Sunlight Financial Holdings Inc.

First-quarter 2023 total revenue was $20.6 million, down from $30.1 million in the prior-year period. Funded volume was $627 million, up 6% year over year, or 12% on a normalized basis excluding the impact of the solar installer bankruptcy. Home improvement funded volume was $92 million, up 20% year over year, and average solar loan balances rose 6% to $47,000 while average home improvement balances rose 13% to $19,000. Direct channel platform fee margin was 7.1%, up 180 basis points from 5.3% last year. Adjusted EBITDA was a loss of $12.4 million versus a profit of $7.8 million in the prior-year quarter, and adjusted net income was a loss of $17.2 million, or $0.11 per diluted share, versus profit of $4.9 million, or $0.03 per diluted share. Management said it expects negative indirect-channel platform fee margins in the near term because of upcoming back-book sales, but expects recently approved direct and indirect loans to be profitable and platform fee margins to improve later this year.

Matt Potere framed the quarter as progress on fixing the issues that surfaced in 2022, emphasizing better pricing, stronger liquidity, lower costs, and reduced risk in the Contractor Advance Program. He highlighted a 77 basis point average credit loss rate after 24 months for 2022 solar loans versus 162 basis points for peers, calling that evidence of strong credit quality and value to capital providers. His tone was constructive and defensive at the same time: management believes the front book is now profitable, but the company is still working through the legacy back book.

Rodney Yoder said the quarter’s revenue and earnings were pressured by lower solar platform-fee loans, a smaller direct mix, and higher unsold loan balances at Cross River Bank, partially offset by higher interest income. He quantified the direct channel platform fee margin at 7.1% and said the company expects negative indirect margins in the near term due to loan sales, but better margins later in the year as pricing actions work through. He also noted the $296 million solar indirect-channel sale on April 28, said over $500 million of the back book has been sold in the last five months, and reiterated expected annual cost savings of about $5 million; Contractor Advance Program advances fell to $18 million from $86 million a year earlier.

Analysts focused on how much of the remaining Cross River Bank back book still needs to be sold, whether margins can normalize by year-end, and what direct-channel capacity looks like given the single-provider concentration. Management said the back book is “pretty well contained,” that the company has sold over $500 million in five months, and that the $400 million balance cap could effectively imply $400 million to $500 million of capacity depending on collateral support. They also said pricing actions and product changes make today’s originations profitable, while hedging is still under review and the board continues to consider strategic alternatives in the company’s best interests.