WAKE FOREST, N.C., Aug. 6, 2014 /PRNewswire/ -- PowerSecure International, Inc. (NYSE: POWR) today reported its second quarter 2014 results. Highlights include:

• Second quarter 2014 revenues of $57.1 million
• Gross margin of 25.1 percent
• GAAP EPS of ($0.12) 
• Record backlog grows to $349 million

"The significant new business we have won recently has driven our backlog to an all-time high of $349 million and provides us with an outstanding foundation for 2015," said Sidney Hinton, chief executive officer of PowerSecure.

"We have made excellent progress over the last three months, as we renegotiated a major utility customer contract, added substantially to our distributed generation backlog, including our first distributed generation sale to an ESCO customer, and completed our LED manufacturing transition to support the higher lighting margins we began to see this quarter," Hinton added. 

Second Quarter 2014:

PowerSecure's second quarter 2014 (2Q 2014) revenues were $57.1 million, a decrease of $13.1 million, or 18.7 percent, from the second quarter of 2013 (2Q 2013), driven by a 5.4 percent year-over-year (y-o-y) decrease in revenues from distributed generation products, a 21.1 percent y-o-y decrease in revenues from utility infrastructure products and services and a 30.8 percent y-o-y decrease in revenues from energy efficiency products and services. The following table sets forth the revenues by product and service category (segment) for 2Q14 and 2Q13, and the y-o-y variance.

Gross margin as a percentage of revenue was 25.1 percent in 2Q 2014 compared to 28.3 percent in 2Q 2013.  As expected, the y-o-y gross margin decrease was driven primarily by inefficiencies in the utility infrastructure segment due to lower revenues, and unfavorable pricing and service assignments with a major utility customer in that segment.  This caused higher levels of personnel and equipment cost in the company's cost of goods sold as a percentage of revenues. In June 2014, the service arrangement with the utility customer was modified to improve the terms of our ongoing service.  In addition, increases in gross margins in the energy efficiency segment, driven by efficiency gains in LED lighting sourcing and manufacturing, offset a decline in the gross profit margin of the distributed generation segment which was driven by lower revenues and year-over-year differences in the projects completed during each period.

Operating expenses for 2Q 2014 were $18.3 million, compared to $16.4 million in 2Q 2013.  The $1.9 million y-o-y increase in operating expenses was primarily due to an increase in selling expenses due to additional sales executives and commission expense, increases in general and administrative expense due to increases in personnel, stock compensation expense, insurance and professional fees to support our growing business platforms, and depreciation and amortization from our investments in utility infrastructure equipment and company-owned distributed generation systems, and acquisition-related intangibles. 

Diluted GAAP earnings per share (EPS) was a loss of $0.12 in 2Q 2014, compared to income of $0.11 in 2Q 2013. Non-GAAP EPS in 2Q 2013 was income of $0.12. 

Results from 2Q 2013 include $0.5 million of acquisition costs primarily related to the acquisition of Solais, and are adjusted in the 2Q 2013 non-GAAP EPS calculation (see non-GAAP discussion and reconciliation, below).  

The company completed the second quarter of 2014 with $41.3 million in cash, no cash drawn on its revolving credit facility, and term debt and capital leases of $24.9 million.  Subsequent to the quarter, a $12 million letter of credit was issued under the company's revolving credit facility to support the bonding for two major new solar energy projects, which are expected to generate $120 million of revenue. The company expects to recognize approximately half of the revenue from the two major solar projects in 2015, and the remainder in 2016.

The company's capital expenditures during 2Q 2014 were $3.3 million, with $2.3 million of this capital invested to deploy systems to support PowerSecure-owned long-term recurring revenue distributed generation projects, and the remaining $1.0 million primarily invested in the purchase of equipment for its utility infrastructure business. 

PowerSecure Segment Results:

Distributed Generation 

Distributed generation revenues in 2Q 2014 of $22.3 million reflect a 5.4 percent decrease versus 2Q 2013. DG gross margin in 2Q 2014 was 32.4 percent compared to 36.7 percent in the same period last year. 

The revenue decrease was driven by a longer sales cycle surrounding newer large scale opportunities and a reduction in the number of smaller and medium sized projects generating revenue in 2Q 2014, partially offset by new sales from hospitals, data center, industrial and retail customers. The decrease in gross margin was due to the reduction in revenue, combined with year-over-year differences in the gross profit margins of individual projects.  

Utility Infrastructure

Utility Infrastructure revenues in 2Q 2014 of $23.8 million reflect a 21.1 percent decrease versus 2Q 2013. Utility infrastructure gross margin in 2Q 2014 decreased to 14.8 percent from 23.9 percent in 2Q 2013. This represents a sequential increase of 4.9 percentage points in our UI gross margin from 1Q 2014, and compares to an average quarterly gross margin of 19.5 percent for UI revenues in full year 2013.

This year-over-year gross profit margin decrease in UI was driven primarily by the continuing effect of inefficiencies in our utility services group, due to lower revenues and the previously reported unfavorable pricing and service assignments with one of our major utility customers.  These unfavorable terms caused us to incur higher levels of personnel and equipment costs in our cost of goods sold as a percentage of our revenues, driving the gross profit margin on our utility services revenue to 10.3 percent for 2Q 2014, and our overall UI segment gross profit margin to 14.8 percent.  This compares to a UI segment gross profit margin of 23.9 percent in 2Q 2013.  In June 2014, the company announced that it successfully modified the service arrangement with the major utility customer that was driving decreases in its gross margins to improve the terms of its ongoing service.  The modifications include adjustments to pricing, work assignments, and expected improvements in the ongoing scope of work. Based on these improvements, and the new mix of work expected to be allocated, the company believes these changes will restore the profitability of the work it provides to this utility and provide a solid platform to continue serving, and potentially expanding, its work for this customer. Consistent with these contract modifications and its prior financial outlook, the company expects UI gross margin to increase in the second half of 2014 compared to the first half of 2014.

Energy Efficiency

Energy Efficiency revenues in 2Q 2014 of $11.4 million reflect a 30.8 percent decrease versus 2Q 2013. EE gross margin in 2Q 2014 increased to 31.4 percent from 24.4 percent last year.  

The decrease in EE revenues was driven by a 54.2 percent y-o-y decrease in sales to ESCO customers due to difficult y-o-y comparisions. In 2Q 2013, the company recognized a significant $12 million in ESCO revenue from existing customer contracts in the first quarter after the acquisition of its ESCO business. The primary drivers for the increase in EE gross margin were increases in the gross margin of our ESCO business and our LED solutions. The gross margin for our LED solutions was 36.5 percent in 2Q 2014, compared to 31.0 percent in 2Q 2013. The increase in our LED lighting gross margin was driven primarily by the successful completion of our LED lighting restructuring, including decreases in cost of goods sold as a result of transitioning to a more efficient sourcing and manufacturing process.

Backlog

The company's revenue backlog stands at a record $349 million, as of the date of this release.  This includes new business from awards announced on July 23, 2014 and July 30, 2014.  The company's revenue backlog represents revenue expected to be recognized after June 30, 2014, for periods including the third quarter of 2014 onward. 

This backlog figure compares to the revenue backlog of $225 million announced in the company's first quarter 2014 earnings release issued on May 7, 2014, which represented revenue expected to be recognized after March 31, 2014, and $245 million in revenue backlog announced in the company's 2Q 2013 earnings release issued on August 7, 2013. 

The company's $349 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:

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 8:30 a.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 888-680-0892 (or 617-213-4858 if dialing internationally) and providing passcode 76455815.  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 20, 2014. To listen to the replay, dial 888-286-8010 (or 617-801-6888 if dialing internationally), and enter passcode 11903095. 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.  The company is a pioneer in developing Interactive Distributed Generation® power systems which provide the most reliable backup power in the industry and sophisticated smart grid capabilities which enable the company to forecast electricity demand and electronically deploy the systems to deliver more efficient, and environmentally friendly, power at peak power times. This approach provides utilities with dedicated electric power generation capacity to utilize for demand response purposes and can provide customers with significant economic returns on their backup power investment.  Its proprietary distributed generation system designs utilize a range of technologies to deliver power, including renewables. The company's energy efficiency segment develops energy efficient lighting technologies that improve the quality of light, including its proprietary Solais®, EfficientLights® and EnergyLite® LED products for retail, supermarket, commercial, museum and outdoor applications, and it provides Energy Efficiency Services to super ESCOs.  PowerSecure's utility infrastructure segment 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 company's ability to successfully and timely execute the recently announced large solar distributed generation projects and related contracts and the risks of the conditions to such projects not being satisfied or of the company incurring liquidated damages or other liabilities under those contracts;  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, including but not limited to the recently filed securities class action litigation; 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.

Contact:

John Bluth

PowerSecure International, Inc.

(919) 453-2103

Non-GAAP Pro forma Financial Measures Discussion:

Our references to our second quarter 2013 "Non-GAAP Pro forma" financial measures of net income from continuing operations, net income, net income attributable to PowerSecure International, Inc., diluted E.P.S. from continuing operations, diluted E.P.S. from discontinued operations and diluted E.P.S. discussed and shown in this report constitute non-GAAP financial measures. They refer to our GAAP results, adjusted to show the results without the 2Q 2013 acquisition expenses primarily related to Solais (and to a lesser extent our ESCO, PowerLine, IES, and PowerSecure Solar transactions).

We believe providing non-GAAP measures which show our pro forma results with these items adjusted is valuable and useful as it allows our management and our board of directors to measure, monitor and evaluate our operating performance with the same consistent financial context. These non-GAAP pro forma measures also correspond with the way we expect Wall Street analysts to compare our results. Our non-GAAP pro forma measures should be considered only as supplements to, and not as substitutes for or in isolation from, our other measures of financial information prepared in accordance with GAAP, such as GAAP revenue, operating income, net income from continuing operations, net income, net income attributable to PowerSecure International, Inc., diluted E.P.S. from continuing operations, diluted E.P.S. from discontinued operations, and diluted E.P.S.

References to our second quarter and year-to-date 2013 Adjusted EBITDA, which we define as our earnings before interest, taxes, depreciation and amortization, and charges, as discussed and shown in this release, constitutes a non-GAAP "pro forma" financial measure. 

We believe that Adjusted EBITDA, as a non-GAAP pro forma financial measure, provides meaningful information to investors in terms of enhancing their understanding of our operating performance and results, as it allows investors to more easily compare our financial performance on a consistent basis compared to the prior year periods.  This non-GAAP financial measure also corresponds with the way we expect investment analysts to evaluate and compare our results.  Any non-GAAP pro forma financial measures should be considered only as supplements to, and not as substitutes for or in isolation from, or superior to, our other measures of financial information prepared in accordance with GAAP, such as net income attributable to PowerSecure International, Inc.

We define and calculate Adjusted EBITDA as net income attributable to PowerSecure International, Inc., minus: 1) the gain on the sale of our unconsolidated affiliate, 2) discontinued operations and 3) interest income and other income, plus: 4) restructuring charges, 5) acquisition expenses, 6) income tax expense (or minus an income tax benefit), 7) interest expense, 8) depreciation and amortization and 9) stock compensation expense.  We disclose Adjusted EBITDA because we believe it is a useful metric by which to compare the performance of our business from period to period.  We understand that measures similar to Adjusted EBITDA are broadly used by analysts, rating agencies, investors and financial institutions in assessing our performance.  Accordingly, we believe that the presentation of Adjusted EBITDA provides useful information to investors.  The table below provides a reconciliation of Adjusted EBITDA to net income attributable to PowerSecure International, Inc., the most directly comparable GAAP financial measure.

SOURCE PowerSecure International, Inc.