Item 1. Business
ITEM 1. BUSINESS.
Mission
Our company and personnel are passionate about
delivering cost savings and increased independence and reliability to energy consumers. Our mission is to expedite the country’s
transition to renewable energy by offering our customers an affordable and sustainable means of achieving energy independence.
Business Overview
We are a vertically integrated company offering
energy solutions and services that include sale, design, procurement, installation, and maintenance of residential solar energy systems.
Many of our solar energy system customers also purchase other energy efficiency-related equipment or services or roofing services from
us. The majority of our customers are located in Florida, Texas, Arkansas, Missouri, Ohio, and Illinois, and we have an expanding base
of customers in California, Colorado, Minnesota, Missouri, Ohio, Utah, and Virginia.
We were originally incorporated under the name
“ESGEN Acquisition Corp.” as a blank check company incorporated as a Cayman Islands exempted company and formed for the purpose
of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or
more businesses. As discussed in this Report, we completed the Business Combination with Sunergy on March 13, 2024 and changed our
name to “Zeo Energy Corp.”
Sunergy was created through the Contribution of
Sunergy Solar LLC (“Sunergy Solar”) and Sun First Energy, LLC (“Sun First Energy”) to Sunergy on October 1,
2021. Sunergy Solar, formed in 2005, and initially focused on providing heating, ventilation and air conditioning products and services
in Florida, later expanded into installing residential solar energy systems sold directly by the company and third-party sales dealerships.
Sun First Energy was established in 2019, and, from its formation to the date of the Contribution, it sold residential solar energy systems
in Florida that were installed by other companies. Prior to the Contribution, Sunergy Solar and Sun First Energy had collaborated on residential
solar energy system installations and shared a commitment to quality, integrity and customer satisfaction. The Contribution established
our vertically integrated company offering residential solar energy solutions.
The number of our installations, sales support,
and administrative personnel was approximately 190 as of December 31, 2024. In January 2022, we began selling and installing residential
solar energy systems and other energy efficiency-related equipment in Texas, in January 2023, we expanded into Arkansas, in
September 2023, we entered Missouri, and in February 2024, we entered Ohio and Illinois. In 2025, we expanded our services in California,
Colorado, Minnesota, Utah, and Virginia. In November 2024, we also began serving customers for whom Lumio HX, Inc. had begun but not completed
residential energy systems prior to completion of its bankruptcy, primarily in California, Maryland, New Jersey, North Carolina, Oklahoma,
and South Carolina.
Recent Developments
On October 25, 2024, the Company closed an
Asset Purchase Agreement (the “Asset Purchase Agreement”) with Lumio Holdings, Inc., a Delaware corporation (“Lumio”),
and Lumio HX, Inc., a Delaware corporation (together with Lumio, the “Sellers”), pursuant to which, subject to the terms and
conditions set forth in the Asset Purchase Agreement, the Company agreed to acquire certain assets of the Sellers on an as-is, where-is
basis, including uninstalled residential solar energy contracts, certain inventory, intellectual property and intellectual property rights,
equipment, records, goodwill and other intangible assets (collectively, the “Assets”), free and clear of any liens other than
certain specified liabilities of the Sellers that are being assumed (collectively, the “Liabilities” and such acquisition
of the Assets and assumption of the Liabilities together, the “Transaction”) for a total purchase price of (i) $4 million
in cash and (ii) 6,206,897 shares of the Company’s Class A Common Stock, par value $0.0001, to be paid to LHX Intermediate,
LLC, a Delaware limited liability company (“LHX”).
The Assets included certain uninstalled or partially
completed residential solar energy contracts through which a customer purchased the solar energy system, and additional uninstalled or
partially completed residential solar energy projects where a third party leasing company (either Palmetto Solar, LLC d/b/a LightReach,
or Sunnova Energy Corporation) owns the solar energy system and leases the output of the system to a customer living in the home where
the system is installed. Various of these Lumio projects are located in states where the Company has not previously operated, principally
in California, Maryland, New Jersey, North Carolina, Oklahoma, and South Carolina, and the Company has newly established operations or
is in the process of establishing operations in these states.
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On December 24, 2024 (the “Issue Date”),
the Company issued a Promissory Note (the “Promissory Note”) to LHX pursuant to which the Company could borrow up to an aggregate
principal amount of $4,000,000 (the “Loan”). Subject to the terms and conditions set forth in the Promissory Note, the Loan
shall be provided to the Company in three tranches: (i) $2,500,000 upon execution of the Promissory Note (the “Initial Advance”),
(ii) $750,000 if the Company achieves the Tranche 2 Milestone within 60 days from the Initial Advance (the “Tranche 2
Advance”) and (iii) $750,000 if the Company achieves the Tranche 3 Milestone within 60 days from the Tranche 2 Advance.
“Tranche 2 Milestone” means the submission by the Company to the applicable regulatory bodies at least 340 permits to install
solar energy systems sold through the Company’s year-round sales program. “Tranche 3 Milestone” means the completion
by the Company of the installation of at least 296 solar energy systems sold through the Company’s year-round sales program.”
LHX may also waive any milestone described above and advance the applicable amounts to the Company.
On April 15, 2025, the Promissory Note was amended
to provide that the Tranche 2 Advance will be delivered if a Tranche 2 Milestone is met within 120 days of the Initial Advance, and the
Tranche 3 Advance will be delivered if a Tranche 3 Milestone is met within 120 days of the Tranche 2 Advance.
The Loan will be repaid in full (the “Repayment”)
by issuing to LHX or its designee of a number of the Company’s shares of Class A Common Stock equal to the quotient of (i) the
outstanding and unpaid amount of the Loan, divided by (ii) $1.35 (the “Share Issuance”). The Repayment shall take place
immediately following the later of: (x) the day falling on the first anniversary of the Issue Date (or the immediately previous
business day) and (y) the date on which the stockholders of the Company approve the Share Issuance.
The Promissory Note contains customary representations,
warranties and covenants of the parties, including an obligation of the Company to file a registration statement registering the resale
of the shares issuable in the Share Issuance and to use reasonable efforts to have such registration statement declared effective as soon
as practicable thereafter.
In connection with the Promissory Note, on December 24,
2024, LHX entered into a Voting Agreement with the Company and certain stockholders of the Company (the “Voting Agreement”),
pursuant to which such stockholders agreed to vote (or cause to be voted), in person or by proxy, all the shares of Class A Common
Stock and Class V Common Stock owned by such stockholders (i) in favor of the nomination and appointment of LHX’s designee
to the board of directors of the Company, (ii) in favor of the issuance by the Company to LHX of shares of Class A Common Stock
in connection with an option that may be granted to LHX to purchase up to 4,000,000 shares of Class A Common Stock, subject
to the terms and conditions therein and (iii) in favor of the Share Issuance, when required pursuant to the Promissory Note.
Products and Services
Residential Solar Energy Systems
Zeo’s primary business activity is selling
and installing residential solar energy systems that homeowners use to supplement the amount of usable electricity required to power their
homes. We currently operate primarily in Florida, Texas, Arkansas, Missouri, Ohio, and Illinois, and have begun offering solutions and
services in California, Colorado, Minnesota, Utah, and Virginia. We are additionally serving customers for whom Lumio HX, Inc. had begun
but not completed residential energy systems prior to completion of its bankruptcy, in
Maryland, New Jersey, North Carolina, Oklahoma, and South Carolina.
Other Energy Efficient Equipment and Services
In 2023, approximately 23% of our customers purchased
one or more insulation services, such as adding insulation to a home’s attic or walls. In 2023, in approximately 53% of our sales
our customers purchased adders that consisted of equipment designed to increase energy efficiency, including items such as hybrid electric
water heaters or swimming pool pumps. During 2023, 1% of our customers purchased battery-based energy storage systems. These battery-based energy
storage systems store energy generated from their residential solar energy systems to be used when the system generates less
usable electricity than the home requires (such as at night or on cloudy days).
Roofing Services
We install roofs in Florida, where our subsidiary,
Sunergy Roofing & Construction, Inc., is a licensed roofing contractor. In other states where we operate, for some solar energy
system customers that need roofing services, we may contract with roofing companies for the services. We plan to continue growing our
roofing operations, as we believe our roofing services complement our residential solar energy systems and for some customers helps to
expedite solar system installations.
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Subcontractors
We use subcontractors to install some of our residential
solar energy systems at times when we do not have a sufficient number of our own installation teams to timely complete the project. We
also use subcontractors to provide all of our insulation services and to install some of the roofing services and energy efficient equipment
such as hybrid electric water heaters and pool pumps which we sell. Our subcontractor fees for residential solar energy system installations
are typically based on total wattage installed, and our arrangements with installation subcontractors allow either party to terminate
the agreement for convenience.
Marketing and Sales
We market our products and services to potential
customers directly through in-home visits carried out by our internal sales agents and indirectly through external sales dealers.
In the case of leases, a customer is approached by and communicates with the same sales personnel as if the customer were purchasing a
system directly from Zeo. We also engage in digital marketing efforts on our own or through third-party marketing specialists, including
search engine optimization and social media communications to strengthen our online marketing presence. Our code of conduct applies to
our employees, independent contractors and dealers, and it requires adherence to high ethical standards when carrying out business activities.
Internal Direct Sales Force
We have established an internal team of sales
agents that markets and sells directly to customers through door-to-door sales approaches. The team included approximately 290
sales agents as of both December 31, 2024 and December 31, 2023. Our sales agents are engaged through full-time contracts lasting
from April through August, which is our primary selling season. Sales made through our internal sales team have lower customer acquisition
costs than sales sourced through our external dealers. In 2024, approximately 58% of the total systems we installed were sold through
our internal sales team.
Sales Through External Dealers
We also install systems sold by external sales
dealers that act as our sales representatives with potential customers. The number of active dealers that have entered into a current
arrangement to sell our solar panel systems was approximately 20 as of December 31, 2024 compared to approximately 30 as of December 31,
2023. The percentage of sales that originate with our external dealers increases during the fall and winter months when our internal
sales efforts are diminished. We provide field support and training to these dealers on our sales offerings, sales processes and other
business processes, including our software sales platform.
Upon our selection of and engagement with a dealer,
the dealer executes our dealer agreement. The majority of our dealer agreements require the dealers to exclusively represent our business
with respect to the particular products or services we sell. Dealers have the option of choosing to execute a contract that does not require
this exclusivity, and some select this option. Our dealer contracts are terminable for convenience by either party. For each residential
solar energy system that we install for a customer that was sold by a dealer, after we receive payment, we compensate the dealer with
a commission based on the number of watts of solar panels installed.
We recruit and select dealers based on their experience
in the market, ability to produce sales and general reputation for ethical behavior within the industry. As part of our dealer contract,
we require our dealers to agree in writing to comply with our code of conduct when carrying out their marketing and other activities.
Customer and Leasing Agreements
A homeowner becomes our customer typically by
signing a contract with us to purchase and receive installation of a solar energy system. We also install solar energy systems that are
leased by the customer under an agreement between the customer and a third-party leasing company under which the leasing company
will own and lease to a customer a solar energy system. A customer that chooses our products and services typically signs the contract
after meeting with one of our sales agents or dealers in the customer’s home and receiving a preliminary system design for their
home and pricing for the system. Whether the customer decides to purchase or lease the solar energy system, the sales agent or dealer
determines the pricing to be offered to the customer based on product and services price information stored in our sales software for
the system components included in a customer’s proposed system. After the customer signs the contract, we schedule and conduct
a site survey. If during the site survey we discover property code compliance or other complications with the planned design and installation,
we may issue a change order; if required changes represent additional costs to us or the customer, the party that would be responsible
for those costs may choose to cancel the contract. After the site survey, we prepare formal design and engineering documents and apply
for applicable permits from local government authorities. After required permits are obtained, we schedule and install the solar energy
system and any other equipment purchased on the customer’s home.
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Purchase Contract Warranties. As
the owner of the residential solar energy system under the purchase and installation agreement, customers receive a manufacturer’s
limited warranty for system components. For the principal components of solar panels, inverter, and racking, the manufacturer’s
limited warranty typically lasts 25 years. Manufacturers control whether the warranty periods they offer will change for equipment
purchased in the future. Though we are not responsible for a manufacturer’s compliance with warranty obligations, we assist customers
in contacting the manufacturer if a warranty issue arises. We provide customers at least a ten-year limited warranty for our installation
work and at least a five-year limited warranty against roof penetrations. In most of our purchase and installation agreements that
we used prior to 2023, we provided a 25-year limited warranty for installation work and against roof penetrations.
Purchase Contracts and Financed Sales. For
the twelve months ended December 31, 2024, approximately 32% of our customers who purchased residential solar energy systems from us entered
into a loan arrangement with a third party to finance the purchase over an extended period of time. The loan agreement between the customer
and the third-party lender typically has a repayment term of between 7 and 25 years and requires the customer to pay either
a minimal or no down payment. The lender pays us our portion of the purchase payment after completion of system installation.
Purchase Contracts and Cash Sales. For
the twelve months ended December 31, 2024, a small minority of our orders (less than
5%) were from customers paying in cash for the purchase of residential solar energy systems. For those sales, our purchase contract typically
requires the customer to pay 25% of the purchase price upon execution of the purchase agreement, 50% when we begin installation, and the
final 25% on the last day of installation. Installation is usually commenced and completed either in a single day or within
several days.
System Leases. In December 2022,
we launched a program offering customers the option of leasing our solar energy systems from third-party leasing companies. The customer
agrees to pay the leasing company a predetermined monthly fee for the electricity produced by the residential solar energy system. As
of December 31, 2024, approximately 63% of the systems we installed in 2024 are leased by the customer. The lease term between the leasing
company and the customer is 25 years. The customer agrees to pay the leasing company a predetermined monthly fee for the electricity
produced by the solar energy system. The monthly fee generally increases annually over the lease term at a predetermined rate, and the
customer typically has the option to renew the lease for five to ten years. The potential advantage to the customer of a lease agreement
is that a third-party owner of the residential solar energy system may take more advantage of available government tax incentives
for solar energy production, which may allow them to lease the system to the customer at monthly rates that are lower for the customer
than if the customer were financing its own purchase of the system. We installed the first leased solar energy system in April 2023
and during the twelve months ended December 30, 2024, we installed approximately 1,150 leased solar energy systems. In the lease model
offered to our customers, the third-party leasing company contracts with the homeowner customer to install a solar energy system
owned by the leasing company and leased to the customer. The leasing company contracts with Zeo to purchase system equipment and install
the solar energy system. Some leasing companies may contract with ZEO to maintain and service the system on the leasing company’s
behalf during the life of the lease.
Approximately 30% of Zeo’s customers who
have entered into leasing agreements have done so with third-party leasing companies established and managed by White Horse Energy, LC
(“ White Horse Energy ”), a holding company of which Mr. Bridgewater, Zeo’s Chairman and Chief Executive
Officer is the owner and manager. Subject to investor and customer demand, White Horse Energy intends to attract more investors to form
third-party leasing companies. No assurance can be given that White Horse Energy will be able to do so or that arrangements can be
made with other funds to act as lessors of Zeo’s solar energy systems in the future. Zeo has entered into leasing arrangements with
several other unrelated third parties to offer customers a choice of purchase or lease options, and continues to explore similar arrangements
with other unrelated third-parties.
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Supply
The main components of our residential solar energy
systems are solar panels, inverters and racking systems. Common related components or systems that we may additionally supply are battery-based energy
storage systems, insulation, hybrid electric water heaters, swimming pool pumps and roofing. All of the products that we install are manufactured
by third parties. We select products and system components, suppliers and distributors based on cost, reliability, warranty coverage,
performance characteristics and ease of installation, among other factors.
While we procure products and components from
multiple suppliers and distributors to reduce the likelihood that we experience an inability to procure those products and components,
the primary supplier from which we purchase the equipment that we install is Consolidated Electrical Distributors, Inc. (d/b/a Greentech
Renewables) (“ Greentech ”). Greentech also provides us inventory management services by holding equipment in
its inventory until it delivers directly to the customer site for installation. We purchase from Greentech through a credit agreement
under which Greentech extends us credit for purchases, and we are obligated to make payments by the 15 th day of the month
following each purchase. A purchase discount is available for early cash payment, and a service charge of 1.5% per month can be assessed
for payments made more than 30 days after the invoice date. Our agreement with Greentech does not require either party to continue
to conduct new business with the other party. During 2024, we purchased at least approximately 70% of the equipment that we installed
through Greentech. We believe our relationship with Greentech, and the volume of business we do through them, has established us as a
preferred customer and enables us to procure components at attractive terms. If our relationship with Greentech were to be terminated,
there are other distributors of the same or similar equipment, and we believe we could readily obtain supplies from those other distributors,
though they may take some time to develop the efficient logistics system Greentech employs now on our behalf delivering products to the
customer installation sites.
Heightened inflation in the costs of labor and
components beginning in 2020 and continuing today has contributed to fluctuating prices for solar energy equipment. At times, we have
had to pay increased prices to obtain equipment. This has not yet prevented us from obtaining the products we need to install systems
purchased by our customers, but there can be no assurance that this will continue. We do not have information that allows us to quantify
the specific amount of cost increases attributable to inflationary pressures.
We have previously experienced price increases
and temporary supply delays resulting from multiple market phenomena. The majority of the solar panels and other major system equipment
components that we install are manufactured outside of the United States. Government tariffs on solar energy equipment, including tariffs
placed on solar equipment manufactured in China, have also contributed to higher prices on solar equipment. Additionally, Russia’s
war against Ukraine caused price and supply pressure on solar energy equipment, as the war has impacted fuel prices and has led to increased
demand in European markets for solar energy equipment as consumers and governments in Europe have sought to establish greater energy independence.
In 2020, 2021, and 2022, we experienced periods of temporary delay in obtaining supplies. We believe these delays reduced the number of
installations in comparison to what we would have been able to install without the delays. In 2023 and 2024, we did not experience appreciable
delays in supply. Following new tariffs introduced by the U.S. government in April 2025, as further detailed below, we expect to experience
an increase in prices for solar system equipment. We have not experienced consequent delays in procuring equipment, but such delays may
occur.
For more information on risks related to our supply
chain, see “ Risk Factors — Risks Related to Zeo’s Operations — Due to the limited number
of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, price change, announcement
and imposition of tariffs or duties or other limitation in our ability to obtain components or technologies we use could result in sales
and installation delays, cancellations and loss of customers ” and “ Risk Factors — Risks Related to
Zeo’s Operations — Increases in the cost or reductions in supply of solar energy system and energy storage system
components due to tariffs or trade restrictions announced or imposed by the U.S. government could have an adverse effect on our business,
financial condition and results of operations. ”
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Seasonality
Historically, our sales volume and installation
activity has been highest during late spring and summer. During this time, consumers in many locations see greater energy needs due to
operating air conditioning systems and warm-weather appliances such as swimming pool pumps. Our door-to-door sales efforts are
also aided during these months by daylight savings time providing increased daylight hours into the evening, and we
have more sales personnel, many of whom are college students, working during these months, as described above. We typically have
largely or entirely scaled down our internal sales efforts during the fall, winter, and early spring. Snow, cold weather or other inclement
weather can also delay our installation of products and services.
Strategy
We plan to increase our market impact and grow
our revenue and profits by pursuing the following strategic objectives:
Expand our operations into additional geographic
markets. We plan to continue to expand in new geographic markets, both organically and through strategic M&A, considering factors
such as the rates consumers pay for electricity, where favorable net metering policies or cost incentives exist, the percentage of the
addressable residential market that already has residential solar energy systems , and where we believe the market is not already oversaturated
with competitors.
Increase capacity for efficient growth by investing
in people and systems. In 2024, we experienced a decrease in sales and installations that generally affected
the solar industry during the same period. Prior to 2024, we have generally increased the number of solar energy systems we sell and install
by growing and training our internal seasonal sales force, and we plan to continue to do so, as well as increasing our number of external
dealers. We have also grown and plan to continue growing our installation capacity in markets we serve by hiring and training more skilled
technicians and investing in technology. Where we do not yet have installation teams in place, we plan to continue to collaborate with
subcontractors to fulfill our installation needs.
Continue to grow our external dealer sales
channel. We plan to increase the number of external dealers working to bring us customers. We believe we will
continue to have success in attracting dealers to our business because of our scalable business platform that allows dealers to participate
in the residential solar energy sales and installation life cycle with limited investments in personnel and capital.
Expand customer options for buying affordable
solar energy. We plan to expand our roofing business in certain markets we enter in the future. Roofing facilitates
a faster processing time for our solar installations in cases where the residential customer is in need of a roof replacement prior to
installing solar systems. We believe offering customers the option to lease a residential solar energy system installed on their home
will increase the number of systems we can sell and install due to the potential savings for some customers that cannot otherwise take
full advantage of certain tax incentives. As described above, in December 2022, we launched a program offering customers the option
of leasing residential solar energy systems from third parties that we install on the customer’s home.
Strengths
Lean Business Model. We
have a lean business model, in the four years prior to 2024, we had an increase in revenue and profit every year. In 2024, in the face
of a challenging economic environment for our industry, we believe that our lean operations have permitted us to minimize losses.
Our Sales Model. Our
sales methodology produces a high volume of sales. We believe our internal sales process drives a high volume of sales per sales representative
and results in low customer acquisition costs. The success of our sales processes starts with quality, hands-on training for each
sales representative. Our self-produced digital learning platform presents our sales representatives with sample customer scenarios
and guides them in learning effective communication techniques, as well as how to efficiently carry out administrative steps required
for completing sales. Each sales representative’s responses to sample customer scenarios are reviewed and critiqued by managers
of our internal sales team.
In our sales model, a majority of personnel knock
on doors of potential customers and explain the benefits of solar energy and our offerings with the objective of scheduling a subsequent
sales meeting. In the scheduled meetings, a more experienced sales representative or sales manager provides a homeowner additional information
about system design, energy savings and other benefits, pricing, incentives and financing options.
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We believe that the key elements to our successful
business model include (i) effective training and time spent with senior sales managers, (ii) our use of our customer relationship
management software platform which concurrently tracks key performance indicators across the sales cycle, and (iii) our multi-step setter-closer sales
model, which enables senior sales personnel to focus on greater sales success in presentations, while setters focus on developing and
filtering quality, qualified leads, all of which then contributes to maximizing the percentage of leads converted into sales and sales
into installations because of satisfied customers throughout the process.
Our vertical integration leads to customer
satisfaction and personnel retention. We believe our vertically integrated business model, in which we market,
design, sell, procure, install and service systems, has a major benefit of enhancing the speed of project completion after an initial
sale is made. It also allows us to price projects strategically with information from both the sales and installation sides of the process.
Our greater control over the total process and our resulting success rates in navigating the local municipal permit process is intended
to increase customer satisfaction and reduce potential sales force frustration from losing many jobs due to delays in the installation
process. Our ratio of sales converted to completed installations is higher for sales that come from our internal agents than that that
come from our dealer sales. We believe this higher rate helps increase the job satisfaction and retention rate for our personnel, as it
enhances commissions that are paid out to sales personnel and managers, and provides work for installation teams.
Our scalable business platform allows us to
grow efficiently. We believe that we have established a scalable business platform for efficiently completing
the life-cycle of tasks involved in offering and fulfilling customers’ residential solar power needs. This platform is principally:
(a) software we use in designing, selling, installing and servicing systems, and in tracking key performance indicators across the
sales cycle; and (b) the business processes of our employees that perform field work, system design, permitting, installation and
back-office support tasks. This platform is intended to allow us to undergo rapid sales and installation growth by efficiently adding
new personnel and collaborating effectively with external dealers who bring us additional customers. We have carefully designed these
processes and our pre- and post-installation operations to be effective systems which can be easily explained to new employees and
replicated in the new cities and regions in which we operate and expand.
Competition
The solar energy and renewable energy industries
are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete
with large electric utilities.
We consider our primary competitors to be electric
utilities that supply electricity to our potential customers. We compete with these electric utilities primarily based on price (cents
per kWh), predictability of future prices and the ease by which customers can switch to electricity generated by our residential solar
energy systems. We may also compete with them based on other value-added benefits. These include reliability and carbon-friendly
power, benefits which consumers have historically paid a premium to secure, but which customers can obtain by purchasing a solar energy
system for monthly costs that are sometimes equal to or less than a traditional monthly power bill from the utility.
We also compete with retail electric providers
and independent power producers that are not regulated like electric utilities, but which have access to the utilities’ electricity
transmission and distribution infrastructure pursuant to state, territorial and local pro-competition and consumer choice policies.
These retail electric providers and independent power producers can offer customers electricity solutions that are competitive with our
residential solar energy system options on both price and usage of renewable energy technology while avoiding the physical installations
that our current business model requires.
We compete with community solar products offered
by solar companies or sponsored by local governments and municipal power companies, as well as utility companies that provide renewable
power purchase programs. Some customers might choose to subscribe to a community solar project or renewable subscriber program instead
of having a residential solar energy system installed on their home, which could affect our sales. Additionally, some utility companies
(and some utility-like entities, such as community choice aggregators) have power generation portfolios that are increasingly renewable
in nature. As utility companies offer increasingly renewable portfolios to retail customers, those customers might be less inclined to
have a residential solar energy system installed on their home or business, which could adversely affect our growth.
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We also compete with solar energy companies with
vertically integrated business models like our own, many of which are larger than we are. For example, some of our competitors offer their
own consumer financing products to customers and/or produce one or more components of the residential solar energy system or energy storage
system. In addition to financing and manufacturing, some other business models also include sales, engineering, installation, maintenance
and monitoring services. Some of our competitors also have an established complementary construction, electrical contracting or roofing
services.
Some competitors also offer customers the option
of leasing a residential solar energy system installed on the customer’s residence. In such a scenario, the provider or a third
party owns the residential solar energy system, and the customer typically pays a predetermined fee for the electricity produced by the
residential solar energy system. The fee generally increases annually at a predetermined rate over the lease term, which is typically
20 to 25 years, with a renewal option. Such a lease program can take fuller advantage of some of the available tax incentives and,
therefore, can reduce the customer’s monthly costs in comparison to owning the residential solar energy system.
We compete against companies that are not vertically
integrated, such as companies that offer only installation services, or provide only equipment to be installed, or dealers that sell systems
for which another entity or entities will provide and install equipment. Some of these entities finance products directly to consumers,
inclusive of programs like Property-Assessed Clean Energy financing programs established by local governments. For example, we face
competition from solar installation businesses that seek financing from external parties or utilize competitive loan products or state
and local programs.
We expect the competition to evolve as the market
continues to grow, evolve and attract new market entrants. We believe that with our business model and sales strategy, we can compete
effectively and favorably within the industry.
For more information on risks relating to increased
competition in our industry, see “ Risk Factors — Risks Related to the Solar Industry — We face
competition from electric utilities, retail electric providers, independent power producers, renewable energy companies and other market
participants. ”
Intellectual Property
We protect our intellectual property rights by
relying on common law protections and through contractual arrangements. We typically require our personnel, consultants and third parties
such as our suppliers with access to our proprietary information to execute confidentiality agreements. Our principal trade secrets and
copyrighted materials consist of our sales methodologies and data regarding our personnel, customers and suppliers.
We also license third-party software and
services that we use in operating our business. These third-party solutions include, among others, software that we use in selling and
designing our products services, a customer relationship management system to actively track key performance indicators across the sales
cycle and software to augment our sales and marketing efforts.
Insurance
We maintain the types and amounts of insurance
coverage and on terms deemed adequate by management based on our actual claims experience and expectations for future claims. However,
future claims could exceed our applicable insurance coverage. Our insurance policies cover employee-and contractor-related accidents
and injuries, property damage, business interruption, storm damage, inventory, vehicles, fixed assets, facilities, and crime and general liability
deriving from our activities. We have also obtained insurance policies covering directors, officers, employment practices, auto liability,
and commercial general liability. We may also be covered in some circumstances for certain liabilities by insurance policies owned by
third parties, including, but not limited to, our dealers and vendors.
Government Regulation
U.S. tariffs, duties and other trade regulations
impact the prices of components in the residential solar energy systems and energy storage systems we sell, in addition to the pricing
pressures caused by supply chain factors as discussed above. As further discussed below, these U.S. government-based pricing
influences currently include various tariffs, such as antidumping (“ AD ”) and countervailing duties (“ CVD ”)
and other trade restrictions, applied to imported crystalline silicon PV cells and solar panels imported into the U.S. Also, China
is a major producer of solar panels, inverters and other components that we use in the systems that we install, and the U.S. currently
assesses various tariffs and antidumping and countervailing duties on equipment produced in China, including solar panels and inverters.
The U.S. has also placed certain geographic, company-specific and other trade restrictions on Chinese sources of supply based
on foreign policy and national security interests. The scope and timing of these regulatory efforts change over time, and the government
may introduce new regulations as world events occur and public policy evolves. In response to the market uncertainty and price fluctuations
caused by these government actions and other supply chain pressures, we carefully and periodically evaluate our suppliers of system components
and make purchasing decisions based on our judgments of product quality, warranties, pricing and availability.
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For more information on risks relating to government
tariffs, duties or trade restrictions, see “ Risk Factors — Risks Related to Zeo’s Operations — Increases
in the cost or reduction in supply of residential solar energy system and energy storage system components due to tariffs or trade restrictions
announced or imposed by the U.S. government could have an adverse effect on our business, financial condition and results of operations. ”
Our operations are subject to various national,
state and local laws and regulations. These include regulations regarding license requirements for electricians or other professionals
involved in the installation of residential solar energy systems and energy storage systems. Many states and/or local governments and
utilities have regulated procedures for interconnecting residential solar energy systems and related energy storage systems to the utility’s
local distribution system. There are also local building codes or other local regulations for installing the products we sell on a customer’s
property. We employ or contract with licensed professionals as needed to comply with regulatory requirements, and as part of our process
of installing residential solar energy systems and related equipment, we assist our customers in obtaining interconnection permission
from the applicable local electric distribution utility, and applicable permits from other local offices.
Our operations, as well as those of our suppliers
and subcontractors, are subject to stringent and complex U.S. federal, state, territorial and local laws, including regulations governing
the occupational health and safety of employees, wage regulations and environmental protection. For example, we and our suppliers and
subcontractors are subject to the regulations OSHA, the U.S. Department of Transportation (“ DOT ”), the
U.S. Environmental Protection Agency (“ EPA ”) and comparable state entities that protect and regulate employee
health and safety and the protection of the environment. Various environmental, health and safety laws can result in the imposition of
costs and liability in connection with system and equipment installation, the repair or replacement of parts, and disposal of hazardous
substances (such as the disposal and recycling of batteries).
We and the dealers that supply us with sales opportunities
or completed sales are also subject to laws and regulations related to interactions with consumers, including those applicable to sales
and trade practices, privacy and data security, equal protection, consumer financial and credit transactions, consumer collections, mortgages
and re-financings, home or business improvements, trade and professional licensing, warranties, and various means of customer solicitation,
as well as specific regulations pertaining to solar installations.
Government Incentives
There are U.S. federal, state and local governmental
bodies that provide incentives to owners, distributors, installers and manufacturers of solar energy systems to promote solar energy.
These incentives include tax credits offered by the federal government under, among others, the Energy Policy Act of 2005, as amended,
and the Inflation Reduction Act of 2022 (“ IRA ”), as well as other tax credits, rebates and Solar Renewable Energy
Credits (“ SRECs ”) associated with solar energy generation. Commercial taxpayers, including solar energy system
owners and tax-equity partners, may claim a federal investment tax credit equal to 30% of eligible project costs for solar facilities
that meet certain requirements. The base credit is scheduled to phase down to 26% for projects beginning construction in 2033 and 22%
in 2034, expiring thereafter. In addition, commercial solar energy facilities may be eligible for bonus credits for projects that meet
domestic-content thresholds, are located in energy-community census tracts, or serve low-income communities. If a solar energy system
is owned by a homeowner, the homeowner may claim a 30% federal income tax credit on the cost of purchasing and installing eligible solar
energy systems through 2032, phasing down to 26% in 2033, and 22% in 2034, expiring thereafter. The IRA also provides other incentives
for homeowners to adopt energy-efficient systems and appliances that include (a) a 30% tax credit with an annual limit for certain
upgrades such as installing energy-efficient hybrid water heaters, doors and windows, insulation, and upgrading electrical breaker
boxes and (b) up to $14,000 in point-of-sale rebates for low- and moderate-income households for certain electric appliances
and home upgrades.
Our business model also relies on multiple tax
exemptions offered at the state and local levels. For example, some states have property tax exemptions that exempt the value of residential
solar energy systems in determining values for calculation of local and state real and personal property taxes, and there are some state
and local tax exemptions that apply to the sale of equipment. State and local tax exemptions can have sunset dates or triggers for loss
of the exemption, and the exemptions can be changed by state legislatures and other regulators.
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A majority of states have adopted net metering
policies, including our sales areas of Florida, Texas, Missouri, Ohio and Illinois. Net metering policies allow homeowners to serve their
own energy load using on-site generation while avoiding the full retail volumetric charge for electricity. Electricity that is generated
by a residential solar energy system and consumed on-site avoids a retail energy purchase from the applicable utility, and excess
electricity that is exported back to the electric grid generates a retail credit within a homeowner’s monthly billing period. At
the end of the monthly billing period, if the homeowner has generated excess electricity within that month, the homeowner typically carries
forward a credit for any excess electricity to be offset against future utility energy purchases. At the end of an annual billing period
or calendar year, utilities either continue to carry forward a credit or reconcile the homeowner’s final annual or calendar year
bill using different rates (including zero credit) for the exported electricity.
Utilities, their trade associations, and other
entities are currently challenging net metering policies in various locations by seeking to eliminate them, cap them, reduce the value
of the credit provided to homeowners for excess generation or impose charges on homeowners that have net metering. States where we sell
now or in the future may change, eliminate or reduce net metering benefits. On April 26, 2022, the Florida governor vetoed legislation
that would have established a date for reducing and ending net metering in Florida.
We rely on a mix of the incentives mentioned above
to reduce the net price our customers that are eligible for incentives would otherwise pay for our solar offerings or per kilowatt hour
used.
Employees and Human Capital Management
As of December 31, 2024, we had approximately
190 full-time employees that work year-round processing orders, installing and servicing systems and fulfilling administrative
tasks. We also engage sales agents as independent contractors as described in “ Business — Internal Direct
Sales Force ” above. None of our employees are covered by collective bargaining agreements, and we have not experienced any work
stoppages due to labor disputes.
Facilities
Our corporate headquarters are located in Florida
under a lease that expires at the end of October 2026. In Florida, we maintain offices for operations personnel and warehouses, and
we have warehouses in Texas and Ohio, and warehouse, sales, marketing, and executive offices in Utah. We currently lease the office and
warehouse spaces that we use in our operations, and we do not own any real property. We believe that our facility space adequately meets
our needs and that we will be able to obtain any additional operating space that may be required on commercially reasonable terms.
Litigation
We are not currently a party to any material litigation
or governmental or other proceeding. However, from time to time, we have been, are and will likely continue to be involved in legal proceedings,
administrative proceedings and claims that arise in the ordinary course of business with customers, subcontractors, suppliers, regulatory
bodies or others. In general, litigation claims or regulatory proceedings can be expensive and time consuming to bring or defend against,
which may result in the diversion of management’s attention and resources from our business and business goals and could result
in settlement or damages that could significantly affect financial results and the conduct of our business.
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