UGE Reports Third Quarter 2018 Financial Results

Revenue Rebounds from Second Quarter while Company Takes Significant Steps to Strengthen Balance Sheet and Reduce Overhead

Toronto, Ontario--(Newsfile Corp. - November 1, 2018) - UGE International Ltd. (TSXV: 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, 2018. UGE reports all amounts in United States dollars.

Third Quarter 2018 Highlights

  • UGE took strategic steps in the third quarter to strengthen its balance sheet and lower its overhead costs, as it positions itself towards a successful future. In addition, UGE landed its largest US project in company history, valued at approximately $8.4 million, as it looks to higher growth markets for future opportunity

  • Revenue for the quarter was $4.2 million, up from $3.4 million in the second quarter, but lower than the comparable period last year. Revenue is expected to increase in Q4'18 as a key project nears completion, and in Q1'19 as new projects enter the construction phase. Gross margins increased significantly from Q2, though were short of the Company's medium-term goals as one large EPC project dragged down average margins

  • Selling, general, and administrative expenses were down 30% to $1.1 million, compared with $1.6 million in the prior year third quarter as the Company focuses on moving towards sustained profitability. In addition, throughout September the Company took steps to further lower operating expenses, which will lead to a further decrease in SG&A expenses in Q4'18

  • The Company completed transactions with several parties to convert debt into equity, resulting in a reduction of approximately $2.6 million of current and long-term liabilities. Conversion of a further $2.7 million of current and long-term liabilities has been agreed to with one additional lender; this conversion has been granted conditional regulatory approval and is anticipated to be converted into equity during the fourth quarter, once final regulatory approval is granted

Selected Financial Information

Analysis of Financial Results

The three months ended September 30, 2018 saw UGE make significant progress in several areas, including progress on its large Canadian project in Peterborough, the addition to its backlog of new projects including its largest US project ever, the reduction in overhead costs in less profitable areas, and improvements to its balance sheet by way of several debt-to-equity conversions.

In the third quarter, the Company made significant progress on its Peterborough project, resulting in an increase in revenues over the second quarter, but coming in lower than the prior year comparative period. However, as most revenue came from this lower-margin project, gross margins were lower than the prior year comparative period. Early in the fourth quarter progress on this project has further accelerated, with all sites now either substantially complete or in construction.

UGE confirmed its largest US project in company history during the third quarter, worth approximately $8.4 million. The project is for five rooftop sites in the Northeast US and drives an increase in UGE's backlog to $37.3 million as of September 30, 2018.

Meanwhile, SG&A costs were reduced by 30% compared to the prior year comparative period as UGE reduced overhead and shifted resources away from less profitable business areas to developing projects in higher growth regions. Furthermore, UGE took steps throughout September to further reduce SG&A costs, the full effect of which will be visible in the Company's Q4 results. This included reductions in payroll, office leases, and other expenses.

The Company made significant progress in the restructuring of its balance sheet through a series of debt to equity conversions that resulted in the shedding of approximately $2.6 million of current and long-term liabilities. In addition, a further $2.7 million of current and long-term liabilities is anticipated to be converted into equity during the fourth quarter, pending regulatory approval. Combined, the transactions will result in a decrease in liabilities of $5.25 million, of which roughly half was previously classified as current, significantly improving the Company's working capital position.

On October 23, 2018, the Company raised additional financing by way of a secured convertible debenture in the amount of CAD$720,000 ($557,784) and secured project green bonds in the amount of CAD$500,000 ($387,350). Net proceeds of the secured convertible debenture will be used for working capital, business development, and general administrative purposes. Net proceeds of the secured project green bonds will be used to finance eligible solar projects owned by UGE indirectly through a wholly-owned subsidiary of the Company.

"Throughout Q3, the Company put in place a plan to turn the corner towards stronger performance, the benefits of which are already producing stronger results," said UGE's CEO, Nick Blitterswyk. "These debt to equity conversions strengthen the Company through a reduction of our working capital deficit and improved debt ratio, while our lower overhead and focus on landing higher margin projects will drive more profitable results going forward."

Full financial results and Management's Discussion and Analysis are posted to SEDAR (www.sedar.com) and are available through the Company's website.

About UGE

UGE delivers immediate savings to businesses through the low cost of solar energy. We help commercial and industrial clients become more competitive by providing distributed renewable energy solutions at no upfront cost, generating long-term economic and environmental returns. With over 370 MW of global experience, we work daily to power a more sustainable world. Visit us at www.ugei.com.

For more information, contact:

917-720-5685
investors@ugei.com