UGE Reports Third Quarter 2017 Financial Results
UGE International Ltd. (TSX: UGE) (the "Company" or "UGE"), a leader in renewable energy solutions for the commercial and industrial sector, reported its financial results for the three and nine months ended September 30, 2017. UGE reports all amounts in United States dollars.
Third Quarter 2017 Highlights
Revenue for the quarter grew nearly 7X to $5.0 million from the same period in the prior year, while gross margins decreased slightly to 16%. During the quarter additional expected revenue was delayed due to an issue with one sub-contracted installer, which has since been substantially resolved.
UGE recognized a negative adjusted EBITDA of $499 thousand, compared with negative $737 thousand in the same period of the prior year, as the Company stays focused on achieving sustained profitability.
At the end of the quarter, UGE's order backlog was $38.3 million, representing confirmed projects to build over the next 12-18 months, a decrease from the close of the prior quarter as revenue was recognized and one project value was adjusted upon final contract. Our backlog has grown further since the close of the quarter with wins in Ontario, Alberta, New York, and Boston, and we look forward to further growth in revenue and profitability in the quarters to come.
Selected Financial Information
Analysis of Financial Results
The Company would like to draw attention to the following points from its financial statements:
The Company expects to complete the full integration of the Carmanah Solar Power Corporation ("CSPC") business by the end of the calendar year, which will result in further cost savings and improvements in operational efficiency.
Revenue for the quarter ended September 30, 2017 was $5.0 million, compared with $0.7 million in the same period of the prior year from continuing operations, an increase of 575% due to continued focus and strong execution of projects in the commercial and industrial solar sector.
On September 30, 2017, UGE had backlog of $38.3 million, compared with $47.9 million as at June 30, 2017. The change in backlog was due to $5 million of revenue recognized in the quarter, and a reduction in the contract price for the Peterborough Utilities Inc. portfolio. The reduction was from the strategic removal of procurement of some equipment from our scope of work, which decreased contract value while keeping expected net income from the portfolio substantially the same. Since the close of the quarter the Company has announced several new project wins, further increasing our backlog, including with clients in Ontario, Alberta, New York and Boston.
The gross profit margin for the third quarter decreased slightly to 16%, compared with 18% in the same period of the year prior, but above the year to date average of 15%. We expect lumpiness in our gross margins due to the mix of projects in our backlog.
Sales, general and administrative ("SG&A") expenses were $1.6 million for the third quarter, compared with $0.8 million for the same period in the prior year from continuing operations, an increase of 95%. The large increase in SG&A expenses was due to the increase in overhead related to operating the CSPC business ($0.3 million), growth of the Company as revenue grew almost seven times, and one-time expenses. One-time expenses included the short-term depreciation of intangible assets of $0.2 million, and the write-off of leasehold improvements due to an office move of approximately $40 thousand. Management expects there to be further synergies realized while integrating the teams throughout the remainder of 2017.
During the quarter, one of our sub-contracted installers experienced financial difficulties, ultimately leading to the installer entering receivership. This led to the delay of certain projects, depressing revenue during the quarter and negatively impacting working capital as we secured other sub-contractors to complete affected projects. The Company believes that further disruptions caused by this have now been substantially resolved.
"UGE's focused approach to the mid-scale solar sector is resulting in exponential growth and an increasingly strong market leadership position," said UGE's CEO, Nick Blitterswyk. "Through the first three quarters of 2017 our revenue has grown approximately seven-times year over year, and we look forward to continued growth in revenue and EBITDA going forward."
We will be hosting an analyst and investor call at 10am EST today; please use the following dial-in information to join:
Dial-In: 1 (866) 297-6395 US/Canada Toll Free
Confirmation Number: 46034824