10-Q: Correlate Energy Corp. Reports Third Quarter 2024 Results, Revenue Growth Offset by Increased Expenses

Sentiment:

Quarterly Report 19 November 2024 3:50 PM

Correlate Energy Corp. experienced a significant increase in revenue during the third quarter of 2024, but also faced a substantial net loss due to increased operating and other expenses.

Capital raiseThe company expects to raise significant debt or equity capital in order to fund expanding operations in the near future.The company's ability to successfully execute its business plan is contingent upon obtaining additional financing.

Worse than expectedThe company's gross profit decreased to a gross loss, indicating a decline in profitability.The company's net loss increased significantly, indicating a worsening financial performance.The company's cash balance decreased significantly, indicating a weakening financial position.

Summary

Correlate Energy Corp. reported a revenue of $4,540,082 for the three months ended September 30, 2024, compared to $930,277 for the same period in 2023.
The company's gross loss for the quarter was $92,414, a decrease from a gross profit of $232,021 in the prior year.
Operating expenses for the quarter were $1,577,773, down from $1,820,560 in 2023.
Other expenses totaled $624,282 for the quarter, a significant decrease from $1,795,178 in the prior year.
The net loss for the quarter was $2,294,469, compared to a net loss of $3,383,717 in 2023.
For the nine months ended September 30, 2024, revenue was $6,836,123, up from $5,139,133 in 2023.
The gross loss for the nine-month period was $758,741, compared to a gross profit of $1,311,704 in 2023.
Operating expenses for the nine months were $6,365,814, an increase from $4,489,070 in 2023.
Other expenses for the nine months totaled $21,872,022, a significant increase from $5,186,041 in 2023, primarily due to a loss on debt conversion.
The net loss for the nine months was $28,996,577, compared to a net loss of $8,363,407 in 2023.
The company had a cash balance of $318,008 as of September 30, 2024, down from $1,412,379 at the end of 2023.
The company used $2,106,583 in operating activities during the nine months ended September 30, 2024, compared to providing $583,590 in the same period of 2023.

Sentiment

Score: 3

Explanation: The document shows significant revenue growth, but this is overshadowed by substantial net losses, increased expenses, and a concerning cash burn. The company's reliance on future capital raises and the loss on debt conversion are major risks, leading to a negative sentiment.

Positives

The company's revenue increased significantly in both the third quarter and the nine-month period compared to the previous year.
Operating expenses decreased in the third quarter of 2024 compared to the same period in 2023.
Other expenses decreased significantly in the third quarter of 2024 compared to the same period in 2023.
The company secured $1,487,015 in proceeds from loan agreements and $250,000 from convertible notes during the nine months ended September 30, 2024.

Negatives

The company experienced a gross loss in both the third quarter and the nine-month period, compared to a gross profit in the same periods of the previous year.
Operating expenses increased significantly for the nine-month period compared to the previous year.
Other expenses increased significantly for the nine-month period compared to the previous year, primarily due to a loss on debt conversion.
The company's net loss increased significantly in both the third quarter and the nine-month period compared to the previous year.
The company's cash balance decreased significantly from the end of 2023 to September 30, 2024.
The company used a significant amount of cash in operating activities during the nine months ended September 30, 2024, compared to providing cash in the same period of 2023.

Risks

The company's ability to continue as a going concern is dependent on its ability to develop additional sources of capital and achieve profitable operations.
The company has incurred losses since inception and has not generated positive cash flows from operations.
The company's gross margins were negatively impacted by unexpected cost overruns on a core project.
The company's operating expenses are expected to increase with the expansion of operations.
The company's other expenses are expected to be driven by the loss on conversion of debt.
The company's ability to execute its business plan is contingent upon obtaining additional financing.
There is no assurance that additional financing will be available on acceptable terms, or at all.

Future Outlook

The company anticipates revenues and gross margins to increase in upcoming quarters as revenues are recognized from projects in progress and in the pipeline. The company also expects to raise significant debt or equity capital to fund expanding operations.

Management Comments

Management believes that aggressive marketing combined with acquisitions and additional financing as necessary will result in improved operations and cash flow in 2024 and beyond.
The company sees tremendous market opportunity in reducing site-specific energy consumption and deploying clean energy generation and energy efficiency solutions at scale.
Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company's condensed consolidated financial statements.

Industry Context

The company operates in the distributed clean energy solutions sector, which is experiencing significant growth due to increasing demand for renewable energy and energy efficiency solutions. The company's focus on the commercial and industrial sector positions it to capitalize on this trend.

Comparison to Industry Standards

The company's revenue growth indicates a positive trend compared to some competitors in the renewable energy sector, however, the significant net losses and cash burn are concerning.
Compared to companies like SunPower or First Solar, which have established market positions and consistent profitability, Correlate Energy is still in a high-growth, high-risk phase.
The company's reliance on debt and equity financing is common for early-stage companies in this sector, but the high level of debt and the loss on debt conversion are significant risks.
The company's gross margin issues are a concern, as many established players in the EPC space maintain higher margins through efficient project management and supply chain optimization.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Director	Bill Powers		2024-11-15	Resignation
Director	Flaviu Forgaciu		2024-11-15	Resignation
Director	Kerry Lutz		2024-11-15	Resignation
Director	Alina Zagaytova		2024-11-18	Resignation
Director	Christine Gulbranson		2024-11-18	Resignation
Interim CFO		Chuck Markovic	2024-11-18	Extension of role
Interim CEO		Roger Baum	2024-11-18	Appointment

Related Party Transactions

The company had accounts payable to P&C Ventures, Inc., Michaels Consulting, Elysian Fields Disposal, LLC, and Loutex Production Company, all of which are related parties.
The company had shareholder advances payable to Todd Michaels, a significant shareholder, and the company's largest shareholder.
The company entered into a note agreement with P&C Ventures, Inc. and amended it multiple times.
The wife of Mr. Michaels was the holder of a note payable.
Mr. Michaels is the holder of a note payable and a convertible note payable.
The company's largest shareholder was the holder of a note payable.
Mr. Charles Markovic, CFO, is the holder of a convertible note payable.
Two of the company's directors, Dr. Christine Gulbranson and Alina Zagaytova, each received 250,000 options.

Stakeholder Impact

Shareholders are negatively impacted by the significant net losses and the decrease in the company's cash balance.
Employees may be impacted by the company's financial instability and potential need for cost-cutting measures.
Customers may be impacted by the company's ability to deliver projects on time and within budget.
Suppliers and creditors may be impacted by the company's financial instability and potential difficulty in meeting its obligations.

Next Steps

The company expects to raise significant debt or equity capital to fund expanding operations.
The company anticipates revenues and gross margins to increase in upcoming quarters as revenues are recognized from projects in progress and in the pipeline.

Key Dates

Date	Description
2020-05-29	Origination date of a note payable with a 4% interest rate.
2022-07-29	Origination date of a note payable with a 10% interest rate.
2022-08-11	Origination date of a note payable with a 10% interest rate.
2022-08-15	Origination date of a note payable with a 10% interest rate.
2022-08-31	Origination date of a note payable with a 10% interest rate.
2022-09-01	Origination date of a note payable with a 10% interest rate.
2022-09-07	Origination date of a note payable with a 10% interest rate.
2022-09-12	Origination date of a note payable with a 10% interest rate.
2022-09-29	Origination date of a note payable with a 10% interest rate.
2022-11-09	Origination date of a note payable with a 10% interest rate.
2022-11-15	Origination date of a note payable with a 10% interest rate.
2023-01-24	Origination date of a convertible note payable with a 14% interest rate.
2023-01-25	Origination date of a convertible note payable with a 14% interest rate.
2023-01-30	Origination date of a convertible note payable with a 14% interest rate.
2023-02-17	Origination date of a convertible note payable with a 14% interest rate.
2023-03-07	Origination date of a convertible note payable with a 14% interest rate.
2023-03-14	Origination date of a convertible note payable with a 14% interest rate.
2023-03-27	Origination date of a convertible note payable with a 14% interest rate.
2023-03-30	Origination date of a convertible note payable with a 14% interest rate.
2023-04-06	Origination date of a convertible note payable with a 14% interest rate.
2023-04-07	Origination date of a convertible note payable with a 14% interest rate.
2023-05-05	Origination date of a convertible note payable with a 14% interest rate.
2023-05-09	Origination date of a convertible note payable with a 14% interest rate.
2023-05-12	Origination date of a convertible note payable with a 14% interest rate.
2023-06-06	Origination date of a convertible note payable with a 14% interest rate.
2023-06-08	Correlate Infrastructure Partners Inc. changed its name to Correlate Energy Corp.
2023-06-30	Origination date of a convertible note payable with a 14% interest rate.
2023-07-07	Origination date of a convertible note payable with a 14% interest rate.
2023-07-21	Origination date of a convertible note payable with a 14% interest rate.
2023-07-26	Origination date of a convertible note payable with a 14% interest rate.
2023-08-10	Origination date of a convertible note payable with a 14% interest rate.
2023-08-24	Origination date of a convertible note payable with a 14% interest rate.
2023-08-31	Origination date of a convertible note payable with a 14% interest rate.
2023-10-10	Origination date of a convertible note payable with a 14% interest rate.
2023-11-03	Origination date of a convertible note payable with a 14% interest rate.
2023-11-07	Origination date of a convertible note payable with a 14% interest rate.
2023-11-28	Origination date of a convertible note payable with a 14% interest rate.
2023-12-04	Origination date of a convertible note payable with a 14% interest rate.
2023-12-06	Origination date of a convertible note payable with a 14% interest rate.
2023-12-08	Origination date of a note payable with a 14% interest rate.
2023-12-18	Origination date of a convertible note payable with a 14% interest rate.
2024-01-10	Nine warrant holders cashless exercised a total of 5,657,500 warrants to purchase common stock, resulting in the issuance of 3,952,825 shares of common stock.
2024-01-29	Start date of note payable maturity extensions.
2024-02-20	Nine warrant holders cashless exercised a total of 5,657,500 warrants to purchase common stock, resulting in the issuance of 3,952,825 shares of common stock.
2024-03-12	End date of note payable maturity extensions.
2024-03-26	Date of Bridge Loan and Security Agreement with Clearview Funding Group LLC.
2024-03-29	End date of note payable maturity extensions.
2024-04-10	Company received funding from a Bridge Loan and Security Agreement with Clearview Funding Group LLC.
2024-05-09	Company entered into a convertible note agreement with Mr. Charles Markovic, CFO.
2024-05-17	Company entered into a convertible note agreement with Mr. Todd Michaels, former CEO.
2024-05-20	Company entered into a convertible note agreement.
2024-06-06	Start date of debt conversion agreements with noteholders.
2024-06-11	Company's board of directors authorized the Company to enter into a Bridge Loan and Security Agreement with Clearview Funding Group LLC.
2024-06-14	End date of debt conversion agreements with noteholders. Lender advanced $200,000 of the loan to the Company pursuant to the Bridge Loan and Security Agreement.
2024-07-05	Maturity date of the convertible note agreement with Mr. Charles Markovic, CFO.
2024-07-17	Maturity date of the convertible note agreement with Mr. Todd Michaels, former CEO.
2024-07-25	Origination date of a note payable with a 5% interest rate.
2024-07-31	Maturity date of a note payable with a 5% interest rate.
2024-09-30	End of the reporting period for the quarterly report.
2024-11-14	Date of the latest practicable date for the number of shares outstanding.
2024-11-15	Messers Bill Powers, Flaviu Forgaciu and Kerry Lutz resigned from the Board of Directors.
2024-11-18	Ms. Alina Zagaytova and Ms. Christine Gulbranson resigned from the Board of Directors. Chuck Markovic's role as Interim CFO was extended and Roger Baum was appointed as Interim CEO.
2024-11-19	Date of the report.

Keywords

revenue, net loss, operating expenses, debt conversion, gross profit, cash flow, financing, solar energy, EPC, consulting

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