SUNW - Earnings call transcript Q3 2018

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Operator

Greetings, and welcome to Sunworks Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Investor Hayden with Fink Relation. Rob Thank you. ahead. go Please

Rob Fink

Executive thank Thank Sunworks' joining on call Cargile, and Financial Radmilovic, conference you, Good morning the Chief Chuck are Operator. you today and third Officer. Participating Phil Chief for call. everyone Officer; quarter earnings XXXX

management's the to Litigation Securities legal to additional start, economic attract call, Therefore, conditions, development and competitive risks Private forward-looking question-and-answer claims And may would of the statements make ability and statements of could Harbor during results I because statements during business the session. personnel, forward-looking changes plans, we in that factors, of for to the requirements. changes remind and differ uncertainties. business contain in Before that regulatory the protection not Actual forward-looking strategy general, which materially forward-looking Reform the certain the or and everyone is those to Company by like Act from qualified this contemplated factors and retain remarks are subject Safe in contained management statements XXXX. limited

on the would call provided Cargile. on We I encourage XX-Q. turn information the In today, SEC addition, call. you Sunworks the X, to any future that Form financial the both CEO, no and over performance Company's conditions projections issued change. filing as its review to Company and Chuck to assumes information augment press quarterly these to in November obligations up XXXX. commentary With a as estimates market Chuck? projections represent like to Sunworks' said, management's morning, with future may as of the This this all release

Charles Cargile

Earlier morning reported joining our Rob. today, results of the XXXX. everyone for for you and thank Good quarter third we you, the Thank call.

in into generation. Our transforming results business profitability sustainable cash progress are a and with Sunworks making we reflect

higher EBITDA gross lower the quarter. improving is operating adjusted positive margins for which drove Our a financial and model with expenses

which long-term financial solar our in investor improving of focused the is overlook on very results We picture are that general. our quarterly sometimes the so attractiveness we big call, so on much industry the

to every energy. favored people. space it form more Group expansion it's them to should for industry, A the the exciting see respondents the At the nothing when time quarters by quarter also of for In terms in created U.S. want energy. to in see government in almost of jobs industry. more use to employs one look the power. for are forward many marked their less us said one that not and hundred industry issues, party very across and And discern than significant stop when Furthermore, million polls the a runway support young opinion in ten our fact universal the but out action there revealed of Nine support. able solar the is starts citizens from from divided full but to The The those of their back, gone the on one be solar that inarguable voters a Strategy by three the there relentless industry. is is in utilities is evolution, to in industry long In with will and opportunity maturing, forward mid-term such elections using want it's and by decide are encourage has people, energy for the Global more the to poll company so American of public determined power a And of than and try Sunworks. is many a a fits poll that to comes of new steps lines in solar electric American progress. invest decade, industry be solar and most recent still that solar the of recently electricity. of as that results solar solar solar

performance. reflect to back our improved attention Turning Sunworks, results

still we number And and that won low of working or without projects often through longer and at ago. a year through are standpoint. a were won project a margin often older these We from planning very estimating projects management

revenue and fact, In QX these ACI of older projects. from our XX% works public was generated

through that processes As been we and projects priced and ones flush We estimated, been management margins. them our with by improvement anticipate vetted, the team. implemented have current that out replace old have in gross properly managed

approximately And new proposals also gross that XXXX the project to quarter, margin won, we important at Our in is third did estimated It's note XX%. in estimated on projects we margin the is adjustments gross downward tangible our proposals execution project of evidence with significant projects. more pricing disciplined that and have in winning to and we're any experience projects margins not in successful and margins, more higher in efficient XX%.

residential business the fourth an in about some late for at All acceleration minimize us through level, quarter part near-term Revenue third giving We've slippage. in early our of us this margin this quarter $X optimism of seen helping the our part or of in to quarter. but in business. from the that remained growth sales, and avoid million the new

in the agreement of $XX XXXX. whereby the XX out approximately total to healthy to position have win ours this allows to RFP relationship our account. a for a remains and provide four morning, Our level of a to testament in is grocery solidifies further close agreement longstanding we XX poised new EPC we our with projects services to for process quarters project. to This with and stores national next of will agreement in this year. backlog million, customer with scheduled This customer a order announced orders This their were key new the the strong us installation at avoid

our in than improvements they business like. Although taken longer real the and are would improvements are The I have sustainable.

leverage business revenue In and take specifics growth revenue resume financial our exciting And profitability. with top business grow new provide improve and as results better I'll on in line, As quarter. our an in industry. positioned profit And we position. the we we're that, become We cash to growth. this we'll to short, some enhanced ask related evolving improving to Phil and for more the

Philip Radmilovic

Chuck, everyone. good morning, you, and Thank

quarter adjusted notably, third achieved financial XXXX the for Chuck the first Most EBITDA year. positive results a reflects in we a referenced. improvements of has The time over

year. quarter third third was the $XX.X the reported of total of approximately marking million of revenue the decrease For XXXX, X% to for a $XX.X compared quarter prior million,

the projects revenue public current $XX.X ago and a estimates. place. quarter gross revenue in Gross Our the negatively XXX% is impacted our controls quarter to third due were quarter before in quarter XX.X% a quarter the increase previous the the ACI compared be XXXX in gross Gross entered to Gross cost industrial project year was minimal. XXXX, charged in five for on revenue team current both of low profit margins million revenue XX.X% were cost new quarter the the revenue Agriculture to significant million year. This than of revenue original for million quarter. million year $X.X quarter costs highest the or margin pricing -- Any revenue. XX% quarter. the of posted continue level $X.X internal year, million strong in a in years the period quarter were due ago million to of Gross higher or in $X.X $X.X percentage into original the the of generating to with excess of of XX% sold or high of $X.X the estimating generated $X.X current or another and from exceeding periods. the one to XXXX. to third profit of as due in In and increase XX.X% $X.X cost quarter quarters. line of complete revenue expected in had estimates prior an of estimates several works in margins prior commercial carry those of exceeding were goods from in million In third the in total from being was incurred. margins declined Residential costs incurred is prior current over are third in million projects of

residential than to on a by margin a and inability absorb result year-over-year. gross pressures has the driven our margins competitive of Additionally, as pricing projects cost Lower on declined fixed residential were projects lower historical volume. job

not While model, do certain we increase same maintain the rate costs as revenue. at variable a cost

XXXX. and million, third prior a the second XX% quarter represents quarter compared from the quarter expecting third were higher Total quarter are We residential for XXXX quarter, in excluding margins gross the $X.X the fourth of a slightly revenue business million same improved XXXX. of the in from of and decrease compensation from stock-based operating $X.X expenses X% our decrease accordingly. This year, anticipate the to in

by compensation for months addition, XX% In in prior compensation $XXX,XXX prior excluding investments to growth. consecutive three XXXX the are future minor Interest first quarter in XXXX quarter. stock-based the the the offset at versus the quarter. decreased that from total quarter reductions stock-based year of was We cost in of eights for $XXX,XXX compared third declined will years. quarter, excluding $XXX,XXX strategic $XXX,XXX, cost of remainder expense operating level our the period. anticipate and XXXX year compensation comparable lowest for expenses the Operating some expenses nine the the Stock-based enable during to was up in second

April, interest of compared the CrowdOut only expense two the interest quarter. months finalized includes quarter related prior to Third [ph] in months in to three

basic We a forward. quarter or in $X.XX was quarter. constant, per for loss expect be share year-ago per about share, diluted interest net compared basic the and $XXX,XXX of the and quarter to $XXX,XXX Net going of $X per expense diluted million XXXX loss relatively $X.XX at third or to

Turning of December million our the and balance XXXX. million at cash XX, at end equivalents compared to XXXX, were sheet, $X.X unrestricted September to $X.X our

the payment our been we a million. Xst. accounts higher reflects balance October balance Our Had payment $X.X our quarter the at just receivables lower. the one cash million earlier on This balance day was and received end received of receivable receivable been $X.X balance would've that

of on of quarter's of March purchasing declined modules have and Inventory to decline a have decline purchase a the or the to balance. a balances December record at imported million XX, high a high modules. As solar balances million, tariff we on from committing on strategy the $X.X discussed from call, to XXst $XXX,XXX of $X.X we inventory as the prior hand level last enactment result the

balances working to on inventory expect cash. decline and convert we to capital to We as and to cash improve inventory hand continue

$X.XX considered debt million Our XXXX, current, is no in financing, note and $XXX,XXX long-term. April, the finalized convertible and acquisition to from interest. at that bears Chuck. $X.X promissory back note million, call of the $X.X million I equipment $X XX, turn the is will was remaining or million and debt total including September the million $X.X now

Charles Cargile

a on note, and XXXX Thanks, position Phil. for positive out We're focused XXXX. strong ourselves on closing a

Although turn reporting With quarter believe a improving pushouts, and will gross to the of fourth level. it's weather, revenue timing And predict fulsome year questions. to in million reduced prior a versus like of our EBITDA due installation consistent potential revenue utility year be rainy $X.X anticipate fourth over I'd pipeline margins expenses, for quarterly companies, difficult positive from quarter we of customer delays wet $XX and the million of in for higher adjusted much the year. negative the gross to projects to $XX this profitability than Operator? adjusted margins range EBITDA the we we new will last million, we're quarter be and the predictable cash of to and but business operating prior flow. year, the fourth positioning and now be call which to anticipate the similar

Operator

you. Instructions] ROTH Thank with Our has come question Philip from line of Shen first Capital. [Operator the

Philip Shen

EBITDA. for guidance go Wanted work QX, wanted quarter questions. of Thanks Good speak the of to if expect to 'XX, Phil. kind positive walk do I you to the margins adjusted on you quickly getting for go have cadence Chuck, you trend. through by Hi, kind we know how how see margin through to officially older out. out projects could the but as of to

color that get do would just level, we kind bidding of was is we on Thanks. for you're kind and to do that -- when and of helpful QX a on like you're QX year? of of next modeling. if million at what $XX.X $XX $XX year, is very million, what winning have we $XX get there million to do natural function be step QX So in million next Any

Philip Radmilovic

sure. Yes,

forward. a price talked, point, we impacted these of went But the from still old into. lot as going the of in lower at kind our on older jobs recording progress last these are that significant revenue Chuck still are over So year a made appropriate that we're cost being correcting jobs. amount estimates we as and capturing We've of

million that jobs million in to prior of $X specifically up $X we revenue. 'XX, gross million, This on approximately generated and compares $X made $X amounted of So of million, booked that margin XX%. originally margin And to prior where to generated approximately booked, gross jobs QX, QX, XX%. 'XX

the be drag to and these projects older in will out our flush But a revenue. of smaller until total a should So, percentage in subsequent all we quarters lower be QX continue to margin backlog continue projects. there

Philip Shen

give Phil, think a the it's situation? can out 'XX could I mean, do us of for you be older sense when flushed a you projects back-half completely?

Philip Radmilovic

I do. Yes,

And majority through So getting keeps -- of to now working right should through first-half it continue think smaller. be number it the are to anticipate of through decline. the We XXXX. we we

Philip Shen

you the this standpoint, quarterly high a ballpark So watermark? little in QX, million roughly, a really million for $X Okay. lower. and example, the helps expect bit $X be QX much to And for Does -- modeling, QX QX? do how do numbers, from lower, expect, Thanks. was you then QX from because QX,

Philip Radmilovic

be Yes, anticipated to little roughly lower tend be that projects QX than anticipated the to to predict be the $X the high remainder going after is a very is of these is percentage to old so spread same But are of And lumpy. and as to be is because as that watermark. QX large at that QX million between difficult some of very levels. QX kind far it jobs.

Philip Shen

QX? As

Philip Radmilovic

Yes.

Philip Shen

really that's good. Yes, Thanks. helpful. Okay,

half, national back-half it saw there weighted 'XX. stores you can think business be grocer, know in very to our cadence does in I or how terms of and lumpy, XX So maybe your of weighted? be? but front-half is new expect down the in XX terms break I to it How that quarters, do

Charles Cargile

half-a-dozen grocery new It's this more already. the morning that about that one happy chain. talked We've done we're or announced so national about projects we before. with with we've this Yes, business the probably company

the recurring a about new each slightly a explain cornerstone of project that it's it. particular out XX want the talked in I XX morning make of one is piece we've I customer stores expectation that will But year into more The bid so. sure And announcement this our or was to last and region do this over XXXX. accounts lot because it's -- So that I for national And to regions. every we'll grocery national chain than and region divided have their different differently. a

each approved have coordinate they the has on point each that but we chain So EPC, one goes a with. supply -- region through person different

us this particular they avoid to the over XX XX So part course approval the for one do XXXX. is stores region And RFP to got to is approval the important of process. got that

we're a have that are same we they currently that At to but the the the as proposals have our we stores go still we to RFP out So bidding roll would process. queue chosen expect in those of time, other on through one. win, we number

have the it'll is of ratable I QX, time them and QX, two rolled plans impact a the over specific four. it much is then will My pretty probably but it's answer by of your in now. all long because pretty the guess in then And through So not year. that course it we think And Qs get out the be answer big approved spread question. be over we a not the lot to

Philip Shen

for good. stores, Okay, you grocer, confirm, say And when new new mean you want to the right. builds

stores, actually there I'm these -- for are or it's on opportunities the existing is So you latter. guessing

Charles Cargile

is. it Yes,

Philip Shen

could those able would it stores you of so because be built. wouldn't have be probably be to right, existing because combination a it's But more quickly to it otherwise do Okay, both. stores,

Charles Cargile

Yes…

Philip Shen

is this of terms there could this in recurring buildings And near-term other grocer, national entity. business that in be enough. Okay, opportunities lined on? Do up accounts or what of the looking have the addressable is beyond focusing within number large fair of then Thanks. one kind looking pipeline and be we or of particular of terms others like that kind targets similar should you or

Charles Cargile

to talked equate we've who so about people revenue, financed the up. strategy when executing have projects. national also can looking they and accounts, we which with and because with is strategy appreciate we ForeFront lined enhance do we I public recurring business with on, tune what acquire to others. to more is us partnered And are you're works that we question think very our And we've a to relationship We solidify that do I we're in partners, the our which do. like is. number of have at a before to We others that look closest other

the partner, Over great We've expect relationship renters, past those will multiunit We've large just housing housing. projects different larger who there's low-income strong And at facilities, XX more in very a this number hoping does owners quarter, relationship least with a and subsidy real won that year, that projects talked nice the developed one be win maybe we're our a and more. even very, with year. of with customer for the next second-half with about a payback project we've the of a to this for for over beverage company. that them where and rental multiunit

lead us. opportunities a new them, projects continue then is this more in with And as which well. good. two to week, get which stores them with just account to Harley-Davidson, to that's with that Northern we hope other we We California And won with is going

part of we on, continue that our that it's predictable to the a base, it's part recurring of base. we have a strategy going bigger a So revenue be executing we're to think and more and and

Philip Shen

their it a facility manufacturing Harley-Davidson sounds fun. those great and Great. Is dealership color, is it cases? in interesting That's or Chuck.

Charles Cargile

dealerships. Yes, these were

Philip Shen

that you win in to was it particular them, for competitive, And Okay. guys bid? for how

Charles Cargile

always. know, an get was on very our you there's does As won of a this EPC case, the people competition believe particular I local like some one maker. without competition. ourselves decision degree it almost seldom of that one There's had In with relationship

But the and think, because relationship. have prove the our I wares still win the seat we competition. we to primarily driver have of So won, eventually to in still and were

Philip Shen

go the expand is some guys do Harley [indiscernible] and can relationship of point the other more that a, let's Harley-Davidson? "Hey, with it you national it here," maybe to Does opportunity or with then to give Okay. you at

Charles Cargile

XXXX, I enough would would would you say, say But I way staying be the that in I that region then would then and the think national. about eventually, if regionally, California. would think. ideally, opportunity so I it near-term I near there's midterm, even to or in become visualize And expand, think grow from organically would this more it,

Philip Shen

pass question, it on. One Okay. last I'll

the In terms think resi just doing remarks. overall growth What of of market the of the prepared mean, mentioned I I you is or in your sales, are driver it is acceleration there? something different? you the

Charles Cargile

because changes group and and time could but profitable. before so and the half a a first business revenue over money, even the through lot good year more and Yes, some lost the residential in that it been that's step residential a I've nice a was gone XXXX, question, talking time number the not spend long last growing beginning efficient. here there I was was we've the of about In to make it business of

successful profit sure a to it's part the being profit most that and XXXX make a contribution all but we have wanted at overhead positive could residential the in level. be cover XXXX, the in of contributed we corporate throughout been doesn't it positive been for to and profitable we So

profitability, pretty shouldn't up grow we've we as that more there think take that volume I first we'll revenue I we've three we pricing. how is the large So think focused a to it that I see know but to we're level. our and as excuse through the and think went took price have and underestimated little base we be we starting bit think of able driving a and for in it's little allowed the the over we've I model so, were primarily part I margin we little trying bit prove California more and there factor we're to profitable patient high been now bit environment then the to what or competitive see third-party on And the that XXXX, and going a out. in will a make over efficient revenue. be That that me on to that bit to think is third-party some at ourselves We a probably quarter became might now over as last success months this forth even squeeze increased you be point held get competitive, and I is little relaxed think that so evaluated running, methodical a our to so that been and and a

been the on a So leverage help on I and little bit long we've is going to but that focused answer, it's something very that growth us side. think putting

Philip Shen

guys maybe were for So looking as think because of of the are where for QX even make growth residential accelerate And growth growth faster volume you in a you than California we I here potential volume XX% market growth maybe get next resi. say a the a that pricing out of could that then now to revenue little million the kind be of that volume assumption, this grow on just to in world could situation you growth that you the focused because bit you let's year-over-year year, $X rate? you've of a internal megawatt think ready resi, kind bit XX% little terms again and of could potential and at that is right the at let's about face get assuming see do than to you're faster if for fixed the more operations on overall ready it's the to the volume, market get aggressive the

Charles Cargile

million million that this driving and $X that Getting do sale way I I back particularly to ago. think $X not been achieve the that several level that something long quarters. we've a around think be is that bouncing of last that's will level to and we which were where from the

we that significant to of to quarters didn't you don't a that's how yes overall matter direct leverage costs I the structure. want footprint we in cost you the satisfy on XX% the anymore. as to talks think so then revenue contemplating. with I today and labor a and, the in and an operations team, without get but with $X it, got get have, other the want I if think so going we revenue, think be where could that percentage a $X we the the we million high for in much to reduce so we we the you million that structure, structure have numbers than but be sight to we we growing we footprint give line the being but look we last way the the have don't there meaningful our at is change those would believe level just that We it we not I better have small about costs, as million or focus. in to costs with cost without $X the point cost difference just, idea it accommodate installation from fixed think could this million think grow we in a think could We in quarter of so have $X

Philip Shen

I'll on. all it Great. very helpful pass color. the for Thanks It's and

Charles Cargile

thank All Phil. you, right,

Operator

you. Thank

Jim line question McIlree is and with Your of Chardan Capital. from next

Jim McIlree

Yes, thanks, and good morning.

without can would a comment revenue on scaling rates of ability you that on that increase you a OpEx OpEx following are increases, Just the about of are can similar have you in order talking Revenues cost in public similar Chuck lot last residential? a you have to discussion about you to making ACI make works that in OpEx scale. the of company that kind in a or similar, at side the need the increase

Philip Radmilovic

sure take Yes, I'll this.

focused business. last the particularly rest over but of do OpEx the of to We year. side it the side, So relates residential our as scalability on similar the along worked spending on to the not them the just have across we extensively residential all

in of as I expenses So X% straight it's and excluding stock a quarter comp and quarters than a it eight ago it was lower and kind ago. declines operating year led our lower XX% mentioned OpEx was that than

considering, So but year-end that see slight increase to can range. all that revenue some our we expenses wide, entity factored in, accruals. spending we on a continue within of million that depending in we of The hires impact million support on mindful but are be QX new very in operating we just we not consolidated our $X to staying believe With $X.X levels residential. expenses increasing may

Jim McIlree

you. Thank Okay.

is wrong I'm kinds if ramping And sales? you the couple too this offer being commentary or the we quarterly that I and how If distribution I you in cycle so, guess, trying an lower And these sales is pessimistic just increase or word, up should of such the can model. see line just increasing start long on or the that quickly challenge top these to in a I then second some becomes how be quarters start expense levels soon, different understand reasonable we for -- am sales guess be way to too that would expecting of next levels on really can the appreciated. half reasonable

Charles Cargile

Sure.

the a the approached which an I it's over way intuitive last good we've the reflects think is. question and it business question year and

we'll we have a cost hoped that some to the lower challenge lot, on start see that business, trend has benefit mitigated the But operating the get to favor. would base, margins profitability move and expenses. the clearly, we've First, of our gross of the and solidifying talked from in the structure now as

more become of versus projects ones. of mix the the margin projects old new As the better

confident project deliver XX% we say a estimating do going that just let's comfortable and than the win our I in more in XXXX. more won last have that, greater been XX%. will the is of to confidence have use that average process. earn, I harder the I to now when projects feel pushing feel at year have what more I And and than over So business

And to meet proven and the and so, I when make industry the a lot propose gives factors predict. that with I we've with be Timing, of it it on question aggressive think I projects not think million-dollar just we more more customers that credible that's always true Sunworks and ability there's it's to the to hard and be us projects. think

several quarters is going fill installation. backlog the scheduled the we new a we the quarter-to-quarter something particularly tally you company the we've the to some and projects $XX of when the first increase. that predict to public based ring the at the drive got start higher to can that on of we've $XX dollars mentioned year. see Telltale more to out book that half recording but second the to that and It's for start in needle be to day. million a million today, that everything of start of that I So QX be for of as hard as we I up end Because last that's sign that than think over that has been to $XX than dollars million quarter best And confident to pipeline am bell

doesn't So of us residential. out that for three carries that for for and two quarters. next quarters couple And even the account

be that of that. on So would top added

we that's two in buoyed quarter what next -- and can't of do second to year, sales. the you we of levels in increasing think of I half by terms start we'll or new see be So can't the the revenue kind

Jim McIlree

not Okay. little about business. seeing And residential as to or And you're were was not. confused margin bit I guys talking there a pressure earlier whether or you

residential is, ago? were, say And so, versus in current what they which ask a different XX your months what might margins way let's are

Charles Cargile

ago. months XX so Yes,

Jim McIlree

margins. I'm gross But talking

Charles Cargile

it. get I Sure,

So so revenue sales. direct levels was we revenue coming of ago, and months XX that at were higher from most or when

the that gross but Our mid-to-high margins were operating carrying the because little a the margin we marketing carried in XXs expense, was lower the were selling are our all by and now within dealer. third-party and bit costs

if we the if volume. gig if the gross XX% forecast -- improve that spread little generally range. of it X residential lower a maintain and So about all pricing that ideally way estimate be price do margin. levels the is I or will what Phil a from to XX% X I Jim, to margin extra the today, won't see X to start the talked even the little the happen allow drop the the the to even revenue costs to to the gross think in fixed margin drop what above we There something And is coverage is to that up bit. million. a tracked going a And If we it and in earlier right bit we in benefit we or fact to of be

margin that think price the be do if there clearly said intent. in million I we lower. So after reduction then QX definitely would a taking that's we the X if again not But

a slightly can we we the absorb lower having can think, price I by higher volume.

Jim McIlree

trajectory so maybe second-half of understand this helpful. of kind maybe of it just That's get is kind you a of year. got the you then sounds all, prediction XXXX. where on projects not of conceptually I'm first to year first pin residential. old similar pressure get a to levels Okay. kind like And some the of the the how trying revenue half of sort you looks to kind like of margin finally, and new down I'm bump the from from trying We've quarter-by-quarter for and the a the

ACI in works well the because in get the public get out residential. better the we flushed little Second-half, projects bump we as got old maybe a as, we've margins and new projects as in and we've coming

Jim McIlree

reasonable year? look to Is next that a way at

Charles Cargile

is. It

Jim McIlree

lot guys. Okay. luck a with Perfect. Good everything. Thanks

Charles Cargile

you. Thank

Operator

Thank to turn closing session. comments. like back for Chuck question-and-answer Cargile our I'd to our off This concludes you.

Charles Cargile

your joining Relations. Sunworks or in you you for if like I'd myself Thank at and Hayden you today to you again. always Fink to encourage have right. all hesitate interest for questions, Thank out Rob and to us to reach Phil follow-on or All any Investor don't

Operator

today's concludes This conference.

at You and may disconnect lines time your your participation. this you thank for

Sunworks (SUNWQ) 7 Nov 182018 Q3 Earnings call transcript