Energy Focus Inc (EFOI) 2010 Q4 法說會逐字稿

Good day and welcome to the Energy Focus fourth-quarter and full-year 2010 earnings release conference call. Just a reminder, today's conference is being recorded. At this time I'd like to turn the conference over to Mr. Brion Tanous. Please go ahead, sir.

Thank you, Operator. I'd like to welcome everybody to Energy Focus' fourth-quarter and fiscal 2010 earnings conference call. On this call the Company's Chief Executive Officer, Joe Kaveski, will give a business update on the Company's solutions, products and military businesses, as well as provide an outlook for the first quarter and full fiscal year 2011. The Company's interim Chief Financial Officer, Eric Hilliard, will then address the Company's fourth-quarter and fiscal 2010 financial results. We also have President, John Davenport, on the call with us this afternoon. Following prepared remarks we'll open it up for questions for the remainder of this call.

Before we get started I'm going read a disclaimer about forward-looking statements. This conference may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding Energy Focus. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance and the underlying assumptions and other statements that are different than historical facts. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from the expectations reflected in these forward-looking statements. Potential risks and uncertainties include change in demand for the Company's products, the impact of competition and government regulations, and other risks contained in the statements filed from time to time with the SEC. All such forward-looking statements, whether written or oral, made on behalf of the Company are expressly qualified by these cautionary statements and such forward-looking statements are subject to risks and uncertainties and we caution you not to place undue reliance on these.

With that I'd like to turn the call over to Mr. Joe Kaveski. Joe?

Thank you, Brion, and thanks to everyone for joining Energy Focus' fourth-quarter and year-end 2010 earnings call. Energy Focus had a great year in 2010 and we expect this positive momentum to continue into 2011, despite a slower first quarter start. The most important thing that is happening in 2011 is the commercialization of Intellitube technology into the US Navy. As I've communicated many times, Intellitube is the game changer and 2011 is the beginning of changing the game. But before I comment on our 2010 results and our outlook for 2011, I'd like to draw your attention to the Company's overall strategy, which is to be the premier advanced LED lighting solutions provider to the US military and the existing building market.

Clearly our results in 2010 point to the success of our strategy. As we look back at our 2010 results, I would like to highlight some of our major accomplishments. First, we dramatically improved our financial performance in 2010. Energy Focus finished with over $35.1 million in sales, which is roughly 2.4 times our 2009 results from continuing operations, and the Company's gross profit increased to $6.4 million, which is almost 2.5 times the previous year's result. And lastly, we reduced our cash expenses for general and administrative costs by almost $1.3 million in 2010, even with the inclusion of the new G&A expenses for our SRC Solutions business unit. These significant increases in revenue and gross profit, coupled with the real cash reduction in overhead expenses, allowed the Company to achieve net cash provided from continuing operations of a positive $1.5 million in 2010.

Again our improved financial performance was the direct result of the Company making the switch and actualizing our strategy to be the premier provider of advanced lighting LED solutions for the US military and the existing building market. Specifically, our Lighting Solutions business had a banner year by nearly doubling from its 2009 preacqusition base and significantly overachieving our internal plan. SRC finished the year with almost $20 million in sales. This sales increase represented 56% of the Company's total sales, with the vast majority of SRC sales coming from the public sector for retrofitting schools, universities, government office buildings and hospitals. The remainder of our Solutions sales came from Fortune 100 private sector clients. Furthermore, EFOI product content continues to grow as a percentage of the total materials used in our Solutions projects. This is especially important as we begin to commercialize our next generation Intellitube technology, which will have a demonstrative impact on our overall margins.

Now commenting on our product sales, our overall product sales increased 23% as compared to our 2009 results. This was primarily a result of stronger US after-market LED product sales and increasing sales to the US Navy. 2010 was an exciting year for new products. Some of those products we introduced in 2010 included our new HazGlobe LED lamp for retrofitting lighting in existing hazardous locations, our new LED PAL-Treo lamp for retrofitting existing fiber optic lighting systems in pools, and our Gen-1 LED Intellitube retrofit lamp, which is the highest-performing, lowest-cost plug-and-play replacement for a four-foot linear fluorescent tube.

Now this is most exciting, as we actually installed our first full LED retrofit using this Gen-1 Intellitube LED lamp together with other Energy Focus LED lighting products at the True Line aircraft parts manufacturing facility. True Line's management and employees love the result of our LED lighting retrofit, as the quality of light is improved, lighting maintenance costs have been reduced and their lighting electricity bill is less than one-half of what it used to be. It's now clear that LED lighting is here to stay. This Gen-1 Intellitube retrofit demonstrates that the LED Intellitube replacement lamp has the capability of becoming the retrofit of choice in commercial existing building market.

Now I'd like to provide you with our 2011 outlook. For the full-year 2011 the Company expects our organic sales to exceed $35 million and that net cash provided by continuing operations will again be positive. For the first quarter in 2011, the Company expects sales to exceed $5 million and cash utilization to be less than $3 million. Our first-quarter sales are starting slower than our previous-year's first-quarter sales. This is driven by the contract timing associated with our Solutions contracts whose revenues are typically large and lumpy. However, not to worry. We expect to see a significant ramp in our quarterly revenues starting in the second quarter and the Company expects to see significant gross profit margin improvement demonstrated throughout 2011 and we will have more to say about this in our first-quarter call.

From an Energy Solutions sales perspective, we're going through a period of consolidation. As you might recall, one of the reasons we bought Stones River Companies was due to its large sales pipeline that at the time we believed we could benefit from in 2010 and we did just that, as SRC doubled its revenues from the previous year and actually overachieved our internal plan, thereby offsetting weakness in our international construction sales business. In spite of the slower first-quarter sales we expect comparable results in 2011 from our Solutions business.

Now from a product sales perspective, while we have forecast comparable sales for 2010, we have not included very much military product into that forecast. We are beginning to put more product on Navy vessels. In fact, I'm delighted to report that our generation 2 Intellitube is now sailing in our most advanced nuclear attack submarines and that we recently received orders to output two more destroyers. There is very high and increasing interest from the Navy in helping convert the fleet to LEDs. For instance, you might have recently read a press release from the office of Naval Research. In that press release the Navy commented that, I quote, The LED fixtures are showing great promise. Not only are they a quality of life improvement, but compared with fluorescent lights, LED fixtures last longer. They are more efficient, reducing maintenance requirements, energy usage and costs associated with storage, handling and disposal. Long term solid state lighting usage fleetwide could add up to considerable savings and improved readiness, end quote. The Navy went on to say that they, quote, Worked with Energy Focus to produce patented LED fixtures that are a direct replacement for fluorescents. The replacements produce the same light output but use half the power, end quote.

Now Energy Focus is very well positioned to help the Navy convert to LED lighting technology. The Company already has over 30 SKUs in 6 product families of LED lighting fixtures that are qualified and already being purchased by the Navy. Moreover, we believe that we're the only viable LED lighting provider in the US Navy's qualified supplier base. That said, we are working with the -- for the government and we've tried to be conservative in our forecast, so I look forward to discussing more about our emerging military market as the year goes on.

Finally, I'd like to mention that Energy Focus is off to a great start this year with respect to generating increased institutional investor exposure and sell side research interest. In February of this year Energy Focus was invited to present at the Jefferies & Company Global Team -- Global Clean Technology conference in New York City. Earlier this month we were invited to present at the Kaufman Brothers third annual Green Technology conference in Boston, as well as the Roth Capital Partners 23rd annual Growth Stock conference in Laguna Niguel, California. In addition, we've been asked to present at the MDB Capital Bright Lights conference on May 10, in New York City. We invite you to join us there.

So now I'd like to turn the call over to Eric Hilliard so that he may offer you further detail on our 2010 financial results. Eric?

Thank you very much, Joe, and good afternoon, everyone. I'd like to take you through a review of our fourth-quarter and full-year 2010 earnings results. Our fourth-quarter revenues increased 2.4 times to $8.8 million versus $3.8 million in the year-ago period. The revenue mix for the quarter was led by our Solutions business and the remaining coming from our products and government businesses. The principal drivers for our full-year 2010 results were higher revenues and improved operating leverage. Full-year 2010 revenues increased 181% to $35.1 million from $12.5 million reported for the fiscal 2009 period. Our Solutions business accounted for $19.8 million, or 56% of our 2010 revenues of the $35.1 million.

Gross margins for 2010 fiscal year increased to 18.2% from 16.3% reported for the 2009 fiscal year. The improvement in gross margins for the year was driven by increasing overhead absorption, in addition to focusing on reducing the cost. Total gross profits for 2010 were $6.4 million compared to $2 million in 2009. Operating expenses for the full year in 2010 increased to $14.3 million from $11.8 million in the fiscal year 2009. However, as a percentage of sales our operating expenses declined to 40.8% of sales. This is versus 94.7% of sales in the fiscal year 2009. Included in our 2010 results was a non-cash charge of $1.8 million for the revaluation of equity instruments. Excluding this non-cash charge our operating expenses would have been 35.6% of 2010 sales. Our 2010 net loss from continuing operations declined to $8.5 million versus a net loss of $9.8 million in the 2009 year.

Finally, our 2010 cash and cash equivalents were $4.1 million as compared to 2009 cash and cash equivalents of $1.1 million. This is a net cash increase of cash and cash equivalent of $3.1 million for the 12-months ended December 31, 2010. In summary, 2010 was a successful year when viewed from growth in revenue, growth in gross margin and gross margin profit dollars; controlling cash spending as it related to our operating expenses; creating positive cash from operations; and moving forward important research and development as it relates to our IntelliTube technology by adding to our intellectual property, now totaling 74 patents.

One last point before I turn the call back to Joe is that I would like to let you know that we plan to file a Form S-3 Registration Statement to register 2.1 million shares of the Quercus Trust existing 5.2 million shares in the next few days. These shares require re-registration as a result of the Quercus Trust affiliate status. We are filing the S-3 both at the Trust's request and expense. And with that, Joe, I'll turn the call back to you.

Thanks, Eric, appreciate the detail there. So I think at this time we'd like to open up the lines, Operator, to our guests and see if they have any questions or comments for us.

Thank you. (Operator Instructions) And our first question comes from Robert Smith with Center for Performance Investing.

Hi, good afternoon.

Good afternoon, Robert.

So did I hear correctly that your -- the forecast for 2011 is $35 million?

Greater than $35 million of organic sales, correct.

Okay, so what does that mean?

That basically means that we haven't factored into any of our sales projections the possibility of revenue coming from any potential acquisition, if you will.

Okay, so that's not much different than 2010?

That's correct, at least in terms of what we forecasted.

So with all the optimism why are we lagging top line?

Well, as I mentioned in my preamble, one of the things that we actually have done is significantly almost doubled SRC sales. As a result of that, it would probably not be realistic if we assumed that we would double SRC again. We view this year as a stabilizing year and therefore, even if we just did what we did last year in SRC, that's about a 40% compound annual growth rate, which still is well above the industry. The second point that I would make is that we also called attention to the fact that in terms of military sales, yes, they are increasing. But we're dealing with the government here and although there seems to be a lot of exciting growing interest, I'm going to error on the side of caution and conservatism in terms of the forecast. I'd like to see it progress a little further as the year goes along, if you would.

Okay, and secondly the IntelliTube. So you spoke of first generation, what are the timelines on the succeeding generations?

Yes, actually I spoke to both, Robert, that was the great news, and the great news is IntelliTube generation-1 is selling, it's selling in whole building retrofits right now. And I mentioned the True Line aircraft manufacturing facility and that truly is great news because not only did they see the fact that it's a green technology and had great lighting quality, but what they also saw was that it had a great economic payback. That's why they went with it. I also mentioned -- and I'm very excited about this -- that our generation-2 IntelliTube technology is now actually sailing in nuclear attack sub marines and that's a big thing. So we're progressing quite nicely and I think 2011, again, will show that the game is changing.

Well, what you showed at Jefferies was that -- which tube was that?

That's actually generation-2 technology.

Okay. Yes, I remember you giving that demonstration. Okay, thanks. Good luck.

Thank you, Robert, appreciate it. Have a great evening.

Thank you.

(Operator Instructions) And at this time there are no further questions. I'll now turn the conference back over to you.

Okay. Well, I guess at this time I'd like to conclude our call and in doing so I would really like to thank everyone who participated in our call today, but I would ofter -- like to offer a very special thanks to all of Energy Focus' employees worldwide for number one, committing to and number two, for making 2010 just a great year and I'm really confident that the positive momentum that we as a team created in 2010 is going to actually carry forward into success in 2011. So thank you again and thank everyone again for participate in the call. Have a good evening.

And that does conclude today's conference. Thank you for your participation today.