Nexxus Lighting Reports Third Quarter 2010 Results

CHARLOTTE, N.C., Nov. 12, 2010 /PRNewswire-FirstCall/ -- Nexxus Lighting, Inc. (Nasdaq: NEXS), a leading supplier of commercial-grade LED lights, today reported its third quarter 2010 results.  Highlights since our last quarterly report include:

• Revenue from continuing operations of $1.2 million for the quarter ending September 30, 2010, approximately $30,000 below comparable third quarter 2009 revenue.  Year to date total revenues from continuing operations are up 14% compared to the first nine months of 2009.
• Lumificient sales grew 8% to $923,000, as compared to the third quarter of 2009, with strong growth in September leading the momentum and with several national account opportunities.
• Array™ sales were $326,000 for the quarter, as compared to $423,000 in the third quarter of 2009, with the lull in commercial orders attributable to anticipation of 2011 Energy Star qualified product incentive programs in the U.S. and much softer European sales in the quarter as compared to 2009.  Year to date Array sales are up 76% compared to the first nine months of 2009.
• Received Energy Star Certification for its R30, MR16 and GU10 lamps, positioning the Company and its customers for participation in utility incentive programs.  
• Sold Legacy Commercial and Pool Lighting Businesses on October 28, strengthening the Company's financial position and enhancing focus on the expanding Array LED replacement lamp and Lumificient businesses.
• Reported cash of $6,147,000.  Expect sale of legacy businesses to strengthen liquidity.

Mike Bauer, Nexxus' President and Chief Executive Officer stated, "We made great progress towards achieving multiple key strategic and operational milestones in the quarter.  The divestiture of the Legacy Commercial and Pool Lighting Businesses was a major accomplishment and positions us to focus the Company and our resources on the higher growth opportunities offered by Array and Lumificient.  We also met another major objective related to our Energy Star initiative for Array lighting.  Our Array R30 was one of the first replacement lamps to receive Energy Star certification and we have just received qualification for our R16 and GU10 lamps, which we feel will be critical in our efforts to capitalize on anticipated utility incentive programs in 2011.  We also began shipping our performance leading new PAR38 lamps in the third quarter.  Despite the 3rd quarter lull we experienced in shipments, recent quotation and order activity has been stronger and we are encouraged by the momentum that has been building since our Energy Star announcement."

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"Lumificient's strategy for attaining large multi-site retail signage programs is beginning to pay dividends, having successfully secured specifications and orders from two of the largest mobile phone companies, a global coffee retailer, a major retail shoe company and, most recently, attaining prototype approval for a significant opportunity with a leading automotive supplier," Bauer concluded.

Sale of Legacy Commercial and Pool Lighting Businesses

The Company routinely evaluates the operations, performance and prospects of its businesses, including those for its legacy commercial lighting and pool and spa lighting businesses (the "Legacy Commercial and Pool Lighting Businesses").  The Company engaged in discussions with parties interested in acquiring some or all of the assets of the Legacy Commercial and Pool Lighting Businesses.  After negotiations with a company organized by Mark Masterman, the former division head of the legacy businesses, an Asset Purchase Agreement was signed with such company on October 28, 2010.  Pursuant to the purchase agreement, on October 28, 2010 the Company sold substantially all of the assets of the Legacy Commercial and Pool Lighting Businesses.  The Company has accounted for the Legacy Commercial and Pool Lighting Businesses as discontinued operations and has classified the assets and liabilities of the businesses as "associated with discontinued operations" as of September 30, 2010.

Third Quarter 2010 Performance

Revenue

Total revenue for the three months ended September 30, 2010 decreased 2%, or approximately $30,000, to $1,249,000 as compared the three months ended September 30, 2009.  Sales of our Array LED lamps were approximately $326,000 in the third quarter of 2010 compared to approximately $423,000 in the third quarter of 2009. Sales of Lumificient products in the third quarter of 2010 and 2009 were approximately $923,000 and $856,000, respectively.  

Gross Profit

Gross profit for the quarter ended September 30, 2010 was approximately $136,000, or 11% of revenue, as compared to approximately $424,000, or 33% of revenue, for the comparable period of 2009.   Direct gross margin for the third quarter of 2010, which is revenue less material cost, decreased to approximately 44% as compared to 48% in the same period of 2009.  The decline in direct gross margin during the period primarily reflects higher costs for the initial production of the new PAR38 lamps and more aggressive pricing, particularly for the 230v product for use in certain international markets.  We are reviewing our international sales strategy and expect to implement steps to increase revenues from these markets.

In the third quarter of 2010, production costs increased to approximately $417,000, or 33% of revenue, as compared to approximately $189,000, or 15% of revenue, in the third quarter of 2009.  The increase of approximately $228,000 in production costs includes an increase in the inventory reserve for slow moving Array products of approximately $145,000.  The reserve increase was attributable primarily to R30 5000K Natural White lamp versions used in the U.S. and certain international markets, as well as other 230v products dedicated for use in certain international markets.  Production costs also reflect expense for reducing the amount of capitalized labor, overhead and freight costs in inventory by approximately $62,000.  In the third quarter of 2010, we transferred warehouse and distribution operations for the Array product line from our Orlando facility to a third party distribution company.  We believe this transition will allow us to distribute the Array product line with lower labor and overhead costs.  As a result, we expect to see an increase in expense for the release of capitalized labor and overhead in the future as we continue to sell through our current Array inventory.

Operating Expenses  

Selling, general and administrative (SG&A) expenses were approximately $1,263,000 for the quarter ended September 30, 2010 as compared to approximately $1,376,000 for the same period in 2009, a decrease of approximately $113,000, or 8%. This decrease is primarily the result of lower selling expense for our Lumificient and Array products of approximately $70,000 for the quarter ended September 30, 2010 as compared to the same period in 2009.  In addition, human resource and related costs decreased by approximately $33,000 for the quarter ended September 30, 2010 as compared to the same period in 2009.  

Research and development costs were approximately $212,000 during the three months ended September 30, 2010 as compared to approximately $147,000 during the same period in 2009.  This increase of approximately $65,000 was primarily due to higher employee costs and project-related costs in the third quarter of 2010, as compared to the same period of 2009, as we increased our investment in resources to expand the Array product offering.

Gary Langford, Chief Financial Officer of Nexxus, said, "We are pleased that we were able to mitigate the challenges of our legacy businesses, the remnants of the original Super Vision of the early 1990s.  We garnered additional liquidity now and over the months ahead.  Now, we must focus on expanding the Array and Lumificient businesses.  Early indicators in the fourth quarter are encouraging and we are optimistic about the long-term market opportunity."

Net Loss

Net loss for the three months ended September 30, 2010 and 2009 was approximately $2,394,000 and $1,488,000, respectively, including a loss from discontinued operations related to the Legacy Commercial and Pool Lighting Businesses of approximately $1,028,000 and $177,000 for each period ended, respectively.  After including the effects of the dividends related to the preferred stock and warrants issued in November 2008, net loss attributable to common stockholders was approximately $2,394,000 and $1,854,000 for the three months ended September 30, 2010 and 2009, respectively.  Basic and diluted loss per common share attributable to common stockholders was $0.15 and $0.22 for the three months ended September 30, 2010 and 2009, respectively. Basic and diluted loss per common share from continuing operations was $0.08 and $0.15 for the three months ended September 30, 2010 and 2009, respectively.  

Market Update

"We are encouraged by a number of the major accomplishments we achieved this quarter, some of which are highlighted above.  However, we were disappointed with our Array sales performance," stated Mr. Bauer.  "We did not anticipate the softness in demand for Array that we experienced in the quarter, both in the U.S. and in Europe, and there was a confluence of factors, both internal and external to the Company, that affected our results.  Internally, we reorganized our sales team in the 2nd quarter and this change impacted our previous sales momentum.  In addition, we lost some traction in Europe and we are currently working on developing a more comprehensive and focused market strategy for penetrating international markets."

"Externally, our market intelligence is showing that the overall adoption rate for solid state lighting has been below what was forecasted by industry experts and we are seeing that reflected in longer than anticipated sales cycles with customers, especially with national accounts.  We see two primary factors that are driving these market conditions.  First, is the overall economy.  Although there are positive signs, customers are still using a very conservative approach to capital appropriation and spending as cash management still is top of mind.  Second, we feel that there has been a lull in commercial LED bulb purchases in anticipation of utility incentives for 2011 tied to Energy Star qualified products," continued Bauer.  "As one of the first companies to receive Energy Star approval for some of our products, we are seeing utility companies beginning to prepare programs for the coming year.  We are actively positioning Array as a performance leader to be incorporated into these programs."

"In response to these conditions, we have developed specific plans to drive revenue.  We continue to focus on the commercial market opportunities where quality and performance are critical and we continue to emphasize the superior performance and unique features of our products which are repeatedly validated by 3rd parties."

"On the Lumificient side of the business, the team there has made significant progress on the national account front and we expect that momentum to build in the fourth quarter and into 2011," concluded Mr. Bauer.    

Year to Date 2010 Performance

Revenue

Total revenue from continuing operations for the nine months ended September 30, 2010 was approximately $4,000,000 as compared to approximately $3,502,000 for the nine months ended September 30, 2009, an increase of approximately $498,000, or 14%.  

Sales of our Array LED lamps were approximately $1,258,000 in the first nine months of 2010 compared to approximately $713,000 in the same period of 2009.  Sales of Lumificient products in the first nine months of 2010 and 2009 were approximately $2,742,000 and $2,789,000, respectively.  

Gross Profit

Gross profit for the nine months ended September 30, 2010 was approximately $1,076,000, or 27% of revenue, as compared to approximately $1,203,000, or 34% of revenue, for the comparable period of 2009.  Direct gross margin for the first nine months of 2010, which is revenue less material cost, decreased to approximately 46% as compared to 49% in the same period of 2009.  The decline in direct gross margins reflects more aggressive pricing of both Array and Lumificient products, particularly for the 230v Array product for use in certain international markets.

Production costs increased to approximately $762,000, or 19% of revenue, in the first nine months of 2010 as compared to approximately $522,000, or 15% of revenue, in the first nine months of 2009.  The increase of approximately $240,000 in production costs includes an increase of approximately $180,000 in inventory related expenses for inventory reserves, scrap and the release of capitalized labor, overhead and freight costs.  In addition, we incurred an increase of approximately $33,000 in depreciation expense primarily related to tooling for our Array lighting products and an increase of approximately $14,000 relating to set-up and tooling expenses and outside processing in the first nine months of 2010 compared to the same period in 2009.

Operating Expenses  

Selling, general and administrative (SG&A) expenses were approximately $4,661,000 for the nine months ended September 30, 2010 as compared to approximately $4,345,000 for the same period in 2009, an increase of approximately $316,000, or 7%. This increase is primarily the result of higher expense dedicated to the sales of our Array and Lumificient product offerings and increased commission expense due to higher Array sales.

Research and development costs were approximately $735,000 during the nine months ended September 30, 2010 as compared to approximately $346,000 during the same period in 2009.  This increase of approximately $389,000 was primarily due to higher employee costs and project-related costs in the first nine months of 2010, as compared to the same period of 2009, as we increased our investment in resources to expand the Array product offering.

Net Loss

Net loss for the nine months ended September 30, 2010 and 2009 was approximately $6,743,000 and $4,447,000, respectively, including a loss from discontinued operations related to the Legacy Commercial and Pool Businesses of approximately $1,770,000 and $720,000 for each period ended, respectively.  After including the effects of the dividends related to the preferred stock and warrants issued in November 2008, net loss attributable to common stockholders was approximately $6,743,000 and $5,420,000 for the nine months ended September 30, 2010 and 2009, respectively.  Basic and diluted loss per common share attributable to common stockholders was $0.42 and $0.65 for the nine months ended September 30, 2010 and 2009, respectively.  Basic and diluted loss per common share from continuing operations was $0.31 and $0.44 for the nine months ended September 30, 2010 and 2009, respectively.  

Cash

As of September 30, 2010, the Company had cash and cash equivalents of $6,147,000 and long term debt of $2,211,000, net of unamortized debt discounts of approximately $243,000.  The long term debt bears interest at 1% per annum.  

Under the terms of the Company's sale of the Legacy Commercial and Pool Lighting Businesses, Nexxus received $1.0 million in cash at the closing on October 28.  In addition, the purchaser agreed to pay approximately $1.3 million over the following seven months, in addition to the assumption of certain liabilities.

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.

SOURCE Nexxus Lighting, Inc.

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