OneRoof Energy Group, Inc. Announces Third Quarter 2014 Financial Results

Company Tracking Improved Operating Metrics

SAN DIEGO, Nov. 26, 2014 /CNW/ -- OneRoof Energy Group, Inc. ("OneRoof Energy" or the "Company") (TSXV:ON) today announced financial and operational results for the third quarter ended September 30, 2014.

Q3 2014 Operating Highlights

• Reduced overhead expenses by approximately 25% in September
• Deployed 0.74 megawatts during the third quarter; cumulative for the nine months ending September 30 was 2.4 megawatts
• Installed solar equipment on 119 rooftops in the third quarter; cumulative installs for the previous nine months was 378
• Total cumulative megawatts deployed reached 10 megawatts
• Gross bookings totaled 555 systems during the quarter, an increase of 36% year-over-year
• Average project cycle times reduced by 19.5% from 103 days to 80 days; California project cycle times decreased 26% from 101 days to 74 days

Q3 2014 Income Statement

Reduced overhead expenses by approximately 25% in September due to a reduction in the direct sales force and increased sales activity via third party sales affiliates.  This expense reduction was made possible by the launch of the new $58 million residential solar financing fund completed in August 2014.

For the third quarter of 2014, core operating lease revenue was $267,000, up 9% from $240,000 in the third quarter of 2013, continuing the trend of increased cumulative operating lease megawatts deployed.

Sold system revenue for the third quarter of 2014 was $1.2 million, compared to zero in the third quarter of 2013. Total revenue for the third quarter 2014 increased to $1.9 million from $249,000 in Q3 2013.

Gross profit margin on held leases was 24.6% in the third quarter; gross profit margin on sold systems was less than one percent in the third quarter.  Consolidated gross profit (loss) margin was (9.5%).

Total operating expenses were $9.4 million for the third quarter of 2014 as compared to $7.6 million in the third quarter of 2013.  Headcount increased year-over-year as operations expanded into Massachusetts and New York during 2014. In addition, the increase in marketing and advertising costs year-over-year was due primarily to our investment in lead generation during the first half of 2014.  In the third quarter, we scaled back our lead purchasing program to focus on lead generation programs with the highest rate of return on our investment.

Loss from operations in the third quarter of 2014 was unchanged at $9.6 million as compared to $9.6 million in the third quarter of 2013.

IFRS net loss attributable to stockholders per basic and diluted share was $(0.21) for the third quarter of 2014 compared to $(3.41) per share for the third quarter of 2013.

Financing Capacity

During the third quarter, the Company announced that New Resource Bank provided approximately $2 million in debt financing which lowers the cost of funds on a pool of existing projects and provides additional working capital for the Company.

In addition, an agreement was reached in August 2014 with an unrelated third party to secure equity for a $58 million capacity residential solar financing fund which, when combined with debt, will support an estimated portfolio of more than 2,000 residential solar power purchase agreements to be originated initially in California, Hawaii, Massachusetts and New York.  This partnership expects to recognize investment tax credits under the American Recovery and Reinvestment Act of 2009.

Further, as announced on November 24, 2014, Black Coral Capital LLC and the Company have entered into a non-binding term sheet for a financing designed to provide the Company with an additional $15 million of capital from Black Coral and other investors in the form of secured convertible promissory notes with a maturity date of 12 months from issuance. It is anticipated this funding will (1) provide an additional $8 million of new funding; and (2) replace approximately $7 million of remaining aggregate funding capacity under the existing sponsor equity and working capital facilities announced in October 2014.  Amounts outstanding under the working capital facility currently mature at December 31, 2014, and Black Coral has indicated its intent to roll over amounts outstanding under the working capital facility into this new facility thereby extending the maturity date for these funds.   Hanwha Holdings (USA) remains a significant shareholder of the Company.  This transaction is subject to the preparation of mutually-acceptable documentation, TSX Venture Exchange approval and other conditions.

The Company continues to build upon its project tax equity fund base with additional funds under negotiation.

Management Comments

"Strong operational and sales trends in the third quarter have provided us with excellent momentum leading us toward the end of the year," commented David Field, President and Chief Executive Officer.  "As we began the third quarter, we picked up speed by transitioning our sales strategy from a direct channel model to driving sales through third party channels including a number of home services partnerships. This, combined with our ongoing efforts to integrate sales and operations for the purpose of reducing cycle times, has begun to result in improvements demonstrated by reduced cycle times on projects."

"The operational efficiencies that we have seen this quarter, including the reduction of installation cycle times, is a result of continuously adding qualified installation partners across multiple markets, as well as aggressively and deliberately examining all aspects of our operations.  We have successfully outsourced project site surveys while integrating the process into the sales cycle resulting in control of all key variables including project design and permitting, reduced installation cycle times, customer service improvements and significant reductions in cancellation rates. Through the culmination of operational and sales improvements, we are driving down one of the key components to reaching profitability - the cost of customer acquisition.  In fact, our cycle times continue to improve and during the past month we have decreased cycle times from an average of 80 days at the end of the third quarter to our current cycle time of 45-60 days."

"The launch of the new $58 million residential solar financing fund has been a game-changer for our business.  One of the many benefits of this new solar fund is attracting additional sales channel partners by providing new sources of capital and increasing their sales capacity.  In addition, the new fund has allowed us to expand into new high-growth markets more rapidly, and offer more efficient sales and installation processes while simplifying the financial and equipment requirements. We continue to focus on improving organizational efficiencies, reducing customer acquisition costs and cancellations, and installing more systems.  We firmly believe this new residential solar fund will drive many of these efficiencies while realizing better contribution margins on the systems transferred to the fund."

"When finalized, the recently announced facility with Black Coral Capital LLC will enable management to focus upon its forward business strategy and its short-term operating goals by leveraging our third party transactional platform, enabling dedicated sales channel partners, and rolling out our proprietary direct-to-consumer technology."

"In summary, many of the changes implemented during the third quarter are showing signs of improvement, but are not reflected in the Q3 numbers.  We anticipate that during the fourth quarter 2014 and first quarter 2015, our efforts will flow through to the corporate results," added Field.

Non IFRS Measures

The Company uses certain measures that are not in accordance with IFRS.  Non-IFRS measures are useful supplemental information but may not have a standardized meaning among solar companies.

Bookings.  Bookings represent a customer-signed agreement and credit approval/bona fide payment source; this is prior to PSA (pre-site analysis).

Backlog.  Backlog represents the expected quantity of orders we have received but have not yet executed and that are expected to translate into sales within the next 12 months.  We use backlog to provide an indication of expected future revenues, and bookings to determine our ability to sustain and increase our revenues.

Deployed.  Deployed represents the number of systems that are installed during the period.  An installed system is one that is materially complete with all installation requirements met. This metric includes solar energy systems deployed under energy contracts, as well as for solar energy system direct sales.

MW Deployed.  MW Deployed represents the megawatt production capacity of solar energy systems deployed during the period.  This metric includes solar energy systems deployed under energy contracts, as well as for solar energy system direct sales.

MW or Megawatts.  MW or megawatts represents the DC (direct current) nameplate production capacity.

About OneRoof Energy

OneRoof Energy Group, Inc., operating through its wholly-owned subsidiary, OneRoof Energy, Inc. ("OneRoof Energy"),  is a complete solar services provider offering homeowners everything from traditional and lease financing, PPAs, solar system design and installation project management to ongoing system monitoring and maintenance services. Utilizing its technology-rich, solar leasing fulfillment platform, OneRoof Energy is partnering with traditional energy retailers and home services companies of all sizes to offer residential customers affordable, renewable energy choices.   With its unique end-to-end energy solution, the Company has created multiple touch points to offer cost-saving energy products and services that create a seamless experience for the homeowner while fulfilling their unique energy needs.  Currently, OneRoof Energy serves residential customers in five states including Arizona, California, Hawaii, Massachusetts and New York with plans for additional expansion. For more information, visit www.oneroofenergy.com.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the Company's customer and market growth opportunities, financial strategies for cash generation and increasing shareholder value, expected future financial results, the timing of the Company potentially becoming net cash flow positive, additional financial and operational forecasts, and assumptions relating to the foregoing.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved, if at all. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, including the effect of electric utility industry regulations, net metering and related policies, the availability and amount of rebates, tax credits and other financial incentives, the availability and amount of financing from fund investors, the retail price of utility-generated electricity or the availability of alternative energy sources, risks associated with the Company's growth, risks that consumers who have executed energy contracts included in reported nominal contracted payments remaining and backlog may seek to cancel those contracts, the Company's limited operating history, particularly as a new public company, changes in strategic planning decisions by management or reallocation of internal resources, and general market, political, economic and business conditions. You should read the section entitled "Risk Factors" in the Company's most recent Management's Discussion and Analysis, which has been filed on SEDAR and identifies certain of these and additional risks and uncertainties. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement.

Investor Relations Contact:

Dan Halvorson
Executive Vice President & CFO
OneRoof Energy Group, Inc.
858-926-7660 (Direct)
[email protected]

Karen Fisher
Vice President, Investor Relations & Compliance
OneRoof Energy Group, Inc.
858-926-7541 (direct)
[email protected]

OneRoof Energy Group, Inc. Interim Condensed Consolidated Statements of Financial Position (Presented in United States Dollars)
	September 30,  2014			December 31,  2013
Assets	(Unaudited)
Non-Current assets
Other long-term assets	$	387,045		$	303,785
Capitalized software development, net	487,852			233,867
Property and equipment, net	381,496			373,707
Note receivable - net of current portion	2,926,027			—
Solar energy systems leased, net	17,291,647			17,586,510
Construction in progress, net	1,329,930			3,065,921
Restricted cash	485,657			768,169
Total non-current assets	23,289,654			22,331,959
Inventory	4,849,617			5,128,367
Prepaid expenses and other current assets	703,118			1,592,664
Receivable from related party	390,648			434,577
Note receivable - current portion	221,918			51,479
Treasury grant receivable	10,043			1,519,209
Accounts and rebates receivable, net	324,722			2,041,792
Restricted cash	150,020			66,000
Cash and cash equivalents	2,836,480			5,246,545
Total assets	$	32,776,220		$	38,412,592
Current liabilities
Accounts payable	$	4,688,435		$	24,791,291
Accrued liabilities	2,987,385			3,648,637
Deferred revenue – current portion	1,339,479			403,635
Deferred Treasury grant income - current portion	141,042			151,322
Deferred HI Tax Credit income - current portion	70,861			—
Derivative liabilities	948,788			5,849,283
Line of credit, related party	277,830			2,720,710
Promissory notes to related parties	6,892,743			5,083,121
Promissory notes - current portion	1,234,177			—
Related party payable	1,823,690			3,843,483
Liability component of convertible debt	—			31,375,326
Total current liabilities	20,404,430			77,866,808
Non-current liabilities
Deferred revenue – net of current portion	6,456,826			6,857,161
Deferred Treasury grant income - net of current portion	4,148,978			4,462,542
Deferred HI Tax Credit income - net of current portion	2,032,919			—
Promissory notes - net of current portion	1,623,151			—
Other non-current liabilities	—			10,310
Total Non-current liabilities	14,261,874			11,330,013
Total liabilities	34,666,304			89,196,821
Equity attributable to the shareholders
Common shares	3,788			169
Additional paid-in capital	92,508,190			18,200,310
Accumulated deficit	(89,192,205)			(63,127,896)
Total equity (deficit) attributable to the Company's shareholders	3,319,773			(44,927,417)
Non-controlling interest	(5,209,857)			(5,856,812)
Total equity (deficit)	(1,890,084)			(50,784,229)
Total liabilities and equity (deficit)	$	32,776,220		$	38,412,592

OneRoof Energy Group, Inc. Interim Condensed Consolidated Statements of Comprehensive Loss (Presented in United States Dollars) (Unaudited)
	Three Months Ended  September 30,						Nine Months Ended  September 30,
	2014			2013			2014			2013
Revenue
Sold systems	$	1,227,280		$	—		$	2,716,080		$	—
Held systems, lease revenue	266,600			240,155			793,039			468,474
Rebate revenue	6,918			8,227			20,868			17,055
Other revenue	397,046			450			1,683,126			43,779
Total revenue	1,897,844			248,832			5,213,113			529,308
Cost of revenue
Cost of sold systems	1,138,863			—			2,610,967			—
Depreciation of held systems	96,731			136,660			440,202			316,565
Impairment of held systems	14,336			1,135,578			1,430,212			3,222,118
Impairment of inventory	184,553			743,106			679,783			2,565,672
Other cost of revenue	644,063			226,420			2,897,737			3,753,221
Total cost of revenue	2,078,546			2,241,764			8,058,901			9,857,576
Gross loss	(180,702)			(1,992,932)			(2,845,788)			(9,328,268)
Selling, general and administrative expenses
Compensation and benefits	5,828,068			2,788,006			16,473,128			7,354,496
Professional and consulting fees	977,940			2,143,460			3,313,319			3,779,946
Marketing and advertising costs	726,907			1,244,720			2,696,712			1,501,605
Project financing structuring fees	716,345			—			716,345			1,061,279
Other general and administrative costs	1,176,579			1,415,320			4,054,231			2,934,987
Total selling, general and administrative expenses	9,425,839			7,591,506			27,253,735			16,632,313
Other income	122			—			307,148			—
Net loss before net finance costs and income taxes	(9,606,419)			(9,584,438)			(29,792,375)			(25,960,581)
Net finance costs
Change in fair value of derivative liabilities	808,195			875,232			6,190,723			991,882
Interest income	43,763			370			121,985			1,107
Interest expense	(176,668)			(2,491,011)			(2,170,709)			(5,181,117)
Total net finance costs	675,290			(1,615,409)			4,141,999			(4,188,128)
Loss before provision for income taxes	(8,931,129)			(11,199,847)			(25,650,376)			(30,148,709)
Provision for income taxes	—			22,565			—			22,565
Net loss and comprehensive loss for the period	$	(8,931,129)		$	(11,222,412)		$	(25,650,376)		$	(30,171,274)
Net income (loss) attributable to:
Shareholders	$	(8,815,824)		$	(10,113,777)		$	(26,064,309)		$	(27,562,819)
Non-controlling interest	(115,305)			(1,108,635)			413,933			(2,608,455)
	$	(8,931,129)		$	(11,222,412)		$	(25,650,376)		$	(30,171,274)
Net loss per share attributable to common shareholders
Basic and Diluted	$	(0.21)		$	(3.41)		$	(0.83)		$	(7.90)
Weighted average number of shares outstanding
Basic and Diluted	41,909,333			2,962,329			31,484,192			3,490,625

OneRoof Energy Group, Inc. Interim Condensed Consolidated Statements of Cash Flows (Presented in United States Dollars) (Unaudited)
	Nine Months Ended  September 30,
	2014			2013
Cash flows from operating activities
Net loss	$	(25,650,376)		$	(30,171,274)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and Amortization	672,866			390,263
Impairment of inventory	679,783			2,565,672
Impairment of held systems	1,430,212			3,222,118
Impairment of software development costs	110,500			—
Amortization of debt discount and deferred financing costs	1,645,802			4,617,325
Share-based compensation	3,991,964			514,543
Other non-cash transactions	(32,055)			(193,880)
Change in fair value of derivative liabilities	(6,190,723)			(991,882)
Accrued interest on promissory notes to related party	183,441			(106,807)
Accrued interest on promissory notes	70,881			—
Accrued interest on convertible debt	253,424			—
Changes in operating assets and liabilities:
Accounts and rebates receivable	1,752,723			(12,396)
Related party payable	(2,019,793)			—
Receivable from related party	43,929			—
Proceeds from Treasury Grant	1,509,166			—
Prepaid expenses and other  assets	806,286			(793,828)
Inventory	(401,033)			(811,369)
Deferred revenue	535,510			2,603,836
Deferred income	1,779,935			—
Accounts payable and accrued liabilities	(20,363,857)			(283,420)
Net cash used in operating activities	(39,191,415)			(19,451,099)
Cash flows from investing activities
Restricted cash	198,492			65,931
Purchase of property and equipment	(97,187)			(5,451)
Issuance of note receivable	(3,096,466)			(30,000)
Software development costs	(410,511)			—
Development of lease assets	(169,074)			(10,676,828)
Cash received in acquisition	111,746			—
Net cash used in investing activities	(3,463,000)			(10,646,348)
Cash flows from financing activities
Proceeds from corporate equity transaction, net of financing costs	40,470,439			—
Proceeds from issuance of convertible debt	—			16,599,109
Repayment of convertible debt	(2,550,529)			—
Proceeds from line of credit	3,857,885			5,207,921
Repayment of line of credit	(6,300,765)			(1,334,230)
Proceeds from issuance of promissory notes to related parties	5,500,000			2,076,974
Proceeds from issuance of promissory notes	3,000,000			—
Repayment of promissory notes to related parties	(3,951,640)			(1,055,563)
Repayment of promissory notes	(14,062)			—
Contributions from non-controlling interests	395,915			4,712,238
Distributions paid to non-controlling interests	(162,893)			(272,438)
Net cash provided by financing activities	40,244,350			25,934,011
Net decrease in cash and cash equivalents	(2,410,065)			(4,163,436)
Cash and cash equivalents, beginning of period	5,246,545			8,993,020
Cash and cash equivalents, end of period	$	2,836,480		$	4,829,584

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SOURCE OneRoof Energy, Inc.