SolarBank Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2025

There are 3 speakers on the call.

Operator

Alright. Hello, everyone. So thank you for standing by. Good afternoon, and welcome to the Solarbank fiscal third quarter twenty twenty five financial results and corporate update conference call. My name is Megan Haley.

Operator

At this time, all participants are in a listen only mode. And after today's presentation, there will be a question and answer session, will feature previously received questions. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call and accessible on the Investor Relations portion of our website for access for thirty days. Today, the company issued a press release for its financial results for the fiscal third quarter ended March 2025.

Operator

A copy of that press release can be found on the company's website at solarbankcorp.com under the investor tab. Joining me on today's earning call from Solarbank's management team are doctor Richard Liu, chief executive officer, and Sam Sun, chief financial officer. During this call, management will be making forward looking statements, including statements that address Solarbank's expectations for future performance or operational results. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Solarbank's annual information form, most recently filed annual report on form 40 dash f, and subsequent periodic reports filed with the SEC, SEDAR, and Solarbank's press release that accompanies this call, particularly the cautionary statements in it.

Operator

The content of this call contains time sensitive information that is accurate only as of today, 05/15/2025. Except as required by law, Solar Bank disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to CEO, doctor Richard Liu.

Speaker 1

Thank you, Megan. Good afternoon to everyone on the call. Prior to turning this call over to our CFO, Samsung, I'd like to highlight some of our existing progress to accompany our filing and financial report for the year to date and the fiscal third quarter twenty twenty five. We're going to focus our presentation today on our nine months year to date results. As of today, we are sitting with project representing approximately a 46 megawatts that are expected to reach notice to proceed within the next twelve months, which we believe has the potential to grow by an order of magnitude in the coming years.

Speaker 1

Solar power is undeniably a source of energy that has a unique significant cost and environmental benefits to power producers and consumers alike as technology continues to propel solar's proliferation across the globe. For the first nine months of fiscal twenty twenty five, we reported 29,000,000 in revenue, down 21,000,000 compared to last year's same period. Our largest category last year, EPC, engineering procurement construction services, was down approximately 27,000,000 to $20,000,000. As discussed the last quarter, the Solar Bank went public for the purpose of being able to own more assets and grow its independent power producer, basis. This strategy is going to provide a high margin occurring, recurring long term revenue to the company.

Speaker 1

The historical developed to sell model, which will produce higher revenue, has been successful, but the revenues can be lumpy. So by keeping more of the assets that we are developing as a owner isn't necessarily going to mean a reduction in the EPC revenue. So it's not the the revenue reduction is not because of projects development or execution, but rather than changing policy from build to sell to build to own. We raised the funding from Highbridge, which is owned by JPMorgan who invested a hundred and 40 plus in energy companies and is a very high quality institutional investor that is closed during the quarter with almost all of those funds allocated to grow our IPP portfolio. The IPP production generated the 6 and a half million in high margin revenue.

Speaker 1

This is a significant increase compared to 215,000 in the prior fiscal nine months period. This revenue represents recurring asset based revenue for zero emitting electricity supplied to our customers, such as electricity, electrical system operators and municipal, governments. To underscore, we believe IPP revenues will grow over time in lockstep with the solar power plants we built that we choose to own upon completion. I'd like to also highlight some of the announcement, events, and milestones in the quarter that support the conviction that we are well positioned for growth. We announced among many projects that our three megawatts Camillus solar project has been sold to and we're now under construction for Solar Advocate, a wholly owned subsidiary of Charlie's for valued at $7,300,000.

Speaker 1

That's a revenue addition. We commenced the construction of our first large scale battery storage projects with a ISO ELT one contract for twenty one years. That's a capacity contract. That project is located in Ontario, Canada known as the S F F 06 project. That project is financed with long term debt from Royal Bank of Canada and equity from ourselves, and that will be our first large scale battery storage project that added to our IPP fleet.

Speaker 1

We also have a significant portfolio of community solar projects in New York and Nova Scotia that are advancing, supporting our total development pipeline of more than one gigawatts. Worth to mention is that the announcement in Canada, giving the overall background that geopolitics, that Canadian government is heavily investing in Canada, and our team working with AR Renewable, which are flows through fund, have obtained the first batch of community solar projects in Nova Scotia. We will continue to explore that, any opportunities in the renewable energy in Canada. We complete a registered direct offering with a single institution investor, which is a hybrid owned by JPMorgan for aggregate gross proceeds approximately US 88,500,000.0. And that, up to an additional, 10,700,000.0, may be funded upon full cash exercise of the warrant at a 20% premium.

Speaker 1

That warrant has been issued to Highbridge at the closing of this financing. We also have entered into a mandate letter as you see from our announcement with the CIM Group, which is a $60,000,000,000 company in the West Coast that they have heavily invested in real estate, in renewable energy, in battery storage, and other long term assets. And that commitment letter give us up to a hundred million preferred equity to own project. That is going to be used to finance a portfolio of 97 megawatt solar power project located in The United States. So those are the significant milestones and events.

Speaker 1

You can see the company, even though our revenue being reducing because we purposely decide to keep the project while, you know, establish ourselves as a stronger IPP player owning and operating assets going forward. I also want to comment on the recent announcement of the increased tariff on those Southeast Asia countries and our plan to manage its supply chain. Solarbank has not been importing solar panels from any of the four countries that are subject to the tariffs announced by the US Department of Commerce on April the twenty first of twenty twenty five. As a result, our present operation are not affected by this announcement. And in addition, Solarbank has been exploring sourcing solar panels from other international market and also from North America.

Speaker 1

You know, our relationship with Q Cell, not only a selling projects to Q Cell for them to deploy their made in The US panels, but there's also a relationship we start to establish going forward, move our supply chain to The US, where domestic assembled solar panels are becoming more cost competitive with the panels imported from international market. Solarbank also has significant development opportunities in Canada, as I mentioned, specifically in Nova Scotia, in Ontario, in BC, and other provinces, including Alberta, which we are building for Fiora on and industrial buildings, where solar panels are not subject to the same tariffs. So finally, I am expecting that electricity cost will increase in response to those tariffs, which will further mitigate the financial impact on our projects. Right? Overall, Solarbank is well positioned to manage this risk.

Speaker 1

Now I'd like to turn the call over to Sam Sun, who is our CFO, who will review our financial results in more detail. Sam, please.

Speaker 2

Thank you, Richard. First, please note that all figures are in Canadian dollars. And, again, we are going to cover the 9 months numbers with the quarterly numbers available in filings as was submitted today. Our total revenue for the nine months was $29,000,000 versus approximately $50,000,000 in the prior year period time, a decrease of approximately 42%. As Richard just mentioned, the decline in revenue was primarily due to a $27,000,000 decline in EPC services revenue, partially offset by over $6,500,000 in IPP revenue, which compared with $260,000 in the prior year.

Speaker 2

Revenue from doing fees and other sources were relatively unchanged. The gross margin for the nine months lowered approximately 19.9% compared to 20.4% in last year same period. There was a $1,500,000 depreciation in fixed asset included in the gross margin which is non cash item and a cut for about 5% of margin. Additionally due to the single factors the margin contribution from IPP revenue tend to be lower during the winter and the spring month. We anticipate a significant improvement in the both revenue and gross margin in the fourth quarter.

Speaker 2

Excuse me. Our operating expenses were approximately $12,600,000 for nine months compared to $8,100,000 in the prior year period. Lower sales in the first three quarters has increased our operating expenses as a percentage of sales, but we are targeting a continued decrease in operating expenses as a percentage of sales as we scale and continue to maintain a careful eye over our operating costs. As noted in the press release, we were issued today, the adjusted EBITDA of minus $23,000 as compared to the positive $2,200,000 in the prior year's period. Net loss for the nine months was approximately $9,000,000 or 29¢ per share basic share compared to the net income of $5,500,000 or 20¢ per basic share in the prior year period.

Speaker 2

For the period ending 03/31/2025, Solar Bank reported $45,000,000 in current assets, an increase of $28,000,000 compared to the end of fiscal twenty twenty four. The increase is mainly due to an increase in cash, receivables, and inventory. Current liabilities increased $27,000,000 to $40,000,000 as of 03/31/2025, mainly due to an increase in payables and the current portion of long term debt, which is almost entirely nonrecourse project level debt assumed as part of the solar flow through acquisition. On term debt as of 03/31/2025 was $59,000,000, an increase of approximately $54,000,000 from year end. Our debt consists of primarily of project debt, which is nonrecourse, and our projections out in 2025 indicate that the current level of debt is certainly manageable relative to the projected adjusted EBITDA and the other key balance sheet metrics that we monitor very closely.

Speaker 2

We'd like to point out that our largest lenders are top North American financial institutions such as RBC, which we announced back in last November, provided a loan for $25,000,000 for two four point seven megawatt by four hours battery system projects to be located in Ontario. We continue to be able to achieve favorable financing terms, particularly considering our firm size, which you can find detail in our filings. Our cash and short term investment was approximately $25,000,000 as at 03/31/2025 compared to $6,000,000 at the end of last fiscal year. A portion of the cash position is required to be maintained pursuant to the term of credit agreement assumed as part of the solar filter acquisition. We continue to believe we can execute on our strategic growth for the remainder of '25 and beyond, which includes continued growth of ITP portfolio and execution on the pipeline.

Speaker 2

That concludes my remarks, and I would like to turn it back to Richard for remaining comments. Thank you.

Speaker 1

Thank you, Sam. That's great. And before we open up for questions and answers, I'd like to make some remarks on the market and the solar banks' current conditions. To start with, you know, listeners here are probably thinking, wow. The company actually had a huge revenue reduction.

Speaker 1

You know? What's going on? You know? Is the company in difficulties? It is not.

Speaker 1

It is not. So the first remark I'd like to make is about, you know, what is Solarbank's strategy going forward to grow as a North American renewable energy player. K? In our corporate deck, in the in the discussions or roadshows that I have been performing, that we always shared from day one that this company's growth strategy are twofold. Number one is the model, is the traditional model as we started back to 02/2013 is develop, build, operate, and sell.

Speaker 1

In other words, we don't take ownership. And because of the nature that the revenue is very high, as you can see last year, we were $60,000,000. Now we have $40,000,000. Right? That function is truly designed to meet corporate Americans' needs.

Speaker 1

As you know, our customers are Charlie's Phoebe Cheese Steak, and they are a premium fast food chain. And the owner has a great desire to do something for the environment while a very philanthropic in the renewable energy area. Right? Our customers have been Honeywell, as you know, in addition to their investment and the tax management needs, they do care about the environment. So that was for their, you know, super fun site and also help them to achieve their ESG goals.

Speaker 1

We have, you know, Q Cell as our customer, And not only they are a US manufacturer in the solar equipment, but also they want to contribute to the owning and assets to develop renewable energy. Right? So when you look at those ones, that the corporate requirement of our project will always be there. So we will always have a component to service our existing and future customers like the names I mentioned. On the other hand, when we went to public that the through the travels that we'll hear clearly and loudly from the investment community that this company needs to have recurring revenue, which we need to shift our model from develop, build, operate, and sell to develop, build, operate, and own.

Speaker 1

So we have very methodically looking at those strategy shift. As you can see that our revenue, you know, from a couple of hundred thousand now is in the millions. And you will see going forward that that part of business will grow significantly that in parallel matching our revenue side of things. So the revenue deduction is by design through the technical shift from build to sell to build to own. So that's the first comment on the our strategy.

Speaker 1

The second comment was really about risk mitigation through vertical integration. As everyone on this call realize that North American is going through a huge fundamental change because of the geopolitics, because of the new administration. I think overall that we are very comfortable with the initiative to make American great again, especially when they talk about make The US as a energy dominant country and recall all of the manufacturing facilities. So so that's in the long run will have a benefit. However, what about short term?

Speaker 1

Right? The first concern is a tariff. You know? As I mentioned before, the tariff announcement did not impact us, right, because we have never taken any delivery from Mainland China. We have been taking delivery from Southeast Asia for some time.

Speaker 1

Now we have moved to other international market and also moved to The States. Given the increased cost matched with the increased incentive and also giving the increase of electricity price because utilities cannot absorb the tariff that your electricity price will increase, which means our revenue increase. So from that perspective, that the tariff, you know, to our impact is neutral, minimum, or to positive. And then we also achieved negotiations with our long term suppliers. Any tariff will be shared 50 50 going forward.

Speaker 1

So the that's the on the tariff side. The second one on the political risk is the investment tax credit. As you can see yesterday or two days ago, the Mins and Wiz Committee published their RTC reduction schedule. Right? For residential, it's very detrimental.

Speaker 1

Could be end of this year, 2025. However, for commercial, industrial, and other community, even large scale, the schedule won't start until 2028 or 2029. Right? And I think we're fully baked into those scheduling into our operation, and we will continue and to deliver the strategies that we have been discussing. So that's on the ITC.

Speaker 1

The third one under this risk mitigation is really the energy market. As I always shared with you that energy market participants operating in a price taking environment, which requires the operators such as Solar Bank to manage their cost and to increase their production. Right? So we have a vertically integrated system. We call it production line from development to construction to operation, maintenance, and all the way to asset management.

Speaker 1

Because we have the capability from a to zed that all those in house activities will allow us to managing our cost, to simplify our process, and focus on our cost reduction on especially at this moment, cost on productivity and increase of the volume. Right? So now if you look at energy market, the demand is increasing more than ever because of the digital economy. The supply is really slow coming online as you can see that the old thermal plants are at the end of the service life. The new gas plants takes about five years to build.

Speaker 1

SMRs are in the ten year horizon. What's really can deliver now is really in the next three to five years is really solar, wind, natural gas, and other, you know, to a smaller degree thermal plants. Right? So the approach about all above approach in energy truly plays to our favor because we, with 1.2 gigawatts of pipeline, continue in the area of mergers and acquisitions, we'll be able to deliver energy at a cost that is competitive with the market in the short term, hence producing further investor returns to our investors. Right?

Speaker 1

So that's the second comment in terms of risk mitigation and our defensive mechanism as the vertical integrated company. The third one comment is really about, you know, the company's strong cash position and financial sustainability. Right? Compared to the same year last year, we have about the $6,000,000 cash, and today, we're sitting on $25,000,000 cash. Right?

Speaker 1

So that's how careful or how skillful that we found this company in a very, very defendable position. So if you look at broader case, you know, our relationship with financial institutions are very strong and are growing. You know? Traditionally, we took long term debt from PNC, continue to be a good partner. We are working closely with Royal Bank of Canada in Canada, and M and T Bank in The States has been great in terms of helping us in terms of operating needs.

Speaker 1

Seminole Financials being a good partner with us on the ITC, on the project financing. Now with Highbridge, a JPMorgan fund, be a major institutional investor and continue to invest in us, further strengthens that our connection with the institutional investors and the financial world. And, of course, the CIAM, a $60,000,000,000 company, offered us a hundred million of a preferred equity will certainly top it up in securing our strong financial environment. On the other hand, we operating in the renewable energy business. As you know, we don't do residential business.

Speaker 1

Right? On the large scale, we only do projects when it's paired with a strong demand customers such as data centers. Our core business in this area is really about commercial industrial. We're working with Pure Industries, which is a BlackRock owned company. We're working with Fiora, which is a 7 or $8,000,000,000 real estate company.

Speaker 1

And we, of course, the community solar is our bread and butter. Right? So all of those things, if you look at the quality of customers. Right? Not to mention, you know, the name that I mentioned, the Fiora or Pure Industries and so on.

Speaker 1

Honeywell, for example, Charlie's, for example, the ISO, for example, Q Cell, for example. So when you look at our strong cash position, we're sitting on 24,000,000 of cash that will give us fifteen months of runway matched with strong financial connections and the customers. So this company is well positioned to weather any of the foreseeable financial or market volatilities, And I'm really excited, and I will say time will tell. Certainly, this company is slowly but surely will achieve our technical shift from build to sell, to build own and balance the needs of Copper American and also the needs of our investors. K?

Speaker 1

So I'd like to turn over to the operator, Megan, so that we can begin some of the question and answers.

Operator

K. Great. Thank you, Richard. So we're now going to conduct a q and answer session. I did notice a hand up currently, and as everyone on the call will need to remain on mute, please do submit the question through the q and a function on the call.

Operator

So now to get started with the first question, this is for Richard. So could you please elaborate more about the Trump government's impact on the business?

Speaker 1

I I I touched upon tariff on ITC, but I will say, you know, if you look at, you know, Trump's government, what they want. Right? They want to make American great again. They want to make American a energy dominant country. Right?

Speaker 1

And they want to bring manufacturing to reestablish manufacturing mighty of The United States. Right? So from us, if you look at our business, we have been purposely focusing in on the Canada and The US market. We did not go global as most of our competitors went. Right?

Speaker 1

That is the purpose that I will say, as the countries, both US and Canada, become stronger and stronger, so will be the our our business. So that's the first one. Make American great again, benefit our business. But secondly, he talk about, you know, the domesticate of the manufacturing. Right?

Speaker 1

We understand that today, China probably is a dominant party in renewable energy, in other areas, so so so forth. They supply the majority of the the materials in solar, in wind, and so on and so forth. But those technologies are easily transferable, the same as more than twenty, thirty years ago when we transfer technologies to the Far East. Right? So we have been in touch with at least a dozen manufacturers, whether they are from China or from other countries that in cells, in modules, in inverters, and so on and so forth.

Speaker 1

We because of the CIM connection, we actually are in term sheet discussions with US companies where solar cells is made, where modules made. Right? So from that perspective, as you bring the manufacturing back to The USA, that will give us a stronger connection at least at this moment, you know, taking advantage of the ITC and the PTC. Right? So that's the second implication of this recall all the manufacturing back to The US.

Speaker 1

Of course, the last one he talked about is that make US energy dominant in the country. Not only he likes the drill, baby drill, as you know, in North American, the production probably is less profitable if the oil price is less than $70 a barrel, and currently, I believe, it's around 56. Right? So there's no drill. There's there's no no drill.

Speaker 1

Right? So so where's the power coming from? Right? So, obviously, we can do natural gas. Obviously, we can extend the life of the thermal plants.

Speaker 1

Obviously, we can refurbish the existing nuclear reactors. Obviously, we can continue our pursuit for fusion in the near term SMRs. What is in hand is the momentum of renewables, whether it's the solar and the wind, and to deliver in the next three to five years. Right? So this is all above approach.

Speaker 1

Right? In the background of making US a energy dominant country, help us give us a reminder that we are in a business that keeps the lights on. We are in a business, keep people connected. As the data center business going forward and we are part of as their part as their power partner, that will further strengthen the need for the product produced by our RTP fleet and also indirectly through our customers such as Honeywell, such as Q Cell, such as Charlie's will make the old and above energy approach more profitable and prevalent in in The States. So I know it's a long answer, but I will say the policy benefits companies like us in the long run.

Operator

Okay. Fantastic. Thank you so much. And just a couple more questions have come in here for you, Richard. So the first is, are you able to provide any color on the critical path forward to definitive documentation under the CIM funding agreement?

Speaker 1

So as a public company, they'd obviously, we will comply with the disclosure requirement of the CIM documentation. Right? As you can see, I can I can give you a high level, but I think on further details, I was certainly was working with our corporate counsel to make it available as allowed? Right? So effectively speaking is that the CIM is a takeout financing that enable us to engage of bridge loans or other means to fund the construction of 97 megawatts of community solar project in Upper State New York.

Speaker 1

As the project's achieving mechanical completion, 20% of the revolvers or the bridge loan will be paid out. And shorted after mechanical completion as the project is closed, connected into commercial operation, that the remaining 80% will be paid out. Right? So from there, the projects will be owned by CIM for a period of, let's say, five years, and eventually, Solar Bank will be the long term owner opposed. You know?

Speaker 1

It's almost the same as a part and flip model that happen very often in The United States.

Operator

Okay. Thanks very much. And the last question for you here is looking at the revenue mix, should we expect the IPP segment to continue to take a larger share of the mix in the coming quarters, or is this more of a calendar 2026 type development?

Speaker 1

So, historically, if you look at the back to 2020, '20 '13 all the way, I will say, till 2020, our revenue are purely by building to sell. Right? So that's the increasing the year we went public, it went to $60,000,000. Right? And that's where, you know, based on the input from our investors that we decided to a technical shift from build to sell to build to own.

Speaker 1

Right? So you will see that the revenue side that we will continue to service the corporate Americans' needs. And now the recurring revenue become a more and more significant component of the total revenue. In the last year, it was couple of hundred thousand dollars. This year, it's already in the millions.

Speaker 1

Next year, will be in the tens of millions and so on and so forth. Right? Our goal is to have a balanced approach in the next, I would say, two to three years and to balance our income so that we can both service Corporate American, also service our shareholders.

Operator

K. Great. Thank you so much. So our next question here is for Sam. So, Sam, could you tell us why is the three month IPP revenue only 1,100,000.0, which is only one sixth of our nine month IPP revenue?

Speaker 2

Sure. This is very typical in the solar industry. It caught peak sun hours. That's the crucial factor impact our IPP revenue. Yearly in winter time, the spring time, the peak sun hours much lower than in summertime.

Speaker 2

So if we're looking at the $10,000,000, the annual revenue in the IPP portfolio, typically, we are looking at probably 1 to $1,500,000 on the revenue per quarter in winter or spring time and versus the 3 to $4,000,000 revenue in summertime. So that's the major rate. Thank you.

Operator

K. Thank you. And our next question here, why has the percentage of operating expenses to the total revenue increased compared to the last fiscal year?

Speaker 2

Sure. That that's a very good question. So if you would look at the bigger picture, the the major reasons are there twofold. The first is the revenue decreased by $20,000,000. As Richard mentioned, we do have a seasonality.

Speaker 2

And also, one thing I would like to to to mention here, so before we can recognize the the revenue based on the accounting IFRS policy, the team need to do a tons of work, nonfinancial work to bring the project to to start the construction, the engineering, procurement. So for the past few months, the team done a tons of work to prepare the four projects we sell to QoSales to ready to build. So the team is ready and a lot of has been procured. So we anticipated there will be a huge catch up on the revenue in q four. And the second factor here is the depreciation.

Speaker 2

Compared to the last fiscal year, there were only $300,000 depreciation. We incurred almost $4,000,000 depreciation in the first nine months this year, which decreased the the percentage of or increased the percentage of the operating expense compared to the the total revenue. So in summary, we anticipate the company will improve the those financial metrics in in q four and the next fiscal year. Thank you.

Operator

Great. Thank you so much, Sam. And our last question just coming in from the, chat here is, to either Sam or Richard. How might state level policies, community initiatives, and corporate buyers counterbalance any federal level uncertainty around sustainable energy goals?

Speaker 1

So as the audience know that energy is a state or provincial jurisdiction. So at the federal level or that at the, you know, the top level, they are really about the policies such as the taxation policies and overall inflation reduction policies, so on and so forth. So that's a broad application of it. But at the end of the day, each each of the states decide how to proceed with the energy needs. In Canada, for example, we are in Ontario.

Speaker 1

We used to own half of the market of the small fit tariff program. Right? We play in the ELT one programs, so on and so forth. Those are all provincial programs enable us to participate to grow. K?

Speaker 1

Our team went to Nova Scotia because realizing Nova Scotia, New Brunswick, and Alberta are higher carbon content energy provinces, and that they have a better need. So their provincial policy encourages the development of lower or zero carbon electricity development. Right? So so that's, you know, how much that state level or provincial level policy driven this. In the states, as you know, we are, you know, only focused on the 22 states where community solar policy is there, and we're not into the remaining states because there is no such a policy.

Speaker 1

You know? Not to say the other states don't have renewable energy initiatives. Just from a policy perspective, we feel more comfortable if the states that stated as law clearly and allowedly that they support such initiative and that we will move our resources, people, money, and time into those states. Right? So state policy is where we taking more action and in the backdrop of the federal level policies.

Speaker 2

Wonderful. So

Speaker 1

for that, Megan, I think you said that's the last question. Think I'm sure there's more questions, dear audience. Let us know. You know, Email us. We will certainly want to continue to engage with our dear, investment bankers, analysts, and our broader shareholders.

Speaker 1

So at this moment, I want to thank all of you for participating in today's call and for your interest in Solar Bank. Thank you so much, and you all have a wonderful evening.

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Earnings Conference Call
SolarBank Q3 2025
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