Greetings. Welcome to the Sunworks, Inc. Third Quarter 2022 Results Conference Call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jason Bonfigt, CFO. You may begin. Thank you, Operator. I'm Jason Bonfigt, Chief Financial Officer of Sunworks. On behalf of our entire team, I'd like to welcome you to our third quarter 2022 results conference call. Leading the call with me today is our President and CEO, Gaylon Morris. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as otherwise required by law, we undertake no obligation to update our forward-looking statements. Following our prepared remarks, we will open the line for questions. With that, I'd like to turn the call over to Gaylon. Thank you, Jason, and welcome to those joining us today. During the third quarter, our business benefited from a combination of strong residential solar demand, strategic price actions, disciplined expense management, and market share gains. As household electricity bills continue to rise, order rates for new residential rooftop solar installations accelerated on a year-over-year basis, contributing to robust organic revenue growth in the third quarter. While customer financing costs have increased in tandem with higher interest rates, originations during the quarter were at record levels as the economic case for residential solar remains highly compelling, particularly for customers who value independent, reliable access to renewable energy. To help illustrate this point, let's use a real-world example. Currently, the average residential electric bill in California, our largest market, is more than $1,550 annually or nearly 50% higher than it was a decade ago. Even as electricity prices have risen meaningfully, grid reliability has declined, leaving many households and businesses to explore alternative options. Consumers want more control over how they source energy. They want choices. The average residential installation will typically cost between $25,000-$30,000, including the benefit of tax credits financed over a 15- 25-year period. By installing solar, a homeowner can, in most cases, use their system to offset their electricity usage 100% and have a system which will support future consumption growth. Over the past year, the cost of solar has increased for the first time in the industry's existence. Financing rates have increased by more than 5% and low interest rate products are being limited by the loan providers. Inflationary pressures for labor and key componentry have pressured the economics of solar. Despite these headwinds, many homeowners continue to see an immediate reduction in their utility bills, but the economic benefits compound over time as the cost of solar remains fixed compared to the rising costs of retail rates from traditional utilities. Even after accounting for higher financing costs, the long-term economic case in favor of residential solar remains well intact. With inflation at the highest level since 1982, we take the view that households will continue to look for ways to lock in sustainable energy cost savings. To that end, our total backlog increased 116% year-over-year to $110 million at the end of the third quarter, driven by broad-based origination growth across both residential and commercial end markets. Importantly, in the face of rising demand, we have been able to pass along several strategic price increases this year. Given the anticipated impact of these recent price actions, our backlog margins are the highest we have seen in several quarters, which should support improved margin capture beginning in the fourth quarter and into 2023. Fortunately, supply chain conditions improved during the third quarter versus what we experienced earlier in the year. Given expectations of continued demand growth, we invested heavily in panel and component inventory during the third quarter to support a growing backlog of project activity. Although easing in the supply chain conditions is encouraging, we recognize this situation can easily reverse, particularly given the current geopolitical climate. With this in mind, we will continue to prioritize working capital investments in critical componentry, positioning us to mitigate material sourcing risks. As we discussed on our prior calls, we intend to shift an increasing proportion of our current sourcing from foreign manufacturers or third-party distribution channels toward US-based original equipment manufacturers, an approach that we expect to provide improved surety of supply over time. By the end of 2024, we intend to source a significant share of our panel and component inventory from US-based producers. Turning now to a high-level overview of our third quarter results. Total revenue increased 30% year-over-year to $40.7 million as robust residential demand more than offset near-term softness in commercial activity. Within our residential solar segment, total watts installed during the third quarter increased by nearly 50% on a year-over-year basis, driven by strong new contract origination sourced through our direct sales force. Our direct sales force, which now includes more than 600 agents in 14 metro markets, represented 23% of total residential solar segment revenue in the period versus less than 5% of segment revenue in the prior year period. More importantly, I'm pleased to report that we delivered positive residential segment EBITDA in the third quarter. At a strategic level, our business transformation continues to advance meaningfully. Customer retention is up, given a higher volume of installation. Order cancellations have declined. We're expanding in the direct sales channel, which reduces costs and puts us closer to the customer. We're using intelligent data-centric pricing strategies to optimize margin capture, and we're refining our sourcing and procurement model to ensure uninterrupted access to high-performance quality componentry across multiple markets. Looking ahead, I'm positive on the outlook for our business, even as concerns around an impending recession become the consensus view. Today, the domestic solar industry has the technology to provide affordable, reliable electricity to every home and business in America. Sunworks remains a pioneer in the renewable energy revolution, one well-positioned to capitalize on the underserved, fragmented residential and commercial solar markets where we've built a leading position. It is an exciting time at Sunworks. Thank you for your continued interest in and support of our business. With that, I will hand the call over to Jason for a review of our third quarter results. Thank you, Gaylon. During the third quarter, our team executed ahead of plan across several key operational metrics while driving significant growth in revenue, orders, and backlog. For the three months ended September 30th, 20 22, we reported total revenue of $40.7 million versus $31.2 million in the prior year period. The year-over-year growth in revenue was attributable mainly to increased contributions from the residential solar segment, which stemmed from a growth in installation volumes and improved pricing. Commercial solar energy revenue declined $3.8 million compared to the prior year period, primarily driven by lower ordered intake in the preceding periods. During the third quarter, residential revenue was 92% of our quarterly revenue, while commercial revenue represented the balance. Total gross profit increased to $19.5 million in the third quarter 2022 versus $13.7 million in the prior year period. We'll note that the current quarter benefited by an accounting estimate change in our residential segment of $1.8 million related to the capitalization of costs incurred on projects that are in progress and expected to be completed in the coming months. The year-over-year variance was primarily attributable to growth in customer acquisition and operational improvements throughout the business, including increased focus on accuracy in estimating, quoting, and improved execution, partially offset by inflationary pressures on materials and labor. We reported a third quarter net loss of $5.4 million or a loss of $0.16 per basic share versus a net loss of $6.5 million in the prior year period, or a loss of $0.24 per basic share. The year-over-year variance was primarily attributable to lower amortization expense associated with the Solcius acquisition and lower stock compensation expense, partially offset by inflationary pressures on materials and labor, as well as investments to support anticipated growth in each of the company segments. Adjusted EBITDA was a loss of $3.7 million in the third quarter compared to a loss of $3.3 million in the prior year quarter. Turning to our view of our residential solar segment, which is our Solcius business. Segment revenue increased 57% year-over-year to $36.7 million, driven by growth across all sales channels. Total residential watts installed increased 50% year-over-year in the third quarter. Direct sales represented approximately 22% of total revenue installed during the third quarter versus less than 4% in the prior year period. The residential segment generated positive EBITDA of $1 million, driven by strong end market demand, recent price increases, and improved operating leverage. Total residential backlog increased 18% sequentially to approximately $70 million in the third quarter, driven by growth in both direct and dealer originations. Within our commercial segment, revenue declined 48% year-over-year to $4.1 million, primarily based on low order activity in 2021 and earlier this year. The commercial segment generated an EBITDA loss of $2.6 million in the third quarter, primarily due to lower volume. Turning to our balance sheet. During the third quarter, we raised $7.3 million under our at-the-market equity program to support strategic growth. At the end of the third quarter, we had no debt and $14.5 million in cash to support the ongoing growth of our business. Net working capital increased by $5 million sequentially as a result of investments in inventory. Total inventory at the end of the third quarter was $26.9 million compared to $12.4 million in the prior year period. As Gaylon mentioned earlier, we believe investments in components is a prudent use of capital at this time, given a combination of strong underlying customer demand and the global supply chain that, while improving, remains in flux. In summary, we remain well capitalized to support growth. We've made the necessary inventory investments to support a growing pipeline of customer demand, and we have a strong backlog of higher margin project work to support us in the fourth quarter and into 2023. Operator, that concludes our prepared remarks. Please open the line for questions as you begin our question and answer session. Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from the line of Philip Shen with Roth. Please proceed with your question. Hey, guys. Thanks for taking my questions. First one I have is on the loan financing. Can you remind everybody what percentage of your residential business is financed by loans versus cash? I recall you guys don't have a lease product. Wanted to explore and get your perspective on, you know, with the substantial number of price increases and dealer fee increases by the loan companies, how is that impacting your business in Q1 and Q2? I know you highlighted that your originations for resi were up 48% year-over-year. As you think about, you know, what you've seen so far in Q4 and then what could come ahead, how is your sales force adapting to the meaningfully higher dealer fees and the higher rates and the removal of the lower APR products like the 0.99% and 1.99%? Are you guys considering a lease at all? I know there's a lot there. Thanks for providing some color on that. Thanks. Good morning, Philip, I can start answering that question. Historically, Solcius has offered lease and loan products depending on the economics at the time. We do offer both loan and lease products today, but that's predominantly been loan products over the past several years. We are seeing more gravitation to leases and into cash. Cash has been typically less than 5% of our business. In the past week we see that we're gonna see that grow over the next year. We are beginning to bring on more lease providers as well to be competitive and to make sure that we're offering the best products to our dealer channel and our customers. Great. Yeah. From an origination standpoint, we're continuing to grow our direct sales force. We talked a lot about that during the prepared remarks. It's grown to over 600 reps today, and it's becoming a meaningful portion of our business. We're expecting to continue to grow that. We are seeing pressures on originations certainly throughout the year, and with several increases coming, I think that will put more pressure on the economics of solar in certain markets. But as Gaylon said, the economics of solar are still in our favor, and we believe offering more lease products will likely make us more competitive in the coming months. Great. Yeah, that makes sense. If you were to think about Q1 and Q2, how would you think through, you know, how either installations or even originations might grow on a year-over-year basis or even sequentially? Thanks. I think it's early to tell. I think the best guidance that we can probably give is to say that lease products morph from 5%-10% of our business maybe to 25% mid next year. You know, it's difficult to give perspective on originations. We are evaluating certain markets and evaluating if it makes sense for us to remain in those markets. So we're really focused on which markets are cost effective and ones that we can grow in the future. I think we'll see how this develops in the coming quarters with originations. Obviously, with recessionary fears, you know, that could impact our business. Again, we're just really paying attention to our cost structure, making sure we're prudent and making sure we're growing in the right markets. Good. Philip, if you can let me add real quick. We from an installation volume standpoint, we're entering the year with a very significant backlog, and we've been putting a lot of time and energy into revamping our processes to make us faster and to reduce the likelihood that a contract will end up turning into an installation. We're very optimistic about Q1 and Q2 because not only have we not yet seen very much pressure on originations, but we have significant backlog and we're installing faster. Great. It's really helpful. Thanks, Gaylon. On the backlog, can you give us a split between resi and commercial for the $110 million? I know resi is more of a, you know, turnkey business, but just curious, you know, with this, you know, end of Q3 snapshot in time, what that might look like. Backlog for our commercial business was about $40 million of that $110 million. That's up significantly. I think we started the year, beginning of the year was closer to about $18 million. We're starting to see some good traction there on the commercial side of the business. Great. Presumably residential is the rest of it. Correct me if I'm wrong there. Finally, you know, Jason, you were highlighting that, you know, you guys are exploring some markets that could be, you know, shut down or, you know, you're evaluating, you know, the rationale given the economics. Can you know, if you feel comfortable sharing which regions that might be, that would be fantastic. If you don't feel comfortable with that, can you talk through, you know, maybe some of the ingredients that are resulting in that region or part of the world or country that is making it less desirable? Is it a, you know, low retail electricity price combined with, you know, poor net metering and then, you know, the rising loan prices? What's the kinda set of characteristics that we can kinda lean on to help understand what the pattern might be? I think that's fair. I would add in what has been happening from a retail rate perspective and increases that consumers are seeing from traditional utilities. We're also very focused on our timelines for install and servicing our customers. We want to make sure we understand the various jurisdictional and the AHJ requirements in those different markets. Because, you know, some of those markets may have very long lead times, and you can certainly not fulfill in a fast enough rate, and it can be a cash burden to the company as well. Maybe that's one sort of new ingredient that we would share with you that we haven't talked about previously. Got it. Thanks. One last one. In terms of lease partners, historically, who did Solcius work with? Who might you guys be working with on a go-forward basis? You know, how many partners ultimately do you think you'll have? Do you think you'll have more than one or do you think you'll focus your lease business with just one partner? Thanks. Certainly we can. I don't always like to talk about the companies that we're working with on the calls. We can sort of take that offline. Traditionally it's been one or two. We've had one lease product since I joined the company last October. We've expanded that to a second one in the last few weeks, and we'll be looking to add one to two more in the coming months. Great. Okay. Thanks for the questions, guys, and I'll pass it on. Thank you, Phil. Our last question comes from the line of Donovan Schafer with Northland Capital Markets. Please proceed with your question. Hey, guys. Congratulations on the solid quarter. I wanna ask just about, you know, the Inflation Reduction Act. It was obviously kind of something we've all been talking about a lot lately, but looking, you know, at your third quarter results, is it fair to say that, you know, this doesn't really reflect anything there and now these results don't really reflect any of those sort of tailwinds, but you've probably started having some conversations maybe on the C&I side with people that are kinda factored all that in. I'm curious just if you have incremental kinda color or insights on how you see the Inflation Reduction Act playing out kind of for your residential and your C&I business, you know, over the coming, you know, in 2023 and kinda thereafter. This is Gaylon. I'll start. On the C&I side, let's start with the C&I side. On the C&I side, our current strategy is to provide every proposal with a prevailing wage and a non-prevailing wage cost, so that the customers can see the impact of waiting for some of the rules to change, specifically in California with 2023. Where we can, we're demonstrating to them that there would be a cost, an IRA ITC savings, but the savings probably would not offset the prevailing wage cost. We are discussing that and walking through that with the commercial customers on a case-by-case basis. We do expect, as we get closer to the end of next year, as the IRS releases their guidance for the ITC, to see a short-term uptick in completed sales, and to use that, those pressures to push people along in the decision-making process. That reminds me, one note. When Jason talks about our backlog on the commercial side, that is contracted, signed, negotiated contracted work. That does not include work that has been verbally or written awarded, but which we're still in contract negotiations, in which there's quite a bit of volume in that bucket as well, but we don't take credit for that until the contract's been signed. On the residential side, you know, I'll let Jason get into it a little bit more particularly, but we have not yet seen a tremendous amount of change based on the IRA. We are starting to see increasing number of loan or lease providers approaching us, wanting to work with us. I think that the reason is the ITC, the additional ability for them to capture a larger component. Okay. That's helpful. That makes sense. And then for the direct sales channel, you know, the sales mix from that was 24% of your total revenue in the quarter, versus I think it was, in my notes, it looks like it was 15% last quarter. You know, that's a really nice improvement, sequentially, and it looks like I'm guessing that's kind of being reflected in the drop in sales and marketing expense as a percentage of revenue. Do you have a goal for how high you'd like to get that mix? You know, just something you're kind of targeting. 'Cause, you know, there's probably benefits to not doing 100% direct sales either because, you know, you want kinda different levers to pull, and you wanna keep those relationships going. I'm curious if there's kind of an idealized mix that you're targeting. Then if you get to that idealized mix, where you think that could send sales and marketing expenses as a percentage of total revenue? I think it's 36.6% this quarter. Anything there would be helpful. At a high level, we don't have a targeted percentage down to a single digit. You know, as the economics of both channels evolve, we're gonna continue to look at it. There's no intention of moving entirely direct. You know, if I was to pull a number, what I've been giving thought to over the last few months is probably 50% from a direct sourcing and 50% from our various channel partners, which as we grow, means growth in both organizations, significant growth in both groups. I think there's a lot of opportunity there. You're absolutely right. There's certain risks that are involved in going entirely direct. It's harder to move into new markets. You can't leverage the relationships and the hard work other people have already done in front of you. You're always competing with somebody or multiple somebodies, whereas when you're in a channel relationship, a lot of those dynamics have already been handled, absorbed, and the sales folks in that area already understand that market. There's a lot of good reasons to stick with a healthy channel partner relationship. Okay. That's helpful. For the C&I segment, you know, you got the $8.2 million in orders during the quarter. You know, as Jason pointed out, the backlog has increased quite nicely since the first quarter. You know, it's more than doubled. Yeah, $16 million in Q1, and, you know, now you're at $40 million. I'm curious if you can kinda remind us or even just, you know, if you could take, for example, the you know, orders this quarter, or you can maybe look at that backlog, kind of an aggregate. If you can give us a sense of when you think that would start to flow through revenue. Also just if there have been any changes in the types of kinda C&I projects you're getting there in the backlog. Are these kind of the your traditional agricultural and public works projects, you know, mostly in California? Does like the $8.2 million you got this quarter, does that reflect some additions in other markets in the East Coast and stuff? If like the project sizes are changing at all, if you're moving to larger C&I projects, smaller C&I projects, anything there would be very helpful. I feel there's a number of parts of that question. Let me just try and get through them. The C&I side of the business, the public works projects, is a larger percentage of the backlog than we have seen traditionally. As such, those are larger projects that's pushing our average project size up in size. That's actually a really good thing. We're excited about that. The larger projects, you know, that's where we really can leverage our advantages over smaller companies that we compete with. With regards to the, you know, that mix, we don't anticipate seeing that change. If anything, we expect to see more of those larger public works projects come through. Right now, almost every. Okay. Well, just the time, I guess the timing of. Oh. Is that like kind of a one-year lag? Yeah. Yeah, no, right now we're deep in the budgeting process, and I would say that most of the backlog is going to convert into revenue in the upcoming 14 months. We'll continue to build the backlog with new commitments. Okay. I think you'll see, Donovan, I think you'll see a steady build in the revenue, but it's not like there will be sort of one core that's just a step level change. Okay. Expect to build throughout the next several quarters. Okay. The other thing I wanted to ask about is kinda EV charging and batteries. You know, I can't remember. I know, I think I confuse and second-guess myself on this with you guys sometimes. But I think if I recall correctly, you've sort of been considering or looking at doing you know, EV charging charger installations. I think both Resi and C&I haven't done a lot of that yet. And I think you do the battery, but not a lot. I'm curious if that's kind of been changing, if there's any updates on moving towards higher attachment rates, and you know, further kinda efforts or initiatives or anything around bringing in EV charging to kinda dovetail with solar installations. On the residential side, we are currently selling EV chargers and batteries. The attach rate is not as high as we'd like it to be, but it is growing. We're primarily doing those through a particular motor manufacturer and they are part of a system that the customer buys and everything has the same, you know, brand name. On the commercial side of the business, we just recently brought on board a resource for business development to help us transition our business. The goal being to also originate projects that for which the origination basis is commercial so commercial EV charging. Right now we offer and install commercial EV chargers on many of our projects, but it's the reason we're talking to that customer and the reason we're in that project is because of the solar. What we'd like to see moving forward is also originate projects that are EV chargers specifically, the EV charger only. We see a lot of money flowing into the market from federal and state and local incentives, and we think that there's an awful lot of opportunity there for any young renewable company to expand its efforts into its sales and market development efforts into commercial and fleet EV charging solutions. On the battery side, we also offer batteries with pretty much every project that we did, whether the customer asks for them or not. We walk through the value proposition of commercial battery systems. We have installed several but, you know, we're also gonna be looking in 2023 at how we can move from a solar origination company to a solar, a battery, and an EV origination company. Okay, great. Thanks. Very helpful. Just my last question I was gonna ask, 'cause this Berkeley Lab's came out with a study. They do these sorts of periodic studies to show the demographics for people who get rooftop solar installed. The most recent one, I think it came out last week, and the trend keeps moving down to lower, kind of lower and lower income. The median household income is now at $110,000. You know, I mean, that's a median. That could definitely be, you know, two income earners in a household. I think it was $130,000 a year ago, or maybe that was a pre-pandemic number. Either way, the trend seems to, you know, really be favoring the type of like kit installations that you guys try to do where it's this fast, you know, velocity installation. They try and do 2 a day, and it's a predetermined kinda inverter panel package. So, I'm just curious, like, Is this panning out in what you guys are seeing on the ground in terms of like maybe, and maybe comparing notes with, I don't know if you compare notes with competitors or things, seeing faster growth in this kind of smaller. I think it is kind of like the Trader Joe's customer, like installation where it's a quality product, you know, but it's a lot more affordable. You're not doing kind of McMansions or like luxury homes. Are you seeing more growth in that end of things versus the luxury stuff? I'm just curious if that's kinda panning out for you guys as people who talk to kind of boots on the ground. Yeah. We probably install, you know, 600 houses, 550 houses a month. The average system size has increased slightly. Not slightly. It's increased up to over 7 kW. 7 kW is still a reasonable rooftop system given the size of the wattage of panels that are available these days, modules. You know, we have certainly closed some much larger projects, some that are even, you know, commercial sized, put on residential compounds, if you will. For the most part, I would say that the health, the growth area in our industry will continue to be people who see the value of solar as a way to offset their utility costs, versus a, you know, a green badge on their roof that shows their political or social intentions. Okay, great. That's helpful. I'll take the rest of my questions offline. Appreciate taking our questions and congratulations on the quarter, you guys. Thank you. We have reached the end of the question-and-answer session. I'll now turn the call back over to Gaylon Morris for closing remarks. Thank you everybody for joining us today. If there's any questions or concerns or follow-up actions, feel free to reach out to us at IR Sunworks USA. Thank you so much. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.