USA - EnSync (www.ensync.com), dba EnSync Energy Systems ("EnSync Energy"), a leading developer of innovative distributed energy resources (DERs), today announced first quarter fiscal year 2018 financial results for the period ended September 30, 2017.
Revenue during the first quarter of fiscal 2018 was $2.4 million, with revenue largely being contributed by 5 PPA projects;
Gross margins improved to 12.5% during the first quarter compared to (1.4%) in the year ago quarter, and gross margins of 5.5% in the immediately sequential quarter as the Company becomes more efficient and profitable on its PPA construction and sales efforts;
Recently secured a follow-on purchase order from Schneider for a high power version of our Matrix® Energy Management system;
Construction continued during the quarter on 7 projects, including Time Warner I and Time Warner II, Easter Seals, Hawaii Pacific University, as well as three additional Commercial and Industrial projects;
A key multi-unit residential project has become commercially operational;
Entered the California market with the Company's first PPA project for CAL FIRE's Firefighter Training Facility;
Announced an expanded focus on the utility market segment through the creation of a utility market vertical in the company;
The DER FlexTM Internet of Energy platform has been deployed and is commercially operating at three sites; and
Cash balance at the end of September 2017 was $9.1 million.
"We're pleased with the progress made during the quarter as we continue to develop and execute on multiple projects, improve project margins, expand into the California market, and further develop our agreement with Schneider Electric," commented Brad Hansen, CEO of EnSync Energy.
"Our commercialization strategy of selling custom designed distributed energy resource systems is fundamentally solid with all components of this strategy in place. We have outstanding project development and sales capabilities, innovative and differentiated products like the Matrix® Energy Management system and DER FlexTM, our Internet of Energy platform, and an assortment of storage alternatives that meet virtually any combination of applications you would ever need to perform. Our products are modular in design, enabling lower cost manufacturing, and rapid site construction and commissioning, all key competitive advantages for us in the marketplace."
"We are now executing four key market strategies: the Hawaiian commercial and industrial (C&I) market where we have 16 projects that have been completed or are under construction; the California market, in which we successfully signed our first major power purchase agreement at the California Department of Forestry and Fire Protection training facility; our utility vertical, where we are formally engaged with multiple customers such as Hawaiian Electric Company and ENMAX; and our power electronics systems business with Schneider Electric where we recently secured a follow-on purchase order for a high voltage version of our Matrix® Energy Management system. Each of the market areas have the potential to see dramatically increased revenues and margins, and our prospects for future growth remain very positive. We're also excited about other markets that have the potential for entry and disruption, as more aspects of the economy move towards energy storage with power electronics based electrification, such as the residential and EV charge station markets."
Mr. Hansen concluded, "We continue to benefit from our early mover advantage in solar plus storage, a market which Greentech Media expects to increase 10X over the next five years. This market expansion continues to be driven by a shifting of the energy production mix from carbon emitting sources to renewable sources, and by increasingly favorable economics for solar energy, energy storage, and combined solar plus storage systems. We expect key long-term trends to continue to be supportive, with time of use rates and demand charges becoming more widespread across the utility landscape and net metering programs being eliminated or reduced at the state level. These trends, coupled with our innovative business model, should allow us to continue benefiting from this rapid shift in the adoption for distributed energy resources going forward."
Total revenue for the first quarter of fiscal 2018 was $2.4 million compared to $7.7 million in the year ago period. Revenue during the first quarter of fiscal 2018 quarter was largely derived from PPA contracts in Hawaii that are recognized on a percent of completion basis.
In addition to the PPA sales, revenue was also recognized from system sales of the Company's Matrix® Energy Management system and DER FlexTM platform. The year ago period saw the benefit of a large grouping of PPAs sales to American Electric Power subsidiary, AEP OnSite Partners.
Gross margins improved to 12.5% during the first quarter compared to (1.4%) in the year ago quarter, and compares to gross margins of 5.5% in the immediately preceding fourth quarter.
The improved gross margin compared to the year ago and most recent sequential quarter is attributable to the elimination of numerous non-recurring charges incurred in the year ago period as part of entering the market with this new PPA business model, and further efficiencies in the procurement, construction and sale process.
The Company's expectation is that gross profit margins on future PPA sales should be between 10% and 20%.
Advanced Engineering and Development costs were $1.1 million during the first quarter of fiscal 2018, compared to $1.0 million in the year ago period. Selling, General and Administrative expenses totaled $2.6 million during each of the first quarter of fiscal 2018 and 2017.
Total Advanced Engineering and Development costs and Selling, General and Administrative expenses (excluding stock-based compensation of $0.4 million and $0.3 million, respectively) was $3.3 million during each of the first quarter of fiscal 2018 and 2017. The Company intends to hold at or below these levels going forward.
Net loss attributable to common shareholders was $(4.0) million, or $(0.07) per basic and diluted share, for the first quarter of fiscal 2018, compared to $(4.7) million, or $(0.10) per basic and diluted share, in the first quarter of fiscal 2017.
Cash balance at September 30, 2017 was $9.1 million compared to $11.8 million at June 30, 2017.
Estimated backlog value for PPA projects, components and systems as of the date of this announcement is approximately $12.6 million.
Recent Policy Developments
"As our investors know, on November 2nd the House Committee on Ways and Means released H.R. 1, the Tax Cuts and Jobs Act," commented Fred Vaske, Chief Administrative Officer of EnSync Energy.
"We, along with many in the renewable energy industry, have been focused on predicting how this proposed tax reform might affect our business. The House plan details substantial modifications to the tax code which would directly and indirectly impact the valuation of PPA projects, including a reduction of the corporate tax rate from 35 percent to 20 percent, implementation of bonus depreciation of 100 percent through the end of 2022, significant limitations on interest deductions and, longer term, the elimination of the then 10 percent investment tax credit for solar projects which begin construction after 2027."
"While the House plan is not final and is subject to change during negotiation, tax reform has clearly been a priority on the Republican agenda and this has been an anticipated development. Our internal analysis earlier this year and updated for the current proposal shows the direct impact of the proposed changes for our DER project valuations as being largely neutral, with offsetting impacts from lower tax rates and the immediate expensing of project investments."
"Another very recent development was that the U.S. International Trade Commission released on October 31 a set of recommendations on the Section 201 solar trade case. The proposed remedies from the Commission are less severe for the solar industry than was requested by the petitioners, Suniva and SolarWorld, but are subject to a final decision by President Trump, likely in January 2018."
Mr. Vaske concluded,"For both the Section 201 trade case as well as the proposed tax reforms we will continue to monitor policy developments in the coming weeks for their potential influence on our business."