Summary
Sunworks, Inc., formerly Solar3D, Inc., incorporated on January 30, 2002, provides photo voltaic (PV) based power systems for the residential, commercial and agricultural markets in California and Nevada. The Company, through its operating subsidiaries, designs, arranges financing, integrates, installs and manages systems ranging in size from 2 kilowatt (KW) for residential loads to multi megawatts (MW) systems for larger commercial projects.
The Company’s commercial installations include office buildings, manufacturing plants, warehouses and agricultural facilities, such as farms, wineries and dairies. The Company provides a range of installation services to its solar energy customers, including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring and maintenance. The Company has installed over 850 systems in California and Nevada. The Company purchases solar panels and materials directly from multiple manufacturers. The Company arranges financing with various private and public sources, including property assessed clean energy (PACE) programs, which are programs that involve both municipal governments and private financing companies that allow property owners to receive upfront funding for renewable energy projects, and Farm Credit financing offered by a network of lending institutions.
Sunworks, Inc. has a current market capitalization of $53.16 M with 19.76 M outstanding shares. Its daily average volume traded is 0.12 M shares.
Key Indicators (FYE 2015) Performance (6 months)
| Shares Outstanding | 19.76 M |
| Revenue | 53.71 M |
| Gross Profit | 17.05 M |
| Net Income (basic/diluted) | 1.06 M |
| Cash and Short-term Inv | 12.04 M |
| Total Debt | 3.86 M |
Recent News and Analysis:
In recent news, the company announced today that it will report financial results for the quarter ended March 31, 2016 before the market opens on Wednesday, May 11, 2016. Immediately following the announcement of earnings, the company announced that its Agricultural and Commercial Divisions have been awarded approximately $10.1 million in commercial based solar solution orders ranging from 19kW to 768kW since the end of January 2016. These awards support the company’s current growth outlook and are included within their previously issued guidance. These contracts from new customers represent additional penetration by Sunworks into the SMB market which historically had not been addressable given the economics of solar integration and budget limitations of smaller businesses. However, with the introduction of new financial solutions by an increasing number of commercial and farm focused lenders, the SMB market is increasingly turning to solar as a way to reduce energy costs and lower carbon profiles.
“We are seeing a new market segment open up and significant opportunities for small- to mid-sized businesses that require less than 1 Megawatt of power offset to take advantage of solar,” said Abe Emard, COO at Sunworks. “The costs for solar integration have been significantly reduced and with innovative new financing solutions available through Sunworks and our financial partners, solar is more economically viable. We are designing innovative custom solar solutions for motels, golf courses, animal shelters, storage units, and farms throughout California and Nevada.” Jim Nelson, Sunworks CEO added, “Empowering small business owners with highly efficient and affordable solar solutions is good for the environment and the economy. Sunworks is well positioned to capitalize on growth opportunities in this emerging market segment and is focused on driving organic growth in both its residential and commercial divisions.”
Few analysts cover the stock with only recommendation and estimates for Q2 2016 earnings of $0.05 EPS and none for Q1. However, with the expected 2016 guidance and management exceeding guidance in FYE 2015, it is likely to expect earning for Q1 2016 to come in between $0.05 – $0.10 EPS. This would be the biggest win for the company to date. Management was finally able to turn a profit in Q4 2015 on $17M revenue and $1.06 M in net income.
Most investors wonder why the company that has for the past 6 months been spitting out tremendous news, been falling in price and has lost 27% year to date. Well the reason is promissory notes issued during the startup of the company. These notes allow their holders to convert notes into shares at $0.52 per share. In Q1, the company made a change in the notes to financials that resulted in more dilution. What this change did was extend the already expired conversion price of $.52 a share from March of 2015 to March of 2016, essentially resurrecting the more deleterious terms from the past. If this provision had not been extended the conversion price would have been 50% of the share price, which given the prices this month would have been $1.25 give or take a few cents. This change allowed the note holders to convert at more favorable prices (for them) sometime in the last two weeks. The conversion caused an additional 1,442,308 shares of dilution right before the big earnings announcement in Q1. Had the company not changed the provision then the dilution would have been a still substantial 500,000 shares ($750,000 note/$1.50 conversion price). Based on the price of the stock today, the 1,442,308 new shares caused about $4.3 million worth of dilution on a stock that has struggled to keep up any volume. Conversely, if they had not changed this provision, and retained the more favorable terms already in the contract, there would have only been $1.5 million worth of dilution. No assets or value were added to the company as a result of this decision to dilute, as far as I know.
Conclusions:
The incremental dilution as a result of this one inexplicable change caused more dilution to shareholders than the amount of money the company made in profit the entire year. I use the term inexplicable because there is in my mind no conceivable business justification for this change. The change only benefited the holders of the note used for the acquisition of Sunworks. To conclude, I give a strong recommendation to stay away from this stock if you are looking for an ordinary investment. There are complicated event-based trades that can be made successfully, but they carry extreme risk and can only be done with a small position size due to the normally thin volume.
Sources:
- http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=SUNW.O
- http://stockcharts.com/h-sc/ui?s=SUNW&p=D&b=5&g=0&id=p19109855077
- http://finance.yahoo.com/news/sunworks-expands-presence-fast-growing-123000277.html
- http://www.google.ca/finance?q=NASDAQ%3ASUNW&hl=en&gl=ca&ei=P0AvV5nTNcTijAHCtIiQCw
- http://finance.yahoo.com/q?s=SUNW
- http://seekingalpha.com/article/3958779-sunworks-seemingly-solid-earnings-report-shares-drop
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