Zeo Energy (ZEO) risk factors, FY2025 10-K

Risks Related to the Solar Industry

1. 01The solar energy industry is an emerging market which is constantly evolving and additional demand for solar energy systems may not develop to the size or at the rate we expect
2. 02We face competition from electric utilities, retail electric providers, independent power producers, renewable energy companies and other market participants
3. 03A material reduction in the retail price of electricity charged by electric utilities or other retail electricity providers would harm our business, financial condition and results of operations
4. 04Climate change may have long-term impacts on our business, our industry, and the global economy
5. 05Our business has benefited from the declining cost of solar energy systems and energy storage system components and may be harmed to the extent the cost of such components stabilizes or increases in the future

Risks Related to Operations

1. 06We may be unable to sustain our net losses
2. 07Our growth depends in part on the success of our relationships with third parties such as our equipment suppliers, subcontractors and dealers, including dealers who market to customers and bring the resulting solar contracts to us for fulfillment
3. 08Increased scrutiny of environmental, social, and governance (“ESG”) matters could have an adverse effect on our business, financial condition and results of operations and damage our reputation
4. 09We and our suppliers and subcontractors are subject to risks associated with construction, cost overruns, delays, customer cancellations, regulatory compliance, and other contingencies, any of which could have a material adverse effect on our business and results of operations
5. 10We use subcontractors to perform certain services, which makes us vulnerable to the extent we rely on them
6. 11Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant penalties, operational delays and adverse publicity
7. 12If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges
8. 13Our growth strategy depends on third-party financing arrangements for our customers’ purchases. Most purchasers of our systems have entered into such third-party arrangements to finance their systems over an extended period of time
9. 14The cost of maintenance or repair of solar energy systems or energy storage systems throughout the period for which we have offered warranties may be higher than projected today and adversely affect our financial performance and valuation
10. 15Problems with product quality or performance may lower the residual value of our solar energy systems and may damage our market reputation and cause our financial results to decline
11. 16Product liability claims against us or accidents could result in adverse publicity and potentially significant monetary damages
12. 17Technical and regulatory limitations regarding the interconnection of solar energy systems to the electrical grid may significantly delay interconnections and customer in-service dates, harming our growth rate and customer satisfaction
13. 18Our headquarters and other facilities, the facilities of certain subcontractors and suppliers, and our customers are concentrated in certain regions, putting us at risk of region-specific disruptions, including hurricanes or other extreme weather events
14. 19Expansion into new sales channels could be costly and time-consuming. As we enter new channels, we could be at a disadvantage relative to other companies who have more history in these spaces
15. 20Obtaining a sales contract with a potential customer does not guarantee that the potential customer will not decide to cancel or that we will not need to cancel due to a failed inspection, which could cause us to generate no revenue despite incurring costs and adversely affect our results of operations
16. 21We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and management
17. 22Disruptions to solar production metering and energy storage solutions could negatively impact customer experiences, which could damage our market reputation and adversely impact our financial results
18. 23Our business may be harmed if we fail to properly protect our intellectual property, or if we are required to defend against claims or indemnify others against claims that we infringe on the intellectual property rights of third parties
19. 24We use “open source” software components in our solutions as well as other licensed software, which may require that we release the source code of certain software subject to open source licenses or subject us to possible litigation or other actions that could adversely affect our business
20. 25Terrorist attacks or cyberattacks against centralized utilities could adversely affect our business
21. 26We may be subject to information technology system failures or network disruptions that could damage our business operations, financial conditions or reputation
22. 27Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations
23. 28The loss of one or more members of our senior management or key personnel may adversely affect our operations
24. 29To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, design techs, installers, electricians, operations and sales managers and sales personnel
25. 30Regulators may limit the type of electricians qualified to install and service our solar and battery systems, or introduce other requirements on our installation staff, which may result in workforce shortages, operational delays, and increased costs
26. 31If we are unsuccessful in selling new services and products, our business, financial condition and results of operations could be adversely affected
27. 32Our operating results and our ability to grow may fluctuate on a seasonal basis and from quarter to quarter and year to year, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations
28. 33For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance
29. 34Certain municipalities where we install systems also require performance bonds in cash, issued by an insurance company or bonding agency, or bank guarantees or letters of credit issued by financial institutions, which are returned to us upon satisfaction of contractual requirements
30. 35Any future increase in inflation may adversely affect our costs, including our subcontractors’ cost of labor and equipment, and may result in a decrease in value in our future contractual payments. These factors could adversely impact our reputation, business, financial condition, cash flows and results of operations
31. 36Fluctuations in interest rates could adversely affect our business and financial results
32. 37We may incur additional debt in the future, which could introduce debt servicing costs and risks to our business
33. 38So long as the Convertible OpCo Preferred Units of OpCo remain outstanding, the Sponsor holds certain consent rights over OpCo’s ability to incur indebtedness, which could adversely affect the future business and operations of OpCo and Zeo, including by decreasing its business flexibility
34. 39We have suppliers that are based or manufacture the products we sell outside the United States, which may subject us to additional business risks, including logistical complexity and political instability
35. 40We are currently dependent on third-party leasing companies to offer customers the option of leasing our solar energy systems
36. 41We intend to seek out additional third-party investors to provide financing for customers wishing to lease their solar energy systems. However, no assurance can be given that we will be able to successfully do so28% rewritten
37. 42We typically bear the cost of maintenance and repair on solar energy systems we install that are owned and leased by third-party leasing companies
38. 43Members of our management team have interests in or are employed by other business ventures that may divert their attention from our business
39. 44Our transactions with related parties may create conflicts of interest that could adversely affect our business or financial conditionNew

Risks Related to Regulation and Policy

1. 45We rely on certain utility rate structures, such as net metering, to offer competitive pricing to customers, and changes to those policies may significantly reduce demand for electricity from our solar energy systems
2. 46Utilities, their trade associations, and fossil fuel interests in the country are currently challenging net metering policies, and 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
3. 47Electric utility policies, statutes, and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar energy offerings that may significantly reduce demand for such offerings
4. 48We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as a utility in the future or become subject to new federal and state regulations for any additional solar service offerings we may introduce in the future
5. 49Changes to the applicable laws and regulations governing direct-to-home sales and marketing may limit or restrict our ability to effectively compete82% rewritten
6. 50Increases in the cost or reduction 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 operations56% rewritten
7. 51Compliance with environmental laws and regulations can be expensive, and noncompliance with these laws and regulations may result in adverse publicity and potentially significant monetary damages and fines
8. 52Compliance with health and safety laws and regulations can be complex, and noncompliance with these laws and regulations may result in potentially significant monetary damages and fines
9. 53A change in our effective tax rate could have a significant adverse impact on our business, and an adverse outcome resulting from examination of our income or other tax returns could adversely affect our results

Risks Related to Ownership of Zeo Securities

1. 54Certain existing securityholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return100% rewritten
2. 55Certain stockholders in the Company acquired, or may acquire, shares of our Class A Common Stock at prices below the current trading price of our Class A Common Stock, and may experience a positive rate of return based on the current trading priceNew
3. 56Our management team has limited experience managing a public company, and regulatory compliance obligations may divert its attention from the day-to-day management of our businesses
4. 57We incur significant costs as a result of operating as a public company
5. 58We are in the early stages of designing and implementing a plan to remediate the material weaknesses identified
6. 592. Accrued Liabilities – Review the accrued liabilities detail with the executive team to determine if there are any expenses/liabilities for which the Company should accrue an expense which has not yet been recognizedNew
7. 606. Prepaid Expenses – Review prepaid expenses with the executive team to determine if all prepaid expenses have been properly recorded for future services to be rendered and subsequently amortized
8. 61Changing laws and regulations could create uncertainty for Zeo regarding compliance matters and result in higher costs
9. 62The rules and regulations applicable to public companies make it more expensive for Zeo to obtain and maintain director and officer liability insurance, which could adversely affect its ability to attract and retain qualified officers and directors
10. 63An active, liquid market for Zeo’s securities may not develop, which would adversely affect the liquidity and price of Zeo’s securities
11. 64The market price of the shares of Class A Common Stock may decline
12. 65The price of Class A Common Stock may change significantly, even if Zeo’s business is doing well, and you could lose all or part of your investment as a result
13. 66These broad market and industry fluctuations may adversely affect the market price of Class A Common Stock, regardless of Zeo’s actual operating performance. In addition, price volatility may be greater if the public float and trading volume of Class A Common Stock is low
14. 67Warrants issued in the IPO are exercisable for Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to the stockholders of Zeo
15. 68Zeo stockholders may experience significant dilution as a result of a Convertible OpCo Preferred Unit Conversion
16. 69Zeo may be subject to securities class action litigation, which may harm its business and operating results
17. 70Because there are no current plans to pay cash dividends on shares of Class A Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of Class A Common Stock at a price greater than what you paid for them
18. 71Zeo may issue additional shares of Class A Common Stock or other equity securities without seeking approval of its stockholders, which would dilute your ownership interests and may depress the market price of Class A Common Stock
19. 72If securities or industry analysts do not publish research or reports about Zeo’s business, if they change their recommendations regarding the shares of Class A Common Stock or if Zeo’s operating results do not meet their expectations, the price and trading volume of shares of Class A Common Stock could decline
20. 73If Zeo’s performance does not meet market expectations, the price of its securities may decline
21. 74Delaware law and our governing documents contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable
22. 75These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Board or management
23. 76We are a holding company. Our only material asset is our equity interest in OpCo, and we are accordingly dependent upon distributions from OpCo to pay taxes, make payments under the Tax Receivable Agreement and cover our corporate and other overhead expenses
24. 77We are required to make payments under the Tax Receivable Agreement for certain tax benefits that we may claim, and the amounts of such payments could be significant
25. 78In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, Zeo realizes in respect of the tax attributes subject to the Tax Receivable Agreement
26. 79In the event that payment obligations under the Tax Receivable Agreement are accelerated in connection with a change of control, the consideration payable to holders of Class A Common Stock in connection with such change of control could be substantially reduced
27. 80We will not be reimbursed for any payments made under the Tax Receivable Agreement in the event that any tax benefits are subsequently disallowed
28. 81In certain circumstances, OpCo is required to make tax distributions to the OpCo unitholders, including us, and the tax distributions that OpCo is required to make may be substantial. The OpCo tax distribution requirement may complicate our ability to maintain our intended capital structure
29. 82At our discretion, from time to time, we may offer and sell to White Lion or its permitted transferees up to 11,454,607 shares of Class A Common Stock pursuant to the White Lion Purchase Agreement. We will not receive any proceeds from the sale of shares of Class A Common Stock by White LionNew
30. 83It is not possible to predict the actual number of shares we will sell under the White Lion Purchase Agreement to White Lion, or the actual gross proceeds resulting from those salesNew
31. 84The issuance of Class A Common Stock to White Lion may cause substantial dilution to our existing shareholders, and the sale of such shares acquired by White Lion could cause the price of our Class A Common Stock to declineNew
32. 85We have broad discretion in the use of the net proceeds we receive from the sale of shares to White Lion and may not use them effectivelyNew
33. 86Future sales (including potential sales of securities to White Lion pursuant to the White Lion Purchase Agreement), or the perception of future sales, by us or our stockholders in the public market could cause the market price for the Class A Common Stock to decline86% rewritten
34. 87We have incurred, and may continue to incur, substantial costs in connection with the Mergers, which could adversely affect our financial condition and results of operationsNew
35. 88Zeo Energy may fail to realize all of the anticipated benefits of the Merger or those benefits may take longer to realize than expectedNew
36. 89If the Combined Company is unable to compete effectively, the results of operations of the Combined Company will be materially and adversely affectedNew
37. 90Combined company stockholders may experience dilution in the futureNew
38. 91The Combined Company’s ability to use net operating loss (“NOL”) carryforwards and other tax attributes may be limited, including as a result of the MergerNew
39. 92The business operations of the Combined Company will be subject to various and changing federal, state, local and foreign laws and regulations that could result in costs or sanctions that adversely affect the business and results of operations of the Combined CompanyNew
40. 93Adjusting business operations to changing environments and regulations may be costly and could potentially render the particular business operations uneconomical, which may adversely affect the profitability of the Combined Company or lead to a change in the business operationsNew