strength at the SUNation is our diversification. We operate in two of the most expensive energy markets in the country, New York and Hawaii. Our diversification in the residential, commercial, service and roofing spaces elevate us above all others, and our 22 years of experience are key differentiators. We attract confidence. Our Hawaiian team at HEC is benefiting from our shift towards service and commercial work, and Hawaiian Electric Company (HECO)'s new battery storage program is helping us make real progress in New York. Commercial projects face delays due to utility red tape, but we've broken through. Boots are finally on the roof, and our pipeline is strong through the end of 2026. Already, the shining star is that residential solar is on fire across the country and especially our markets. While I pause to salute the federal government's decision to sunset section 25D of the ITC at year's end, homeowners are moving fast. Sales are surging in both New York and Hawaii, and our teams are running beyond full speed. We're already planning for the next phase. With new financing models lined up for 2026 and beyond, we are prepared to pivot. Unlike our competition behind the scenes, I'm incredibly proud of what we've accomplished corporately. Jim Brannan has shared many of the details, but the highlights are clear. We've cleaned up our capital stack, we built our cash position, and we're relentlessly pursuing our targets of OPEX efficiency and have cleared out debt. I also want to give credit to where credit's due. Our board of directors has been lockstep with Jim and I rolling up their sleeves and driving real value every single day. And as our momentum builds, so do our opportunities. Our roll up strategy is still very much active, with multiples of companies dropping considerably. But I'm also looking closely at opportunities for smart strategic consolidation within public markets. This journey as a public CEO over the last 14 months hasn't been easy, but it's been deeply rewarding. What drives us is our team, the 188Sunnation employees across New York and Hawaii who continue to show up, give their all, and push through the noise. They're the heartbeat of this company. And if there's one big takeaway from the first half of 2020, the first half of this year, it's solar only companies are vulnerable. Our original thesis of acquiring top tier regional solar firms still makes sense, but I'm now laser focused on aligning with diversified energy companies, especially those in the AI, crypto and data center infrastructure. These are the largest emerging consumers of power and they're going to shape the next decade of demand. We need to be part of that evolution so nation is strong, we're beating the odds, and most importantly, we're growing and winning. So thank you for your continued confidence. Everything we do is aimed at increasing shareholder value and that mission remains our North Star. I'll see you again next quarter and I thank you for your time today. With that, I'll turn it over to Jim Brennan to get into the nuts and bolts.

James Brennan - Chief Financial Officer - (00:10:47)

Thank you Scott and good morning everyone. From a logistics point of view, Scott Maskin, Kristin Hlofka, sunnation's Chief Accounting Officer and Treasurer, and I are usually in the same room for these earnings calls. However, given Hurricane Erin's path and expected flight delays, the three of us are in separate states and we'll do our best today to make this call. Go see no to you we issued our earnings release yesterday morning and filed our 10Q with the SEC on August 15th. This has been a remarkable period for the SUNation team. With the support of an incredible team, we have reshaped nearly every aspect of the business operationally, financially and strategically. We gained momentum as the year progressed and delivered our second quarter performance that marked a turning point in our journey to create a new, strong and sustainable SUNation Energy. We increased our gross margin, reduced our SGA expenses and improved our adjusted EBITDA loss compared to the last year's second quarter. We strengthened our balance sheet through aggressive deleveraging, reduced our total debt by 61% from December 31, 2024 and driving down our second quarter interest expense by nearly $600,000. Our cash position improved nearly fourfold. We have built a robust and growing backlog in our residential and commercial business segments that has given us a clear line of sight to significantly improve performance in the second half of the year and the confidence to reiterate our full year financial guidance. In summary, we are addressing the new realities of our industry while maintaining the highest level of customer service, remaining a reliable partner to our suppliers and driving sustainable growth opportunities. We are operating more efficiently and delivering on our business and financial obligations. Onto the review of our second quarter of 2025 results Total Q2 sales were 13.1 million compared to 13.5 million last year. Sales in New York rose to 9.8 million from 9.7 million, with residential sales decreasing 6% to 8 million and commercial sales increasing 156% to 1.3 million when compared to Q2 last year, sales in Hawaii have declined from 3.2 million from 3.8 million on a consolidated basis. Overall kilowatts installed on residential projects decreased by 11% in the second quarter of 2025, with price per watt remaining consistent. On a positive note, revenue per install increased by a whopping 5%. Our backlog has grown considerably thanks to a large volume of residential customers who are now booking jobs to secure their federal tax credits before they expire at the end of this year. Thanks to the uncertainty from Washington that surrounded the status of these tax credits in both New York and Hawaii markets. Our residential backlog improved 27.1 million on June 30 from 26.9 million on December 31, 2024. Residential backlog accelerated to 35.6 million on July 31 of this year, up more than 31% in just one month. On the commercial side, we ended July with a backlog of 4.2 million, up nearly five fold from the prior month. We expect to realize 65% of the commercial backlog by December 31st of this year. Consolidated gross margin for the second quarter increased to 37% from 35. New York's gross margin increased a whopping 210 basis points to 40.3% from 38.2% while Hawaii's gross margin decreased to 27.1% from 28.3 primarily due to fixed costs on lower revenue. We continue to drive down costs and improve efficiencies as we are creating significant cost Savings. In the second quarter of 2025. SGA expenses declined 6.4 million from 6.6 million in the prior year period. Total operating expenses rose to 7 million from 6.8 million which last year's operating expenses benefited from a $450,000 fair value remeasurement of the earn out, consideration, interest and other expenses in the second quarter of 2025 was $162,000 compared to $736,000 from the last year. This decrease reflects the payoff of some expensive debt earlier this year. Net loss from continued operations was 9.6 million compared to a net loss of 6.9 million in last year's second quarter. However, the net loss in the second quarter of 2025 included a non cash expense from $7.5 million fair value remeasurement of warrant liability this past quarter versus $3.3 million in the prior year period as well as a $560,000 financing fee related to the closing of our direct offering versus none in the prior year period. Taking all this into account, our adjusted EBITDA loss improved to minus 1 million in the second quarter versus minus 1.7 million in the prior year period. Moving to the Balance Sheet I am very pleased with the progress we have made along several key metrics since the start of the year. Cash and cash equivalents rose to 3.2 million from 1.4 million on March 31 of this year and $840,000 at the end of last year. Restricted cash has remained stable at approximately 300,000 since the end of last year. Just before we ended the second quarter, we terminated our Series A warrants which protected investors from a potential dilution of 652,000. We believe this was a meaningful way to deploy our capital while enhancing shareholder value. As noted earlier, over the first six months of this year we reduced our total debt by 11.7 million. Total debt on June 30, 2025 which included consideration of approximately $500,000 burnout consideration sorry of approximately $500,000 declined to 7.5 million from total debt of 19.1 million on December 31st of last year. This has removed about an annual drain of approximately 3.4 million through 2025. We continue to expect that annual interest expense to decline by approximately $2 million for 2025. In addition to debt repayments, we also restructured 5.6 million of long term debt to improve our capital structure, enhance cash flows and provide financial flexibility. Other areas of improvement this year through June 30, 2025 include accounts payable improved to 6.4 million from 8 million. Inventories improved to 2.3 million from $2.7 million. Current liabilities improved to $12.8 million from $27.2 million. Long term liabilities improved to $9.2 million from $10 million and lastly, stockholders equity improved to $22.1 million or $6.49 per share from $8.5 million. Based on our results of our second quarter project, pipeline and general business Environment, we are reiterating our guidance for 2025 as follows. Total sales are expected to rise to between 65 and $70 million, a projected increase between 14% and 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 our team at SUNation for all of their hard work and dedication. For those of you that have ever met with us over the years, you would have heard us say that transparency is the foundation. When we initiated nearly 100 restructuring actions starting in May 6th of 2024, we did so with the intention to stabilize the business and create a solid financial foundation for growth. While it may have seemed an impossible task at the time, our second quarter results align with what we had said earlier this year, that the actions we took in 2024 and early in 2025, however difficult, would result in a stronger Sun Nation. And that is exactly what has happened. We are excited and optimistic about the future and look forward to keeping you apprised of any news and progress. I feel that this is an exciting time for Sun Nation energy as a whole and want to thank all of you for taking for your time today and turning things back to Scott.

Scott Maskin - Chief Executive Officer - (00:21:15)

Nice job, Jim. Thank you. And now if anybody has any questions, we're happy to flip back between Jim and I and answer some questions.

OPERATOR - (00:21:27)

Thank you. 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 a question, simply press Star one again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute. When asking your question again, press star one to join the queue. Our first question comes from the line of Julian Dumoulin Smith with Jeffreys. Your line is open.

Hannah Velasquez - (00:22:05)

Hi, good morning, this is Hannah Velasquez on for Julian. Thanks for the update. Nicely done. I have a few questions. The first to open us up, you mentioned on the call just some new financing models or potentially financing structures to enter into 2026. Can you provide any further detail in terms of what you're contemplating there? Yeah.

Scott Maskin - Chief Executive Officer - (00:22:29)

Thank you for the call and thank you and say hi to Julian for me. I would say that, you know, as soon as the guidance came out on 25D and 48E, it was sort of like a scramble. Most companies that were looking at that were traditionally loan oriented residential companies knew that they had to pivot. Some of the people that, you know, came up was, you know, LightReach. There's a few of them out there, right, that are really kind of shaping third party ownership. But what I do believe is that there are significant players that are working behind the scenes to kind of lace a different financing model between TPO and the loan market. Some people talk about prepaid leases, but I think that I won't give you names, but I know there's a bunch of people out there right now trying to lace together different ingredients to make it all work that's best for the homeowners, that serves everybody's needs. Does that answer the question?

Hannah Velasquez - (00:23:39)

Yeah, that's perfect. I understand it's still early innings and everybody is trying to sort through the transition, so commentary is very fair. And then if I could just ask. A follow up, can you give us a sense of the growth outlook for residential solar in 2026? You know, more so macro growth rather than company growth in terms of installations again in 2026. And maybe if you have visibility into 2027, not only taking into account the expiration of 25D, but also the favorable outcome from treasury guidance on Friday of last week.

Scott Maskin - Chief Executive Officer - (00:24:13)

Yeah, thanks. I mean, there's a lot to unpack there. I think that the brace right now over the last couple of months was the race to secure funding materials and everything else so that we could, you know, make a, make a commitment to the customers that they would get installed by December 31, that loan customers would get installed before the end of the year. So that's pretty much taken everybody's effort and quite frankly, responsible companies right now in the residential space are mitigating that, that risk saying, hey, listen, you're in the queue. You know, we're 200 projects oversold for 2025. But there's always issues that push people to the sidelines, permitting issues and whatnot. What is surprising is we have not seen a slowdown in sales for people that got the notification that we can't guarantee that. And when I say guarantee tax credits, I mean that we can guarantee that the system will be installed. That if you qualify for the tax credits, you would be able to take advantage of them. We haven't seen a slowdown of applications coming in for people that want solar. That's super promising because I think that in 2026, you know, after, you know, the sunset, you know, these people are going to be, well, you know, I'm down the road, I have my permits. Talk to me about, you know, other financing options and we'll still move forward as the cost of energy continues to rise and rise. And as I mentioned, the impact of AI and crypto and Power demands negatively impact. They're going to make residential energy costs go up. There's only so much supply right now. So I think that in 2026 it's going to be. You're going to be limited possibly by supply because I think there's going to be a glut of product that is sp spoken for. I don't see, you know, a lot of things are going to happen in the next year and boy, it didn't. It only took, let's put it this way, in 22 years of me in this industry, it only took a couple of months to go from 30% tax credit to no tax credit. You know, if you start talking about 2027, man, a lot can happen between now and 2027. And you know, just delivering transparency to the, you know, to what the industry looks like to off-takers is the most important thing in earning their confidence.

Hannah Velasquez - (00:26:56)

Okay, super fair. Oh yeah, go ahead.

James Brennan - Chief Financial Officer - (00:26:58)

If I may, Hannah, I would add that, you know, the whole comment Scott made earlier about our diversified approach to this market, I think that's the key answer here, which is residential. It's unclear what the total impact of the entire market will be in 2026 and 2027 because everybody's got a pivot to third party owned selling approaches where historically at least at SUNation for the last 22 years we have focused on purchase to own, not third party owned. And so that'll be a pivot. But the good news is that we our other sources of revenue. So we have five or six sources of revenue. Residential is only one of them. Commercial roofing service, electrical services. And adding on additional revenue sources, that's the key to our success here. As residential becomes a question mark in 26 and 27, our commercial business unit is exploding, as I just mentioned in our prepared remarks. And so that's going to be the key. When the government got rid of 25D, which I think was exactly the opposite of logic, 48e actually continues to promote not only residential TPO, but the commercial side of our business. And so we expect to continue to see that to grow.

Hannah Velasquez - (00:28:21)

Right. Super fair. And I think like the safe harbor outcome for smaller solar bodes well for both residential and the C&I perspective. Okay. Yeah, I was more so trying to get at the context of, you know, some of your peers in the resi space have been sizing 2026 at, you know, maybe call it down 20% as they take into account loan and cash down meaningfully, but then TPO up. And so I was just looking to see if you agree with that framework or concede it could actually be better. Again, just because you have more visibility into likely 2029 and 2030 on the leasing front for solar, I think it's.

Scott Maskin - Chief Executive Officer - (00:29:00)

Going to be better than predictions based on the chatter that I see and especially because we operate in New York and Hawaii. Can't talk for some of the other markets, but for, for us, the cost of power is high. So I see people getting pushed further and further along to join it.

Hannah Velasquez - (00:29:24)

Okay, perfect. Thank you all for the questions and answers.

Scott Maskin - Chief Executive Officer - (00:29:28)

Thank you, Hannah.

OPERATOR - (00:29:30)

And again, if you would like to ask a question, press Star, then the number one on your telephone keypad. There are no further questions at this time. I would now like to turn the call back over to the management team.

Scott Maskin - Chief Executive Officer - (00:29:48)

So we have some questions from the investor inbox. This one comes from John L. At what point does an installation qualify for the tax credit? In other words, does it have to be completely installed, partially installed, or connected to the grid? Yeah, thanks for that, John. You know, our read on this is we have to have the system up and operational, ready to connect. That is exclusive of closing out building permits, utility interconnection. This is for the residential off-taker. You know, we can't be held accountable for slow utility works and whatnot. So, you know, our commitment to the customers that we've, you know, made is that you will be up and operational by December 31 and if you can take advantage of the tax credits and we do not give tax advice., then you will absolutely be ready to apply for it. Great. Thank you. The next question comes from Ariel C. Do you see any opportunity for solar as part of AI data centers? Oh my God, yes. Thank you, Ariel. You know, you know, we keep hearing, listen, we use AI in our own business, right? You know, I write some of my stuff with AI. But you know, I was mindful of a project that I just went to, you know, where Microsoft is building a million square foot AI facility in Milwaukee and that the power consumption and water consumption for that building is going to dwarf the 350,000 homes that are in Milwaukee. So there's no question the price of electricity in Milwaukee is going to go up for residential off-takers because there's only so much being generated there. What I see is an incredible play is that, and I mentioned it in the oncoming statements that solar only and storage only companies are super vulnerable. It's time for companies that embrace both fossil fuel and renewables to start to work together and use the same property and use the same transmission lines and whatnot and cite these things. So I think there's a fabulous opportunity to participate in alongside fossil fuel oil, natural gas, and whatnot, as opposed to being fossil fuels or renewables. That's exactly where my head is heading right now after the one big beautiful bill.

John L - (00:32:20)

And then what looks like maybe the final question from Nick B. How do you expect quarterly revenue adjusted EBITDA to trend over Q3 and Q4?

Scott Maskin - Chief Executive Officer - (00:32:34)

I'm going to flip that one over to Jim Brennan.

James Brennan - Chief Financial Officer - (00:32:38)

Thank you, Nick. Good question. So we don't give quarterly guidance. As you may recall, this is the first year that we actually gave guidance in a while. And so what I will say is that, and you've heard me say this on prior earnings calls, is that we happen to be in a little bit of a cyclical business. So Q1 for different reasons, Q1 in New York and Q1 in Hawaii are typically lower revenue, potentially loss of net income quarters for us. Q2 typically in those two markets begins to start ramping up and therefore might be certainly see some growth on the revenue side, but profitability may be neutral. Q3 starts ramping up hard, we start stockpiling some cash and then Q4 even better. And I wish I didn't have that in our two business segments. And perhaps as we continue to grow with our roll up strategy, we can acquire other companies that have different profiles. But for the New York and Hawaii businesses for different reasons, Q1 low, Q2 better. Q3 and Q4 are off to the races almost every year. Good question, Nick. That concludes the investor inbox. Thank you.

OPERATOR - (00:34:06)

Ladies and gentlemen. That concludes today's call. Thank you all for joining and you may now disconnect Thank you.