Northern Power reports 'break even' 2017, but will furlough workers

by Timothy McQuiston Vermont Business MagazineNorthern Power Systems Corp(TSX:NPS), a next generation renewable energy and energy storage technology company based in Barre, today announced financial results for its fourth quarter and year ended December 31, 2017. Northern Power reported that in 2017 it had its first break-even year withapproximately $40 millionin revenue and non-GAAP adjusted EBITDA of $0.8 million, including WEG related royalties. However, wind turbine manufacturing is expected to be suspended and with it furloughs are expected in Vermont. How many workers will be furloughed is not clear at this point. Northern Power reported to VBM that it has 75 employees globally, of which 50 work at the plant in Barre.

Northern Power President and COO Ciel Caldwell told VBM that most of the furloughs will be in the manufacturing part of the business. She said the furlough means the worker remains an employee of the company, though not paid, and retains health insurance; the furloughed employee is able to collect state unemployment benefits. She said she hopes to bring all the workers back. In a previous furlough, most of the workers returned, Caldwell said.

Caldwell wants to take advantage of positive congressional action that will give distributed wind energy a "level playing field" with solar and make these smaller wind turbines competitive with the massive offshore wind turbines just starting to be deployed in the US.

Dynapower's Northern Power wind turbine. VBM photo

She expects wind turbine manufacturing to resume this summer. While the wind business still accounts for 90 percent of revenues, Caldwell is also excited with the energy storage part of the business. They don't make the batteries, but design the systems. NP is, she said, a "polite competitor" of South Burlington's Dynapower. Dynapower has become a major player in the growing energy storage business. It also operates a Northern Power wind turbine, which has become a landmark near Interstate 89.

Northern Power's year-end resultsincludeapproximately $5.5 million in recurring revenues from its services business and the remainder of revenues were from sales of its distributed wind turbines. Wind turbine sales weredriven primarily by strong sales in the Italian market in advance of an expiring Italian feed-in-tariff. As a result of regulatory and political inaction, the Italian feed-in-tariff for distributed wind that drove sales in 2017 expired on June 30, 2017 without extension. Uncertainty regarding the status of a new feed-in-tariff and prolonged delays surrounding the drafting, approval, adoption and ultimately the implementation of a new feed-in-tariff regime in Italy for distributed wind, together with uncertainty surrounding the Italian election and government, has brought sales of our distributed wind products in Italy to a standstill.

Caldwell told VBM: “We are proud to employ 50+ people in central Vermont including engineering, manufacturing and service team members. Because sales in a core market to which we have been exporting our proven distributed wind turbines, Italy, significantly slowed due to policy and regulatory uncertainty, we implemented a temporary furlough of certain employees as we work to expand our business in other regions and await the expected return of the Italian market. We anticipate resuming distributed wind turbine production within the third quarter of this year.”

In a press release, Northern Power stated, "We will be restructuring operations to maintain manufacturing activity consistent with current market conditions. We plan to commence a manufacturing run to satisfy current orders and a limited number of anticipated orders. Following the completion of this batch manufacturing run, we have determined that current circumstances dictate that it would be prudent in the context of the company’s long-term financial position to temporarily suspend full-scale distributed wind manufacturing activities until the third quarter (calendar year) of 2018 which is in advance of the expected implementation of the new Italian feed-in-tariff in the fourth quarter of 2018. With this transition to batch manufacturing in mind, among other measures, we have taken steps to reduce our workforce through a temporary furlough process as well as reducing the number of hours worked by certain employees. We anticipate that with the expected implementation of the new feed-in-tariff in the fourth quarter of 2018, Italy, once again, will be a robust market for our distributed wind turbines. During the manufacturing hiatus, we will continue to market and sell our distributed wind products across the globe and orders will be slotted for production commencing in the third quarter of 2018."

Caldwell said, “We see the future of distributed wind as a global solution as robust. Our overall vision is delivering integrated distributed energy solutions that can support off-grid environments and bring resiliency within our grid connected energy markets. We are driving this through expanding our capabilities into turn-key battery energy storage solutions and deploying other renewable assets.”

In the press release, Northern Power state that despite the significant slowdown in its distributed wind business, its continues to see increasing activity in its energy storage business.During 2016 it sold its power converters into the developing battery energy storage market.In 2017, it implemented a strategy to independently develop energy storage projects in the US, allowing the company to sell and incorporate its power converters and related technology into new projects.

Currently, NP said it has two sites under control, one of which is under active development, and a pipeline of potential development and equipment sale opportunities.

Business Highlights:

• Global fleet of installed distributed wind turbines expanded to 845-units, achieving over 20 million run-time hours while delivering continued 98% grid-connected availability.
• Recorded $11.1 million and $38.6 million in revenues for the fourth quarter and fiscal year ended 2017, respectively.
• Gross margin improved to 24.0 percent and 19.9 percent for the three and twelve month periods ended December 31, 2017, respectively, compared to 5.2 percent and 7.9 percent for the three and twelve month periods ended December 31, 2016, respectively.
• Reported net income of $1.1 million and $0.1 million for the fourth quarter and the fiscal year ended 2017, respectively, compared to a net loss of $0.8 million and $8.9 million for the same periods in the previous year.
• Renewed Comerica line of credit in the amount of $2.5 million through June 30, 2019.
• Uncertainty in the Italian market due to the expiration of the feed-in-tariff has created challenges with our core distributed wind business.
• Likely decrease in WEG related royalties in 2018 due to contraction in the Brazilian market.
• Continued commitment to advancing orders for our distributed wind and developing energy storage projects.

Consolidated Fourth Quarter Financial Highlights:

• Revenue for the fourth quarter of fiscal year 2017 was $11.1 million, a 12 percent increase over revenue of $9.9 million reported in the prior year period.
• Gross margin in the fourth quarter was 24.0 percent, an increase from gross margin of 5.2 percent in the prior year period.
• GAAP net income for the fourth quarter of fiscal year 2017 was $1.1 million compared to a $0.8 million loss in the prior year period.
• Non-GAAP adjusted EBITDA income for the fourth quarter was$1.3 million, compared to a non-GAAP adjusted EBITDA loss of $1.1 million for the prior year. An explanation of these measures as well as a reconciliation of GAAP to non-GAAP financial measures are included below under the heading “About non-GAAP financial measures.”

Consolidated Full Year Financial Highlights:

• Revenues for fiscal year 2017 were $38.6 million, compared to $35.9 million in the prior year.
• Gross margin for the year was 19.9 percent, an increase from gross margin of 7.9 percent in the prior year.
• Net income for fiscal year 2017 was$0.1 million, compared toa $8.9 million loss in 2016.
• Non-GAAP adjusted EBITDA income for 2017 was$0.8 million compared to a non-GAAP adjusted EBITDA loss of$7.8 million in the prior year.
• Order backlog at December 31, 2017 was approximately $5 million, compared to backlog of $28 million in the prior year.
• The Company’s cash and cash equivalents balance was $3.9 million at December 31, 2017.

Our consolidated financial statements can be found on our Form 10-K filed with SEDAR (www.sedar.com) and the SEC (www.sec.gov) on April 2, 2018.

About non-GAAP financial measures

To supplement Northern Power Systems’ consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP),Northern PowerSystems has used a non-GAAP financial measure, specifically non-GAAP adjusted EBITDA income (loss). Non-GAAP adjusted EBITDA income (loss) is defined as net income (loss), excluding share-based compensation expense, amortization of acquisition-related intangibles, depreciation of property, plant and equipment, interest expense, tax provision or benefit, and certain other non-cash impacts as applicable.

The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on non-GAAP adjusted EBITDA, please see the table captioned “Reconciliation of GAAP net income (loss) to non-GAAP adjusted EBITDA net income (loss)” included at the end of this release. The table has more details on the GAAP financial measure that is most directly comparable to non-GAAP adjusted EBITDA and the related reconciliation between these financial measures.

Northern Power Systems’ management believes that this non-GAAP financial measure provides meaningful supplemental information in assessing our performance and liquidity by excluding certain items that may not be indicative of our recurring core business operating results, which could be non-cash charges or discrete cash charges that are infrequent in nature. This non-GAAP financial measure also has facilitated management’s internal comparisons to Northern Power Systems’ historical performance and our competitors’ operating results, as well as reflects measurements which are used by creditors and other third parties in assessing our performance.

About Northern Power Systems

Northern Power Systems designs, manufactures, and sells distributed power generation and energy storage solutions with its advanced wind turbines, inverters, controls, and integration services. With approximately 20 million run-time hours across its global fleet, Northern Power wind turbines provide customers with clean, cost-effective, reliable renewable energy. NPS turbines utilize patented permanent magnet direct drive (PMDD) technology, which uses fewer moving parts, delivers higher energy capture, and provides increased reliability thanks to reduced maintenance and downtime. Northern Power also develops Energy Storage Solutions (ESS) based on the FlexPhase™ power converter platform, which features patented converter architecture and controls technology for advanced grid support and generation applications.

Northern Power has been a technology innovator for over 40 years and serves clients around the globe from its US headquarters and European offices.

Source: BARRE, Vt., April 02, 2018 (GLOBE NEWSWIRE) --Northern Power Systems Corpwww.northernpower.com.