Q1 2020 Earnings Call

Thursday Thursday

Good day, ladies and gentlemen and welcome to the son works first quarter 2020 earnings call all lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation wage. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator at this time. It is my pleasure to turn the floor over to your host Rob pink off of FM ki our service before yours.

Thank you operator. Good morning everyone and thank you all for joining son works first quarter 2020 earnings conference call participating in the chief executive officer and Paul McDonald key financial officer. Before we start I would like to remind everyone that during this call Management's remarks will contain forward-looking statements which are subject to risks and uncertainties and management page make additional forward-looking statements during the question-and-answer session there for the company claims the protection of the Safe Harbor for forward-looking statements that is a contained in the private Securities litigation Reform Act of 1995.

Actual results could differ materially from those contemplated by forward-looking statements because of certain factors not limited to General Economic and Business conditions competitive factors changes in business strategy or development plan the ability to attract and retain qualified personnel and changes in legal and regulatory requirements in addition any projections that for the coming future performance represents management estimates, as of today, May 7th, 2020 son works assumes no obligation to update these projections in the future as market and business applications may change today. The company issued a press release with financial information and commentary. They also filed their 10K report this morning. We encourage you to review the press release and the home okay to augment the information provided on this call with all that said I'd like to turn the call over to Chuck Argyle son works at CEO shop call is yours.

Thank you rob. Good morning, everyone and thank you for joining our call.

We entered the first quarter of 2020 with optimism. Our backlog was flushed coming out of queue for 2019 After experiencing our highest bookings in seven straight quarters. I just adore cost structure by reducing overhead and organize and operations and field teams for greater efficiency, and we'd raise seven point seven million dollars in cash through our at-the-market off.

Although the early start of the year was marked by normal seasonality. We were confident that by early spring we would have the wind in our sales then in mid-march. The coronavirus are covid-19 became the epicenter of our attention and we've since been focused on adjusting to the unpredictable challenges that have been presented.

As all on this call are experiencing. We're not only faced with macroeconomic challenges impacting the organization, but the personal impact this is having on employees and stakeholders are like

For Paul discusses the specifics of our first-quarter financial results. I'll spend a moment discussing our current situation as it relates to covid-19 and how it's expected impact our actions and execution in the near to mid-term.

As it relates to covid-19. Our primary goal is to ensure to the greatest extent we can the health and safety of our employees their families are customers and others wage in our ecosystem.

Fortunately, none of our employees have tested positive for the virus and we've taken and continue to take the necessary precautions.

We're complying with all public health directives and a reminded our employees to follow the necessary steps to mitigate risks for themselves, and those they encounter.

We're following the Center for Disease Control and prevention safety guidelines which include common social distancing protocols personal protection by regularly washing hands and wearing a covering.

And keeping all vehicles and workspaces clean and sanitized.

Although our operations have slowed were fortunate to continue serving customers as an essential business as defined by County agencies shelter-in-place directives.

The energy industry is identified by the federal government as critical allowing us to continue operating.

Some of our customers subcontractors and suppliers have not been deemed as essential and some who are categorized as essential are taking this time away from work commitments there for them operating at a similar capacity as we are in some cases. This is cause our business to be disrupted despite are essential designation.

The key areas where we have identified operational bottlenecks are through the authorities having jurisdiction known as a h j and utility companies the age J. J's our individual cities and counties of which many have experienced layoffs and furloughs themselves.

These entities are responsible for permitting and final approval of all projects.

The utilities Grant permission to operate or PTO approval and although they have been operating. There's not been at the same capacity as in the normal course of business office.

As soon as covid-19 became a prevalent concern we quickly reacted to mitigate our risk in this evolving and dynamic situation.

At the onset of the first shelter in place orders, we immediately analyzed our headcount need as we were facing significant uncertainty in our volume and determine that we needed to adjust by approximately 40%

At the time we had 179 employees and then we put forty-two on temporary leave of absence.

And 32 took a reduced salary or transition to working part time.

And our cost-reduction decisions. We've been very careful to maintain at full capacity for all functions that support customer needs and revenue generation.

In other cost reduction measures. We negotiated rent relief from our landlords. We cut non-essential travel and limited all other discretionary spending.

These actions have resulted in almost five hundred thousand dollars of savings per month.

Is operating condition stabilized we will return to a new normal whereby some of these cost reductions will be reversed.

However, we are determined to carefully monitor our costs as we intend to operate a leaner more agile business going forward.

We announced on April 30th that we had strengthened our cash position by securing a 2.8 million dollar loan under the paycheck Protection Program.

A provision within the coronavirus Aid relief and economic security or cares act and guaranteed by the small business administration.

And that means during May and June the amounts that we spend on payroll benefits rent utilities and interests will be forgiven.

The specific forgiveness criteria is still being determined. Although we are confident that a large portion will qualify providing us added relief.

The principal amount that isn't forgiving will be deferred 6 months from the funding date bear interest at 1% fixed and will be starting in November 2020 and continuing for 18 months until May of 2022.

In the near-term we continue to execute on our backlog which is approximately 42 million dollars.

Due to covid-19. We've experienced some customer deferrals. Although we are still confident that these jobs will be installed in 2020.

What is the most impactful is customers hesitancy to sign new contracts?

pipeline remains flush with opportunities particularly in the ACI business

the customers appear to be waiting for some greater degree of normalcy.

We believe that the expectation of economic conditions including the risk of a recession will be a driver for customers reconsidering their own operating costs.

therefore the

incentive to invest in solar becomes more attractive

Once there is more economic predictability. We anticipate customers will have a greater interest in signing new contracts.

In the meantime because of the low bookings this year. We will ensure that our cost structure remains very lean allowing us to lower our Breakeven point and conserve and perhaps grow our cash balance.

In summary, we are prepared to weather the current storm. We've reacted quickly to the evolving macroeconomic conditions. We have strong backlog for the near-term.

And we have our largest cash balance in eight quarters.

Once Market condition stabilized and we return to more normalized operations and revenue we expect to return to profitability and generate positive cash flow from operations.

With that, I'll ask Paul to provide more specifics related to our financial results in the quarter Paul.

Thank You Chuck and hello everyone

For the first quarter of 2020 installation Revenue was 12.4 million eight thirty 3% increase from the nine point three million reported for the first quarter of the prior year.

Agriculture commercial and Industrial or ACI and Public Works installation Revenue with eight point six million or 69% of total revenue.

Versus 5.3 million or 57% of total revenue in the prior-year quarter residential installation revenues was three point eight million or 31% of quarterly Revenue versus three point nine million or 43% of total quarterly Revenue in the prior-year.

Gross profit to the 3 months ended March 31st, 2020 was 1 million or 7.7% of Revenue off. Our gross margin was negatively impacted by several key drivers.

First agriculture project. We're impacted by normal seasonality from rainfall in northern and central California resulting in lower Revenue in the first quarter of 2028.

Second has truck mentioned earlier. We were impacted by unprecedented challenges caused by covid-19.

Primarily due to a h j and utility holes.

Within the I project these ahj and utility issues caused us to incur approximately $200,000 a pop and delayed rep without respected Prophets.

Delayed revenue and profit will be earned. Once the respective jobs receive final inspection from the respective. Ahjs and we received permission to operate from the um in residential operations. We experienced a similar margin myths of approximately $300,000 also due to a h j and Utility Billing

These delays coupled with lower. She one residential sales and installations causes Avenue learn to be lower than expected resulting and residential home as a percentage of total revenue to be less than in Prior quarters.

the negative

a residential business more than our business

traditionally residential gross margins are higher than gross margin.

So this change in Revenue mix also put downward pressure on the overall gross margin.

The third driver of the lower gross profit for the first quarter was to non-recurring expenses.

A $200,000 expense to settle a customer dispute the project started in 2017 and a hundred thousand dollar expense for a significant project overrun, which was unrecoverable from the customer.

Hjm, utility holes and and the non-recurring expenses our estimated gross. Margin as a percentage of Revenue would have been in the mid team which would have been reasonable at this level of Revenue off.

As we look forward into the second third quarter of 2020. We anticipate that our gross margin could return to the eighteen to twenty percent range as a result of higher earned Revenue agent and enhance operational efficiency.

Combined with our cost savings resulting from organizational changes.

Total operating expenses for the first quarter of 2020 excluding the Goodwill impairment of four million dollars were three point four million compared to three point seven million in the first quarter of 2019.

Disrespect reflects a 6.5% reduction in normal operating expenses from the same period of the prior year.

Total operating expenses including the Goodwill impairment of four million was seven point four million.

As of December 31st, 2019 our external evaluation expert and are independent auditors.

Determined that are good wheel balance of 9.5 million was not impaired, especially with the momentum that we had heading into twenty-twenty.

As described in our last quarterly conference call.

Based on a significant changes in macro-economic conditions. We repeated the valuation process as of March 31st 2020.

Accounting Guidance the carrying value of the company's assets including Goodwill must be evaluated comparing market capitalization to the expected future cash flows of the business as of the value of valuation date in this case, March 31st.

For the current valuation we first adjusted are expected 2020 earnings to account for possible project delays caused by covid-19.

Which reduced our near-term Revenue profit and cash flow pushing each in the future periods off our show price declined significantly causing our market capitalization to drop approximately 30% below the value at December 31st, 2019.

our market capitalization

has rebounded since March 31st 2020.

Despite the rebound and capitalization accounting rules require the valuation of Goodwill to be as of a specific point in time.

And in this case, March 31st.

The lower market capitalization coupled with reduced expectation of near-term profit and cash flow caused us to determine that an impairment charge was reasonable wage.

As a result of the aggressive measures taken to reduce costs in March and April of this year. We expect operating expenses including stock-based compensation to drop significantly compared to 2019.

We are still uncertain which of these reductions will become permanent as our decisions will be fluid determined by performance data and by our immediate and projected operating needs.

Reducing our overhead costs without compromising the ability to operate effectively has and will continue to be our emphasis.

During the three months ended March 31st, 2020. We incurred $98,000 in total non-cash stock compensation expense compared to $126,000 for the same period in the prior year, the expense reduction is primarily due to the discontinuance of stock-based compensation.

for former employees

depreciation and amortization expense for the 3 months ended March 31st, 2020 was $81,000 compared to $92,000 in the same period in the prior year.

Interest in other expenses increased $50,000 to $269,000 for the first quarter of 2020 compared to $219,000 for the same three months in 2019.

That's mentioned in our last quarterly conference call and March 30th of this year.

The one point five million dollar pay down of a crowd of debt in January of 2020 required us to recognize an additional non-cash expense of approximately $98,000 for accelerating the right off of the capitalized issuance costs and extension fees associated with the portion of the early pay down.

As a result the future quarterly and amortization expense will be lower over the remaining term of the load the note.

To a small degree. We are also benefiting now from the lower 30 day labor rate upon which the interest payments are calculated.

The 30-day LIBOR rate has declined approximately 165 basis point in 2020 and is now is approximately one quarter of 1%

The company incurred a net loss of 6.7 million or sixty cents per share for the three months ended March Thirty $1.20.

Excluding the four million non-cash Goodwill impairment and the 98,000 of non-cash charge for the accelerated right off of the crowd out capitalized fee. The law have been approximately 2.6 million or 24 cents per share compared to a net loss of four point five million or a dollar twenty one per share for the three months off in March Thirty One 2019.

Turning to our balance sheet our cash and cash equivalents balance. As of March. Thirty One was 5.9 million compared to 3.5 million as of December 31st, 2019.

Our recent cash and liquidity positions have benefited from two Key activities.

After broker fees, we raised approximately 7.7 million of cash during the first quarter of 2020 through our through our at-the-market offering which has since been fully years and canceled as of March 30th 2020.

Additionally in April, we secure the two point eight million PPP law.

At the end of the first quarter of 2020 are working capital Surplus was 3.1 million compared to a working capital of surplus of 1.5 million at December 2019 year end.

During the three months ended March 31st, 2020. We used 3.6 million of cash and operating activity compared to using 1.19 million of cash and operated activities for the same period in 2019.

The cash using operating activities was the result of our operating loss and the pay down of accounts payable and accrued liabilities during the quarter the college expense or the cash impact of the net loss was partially offset by cash received from the collection of accounts receivable and from a reduction and inventories month.

Our total non trade debt at March Thirty One twenty was 2.2 million compared to three point eight million at December 2019 year end off the 2.2 million consist primarily of the cloud out promissory note together with a minor amount of equipment financing.

All 2.1 million of the crowd of debt is due at the end of January 2021.

With that we are now happy to answer any questions you may have.

The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time questions will be taken in the order. They were received. If at anytime your question has been answered. You can remove yourself and get you by pressing one again. Ladies and gentlemen. If you do have a question, please press star one on your telephone keypad at this time.

Okay. Our first question comes from Shen with Roth Capital Partners, please State your question.

Hey guys. Thanks for the questions. I wanted to see if we could kind of explore the residential business first and then explore page next but specifically for the segment was wondering. When do you think your sales rep either has trapped? Oh like when do you think your cell is trapped or do you when do you expect it to trough? And when do you expect your sales for solar off to get back to the February volumes?

Well, that's the million-dollar question. So I should probably be asking you that because you have a lot better visibility to all the companies than I do. First. I would say I was pleased with the start that we had in resy, January and February were actually pretty good when I know when we talked just six weeks ago about our own business at that time. I told you I didn't think we'd be able to get to revenue levels that matched last year's. Um, but we did at the 3.8 million and that was with a very very

slow

Last two or three weeks of the quarter, so we were off to a bit of a good start and then now it's been it has been low. It's hard to extrapolate a trend on such a small amounts of data, but we we have dropped and seen a little bit of come back in the last week or two, but not nearly enough to Thursday the extrapolated trend or predict. It's going to get better. So I don't I don't have a prediction and we're not managing that business right now on the basis of prediction. We've streamed it down to the Bare Bones in terms of field Crews. We we have temporary furloughed all Crews unless they're working specifically on projects and that changes day-to-day. The office staff is either on part-time or also furloughed and again day-to-day. We managed to see if we can bring people if we need to bring people back to school.

Ford either customer relations or a new project entry or assigning crews in the field. So if we start to see if move I think we're prepared and positioned to move very nimbly to to react to it. But I wish I had an answer for you. I wish I had a better Crystal Ball, but I I don't know how long it's going to be. How long is going to how long it's going to last?

Oh, okay. Do you have you guys transitioned or virtual sales and like Zoom sales and things like that or are you are you focused on just doing the in-person consultation still? Yeah, good question and first by way of reminder and I know you know this but some on the call won't we are almost exclusively represented through third-party sales rep don't have a lot of insight sales. We do get some requests that come through the web or over the phone and were able to support those. But again, it's through third-party and and our third parties we've worked with them and they're absolutely doing more virtual sales. We've added new distributors or Channel Partners even in the last month in six weeks ones that we selected specifically because that's what they focus on Thursday. So we like everyone else believe that one of the aftermath of this sea change in business will be much more virtual not only on the sales side also on the back end for permitting it said

So yeah, we're doing that and we'll see if how long it takes for that to to gain traction.

So those the volume that you're seeing now, how what's the percentage of volume you're you're doing on a weekly basis Now versus maybe the the volume for the average week in February. Is it down 50% down 80%

Yeah, I think compared to February it's probably down 50%

And what will be interesting is as we move forward now because April May June is traditionally when we see acceleration and so we'll be seeing a celebration even in the new world at the at the lower levels or we just bottoming out at this level. So that's what I'm keeping a close eye on is this 50% going to stay at 50% of historical long? Is it going to stay at 50% of February levels? And again, that's I wish I wish I could predict better, but I'm not capable of that.

And then shifting to the challenges with the age J's and working with utilities given the friction their own crops. You could share with us. Typically. What is the time between

When you get installed, like whatever the starting clock is versus when that installation is PTO door complete. Is that the time like 45 days for example, and then how much worse has it gotten? So let's say historically were a 45 are you at sixty now? So if you can kind of give us a couple of markers their life would be great. Sure. Yeah our historical number would be closer to 2:35 days 35 to 40 days that day and now it's gone up not double but but almost so now we're looking at probably closer to two months, you know, I guess an easy way to think of is used to be about a month and now it's about two months.

But it's it's also and that's on average with with the number of installs that we have it can it can vary quite a bit by the the different H. Jaise home. And do you have a sense for when that might improve given the age that you deal with? I'm guessing it's a hand, you know, maybe a modest handful or two handfuls. Are you getting a a sense that things are improving their or or not yet?

It's very dependent upon the individual H. Hjs ahjs and some we see Improvement. We had I have had a lot of presents and success in the Bay Area. Particularly San Jose area where we have an office and you haven't seen Improvement there and it's it's pretty much dictated by shelter-in-place local shelter in place rules. So I'd say it's spotty but on balance I'd say not a lot of improvement yet the same thing that I've heard that does provide some glimmer of hope long-term. Is that more of the h, j as in the utilities are are you allowed remote or electronic processing and that's still relatively new but being forced to do that now could accelerate processing in the future.

something that we've seen and that we hope will

Will be a benefit the time will tell.

Okay, let's shift to a c I almost the same series of questions. Maybe we'll start with what kind of volumes you know, I know the timer a longer so it's not you know, you can't compare this week for ACI versus an average week in February, but maybe you can look at it from a monthly time frame, you know, so let's take the month of April versus the the month of February or or what you would have expected for the month of April. How much slower is business for ACI is it has a c i been less impacted perhaps because the time frames are a little bit, you know longer or have you seen activity from you know, farms and farmers and other owners just kind of go away completely and and you know, maybe actually might even be worse than raise you so just curious where your head is on on a non-residential business.

Has been less impacted as you alluded to we've we haven't seen anywhere near the the 50% fall off. Like we saw if you compare it back to February 8th. We've not been there have there's only been one major project that we're working on that I can think of off the top of my head that we've been stolen from working on and it was a rather large one on the Public Works side. One of the state prisons that we were working on. They had a they had to ask us to pull out because they had someone in the prison actually may need to be tested for the the virus or they were concerned about it. So we had to pull off that one. We think or hope that we'll get back in there in June and be able to start generating money or continue the project but we've been put on hold there, but that's the only one the other ones we've we've been pretty consistent on were following the same.

Strategy there where even though it's not as impacted as residential. We're not at the full capacity that we thought we would be two months ago. And so we don't have that many people on the field people on furlough there, but we'd still have some and again we manage that the field teams and our our superintendents and and project managers manage it day-to-day. We we look at it at the leadership team once a week and know who all is going to be in the field. Unfortunately. We still have a higher percentage of people in the field every day than certainly more than we had in residential school. So I think that that that will continue to to click along pretty well I do however have the same concerns on the front end the sales side walk in or non-residential business has been very slow. So there is a reluctance even by agriculture customers are large industrial Club.

Clockwork Partners, there's been a delay now. We we actually this week and last week have seen it break a little bit not anywhere near the levels that we would expect in in May, but certainly better than what we were seeing in in March and April. So hopefully that'll start to thaw a little bit and also more so on the non-residential sidewalk when you are looking down the barrel of a recession or tough economic conditions companies that have cash are great targets to talk about how they can lower their operating costs how they can spend money to lower operating costs as opposed to have to terminate people or or cut other discretionary spending. So we think once those non residential customers feel like they're on firmer footing that with a good sales pitch and be able to start a new dialogue about why they should want to buy solar in the second half of this year because the recession save costs get in before the next down step in the ITC Etc dead.

But again, that's probably another month or so before we can see that start to maybe that firmer footing or or New Normal to become something worthwhile Thursday. Okay. Thanks Chuck. Do you think from a a an interconnections month with utilities? Is there friction there as well for non-resident? And you know, what was your typical installation time may be extended by 20% or something as a result of that friction.

Yeah, they're still friction with a similar answer as the residential it's it's case-by-case or different age J's off of that on the on the commercial side and the Egg side because they are larger projects and fewer projects. There's a little bit more of a relationship that can be busy and then you get better reaction you maybe you know someone at the age J. And so they help expedite it for you. We have that benefit in some of them but they're still there is still friction and part of that is not certainly not animosity or people not doing a good job. It's just they have they have fewer people working and and there's they're just impacted like everybody else is wrong in terms of the the timing

Yeah, so that that is probably a little bit shorter than on the residential side, maybe 20 to 30 days.

Average, okay.

Good and then shifting over to some modeling questions, you know you had your lower margins this quarter and how do you expect margins to Trend in Q2 and maybe Q3?

The the ahj issues that we highlighted in the press release and in our prepared remarks, we referenced about a half a million dollars across the company both residential and non-residential for things where we had incurred costs and we can't count the revenue of the profit yet if we can start to see that thought and those projects Thursday delayed at the end of q1 can get PTO and Q2 and we can have some kind of normalized environment for the next two months that could bode well for the prom because we're going to get that pure profit coming through in Q2 or perhaps Q3. So I think the pain that we took in q1 from the perspective and the utility PTO perspective.

Will benefit future quarters cuz that's just a timing that we missed in q1 and now we get it back in to so just that basis alone. There should be $500,000 of or so of of profit off on our way as soon as that clears and then if we can get a quick return on the other ones we can get somewhat of a a doubling effect in in the next couple of quarters off the so I think that will see that benefit on the on the on the gross margin side. So in our own internal forecasting for Q2 and Q3, we're back to expecting a mid-teens if we're if we're going to be Revenue levels even like what we were for this quarter, so if we can be in the twelve to Fifteen million dollars in Revenue, then we can be probably in the mid-teens in terms of margin and what it's interesting also to note on the revenue side. I said that we were that we were off to age.

Okay start we normally have a slow q1 as you know, but our our first two months of q1 were actually equal to or slightly higher than the first two months of June and then in Q4, we had two million dollars and we had in either the first two months. So if we would have seen that kind of activity in this quarter, then we would have been close to $15 for four Q one that would have been really strong for us. So if we can just get through this this storm that backlog that can start to convert like it would have in in q1. I think if we didn't get the covid-19 impact.

Okay, as for effects, do you expect you know, typically you guys are at a three to four million dollar quarterly run rate. Do you think you could be maintained that or do you think there could be some impairments or things that impact, you know cute two or three? Yeah. I don't see an impairment in life to to be completely transparent. We probably could have supported a lower impairment for q1, but with the uncertainty wage in terms of how long this Runway is going to be or the tail from this is going to be in discussions with the chairman of our audit committee and in reviewing it with our Auditors. We said let's go ahead and take the impairment at that's at the high end of the range what the valuation experts came back with. So that should give it some Headroom even if things are protracted in in Q2 and Q3, so I don't see an impairment non-cash impairment in bath.

In 20 in next couple of quarters or 20/20. I do see a reduction in the operating expenses for

The reasons that we've said we have not brought back many of the of the people that we furloughed went to part-time. And so we already have a full month of savings there and that will continue now in may as I said in in I can't remember I set it up all set up. There will be some of those costs start to come back this quarter, but they really haven't started to come back yet. So, I think that where you mentioned maybe 3 and 1/2 to 4 million having been our recent run rate that's going to be closer to three million. And so that'll bring it down a little bit and then if if we continue to see slow Revenue will continue to monitor that as well because we are determined now that we do have a higher cash balance than we've had in seven quarters off. We want to make sure that we're not going to use that cash and operations anymore. And as I said in the calls you have now is to keep that balance even in this strained environment.

Okay, I appreciate all the questions and we'll pass it on. Thanks.

Okay, our next question comes from Jim McGarry with Bradley Woods, please State your question.

Yeah, thanks. Good morning. As far as the PPP loan goes. What are there any restrictions on what you can do with the funds? I know that it I know that's what you do with them has an impact on how much is Forgiven but is there any outright restrictions on on what you can do with those funds?

The the funds in the the loan documents say specifically that the loan is to be used for salaries and benefits utilities rent and interest on debt. There's not a lot of specifics and you can imagine the term utilities the term benefits, you know, they they are pretty can be pretty broadly interpreted. And so I and there has been mentioned that there will be an audit. So I think that the bulb the what we have to

Finalize or formalized with our bank over the next seven weeks is what what they believe is going or with the SBA as well is what they believe is going to be forgiven and we'll work through Thursday. And then theoretically in the in the in the two years after that it will have to be used for those same items. But those are such I mean I like ours were about 75% of our operating expenses are salary and benefits that'll be I mean, I'm not worried at all about justifying that the two point eight million was spent on those items cash becomes fungible. And so like I said, as long as we can prove that we've spent that much over two year period that I think that won't be any we won't be inhibited by those off at all as you say the the main thing is how much of its going to be forgiven.

Okay, and and after all of the expense reductions, what is the revenue age level that you need? And and I know it. I know it assume you you're going to have to assume mix and margins but assuming let's call it current mix and current and and and

Current mix and and targeted margins. What kind of Revenue do you need in order to achieve cash flow break-even on your current expense structure

Yeah, so with with the target of where we are now with what we've done not only as a result of covid-19, but we as you'll recall we had done some cost reductions earlier than that as well. We think the the skinny down version of son works. We if we didn't bring any of the costs back and carried them for wage we would probably could get to operate and expenses and maybe the two point seven million range. And so if we can then have Revenue wage in 15 million and have it back in the high teens in margin then we would be able to break even there at fourteen million 20% Margin would be 2.5 million. And as I mentioned we have two point seven of operating expenses, so that's that's kind of the high level of where we've identified the break-even to be

And that's a operating income break-even not an ebitda because that would still include a couple hundred thousand dollars of non-cash stock, and depreciation off so a couple hundred thousand different if you're looking at ebitda supposed to operating income.

Right, right. Okay and in are there any segments that it looks like there's

pent-up demand that is waiting for you know least a not even not even a resumption of of the economy opening up but let's say a loosening off a little bit is is there any what sector do you think is most likely to bounce back first?

So two different answers for residential and non-residential a little bit of glimmer of hope if you will on the residential side is that we currently don't have six million dollars of backlog which is a healthy backlog number for our residential business. I think I've said in the past that we generally it's the backlog business that covers off about a quarter. So if we were if we were in a normal situation and I were looking at 6 million a backlog and then annualizing that saying wow, that's a 24 million dollar year that that would be really good for our residential business office and it's the delays in the H jaise that's keeping that six million from converting to revenue. So if there becomes a a break out as you said and that's six starts to convert more quit that could turn the revenue quickly and that would be a real benefit for so that's something that we're keeping our Eye On and On The Other Side the on the Dead

On the AC I side.

Right see the pent-up demand because as I said, we're still working on most of those projects, so it's not the same as maybe it's just because the long gestation and you know, it doesn't have a quick turn. We're still working on those outbound see as much of a a revenue opportunity. But what I do see on the ACI side that gives me some hope in the midterm is number one. There is a the pipeline is still flashing for commercial industrial and projects. And so if I really believe if if some of those customers start to feel more comfortable we could get some momentum on a sales side pretty quickly which would then start to fill the coffers for the end of this year and and rolling into twenty Twenty-One. And then the second area on the AC I side is we have a large amount of projects that we've already signed that have now been delayed in terms of scheduling either for the customer or because of the financing delay, but we have more than eleven million dollars.

That of a projects that are currently outside of our forequarter schedule backlog. And so if we're working those aggressively also to try and get them pulled in months because if because we've seen this Lowell now in terms of new sales of things that are going to convert to revenue on the non residential side three and four quarters out. We need to be more aggressive and all those things are five quarters out pulling them in to kind of fill that vacuum and then hope that by the time we've after we pull those in and started working on them. Then the normal sales will pick up and we'll be back till that and twenty Twenty-One. Does that make sense gym or do I is that too convoluted? No. No, that's perfect. Thank you. Appreciate it.

I think I'll stop there. Yeah. Thanks a lot and good luck with everything.

Jim

okay. I'd like to turn the call back over to Chuck. Thank you very much operator, and thank you all for joining our call today and for your continued interest in support of Son Volt. Please don't hesitate to reach out to Paul or myself or or Rob think and our team at any time if you have further questions, thank you.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect the lines at this time and have a great day.