Sunworks, Inc.
Q1 2015 Earnings Call Transcript

Published: 19 May 2015

[Operator:]

Greetings and welcome to Solar3D’s First Quarter 2015 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Andrew Haag, Managing Director and Partner at IRTH Communications. Mr. Haag, you may begin.

[Andrew Haag:]

Good afternoon and thank you everyone. I’d like to welcome all of you to Solar3D’s first financial results conference call covering the first quarter of 2015. With us today are Solar3D’s CEO, Jim Nelson and the company’s CFO Tracy Welch. Before I turn the call over Jim, I’d like to remind you that in this call management’s prepared remarks contain forward-looking statements which are subject to risk and uncertainties and management may make additional forward-looking statements during the question-and-answer session of this call. 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 personal, changes in legal and regulatory requirements, in addition any projections as to the company’s future performance represent management’s estimates as of today May 18, 2015. Solar3D assumes no obligation to update these projections in the future as market conditions may change. Last Friday the company filed its 10-Q with the SEC and issued a press release announcing its financial results. So participants in this call who may not have already done so may wish to look at those documents as we provide a summary of those results on this call. I would like to now turn the call over to Solar3D’s CEO, Jim Nelson, who will give an overview of the company’s business activities and developments for the first quarter 2015. Jim will then turn the call over Tracy Welch, CFO of Solar3D, who will provide an overview of the company’s key financial performance, metrics and we will then open up the call for Q&A. Jim.

[Jim Nelson:]

Thanks very much, Andrew. Actually after Tracy speaks I’m going to speak again and then I’ll have a few more wrapping-up comments and I’ll look forward to fielding your questions. Thanks so much for your interest in Solar3D and for tuning into our call and we’ll look forward to answering your questions and chatting at another time as well as this call. So for our operational highlights for quarter one, we were very busy. The big news of our first quarter is that we up-listed to NASDAQ during March 2015 and we raised $12.5 million which was netted to $11.2 million, thanks to the great efforts of Cowen and Company for whom we have the deepest respect and our attorney Sichenzia and we are so thankful for their help. We completed the acquisition of MD Energy also in early March. We’re grateful to have Danny Mitchell as part of our management team and feel great about the direction that MD Energy is going. A couple of important metrics that I would like to share with you. We booked new sales, not new revenue, but new sales of $17.3 million during Q1 of 2015 versus $3.3 million of Q1 ’14, which was over a 400% increase. Our ending backlog during the quarter, which I think is one of the key metrics that you’ll want to consider as these quarters go by, was $14.7 million at the end of Q1 2015 versus $2.3 million at the end of Q1 2014. We secured a $2.4 million contract to install complex solar system design to protect against rising utility costs. We are starting to look at many of these much larger contracts as well and have an opportunity to announce some of those as we sign contracts going forward. We expanded operations into Nevada at the beginning of January and have a very fine management team there, and we have had success beyond what we had hoped for so far. We also reported growing market opportunity created by widespread adoption of solar energy in the farming market which was cited by Renewable Energy World. We launched a proprietary referral program, with which we were having great success in expanding our residential solar market. We call that referral program our PowerPlay Plan. And finally, we appointed Tracy Welch as the CFO to strengthen our corporate management team and provide leadership for future acquisitions. I am personally really grateful to have Tracy with us and I’m going to turn the time over to Tracy to talk about some of our financial highlights.

[Tracy Welch:]

Thanks Jim. I’m glad to be on the call here today, glad to be a part of the company. The first quarter of this year we reported revenue of $5.7 million, which was an increase of 440% over our first quarter last year. Now just for comparison purposes, last year SUNworks was a subsidiary for only two months of the quarter, so it’s not exactly apples-to-apples, but the January and before we acquired them was not a huge month for them. So it’s not materially different from that. In the first quarter of this year, we completed the acquisition of MD Energy, in the beginning of March. Their revenue for this quarter of this year was inconsequential to our results, so we are looking for bigger results going forward. Our gross profit was $1,941,461 and this was primarily a result of the increased sales growth that we have. The good news is our gross margin grew from 26% last year to 34% this year. We are really excited about that. We’ve got better efficiency as we get bigger and we had a good mix of jobs in the quarter. Our selling and marketing expenses were $1.1 million, which was about 20% of our revenue and this was up from $185,000 last year, about 18% of our revenue. So on a percentage basis we’re pretty much in line and mostly these costs were involved with building a residential business going forward. For the company, one of the metrics we are looking and tracking is how much we spend to acquire customers. In this quarter we spent just under $1,500 per customer to do that versus about $2,000 a year ago, which we think is still much lower than what the industry is incurring. On the G&A side, we had expenses of $1.8 million. This compares to just under $1 million last year. The number includes a lot of one-time expenses associated with our stock offering and with the up-listing to NASDAQ. That totaled approximately $1.3 million, resulting in an operating loss of approximately $1 million for this quarter compared to an operating loss, 2014 first quarter of $900,000. Our other expense items totaled $0.4 million for the quarter, which is made up of a gain on change of fair value of our derivative liability, about $68,000. This was offset by almost $0.5 million of non-cash interest expense recorded on a convertible note. This compares to last year’s, where we had a $3.1 million expense which consisted of $1.8 million non-cash loss on the fair value loss of derivatives and $1.3 million in non-cash interest expense. Our net loss for the quarter of $1.4 million was $0.10 a share compared to our loss last year in 2014 first quarter of $4 million or $0.43 a share. Our adjusted EBITDA which was a number that we like to show, we know it’s not a GAAP measure, but we think it gives us a better idea of what we’ve done as a company. So we presented it in our press release. Basically we are looking at our net loss of $1.4 million, we add back the gain that we took and we deduct the amortization of debt discount which was a non-cash item that gives us a adjusted net loss of just over $1 million. We add back the one-time cost, non-cash items, we’ve spent about $30,000 on acquisition of MD Energy and the cost associated with up-listing and legal fees. That gets us to an adjusted EBITDA of just about $6,000; so on a cash basis we’re pretty flat for the year. That compares to on a similar calculation basis of almost $700,000 loss in 2014 for the first quarter. Now let’s talk just a little bit about the balance sheet. It’s one of the things that make this quarter with our stock offering that we did in early March, our cash has grown significantly; as Jim mentioned we did raise $12.5 million in new equity after we take out the expenses and the fees associated with that. We netted about $11.2 million which is what our cash is currently. This compares to – at the end of the year we had about $400,000 worth of cash and last year - the end of the third quarter about $300,000. On the balance sheet we’ve added some goodwill that is associated with the acquisition we made of MD Energy. We spent $3.5 million on that and after deducting that tangible assets, we had some good will of about $2.8 million. And then finally our shareholders equity has grown to about $16.2 million, which at the end of the year, end of 12/31 we were just under $2 million. With that, that’s kind of the financial highlights. I’ll turn the call back over to Jim.

[Jim Nelson:]

Thanks. So just a couple of things to wrap-up our discussion here. First of all, I just wanted you to know that we are in a great business. All of you who are on the phone know that solar business is booming right now and we are coming down the super highway towards the end of next year when there is going to be a change in the investment tax credit that people get right now for installing solar systems. Of course we don’t know what change is going to be. We do know from a contact that there is great bipartisan support in Washington DC for doing something. We don’t know exactly what that something will be. But one of the things that we know to is that when you look at WallStreet’s forecast and the Department of Energy forecast, it shows that if there is a pull back in the solar market at the end of next year or in 2017. Most of that according to the forecast will be in the utility grade solar, at least according to Department of Energy forecast on a conjunction with the SCIA and Goldman Sachs and they also say that the residential and commercial business will remain flat and even growing a little bit. We believe that and as a result, we think that we are going to do really well since we are gaining share rapidly. We think we’ll continue to grow, even in an environment of what the ITC changes. So we are excited about being in this business. Both of our brands are doing really well at this point and both SUNworks and MD Energy have a great foothold in their respective locations. I know that many of you have had questions about our solar cell, the development of our technology, which is ongoing. We have chosen not to speak a lot about that, because clearly the next step for our technology is to get a manufacturing partner. We are working on that, but we haven’t yet concluded it. We had hoped to be commercial by now but we are still in the process of seeking a manufacturing partner. As soon as there is news to give you, we will definitely give it to you. That said, the solar market, particularly in our trading area in California and Nevada is very fragment and there are a lot of very strong and good companies, particularly in the range that we are interested in marketing acquisitions, that is 10 to 30 year, $10 million to $50 million in revenue. We have met with many companies and we will continue to meet with more companies. We have a number of companies that we are very excited about it and we continue discussions with them. As soon as we have announcements to make, we will defiantly keep you in the loop. That is our major objective right now, it’s to identify some companies that we would like to acquire and make those acquisitions. We think that over the course of this year we’ll have another record year for revenue. With the portfolio of companies that we have now, we reiterate the guidance that we gave you a while ago of $40 million to $45 million in revenue which is more than doubling from last year. We hope that with additional acquisitions our revenues will be much stronger than that. That’s where we are now after quarter one. We’ll turn the time back over to Andrew.

[Andrew Haag:]

Operator, would you like to queue everyone up for questions-and-answers.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Nigel Chadwick, a Private Investor. Please proceed with your question.

[Nigel Chadwick:]

And my question is, just are you able to elaborate anything about the patent on the 3D cell. Thank you.

[Jim Nelson:]

Hi Nigel how are you doing.

[Nigel Chadwick:]

Very good, thank you.

[Jim Nelson:]

Good. We can’t elaborate right now. We’ve chosen not to talk a lot about it until we have a manufacturing partner nailed down, that’s our next step.

[Nigel Chadwick:]

Thank you.

[Operator:]

Our next question comes from Michael Baldwin with Eastern Dental. Please proceed with your question.

[Michael Baldwin:]

Are you there Jim?

[Jim Nelson:]

Michael?

[Michael Baldwin:]

Yes. My question is, are you working on a multi junction panel and have you ever heard of the material Graphene that could enhance the solar panels.

[Jim Nelson:]

No, and yes. We are working on a multi junction panel, but we are aware of Graphene. That isn’t part of what we’re doing right now though.

[Michael Baldwin:]

Okay, thank you very much.

[Jim Nelson:]

You bet. Thanks for asking.

[Andrew Haag:]

Operator, you want to poll for questions again.

[Operator:]

[Operator Instructions] Our next question comes from Jeff Osborne with Cowen. Please proceed with your question.

[Jeff Osborne:]

Thanks for taking the question. I was wondering if you could just touch on the initial synergies that you’re getting with the acquisitions [indiscernible].

[Jim Nelson:]

Oh yes, thanks Jeff. I appreciate that. Hope you’re doing well. A couple of things that we are finding right now is that most of the synergy that we’re experiencing immediately is on the marketing side. We’re finding that the two companies are able to collaborate on bids and things that they do strongly together. We’re able to bid on company and contracts that we weren’t able to bid on before. We have yet to really experience cost synergies, simply because we haven’t yet gotten our financial package or financial platform together. We have a list of things that we are going to be able to get that we haven’t gotten yet, primarily the collaboration between management teams and the administration area. We’ll find that we’ll be able to streamline the administration of both companies and central services into an enterprise management system that we can use well, but…

[Jeff Osborne:]

Excellent, that’s helpful. I was wondering though…

[Jim Nelson:]

Sorry Jeff, one more thing that Tracy just wrote me a note and reminded me that we are also finding purchasing synergies already and able to do a better job bidding jobs and getting certain types of panels and also getting better pricing on panels. So purchasing is already an area that we’re experiencing some synergies.

[Jeff Osborne:]

That’s great to hear. The second question I had was to see if you can touch on what the residential versus commercial mix was in the first quarter and then [indiscernible] full quarter, how should we think about that for the second quarter, it would be helpful. Thank you.

[Tracy Welch:]

Yes, Jeff this is Tracy. So for the first quarter we actually had a little bit higher mix on the commercial side. We were about two-thirds commercial in the first quarter. We expect over the course of the year that will even up to about 50-50 for the year.

[Jim Nelson:]

Yes, that’s our standard line. I think that based on some of the jobs that we’re looking at right now, we actually might be a little bit more commercial, but residential is growing strong. If $40 million to $45 million, which is our guidance is what we get, it will be about 50-50. If we are much bigger than that, it will be because we were able to secure some bigger commercial jobs.

[Jeff Osborne:]

Understand. Thanks for the detail. I appreciate it.

[Jim Nelson:]

You bet.

[Operator:]

Thank you. Our next question comes from Mark Stutman with Trimark. Please proceed with the question.

[Mark Stutman:]

Hi, thank you for taking my calls. Could you talk a little about, coming back to the customer acquisition cost, is that the average cost for commercial/residential and what is also the average residential size in terms of installation.

[Jim Nelson:]

Sure. No, it’s just residential cost, Mark. We didn’t talk about the cost of acquiring a commercial customer, because it varies so widely depending on whether it’s a $300,000 job or it’s a $2 million job, but for residential customers like we said, about $1,400 and the average cost of a residential system is about $30,000.

[Mark Stutman:]

Okay. And how large a system is that approximately?

[Jim Nelson:]

5 kilowatts.

[Mark Stutman:]

Okay. And also discuss a little about the backlog. What percentage of the backlog actually converts and what is the average time to install?

[Jim Nelson:]

Backlog is contracted deal, so 100% converts.

[Mark Stutman:]

100%? Okay, and…

[Jim Nelson:]

All of that, all of the backlog right now is in the calendar year. So I can’t tell you off the top of my head how much of it is in Q2, but it will be mostly Q2.

[Mark Stutman:]

All right, thank you very much.

[Jim Nelson:]

You bet.

[Operator:]

[Operator Instructions] Our next question comes from J.R. Miller, a Private Investor. Please proceed with your question.

[J.R. Miller:]

Hey Jim, good job on the up-listing and great job on the backlog and margins. I have a couple of questions. I follow different solar companies and Canadian Solar and JA Solar, CEO sees a pick-up in demand in the second half for the United States. Do you also see this demand increasing?

[Jim Nelson:]

Yes, I think our feeling here is that it will substantially increase over the next 18 months as people get – there is an emotional component to the change in the ITC as far as we believe, and if the ITC changes people will continue to be nervous about it and so we see a real increase in sales, generally in the industry over the next 18 months.

[J.R. Miller:]

Excellent, but it seems the ASP for panels have been ticking downward. Do you see this cost reduction while you’ve been ordering your panels for your inventory?

[Jim Nelson:]

We know that we’re taking full advantage of every opportunity to get cheap and to get panels at a lower cost, and yes, we’ve experienced some real positive benefit from lower cost panels.

[J.R. Miller:]

Okay. Is there any way you can give us any info on how the search for the next acquisition is going?

[Jim Nelson:]

It’s going really well. Sorry, there is no more detail than that, but we feel really good about our process.

[J.R. Miller:]

I appreciate that. The last thing was just a general comment. I’ve been investing and trading professionally for the last eight years and yourself and your new IR department is by far the most retail friendly I’ve come across. You’ve answered every single email, you’ve answered calls, your IR department also has, and I just want to say thank you for that, because it goes a long way for small guys.

[Jim Nelson:]

Yes, well thanks, J.R., really appreciate that feedback, it means a lot.

[J.R. Miller:]

Right, thanks a lot. Looking forward to the next.

[Jim Nelson:]

Yes, thank you.

[Operator:]

Our next question comes from Lou Rotano [ph] a Private Investor. Please proceed with your question.

[Lou Rotano:]

Goo afternoon, Jim. Thank you for hosting this phone call.

[Jim Nelson:]

Lou, how are you doing?

[Lou Rotano:]

I’m doing fine my friend, thank you. Question regarding acquisitions; you have given guidance that you are expecting to do one to two more acquisitions this year and well into 2016 continuing the process. The question is what is your choice of funding these acquisitions? I know cash is a premium right now or is not a premium. So are you looking more debt, more equity, a combination of both? How do you plan on funding these acquisitions that we’re talking about here? Obviously if we’re looking $10 million to $50 million, it’s a lot different than the last two acquisitions you’ve done. So what is your funding preference?

[Jim Nelson:]

It’s a great question. I don’t mean to be cagy in my response Lou, but also I already made it clear that when I mentioned that we’d like to do one or two acquisitions this year and more next year, not really giving guidance, I’m talking about our objectives and so that’s a key difference.

[Lou Rotano:]

Fair enough.

[Jim Nelson:]

But in the acquisitions, I think we’ll continue to want to do less than half the deal in cash, but then it really depends on the company and how important the company is to our future. So each individual acquisition could be different and so I’m really reluctant to say anything different again, because we’re talking to a lot of different people and we’ll just keep you posted on it.

[Lou Rotano:]

Okay, thank you very much and I appreciate your reply.

[Jim Nelson:]

Take care.

[Operator:]

Our next question comes from Henry Lamb [ph], a Private Investor. Please proceed with your question.

[Henry Lamb:]

Oh! Hi Jim, how are you?

[Jim Nelson:]

Hello Henry, thanks for calling.

[Henry Lamb:]

I just…

[Jim Nelson:]

We lost Henry.

[Operator:]

Our next question comes from Joseph Belnau [ph], a Private Investor. Please proceed with your question.

[Joseph Belnau:]

Yes, I understand you can’t elaborate on the pattern for the 3D panel, but I understand that Panasonic also has a singular 3D panel and I’m wondering if that conflicts with ours or does that hurt us in any way?

[Jim Nelson:]

I asked somebody about this some time ago and I can’t tell you the specific differences. It is through the Panasonic how some kind of 3D cell. It is different than ours and it’s more expensive to make, to make it very difficult to commercialize. Our intention of course is all along to make ours – to design ours with current technology and current capacity in mind, so that we can make it cheaper to be commercialized. So in the end ours is commercialized and is widely adopted. It will be because we are more efficient in manufacturing design and in manufacturing output. So we don’t see the Panasonic as preventing us from being able to commercialize our Solar Cell.

[Operator:]

Thank you. Our next question comes from Thomas Cassidy [ph] a Private Investor. Please proceed with your question.

[Thomas Cassidy:]

Yes, Mr. Nelson, Mr. Welch; thanks for taking my question.

[Jim Nelson:]

You bet. Hi Thomas.

[Thomas Cassidy:]

Hi. I just kind of wondered about if there were any tie-ins between Jackson family Winery and the Tesla battery. I know you are high on stores.

[Jim Nelson:]

Well, we are. We know the Jackson Family Winery has spoken with Tesla about it, right and they have Tesla batteries, but we didn’t arrange for them, but they do have Tesla batteries and they are a – we love Jackson Family Winery. They think ahead and they are thinking in terms of storage and yes, they are doing a great job.

[Operator:]

Thank you. Our next question comes from Ted Barrowstock [ph] a Private Investor. Please proceed with your question.

[Ted Barrowstock:]

Yes, thank you for taking my call. My question is this, is that if we were to buy one of the residential units and placed it on our home, and then the new 3D finally gets developed whenever it comes to marketplace, will there be some accommodation to be able to put that new 3D into our older units that we’ve purchased now. In other words, why would be buy it now? I know the ITC incentive, but I’m just wondering, are people holding off because they think that they are not going to be able to get the most efficient cell at a later date.

[Jim Nelson:]

You’re talking about the age old technology conundrum, which is do we buy a computer now or do we buy next year’s better version. The fact is that we see these as two different businesses as well. We’re busy installing and integrating systems for commercial and residential people that are great systems right now. If and when we commercialize our solar cell, it will be something we want to make available to the world, not just captive to ourselves. So I get the simple answer is no. We will make accommodations, but we think it will be great if everything works the way we plan.

[Operator:]

Thank you. Our next question comes from Brian Boito with WESCO Distribution. Please proceed with your question.

[Brian Boito:]

Thank you. Good afternoon guys and congratulations on a very good Q1.

[Jim Nelson:]

Thank you, Brian.

[Jim Nelson:]

Thanks very much.

[Brian Boito:]

Sure. Just a very simple question. You mentioned earlier in the call that you’ve got a bigger footprint in California and Nevada. Is that maybe going to extend into the east coast, because I know there is some very nice growth engines in the east coast. Thank you.

[Jim Nelson:]

Thank you. Yes, we address this all the time, because we know that there are some great markets in the east coast, but when you’re doing a consolidation of quality companies, the only truly scarce resource they have management time and if we bought companies on the east coast while we’re busy buying them here, it’s much more difficult to manage. 60% of the solar installations in America are at least in the last half of last year. It occurred in California and Nevada. We’re still just a little company that’s growing really fast and doing really well, but we can grow a lot in just California and Nevada. When we achieve critical mass in California and Nevada, then we will start looking in other places. But for now we think we can grow really well just in our current markets.

[Brian Boito:]

Very good. Thank you for the explanation.

[Jim Nelson:]

All right, all the best.

[Operator:]

Thank you. Our next question comes from Douglas Brown [ph] with [indiscernible] Investments. Please proceed with your question.

[Douglas Brown:]

Jim, thank you for taking my call.

[Jim Nelson:]

Sure. How are you doing Doug?

[Douglas Brown:]

Good, good, good. Just a question regarding acquisitions and your current companies. I’m wondering, a cost comparison between the two as far as I say expanding SUNworks into Nevada, into other cities in California, other states. What is the cost comparison between doing that and the acquisition?

[Jim Nelson:]

No it’s a great question. We can do that. I mean, obviously that’s what we did. We moved SUNworks into Nevada and its going really well. We just are looking to become a bigger company, faster and that’s the way we see it and we are exploring all alternatives including organic expansion and acquisition, so it’s a one off analysis. So I can’t give you specific numbers but believe me we are considering every option.

[Douglas Brown:]

Okay, thank you very much Jim.

[Jim Nelson:]

You bet. Take care.

[Operator:]

Thank you. Our next question comes from Shekhar Ali [ph] a Private Investor. Please proceed with your question.

[Shekhar Ali:]

Hi Jim, hi Tracy. I have a question in regards to acquisition. Generally acquiring good companies in an expanding market is really expenses and acquiring bad companies is also expensive. Furthermore it’s highly indicative of a company’s fundamentals. Can you explain how you are exerting some control over the market or over your suppliers?

[Jim Nelson:]

Did you get cut off Shekhar, because I didn’t quite get the end of the question.

[Shaker Ali:]

Can you explain how you are exerting some control over the market and over your suppliers in comparison to larger, more established solar installation companies?

[Jim Nelson:]

I’m not sure we really do exert control over suppliers of the market. We know that we are very strong, but let me address our competiveness. We go up against ever competitor that you know off, every large competitor, including the biggest of the competitors and we are very successful in competing. We tend to be great competing head to head. Other companies that we know off are really great if they don’t have completion. But they are very good at talking people into making decisions without having other competitors come and bid. So when we start talking about how we control the market, I think that’s how we do it. In the end the low cost competitor is going to win, the people who can design and develop the best systems for the lowest cost that are effective and well designed for specific customers. We do a really great job of that, both MD Energy and at SUNworks and if there is a way to control to the market, it is by being competitive than we are.

[Operator:]

Thank you. Our next question comes from James Gallop [ph] a Private Investor. Please proceed with your question.

[James Gallop:]

Yes, not too long ago I came across some information about solar powered shingles, maybe a project with Redwood Renewables. I was just wondering whatever happened with that?

[Jim Nelson:]

Never went anywhere really, but I like Redwood Renewables and I think highly of them and what they are trying to do. What we are hoping to be able to do was collaborate with them to put our solar cell into their roofing material and our development didn’t go fast enough for them. They are doing some other things. If our development comes through we will circle back around and talk with them, but I honestly think that the solar integrated buildings are a thing of the future and I think it’s going to be great. I think the footwork and ditch digging they are doing to break the ground for the future is a really good thing.

[Operator:]

Thank you. Our next question comes from Derrick Pollinic [ph] a Private Investor. Please proceed with your question.

[Derrick Pollinic:]

Yes Jim, thanks a lot for all the hard work you’ve been doing out there. I know you’re probably putting in a lot of hours. My question is regarding the backlog. There is a lot of speculation going around about a job in Fresno for about $10 million. Is that included in the backlog or no?

[Jim Nelson:]

Only contracted deals are in that backlog and there is nothing from the city of Fresno in the backlog.

[Derrick Pollinic:]

Okay and then how is – we’ve seen a little bit of information on Facebook regarding the Reno, Nevada operation for SUNworks. How is that going? Is that mostly residential or are you getting into commercial up there as well.

[Jim Nelson:]

Yes, we are doing residential and marketing commercial and we are starting to get commercial jobs. So it’s looking really good up there for us right now.

[Derrick Pollinic:]

Do you have any numbers at all for that area?

[Jim Nelson:]

Well, we do, we just haven’t made it public.

[Derrick Pollinic:]

Okay.

[Jim Nelson:]

Currently we are not breaking those out separately. At some point we may do that, but for now those are combined with our residential SUNworks business.

[Operator:]

Thank you. Our last question comes from William Brown [ph] a Private Investor. Please proceed with your question.

[William Brown:]

Yes, thank you for taking my call gentlemen. A couple of questions; in terms of where you would go beyond California and Nevada, where do you see the solar fields spreading to other nationally? What would be your next state to look at?

[Jim Nelson:]

Primarily Hawaii, because I need to go and do some more surfing over there.

[William Brown:]

That sounds reasonable.

[Jim Nelson:]

I was joking of course. But honestly Hawaii is a logical place to go. But one of the things that – I’d follow the Marriott idea. When Marriott first came our as a hotel company, they concentrated in Washington DC and once they filled out Washington DC, they moved on to a new market and developed that market. As long as that market is a market that you can kind of put your arms around and build solid, I could see it doing it almost anywhere. Obviously the western states would be logically. Arizona’s a tough one, Utah is a good one, but other local states that are next to us, but also I could see going to the east coast and doing something concentrated there. But we definitely won’t spread out all over the place immediately after we have critical mass here. We’ll go very systematically and in a concentrated way.

[William Brown:]

Okay and my second question and you may not be able to answer this. I know you said that you are waiting to tie into a manufacturer for the 3D Cells. Can you discuss at all what’s holding that up or what you are looking for or what the impediments are?

[Jim Nelson:]

I can’t discuss it, but when I can we’ll let you know for sure.

[William Brown:]

Okay, last question. I saw something about a transparent glass solar cell just recently. I thought to myself, well that’s very clear, because with all the skyscrapers and all the glass and the skyscrapers that will be really nice. Would that – conceivably if every comes to fruition, would that actually work with what you guys are doing?

[Jim Nelson:]

Well, obviously our integrator can work with any kind of solar cell, but it wouldn’t work with our three dimension cell, but it’s pretty exciting if something like that is actually happening.

[William Brown:]

Well, they haven’t said it’s there yet. So we’ll wait and see I think.

[Jim Nelson:]

Okay.

[William Brown:]

Thank you very much.

[Jim Nelson:]

Thank you.

[Operator:]

Thank you. We have a follow up question from Jeff Osborne with Cowen. Please proceed with your question.

[Jeff Osborne:]

Hey Jim, thanks for taking the follow-up question. I just had a two parter; one of the customer acquisition cost of $1,400, certainly impressive. Can you just touch on the revenue side, how you are accomplishing that, how much is coming through on the referral program that must be the driver, but maybe there is something else I’m overlooking, that was the first question. The second question is, how much should we think about the multiples out there on the M&A front. Did you have any conversations? Would they be consistent with the prior multiples that we’ve seen or given this kind of boom cycle that we are having ahead of the ITC exploration, are multiples are creeping up?

[Jim Nelson:]

Yes, let’s answer the first one first. As you know we’ve got the referral program that is going great guns, in fact better than we had hoped and that’s done a lot to reduce the cost of acquisition. The other thing we do is just that we are getting so much better known because of our broadcast media here and that’s not advertising, it’s actually an education program that we have, that I’ve discussed with you before and we just continue to get lots and lots of referrals through that method. And of course we all the things everybody else does at the higher cost, but these two things really bring our cost down, much lower. So I suspect those are the things that has brought that cost down Jeff. Second point that you are making is, no we are probably going to be paying higher multiples for some of the companies that we buy going forward for two reasons; one is, as you say it’s in a boom cycle and because – it’s kind of a seller’s market for quality companies at this point, whereas a couple of years ago it really wasn’t. And then second part of that is that as we look at $30 million and $40 million companies to buy, they just, they command higher multiples. So the kind of multiples we’ve had in the past are probably in the past and once we go back to buying smaller companies like we did before, but we think the appropriate approach is to pay the higher multiples and get the bigger, more sustained companies.

[Jeff Osborne:]

Understand, I appreciate it. Thank you.

[Jim Nelson:]

And I’ll talk to you more about that at some other point, so you can give me some guidance on that.

[Jeff Osborne:]

All right, good stuff. I look forward to seeing you in the conference on the 28th.

[Jim Nelson:]

Yes, same here. Take care.

[Operator:]

Thank you. At this time I would like to turn the call back over to management for closing comments.

[Jim Nelson:]

Well, we are really grateful to all of you who have been on the call and I really think we are looking forward to great things happening in the future. We had a great day today following our first Q1 report, our 10-Q and we will see how the next ones go. We have great hopes, high hopes and we will reiterate our guidance with our current portfolio of $40 million to $45 million in revenue and please feel free anytime to email us or call us with questions and we’ll look forward to talking to you on the next quarter call.

[Operator:]

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a great day.