Sunworks, Inc.
Q3 2017 Earnings Call Transcript

Published: 14 Nov 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sunworks’ Third Quarter 2017 Earnings Call. All lines have been placed on a listen-only mode. And the floor will opened for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Jeff Stanlis of Hayden IR. Sir, the floor is yours.

[Jeff Stanlis:]

Thank you. Good morning, everyone. And thank you all for joining Sunworks’ third quarter 2017 earnings conference call. Joining me on the call today are; Chuck Cargile, Sunworks’ Chief Executive Officer; Paul McDonnel, Chief Financial Officer; and Abe Emard, Chief Operating Officer. Before we start, I would like to remind everyone that in this call, management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors not limited to general economic and business conditions, competitive factors, changes in business strategy or development plans, the ability to attract and retain qualified personnel, and changes in legal and regulatory requirements. In addition, any projections as to the Company’s future performance represent management’s estimates as of today, November 14, 2017. Sunworks assumes no obligations to update these projections in the future as market conditions may change. This morning, the Company filed its 10-Q with the SEC and issued a press release announcing its financial results. So, participants on this call who may not have already done so may wish to look at those documents, as provide a summary of these results on this call. I would now like to turn the call over Sunworks CEO, Chuck Cargile. Chuck?

[Chuck Cargile:]

Thank you, Jeff. And good morning everyone. Thank you for joining our call. Third quarter was one of mixed results for Sunworks. We booked a record 38 million of new sales which has driven our backlog of future revenue to the highest level in our history, providing us with optimism in our near and long-term prospects. However, our current period revenue and profitability were negatively impacted by the timing of several projects that were expected to being in the third quarter, but flipped to the fourth quarter. And unexpected cost over-runs on several large commercial projects that were began in 2016 completed in the third quarter of this year. We remain optimistic about our future and the long-term positive outlook for the industry and understand our responsibility to improve the predictability of our financial results. One of my primary goals since joining Sunworks in April has been to improve our processes and controls and to strengthen our organization. I’m disappointed that this process is taking longer than anticipated, but I’m undeterred in my confidence that we will get this right going forward. We’ll be diligent in managing our cost and estimates to ensure we maximize our financial performance and enhance the predictability of our results. Compared to the prior year’s third quarter, our revenue of $18.8 million increased just over 7%. The end result was a little lower than we’d expected as revenue recognition for several projects of approximately $4 million slipped out of the quarter. The projects are underway in the fourth quarter and merely reflect a timing issue. In addition and unrelated, we experienced a little more than a $1 million of unexpected cost overruns on five large commercial projects completed in the quarter. The overruns were due in large part to external labor and related expenses incurred during the quarter to complete these projects. Despite the revenue timing issue and the cost overruns, I’m excited to discuss a number of very positive developments in the quarter that reflect our continuing progress. I mentioned before our record new sales of $38 million in the quarter. A particular notice that approximately half of the total came from two Public Works programs, including our largest project to date an 8.5 five megawatt project. This project will result in revenue in 2018 and is an important project to enhance our experience and also give us credibility with customers for other large projects in the future. We also announced in October two additional muti-million dollar wins that give up momentum for Q4 new sales and will drive revenue in 2018. We believe it’s important to build a strong Public Works business to augment our already established and successful ACI and residential businesses. We’re striving to become more diversified in our business. When we speak of diversity we mean segments and geography. The success of Public Works reflects segment diversity. In terms of geographic diversity we continue to thrive in central and northern California are also building our pipeline and experiencing success in other areas. In the third quarter we recorded new sales in excess of $3 million in Southern California and more than $2 million in Nevada. In addition, we recently assigned full time people in Florida and Texas and are currently building our pipeline in these regions with optimism that we could land our first letters of intent before the end of this year. We’re pleased with the progress we’re making on the sales front and how that will deliver increasing revenue going forward. Paul will discuss the financial results in detail in a few minutes. But I do want to highlight two items in particular. First, we continue to evaluate our operating expenses and systematically identify ways to reduce costs while maximizing effectiveness and efficiency. In the third quarter, we reported selling, marketing, and general and administrative expenses excluding stock comp of $4.4 million. This is $600,000 below the second quarter level of $5 million and a full $2 million below the comparable quarter of 2016. Second, we increased our cash balance by $2.2 million in the quarter. In the first half of the year our cash balance declined primarily due to the need to purchase panels in advance of when we would normally. Due to the disruption of the supply chain resulting from the International Trade Commission case. Speaking of the ITC case, like others in the industry we’ve been closely monitoring the petition filed by Suniva and Sun World, claiming that imported solar cells and modules have caused injury to U.S. producers of certain PV products. The petition to the ITC originally requested a tariff of $0.40 per watt on cells and $0.78 per watt on the modules. In September, the ITC issued a ruling and found that imported solar equipment has caused injury to domestic manufacturers. The official recommendation of the remedy from the four ITC commissioners is expected any time now. In fact, it could be as soon as this afternoon. Several weeks ago the individual commissioner’s recommendations were made public. And there were actually three different recommendations. The ITC commissioners are now in the process of agreeing on the final recommendation to give to President Trump. The good news is that the proposed remedies in each case are less severe than the tariff rates requested by the plaintiffs. Two of the commissioners aligned on the proposal to place a 30% tariff on imported modules, declining 5% per year over four years. For imported solar cells the two commissioners agreed on a four-year tariff-rate quota that would allow for us to one gigawatt of tariff-free cell imports. Any imports over one gigawatt would be subject to a 30% tariff. Each subsequent year, the tariff rate would decrease by five percentage points and the in-quota amount would increase by 0.2 gigawatts. One of the four commissioners proposed a slightly higher care beginning at 35% and declining only one percentage point per year for four years, and a slightly higher quota amount. And the fourth commissioner proposed a quota system on sales only with no tariff on modules. In short the final proposed remedy has not been made public but will be any day now. For some work even the higher proposed tariff would be expected to have only a mild impact on our business. Although each project has a different payback dynamic for the customer, an average payback for an ACI customer is about three years and that would be extended by only a few months. On the residential side an average payback of six years would be extended by less than a year. The uncertainty has been disruptive, but the end result as envisioned now, should not have a material negative impact on Sunworks. It must be noted, however, that the ITC recommendation goes directly to President Trump, who can then accept the recommendation or institute a completely different action, including more punitive tariff or no tariff and quote at all. It’s difficult to predict the action that president will take, but we’re somewhat optimistic based on the direction of the ITC. Now Paul will discuss the financial results. Paul?

[Paul McDonnel:]

Thank you, Chuck. And good morning everyone. As Chuck mentioned earlier for the third quarter of 2017, revenues were $18.8 million, or 7.1% compared to $17.6 million in the third quarter of 2016. Agriculture, commercial and industrial or ACI, including Public Works, revenues were $12.2 million or 65% of our total revenues. And residential revenues were $6.6 million or approximately 35% of the total revenue for the quarter. As a reminder ACI projects often include additional construction, such as roofing, excavation, grading, carport construction, fencing and racking in addition to the normal transformer and service upgrades in order to facilitate the installation of solar systems, making them more complex than residential projects. They are generally longer in duration and require more approvals, permits and inspections. And are therefore more prone to delays and cost overruns. We are taking steps to improve our coating processes, estimating capabilities and performance tracking to mitigate the complexities of these types of projects. In the third quarter we experienced additional labor, subcontract, equipment rental, permits, racking and repair costs necessary to complete the projects, slowed by permit, site preparation and other obstacles encountered while completing the project. Gross margin for the third quarter of 2017 was 16.5%, compared to 26.5% in the year ago quarter. That decrease was primarily due to cost overruns of approximately $1.3 million on five large projects that began early in 2016 and were completed in just the third quarter. Direct materials continue to be the largest component of cost of sales. In the third quarter of 2017, direct materials were 39% of revenues versus 35% in the second quarter and 41% in the first quarter. The subcontractor costs were 16% of revenues in third quarter, compared 17% in the second quarter and 13% in the first quarter. The remaining costs in descending order were; financing and finder’s fees, direct installation labor, and other direct installation costs and installation overheads. Total operating expenses were $4.8 million. They were down 30.7% year-over-year after excluding stock based compensation and 11.9% sequentially. If stock-based compensation is included in the comparison total operating expenses are down 53.9% year-over-year and 11.5% sequentially compared to the last quarter. This decrease reflects our continuing efforts to reduce operating expenses and to reduce administrative overhead. Selling and marketing expenses were $1.8 million or 46.8% lower than the $3.3 million in the year ago quarter. As a percentage of revenue selling and marketing expenses were 9.3% of revenue in the third quarter, compared to 18.8% of revenue in the same quarter of 2016. Selling and marketing expenses decreased quarter-over-quarter primarily due to a more scrutinized approach to advertising and more effective use of third-party sales generation, peculiarly in the residential business. General and administrative expenses $2.6 million or 14% of revenues in the third quarter, compared to $3.1 million or 17.6% in the third quarter of the previous year. Net loss for the third quarter of 2017 was $2 million, compared to a net loss of $6.1 million in the year ago quarter. While the net loss for the quarter is a setback in demonstrating the progress made from our focus on cost containment and profitable revenue growth, it is a reminder of the uneven timing of revenues and the importance of operational execution from first 14 projects through final completion of construction. Turning to our balance sheet, cash and cash equivalents were $6.4 million at the end of the third quarter, compared to $11.1 million at the end of 2016. The $4.7 million decrease in cash for the first nine months of 2017 was primarily the result of the operating loss, coupled with approximately $1.5 million in deposits for an investment in inventories, plus principal payment on debt. The collection of accounts receivable during the third quarter drove a quarter-over-quarter increase in cash of approximately $2.2 million. The outstanding debt at the end of the third quarter was $2.2 million, of which $1.7 million is convertible, a portion of which bears no interest. The remaining debt totaling approximately $500,000 is related to equipment financing. There was nothing drawn on the $2.5 million revolving line of credit at the end of September. Looking ahead, we remain optimistic about our near and longer term outlook, given the record level of new sales that we closed in the third quarter and our pipeline of identified opportunities. Our focus is on generating top line growth, while intensely managing expenses to deliver strong profitability and cash generation. We remain diligent in our efforts to improve operational and project performance, while continually looking for opportunities to provide additional value to our customers, lower costs and improve our execution on contracts in order to improve margins, earnings per share and ultimately shareholder value. That concludes our prepared remarks. Now Chuck and I would like to open the call for questions. Operator?

[Operator:]

Thank you. Ladies and gentlemen the floor is now open for questions. [Operator Instructions] And our first question comes from Philip Shen from Roth Capital Partners. Please state your question.

[Philip Shen:]

Hi everyone thanks for the questions. When we use your backlog figures and your revenue we get to an implied bookings level of 24 million. And in your release you talked about 38 million bookings in Q3. That suggest possibly losing or having 14 million of backlog dropout or orders dropped out. Was that the case at all? Do you actually have lose some orders in backlog and if so can you shed some detail on what happened there?

[Chuck Cargile:]

Yes Phil, in the quarter we revived the backlog calculation to only include projects with defined project plans and firm installation dates, which is what I’ve been accustomed to in the past. In the past here it included some older projects that have been delayed or hung up for some reason. And I think it’s more important and appropriate for the backlog to reflect projects that have defined schedules. So some of those things that had just been rolled forward in backlog didn’t have defined dates. So if they do get defined, then we would have them back. But you’re right the $38 million was new sales in the quarter and then some of the backlog was adjusted out.

[Philip Shen:]

Okay. And is there any – what kind of probabilities do you think that the 14 million that dropped out could actually be added back, or would you think those projects are so stale that the probability is quite low for those projects.

[Chuck Cargile:]

I think there’s a number of different projects, so it’s probably a case by case basis. I’m confident that some of them will come back. When we looked at and evaluated it, if it looked like they weren’t probable for 2018, then we took them out. So the $63 million that we have is predominately scheduled for not to be passed 2018.

[Philip Shen:]

Okay, great. And then speaking of forward-looking outlook and commentary is there any way you can shed some details or some kind of – you guys provided some Q3 guidance commentary last time, you talked about being at or above $25 million of revenue. What do you see for Q4 of this year?

[Chuck Cargile:]

Yes that’s an appropriate question, a good question, but it’s a tough one to answer. We’ve got a number of different things working with us and potentially against us. I think on the positive side we entered Q4 with more backlog scheduled to install than we had when we entered Q3. So it’s a couple million dollars higher than what we had coming into this quarter, which would be a good thing. We also had the momentum of new sales. Some of them won’t actually begin to get installed until the first quarter of 2018, but some of them will be reflected in Q4 revenues. So those two factors give us some confidence about increasing revenue in Q4. And then the third positive factor is the projects that I mentioned in the prepared remarks of items that slipped out of Q3 will also be reflected in Q4 revenue. So those things give us some optimism about increasing the revenue both sequentially and year-over-year. The wild card for us, I would say, there’s two cards, one is just the uncertainty just like we had in Q3 are some things that are outside of our control, whether it’s a customer request, or permits, or approvals that sometimes cause those projects to slip. And then also we start to enter or we do enter the rainier season in Q4 than what we had in Q3. So those things kind of mitigate some of the positives that we would see.

[Philip Shen:]

Okay, great. And then in terms of your, backlog, I think, of the 38 million you talked about or the bookings you talked about, I think, about half are being from Mexico. So I want to make sure how did that raise to roughly nineteen million. And can you provide us some more color as to what these ESCO projects are, is it solar, or is there LED, who are the customers that you are working with or even partners?

[Chuck Cargile:]

Yes, maybe it’s just a terminology Phil, but we – the Public Works program is not ESCO. So we are ESCO qualified, but the particular – the programs that we mentioned were not ESCO, the Public Works program. And one of them was the largest projects that we’ve ever had that we announced late in Q3 an eight megawatt project. As we mentioned in the press release at the time we were limited to a large degree in what we can say based on the NDA that we have. But that project is booked and we’ll start to generate revenue in 2018. And then we had another multimillion dollar one that we announced in Q3, and then another one early in Q4. So we’re really – we had only done $3 million in Q2 in Public Works and now much, much larger in Q3 and already off to a good start in Q4.

[Philip Shen:]

Great, that’s good news. And then finally, as it really the module inventory you give some commentary on the tier 1. Can you comment on how much excess module inventory you think you? Typically, I think, you in the installer, what the installers are experiencing with they like to keep may be 30 days to 45 days of inventory. Do you perhaps can share with us what you guys like to keep? And then how much additional inventory do you think you have, for example, is it additional quarter’s worth, or more, or less? Thanks.

[Paul McDonnel:]

Yes Chuck go ahead.

[Chuck Cargile:]

Let me answer and tell the way we talk about Phil and if that does answer your questions specifically then we can try again. But the way we look at it is now we have already arranged for all of the inventory that we’ll need for the projects we expect to install in Q4. All of Q1 also covered and part Q2 yes, that’s what we expect to be. So we have, unfortunately it’s been a bit of a drain on our cash because we’ve managed to acquire the inventory or get – or make deposits positive on inventory in order to secure that. But we’re pretty confident we have what we need for the rest of this year all of Q1 and even partly into Q2.

[Philip Shen:]

Great, good to hear. I’ll pass it on. Thank you.

[Abe Emard:]

And Phil that’s including the eight megawatt project, as well.

[Philip Shen:]

Okay.

[Abe Emard:]

We have to add…

[Philip Shen:]

Thanks Abe, thank you Chuck. Again we’ll pass it on.

[Operator:]

Thank you. And our next question comes from Jim McIlree from Chardan & Capital.

[Jim McIlree:]

Yes, thanks and good morning. On these cost overruns if I take the $1 million in cost overruns and exclude that from cost of sales, I still come up with a gross margin of about 22%, which is on the low side. I’m just wondering what’s driving that and what’s the reasonable expectation of gross margin going forward?

[Paul McDonnel:]

Yes I think in addition to the $1 million that would get you back to close to 22%, I think, we also had some negative fall off the margin because of the revenue that shifted into Q4 as well. So both of those were a drag in the quarter. I think the historical gross margin in the 20s is more reasonable and still also is very achievable. The one thing I will caution you, I think, I mentioned this before that as the Public Works programs become a greater percentage of the revenue, there may be a little bit of downward pressure on that gross margin from the mid-20s that we might have been used to or you might have been used to in the past. But it won’t have a negative impact on the operating margin because the Public Works programs by their nature carry lower operating expenses. So the lower gross margin won’t equate to lower operating margin. But we will be expecting to get back in the 20% range in gross margins going forward.

[Jim McIlree:]

Okay. And the cost overruns, I suppose that one way to look at it is it’s a random event and you’re just going to have those happen – just happen. And another interpretation would be is you stretch too much in order to make the bids. I’m trying to understand if either one of those series is plausible. At least what happened with these cost overruns and if so, if it’s more of a process standpoint what you’re doing in order to minimize the risks of overruns going forward.

[Paul McDonnel:]

Yes that’s a good question. And I think that the bigger piece of the $1 million is the first one that you explained, costs that were incurred in third quarter as we finished up jobs, so certainly more there. I will say that we – there are occasions where we strategically will take projects with lower gross margin if we think that it’s going to provide greater margin on follow-on projects, or because it gives us visibility to other projects, or other reasons to do that. So we’re, as you call it, maybe reaching too hard to get jobs. On the pricing side I would like to characterize it more as a strategic decision to take things at a lower margin than you might otherwise.

[Jim McIlree:]

Okay, got it. And then just, the nature of this backlog it’s Chuck since you’ve characterized your backlog now as something that has, I forgot the language you used, but it sounds like firm delivery dates and signed contract attached to it. May be you have pretty good expectations or fairly – fairly definite expectations about what you’re scheduled to deliver in Q4.

[Chuck Cargile:]

I think you would have – I think we have a very good visibility to what will be accomplished of that backlog over the next year or so. But there are so many things that can happen at the end of the quarter. The randomness of the quarter and doesn’t translate well to this type of business, because a customer can push something out for any reason they may want to, we’ve mentioned before if the ground is wet, we’re not going to do a big ground mounted system. There are other permits that have to be acquired. So there’s the difference in December 28 and January 5 is huge when you’re reporting the Q4, but it’s not that impactful when you’re thinking about the entire cycle time of a project.

[Jim McIlree:]

Okay. How about a different way to approach it, which is of the $64-ish million in backlog? How much of that is scheduled to start next year?

[Chuck Cargile:]

About 25% of that – between 25% and 30% of that backlog number are in the low teens is currently scheduled to be installed this quarter. And so anything that comes in the quarter or things that have already come in because we’re midways through the quarter, there are other things that come in, in Q4 that are quick turn and will immediately convert to shipments. And when I say that 14% that doesn’t include the residential business, which should have a good Q4 runs $7 million or $8 million in the quarter and we don’t manage that or evaluate that as much by backlog as we do on the ACI side. So 25% or 30% should be scheduled in the next quarter and then its spreads out over 2018, somewhat evenly as well. But again that can be impacted by any number of things that might push it a week or two weeks just as the other variables that I referred to.

[Jim McIlree:]

And this large 8.5 megawatt project is that a percentage of completion contract or is that delivery and revenue when the project is completed?

[Chuck Cargile:]

It is a percentage of completion.

[Jim McIlree:]

Most of the backlog revenue went delivered or percentage of completion?

[Chuck Cargile:]

Most of the backlog is percentage of completion, all the residential is completed contract.

[Jim McIlree:]

Right, alright.

[Chuck Cargile:]

Everything else is percentage of completion.

[Jim McIlree:]

And then lastly Chuck, I think, you hinted that the $4.4 million [ph] of OpEx is likely to come down. Obviously you’re not going to cut it at the same rate as you just from Q3 of 2016, but generally just kind of ballpark-ish what you think you can get that down to?

[Chuck Cargile:]

We’ll be – over the next month or so we’ll be in the throes of our 2018 budgets and planning process. So we’ll get a lot better idea of that. And ideally we’ll see our way to and continue to increase the revenue. And then the preference would be to hold operating expenses flat or down slightly in the midst of growing revenue to get that a percentage. If for some reason we think that the revenue level were to flatten out, then we’d get more aggressive in terms of taking cost out. Because as we’ve said, or as I’ve said for the last couple quarters the important thing is to be able to always be profitable in quarter. So if we think we’re going to be have quarters of $18 million of revenue, again then we need to lower the operating cost appropriately.

[Paul McDonnel:]

Got it, okay.

[Jim McIlree:]

Okay, great. Thanks a lot. I appreciate it.

[Operator:]

Thank you. And our next questions comes from Jeff Osborne from Cowen and Company. Sir you may state your question.

[Jeff Osborne:]

Hey good morning. I may have missed this, but could you give us Chuck the megawatts installed in the quarter.

[Chuck Cargile:]

I think Abe has that handy.

[Abe Emard:]

Yes, we have a combined 8.35 megawatt DC installed in the quarter.

[Jeff Osborne:]

Got it. And then you used to give like a table of the backlog and it sounds like with the de-bookings you like to not to publish there, which is fine. But can you just give us a sense of either the $38 million in bookings or the total backlog of $60 million plus, how many megawatts are in the backlog itself?

[Abe Emard:]

Yes, we have about 27 megawatts DC and $63 million of backlog.

[Jeff Osborne:]

Okay. And…

[Abe Emard:]

In off line we can break that out for you if you want to.

[Jeff Osborne:]

Sure.

[Abe Emard:]

Residential and ACI.

[Jeff Osborne:]

Got you. I would assume the majority of the backlog historically has been in a ACA just given the longer lead times from order and resi is more of a churns business, is that a safe assumption?

[Abe Emard:]

Yes, that’s right.

[Jeff Osborne:]

Right. And then can you just remind us on what given the de-bookings level in the quarter, can you just remind us of the two facets of that, what one your customer deposit policy is on the orders that people placed in ACA? And then two, when your sales folks get paid, so did you pay commissions on that $14 million that you’ve de-booked? And/or where there deposits that have to be returned?

[Chuck Cargile:]

Yes, I’ll answer the second one and then I’ll let Paul answer the first one about the deposits. So in terms of commission our sales team don’t get paid commissions on new sales. I believe they are mainly paid commissions when we collect the cash.

[Abe Emard:]

That’s correct.

[Chuck Cargile:]

Yes. So when we collect the cash we pay the commission. And Paul on deposit.

[Paul McDonnel:]

We don’t have a specific deposit policy from our – for our customers. Typically what happens is upon the execution of the contract and agreement on the configuration, there will be materials delivered to the site which the customer then in turn will pay for, which in effect functions as a deposit. While there may be an occasion where engineering, and permitting and those things need to be completed, the customer at that point in time has effectively has skin in the game as have the materials on site in anticipation of our installations. So there will be – so the earning process isn’t necessarily linear across the life of a project and that contributes to certain of the so-called lumpiness that occurs. So there is the materials delivery, and then there is the installation, but the milestones result in a cash commitment for materials that have been provided.

[Jeff Osborne:]

Got it. And you use the norm for ACI type projects that contracts will be structured in that way as opposed to trying to get 5%, 10% down at signing just to show good base commitment to.

[Chuck Cargile:]

Yes that’s normal.

[Jeff Osborne:]

Got it. And then the last question I had was just on Florida and Texas. I assume that those are ACI or C&I focused markets and not residential? And that’s part one of the question. And part two was, are the folks that you’re using there are those Sunworks employees, or are you using third-party lead generation people? And then would use an outsourced if you see vendors as well so essentially you’re a virtual company there without direct labor.

[Chuck Cargile:]

So in both Texas and Florida we had Sunworks employees not third-parties. And yes they are both primarily focused on the ACI part of the business. More focused today on ag where we’ve been very successful in California in the past. But as we’ve mentioned before there’s almost always a direct tie and a referral to our residential business. And so once we get a large ag project there’s almost always a follow-on somebody else that may be they want us to do their mom’s house, or they refer to a friend’s house. So we almost always get from residential business as a follow-on and that would be the same model that we would follow in those places.

[Jeff Osborne:]

And then on the installation side, is that your own staff as well or would you be using local contractors?

[Chuck Cargile:]

Yes we would evaluate on a case by case basis. If we had to – if it was beneficial to us or a customer preference to send people, we have from here to a site to do the installation we could do that. But at the same time our people there are developing the pipeline of projects, they are developing relationships with subcontractors as well it would be beneficial to go in that direction.

[Jeff Osborne:]

Great, I appreciate the detail. Thank you.

[Paul McDonnel:]

Jeff to follow-on your deposit question, we’re limited to 10% of the contract in residential. But in our ACI business we’re not limited too much there. And so our typical deposit ranges from 10% to 30%. And in some cases prepaying for modules and the equipment.

[Jeff Osborne:]

Okay I guess I’ll just take – and in so – I was trying to point out that ratios of your customer deposits on your balance sheet relative to your revenue flowing through and it looks like it’s well less than 2% if you use a six-month and nine-months lag. So I guess I’m just trying to reconcile if you’re using or maybe you’re not getting deposits to that magnitude, but it’s seems like your coverage ratio on deposits relative to a forward six-month or nine-month revenue in the future hasn’t worked out historically?

[Paul McDonnel:]

That customer deposit line on the balance sheet is – the vast majority that is related to residential projects.

[Jeff Osborne:]

Okay.

[Paul McDonnel:]

And so…

[Jeff Osborne:]

So somebody gave you a Letter of Credit from a large ag project where would that sit?

[Chuck Cargile:]

A Letter of Credit on a larger ag project.

[Jeff Osborne:]

Right it’s 8.5 megawatt project that you just signed, did someone give you a deposit for that and if so where would it sit in the balance sheet?

[Chuck Cargile:]

Jeff we were on that particular project we were paid a deposit to prepay for the panels and that was a pass through directly to the manufacturer.

[Jeff Osborne:]

Got it. Okay.

[Chuck Cargile:]

I think that answers your question.

[Paul McDonnel:]

And the other Jeff if some of those will go into billings in excess of cost as well I believe with me.

[Chuck Cargile:]

Yes.

[Jeff Osborne:]

Perfect, thank you.

[Paul McDonnel:]

You’re welcome.

[Operator:]

And Chuck, I’d like to go ahead and turn the call back to you, since there appear to be no more questions.

[Chuck Cargile:]

Okay thank you all for joining us today and for your interest in Sunworks. Management and Investor Relations team at Hayden IR are available. If you have follow-on questions, please reach out directly to Hayden Investor Relations. And we look forward to keeping you addressed of our progress going forward. Thank you.