These strong 2008 results were the result of the company’s successful execution of its growth strategy, driven by growth in its energy and smart grid solutions segment (interactive distributed generation, utility infrastructure, and energy efficiency revenues) as well as its energy services segment, and were achieved despite the difficult economic environment. The company’s fiscal year 2008 results constituted a 22% increase in revenues over fiscal year 2007, a 1.4 percentage point year-over-year increase in gross margin as a percent of revenue, and a 53% increase in non-Publix revenues to a record $90.2 million. Diluted E.P.S. from continuing operations for 2008 was $0.63 compared to a loss of ($0.06) in 2007 on a GAAP basis, and compared to $0.77 in 2007 after adjusting for a $14 million charge incurred in the second quarter of 2007.
For the fourth quarter of 2008, total revenues were $26.4 million compared to $36.9 million in the prior year period, diluted E.P.S. from continuing operations was $0.06 compared to $0.48 in the prior year period, and diluted E.P.S. was $0.06 compared to $0.43 in the prior year period. The company’s fourth quarter 2008 revenues and profit were lower than the fourth quarter of 2007 due to the planned reduction in revenues from Publix Super Markets, given the completion of many projects for Publix during the second and third quarters of 2008. Revenues from Publix were $3.1 million in the fourth quarter of 2008, decreasing $14.0 million, or 81.7%, from the prior year period. As a result of the decline in revenues from Publix, the company’s total revenues declined $10.5 million, or 28.5%, in the fourth quarter of 2008 compared to the prior year period.
For the fourth quarter of 2008, the company’s total revenues from customers outside of Publix were a very strong $23.2 million, increasing $3.4 million, or 17.3% over the prior year period. This is the fifth consecutive quarter of strong year-over-year growth in non-Publix revenues, and demonstrates the continuing progress the company is achieving in diversifying and broadening its revenue base. During the fourth quarter of 2008, 88% of the company’s revenues were from customers other than Publix, the highest levels since the first quarter of 2006:
Non-Publix Revenue Results
In the fourth quarter, the company’s strategic growth areas of Interactive Distributed Generation, utility infrastructure, energy efficiency, and energy services posted the following year-over-year revenue variances:
Interactive Distributed Generation: This area realized a 45% increase in revenues for projects related to customers other than Publix, but reported a 40% decrease in total revenues due to the decline in revenues from Publix.
Utility Infrastructure: This area realized a 21% decrease in revenues, driven by year-over-year decreases in revenues from large utility infrastructure projects.
Energy Efficiency: The company’s EfficientLights business unit delivered strong year-over-year growth, with revenues of $0.9 million for the quarter, compared to essentially no revenues in the prior year period. However, this growth was more than offset by revenue decreases in the company’s EnergyLite business unit, which were a driven by planned reductions in the company’s investment in this unit, and which resulted in an overall 11% decrease in total revenues in the Energy Efficiency area.
Energy Services: The company realized a 24% increase in revenues from its Southern Flow business unit. The company’s WaterSecure business unit (which holds the company’s investment in a water processing business primarily serving oil and natural gas producers, and for which revenues are not recognized due to being accounted for via the equity method) posted pre-tax income of $0.6 million, down 38% over the prior year period, driven by declines in the prices of oil and natural gas.
The company’s gross margin for the fourth quarter of 2008 was 34.1%, marking the second highest quarterly gross margin in the company’s history; although down 1.7 percentage points compared to the prior year period (the prior year period gross margin result was the highest in the company’s history). The decrease in gross margin in the fourth quarter of 2008 compared to the prior year period was primarily the result of the company’s lower absolute levels of revenue, given that the company’s cost of sales contains certain elements of cost which are relatively fixed in the short-term and thus do not correlate directly with changes in revenues, such as personnel and other operational infrastructure. For fiscal 2008, the company’s gross margin was a fiscal year record of 32.3%, up 1.4 percentage points over 2007, driven by operational efficiencies and higher revenues, as well as a favorable mix of higher margin projects.
Fourth quarter operating expenses were $8.4 million, a decrease of $0.2 million compared to the prior year period. The decrease was primarily driven by decreases in selling expense due to lower levels of revenues. Additionally, operating expenses decreased $1.6 million, or 16% from the second quarter of 2008 (their highest level in 2008), due to cost disciplines implemented during the company’s second quarter of 2008, lower personnel costs, and decreases in sales expense from lower sequential revenues. As a proactive measure in light of the continuing difficult economic climate, the company took additional actions to reduce costs during the first quarter of 2009. These actions are expected to yield around $5-6 million of reductions in personnel, overhead, and incentive pay in fiscal year 2009 versus fiscal year 2008, primarily realized during the last three quarters of 2009.
The company reported that its balance sheet and liquidity remain strong. At the end of 2008, the company’s cash position was $24.3 million, up sequentially from $8.3 million at the end of its third fiscal quarter, and the company’s $50 million revolving credit facility remained undrawn.
Sidney Hinton, chief executive officer of PowerSecure, said, “We cannot be more pleased with 2008. Simply put, our team had an extraordinary year – and delivered record revenues with record efficiency. We focused all year long on “blocking and tackling” to deliver great products and services that add real value to our customers’ businesses. This focus has enabled us to succeed in a very difficult economic environment. We continue to be positive about our relative position in the marketplace, and the strategic growth areas in which we have chosen to invest – both from a product and service perspective, as well as the fact that we are blessed to serve a quality group of utilities, businesses, and institutions. However, we are not immune to the impact of the deep recession and capital market crisis that is affecting the economy. We are therefore very guarded about the near-term, and fully expect these challenges to continue to negatively affect our revenues and profit during 2009. As a result, we have taken actions to reduce our costs and prepare ourselves for a continuing difficult economic climate. However, from a long-term perspective, we strongly believe we are in the right place at the right time, and in our prospects for long-term profitable growth.”
The company’s revenue backlog expected to be recognized after December 31, 2008 is $87 million. This includes project-based revenues projected to be recognized as projects are completed and recurring revenue contracts which are projected to be recognized over the life of the contract.
