Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis summarizes
the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented
below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto
included elsewhere in this Report. The discussion contains forward-looking statements that are based on the beliefs of management, as
well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed
in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report,
particularly in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Unless the context otherwise requires, references
in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “Zeo,”
“we”, “us”, “our”, and the “Company” are intended to refer to (i) following the Business
Combination (as defined below), the business and operations of Zeo and its consolidated subsidiaries, and (ii) prior to the Business Combination,
Sunergy (the predecessor entity in existence prior to the consummation of the Business Combination) and its consolidated subsidiary.
Overview
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. 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 efficient-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, Utah, and Virginia. Sunergy was created on October 1, 2021
through the Contribution of Sun First Energy, LLC, a rapidly growing solar sales management company, and Sunergy Solar, LLC, a large solar
installation company based in Florida, to Sunergy Renewables, LLC.
We believe that we have built (and continue to
build) the infrastructure and capabilities necessary to rapidly acquire and serve customers in a low-cost and scalable manner. Today,
our scalable regional operating platform provides us with a number of advantages, including the marketing of our solar service offerings
through multiple channels, including our diverse sales partner network and direct-to-consumer vertically integrated sales and installation
operations. We believe that this multi-channel model supports rapid sales and installation growth, allowing us to achieve capital-efficient
growth in the regional markets we serve.
Since our founding, we have continued to invest
in a platform of services and tools to enable large scale operations for us and our partner network, which includes sales partners, installation
partners and other strategic partners. The platform includes processes and software, as well as the capacity for the fulfillment and acquisition
of marketing leads. We believe our platform empowers our in-house sales team and external sales dealers to profitably serve our regional
and underpenetrated markets and helps us compete effectively against larger, more established industry players without making significant
investment in technology and infrastructure.
We have focused to date on a simple, capital light
business strategy utilizing, as of December 31, 2025, approximately 260 sales agents and approximately 10 independent sales dealers to
produce our sales pipeline. We engineer and design projects and process building permit applications on behalf of our customers to timely
install their systems and assist their connections to the local utility power grid. Most of the equipment we install is drop-shipped to
the installation site by our regional distributors, requiring minimal inventory to be held by the Company during any given period. We
depend on our distributors to timely handle logistics and related requirements in moving equipment to the installation sites. In addition
to our main offering of residential solar energy systems, we sell and install products such as roofing, insulation, energy efficient appliances
and battery storage systems for the residential market.
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Our core solar service offerings are paid for
by customer purchases and financed through either third-party long-term lenders or third-party operators who offer leasing products that
provide customers with simple, predictable pricing for solar energy that is insulated from rising retail electricity prices. Most of our
customers finance their purchases with affordable loans or leases that require minimal or no upfront capital or down payment.
Recent Developments
Heliogen Acquisition
On May 28, 2025, we entered into a plan of merger
and reorganization agreement with Heliogen, a renewable-energy technology company that provides solutions for delivering low-carbon energy
production by combining commercially proven solar technologies with thermal systems and storage expertise. The transaction was completed
on August 8, 2025, under which Heliogen became a wholly owned subsidiary of the Company.
The total consideration transferred consisted
entirely of our Class A common stock, issued to Heliogen shareholders at an exchange ratio of 0.9591 shares of our Class A common stock
for each share of Heliogen common stock, resulting in the issuance of 6,217,612 Class A common shares. No contingent consideration was
included. In connection with the merger, all outstanding Heliogen SPAC warrants and RSUs were automatically accelerated and fully vested
and were settled in the same equity consideration, net of applicable tax withholding. All stock options and commercial warrants were out-of-the-money
and canceled with no value.
We accounted for the Heliogen acquisition using
the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” and allocated the purchase price
to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess of purchase
price over the estimated fair value of the net assets acquired recorded as goodwill.
Note Conversion
On October 30, 2025, the outstanding balance of
the Promissory Note totaling $2.5 million was converted into 1,851,851 shares of the Company’s Class A common stock. Upon conversion,
the remaining unamortized debt discount was recognized and the carrying value of the Promissory Note was reclassified to equity. No balance
remained outstanding under the Promissory Note as of December 31, 2025.
White Lion Transaction
On January 27, 2026, we entered into the White Lion Purchase Agreement
with White Lion. We also entered into the RRA with White Lion on January 27, 2026. Pursuant to the White Lion Purchase Agreement, the
Company has the right, but not the obligation, to require White Lion to purchase, from time to time, up to $30.0 million in aggregate
gross purchase price of newly issued shares of our Class A Common Stock, subject to certain limitations and conditions set forth in the
White Lion Purchase Agreement. Subject to the satisfaction of certain customary conditions, the Company’s right to sell shares to
White Lion commenced on the date of the execution of White Lion Purchase Agreement and extends until White Lion Commitment Period.
During the White Lion Commitment Period, subject to the terms and conditions
of the White Lion Purchase Agreement, the Company may notify White Lion when the Company exercises its right to sell shares of its Class
A Common Stock. The Company may deliver a Rapid Purchase Notice (as such term is defined in the White Lion Purchase Agreement), where
the Company can require White Lion to purchase up to a number of shares of Class A Common Stock equal to the 20% of Average Daily Trading
Volume (as such term is defined in the White Lion Purchase Agreement). The Company may also deliver an Accelerated Purchase Notice (as
such term is defined in the White Lion Purchase Agreement), where the Company may require White Lion to purchase up to a number of shares
of Class A Common Stock equal to 20% of the Average Daily Trading Volume. White Lion may waive such limits under any notice at its discretion
and purchase additional shares.
The price to be paid by White Lion for any shares
that the Company requires White Lion to purchase will depend on the type of purchase notice that the Company delivers. For shares being
issued pursuant to Accelerated Purchase Notice, the purchase price per share will be equal to the lowest traded price of Class A Common
Stock during one (1) hour period following the White Lion’s written consent of the acceptance of the notice. For shares being issued
pursuant to a Rapid Purchase Notice, the purchase price per share will be equal to the average of the three (3) lowest traded prices on
the date that the notice is delivered.
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No purchase notice shall result in White Lion
beneficially owning (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder) more than 4.99% of the number
of shares of the Class A Common Stock outstanding immediately prior to the issuance of shares of Class A Common Stock issuable pursuant
to a purchase notice.
The Company may deliver purchase notices under
the White Lion Purchase Agreement, subject to market conditions, and in light of our capital needs, from time to time and under the limitations
contained in the White Lion Purchase Agreement. Any proceeds that the Company receives under the White Lion Purchase Agreement are expected
to be used for working capital and general corporate purposes.
The White Lion Purchase Agreement may be terminated
by the Company at any time and for any reason, in its sole discretion, subject to the Company having delivered the applicable Commitment
Shares (as defined below). The White Lion Purchase Agreement will also terminate automatically upon the earlier of the expiration of the
White Lion Commitment Period or the occurrence of certain bankruptcy or insolvency-related events involving the Company.
In consideration for the commitments of White Lion, as described above,
the Company is contractually committed to issue to White Lion the Commitment Shares. The Commitment Shares are deemed fully earned and
non-refundable as of the execution date of the White Lion Purchase Agreement; however, if the White Lion Purchase Agreement is terminated
by the Company as a result of a material breach by White Lion, the Company may pursue all remedies available at law or in equity, including
reimbursement or recovery of such Commitment Shares, to the extent permitted by applicable law.
Concurrently with the White Lion Purchase Agreement,
the Company entered into the RRA with White Lion. The Purchase Agreement and the RRA contain customary representations, warranties, conditions
and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only
for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject
to limitations agreed upon by the contracting parties.
White Horse Energy Transaction
On January 30, 2026, Sunergy, a subsidiary of
the Company, increased the subordinated loan in the form of a note receivable with White Horse Energy, LLC from $3.0 million to $6.15
million under the same terms as the original note.
Key Operating and Financial Metrics and Outlook
We regularly review a number of metrics, including
the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business,
prepare financial projections and make strategic decisions. We believe the operating and financial metrics presented below are useful
in evaluating our operating performance, as they are similar to measures by our public competitors and are regularly used by security
analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA and Adjusted
EBITDA margin are non-GAAP measures, as they are not financial measures calculated in accordance with GAAP and should not be considered
as substitutes for net (loss) income or net (loss) income margin, respectively, calculated in accordance with GAAP. See “Non-GAAP
Financial Measures ” for additional information on non-GAAP financial measures and a reconciliation of these non-GAAP measures
to the most comparable GAAP measures.
65
The following table sets forth these metrics for
the periods presented:
Years Ended
December 31,
2025
2024
Net revenues
$ 69,349,938
$ 73,244,083
Gross profit
30,166,265
31,481,987
Gross margin
43.5 %
43.0 %
Contribution profit
12,858,818
14,512,599
Contribution margin
18.5 %
19.8 %
Loss from operations
(20,532,132 )
(10,804,760 )
Net loss
(19,629,633 )
(9,872,358 )
Adjusted EBITDA
(3,340,851 )
3,954,726
Adjusted EBITDA margin
(4.8 )%
5.4 %
Gross Profit and Gross Margin
We define gross profit as revenue, net less cost
of revenues and depreciation and amortization related to cost of revenues, and define gross margin, expressed as a percentage, as the
ratio of gross profit to revenue, net. See “— Non-GAAP Financial Measures ” for a reconciliation of Gross Profit
and Gross Margin.
Contribution Profit and Contribution Margin
We define contribution profit as revenue, net
less direct costs of revenue, commissions expense and depreciation and amortization, and define contribution margin, expressed as a percentage,
as the ratio of contribution profit to revenue, net. Contribution profit and margin can be used to understand our financial performance
and efficiency and allows investors to evaluate our pricing strategy and compare against competitors. Our management uses these metrics
to make strategic decisions, identify areas for improvement, set targets for future performance and make informed decisions about how
to allocate resources going forward. Contribution margin reflects our Contribution profit as a percentage of revenues. See “—
Non-GAAP Financial Measures ” for a reconciliation of Gross Profit to Contribution Profit and Contribution Margin.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA, a non-GAAP financial
measure, as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, other income (expenses),
net, and stock compensation, as adjusted to exclude merger transaction related expenses. Adjusted EBITDA margin reflects our Adjusted
EBITDA as a percentage of revenues. See “— Non-GAAP Financial Measures ” for a reconciliation of GAAP net loss
to Adjusted EBITDA and Adjusted EBITDA Margin.
Key Factors that May Influence Future Results
of Operations
Our financial results of operations may not be
comparable from period to period due to several factors. Key factors affecting the results of our operations are summarized below.
Expansion of Residential Sales into New Markets .
Our future revenue growth is, in part, dependent on our ability to expand our product offerings and services in the select residential
markets where we operate in Florida, Texas, Arkansas, Missouri, Illinois, Virginia and Ohio. We primarily generate revenue from our product
offerings and services in the residential housing market. To continue our growth, we intend to expand our presence in the residential
market into additional states based on markets underserved by national sales and installation providers that also have favorable incentives
and net metering policies. We believe that our entry into new markets will continue to facilitate revenue growth and customer diversification.
Expansion of New Products and Services .
In 2025, we continued our roofing replacements to facilitate our solar installations and to repair rooftops on homes in Florida damaged
by severe weather. We plan to expand our roofing business in all markets we enter in the future. Roofing facilitates a faster processing
time for our solar installations in cases where the customer is in need of a roof replacement prior to installing a solar system. In addition,
to provide more financing options for our prospective residential solar energy customers, we have programs in place that allow our customers
to choose a leasing option to finance their systems from a third party.
The acquisition of Heliogen aligns with our strategy
to expand our clean-energy platform beyond residential markets into large-scale commercial and industrial energy generation and storage.
Additionally, Heliogen is expected to complement our existing solar operations, create operational synergies, and broaden market reach.
With the acquisition of Heliogen, we intend to enter into agreements to provide engineering services to support long-duration energy storage
projects.
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Adding New Customers and Expansion of Sales
with Existing Customers . We intend to increase our in-house sales force and external sales dealers in order to target new customers
in the Southern U.S. regional residential markets. We provide competitive compensation packages to our in-house sales teams and external
sales dealers, which incentivizes the acquisition of new customers.
Inflation. We are seeing an increase in
the costs of labor and components as the result of higher inflation rates. In particular, we are experiencing an increase in raw material
costs and supply chain constraints, and trade tariffs imposed on certain products from China. We also see an increase in materials used
to achieve the required minimum domestic content to maximize incentive tax credits. These increases in material and labor costs may continue
to put pressure on our operating margins. We do not have information that allows us to quantify the specific amount of cost increases
attributable to inflationary pressures.
Interest rates. Interest rates increased
sharply in 2022 but have been relatively stable since. The majority of homeowners have opted to enter into a lease contract with a third-party
operator as means of financing the installation of a solar system. The lease contract provides a lower monthly cost to the homeowner than
a conventional loan product in a higher interest rate environment. We do not have information that allows us to quantify the adverse effects
attributable to increased interest rates.
Managing our Supply Chain . We rely on contract
manufacturers and suppliers to produce our components. Our suppliers are generally meeting our materials needs. Our ability to grow depends,
in part, on the ability of our contract manufacturers and suppliers to provide high quality services and deliver components and finished
products on time and at reasonable costs. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials,
electronic components and freight, it could delay the installation of our systems, which would adversely impact our cash flows and results
of operations, including revenue and contribution margin.
Components of Consolidated Statements of Operations
Net Revenues
Our primary source of revenue is the sale of our
residential solar systems. Our systems are fully functional at the time of installation and require an inspection prior to interconnection
to the utility power grid. We sell our systems primarily direct to end user customers for use in their residences. Upon passing installation
inspection, we satisfy our performance obligation and recognize revenue. Most of the Company’s customers finance their obligations
with third parties. Most finance arrangements are by way of a lease contract with a third-party operator. Some customers utilize debt
financing. In these situations, the finance company deducts their financing fees and remits the net amount to the Company. Revenue is
recorded net of these financing fees (and/or dealer fees).
The volume of sales and installations of rooftop
solar systems, our primary product, increase from April to September when a majority of our sales teams are most active in our areas of
service. In addition to sales of solar systems, “adders” or accessories to a sale may include roofing, energy efficient appliances,
upgraded insulation and/or energy storage systems. All adders consisted of less than 10% of the total revenues, net in the years ended
December 31, 2025 and 2024.
Our revenue is affected by changes in the volume,
system size and average selling prices of our solutions and related accessories, supply and demand, sales incentives and fluctuating interest
rates that increase or decrease the monthly payments for customers purchasing systems through third party financing. Less than 5% of our
sales were paid in cash by the customer in each of the years ended December 31, 2025 and 2024. Our revenue growth is dependent on our
ability to compete effectively in the marketplace by remaining cost competitive, developing and introducing new sales teams within existing
and new territories, scaling our installation teams to keep up with demand and maintaining a strong internal operations team to process
orders while working with building departments and utilities to permit and interconnect our customers to the utility grid.
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Revenues declined during the year ended December
31, 2025 because of the effect of higher interest rates on the consumer financing rates. The increased cost of consumer lending has reduced
the advantage provided by financed solar power relative to standard utility costs, which has negatively affected the demand for our products.
Cost of Revenues
Cost of revenues consists primarily of product
costs (including solar panels, inverters, metal racking, connectors, shingles, wiring, warranty costs and logistics costs), installation
labor and permitting costs.
Cost of revenues decreased during the year ended
December 31, 2025 in association with a reduction in revenues.
Net revenues less cost of revenues may vary from
period-to-period and is primarily affected by our average selling prices, financing or dealer fees, fluctuations in equipment costs and
our ability to effectively and timely deploy our field installation teams to project sites once permitting departments have approved the
design and engineering of systems on customer sites.
Operating Expenses
Operating expenses consist of sales and marketing
and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories
and include salaries, benefits and payroll taxes.
Sales and marketing expenses consist primarily
of personnel-related expenses including sales commissions, as well as advertising, travel, trade shows, marketing, and other indirect
costs. We expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration
geographically and enter into new markets by expanding our base sales teams, installers and strategic sales dealer and partner network.
General and administrative expenses consist primarily
of personnel-related expenses for our non-direct labor operations, executive, finance, human resources, information technology, software,
facilities costs and fees for professional services. Fees for professional services consist primarily of outside legal, accounting and
information technology consulting costs.
Depreciation and amortization consist primarily
of depreciation of our vehicles, furniture and fixtures, software and amortization of our acquired intangibles.
Other income (expenses), net
Other income (expenses), net primarily consists
of change in fair value of warrant liabilities and interest expense and fees under our equipment and vehicle term loans. It also includes
interest income on our cash balances, and accrued interest.
Results of Operations
Year Ended December 31, 2025 Compared to
the Year Ended December 31, 2024
The following table sets forth a summary of our
consolidated statements of operations for the periods presented:
Years Ended
December 31,
Change
2025
2024
$
%
Net revenues
$ 69,349,938
$ 73,244,083
$ (3,894,145 )
(5.3 )%
Costs and expenses:
Cost of revenues
31,066,477
38,067,096
(7,000,619 )
(18.4 )%
Depreciation and amortization
8,576,502
4,836,538
3,739,964
77.3 %
Sales and marketing
22,698,405
19,587,073
3,111,332
15.9 %
General and administrative
27,540,686
21,558,136
5,982,550
27.8 %
Total operating expenses
89,882,070
84,048,843
5,833,227
6.9 %
Loss from operations
(20,532,132 )
(10,804,760 )
(9,727,372 )
(90.0 )%
Other income (expense):
Other income
363,918
141,467
222,451
157.2 %
Interest expense
(155,490 )
(333,539 )
178,049
53.4 %
Gain on disposal of property and equipment
–
91,684
91,684
–
Gain on change in fair value of warrant liabilities
957,720
69,000
888,720
1,288.0 %
Total other income (expense)
1,166,148
(31,388 )
1,197,536
3,815.3 %
Net loss before taxes
$ (19,365,984 )
$ (10,836,148 )
$ (8,529,836 )
(78.7 )%
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Net Revenues
Net revenues decreased by approximately $3.9 million
from $73.2 million for the year ended December 31, 2024 to $69.3 million for the year ended December 31, 2025. The primary reason for
the decrease in revenue was a decrease in installations during the current period, offset by a new pricing agreement with Solar Leasing
I, LLC (“SLI”), a related-party entity that provides lease financing of the Company’s customers (see Note 16—Related
Party Transactions in the consolidated financial statements), entered into during the fourth quarter of 2024. The comparative period
also benefited from deferred revenue at the end of 2023, that was recognized in the first quarter of 2024. During the year ended December
31, 2025, there were no revenues generated from Heliogen.
Cost of Revenues
Cost of revenues decreased by $7.0 million from $38.1 million for the
year ended December 31, 2024 to $31.1 million for the year ended December 31, 2025, primarily driven by the decline in installation revenues
over the same period. As a percentage of net revenues, cost of revenues improved from 52.0% for the year ended December 31, 2024 to 44.8%
for the year ended December 31, 2025. The improvement in gross margin reflects lower per-installation costs in 2025 compared to 2024,
as the first half of 2024 included elevated costs associated with a higher volume of lower-margin installations that originated from contracts
entered into in 2023.
Depreciation and Amortization
Depreciation and amortization increased by $3.7
million, from $4.8 million for the year ended December 31, 2024 to $8.6 million for the year ended December 31, 2025. The increase was
primarily due to an increase in the amortization of the cost of acquired contracts from the Lumio Asset Purchase Agreement.
Sales and Marketing
Sales and marketing expenses increased by $3.1
million from $19.6 million for the year ended December 31, 2024 to $22.7 million for the year ended December 31, 2025. The increase was
primarily a result of increased stock-based compensation expense, sales commissions, and efforts to expand our selling process to include
year-round sales through digital lead generation.
General and Administrative Expenses
General and administrative expenses increased
by $6.0 million from $21.6 million for the year ended December 31, 2024 to $27.5 million for the year ended December 31, 2025. The increase
was primarily due to an increase in payroll costs associated with additional staffing, increased bad debt expense, higher professional
fees associated with being a public company, and new costs as a result of the acquisition of Heliogen offset by decreased stock-based
compensation expense.
Other Income (Expense)
Other income, net increased by $1.2 million from
other expense, net of $31,388 for the year ended December 31, 2024 to other income, net of $1.2 million for the year ended December 31,
2025. The increase was primarily a result of increased gain on change in fair value of warrant liabilities, other income, and less interest
expense during the current period.
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Liquidity and Capital Resources
Our operations have historically been funded through
a combination of cash on hand, proceeds from financing activities, and in 2025, net cash acquired in connection with the Heliogen acquisition
(see Note 6—Business Combinations in the consolidated financial statements). Our primary short-term requirements for liquidity
and capital are to fund general working capital and capital expenses. Our principal long-term working capital uses include ensuring revenue
growth, expanding our sales and marketing efforts and potential acquisitions.
As of December 31, 2025 and December 31, 2024,
our cash and cash equivalents balance were $6.1 million and $5.6 million, respectively. The Company maintains its cash in checking, savings,
and money market accounts.
Our future capital requirements depend on many
factors, including our revenue growth rate, the timing and extent of our spending to support further sales and marketing, the degree to
which we are successful in launching new business initiatives and the cost associated with these initiatives, and the growth of our business
generally.
We currently believe that our existing cash and
working capital balances, anticipated future cash flows from operations and borrowings under our debt agreements will be sufficient to
meet our currently contemplated business needs for the next twelve months. In the event we pursue and complete significant transactions
or acquisitions in the future, additional funds may be required to meet our strategic needs, which may require us to raise additional
funds in the debt or equity markets. If we are unable to raise additional capital on acceptable terms when needed, our business, results
of operations and financial condition would be materially and adversely affected.
Cash Flows
The following table summarizes our cash flows
for the periods presented:
For the Years Ended
December 31,
2025
2024
Change
Net cash used in operating activities
$ (8,691,421 )
$ (8,716,717 )
$ 25,296
Net cash provided by (used in) investing activities
13,372,867
(7,369,137 )
20,742,004
Net cash provided by (used in) financing activities
(4,172,727 )
13,697,663
(17,870,390 )
Cash Flows from Operating Activities
Net cash used in operating activities was approximately
$8.7 million during the year ended December 31, 2025 compared to net cash used in operating activities of approximately $8.7 million during
the year ended December 31, 2024. Despite an increase in net loss of $9.8 million, cash used in operations remained consistent year-over-year
primarily due to higher non-cash charges including $8.6 million of depreciation and amortization, $6.4 million of stock-based compensation,
and $3.4 million of provision for credit losses. Working capital was positively impacted by a $2.8 million increase in accounts payable
and a $1.1 million increase in contract liabilities. These were partially offset by a $2.2 million increase in accounts receivable, a
$1.1 million increase in prepaid expenses and other current assets, a $1.5 million increase in contract assets, a $2.0 million decrease
in accrued expenses and other current liabilities, and a $3.3 million decrease in accrued expenses and other current liabilities –
related parties.
Cash Flows from Investing Activities
Net cash provided by investing activities was
approximately $13.4 million for the year ended December 31, 2025, relating to the cash acquired in the acquisition of Heliogen, offset
by purchases of property and equipment. Net cash used in investing activities for the year ended December 31, 2024 was approximately $7.4
million, relating to the asset acquisition of Lumio, note receivable – related-party investment, and purchase of property and equipment.
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Cash Flows from Financing Activities
Net cash used in financing activities was approximately
$4.2 million for the year ended December 31, 2025, primarily relating to the payment of dividends to OpCo Class A preferred unit holders
and repayments of debt and finance leases. Net cash provided by financing activities was approximately $13.7 million for the year ended
December 31, 2024, primarily relating to net cash acquired from the issuance of convertible preferred stock of $9.2 million and the private
placement issuance of Class A common stock offset by repayments of debt and finance leases, and distributions of stockholders.
Current Indebtedness
As of December 31, 2025, the Company’s outstanding
indebtedness consisted of approximately $79,112 of vehicle loans. The Company has historically funded its operations and growth through
a combination of cash on hand, proceeds from financing activities, and in 2025, net cash acquired in connection with the Heliogen acquisition.
Non-GAAP Financial Measures
The non-GAAP financial measures in this Quarterly
Report have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP
and should not be considered as a substitute for, or superior to, GAAP results. In addition, Adjusted EBITDA and Adjusted EBITDA Margin
should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing
activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information,
by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results
with our results from other reporting periods and with the results of other companies.
Our management uses these non-GAAP financial measures,
in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (i) monitor and
evaluate the performance of our business operations and financial performance; (ii) facilitate internal comparisons of the historical
operating performance of our business operations; (iii) facilitate external comparisons of the results of our overall business to the
historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess
the operating performance of our management team; (v) analyze and evaluate financial and strategic planning decisions regarding future
operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating
results and trends, and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP
financial measures to investors.
Contribution Profit and Contribution Margin
We define contribution profit as revenue, net
less direct costs of revenue, commissions expense and depreciation and amortization, and define contribution margin, expressed as a percentage,
as the ratio of contribution profit to revenue, net. Contribution profit and margin can be used to understand our financial performance
and efficiency and allows investors to evaluate our pricing strategy and compare against competitors. Our management uses these metrics
to make strategic decisions, identify areas for improvement, set targets for future performance and make informed decisions about how
to allocate resources going forward. Contribution margin reflects our Contribution profit as a percentage of revenues.
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The following table provides a reconciliation
of gross profit to contribution profit for the periods presented:
Years Ended
December 31,
2025
2024
Net revenues
$ 69,349,938
$ 73,244,083
Cost of revenues (exclusive of depreciation and amortization):
31,066,477
38,067,096
Less: depreciation and amortization related to cost of revenues
8,117,196
3,695,000
Total gross profit
$ 30,166,265
$ 31,481,987
Adjustments:
Depreciation and amortization
459,306
1,141,538
Commissions expense
16,848,141
15,827,850
Total contribution profit
$ 12,858,818
$ 14,512,599
Gross margin
43.5 %
43.0 %
Contribution margin
18.5 %
19.8 %
Adjusted EBITDA
We define Adjusted EBITDA, a non-GAAP financial
measure, as net income (loss) before interest and other income (expenses), net, income tax expense, depreciation and amortization, gain
on change in fair value of warrant liabilities, stock-based compensation, and merger and acquisition expenses (“ M&A expenses ”).
We utilize Adjusted EBITDA as an internal performance measure in the management of our operations because we believe the exclusion of
these non-cash and non-recurring charges allow for a more relevant comparison of our results of operations to other companies in our industry.
Adjusted EBITDA should not be viewed as a substitute for net (loss) income calculated in accordance with GAAP, and other companies may
define Adjusted EBITDA differently. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of revenues. The following table
provides a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:
Years Ended
December 31,
2025
2024
Net loss
$ (19,629,633 )
$ (9,872,358 )
Adjustments:
Other income
(363,918 )
(141,467 )
Interest expense
155,490
333,539
Gain on disposal of property and equipment
–
(91,684 )
Gain on change in fair value of warrant liabilities
(957,720 )
(69,000 )
Income tax provision (benefit)
263,649
(963,790 )
Stock-based compensation
6,498,623
7,951,248
Acquisition-related expenses
2,116,156
1,971,700
Depreciation and amortization
8,576,502
4,836,538
Adjusted EBITDA
$ (3,340,851 )
$ 3,954,726
Net loss margin
(28.3 )%
(13.5 )%
Adjusted EBITDA margin
(4.8 )%
5.4 %
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Critical Accounting Estimates
The preparation of financial statements in conformity
with GAAP requires us to establish accounting policies and make estimates and assumptions that affect our reported amounts of assets and
liabilities at the date of the consolidated financial statements. These financial statements include some estimates and assumptions that
are based on informed judgments and estimates of management. We evaluate our policies and estimates on an on-going basis and discuss the
development, selection and disclosure of critical accounting policies with those charged with governance. Predicting future events is
inherently an imprecise activity and as such requires the use of judgment. Our consolidated financial statements may differ based upon
different estimates and assumptions.
We discuss our significant accounting policies
in Note 3—Summary of Significant Accounting Policies , to our consolidated financial statements. Our significant accounting
policies are subject to judgments and uncertainties that affect the application of such policies. We believe these financial statements
include the most likely outcomes with regard to amounts that are based on our judgment and estimates. Our financial position and results
of operations may be materially different when reported under different conditions or when using different assumptions in the application
of such policies. In the event estimates or assumptions prove to be different from the actual amounts, adjustments are made in subsequent
periods to reflect more current information. We believe the following accounting policies are critical to the preparation of our consolidated
financial statements due to the estimation process and business judgment involved in their application:
Allowance for Credit Losses
Accounts receivable are recorded at the invoiced
amount, net of an allowance for current expected credit losses. In accordance with ASC 326, “ Financial Instruments—Credit
Losses ,” the Company estimates expected credit losses on accounts receivable using an aging analysis that incorporates historical
loss experience, customer creditworthiness, prevailing economic conditions, and reasonable and supportable forward-looking information.
The Company also provides an allowance for customers determined to be insolvent. Accounts receivable balances are written off when they
are determined to be uncollectible.
Business Combinations
The Company accounts for business combinations
under the acquisition method of accounting in accordance with ASC 805, “ Business Combinations .” The Company allocates
the purchase price of an acquisition to the tangible and intangible assets acquired, liabilities assumed, and any NCI based on their estimated
fair values at the acquisition date. The Company recognizes the amount by which the purchase price of an acquired entity exceeds the net
of the fair values assigned to the assets acquired and liabilities assumed as goodwill. In determining the fair values of assets acquired
and liabilities assumed, the Company uses various recognized valuation methods, including the income, cost, and market approaches, in
accordance with ASC 820, “ Fair Value Measurement. ” The Company makes assumptions within certain valuation techniques,
including discount rates, royalty rates, and the amount and timing of future cash flows.
The Company initially performs these valuations
based on preliminary estimates and assumptions by management or, where appropriate, independent valuation specialists under the Company’s
supervision. The Company may revise these estimates and assumptions as additional information becomes available during the measurement
period, which may extend up to one year from the acquisition date. Acquisition-related expenses are recognized separately from business
combinations and are expensed as incurred.
Intangible Assets
Acquired identifiable intangible assets are recorded
at fair value at the acquisition date and are amortized on a straight-line basis over their estimated useful lives. Estimated useful lives
are determined based on the period over which the assets are expected to contribute to future cash flows. The Company has no intangible
assets with indefinite lives.
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Goodwill
In accordance with ASC 350, “ Intangibles—Goodwill
and Other ,” goodwill is not amortized but is tested for impairment annually on December 31, or more frequently if events or
circumstances indicate that goodwill may be impaired.
When assessing the recoverability of goodwill,
the Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. The qualitative assessment considers factors including the current operating environment, industry
and market conditions, cost factors, overall financial performance, and other relevant events. If the Company bypasses the qualitative
assessment, or concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the
Company performs a quantitative assessment by comparing the estimated fair value of the reporting unit with its carrying amount. The Company
estimates the fair value of its reporting units based on the present value of estimated future cash flows. Considerable management judgment
is required in evaluating operating and macroeconomic conditions and estimating future cash flows, including assumptions related to growth
rates and discount rates.
If the carrying amount of a reporting unit exceeds
its estimated fair value, an impairment loss is recognized for the amount of the excess, limited to the total amount of goodwill allocated
to the reporting unit.
Long-Lived Assets
The Company reviews the carrying value of long-lived
assets, including property and equipment, ROU assets, and definite-lived intangible assets, for impairment in accordance with ASC 360,
“ Property, Plant, and Equipment, ” whenever events or changes in circumstances indicate that the carrying amount of
an asset or asset group may not be recoverable. Such events or circumstances may include significant decreases in the market price of
an asset, significant changes in the extent or manner in which an asset is used or in its physical condition, significant adverse changes
in legal factors or in the business climate, a history or forecast of operating or cash flow losses, significant disposal activity, a
significant decline in revenue, or other indicators that the carrying value of an asset may not be recoverable. If indicators of impairment
are present, the Company evaluates recoverability by comparing the carrying amount of the asset or asset group to the estimated undiscounted
future cash flows expected to result from the use and eventual disposition of the asset or asset group. If the carrying amount exceeds
the estimated undiscounted future cash flows, an impairment loss is recognized for the amount by which the carrying amount exceeds the
asset’s fair value.
Income Taxes
The Company accounts for income taxes in accordance
with ASC 740, “ Income Taxes .” Zeo is subject to U.S. federal, state, and local income taxes. OpCo is treated as a partnership
for U.S. federal income tax purposes and generally does not pay U.S. federal income taxes. Instead, the OpCo unitholders, including Zeo,
are liable for U.S. federal income taxes on their respective shares of OpCo’s taxable income. OpCo may be subject to certain state
and local income or franchise taxes in jurisdictions that tax entities classified as partnerships. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered
or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment
date.
The Company evaluates the realizability of deferred
tax assets and records a valuation allowance when, based on the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
The Company recognizes the tax benefit of uncertain
tax positions only when it is more likely than not that the position will be sustained upon examination by taxing authorities, including
resolution of any related appeals or litigation. The tax benefit recognized is measured as the largest amount that has a greater than
50 percent likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized
as a component of income tax expense.
74