Zeo Energy Corp
For the period ended Jun 30, 2024. Filed Aug 19, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 19, 2024
ZEO$0.21-2.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-16.
0001213900-24-043932
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-19.
0001213900-24-070714
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 112 previous paragraphs and 127 current paragraphs.
86 unchanged; 18 reworded; 21 added; 7 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 7 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (21)
Current report
Emerging Growth Company
Current report
We are an emerging growth company (“EGC”), as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Current report
During 2023, supply chain challenges and an increase in demand for our products resulted in increased equipment costs and delays. As a result, our installation and sales growth were less than we had projected. During 2024, the increase in interest rates has slowed customer interest in solar products. In this environment, the sales process is more challenging resulting in fewer sales people and sales dealers making sales. As a result, our sales are less than we had projected.
Current report
Revenue, net decreased by approximately $15.4 million. In the higher interest environment, it is more challenging to make sales. We are seeing less volume from our internal sales teams resulting in higher attrition of sales personnel than in previous years. We are also seeing less volume from our sales dealer partners.
Current report
Cost of goods sold decreased by $14.1 million. The decrease was a result of the decrease in revenue. As a percentage of revenue, cost of goods improved to 70% in 2024 from 81% in 2023. This improvement was driven by a decrease in the cost of materials and efficiencies in labor.
Current report
General and administrative expenses increased by $2.1 million from $3.8 million for the three months ended June 30, 2023 to $5.9 million for the three months ended June 30, 2024. The increase was primarily due to $2.4 million in stock compensation recognized in 2024. There was no stock compensation expense in 2023.
Current report
Sales and marketing expenses decreased by $275,683, from $490,875 for the three months ended June 30, 2023 to $215,192 for the three months ended June 30, 2024. The decrease was a result of a reduction in cost to support fewer sales people and less revenue.
Current report
Other (expense) income, net increased from an expense of $(31,168) for the three months ended June 30, 2023 to income of $844,588 for the three months ended June 30, 2024. The increase in income was due primarily to a gain on fair value of warrant liabilities.
Current report
Revenue, net
Current report
Revenue, net decreased by approximately $14.2 million. In the higher interest environment, it is more challenging to make sales. We are seeing less volume from our internal sales teams resulting in higher attrition of sales personnel than in previous years. We are also seeing less volume from our sales dealer partners.
Current report
Cost of Goods Sold
Current report
Cost of goods sold decreased by $11.6 million. The decrease was a result of the decrease in revenue. As a percentage of revenue, cost of goods was consistent period to period at 80%.Depreciation and amortization
Current report
Depreciation and amortization decreased by a nominal amount, from $922,165 for the six months ended June 30, 2023 to 919,542 for the six months ended June 30, 2024. The decrease was due to a decrease in the amortization of intangible assets which became fully depreciated.
Current report
General and Administrative expenses
Current report
General and administrative expenses increased by $4.4 million from $5.2 million for the six months ended June 30, 2023 to $9.6 million for the six months ended June 30, 2024. The increase was primarily due to a $2.9 million increase in stock compensation and an increase in headcount, infrastructure-related expenses to support increased revenues and expenses related to the Business Combination.
Current report
Sales and Marketing
Current report
Sales and marketing expenses decreased by $0.7 million, from $1.0 million for the six months ended June 30, 2023 to $0.3 million for the six months ended June 30, 2024. The decrease was a result of a reduction in cost to support fewer sales people and less revenue.
Current report
Other (expense) income, net
Current report
Other expense (income), net decreased from a net expense of $(41,712) to income of $669,534. The improvement in income was due primarily to a gain on fair value of warrant liabilities of $690,000.
Current report
Cash flows from operating activities
Current report
Cash flows from investing activities
Removed paragraphs (7)
Previous report
The Company uses primarily U.S. suppliers for its materials and supplies. However, these supplies may be originally sourced from outside of the United States, mainly China. The supply chain and prices may be impacted by changes in the geo-political environment.
Previous report
Revenue, net increased by approximately $0.8 million as a result of our increase in sales volume in 2023 compared 2022. The Company's first quarter benefits from the sales made in the prior year where the revenue recognition process is not yet complete. The Company had more sales at the end of 2023 that were in the installation process and completed the revenue recognition process in 2024 than they had at the end of 2022 and completed the revenue recognition process in the first quarter of 2023.
Previous report
Cost of goods sold increased by $2.4 million as a result of the increase in revenues as noted above and an increase in the cost of labor and materials during the three months ended March 31, 2024 as compared to 2023. As a percentage of revenue, the cost of goods sold increased by 9.1%, from 79.1% for the three months ended March 31, 2023 to 88.2% for the three months ended March 31, 2024. The increase was driven primarily by an increase in the costs associated with the growth of the business in 2023 which are not as easily reduced when the Company has a decrease in revenue as we did in the first quarter compared to the 2nd half of 2023.
Previous report
General and administrative expenses increased by $5.1 million from $1.3 million for the three months ended March 31, 2023 to $6.4 million for the three months ended March 31, 2024. The increase in expenses is related primarily to investments the company is making in customer support, technology and costs associated with operating a public company.
Previous report
Sales and marketing expenses increased by $0.4 million, from $0.5 million for the three months ended March 31, 2023 to $0.1 million for the three months ended March 31, 2024. The decrease was a result of efforts to drive the associated increase in revenues.
Previous report
Other expense (income), net decreased from $10,544 to $175,054 was due an increase in interest expense due to the financing of additional vehicles during 2023.
Previous report
Cash flows (used in) provided by operating activities
Reworded paragraphs (18)
Previous wording
We have focused to date on a simple, capital light business strategy utilizing, as of March 31, 2024, approximately 337 sales agents and approximately 15 independent sales dealers to produce a growing sales pipeline. We engineer and design projects and process building permit applications on behalf of our customers to timely install their systems and assist their connections to the local utility power grid. Most of the equipment we install is drop-shipped to the installation site by our regional distributors, requiring minimal inventory to be held by the Company during any given period. We depend on our distributors to timely handle logistics and related requirements in moving equipment to the installation sites. In addition to our main offering of residential solar energy systems, we sell and install products such as roofing, insulation, energy efficient appliances and battery storage systems for the residential market.
Current wording
We have focused to date on a simple, capital light business strategy utilizing, as of June 30, 2024, approximately 170 sales agents and approximately 27 independent sales dealers to produce a growing sales pipeline. We engineer and design projects and process building permit applications on behalf of our customers to timely install their systems and assist their connections to the local utility power grid. Most of the equipment we install is drop-shipped to the installation site by our regional distributors, requiring minimal inventory to be held by the Company during any given period. We depend on our distributors to timely handle logistics and related requirements in moving equipment to the installation sites. In addition to our main offering of residential solar energy systems, we sell and install products such as roofing, insulation, energy efficient appliances and battery storage systems for the residential market.
Previous wording
We believe that continued government policy support of solar energy and increasing conventional utility costs provide the solar energy market with material headwinds for accelerating adoption in the United States, which currently lags other international markets, including Australia and Europe. We offer our products and services throughout Florida, Texas, Arkansas, Missouri, Ohio, and Illinois and plan to enter new markets selectively where favorable net metering policies exist and solar penetration is below 7% of the addressable residential market. Most of our sales were generated in Florida through March 31, 2024 and 2023 with the remainder for each period generated in Texas, Arkansas, and Missouri. We have focused on improving our operational efficiency to meet the growing demand for our services and have increased our installation capacity by investing in new equipment and technology. We have also expanded our workforce by hiring more skilled technicians and training them extensively to ensure that they meet our high standards for quality and safety.
Current wording
We believe that continued government policy support of solar energy and increasing conventional utility costs provide the solar energy market with material headwinds for accelerating adoption in the United States, which currently lags other international markets, including Australia and Europe. We offer our products and services throughout Florida, Texas, Arkansas, Missouri, Ohio and Illinois and plan to enter new markets selectively where favorable net metering policies exist and solar penetration is below 7% of the addressable residential market. Most of our sales were generated in Florida and Ohio through June 30, 2024 and 2023 with the remainder for each period generated in Texas, Arkansas, Missouri and Illinois. We have focused on improving our operational efficiency to meet the growing demand for our services and have increased our installation capacity by investing in new equipment and technology. We have also expanded our workforce by hiring more skilled technicians and training them extensively to ensure that they meet our high standards for quality and safety.
Previous wording
We define Adjusted EBITDA, a non-GAAP financial measure, as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, other income (expenses), net as adjusted to exclude merger transaction related expenses. We define Adjusted EBITDA margin, a non-GAAP financial measure, expressed as a percentage, as the ratio of Adjusted EBITDA to revenue, net. See “Non-GAAP Financial Measures” for a reconciliation of GAAP net loss to Adjusted EBITDA and a ratio of GAAP net loss to revenue, net.
Current wording
We define Adjusted EBITDA, a non-GAAP financial measure, as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, other income (expenses), net, and stock compensation, as adjusted to exclude merger transaction related expenses. We define Adjusted EBITDA margin, a non-GAAP financial measure, expressed as a percentage, as the ratio of Adjusted EBITDA to revenue, net. See “Non-GAAP Financial Measures” for a reconciliation of GAAP net loss to Adjusted EBITDA and a ratio of GAAP net loss to revenue, net.
Previous wording
*Expansion of New Products and Services.*In 2024 we sold over $1.3 million in roofing replacements to facilitate our solar installations and to repair rooftops on homes in Florida damaged by severe weather. We plan to expand our roofing business in all markets we enter in the future. Roofing facilitates a faster processing time for our solar installations in cases where the customer is in need of a roof replacement prior to installing a solar system. In addition, to provide more financing options for our prospective residential solar energy customers, in 2023, we launched a program that allows customers to choose a leasing option to finance their systems from a third party. We expect selling systems utilizing third party leases under this and other similar programs to be a growing portion of our customer finance offerings in the future.
Current wording
Expansion of New Products and Services. In 2024 we have sold over $2.1 million in roofing replacements to facilitate our solar installations and to repair rooftops on homes in Florida damaged by severe weather. We plan to expand our roofing business in all markets we enter in the future. Roofing facilitates a faster processing time for our solar installations in cases where the customer is in need of a roof replacement prior to installing a solar system. In addition, to provide more financing options for our prospective residential solar energy customers, in 2023, we launched a program that allows customers to choose a leasing option to finance their systems from a third party. We expect selling systems utilizing third party leases under this and other similar programs to be a growing portion of our customer finance offerings in the future.
Previous wording
*Adding New Customers and Expansion of Sales with Existing Customers.*We intend to increase our in-house sales force and external sales dealers in 2024 in order to target new customers in the Southern U.S. regional residential markets. We provide competitive compensation packages to our in-house sales teams and external sales dealers, which incentivizes the acquisition of new customers.
Current wording
Adding New Customers and Expansion of Sales with Existing Customers. We intend to approximately double our in-house sales force and external sales dealers in 2024 in order to target new customers in the Southern U.S. regional residential markets. We provide competitive compensation packages to our in-house sales teams and external sales dealers, which incentivizes the acquisition of new customers.
Previous wording
Managing our Supply Chain. We rely on contract manufacturers and suppliers to produce our components. We have seen supply chain challenges and logistics constraints increase, including component shortages, which have, in certain cases, caused delays in the delivery of critical components and inventory, created longer lead times, and resulted in increased costs on jobs that were impacted by these issues. We experienced material shortages and an increase in pricing in 2022 and the beginning of 2023. In the second half of 2023 purchases we saw a correction in the supply chain. Our suppliers are generally meeting our materials needs and we are realizing a decrease in pricing for our solar components. Our ability to grow depends, in part, on the ability of our contract manufacturers and suppliers to provide high quality services and deliver components and finished products on time and at reasonable costs. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our systems, which would adversely impact our cash flows and results of operations, including revenue and gross margin.
Current wording
Managing our Supply Chain. We rely on contract manufacturers and suppliers to produce our components. We have seen supply chain challenges and logistics constraints increase, including component shortages, which have, in certain cases, caused delays in the delivery of critical components and inventory, created longer lead times, and resulted in increased costs on jobs that were impacted by these issues. We experienced material shortages and an increase in pricing in 2022 and the beginning of 2023. In the second half of 2023 purchases saw a correction in the supply chain. Our suppliers are generally meeting our materials needs and we are realizing a decrease in pricing for our solar components. Our ability to grow depends, in part, on the ability of our contract manufacturers and suppliers to provide high quality services and deliver components and finished products on time and at reasonable costs. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our systems, which would adversely impact our cash flows and results of operations, including revenue and gross margin.
Previous wording
Our primary source of revenue is the sale of our residential solar systems. Our systems are fully functional at the time of installation and require an inspection prior to interconnection to the utility power grid. We sell our systems primarily direct to end user customers for use in their residences. Upon installation inspection, we satisfy our performance obligation and recognize revenue. Many of the Company’s customers finance their obligations with third parties. In these situations, the finance company deducts their financing fees and remits the net amount to the Company. Revenue is recorded net of these financing fees (and/or dealer fees). The volume of sales and installations of rooftop solar systems, our primary product, increase from April to September when a majority of our sales teams are most active in our areas of service. In addition to sales of solar systems, “adders” or accessories to a sale may include roofing, energy efficient appliances, upgraded insulation and/or energy storage systems. All adders consisted of less than 10% of the total revenue, net in each of the three months ended March 31, 2024 and 2023.
Current wording
Our primary source of revenue is the sale of our residential solar systems. Our systems are fully functional at the time of installation and require an inspection prior to interconnection to the utility power grid. We sell our systems primarily direct to end user customers for use in their residences. Upon installation inspection, we satisfy our performance obligation and recognize revenue. Many of the Company’s customers finance their obligations with third parties. In these situations, the finance company deducts their financing fees and remits the net amount to the Company. Revenue is recorded net of these financing fees (and/or dealer fees). The volume of sales and installations of rooftop solar systems, our primary product, increase from April to September when a majority of our sales teams are most active in our areas of service. In addition to sales of solar systems, “adders” or accessories to a sale may include roofing, energy efficient appliances, upgraded insulation and/or energy storage systems. All adders consisted of less than 10% of the total revenue, net in each of the three and six months ended June 30, 2024 and 2023.
Previous wording
Our revenue is affected by changes in the volume and average selling prices of our solutions and related accessories, supply and demand, sales incentives and fluctuating interest rates that increase or decrease the monthly payments for customers purchasing systems through third party financing. Less than 5% of our sales were paid in cash by the customer in each of the three months ended March 31, 2024 and 2023. Our revenue growth is dependent on our ability to compete effectively in the marketplace by remaining cost competitive, developing and introducing new sales teams within existing and new territories, scaling our installation teams to keep up with demand and maintaining a strong internal operations team to process orders while working with building departments and utilities to permit and interconnect our customers to the utility grid.
Current wording
Our revenue is affected by changes in the volume and average selling prices of our solutions and related accessories, supply and demand, sales incentives and fluctuating interest rates that increase or decrease the monthly payments for customers purchasing systems through third party financing. Approximately 5% of our sales were paid in cash by the customer in each of the three and six months ended June 30, 2024 and 2023. Our revenue growth is dependent on our ability to compete effectively in the marketplace by remaining cost competitive, developing and introducing new sales teams within existing and new territories, scaling our installation teams to keep up with demand and maintaining a strong internal operations team to process orders while working with building departments and utilities to permit and interconnect our customers to the utility grid.
Previous wording
Other (expenses) income, net primarily consist of interest expense and fees under our equipment and vehicle term loans. It also includes interest income on our cash balances, and accrued interest on tariffs previously paid and approved for refund.
Current wording
Other (expenses) income, net primarily consists of interest expense and fees under our equipment and vehicle term loans. It also includes interest income on our cash balances, and accrued interest on tariffs previously paid and approved for a refund.
Previous wording
Depreciation and amortization increased by a nominal amount, from $432,599 for the three months ended March 31, 2023 to $462,701 for the three months ended March 31, 2024. The increase was due to an increase in our vehicle fleet in 2023 and the associated depreciation of the new vehicles.
Current wording
Depreciation and amortization decreased by a nominal amount, from $489,566 for the three months ended June 30, 2023 to $456,841 for the three months ended June 30, 2024. The decrease was due to to a decrease in the amortization of intangible assets which became fully depreciated..
Previous wording
As of March 31, 2024 and December 31, 2023, our cash and cash equivalents balance were approximately $7.7 million and $8.0 million, respectively. The Company maintains its cash in checking and savings accounts.
Current wording
As of June 30, 2024 and December 31, 2023, our cash and cash equivalents balance were approximately $5.3 million and $8.0 million, respectively. The Company maintains its cash in checking and savings accounts.
Previous wording
Net cash used in operating activities was approximately $10.2 million during the three months ended March 31, 2024 compared to a net cash provided by operating activities of approximately $1.6 million during three months March 31, 2024. The decrease was primarily due to a decrease in net income due to the closing of the Business Combination.
Current wording
Net cash used in operating activities was approximately $12.3 million during the six months ended June 30, 2024 compared to a net cash provided by operating activities of approximately $1.8 million during six months June 30, 2024. The decrease was due primarily to an increase in accounts receivable and contract liabilities. Accounts receivables have increased as our financing partners have become more conservative in how soon they fund a customer contract after completion. Contract liabilities decreased as a result of completing jobs in the first quarter for which we had received funding but deferred revenue because we had not yet achieved the revenue recognition milestones.
Previous wording
Net cash used in investing activities was approximately $0.2 million for the three months ended March 31, 2024, primarily relating to purchases of property and equipment of $0.3 million. Net cash used in investing activities for the three months ended March 31, 2023 was approximately $0.6 million primarily relating to purchases of vehicles.
Current wording
Net cash used in investing activities was approximately $0.3 million for the six months ended June 30, 2024, primarily relating to the development of software of $0.3 million. Net cash used in investing activities for the six months ended June 30, 2023 was approximately $0.8 million primarily relating to purchases of vehicles.
Previous wording
Cash flows used in investing activities
Current wording
Cash flows used in financing activities
Previous wording
Net cash provided by financing activities was approximately $10.1 million for the three months ended March 31, 2024, primarily relating to cash acquired from the Business Combination of $10.4 million offset by repayments of debt and distributions of stockholders. Net cash provided by financing activities for the three months ended March 31, 2023 was approximately $0.2 million, primarily relating to proceeds from the issuance of debt offset by distributions to members.
Current wording
Net cash provided by financing activities was approximately $10.0 million for the six months ended June 30, 2024, primarily relating to the net proceeds from the issuance of convertible preferred stock. Net cash provided by financing activities for the six months ended June 30, 2023 was approximately $0.1 million, primarily relating to proceeds from the issuance of debt to purchase vehicles offset by distributions to members.
Previous wording
The Company has utilized internally generated positive cashflow to grow the business. The Company has $3.0 million payable for professional services related to the business combination to be paid over the next six quarters; $2.8 million in trade credit with solar equipment distributors; $1.7 million of debt related to service vehicles valued at approximately $2.1 million net of depreciation.
Current wording
The Company has utilized internally generated positive cashflow to grow the business. Other than approximately $1.9 million in trade-credit with solar equipment distributors, the Company has only approximately $1.6 million of debt on service trucks and vehicles valued at approximately $1.9 million net of depreciation.
Previous wording
We define Adjusted EBITDA, a non-GAAP financial measure, as net income (loss) before interest and other income (expenses), net, income tax expense, and depreciation and amortization. We utilize Adjusted EBITDA as an internal performance measure in the management of our operations because we believe the exclusion of these non-cash and non-recurring charges allow for a more relevant comparison of our results of operations to other companies in our industry. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define Adjusted EBITDA differently.
Current wording
We define Adjusted EBITDA, a non-GAAP financial measure, as net income (loss) before interest and other income (expenses), net, income tax expense, and depreciation and amortization, as adjusted to exclude merger and acquisition expenses (“M&A expenses”). We utilize Adjusted EBITDA as an internal performance measure in the management of our operations because we believe the exclusion of these non-cash and non-recurring charges allow for a more relevant comparison of our results of operations to other companies in our industry. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define Adjusted EBITDA differently.
Previous wording
Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. First, the Company assesses qualitative factors to determine whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company recognizes an impairment loss in the consolidated statements of operations for the amount by which the carrying amount exceeds the fair value of the reporting unit. The Company performs its annual goodwill impairment test at December 31 of each year. There was no goodwill impairment recorded for the three months ended March 31, 2024and 2023.
Current wording
Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. First, the Company assesses qualitative factors to determine whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company recognizes an impairment loss in the consolidated statements of operations for the amount by which the carrying amount exceeds the fair value of the reporting unit. The Company performs its annual goodwill impairment test at December 31 of each year. There was no goodwill impairment recorded for the three months ended June 30, 2024 and 2023.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Six Months Ended June 30, 2024 Compared to Year Ended June 30, 2023
Current report — wording carried from elsewhere
The following table sets forth a summary of our consolidated statements of operations for the periods presented:
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Cash flows provided by financing activities