Sunworks, Inc.
Q4 2015 Earnings Call Transcript

Published: 16 Mar 2016

[Operator:]

Greetings, and welcome to Sunworks Fourth Quarter and Full Year 2015 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded today, March 14, 2016. I’d now like to turn the call over to Mr. Jeff Stanlis of Hayden IR. Please go ahead.

[Jeff Stanlis:]

Thank you, operator. Good morning, everyone. Thank you all for joining Sunworks Fourth Quarter and Full Year 2015 Earnings Conference Call. Joining me on the call today are Jim Nelson, Chief Executive Officer, and Tracy Welch, Chief Financial 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 and 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 represents management’s estimates as of today, March 14, 2016. 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 Securities and Exchange Commission and issued a press release announcing its financial results. Participants on this call who may not have already done so may wish to look at those documents, as we provide a summary of the results on this call. I would now like to turn the call over to Sunworks CEO, Jim Nelson. Jim, go ahead.

[Jim Nelson:]

Thanks very much, Jeff, and hello, everyone. Glad you could join us today. By all measures, 2015 was a strong and successful year for Sunworks. From a financial perspective, we grew our top line by over 166% year-over-year, generated more than $1 million in net income, and over $4 million in adjusted EBITDA. While the top line growth in our consolidated revenue was bolstered by acquisitions, it is important to point out that each of our operating entities which we’ve acquired, being Solar United Networks, MD Energy and Elite Solar, also achieved substantial organic growth in the fourth quarter. In addition, we finished the year with contracted backlog of approximately $47.5 million, a record for our business. This foundation gives us strong visibility going forward and positions us well to deliver on our conservative 2016 revenue guidance of $100 million. We are confident that there is leverage in our business, so along with the expected top line growth we are guiding to in 2016, we expect to see stronger profitability for full year 2016 as well. During the fourth quarter, we completed our third major acquisition with the purchase of Elite Solar. As a stand-alone entity, Elite increased its revenue by more than 100% on average between 2013 and 2015, and over 75% last year; and brought with it positive and growing profitability as measured by EBITDA as well as a backlog of contracted projects. Consistent with our acquisition strategy, we gained additional market share, expanding our footprint in California’s agriculture and commercial markets through this immediately accretive acquisition, and secured additional and complementary capabilities with Elite’s expertise and strong leadership. Kurt Short is the leader there, and his team, together with Kurt, are already working smoothly with Sunwork’s existing team, and we are a stronger company and a much stronger competitor as a result. Going forward, we will continue to evaluate and consider potential acquisitions to expand our commercial and residential coverage in our target markets, looking specifically for solar companies that possess solar expertise that is complementary to our existing portfolio, and that will accelerate revenue growth. Targeting, acquiring, and integrating select profitable and growing solar company remains a key component to our growth strategy. We are also making specific investments in our organization and infrastructure that we believe will accelerate our organic growth and improve our cost position to help propel us to even stronger share gain and profitability. There’s never been a better time to be in the solar business. The commercial segment of the solar industry is growing rapidly, and the residential segment is being propelled by some powerful market and regulatory trends. We believe Sunworks is extremely competitive in the solar industry, and well positioned to drive our growth to the next level. Let’s talk for a minute about the industry as a whole. First, the solar industry is still fragmented; particularly in the western regions of the US, providing ample opportunity for consolidation of these companies that will have balance sheet profitability, and cash flow characteristics to proceed growth through acquisitions. We take a very disciplined approach to investing in growth through strategic acquisitions with clearly defined acceptance criteria that includes, among other things, growth, profitability, and a strong management team. This is in contrast to other companies that just go out to buy virtually any kind of company that is available. We believe that that crushes companies under the weight of the lack of discipline. Therefore, we are very careful about the companies that we buy, and only take select companies to absolutely bid on criteria. Second, is a regulatory environment that embraces solar as an alternative energy source, and supports future growth. Most recently, the California Public Utilities Commission issued a proposed decision to preserve retail rate net metering for distributed solar systems, paving the way for California residents to continue to go solar. Net energy metering, or NEM, is a special billing arrangement that provides credits to customers for Solar PV systems for the full retail value of the excess electricity their system generates. Under NEM, the customer's electric meter keeps track of how much electricity is consumed by the customer, and how much excess electricity is generated by the system and sent back into the utility grid. Over a 12-month period, the customer has to pay only for the net amount of the electricity used from the utility over and above the amount of electricity generated by the solar system. So, it is a terrific opportunity and deal for the solar owner. Similarly, in Nevada, we are working with a group of industry participants to help reverse Nevada’s Public Utility Commission recent decision to eliminate net metering, or dramatically reduce the net metering for the residential solar customers. The Commission’s decision goes against policy and regulatory trends in other parts of the country, which have been supportive of solar energy. Solar is expected to generate approximately 16% of global electricity by 2050, up from slightly over 1% now, and generate 200,000 jobs in the US in 2016 by the end of the year, according to the International Energy Agency, making it one of the largest employers in the country. With installation costs dropping, the opportunities for economic growth and the social trends focused on fighting climate change, we believe the Nevada Legislature will ultimately reconsider its position on supporting solar energy in its state. Fortunately for Sunworks, in the Nevada market, we have a growing commercial business that allows us to retain a healthy business presence while other companies have run from the market. In fact, our base of commercial business, we believe, we are well positioned in Nevada to capture residential opportunities when the state makes what we believe is the inevitable decision to reverse its net metering position, and proactively support the installation and use of residential solar systems. Beyond California and Nevada, the US Congress recently extended the 30% federal investment tax credit through 2019. According to the Solar Energy Industries Association in conjunction with Bloomberg News Energy Finance, the net result could be an additional 69 megawatts of solar deployment between 2016 and 2022. Clearly, the ITC extension is poised to be a significant catalyst for the investment in the industry, enabling millions of households to access clean, renewable, and affordable energy. With these industry trends as a backdrop, we have established clear objectives for our business that we believe will allow us to capitalize on market trends and continue to grow our business profitably. First is our business model. We are very different from our competitors, many of which you are familiar with in our business. Our approach is to invest in the acquisition of solar installers to expand our footprint, extract synergies, and further accelerate our profitability. The solar industry is extremely fragmented, and a great number of acquisition opportunities exist. We believe that as we continue to be disciplined in our approach, the operational efficiencies that can be gained through innovation, design, purchasing excellence, and additional scale will set us apart as a low-cost supplier and further increase our already profitable base of business. In addition to striving toward the goal of being a low-cost supplier, we also pursued the highest professional commitment to our customer service by putting our customers first in all that we do. This encompasses everything from reliable delivery, following through and doing what we say we are going to do, to providing financing alternatives that allow the customers to exploit the benefits of owning their solar panels. In contrast to an industry norm, we encourage customer ownership of solar systems. While we do offer leasing alternatives for people who really want them, our analysis concludes that ownership by the user, not a third party, provides the highest value, and is in the best interest of the customer in the vast majority of circumstances. The benefits of ownership include the lowest net system costs as a result of zero financing cost, 100% eligibility for the investment tax credit, exemption from future rate hikes, and home appreciation value. In addition, if homeowners decide to sell their home, they are not beholden to the trappings of a lease. As a further differentiation, we feel that we are a solar-focused company, not a sales-focused company. Many in our industry, particularly on the residential side of the market, are high-pressure sales organizations that happen to be selling solar. Solar energy is our core expertise and our passion, and as a result, we can develop and deploy solutions tailored for each project. We are always focused on the customer, not on just making the next sale. This is resonating in markets in which we serve, and as a direct result, we win most head-to-head bakeoffs versus our competitors. Unlike any competent business team, we seek to make a fair profit, but we feel that our approach of doing what is right for the customer will lead to long-term prosperity both for our business and for our communities. The third objective is our investment in infrastructure to build the necessary management and back office teams to handle our growth, and provide high levels of customer service, which we believe will make our operational processes more efficient, and second to none. Fourth is our strong management team, which is led by its experienced industry veterans with extensive knowledge in energy, construction, cleantech, finance, and marketing strategy. Our executives and division leaders have extensive leadership and industry experience and have made significant contributions to the energy industry. In evaluating acquisition targets, one of our key criteria is the quality of the management team, their willingness to cooperate with the Sunworks team, and align with our business philosophies. We believe our approach to growing our business profitably through investment and caring for our customers, are what set us apart competitively, and as an investment opportunity. To better communicate this vision and unify our operating businesses, we recently underwent a major rebranding exercise that included name and logo changes. As you are already aware, we are now operating under the Sunworks brand and trading under a new ticker symbol SUNW. This brand transformation better reflects who we are as a company and provides us with tough common corporate identity and broader perspective of the market under which we can continue to grow. Although it is no longer directly reflected in our corporate identity, our Solar3D technology remains a part of the company and an area where we see potential for future growth. However, as is evident by the focus of today’s call and recent rebranding, it is our integration business which is driving our profitable growth in our near and longer term outlook. As a result, we are focusing our intention on maximizing our solutions business. Going forward, we continue to explore strategic partnerships and licensing opportunities for our three-dimensional technology, and we believe we have some substantial opportunities. But we will no long be materially investing in this business relative to our other integration business which we believe is the driving factor in our business at this point. Now, I’ll turn the call over to Tracy for a review of the financials. Tracy?

[Tracy Welch:]

Thanks, Jim, and good morning, everyone. Let’s first turn to a review of the finance results for the fourth quarter, and then I’ll talk a little bit about the full year, both for periods ended December 31, 2015. For the fourth quarter of 2015, we had total revenues of $17.3 million, an increase of 230% over the $5.2 million recorded in the fourth quarter of 2014. To put our growth in perspective, our fourth quarter revenue amount was equal to approximately 86% of our full-year 2014 revenue, so we think that’s pretty good growth. Our revenue increased primarily as a result of significant year-over-year sales growth in our existing business, plus the inclusion of three months’ revenue from our MD Energy acquisition, and one month of revenue from our Elite Solar acquisition. Sales in the commercial and agricultural markets were, again, stronger in the fourth quarter, with approximately 60% of our total revenue on the commercial and agricultural side, and approximately 40% of our revenue came from the residential side of our business. Our gross profit for the fourth quarter was $6.3 million for 36.5% of revenue for the three months ended December 31, 2015. That compares to $1.6 million or 29.9% of revenue for the three months ended December 31, 2014. During our recent fourth quarter, we closed a number of large commercial jobs which attracted a higher margin percentage relative to our prior quarters, as we had previously taken a fairly conservative approach to profit recognition until the jobs were completed and finished. Our total operating expenses for the fourth quarter of 2015 were $4.8 million compared to $1.1 million in the fourth quarter of 2014. Selling and market expenses were $2 million, or 11.7% of revenue, compared to approximately $500,000 or 10.4% for the fourth quarter of 2014. Our selling and marketing expenses increased year-over-year primarily due to our increased selling activities, which is evidenced by our significant sales growth, and our significantly higher backlog. Our ending backlog is nearly 1600% higher than a year ago, and our 2015 fourth quarter revenue, over 2014 fourth quarter revenue, grew by 230%. We think it’s paying off. Our general and administrative expenses were $2.7 million, or 15.8% of total revenues in the fourth quarter of 2015. This compares to approximately $600,000 or 10.9% of total revenue in the fourth quarter of last year. Our G&A expenses increased primarily due to the inclusion of a full quarter of MD Energy, and one month of Elite Solar’s expenses in 2015, which we did not have in the prior year results. Plus, our incremental expenses related to our higher sales line. Other expenses for the fourth quarter of 2015 were approximately $400,000, which is primarily non-cash interest expense. This compares to $7.7 million of other expenses in the fourth quarter 2014. In fourth quarter 2014, we reported $6.2 million of non-cash loss on derivative liabilities, and we had $1.3 million on primarily non-cash interest expense. Our net income for the fourth quarter 2015, as Jim indicated, was $1.2 million, or $0.07 per basic share, and $0.06 per diluted share. This is a significant increase when compared to our net loss of $7.3 million or $0.65 per basic and diluted shares in the fourth quarter 2014. Next, I’d like to turn and talk a little bit about our full year results. As Jim indicated, our total revenue for 2015 increased 166% to $53.7 million, up from total revenue in 2014 of $20.2 million. Our gross profit increased to $17.1 million, or 31.7% of revenue for full year 2015, and that compares to $5.6 million or 27.8% of revenue for the 12 months ended December 31, 2014. Higher margins were recognized on both commercial and residential sales in 2015, compared to 2014, as we are able to win jobs with higher margins, and we began to recognize some purchasing efficiencies from having greater scale in our business. Net income for 2015 was $1.1 million, or $0.06 per basic share, and $0.05 per diluted share. Again, a significant increase compared to the net loss of $24.9 million, or $2.15 per basic and diluted shares in 2014. Turning to our balance sheet, our cash and cash equivalents were $12 million in the end of December, compared to $9.3 million at the end of the third quarter, and we started the year at $414,000. With that, I’ll turn the call back over to Jim.

[Jim Nelson:]

Thank you, Tracy. Thanks very much. So, 2015 was a great year for Sunworks and is a terrific time to be in the industry. We’re excited about all of the industry developments. We’re exited to be who we are. A few years ago, I appeared on a panel with some other industry CEOs, and one of the industry CEOs was a leader, and they were making money and doing really well; not quite exactly in our industry, but similar. And he talked about everybody wanting to be them, and referred specifically to Solar3D—we were Solar3D, now we’re Sunworks. They wanted to be us. Well, now, it seems with our model, everybody wants to emulate our model. You see some of the CEOs in some of the bigger companies talking about, ‘we wish we were just growing fast and having profit and doing cash flow,” but they aren’t, and we are. And so, we look ahead, and we’re eager to see if we can’t build on our continuing success. In the near term, we’ll continue to invest in improving our operational efficiencies, which will make us more profitable, really focusing on making investments in rapid organic growth, and also, concentrate on select acquisitions that we feel meet our criteria. Over the long term, we will seek to be the most efficient of all the solar integrators, and to be an industry leader in cost, technology, and customer service, as well as scale. With that, I’ll turn the call over to the operator for questions and answers.

[Operator:]

[Operator instructions.] We’ll pause a few moments to allow questions to queue. And we’ll take our first question from Jeff Osbourne. Please go ahead.

[Jeff Osbourne:]

Hi, good morning. I just had a couple questions on my end, and congratulations on the strong results. Jim, I was wondering if you could just touch on the targeted geographies. Are you still focused on the Southwest? I know you’ve mentioned Hawaii in the past. Just with the changes in Nevada, I didn’t know how you’re looking at expanding potentially beyond California.

[Jim Nelson:]

Yes, Jeff. Thanks for the question. How are you doing? I hope you’re well. We are focused currently on California, but we feel that we’re getting to the point where we’ve reached critical mass. We probably have some expansion to do into central California, but organically, we’ve opened up a few more offices in California, which expand us that direction. And of course, we have MD Energy in southern California that anchors our effort there. We are already starting to look outside of California now. Of course, in Nevada, we have our presence in commercial, still, and we hope that the residential ruling will turn back around. In the meantime, we are exploring other opportunities throughout the country now. Now that we have a really solid base, profitable, growing, and strong, we feel that it’s time that we can look elsewhere.

[Jeff Osbourne:]

And beyond just the Southwest, then I assume, when you refer to ‘across the country?’

[Jim Nelson:]

Yes, indeed. We’re looking in a number of different places including the Northeast. So, across the country.

[Jeff Osbourne:]

Got it. Perfect.

[Jim Nelson:]

Let me qualify that, Jeff, by saying, we’re not going to be stupid about it, though. You see a lot of people who just expand for expansion’s sake, or make acquisitions for acquisition’s sake. We’re going to be very disciplined, still, in making sure we go to the states that make sense, and that we can effectively manage.

[Jeff Osbourne:]

Got it. The 10-K, I haven’t read the whole thing, but it did make reference to kind of seasonality, and weather impacts in Q1. A lot of rain out in California the first quarter. Now that it’s 15 days from closing, can you just talk about what the seasonality would be this year? Obviously, a down quarter sequentially, I assume for Q1. But just what’s the cadence of revenue through the year to hit the $100 million target?

[Jim Nelson:]

Yes, I don’t really know. I don’t really know how Q1 is going to end up. We’re pretty bullish on it still, but traditionally, Q1 is lighter than Q2, which is lighter than Q3, which is extremely strong. Q4 typically will be a little softer than Q3 but still very strong. So, that’s how we see it. It’ll ramp up through the year. By the way, Jeff, I ought to mention that we think the $100 million guidance is pretty conservative, and that’s borne out by the fact that we had almost $50 million in contracted backlog. Sometimes people use backlog differently, but we use it as contracted certain revenue. So, we had contracted revenue of $47.5 at the end of the year, which gives us a pretty strong feeling that we have a conservative guidance.

[Jeff Osbourne:]

Got it. That’s great to hear. Maybe, could Tracy, can you touch on what the upside was on gross margins? You mentioned a conservative treatment of the commercial projects, but was it just faster installations, or cheaper components than expected? Maybe just elaborate on the gross margin upside, and is this a run-rate that we should assume at these mid-30s levels for the year?

[Tracy Welch:]

Thanks, Jeff. We actually had them. We did land a few jobs last year that had very excellent margins. As we proceeded throughout the year, obviously some of these good commercial jobs can have several months to go through all the design work and getting all of the approvals that we need to actually do the work. As we have this work in process, we’ve taken a fairly conservative approach. If you look at our third quarter, our gross margins were down a little bit. We probably maybe shifted some of that margin from quarter to quarter, but we think the 31-plus number is probably, maybe a little high. We are looking at doing some public works jobs. We just announced several of those last week. Those will probably have a little bit slightly lower margins. So, we’re probably still in the 30% range, I would guess, for overall margin.

[Jeff Osbourne:]

Got it. And the last question I had is just Jim; you mentioned some investments in infrastructure and whatnot. Can you just touch on those, and A) what they are, and B) how much they cost? And then now with Elite on board for the full year ahead, how do we think, just about the trajectory of expenses for the year? Either on a quarterly run-rate basis or for an absolute number for the year, would be helpful.

[Jim Nelson:]

Sure. I actually can’t give you—because some of the things we haven’t mentioned publicly yet—but let me give you a couple of things. One is our new enterprise management system that’s going to help us greatly in keeping track of our data, and helping us manage to lower costs and more efficient cost tracking of customers, and so forth. So, that’ll help us both in cost management and others. By the way, I ought to also mention, that part of acquiring Elite, we bought a new racking system, that on commercial ground mounts, reduces the cost of labor by more than 10%. In fact, sometimes Kurt Short, who runs Elite, talks about the fact that it’ll reduce the cost of the whole system by 10%. So, we continue to invest in innovations that’ll reduce the cost. So, that’ll come down dramatically as well. Part of this, too, is our investment in infrastructure has been happening, and we’ll be able to—unless the infrastructure’s in place---we’ll be able to cut back on the amount of money that we’ve invested in it. One of the things, also, you mentioned was some of the investments we’re making in growth. We ought to mention that we are looking at some substantial investments in additional ways of pushing out our residential sales, which we think will make a terrific difference in building our business this year. We’ll probably come out with a lot more information on that in the next few weeks. One more question that you asked, was with the Elite on for the full year, what does that do to our expenses? Elite was already running pretty lean, but we are going to be able to eliminate some redundant expenses as a result of that acquisition. Right now, some of the investment in our infrastructure has brought our G&A costs up above where we wanted them to be, and so, now we’ll manage those back down, and we’ll find much more efficiency going forward. Just a little bit of a general answer, Jeff. I apologize for that, but over the next few weeks, we’ll be able to be more specific.

[Jeff Osbourne:]

Look forward to it. Thanks. Congratulations, again. Take care.

[Jim Nelson:]

Thank you very much.

[Operator:]

[Operator instructions.] We can go next to Jim McIlree [ph]. Please go ahead.

[Jim McIlree:]

Yes, thank you, and good morning. Congratulations on the strong results.

[Jim Nelson:]

Thanks, Jim. Hope you’re doing well.

[Jim McIlree:]

Thanks, I am. Can you talk a little bit about the expected gross margin in the backlog? Either on an absolute amount or relative to the gross margins you just posted for the year?

[Jim Nelson:]

Sure. Well, let me tell you; I’m going to give this in two pieces. First of all, we don’t anticipate any change in gross margin compared to our history, in the various ways that we bid jobs. That said, we are usually willing to take a slightly smaller gross margin as our jobs get bigger. So, if we take on a $10 million job, we’re willing to do that for less than 35%, let’s say. And so, the more big jobs we get, the more it will reduce the gross margin a little bit, on average. And, frankly, because of the notoriety we’re getting, and because of the reputation, we have more and more people are bringing us their larger and larger jobs. So, we anticipate there may be a slight decline in our gross margin on the commercial side. That said, our gross margin on the residential side is strengthening because we are continuing to get better and better at installing. So, the basic bottom line is, we think that our gross margin will probably be about the same as it’s been in the past.

[Jim McIlree:]

And that mix between residential and commercial, either in the backlog or in the 2016 expectations, is that also that 60/40 split or is it skewed a little bit?

[Jim Nelson:]

The backlog is skewed to commercial. But we anticipate going forward this year that there may be a little bit more commercial business if we don’t do anything. But we are doing something, so yes, 60/40 seems reasonable for this year.

[Jim McIlree:]

Okay. And how much business did you do in Nevada in 2015? Either the actual or the [indiscernible]?

[Jim Nelson:]

In 2015? Do you know the answer to that, Tracy?

[Tracy Welch:]

Yes, about $2 to $3 million in Nevada last year. Now, that was all residential. We have shifted our focus now, as Jim mentioned, to commercial, and we think we’ve got some jobs we’re looking at that could easily be that in the next few months.

[Jim McIlree:]

Right. And then that net metering—

[Jim Nelson:]

I say we still think we’re going to do more business in Nevada this year, just in commercial.

[Jim McIlree:]

Right. And that net metering issue is solely applicable to the residential, or is that on the commercial side as well?

[Tracy Welch:]

Yes, it’s just on residential.

[Jim McIlree:]

Right, okay. I’m going to try to push you a little bit on the operating expenses. So, just from a modeling perspective, Q4 of 2015 at $4.8 million, but you only had a month of Elite in there. I understand that there are going to be some puts and takes, but if we just did ballpark $5 million quarterly OPEX, is that close for what you’re going to do in 2016, or what you’re targeting in 2016?

[Jim Nelson:]

Tracy? You know, we have real numbers we can probably talk to you about, obviously, we have to round them up. But, we actually think we can reduce our cost as a result of Elite joining us. And certainly, there are costs to be reduced in our regular overhead as well, because of the efficiencies that we’re getting both from our growth and from adding Elite. Five million dollars seems pretty reasonable—

[Tracy Welch:]

I’d say it was probably on the high side, Jim. Part of it is, on percentage basis, we look a little higher in the fourth quarter. We’ve got this backlog, and we’re trying to build some of these operations and be in place to run at a higher rate. We’re going to double our run-rate, basically, for 2016 over 2015. Incrementally, we don’t think we’re going to increase that much going forward in the year. We think we’ve got most of the infrastructure in place that we need to do that.

[Jim McIlree:]

Okay. Just a couple of more, if you don’t mind. On the Q4 results, I’m trying to understand a little bit of the drop relative to Q3. I understand that Q4 is seasonally weaker, but you also had that extra month of Elite. Was Q3 unusually strong? Was Q4 a little bit weaker than you thought? Was there anything weather related or [indiscernible] moment?

[Jim Nelson:]

Yes. There were two things. Obviously, Q3 was a booming month, and we were able to wrap up a bunch of our business relatively early. But we also had, especially in December, a bunch of rain days, which ratcheted back all of our business. So, those were the two factors, I believe.

[Tracy Welch:]

Yes. I think we had ten rain days in the fourth quarter, as well as you also have about a week’s worth of holidays that you don’t have in Q3. So, that makes a little bit of a difference there.

[Jim McIlree:]

So, you’re almost running 2.25 months instead of 3 months?

[Tracy Welch:]

Yes.

[Jim Nelson:]

Right, right.

[Jim McIlree:]

Okay. And then lastly, I know that you’re not going to pay—well, you probably won’t pay cash taxes in 2016, but will you begin accruing forward taxes on a GAAP basis in 2016?

[Jim Nelson:]

We hope so. We hope we blow through our NOLs, and so yes, we will; if we get past our NOLs.

[Tracy Welch:]

Yes. I think we’ll start recording something in 2016. What that number is yet, we don’t know.

[Jim McIlree:]

Right. Okay, I think that’s it for me. Thanks a lot, and good luck with everything.

[Jim Nelson:]

Great, and we’ll take to you again next time.

[Tracy Welch:]

Thanks, Jim.

[Operator:]

[Operator instructions.] We can go next to Nigel Chadwick. Please go ahead.

[Nigel Chadwick:]

Hi, good morning to you, Jim. Nice to talk to you again.

[Jim Nelson:]

Likewise, Nigel. How are you doing?

[Nigel Chadwick:]

I’m doing well, thank you very much. Listen, congratulations on the continued financial growth, and especially on the expansion.

[Jim Nelson:]

Absolutely. Thanks very much.

[Nigel Chadwick:]

I know you did cover this out a little bit, but if I could just go back to the sale, and ask you one quick question on that, just so I can understand it. Is this something you would classify as maybe being shelved for the moment, or is it something that you’re still evolving, still being refined?

[Jim Nelson:]

Not shelved. We are not investing substantial additional R&D dollars and making it better. We really recognize that we have taken it to the point where we really need a manufacturing partner. We’re still talking to people about it, actually. We’re more encouraged today than we have been at any time in the last year, I would say. Last six months or so. There’s real opportunity there, we believe. That said, look, we have a business that’s growing at over 100% a year, that’s profitable, it’ll continue to do that, and so that’s got to be the focus; that’s got to be the focus of our management. If we can commercialize the solar cell, awesome. And we’re going to try to do that, and we think we can, and that will add another revenue stream. But, we’re really happy with the way the business is going, and we know where our management needs to focus.

[Nigel Chadwick:]

Sure. Well, thanks for that. And second, and this’ll be the last one; the net metering in Nevada issue. It sounds like you’re working with a group to confront that?

[Jim Nelson:]

We are.

[Nigel Chadwick:]

In your mind, do you have a sort of time parameter as to—and I think in a way, I agree with you that eventually you will be successful, and it will be rescinded. I’m just wondering, what sort of time frame do you think that will take? And obviously, we can’t hold you to that.

[Jim Nelson:]

You know, you’re asking me to guess. That’s a real hard one, Nigel. Look, there is a fundamental force inside human nature that makes them want to control what’s important to them. We see it in all kinds of different industries; where it used to be provided by a central resource, and people wanted to take it and put it on their desk. For a classic example is timeshare computing. The fact is, people want to control their energy, and that’s just something in human nature. They hate monopoly; they love personal control. They hate third-party ownership; they love to own it themselves. So, people are going to drive this, and in the end, the governments and public utility commissions work for the people, and I think that the people will drive that. Yes, it’s going to happen, Nigel. I really believe that. Time frame, who knows?

[Tracy Welch:]

We’re working the Great Basin Solar Coalition, and we hope to have a seat in front of the Legislature at least by no later than November of this year.

[Nigel Chadwick:]

Right, well, thank you very much, and good luck to you all.

[Jim Nelson:]

All right, Nigel, appreciate it.

[Operator:]

And it appears we have no further questions, so I will return the program to James Nelson for any closing comments.

[Jim Nelson:]

Well, thank you very much for being with us, all of you. Really appreciate your continued support of Sunworks. We believe that our company will continue to drive growth and profitability, and that we will do that for a long time to come. I want you to recognize that we are not building this company for a short-term business, a short-term anything. We are building this to be a great company 20 and 30 years from now. We think that people will recognize in stock markets and the markets into which we sell, will recognize that we have 1) devotion to doing what’s right for the customer; 2) providing the very best value in the industry; and 3) doing what we say we’ll do both to the customer and to our investors. That’s what we stand for, and that’s what we want to continue to be known for. So, thanks very much, and we’ll see you in a quarter.