PowerSecure Reports Second Quarter 2013 Results

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PowerSecure Reports Second Quarter 2013 Results

—Record revenues of $70.2 million reflect 85 percent growth y-o-y—

—Record backlog grows to $245 million—

—133 percent y-o-y growth in utility infrastructure revenues—

—87 percent y-o-y growth in energy efficiency revenues—

—46 percent y-o-y growth in distributed generation revenues—

WAKE FOREST, N.C.--(BUSINESS WIRE)-- PowerSecure International, Inc. (NAS: POWR) today reported its second quarter 2013 results. Highlights include:

  • Revenues increase 85.4 percent y-o-y to $70.2 million
  • Operating margin expands 3.3 percentage points y-o-y to 4.9 percent
  • GAAP EPS increases by $0.02 y-o-y from $0.09 to $0.11
  • Non-GAAP EPS increases by $0.08 y-o-y from $0.04 to $0.12 (see non-GAAP discussion and reconciliation, below)
  • EBITDA increases nearly 150 percent to $5.9 million (see non-GAAP discussion and reconciliation, below)

"Our record second quarter results and all time high backlog illustrate the continued momentum we are seeing across our business as we deliver differentiated, best-in-class solutions to our customers. In addition, we are very pleased with the strong performance of our two most recent acquisitions out of the gate, as our new ESCO and Solais businesses delivered second quarter revenues of $12.3 million and $1.6 million, respectively," said Sidney Hinton, chief executive officer of PowerSecure.

"With increasing revenues and EPS, a strong balance sheet, growing EBITDA from operations, a backlog that has grown even faster than our revenues, and added strength from our recent strategic acquisitions, PowerSecure has never been in a stronger position for long term success," Hinton added.

Second Quarter 2013:

PowerSecure's second quarter 2013 (2Q 2013) revenues of $70.2 million, an increase of $32.3 million, or 85.4 percent, from the second quarter of 2012 (2Q 2012), were driven by a 46.1 percent year-over-year (y-o-y) increase in revenues from distributed generation products, a 133.2 percent y-o-y increase in revenues from utility infrastructure products and services, and an 87.1 percent y-o-y increase in revenues from energy efficiency products and services.

($ in 000's) 2Q13   2Q12   $   %
Revenue by Product/Service  
Distributed Generation 23,581 16,139 7,442 46.1%
Utility Infrastructure 30,111 12,912 17,199 133.2%
Energy Efficiency 16,495   8,816   7,679   87.1%
Total Revenue 70,187 37,867 32,320 85.4%

Gross margin as a percentage of revenue was 28.3 percent in 2Q 2013 compared to 32.2 percent in 2Q 2012. The y-o-y gross margin decrease was driven by a higher mix of revenues from solar and ESCO projects, and the increased contribution of our utility infrastructure products and services, which generally carry lower gross margins. Solar and ESCO revenues were $3.9 million and $12.3 million, respectively (solar is included in the distributed generation product category and ESCO is included in the energy efficiency category).

Operating expenses for 2Q 2013 as a percentage of our revenues decreased by 7.2 percentage points compared to 2Q 2012, as the company leveraged operating expenses against a greater level of revenues, quarter-over-quarter.

Operating expenses for 2Q 2013 were $16.4 million, compared to $11.6 million in 2Q 2012. The $4.8 million y-o-y increase in operating expenses consists primarily of $2.7 million of incremental operating expenses in 2Q 2013 related to our recent solar, Solais and ESCO acquisitions. In addition, we incurred $0.5 million in incremental acquisition costs related to our acquisitions in Q2 2013, compared to $0.1 million in incremental acquisition costs in Q2 2012. The remaining y-o-y increase in our operating expenses is primarily due to an increase in selling expenses related to our significantly higher revenue and backlog, depreciation from our investments in company-owned distributed generation systems, utility infrastructure equipment, and increases in personnel and equipment to drive and support our growth. The increases in personnel and equipment include expenses to continue to strengthen the company's safety resources and programs.

Operating margin as a percentage of revenue increased 3.3 percentage points to 4.9 percent in 2Q 2013 from 1.6 percent in 2Q 2012. The increase in operating margin was driven by the reduction in operating expenses as a percentage of revenue. This increase was enhanced by the cost reduction actions the company took during the second half of 2012 to streamline its operations.

The company's recent acquisitions have provided opportunities to further leverage the profitability of our operations, including significant near and mid-term opportunities to increase the operating margins in our energy efficiency product and service lines. This includes manufacturing and sourcing synergies our Solais acquisition brings to our existing LED lighting operations, and other cost reduction opportunities. The company is executing on these opportunities and initiatives to accelerate the realization of their expected benefits, and we expect these actions to result in a charge of between $2 million and $4 million during the second half of 2013.

Diluted GAAP earnings per share (EPS) from continuing operations increased to $0.11 in 2Q 2013, compared to $0.09 in 2Q 2012. Non-GAAP EPS from continuing operations increased to $0.12 in 2Q 2013, compared to $0.04 in 2Q 2012.

Results from 2Q 2012 included a one-time gain of $1.4 million from the sale of our WaterSecure business, and $0.1 million of acquisition expenses related to our acquisition of PowerSecure Solar. These items are adjusted in our non-GAAP calculation of 2Q 2012 non-GAAP EPS. Results from Q2 2013 include $0.5 million of acquisition costs primarily related to the acquisition of Solais, and are adjusted in the Q2 2013 non-GAAP EPS calculation (see non-GAAP discussion and reconciliation, below).

The company completed the second quarter of 2013 with $26.7 million in cash, zero drawn on its $20 million revolving credit facility and $27.2 million in term debt outstanding.

The company's capital expenditures during Q2 2013 were $2.5 million, with $1.2 million of this capital invested to deploy systems to support PowerSecure-owned long-term recurring revenue distributed generation projects, and the remaining $1.3 million primarily invested in the purchase of equipment for its growing utility infrastructure business.

The company's revenue backlog stands at a record $245 million, as of the date of this release. This includes new business from awards announced on June 6, 2013 and July 31, 2013. The company's revenue backlog represents revenue expected to be recognized after June 30, 2013, for periods including the third quarter of 2013 onward.

This backlog figure compares to the revenue backlog of $206 million announced in the company's first quarter 2013 earnings release issued on May 8, 2013, which represented revenue expected to be recognized after March 31, 2013, and $166 in revenue backlog announced in the company's 2Q 2012 earnings release issued on August 6, 2012.

The company's $245 million revenue backlog and the estimated timing of revenue recognition are outlined below, including "project-based revenues" expected to be recognized as projects are completed, and "recurring revenues" expected to be recognized over the life of the underlying contracts:

Revenue Backlog expected to be recognized after June 30, 2013      
Anticipated Estimated Primary
Description     Revenue   Recognition Period
Project-based Revenue -- Near term $131 Million 3Q13 through 1Q14
Project-based Revenue -- Long term $45 Million 2Q14 through 2015
Recurring Revenue $69 Million 3Q13 through 2020
Revenue Backlog expected to be recognized after June 30, 2013 $245 Million

Note: Anticipated revenue and estimated primary recognition periods are subject to risks and uncertainties

as indicated in the Company's safe harbor statement, below. Consistent with past practice, these figures
are not intended to constitute the Company's total revenue over the indicated time periods, as the Company
has additional, regular on-going revenues. Examples of additional, regular recurring revenues include
revenues from engineering fees, and service revenue, among others. Numbers may not add due to rounding.

Orders in the company's revenue backlog are subject to delay, deferral, acceleration, resizing or cancellation from time to time, and estimates are utilized in the determination of the backlog amounts. Given the irregular sales cycle of customer orders, and especially of large orders, the revenue backlog at any given time is not necessarily an accurate indication of our future revenues.

Conference Call Information

The company will host a conference call commencing today at 5:30 p.m. eastern time. The conference call will be webcast live and can be accessed from the Investor Relations section of the company's website at www.powersecure.com. The call can also be accessed by dialing 888-713-4211 (or 617-213-4864 if dialing internationally) and providing pass code 53645986. If you are unable to participate during the live webcast, a replay of the conference call will be available approximately two hours after the completion of the call through midnight on August 21, 2013. To listen to the replay, dial 888-286-8010 (or 617-801-6888 if dialing internationally), and enter passcode 84522182. In addition, the webcast will be archived on the company's website at www.powersecure.com.

About PowerSecure

PowerSecure International, Inc. is a leading provider of utility and energy technologies to electric utilities, and their industrial, institutional and commercial customers. PowerSecure provides products and services in the areas of Interactive Distributed Generation ® (IDG®), energy efficiency and utility infrastructure. The company is a pioneer in developing IDG® power systems with sophisticated smart grid capabilities, including the ability to 1) forecast electricity demand and electronically deploy the systems to deliver more efficient, and environmentally friendly, power at peak power times, 2) provide utilities with dedicated electric power generation capacity to utilize for demand response purposes and 3) provide customers with the most dependable standby power in the industry. Its proprietary distributed generation system designs utilize a range of technologies to deliver power, including renewables. The company's energy efficiency business develops energy efficient lighting technologies that improve the quality of light, including its proprietary EfficientLights® LED lighting products for grocery, drug and convenience stores, and its SecureLite area light and PowerLite street lights for utilities and municipalities. PowerSecure also provides electric utilities with transmission and distribution infrastructure maintenance and construction services, and engineering and regulatory consulting services. Additional information is available at www.powersecure.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are all statements other than statements of historical facts, including but not limited to statements concerning the outlook for the company's future revenues, earnings, margins, cash resources and cash flow and other financial and operating information and data; the company's future business operations, strategies and prospects; the company's cost reduction plan; and all other statements concerning the plans, intentions, expectations, projections, hopes, beliefs, objectives, goals and strategies of management, including statements about other future financial and non-financial items, performance or events and about present and future products, services, technologies and businesses; and statements of assumptions underlying the foregoing.

Forward-looking statements are not guarantees of future performance or events and are subject to a number of known and unknown risks, uncertainties and other factors that are difficult to predict and could cause actual results to differ materially from those expressed, projected or implied by such forward-looking statements. Important risks, uncertainties and other factors include, but are not limited to, the on-going downturn, disruption and volatility in the economy, financial markets and business markets and the effects thereof on the company's markets and customers, the demand for its products and services, and the company's access to capital; the size, timing and terms of sales and orders, including the company's revenue backlog discussed in this press release, and the risk of customers delaying, deferring or canceling purchase orders or making smaller purchases than expected; the potential adverse financial and reputational consequences that can result from safety risks and hazards such as accidents inherent in the company's operations; the impact of the company's recent acquisitions of the ESCO business, the Solais business, and the commercial and industrial solar business; the company's ability to reduce and control its costs and expenses; the timely and successful development, production and market acceptance of new and enhanced products, services and technologies of the company; the ability of the company to obtain adequate supplies of key components and materials of sufficient reliability and quality for its products and technologies on a timely and cost-effective basis and the effects of related warranty claims and disputes; the ability of the company to successfully expand its core distributed generation products and services, to successfully develop and achieve market acceptance of its new energy-related businesses, to successfully expand its recurring revenue projects, to manage its growth and to address the effects of any future changes in utility tariff structures and environmental requirements on its business solutions; the effects of competition; changes in customer and industry demand and preferences; the ability of the company to continue the growth and diversification of its customer base; the ability of the company to attract, retain, and motivate its executives and key personnel; changes in the energy industry in general and the electricity, oil, and natural gas markets in particular, including price levels; the effects of competition; the ability of the company to secure and maintain key contracts and relationships; the effects of pending and future litigation, claims and disputes; and other risks, uncertainties and other factors identified from time to time in its reports filed with or furnished to the Securities and Exchange Commission, including the company's most recent Annual Report on Form 10-K, as well as subsequently filed reports on Form 10-Q and Form 8-K, copies of which may be obtained by visiting the investor relations page of the company's website at www.powersecure.com or the SEC's website at www.sec.gov .

Accordingly, there is no assurance that the results expressed, projected or implied by any forward-looking statements will be achieved, and readers are cautioned not to place undue reliance on any forward-looking statements. The forward-looking statements in this press release speak only as of the date hereof and are based on the current plans, goals, objectives, strategies, intentions, expectations and assumptions of, and the information currently available to, management. The company assumes no duty or obligation to update or revise any forward-looking statements for any reason, whether as the result of changes in expectations, new information, future events, conditions or circumstances or otherwise.

PowerSecure International, Inc.
Consolidated Statements of Income (unaudited)
($000's except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2013 2012 2013 2012
Revenue 70,187 37,867 115,144 71,052
Cost of sales 50,304   25,663   81,521   49,293  
Gross Profit 19,883   12,204   33,623   21,759  
Operating expenses
General and administrative 12,511 9,093 22,343 17,738
Selling, marketing, and service 2,105 1,366 3,490 2,424
Depreciation and amortization 1,809   1,136   3,265   2,221  
Total operating expenses 16,425   11,595   29,098   22,383  
Operating income (loss) 3,458 609 4,525 (624 )
Other income (expense)
Gain on sale of unconsolidated affiliate 0 1,439 0 1,439
Interest income and other income 19 23 40 45
Interest expense (130 ) (116 ) (235 ) (224 )
Income (loss) before income taxes 3,347 1,955 4,330 636
Income tax expense (benefit) 1,305   621   1,679   228  
Net income (loss) from continuing operations 2,042 1,334 2,651 408

Discontinued operations - income (loss) from operations (net of

0 32 0 67
Discontinued operations - gain on sale (net of tax) 0   0   0   0  
Net income (loss) 2,042 1,366 2,651 475
Net loss attributable to noncontrolling interest 57   277   181   565  
Net income (loss) attributable to PowerSecure International, Inc. 2,099   1,643   2,832   1,040  
Summary of Amounts Attributable to PowerSecure International, Inc. shareholders
Income (loss) from continuing operations (net of tax) 2,099 1,611 2,832 973
Income (loss) from discontinued operations (net of tax) 0   32   0   67  
Net income (loss) attributable to PowerSecure International, Inc. 2,099   1,643   2,832   1,040  
Continuing Operations
Basic 0.11   0.09   0.15   0.05  
Diluted 0.11   0.09   0.15   0.05  
Discontinued Operations
Basic 0.00   0.00   0.00   0.01  
Diluted 0.00   0.00   0.00   0.00  
Net Income
Basic 0.11   0.09   0.15   0.06  
Diluted 0.11   0.09   0.15   0.05  
Basic 19,024   18,846   18,635   18,874  
Diluted 19,357   18,941   18,941   19,015  
PowerSecure International, Inc.
Condensed Consolidated Balance Sheets (unaudited)
June 30, December 31,
ASSETS 2013 2012
Cash and cash equivalents 26,653 19,122
Trade receivables, net of allowance for doubtful accounts 74,526 57,147
Inventories 28,576 20,327
Income taxes receivable 0 592
Deferred tax asset, net 803 803
Prepaid expenses and other current assets 1,440 1,285
Total current assets 131,998 99,276
Equipment 52,713 48,447
Furniture and fixtures 460 375
Land, building, and improvements 5,996 5,907
Total property, plant, and equipment at cost 59,169 54,729
Less accumulated depreciation and amortization 15,008 12,152
Property, plant, and equipment, net 44,161
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