SOURCE: EnSync Energy Systems

EnSync Energy Systems

September 08, 2016 16:01 ET

EnSync Reports Fourth Quarter and Fiscal Year 2016 Results

MILWAUKEE, WI--(Marketwired - Sep 8, 2016) - EnSync, Inc. (NYSE MKT: ESNC), dba EnSync Energy Systems, a leading developer of innovative energy management systems for the utility, commercial, industrial and multi-tenant building markets, today announced fourth quarter and fiscal year 2016 results, ended June 30, 2016. 

Recent Highlights

  • Subsequent to the end of the quarter on July 29th, the Company announced a significant milestone with the sale of multiple power purchase agreements (PPAs) comprising Tranche 1 to American Electric Power subsidiary, AEP OnSite Partners;
  • Completed the sale of the seventh PPA project from Tranche 1 in September 2016, leaving one project remaining from the initial tranche;
  • During the fourth quarter, the Company completed final system shipment of the Cayman Technology Center project, and recognized revenue on 90% of the system;
  • Completed successful assembly, test and shipment to Korea of the 500 kWh fully integrated utility energy storage system for Lotte Chemical, manufactured and sourced by our Meineng Energy joint venture;
  • Signed two additional PPA projects in Hawaii as part of the second tranche. Tranche 2 now consists of four PPA projects, with the Company PPA project backlog total being worth an estimated value of more than $5.0M at the time of project sale;
  • Successfully demonstrated our Supply Response on Demand capability at the Intersolar North America Conference in San Francisco in July, a major step forward in enabling the "Internet of Energy";
  • Continued focus on operational efficiencies has resulted in a reduction in engineering development, selling, general and administrative costs from $4.3 million in the second quarter of Fiscal 2016 to less than $3.5 million in the fourth quarter.

Management Discussion

"We marked a significant milestone in the history of the Company recently with the sale of multiple PPA projects in July to American Electric Power's subsidiary, AEP OnSite Partners," commented Brad Hansen, President and Chief Executive Officer of EnSync Energy Systems. "We're excited to work with a forward thinking and innovative organization like AEP that quickly realized the significance of being a leader in combining renewable energy, storage and energy management systems. The sale of these projects completes the disposition of seven of our eight projects from our initial tranche. We are now focused on working with our Hawaii subsidiary, Holu Energy, to drive the execution of our second tranche of projects, and the effort has already yielded four projects, that combined with our remaining Tranche 1 project have estimated future sales value of more than $5 million. With our second tranche we will be moving past the many non-recurring costs of entering the market with our new business model as well as the costs involved in new product introduction like UL compliance for Matrix and technology transfer costs for Matrix and Agile. Going forward we see significant cost reductions being achieved in our products, as well as solar EPC related costs, so we expect profit on future tranches or projects to be in the 10-20% range."

Mr. Hansen continued, "As far as we know, we are the only Company to have completed the full cycle of the PPA business model for behind the meter, commercial and industrial solar plus energy storage projects. It took us about nine months to put all the elements of the business model together and there were a number of learning experiences, but with our sale of our first group of projects to AEP Onsite Partners, we can be proud that we are the first to successfully execute this model that moves solar plus storage in C&I to the commercial stage. We expect the financial profile on the first tranche of projects, which reflects significant one-time, non-recurring commercialization costs associated with this pioneering effort, to look much stronger as we go into our second tranche of PPAs, where we are well positioned to profitably lead this market. We also look forward to significantly increase the velocity of our contract intake as well as shortening the timing from cash deployment to project sale to more efficiently utilize our balance sheet. This should contribute to our goal of contracting two additional tranches in our fiscal year of equivalent or greater value than our initial tranche." 

Jim Schott, Chief Financial Officer of EnSync Energy Systems, commented, "The sale of the PPAs took place in July 2016 and will be recognized as revenue during our first quarter of fiscal 2017. During the fourth quarter, we shipped the final products for the Cayman Islands system, and also recognized project revenue from Lotte and Holu, totaling $1.3 million. We continue to make significant strides in our commitment to reduce our engineering development, selling, general and administrative costs as these costs were below $3.5 million for the fourth quarter. What we call our cash run rate, which is these costs less equity compensation, was less than $3.1 million. We will stay focused on effectively managing our cost structure, while looking for efficiencies within our project costs to drive further improvements in bottom line performance going forward."

Mr. Hansen concluded, "The enormous shift from carbon emitting electricity generating assets to renewable energy generating systems is creating significant market inflection points for the energy business, including not only massive proliferation of energy storage systems, but also the need to connect the distributed energy resources, or 'DERs', with the grid network, for real time supply response and aggregation. Our differentiated products, business models and intellectual property position us to capitalize on these market inflection points."

July 2016 PPA Sale

On July 29, 2016, the Company announced the sale of multiple power purchase agreements. The upfront sale of these agreements totaled approximately $7.5 million, with the opportunity for future revenue opportunities based on certain regulatory changes occurring over the next 20 years.

As the anticipated revenue at June 30, 2016 on two of the five projects was less than the amount invested in those projects, the Company recorded an impairment of $1.9 million in the fourth quarter for these projects. Certain identifiable start-up and one-time costs were incurred with this initial tranche. The Company does not expect these costs to be recurring and as a result anticipates margins on future PPA projects of 10-20% of revenues.

Revenue of $7.1 million from this sale will be recognized in the first quarter of 2017 and the balance of the proceeds of $.4 million will be deferred for future recognition. With the $7.1 million of PPA revenue plus revenue from other projects, we expect revenue of approximately $7.3 million in the first quarter of 2017, a record for EnSync.

Fourth Quarter Financial Results

Total revenue for fourth quarter which ended June 30, 2016 was $1.3 million compared to $0.3 million in the fourth quarter of fiscal 2015. Revenue growth in the quarter was primarily driven by remaining system shipments for the Cayman Technology Center project.

Total cost of products sold during the fourth quarter was $3.1 million compared to $59,000 in the year ago period. The increase was primarily due to the non-recurring and start-up costs discussed earlier and an inventory adjustment of $158,000. Excluding these items, cost of product sales would have been approximately $1.04 million, resulting in a product margin of approximately $160,000, or 15%.

Advanced Engineering, Development, Selling, General and Administrative costs totaled $3.5 million in the fourth quarter of fiscal 2016, compared to $3.6 million during the fourth quarter of fiscal 2015. Net loss attributable to common shareholders was $(5.8) million, or $(0.12) per basic and diluted share, for the fourth quarter of fiscal 2016, compared to $(3.5) million, or $(0.09) per basic and diluted share, in the year ago fourth quarter.

Current backlog for components, systems and engineering services is approximately $877,000. Additionally, the Company has five PPA contracts valued at more than $5.0 million in its project backlog, including four signed agreements for Tranche 2. The Company ended August 2016 with approximately $21.5 million in cash.

Conference Call Information

Date: Thursday, September 8, 2016
Time: 4:30 p.m. ET (3:30 p.m. CT)
Domestic participant dial in #: 888-684-1277 or 913-312-0956
Participant passcode #: 3615913

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. A replay of the call will be available later on the same day via the investor relations section of the Company's web site at www.ensync.com until October 8, 2016.

Domestic replay #: 888-203-1112
Replay passcode #: 3615913

About EnSync Energy Systems

EnSync, Inc. (NYSE MKT: ESNC), dba EnSync Energy Systems, is enabling the future of electricity with advanced energy management systems critical to a global economy becoming increasingly reliant upon the expansion of renewable energy. Whether part of the grid power transmission and distribution network, or behind the meter in commercial, industrial and multi-tenant buildings, EnSync technology brings differentiated power control and energy storage solutions to electricity-challenged environments. Our technologies also serve as the system level intelligence in microgrid applications, by seamlessly integrating multiple generation and storage assets to deliver power in remote and community level environments not served by the grid, or areas electing to use the grid secondary to microgrid assets. In 2015, EnSync incorporated power purchase agreements (PPAs) into its portfolio of offerings, enabling electricity savings for customers and providing a stable financial yield for investors. EnSync is a global corporation, with a joint venture in AnHui, China at Meineng Energy, as well as a strategic partnership with Solar Power, Inc. (SPI). For more information, visit: www.ensync.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the "safe harbor" created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as "believe," "expect," "may," "will," "should," "could," "seek," "intend," "plan," "estimate," "anticipate" or other comparable terms. All statements other than statements of historical facts included in this press release regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, expectations concerning our PPA strategy, the anticipated results of our product development efforts and other expectations regarding our business strategy. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent Annual Report on Form 10-K and our subsequently filed Quarterly Report(s) on Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

   
EnSync, Inc.  
Consolidated Statements of Operations  
                         
    Three months ended
June 30,
    Year ended
June 30,
 
    2016     2015     2016     2015  
Revenues                        
  Product sales   $ 1,179,865     $ 41,000     $ 1,730,851     $ 992,162  
  Engineering and development     104,783       272,178       369,172       771,348  
    Total revenues     1,284,648       313,178       2,100,023       1,763,510  
                                 
Costs and expenses                                
  Cost of product sales     3,092,140       58,774       3,486,542       841,928  
  Cost of engineering and development     225,342       64,904       583,137       267,127  
  Advanced engineering and development     1,144,786       1,996,130       6,234,083       6,420,191  
  Selling, general, and administrative     2,310,779       1,555,866       9,038,602       7,146,649  
  Depreciation and amortization     202,685       169,090       772,332       644,790  
    Total costs and expenses     6,975,732       3,844,764       20,114,696       15,320,685  
                                 
Loss from operations     (5,691,084 )     (3,531,586 )     (18,014,673 )     (13,557,175 )
                                 
Other income (expense)                                
  Equity in loss of investee company     (72,473 )     22,583       (242,902 )     (495,119 )
  Gain on investment in investee company     -       -       -       1,257,407  
  Interest income     12,793       6,318       46,438       25,108  
  Interest expense     (12,131 )     (48,962 )     (51,825 )     (128,009 )
  Other income (expense)     (76,437 )     (3,261 )     -       (277 )
    Total other income (expense)     (148,248 )     (23,322 )     (248,289 )     659,110  
                                 
Loss before expense (benefit) for income taxes     (5,839,332 )     (3,554,908 )     (18,262,962 )     (12,898,065 )
                                 
Expense (benefit) for income taxes     -       (86,455 )     (468 )     (86,455 )
  Net loss     (5,839,332 )     (3,468,453 )     (18,262,494 )     (12,811,610 )
  Net loss attributable to noncontrolling interest     108,847       44,451       386,436       407,672  
  Gain attributable to noncontrolling interest     -       -       -       (481,870 )
Net loss attributable to EnSync, Inc.     (5,730,485 )     (3,424,002 )     (17,876,058 )     (12,885,808 )
Preferred stock dividend     (73,605 )     (74,655 )     (291,995 )     (266,356 )
Net loss attributable to common shareholders   $ (5,804,090 )   $ (3,498,657 )   $ (18,168,053 )   $ (13,152,164 )
                                 
Net loss per share                                
  Basic and diluted   $ (0.12 )   $ (0.09 )   $ (0.39 )   $ (0.36 )
                                 
Weighted average shares - basic and diluted     47,682,008       39,101,209       47,156,928       36,944,116  
                                 
   
EnSync, Inc.  
Consolidated Balance Sheets  
   
    June 30, 2016     June 30, 2015  
Assets            
Current assets:            
  Cash and cash equivalents   $ 17,189,089     $ 10,757,461  
  Restricted cash on deposit     -       60,193  
  Accounts receivable, net     172,633       113,093  
  Inventories, net     1,869,942       1,198,117  
  Prepaid expenses and other current assets     600,591       441,537  
  Deferred financing costs     -       545,825  
  Customer intangible assets     76,293       -  
  Note receivable     171,140       159,107  
  Deferred PPA project costs     5,690,307       -  
  Deferred customer project costs     419,765       -  
  Project assets     1,190,853       -  
    Total current assets     27,380,613       13,275,333  
Long-term assets:                
  Property, plant and equipment, net     3,889,106       4,164,912  
  Investment in investee company     2,165,626       2,408,528  
  Goodwill     809,363       803,079  
  Right of use assets-operating leases     27,264       85,656  
    Total assets   $ 34,271,972     $ 20,737,508  
                 
Liabilities and Equity                
Current liabilities:                
  Current maturities of long-term debt   $ 332,707     $ 324,626  
  Accounts payable     569,226       1,056,744  
  Accrued expenses     501,031       1,214,822  
  Customer deposits     201,352       1,177,155  
  Accrued compensation and benefits     257,087       235,351  
    Total current liabilities     1,861,403       4,008,698  
Long-term liabilities:                
  Long-term debt, net of current maturities     1,057,720       1,053,581  
  Deferred revenue     13,290,000       -  
  Other long-term liabilities     25,789       -  
    Total liabilities     16,234,912       5,062,279  
                 
Commitments and contingencies (Note 15)                
                 
Equity                
  Series B redeemable convertible preferred stock ($0.01 par value, $1,000 face value) 3,000 shares authorized and issued, 2,300 and 2,575 shares outstanding, preference in liquidation of $5,317,800 and $5,635,866 as of June 30, 2016 and June 30, 2015, respectively     23       26  
  Series C convertible preferred stock ($0.01 par value, $1,000 face value), 28,048 and 0 shares authorized, issued, and outstanding, preference in liquidation of $12,719,260 and $0 as of June 30, 2016 and June 30, 2015, respectively     280       -  
  Common stock ($0.01 par value); 300,000,000 and 150,000,000 authorized, 47,752,821 and 39,129,334 shares issued and outstanding as of June 30, 2016 and June 30, 2015, respectively     1,185,843       1,099,608  
  Additional paid-in capital     137,585,233       117,104,936  
  Accumulated deficit     (120,550,108 )     (102,674,049 )
  Accumulated other comprehensive loss     (1,585,583 )     (1,589,486 )
    Total EnSync, Inc. equity     16,635,688       13,941,035  
  Noncontrolling interest     1,401,372       1,734,194  
    Total equity     18,037,060       15,675,229  
    Total liabilities and equity   $ 34,271,972     $ 20,737,508  
                 
                 
EnSync, Inc.  
Consolidated Statements of Cash Flows  
   
    Year ended June 30,  
    2016     2015  
Cash flows from operating activities            
Net loss   $ (18,262,494 )   $ (12,811,610 )
Adjustments to reconcile net loss to net cash used in operating activities:                
  Depreciation of property, plant and equipment     679,303       644,790  
  Amortization of customer intangible assets     93,029       -  
  Stock-based compensation, net     1,274,616       1,263,529  
  Impairment of PPA project costs     1,890,357       -  
  Equity in loss of investee company     242,902       495,119  
  Gain on investment in investee company     -       (1,257,407 )
  Interest accreted on note receivable     (12,033 )     (9,107 )
Changes in assets and liabilities                
  Accounts receivable     (59,540 )     937,931  
  Inventories     (671,825 )     154,853  
  Prepaids and other current assets     (154,470 )     (145,723 )
  Refundable income taxes     -       91,191  
  Deferred PPA project costs     (7,580,664 )     -  
  Deferred customer project costs     (419,765 )     -  
  Project assets     (1,003,631 )     -  
  Accounts payable     (487,518 )     467,102  
  Accrued expenses     (749,667 )     (1,473,945 )
  Customer deposits     (975,803 )     436,010  
  Accrued compensation and benefits     21,736       40,170  
  Deferred revenue     13,290,000       -  
Net cash used in operating activities     (12,885,467 )     (11,167,097 )
Cash flows from investing activities                
  Cash paid for business combination     (225,829 )     -  
  Change in restricted cash     60,193       9,708  
  Expenditures for property and equipment     (406,917 )     (427,499 )
  Issuance of note receivable     -       (150,000 )
Net cash used in investing activities     (572,553 )     (567,791 )
Cash flows from financing activities                
  Payment of financing costs     (261,982 )     (545,825 )
  Repayments of long term debt     (319,607 )     (1,018,062 )
  Proceeds from equipment financing     331,827       -  
  Payments for finance leases     (13,521 )     -  
  Proceeds from issuance of preferred stock     13,300,000       -  
  Proceeds from issuance of common stock     6,800,000       14,837,760  
  Common stock issuance costs     -       (1,148,023 )
  Contributions of capital from noncontrolling interest     53,614       13,756  
Net cash provided by financing activities     19,890,331       12,139,606  
Effect of exchange rate changes on cash and cash equivalents     (683 )     (7,978 )
Net increase in cash and cash equivalents     6,431,628       396,740  
Cash and cash equivalents - beginning of year     10,757,461       10,360,721  
                 
Cash and cash equivalents - end of year   $ 17,189,089     $ 10,757,461  
                 
                 
Supplemental disclosures of cash flow information:                
  Cash paid for interest   $ 47,568     $ 114,236  
Supplemental noncash information:                
  Right of use asset obtained in exchange for new operating lease   $ 41,048     $ -  
  Asset retirement obligation     18,527       -