Sunlight Financial Holdings Inc.

First-quarter 2023 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% excluding the impact of a solar installer bankruptcy in late 2022. Home improvement volume was $92 million, up 20%, average solar loan balances were up 6% to $47,000, and average home improvement balances were up 13% to $19,000. Direct-channel platform fee margin was 7.1%, up 180 basis points from 5.3%. Adjusted EBITDA was a loss of $12.4 million versus a $7.8 million profit last year, and adjusted net income was a loss of $17.2 million, or $0.11 per diluted share, versus income of $4.9 million, or $0.03 per diluted share. Management did not provide formal next-quarter or full-year revenue/EPS guidance, but said indirect-channel platform fee margins should be negative in the near term because of loan sales, while recently approved direct and indirect loans are expected to be profitable and platform fee margins should improve later this year.

Matt Potere said the company made progress on the main issues from 2022 by improving indirect-channel execution, bolstering liquidity, addressing debt maturity, raising prices, right-sizing expenses, and reducing the Contractor Advance Program. He emphasized that the loans being approved today are believed to be profitable after pricing changes and product eliminations made since mid-2022. His tone was constructive and focused on cleaning up the balance sheet and restoring profitable growth.

Rodney Yoder highlighted that the decline in revenue was driven by a 59% drop in solar platform-fee loans and a lower proportion of direct-to-indirect channel loans, which reduced direct channel fees by $5.7 million and indirect channel fees by $4.9 million. He also said adjusted EBITDA and adjusted net income were pressured by higher unsold loan balances at Cross River Bank, which increased cost of revenue, partially offset by higher interest income. He noted the April 28 sale of $296 million of solar indirect-channel loans, said the company expects to stay within CRB agreement limits through additional sales, and reiterated about $5 million in annual cost savings from expense reductions.

Analysts focused on how quickly the remaining back book could be sold, whether indirect-channel margins can normalize, and how much the company can originate under the Cross River structure. Management said over $500 million of loans had been sold in the last five months, the back book is “pretty well contained,” and future sales should continue as demand remains strong. On profitability, they said the current front book is believed to be profitable because of higher pricing and the removal of unprofitable products, but they declined to provide specific margin guidance. Questions also touched on direct-channel capacity, hedging, and the strategic alternatives process; management said the board is still considering additional actions in shareholders’ best interest.