Nexxus Lighting, Inc. (NASDAQ CAPITAL:NEXS) today announced financial results for the third quarter and first nine months of 2007.
During the period the company hired new management for its pool and spa division and on September 28, 2007, completed the merger of Advanced Lighting Systems, Inc. into a new wholly-owned subsidiary of Nexxus Lighting, Inc. as part of its strategy for growth in solid-state advanced lighting systems through acquisition and new product development.
3rd Quarter Results
Total revenues for the three months ended September 30, 2007 were approximately $2,586,000 as compared to approximately $2,803,000 for the three months ended September 30, 2006, a decrease of approximately $217,000, or 7.7%. Performance from our International division improved, with revenue increasing 7.0% or $41,000 for the quarter, versus the same period in 2006. However this increase was offset by a 16.8%, or $205,000, decrease in pool and spa sales and an 8.2%, or $79,000, decrease in commercial sales, as compared to the same period in 2006. The decrease in pool and spa sales was driven primarily by a significant year over year reduction in new pool construction tied to the steep drop in residential construction nationally and more specifically in the states of Florida, California and Arizona where pool construction led the rest of the country in the last five years. The overall portable spa market is also suffering a steep decline, which, we believe, directly corresponds to the housing market. Comparing consecutive quarters to the same periods in 2006, the decrease in revenue in the pool and spa market of 16.8% in the third quarter compares to a 20% decrease in the second quarter of 2007, and a 32% decrease in the first quarter of 2007. These current year trends indicate that pool and spa revenues for the company are improving despite the severely depressed market, through new product introductions and specifically sales of the Company's new Savi Note lighting system.
In September, the Company hired a new Vice President for its Pool and Spa Division. Under this new direction, management has begun several initiatives to position the Company for potential future growth and market share gains despite the current housing market conditions and their overall effect on pool and spa construction.
Commercial sales revenue for the quarter decreased 8.2% driven by reduced revenue from projects in several large metropolitan areas including Las Vegas, Miami, San Francisco, Chicago and Raleigh. In October of 2007 the Company made sales representative changes in Las Vegas, Los Angeles and Raleigh and has plans to continue to improve its alignment with top manufacturer's representatives in every major city in North America. With these changes and the acquisition of Advanced Lighting Systems in September 2007, we expect to see commercial revenue increase significantly in future quarters.
Despite continuing competitive pricing pressure in several international markets, revenue from the International division increased 7% in the quarter as compared to the same period in 2006. This increase resulted from increased fiber optic project sales to several countries in Europe and increased LED revenue from Mexico. With the acquisition of Advanced Lighting Systems, the Company is in the process of consolidating international customer service at its new headquarters in Charlotte, North Carolina. This will allow the Company's international distributors and customers to have a one-stop shop for receiving design assistance and project proposals as well as placing orders with any of the Nexxus Lighting companies. In addition, Advanced Lighting Systems' products will be introduced to the Company's complete network of international distributors as new products to sell in the coming months.
Gross Profit
Gross profit for the quarter ended September 30, 2007 was approximately $811,000 or 31.3% of revenue as compared to approximately $1,056,000 or 37.7% of revenue for the quarter ended September 30, 2006. Direct gross margin, which is revenue less material cost, for the third quarter of 2007 remained relatively flat at 55.6% compared to 57.6% in the same period of 2006 as neither material cost nor selling price had a material affect on gross margin. The key reasons for the reduced gross profit and gross margin were reduced revenue levels against fixed production costs and a $36,000 increase in temporary labor costs compared to the same period in 2006 due to higher Orlando assembly requirements in 2007 verses contract manufactured products in the same quarter in 2006 based on product mix.
Operating Expense
Operating expenses for the quarter ended September 30, 2007 decreased approximately $76,000 or 5.4% to $1,323,000 as compared to approximately $1,399,000 in the same quarter of 2006.
Selling, general and administrative (SG&A) expenses decreased to approximately $1,234,000 for the quarter ended September 30, 2007 as compared to approximately $1,278,000 for the same period in 2006, a decrease of approximately $44,000 or 3.5%.
Research and development costs were approximately $88,000 during the three months ended September 30, 2007 as compared to approximately $121,000 during the same period in 2006, a decrease of approximately $33,000 or 27%. This decrease was mainly due to the timing of expenses for new product development as compared to the same period in 2006 and this decrease is not expected to be maintained based on the plan for several new product introductions in the next two quarters.
3rd Quarter Net Loss
As a result of the decreased revenue and gross margins, offset slightly by lower SG&A and research and development expense during the quarter, the Company reported a net loss for the three months ended September 30, 2007 of approximately $391,000, or $0.06 per basic and diluted common share, as compared to a net loss of approximately $383,000, or $0.15 per basic and diluted common share, for the three months ended September 30, 2006.
The $391,000 net loss in the third quarter compares to a $976,000 net loss in the 2nd quarter of 2007 on a sequential basis, and does not include results of operations for Advanced Lighting Systems, LLC, which will begin to be reported as part of Nexxus Lighting's consolidated operating results beginning in the 4th Quarter of 2007.
"The company completed its merger with Advanced Lighting Systems on September 28th and we are very excited about this business unit and its opportunities for growth in both the commercial and international markets," stated Mike Bauer, President/CEO of Nexxus Lighting.
"In addition, we significantly improved the strength of our management team by hiring Mark Masterman as our new Vice President responsible for the Pool and Spa Lighting Division and we are already benefiting from his leadership."
"The decrease in our pool and spa business and reduced sales of core fiber optics has more than negated the 21% increase we have seen in Commercial LED sales year to date. However, we are seeing signs of improvement in both our International and Pool and Spa businesses and we are diligently working to position the company to capitalize on large project commercial opportunities as we upgrade our sales representation in several large metropolitan areas. In addition, we are continuing our evaluation of other potential strategic acquisition opportunities as part of our plan to add high growth potential solid-state lighting companies under the Nexxus Lighting portfolio of products," concluded Mr. Bauer.
Year-to-date Performance
Total revenues for the nine months ended September 30, 2007 were approximately $7,561,000 as compared to approximately $8,617,000 for the nine months ended September 30, 2006. This decrease of approximately $1,056,000 is primarily attributable to a decrease in pool and spa sales, which were down approximately $895,000 or 22.9% year over year. The decrease in pool and spa sales was driven by a significant year over year reduction in new pool construction tied to the steep drop in residential construction nationally and more specifically in the states of Florida, California and Arizona where pool construction has led the rest of the country in the last five years. There has also been an industry wide slowdown in OEM portable spa sales in the first nine months of 2007 compared to the same period in 2006.
However, comparing each of the three quarters year to date to the same periods in 2006, shows signs of improvement in pool and spa sales. In the most recent quarter revenue was down 16.8% as compared to a 20% decrease in the second quarter of 2007, and a 32% decrease in the first quarter of 2007, indicating that pool and spa revenues are improving despite the severely depressed pool construction market. The Company is achieving this improvement through new product introductions and specifically sales of its new Savi Note lighting system.
International revenue was down $212,000 or 11.5% for the first nine months of 2007 as compared to the same period in 2006. However sales in the most recent quarter were up 7.7% versus the same period in 2006 and project quotation activity is increasing. In addition, the Company is in the process of consolidating its international customer service at its new headquarters in Charlotte, North Carolina. This will allow the Company's international distributors and customers to have a one-stop shop for receiving design assistance and project proposals as well as placing orders with any of the Nexxus Lighting companies. In addition, Advanced Lighting Systems' products will be introduced to the Company's complete network of international distributors as new products to sell in the coming months.
Year to date, commercial lighting revenues are up slightly, $25,000 or 1%, as compared to the same period in 2006, driven by a 21% increase in LED lighting system sales as compared to the same period in 2006. However, the increase in LED sales has been offset by a 13% decrease in fiber optic lighting systems sales to the commercial market in the same period. The Company is currently implementing a strategic upgrade in its sales representation in North America. In October of 2007 the Company made sales representative changes in Las Vegas, Los Angles and Raleigh and has plans to continue to improve its alignment with top manufacturers' representatives in every major city in North America.
Gross Profit
Gross profit for the nine months ended September 30, 2007 was approximately $2,191,000 or 29.0% of revenue as compared to approximately $3,647,000 or 42.3% of revenue for the nine months ended September 30, 2006. Direct gross margin for the first nine months of 2007, which is revenue less material cost, remained relatively flat at approximately 57.9% as compared to 58.7% in the same period of 2006 as neither material cost nor selling price had a material affect on gross margin. The key reasons for the reduced gross profit and gross margin were reduced revenue levels against fixed production costs, a $484,000 higher expense for capitalized labor and overhead as the business had capitalized larger balances in 2006 due to increases in inventory over the nine months of 2006 which it has not experienced in the comparable period of 2007, a $87,000 increase in expense for inventory adjustments resulting from a physical inventory count as of June 30, 2007 as well as a $284,000 increase in our reserve for excess and obsolete products as part of an inventory reduction and SKU management initiative that began in the 2nd quarter of 2007.
"While we have started to see some progress in certain operational areas of our Orlando facility, our efforts to improve operating results and management of working capital through enhancement of our operating processes continues. The addition of ALS will assist us in this endeavor by allowing the combined companies to take advantage of certain synergies including reducing material costs through negotiation with vendors and sharing operational best practices," stated John Oakley, CFO for Nexxus Lighting.
Operating expenses in the first nine months of 2007 decreased approximately 6%, or $256,000, to $4.0 million as compared to $4.3 million for the same period in 2006.
Selling, general and administrative (SG&A) expenses were approximately $3,750,000 for the nine months ended September 30, 2007 as compared to approximately $3,880,000 for the same period in 2006, a decrease of approximately $127,000 or 3%.
Research and development costs were approximately $299,000 for the nine months ended September 30, 2007 as compared to approximately $429,000 for the same period in 2006, a decrease of approximately $130,000 or 30%. The reduction in research and development expenses was primarily driven by timing of expenses related to new product development activities in 2007 as compared to 2006. Management believes strongly in new product development and has an ongoing plan for introducing new products based on advanced LED technology.
Despite the decrease in operating costs, and as a result of lower revenue and reduced gross margins, the Company reported a net loss for the nine months ended September 30, 2007 of approximately $1,614,000, or $0.24 per basic and diluted common share, as compared to a net loss of approximately $724,000 or $.28 per basic and diluted common share, for the nine months ended September 30, 2006.
Nexxus Lighting, Inc. Life's Brighter!
For more information, please visit the new Nexxus Lighting web site at www.nexxuslighting.com
Certain of the above statements contained in this press release are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Reference is made to Nexxus Lighting's filings under the Securities Exchange Act for factors that could cause actual results to differ materially. Nexxus Lighting undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements.
Nexxus Lighting, Inc. | ||||||
Condensed Balance Sheets | ||||||
| Â | ||||||
| (Unaudited, Consolidated) | ||||||
| September 30, | December 31, | |||||
| 2007 | Â | 2006 | Â | |||
| ASSETS | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 3,312,828 | $ | 531,181 | ||
| Restricted investments | 500,000 | 500,000 | ||||
| Investments | 98,954 | 6,471,400 | ||||
Trade accounts receivable, less allowance for doubtful accounts of $84,697 and $121,535 | 1,455,930 | 1,231,277 | ||||
Inventories, less reserve of $557,815 and $274,128 | 3,643,309 | 3,463,367 | ||||
| Prepaid expenses | 308,487 | 261,852 | ||||
| Other assets | 42,616 | Â | 21,751 | Â | ||
| Total current assets | 9,362,124 | Â | 12,480,828 | Â | ||
| Â | ||||||
| Property and equipment | 4,283,438 | 3,728,285 | ||||
| Accumulated depreciation and amortization | (2,896,819 | ) | (2,699,239 | ) | ||
| Net property and equipment | 1,386,619 | Â | 1,029,046 | Â | ||
| Â | ||||||
| Goodwill | 2,704,499 | -- | ||||
| Patents and trademarks, less accumulated amortization of $62,194 and $122,747 | 284,901 | 213,131 | ||||
| Other intangible assets, less accumulated amortization of $105,340 and $84,627 | 46,318 | 60,359 | ||||
| Other assets | 201,082 | Â | 67,020 | Â | ||
| $ | 13,985,543 | Â | $ | 13,850,384 | Â | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Current Liabilities: | ||||||
| Accounts payable | $ | 1,554,062 | $ | 1,155,162 | ||
| Related party payable | -- | 20,700 | ||||
| Accrued compensation and benefits | 208,188 | 111,932 | ||||
| Revolving line of credit | 479,000 | -- | ||||
| Notes payable | 206,250 | 1,157,846 | ||||
| Current portion of deferred rent | 53,832 | -- | ||||
| Current portion of obligation under capital lease | 6,508 | -- | ||||
| Deposits | 40,900 | Â | 22,697 | Â | ||
| Total current liabilities | 2,548,740 | 2,468,337 | ||||
| Â | ||||||
| Deferred rent, less current portion | 188,412 | -- | ||||
| Obligation under capital lease, less current portion | 2,712 | Â | -- | Â | ||
| Total liabilities | 2,739,864 | 2,468,337 | ||||
| Â | ||||||
| Stockholders' Equity: | ||||||
| Preferred stock, $.001 par value, 5,000,000 shares authorized, none issued | -- | -- | ||||
| Class A common stock, $.001 par value, 25,000,000 and 20,000,000 shares authorized, 6,973,603, and 6,097,476 issued and outstanding | ||||||
| 6,974 | 6,098 | |||||
| Class B common stock, $.001 par value, none and 3,389,134 shares authorized, none and 483,264 issued and outstanding. Each share of Class B common stock was entitled to five votes per share. | -- | 483 | ||||
| Additional paid-in capital | 20,619,937 | 19,142,231 | ||||
| Accumulated deficit | (9,381,232 | ) | (7,766,765 | ) | ||
| Total stockholders' equity | 11,245,679 | Â | 11,382,047 | Â | ||
| $ | 13,985,543 | Â | $ | 13,850,384 | Â | |
Nexxus Lighting, Inc. | |||||||||||||
Condensed Statements of Operations (Unaudited) | |||||||||||||
| Â | |||||||||||||
| Three Months | Â | Nine Months | |||||||||||
| Ended September 30, | Ended September 30, | ||||||||||||
| 2007 | Â | 2006 | Â | 2007 | Â | 2006 | Â | ||||||
| Â | |||||||||||||
| Revenues | $ | 2,586,350 | $ | 2,803,289 | $ | 7,561,374 | $ | 8,617,301 | |||||
| Cost of sales | 1,775,712 | Â | 1,747,309 | Â | 5,370,106 | Â | 4,969,807 | Â | |||||
| Gross profit | 810,638 | 1,055,980 | 2,191,267 | 3,647,494 | |||||||||
| Â | |||||||||||||
| Operating expenses: | |||||||||||||
| Selling, general and administrative | 1,233,846 | 1,277,976 | 3,754,280 | 3,880,999 | |||||||||
| Research and development | 88,041 | 120,677 | 298,658 | 428,987 | |||||||||
| Loss (Gain) on disposal of fixed assets | 1,125 | Â | -- | Â | 1,125 | Â | (300 | ) | |||||
| Total operating expenses | 1,323,013 | Â | 1,398,653 | Â | 4,054,064 | Â | 4,309,686 | Â | |||||
| Â | |||||||||||||
| Operating Loss | (512,374 | ) | (342,673 | ) | (1,862,797 | ) | (662,192 | ) | |||||
| Â | |||||||||||||
| Non-Operating Income (Expense): | |||||||||||||
| Interest income | 125,323 | 11,270 | 254,535 | 29,669 | |||||||||
| Interest expense | (8,265 | ) | (109,659 | ) | (27,618 | ) | (287,630 | ) | |||||
| Other income | 4,411 | Â | 57,775 | Â | 21,413 | Â | 196,434 | Â | |||||
| Total non-operating income (expense) | 121,469 | Â | (40,614 | ) | 248,330 | Â | (61,527 | ) | |||||
| Â | |||||||||||||
| Net Loss | $ | (390,905 | ) | $ | (383,287 | ) | $ | (1,614,467 | ) | $ | (723,719 | ) | |
| Â | |||||||||||||
| Net Loss Per Common Share: | |||||||||||||
| Basic and diluted | $ | (0.06 | ) | $ | (0.15 | ) | $ | (0.24 | ) | $ | (0.28 | ) | |
| Weighted average shares outstanding: | |||||||||||||
| Basic and diluted | 6,713,538 | Â | 2,544,863 | Â | 6,673,618 | Â | 2,544,798 | Â | |||||
