Zeo Energy Corporation(ZEO) - 2024 Q3 - Quarterly Report

Business Operations and Expansion - The company's scalable regional operating platform includes 180 sales agents and 22 independent sales dealers as of September 30, 2024[190] - The company plans to enter new markets selectively where solar penetration is below 7% of the addressable residential market[191] - The company increased installation capacity by investing in new equipment and technology and expanded its workforce by hiring more skilled technicians[191] - The company's sales were primarily generated in Florida, with the remainder in Ohio, Texas, Arkansas, Missouri, and Illinois[191] - The company plans to expand its roofing business, which generated over $2.5 million in 2024, to all future markets[219] - The company intends to double its in-house sales force and external sales dealers in 2024 to target new customers in the Southern U.S. residential markets[220] Financial Performance and Metrics - Revenue, net decreased by$18.2 million (48.1%) in Q3 2024 compared to Q3 2023, primarily due to higher interest rates impacting consumer financing rates and reducing demand for solar products[236] - Gross margin improved to 48.8% in Q3 2024 from 45.8% in Q3 2023, driven by decreased material costs and labor efficiencies[237] - Adjusted EBITDA margin was (5.0%) in Q3 2024 compared to 11.9% in Q3 2023, reflecting operational challenges[212] - Cost of goods sold decreased by $10.7 million (52.2$2.8 million (66.2%) in Q3 2024 due to higher personnel-related costs and professional services[235] - Revenue decreased by $32.1 million (37.0$18.4 million (37.4%) for the nine months ended September 30, 2024, consistent with the decrease in revenue[242][244] - General and administrative expenses increased by $6.2 million (63.6$3.6 million (18.3%) for the nine months ended September 30, 2024, due to reduced support costs for fewer salespeople[242][247] - Contribution margin was 17.8% for the nine months ended September 30, 2024, compared to 20.0% in the same period in 2023[263] - Adjusted EBITDA margin reflects the company's Adjusted EBITDA as a percentage of revenues, though specific figures are not provided[264] - Net loss for the three months ended September 30, 2024 was $2.87 million, compared to a net income of$4.00 million in the same period in 2023[266] - Adjusted EBITDA for the three months ended September 30, 2024 was negative $979,845, compared to positive$4.52 million in the same period in 2023[266] - Net loss margin for the three months ended September 30, 2024 was -14.6%, compared to a net income margin of 10.6% in the same period in 2023[266] - Adjusted EBITDA margin for the three months ended September 30, 2024 was -5.0%, compared to 11.9% in the same period in 2023[266] - Stock compensation expense for the three months ended September 30, 2024 was $1.50 million, compared to$0 in the same period in 2023[266] - Depreciation and amortization expense for the three months ended September 30, 2024 was $499,876, compared to$521,289 in the same period in 2023[266] Cash Flow and Financing - Net cash used in operating activities was $12.2 million for the nine months ended September 30, 2024, compared to$5.8 million provided by operating activities in the same period in 2023[255][256] - Net cash provided by financing activities was $8.8 million for the nine months ended September 30, 2024, primarily from the issuance of convertible preferred stock[255][258] - The company's cash and cash equivalents decreased from$8.0 million as of December 31, 2023, to $4.3 million as of September 30, 2024[251] - The company has$2.5 million in trade-credit with solar equipment distributors and $0.9 million of debt on service trucks and vehicles[259] Acquisitions and Business Combinations - The company closed an Asset Purchase Agreement with Lumio Holdings, Inc. and Lumio HX, Inc., acquiring assets for$4 million in cash and 6,206,897 shares of Class A Common Stock[193] - The company's business combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded[202] - The company's Primary Sellers retained 83.8% ownership post-Business Combination, down from 98% prior[206] - The company's Sponsor purchased 1,500,000 Convertible OpCo Preferred Units for $15,000,000 in connection with the Business Combination[200] - The company's Class A Common Stock and public warrants are traded on Nasdaq under the ticker symbols "ZEO" and "ZEOWW"[201] Market and Economic Factors - Inflation has increased labor and component costs, particularly raw materials and supply chain constraints, though specific cost increases are unquantified[221] - Higher interest rates have slowed financing-related solar system sales by increasing monthly costs for customers[222] - The company's revenue growth depends on expanding into new residential markets with favorable incentives and net metering policies[218] Intangible Assets and Valuation - No goodwill impairment was recorded for the three and nine months ended September 30, 2024 and 2023[271] - No impairment charges were recorded for intangible assets for the three and nine months ended September 30, 2024 and 2023[273] - The company uses a combination of income and market approaches to estimate fair values in business combinations, which involves significant judgment and estimates[269] - Intangible assets are amortized on a straight-line basis over their estimated useful lives and are subject to annual impairment consideration[272] Solar Service Offerings and Financing - The company's core solar service offerings are financed through third-party long-term lenders, with most customers using affordable loans requiring minimal or no upfront capital[192]