Sunworks, Inc.
Q4 2016 Earnings Call Transcript

Published: 29 Mar 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the Sunworks Fourth Quarter and Year End 2016 Earnings Call. All lines have been placed on listen-only mode. [Operator Instructions] At this time, it's my pleasure to turn the floor over to your host, Rob Fink of Hayden IR. Sir, the floor is yours.

[Rob Fink:]

Thank you, operator. Good morning, everyone and thank you for joining Sunworks fourth quarter and full year 2016 earnings conference call. Joining me on the call today are Jim Nelson, Chairman; Chuck Cargile, Sunworks newly appointed 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, March 29, 2017. Sunworks assumes no obligations to update these projections in the future as market conditions may change. This morning, the company filed its 10-K with the SEC and issued a press release announcing its financial results. Participants on this call who may have not already done so may wish to look at these documents, as we provide a summary of the results on this call. I would now like to turn the call over to Sunworks' Chairman, Jim Nelson. Jim?

[Jim Nelson:]

Thank you, Rob, and good morning everyone. Thank you for joining our call. In addition to announcing our Q4 and year end earnings earlier this morning, we made a major announcement that I believe will be a significant catalyst to elevate Sunworks to the next stage of its evolution and further scale our business to accelerate profitable growth for years to come. Over the past six years, Sunworks has transformed itself from a pre-revenue technology company with no customer facing operations into one of the fastest growing solar power solutions companies in the world. We have expanded our organization from just four employees in 2010 to more than 230 employees today and we have significantly expanded our operational footprint with customers in more than seven states and looking to expand into five to seven more in 2017. During this time, we have significantly worked to strengthen our organization and put in place the necessary infrastructure to keep pace with our rapid growth and the evolving needs of our business. As our addressable market continues to grow, we must take steps to further scale our business, so we can officially capitalize on the opportunities in front of us. With that, I have made the decision to appoint Charles F. Cargile to replace me as Chief Executive Officer of Sunworks and lead us to the next level of success. I will continue as the Executive Chairman of Sunworks Board of Directors. Chuck is an accomplished results driven public company executive with more than two decades of operating experience executing corporate strategies for publicly traded companies. Having been both the Board Member and a consultant for Sunworks, Chuck has a deep understanding of our business and a strong track record of leading the organization experiencing significant growth. As CEO, Chuck will be intently focused on developing the infrastructure and organizational discipline necessary to officially capitalize on our exceptional growth opportunities. Chuck served as Chief Financial Officer for Newport Corporation, a publicly traded global supplier of advanced technology products and systems for more than 16 years until the company was acquired by MKS Instruments in April 2016 for approximately $1 billion representing a 40% premium for shareholders. At Newport, Chuck was responsible for all aspects of finance, accounting, information, technology, mergers and acquisitions and strategic planning. He is a process driven leader with extensive backgrounds in operations, capital structure management and business strategy. During his time with Newport, the company grew revenue from approximately $100 million to more than $600 million. Chuck joined Sunworks as an Independent Director in September 2016 and he has added significant value to us in this role while getting to learn our business intimately. I'm very confident that under Chuck leadership, we will continue to build on our company's strengthens and drive long-term profitable growth, while creating value for the company and our shareholders. So it is now my pleasure to introduce you to Chuck Cargile, our Chief Executive Officer.

[Chuck Cargile:]

Thanks Jim. It's an honor to join you today and I'm very excited to begin this journey with the company. Over the past six months, I have gained an intimate understanding of Sunworks from my position on the Board and I'm impressed with what's been accomplished in the last several years. But, more importantly I'm very enthusiastic about what we can accomplish going forward. Under Jim's leadership, Sunworks has become one of the fastest growing solar solutions providers in the United States. He has driven the strategic scaling of the business through acquisition and organic growth and has cultivated a strong organizational culture that prioritizes customer satisfaction. Sunworks is need uniquely positioned today at the forefront of a growing industry with a compelling value proposition. We have a world-class team in place and we have engaged in loyal customer base and we operate in an attractive market that's poised for continued and significant growth. These factors played an important role for me as I evaluate this position. But the primary reason I accepted this opportunity is because I see a clear fit between the company's need and my experience and skill set. I understand the challenges that company's like Sunworks face as they work to scale their business and I had experience implementing disciplined processed driven strategy that enhance growth and drive profitability and shareholder value. I know that shareholder value isn't created overnight, it's built overtime, and it's my responsibility and goal as CEO to deliver this to all of our stakeholders. Going forward, I will be working hand-in-hand with Paul and Abe and an entire organization to build on the strengths and core competencies of our business while looking to identify opportunities to enhance our growth strategy and operational efficiency over time. I know the Board will continue to be invaluable for the company and with Jim as Chairman of the Board; our transition will be a smooth one. I personally call on Jim as a seasoned, knowledgeable resource to enhance my contribution to the company. I look forward to speaking to all of you again on our first quarterly earnings in May and reporting back then with the insight from my first 45 days as CEO. But for now, I'd like to turn the call back to Jim to begin the year end earnings review.

[Jim Nelson:]

Thanks Chuck. So, we delivered significant revenue growth of more than 60% in 2016 outpacing the industry significantly. We accomplished this growth while investing for the future. These investments included personnel, equipment and systems to strengthen our ability to capture additional growth in 2017 and beyond as well as efforts to broaden our addressable market to capitalize on commercial and agricultural market opportunities. We also invested in new business licensing to expand our footprint into new target rich regions, which we believe will have burgeoning demand for solar installations. The success of our efforts is reflected not only in the top-line growth, but also in our all-time record backlog at the end of 2016. In summary, 2016 was an important year for Sunworks, and I look forward to the future with growing optimism. But this year was not without challenges. We experienced growing pains with some of our internal processes as we attempted to keep pace with the rapid acceleration of the front-end of our business. This is an area we are confident Chuck can quickly address. Also the weather wasn't on our side. As the level of rain in our regions during our normally busy fourth quarter hampered our business pushing some expected revenue in the future periods. It is worth noting that the rain affects the commercial business more than our residential business. In periods of heavy rain, residential crews can be back on the roof as soon as the rain stops. Much of our commercial business on the other hand involved ground mounting systems that require dry ground before we can move our installation equipment into place. So serious rain for a couple of days can actually delay a job for a week or more. In fact, in the fourth quarter our commercial sales declined slightly while residential sales increased by nearly 30% relative to the fourth quarter in 2015. As a result, we recorded an unexpected operating loss in the fourth quarter. Much of this impact was non-cash or non-operational as more fully disclosed in our 10-K and as Paul will discuss shortly. Nevertheless, we are not satisfied with the financial results of the second half of the year, while we are confident that we can quickly address the underlying root cause of these issues and build upon growth to return to profitability in 2017. Now, I would like to talk a little bit more in detail about our business. Overall, the demand for our solutions and our positioning with commercial and residential customers in the markets we serve remain strong in particular our commercial and agriculture business continues to benefit from high referral rates from existing customers expanded market penetration as strong customer demand in the markets we serve. This overall trend shows no signs of slowing in 2017. However, in the near-term, given the unprecedented levels of rain in California during the first quarter, we expect Q1 revenues to be impacted accordingly, while our financial results may vary from quarter-to-quarter, our backlog is currently at historic high levels providing a solid foundation for visibility for our growth throughout 2017. During the fourth quarter, our agriculture, commercial and industrial team began working with 10 new strategic channel partners who have historically produced over $100 million in sales across California, Texas, New Mexico, Oregon and Massachusetts. These new relationships expand our footprint and will further establish the Sunworks brand and reputation in new markets without a direct cost of expanding our internal sales force. To maximize the value of our channel partner network, we have developed a systematic software portal to offer our channel partners continuous synchronies access to our CRM system allowing for the constant real-time flow of information, so that we can operate seamlessly with each other. We have also forced a new partnership and master supply chain agreement with Solectria Solar, the number one commercial inverter supplier in the U.S. in addition to enhancing our inverter supply chain; this relationship will greatly expand our brand awareness for Sunworks. We have also expanded relationships with third party financing partners who can help provide optionality for our small and mid-size commercial and industrial customers who have historically faced challenges financing projects. Our efforts to expand into the federal markets led by Charles Cunningham have been gaining traction as well. We are forming relationships with many new energy solar organizers or ESOs. We anticipate continued development of solar installations at federal facilities nationwide and are excited for Sunworks to be pioneering this implementation. We are also excited to be implementing our new community solar program across the U.S. We have developed a proprietary program for utilities and municipalities who are considering community solar to evaluate implementation options. Our disruptive approach to the community solar arena across multiple states will serve as yet another potential growth factor for Sunworks. As we expand and grow our revenue in Texas, New Mexico and Oregon, we will utilize a more variable cost structure to enable us to adjust to peaks and valleys in our business environment to ensure more consistent profitability. Meanwhile, on the residential side of our business, we continue to develop our installation centric approach to the business model. During 2016, we reduced our sales and marketing costs as a result of our outsource sales partnership model. During the fourth quarter, we brought on-board an experienced and proven business manager, Andy Lund to help us with further expand and manage our sales partnerships. Andy has an expansive network and track record helping organizations like ours manage and further reduce the cost of customer acquisition. We also launched the PowerPay App on Google and Apple stores to further expand our opportunities to attract greater referral business. This world-class mobile app will allow people to refer business to us with a convenient easy to use interface for their smartphone and be rewarded for referrals that convert to installations for Sunworks. In addition, our residential customers who need financing, we have established a partnership with Elements Capital in Utah to provide preferred access for capital for our customers thereby creating a competitive advantage for Sunworks. Our residential business continues to grow geographically as well gaining some larger playing fields to utilize our new tools and business approach. We are pleased with our launch of operations in Oregon and are now following up with Washington and Texas. Looking forward given the strength of our business, our track record, our record breaking backlog and a recent expansion into sales channels, we are reiterating the outlook we previously announced for the full year of 2017 with an increase in revenues of 30% versus 2016. We are also confident that Sunworks will be profitable for the full year. Finally, being that this will be my last earnings call as Chairman, I would sincerely like to thank all of the Sunworks employees past and present, who have helped the organization to get where it is today. I would like to thank our investors who continue to support us and I have confident under Chuck's leadership, we will continue to build our company's strength and drive long-term profitability, while creating value for the company and for the shareholders. As I continue the role of Chairman of the Board, I will act as an advisor and partner to Chuck in delivering Sunworks growth in revenue, profitability and enhanced shareholder value. I would like to now turn the call over to Paul for a full review of the financial results for the fourth quarter and full year.

[Paul McDonnel:]

Thank you, Jim, and good morning, everyone. I'm pleased to be joining you today on this conference call to review the financial results for the fourth quarter and the audited results for the full year ended December 31, 2016. Since arriving at Sunworks in mid-September, we have been involved in an extensive reconfiguration of the accounting systems and processes. This reconfiguration will streamline and enhance our internal reporting capabilities in 2017. With three companies coming together for the first time for a full year in 2016, the financial audit process has been invaluable in identifying priorities upon which to focus. This audit process has created a foundation of information that we can use, the benchmark, future performance and has an enhanced durability to support future decision-making. For the fourth quarter of 2016, total revenues were $18.4 million, an increase of 6% compared to $17.3 million reported for the fourth quarter of the prior year. Our revenue increase is the result of stronger residential installation revenues. Residential revenues were 45% of our total and equaled $8.4 million for the quarter. This represents an increase of $1.9 million or 29% over the same period in the prior year. Agricultural, commercial and industrial revenues were $10.1 million and made up 55% of our revenue and it's actually a small decline year-over-year. For economy of words, I will refer to agricultural, commercial, industrial and public works revenues as ACI revenues in the balance of my portion of the presentation. Typically our ACI revenues exceed residential revenues, but for the fourth quarter 2016 was atypical due to the heavy periodic rain in Northern California making several ACI project sites inaccessible during the fourth quarter, which Jim explained rain impacts ACI installations more than residential. Please keep in mind that ACI projects are more complex than residential projects. ACI projects take longer to design, engineer, permit and complete. ACI projects are also more prone to delays in receiving approvals, permit and final inspections. Only upon receipt of a final inspection certification can 100% of the revenue from an ACI project be recognized. Our cost of goods sold in the fourth quarter of 2016 includes additional direct and indirect installation related overhead costs due to the Elite Solar acquisition, which was completed in December of 2015. During the fourth quarter, we experienced an increase in costs year-to-year without a corresponding increase in revenues. The additional fixed overhead combined with some non-recurring year-end adjustments for inventories including modules, racking and additional charges for some contracted engineering, electrical, roofing and installation labor contributed to a higher cost and lower margins for the quarter. Gross profit for the quarter was $2.3 million or 12.4% of revenue for the three months ended December 2016 compared to $6.3 million or 36.4% of revenue for the three months ended in December of 2015. Lower revenues amplified the percentage swing as fixed charges make up a greater percentage of our total cost of goods sold. In the process of consolidating three different entities, reclassifications of prior year operating expenses have been made for consistency. Total operating expenses excluding depreciation and stock-based compensation for the fourth quarter of 2016 were $5.5 million compared to $4.7 million in the fourth quarter of 2015. Selling and marketing expenses were $3.1 million in the fourth quarter or 17% of revenue compared to $2.2 million or 12.7% for the fourth quarter of 2015. Selling and marketing expenses increased quarter-over-quarter primarily due to our aggressive expansion of our ACI sales team this past summer. In addition, although we eliminated the call center operations in August and reduced the associated media advertising expenses, expenses resulting from the winding down of these activities carried over into our fourth quarter. General and administrative expenses were $2.6 million or 14.2% of revenue in the fourth quarter of 2016 compared to $2.6 million or 15% of total revenue in the fourth quarter of last year essentially flat. Stock-based compensation expense was $277,000 during the quarter compared to $29,000 in the prior year quarter. Depreciation increased to $105,000 in the fourth quarter, up from $25,000 in the prior year. Results of total gross depreciable asset additions of $1.3 million [indiscernible] during 2016. The net loss for the quarter of 2016 was $3.7 million compared to a net income of $1.2 million in the year ago quarter. Turning to the full year results, total revenue for 2016 increased by nearly $33 million or 61% to $86.4 million up from total revenue of $53.7 million in 2015. The inclusion of Elite Solar for the entire year accounting for about $13.2 million of the $33 million increase. Organic growth accounted for over $19.4 million of the $33 million increase. For 2016, the revenue mix was 67% ACI and 33% residential. In 2015, the revenue mix was 60% ACI and 40% residential. The shift in revenues to be more heavily weighted toward ACI is the result of the Elite acquisition and Elite focus on ACI installation. Gross profit for 2016 increased $5.1 million to $22.1 million or 25.6% of revenue compared to 2015's gross profit of $17 million or 31.7% of revenue. The decline in margin percentage is attributable to a combination of changing sales mix, pricing pressure as competitors compete for market share and some of the fourth quarter adjustments, which I referenced earlier. These changes were partially offset by decline in module prices. Total operating expenses excluding stock-based compensation and depreciation were $23.7 million for the year. This is an increase of $9.3 million compared to $14.4 million for the full year and 2015. Selling and marketing expenses for the full year of 2016 were $12.3 million or 14.2% of revenue compared to $9.3 million or 17.4% of revenue for the full year of 2015. This is a $3 million increase. The year-over-year increase is partially the result of our establishment and staffing of a residential design center and call center. Both centers were dedicated to residential customer acquisition. The residential focus was also supported by increases in media and indirect advertising. In August, we also began an aggressive expansion of our ACI sales team with those additional expenses being carried through the end of the year. General and administrative expenses were $11.4 million or 13.2% of total revenue in 2016 compared to $5.1 million or 9.5% of total revenue in 2015. The increase is due primarily to increases in expenses associated with a full year of operations following the acquisitions of 2015. The integration of acquired companies into a single operating entity Sunworks United was augmented with additional staff, insurances, facilities and professional services to support a larger organization and to support anticipated growth. The net loss for 2016 was $9.4 million or $0.40 per basic and diluted share compared to a net income of $1.1 million or $0.06 per basic and $0.05 per diluted share in 2015. [indiscernible] losses attributable to non-cash expenses such as the expense in a stock-based compensation of $6 million. Most of that expense is related to restricted stock brands issued in 2014 and vesting in 2016. Additionally, we had non-cash amortization of debt discount of another million dollars contributing to the net loss. Turning to your balance sheet, our cash and cash equivalents were $11.1 million at the end of December compared to $12 million at December 2015. Cash decreased by $900,000 for the year, working capital decreased by $2.3 million partially as a result of $1.3 million spent during 2016 on capital equipment to support operations. Our outstanding debt at the end of 2016 consists of $1.6 million of convertible notes, a portion of which bears no interest. The remaining notes of 713,000 are result of either acquisitions or equipment financing; nothing was outstanding on a revolving line as of the end of 2016. With that, I'd now like to turn the call over to the operator for questions.

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Jeff Osborne from The Cowen Group. You may now state your question.

[Jeff Osborne:]

Yes, good morning guys, thanks for all the detail on the call, just couple of questions from me. I was wondering on the rain impact, if you can quantify how many megawatts you had originally intended to install that maybe been pushed out within that backlog. So I'm just trying to get a sense of the backlog itself, how much was organic growth in the backlog versus kind of carryovers because of the rain in 4Q, and then, just how do we think about the run rate of installs in 1Q relative to the fourth quarter results as well.

[Jim Nelson:]

Sure. We feel like about five megawatts got pushed out. In terms of the impact between organic and what fell over into Q1, you noticed in our discussion that rain was a real impact of course as you know in Q1 because the rain here about half the time. And one of the problems as I mentioned in the call with commercial is that most of our agricultural installations are ground mount and so even if it rains couple of days, it takes a while before the ground dries up enough so we can take equipment out there. So really we had very difficult first quarter, but it looks like the numbers are coming in really strong right now, so we don't know exactly how it's going to come in this quarter. We do know that we have an all-time high backlog. Part of that is just great sales in Q4 and Q1 actually great sales activity I should say and is piling up. So in this quarter, we think that probably five megawatts slipped into this quarter and probably beyond at this point because of all the rain in the first quarter, but sales activity is really strong and while the rain affected us in Q4 and Q1, it's going great guns now.

[Jeff Osborne:]

That's good to hear. Then two part question on the OpEx, one can you just give us how we should be thinking about the run rate for 2017 in terms of OpEx, you had a lot of moving pieces in the second half of calendar 2016. And then with the restatement it's certainly would be helpful if you could possibly post to the Web site Jim or send around to the analysts what the quarterly OpEx line items were for 2016 in terms of how we think about that?

[Jim Nelson:]

Okay. Let's -- we'll get to work on that and let us get back to you about it and I know Chuck and Paul are going to be working on that -- on the issue of OpEx and will be able to contact you and discuss it with you.

[Jeff Osborne:]

All right. And just what about 2017 as we look for the year ahead obviously you gave the guidance of 30% growth on the top-line and being profitable, but how do we think about the trajectory of -- especially as we contemplate moving into additional states.

[Jim Nelson:]

Yes. We'll be pretty disappointed if we only do 30% to be real frank, but 30% we're giving as guidance and we feel real strongly about that. And frankly we began moving into multiple states last year and now it's part of the reason why we had more operating expenses relative to revenue of course that's always a ramp-up period, but now we believe that this year those states into which we have expanded in some of those that we continue to expand, while we expanded money, we'll start producing and in fact Abe and I were discussing that this morning, we're very bullish of what's going to be happening in those new territories this year.

[Jeff Osborne:]

Great to hear. Thanks so much.

[Jim Nelson:]

Thank you, Jeff and we'll talk to you soon about the conference as well.

[Operator:]

Thank you. And our next question comes from Jim McIlree of Chardan Capital. You may now state your question.

[Jim McIlree:]

Thank you. Good morning.

[Jim Nelson:]

Hi, Jim.

[Jim McIlree:]

I would like to try that. Hi Jim, I'd like to try that OpEx question one more time. So we've got what is it $5 million, $6 million of OpEx in both Q3 and Q4 and that's excluding stock comp and D&A. Is that a reasonable level for quarterly OpEx going forward?

[Jim Nelson:]

Yes. Although part of bringing Chuck in is that we're going to impose real discipline on our organization in our OpEx. And so we expect relative to income to see the percentage come down, given our growth and so forth the actual dollars may not come down, but the percentage will come down.

[Jim McIlree:]

Okay. And then, I'd also like to reiterate toward or support Jeff's request to get a quarterly OpEx restatement if you could.

[Jim Nelson:]

Okay.

[Jim McIlree:]

Why was there such a big drop in gross margins in Q4?

[Jim Nelson:]

A lot of that was the restatement frankly Jim. We had some additional costs that we put into their -- that we're just restating some of the things that we done before. Frankly, as I mentioned before, we're going to see squeezed margins as time goes on, but that is not what happened with the big drop in Q4 and we can also discuss that more.

[Jim McIlree:]

Okay. And I'd like to -- I'm a little bit confused by your backlog commentary, so going into this quarter, I think the expectations were for a much larger quarter than actually occurred and the reason for that delta is delays in projects because of rain and other things. So I would have expected backlog to be much higher, I mean, since the business was expected to be higher and where things kind of out of your control that delayed them, why wouldn't you have a much bigger backlog right there?

[Jim Nelson:]

Well, we do have right now. We do have a much bigger backlog. Today we have a substantially bigger backlog and we saw a lot of good sales activity, but a lot of it -- obviously a lot of the projects that pushed from Q3 have also pushed into this year now and continue on the backlog where as we had relatively -- well, we had some good sales activity, but we expect we do now have a substantial backlog -- substantially higher than it was at the end of the year.

[Jim McIlree:]

Okay. And so that maybe as a partial answer to my next question.

[Jim Nelson:]

Okay.

[Jim McIlree:]

If Q1 is kind of weak, so you're not telling me what that is but let's say it's kind of like Q4, that would mean in order to hit your guidance, you need $30 million plus on average for the next thee quarters, which you've only done once. And so I'm just -- it just makes it difficult to get to that high of a number unless you have a significantly higher backlog to support very, very strong nine months.

[Jim Nelson:]

In our preannouncement we've given a number on the backlog, so in the preannouncement, we said the backlog was $60 million at that time and we've obviously sold more since then and so we think that our backlog will support $30 million plus per quarter going forward. And plus on top of that Jim, I ought to mention two, one of the things I said in the -- my statement too was that we really have momentum. So besides the backlog of being sold, we have substantial pipeline for probably the biggest pipeline we've ever had projects that we are on the verge of closing and that we feel good about now you only get a percentage of those of course and we don't tell anything in the backlog that's not contracted in and so on. But we just feel like the momentum we have today is greater than the momentum, we've had at anytime before this. And so yes, we are bullish, we think that we'll do $30 million on average easily over the next three quarters.

[Jim McIlree:]

Okay, great. Thanks a lot, Chuck, good luck with everything and welcome and Jim don't be a stranger.

[Jim Nelson:]

Yes, certainly won't. I'm still -- everybody should know that I'm still fully engaged, it will be a cutback in time and Chuck's in-charge, but I will still be here.

[Jim McIlree:]

All right. Thanks a lot.

[Jim Nelson:]

Okay. Thank you.

[Operator:]

Thank you. And our next question comes from Anthony [indiscernible]. You may now state your question.

[Unidentified Analyst:]

Hi, good morning. Question for you regarding finances, given where you are today, do you feel you will have to tap the equity markets or any type of capital in the near future?

[Jim Nelson:]

Not in the near future, we don't anticipate anything in the near future, Anthony.

[Unidentified Analyst:]

Okay. So obviously I expect what you're saying is, if you -- I guess my next question is, are there any thoughts about potential acquisitions are you seeing anything out there, do you feel that there is the opportunity to grow, I want to call it inorganically through acquisition?

[Jim Nelson:]

One of the things that we do in acquisition is to use our share price and our equity is in currency and right now we feel the equity is depressed. And so yes, we are going to constantly be interested in additional companies to buy and we'll be looking at them. But, it's unlikely that we will buy anything until our stock price recovers.

[Unidentified Analyst:]

Okay, great. Thank you very much.

[Jim Nelson:]

Okay, take care.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Carter Driscoll of FBR. You may now state your question.

[Carter Driscoll:]

Good morning, gentlemen.

[Jim Nelson:]

Hi, Carter. Good to hear from you.

[Carter Driscoll:]

All right, Jim. Just I have to [believe] with the backlog question, but I mean given your only couple of days from the end of the quarter is there -- could you quantify the change from the end of the year to what it is now and if not, could you at least address, is the mix substantially different from your historical ACI versus residential and then I have a couple of follow-ups.

[Jim Nelson:]

No. The mix remains somewhat the same. We said earlier in the month that our backlog is $60 million roughly at the time or little over $60 million. It's likely that toward the end of this quarter it will be somewhere in that range -- can't be anymore specific right now.

[Carter Driscoll:]

Okay. So, it would be somewhere around 50% book-to-bill versus your expectations for top-line growth this year, is that fair?

[Jim Nelson:]

Right.

[Carter Driscoll:]

Okay. Talk about the engagement process for community solar versus traditional or commercial engagement, is it back to slower and maybe kind of your outlook for how that could potentially contribute to 2017 and beyond?

[Jim Nelson:]

Abe, do you want to talk about that? How community solar and how we're doing on that, what the process is like for community solar?

[Abe Emard:]

Yes. Without going into too much detail.

[Jim Nelson:]

Before you answer, let me just introduce Abe Emard, our Chief Operating Officer and Abe is responsible for community solar and has been through the whole process with one that we saw just recently.

[Abe Emard:]

Yes. Good morning to everyone. So we've made tremendous progress in our community solar program from an EPC side, from a finance side and program and administration side. We've found success in our local region and are currently expanding that to multiple community solar friendly states. So we're excited about that and the future is bright for us in community solar.

[Jim Nelson:]

Yes. One of the things he asked Abe too is, what is the process of selling community solar relative to typical ACI business?

[Abe Emard:]

The process is different and that its community solar and the customers buy the power from the utility company through a billing process. So the customer acquisition process is a little bit different. You're working with more municipalities, small utilities and cities so that's minor differences.

[Carter Driscoll:]

And the timeframe, I mean it's fair to say it's elongated versus the traditional engagement with commercial customer?

[Abe Emard:]

It can be a little bit longer the sales process, but not too much longer.

[Carter Driscoll:]

All right. In some of the new territories, Jim, which of the relatively newer geographies you're most bullish about maybe talk about the competitive environment? And then, no new fact on changing in the metering policies and/or potential changes to rate structures impacting your business in either the newer existing territories.

[Jim Nelson:]

Sure. Let me just specifically answer your first question, first. We really like New Mexico and Texas, now the economics of course in Texas aren't as good as in California. But, the fact is everything is on a demand curve and so even if the economists aren't as good, they're not nearly the amount of competition, we have some really strong partners there to help us with it. And so we're very bullish on our opportunity there. It's a huge state, number two in the country. And so we think there is a great opportunity for solar there and we anticipate we've talked about some awfully big numbers over the next two or three years there. New Mexico, we think there is some low hanging fruit and we have great relationships in New Mexico, so we're really happy with those too. We find Oregon and Washington both were positive on them and we think those would be steady growth businesses. In terms of the changes in future legislation and the regulatory environment, we don't really have any nervousness about any of the states that we're in right now. California of course we're dealing with NEM-2 metering two here. But we don't think it has an impact on our business. Some other people have seen impacts on their business, but from our perspective it's just been just fine. We think that there will be loosening regulations in some states, for example, Texas and Florida, which we have our eyes on. And we think that's going to create a tremendous opportunity for us. So we're pretty bullish generally. So let me answer an unasked question too and that is what is the effect of President Trump's policies? And we just don't think they're going to have an impact on the solar business, obviously on utility solar may have an impact, but we think going forward that there is -- he understands that this is now a business it's not just an opportunity, it's an industry that employees 100s of 1000s of people, it is booming and it will grow for the next 20 years and I believe that not only will it be unencumbered by the administrations policies, but I think they will find ways to make it work.

[Carter Driscoll:]

I appreciate that. And then, maybe the last question, not to be too aggressive, can you talk about installed cost per watt [indiscernible] or the ACI business where it is roughly today or range in where you expected to be year end?

[Jim Nelson:]

Yes. We haven't put that out publicly so I'm going to hold back on it, but I will say that has dropped -- has dropped and dropping and we see continued visibility to dropping costs on that side, but we haven't published anything on our costs.

[Carter Driscoll:]

All right. If you can't give that…

[Jim Nelson:]

By the way, I ought to mention, one of your questions was since the year end and we have seen some stabilization of some equipment prices since the year end. Even in some circumstances, they have gone up a little bit, but we don't -- we think this is a short-term correction to dramatic price drops of last year or cost drops of last year and we think that the long-term trend is still down.

[Carter Driscoll:]

And maybe just last question on the stores up tick, anyone -- you're seeing an up tick in bids for store plus storage and I think if you could effectively address that market going forward?

[Jim Nelson:]

Yes. We think that the best way to address it is to be technology agnostic, so we have partnerships with three or four of the storage companies that -- we like them all. And so we're very happy about that. But still as you know, the economics of storage just doesn't really work for the vast majority of people. And so at some point in the future, the technology that is currently being developed out there somewhere is going to work and remaining technology agnostic will allow us to be nimble enough to go and absorb that technology when the time comes and put it into our process. In the meantime, yes, we've done some storage installation, we don't see a tremendous increase in demand for it, but people are much more interested and therefore we're staying on top of the technology and the opportunity there.

[Carter Driscoll:]

Appreciate answering all my questions guys, good luck. Thank you.

[Jim Nelson:]

You bet, Carter. Take care. See you soon.

[Operator:]

Thank you. There appear to be no further questions at this time. I will now turn the floor over to Jim Nelson.

[Jim Nelson:]

Great. Thank you everyone for coming on the call. Let me just mention that not only will I remain as a Chairman of the company, but I'm also a shareholder and this is a very exciting time for Sunworks. As a shareholder, I feel there is no more positive action that we could have taken to ensure our future growth and profitability of the company than to bring in someone like Chuck Cargile's stature and skill set that coupled with the backlog or momentum in our sales pipeline in the future of the solar business makes this a great time to be part of Sunworks. Thanks so much for believing in us and we will make you proud this year.

[Operator:]

Thank you. This does conclude today's conference. We thank you for your participation. You may now disconnect your lines at this time and have a great day.