Lime Energy's (LIME) CEO Adam Procell on Q2 2016 Results - Earnings Call Transcript

| About: lime energy (LIME)

Lime Energy Co. (NASDAQ:LIME)

Q2 2016 Results Conference Call

August 17, 2016 16:30 ET

Executives

Glen Akselrod - IR

Adam Procell - President & CEO

Bruce Torkelson - CFO

Analysts

Todd Felte - Source Capital Group

Operator

Good day, ladies and gentlemen, and welcome to the Lime Energy Company Q2 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call maybe recorded.

I would now like to introduce your spokesperson for today's conference call, Glen Akselrod. Please go ahead.

Glen Akselrod

Thank you, David. Good afternoon and thank you everybody for taking the time to join Lime Energy's 2016 second quarter results conference call. With us today is Adam Procell, President and CEO; and Bruce Torkelson, Company CFO.

Before I hand the discussion over to Adam, I want to remind everyone that the call today will include some statements that will be considered forward-looking regarding the Company's strategy, operations, and financial performance. Those statements are subject to many uncertainties in the Company's operations and business environment, some of which we will talk about in the call today.

I also refer you to the complete forward-looking statement disclosure in the earnings release, which is incorporated by reference for the purposes of this call. And I'd like to refer you to the disclosures made in the Company's quarterly and annual filings with the SEC. Finally, before we get started, I want to mention this call is being broadcast live over the Internet and can be accessed on Lime Energy's website or on the Street Events Network operated by Thomson Reuters. There will be a transcript posted on the Lime Energy website once available after the call.

With that, I'll hand the discussion over to Adam.

Adam Procell

Thank you, Glen, and thank you everybody for getting on the call. As we mentioned on our last call, the first half of 2016 was going to be a rough patch for Lime. This proves to be true with our second quarter results. The Company's 2016 second quarter revenues were $21 million, down $10.9 million or 34% year-over-year from 2015 second quarter. The majority of the decrease related to the delay of two utility programs; the Los Angeles DWP Program and the New Jersey Direct Install Program.

In the second quarter, we did start sales backup at LADWP in mid-April; we started to see installations completed along, with recording of revenues during June. We expect the LADWP program to contribute meaningfully to our 2016 Q3 results. We are currently waiting to hear back on the New Jersey Direct Install program for which an RFP or request for proposal was sent out at the end of May. We anticipate hearing results of this public procurement process during August and if Lime Energy were successful in being rewarded the program, it would start back up in September with sales and it would contribute revenues and gross profits in the fourth quarter of 2016.

For the second quarter of 2016, our gross profit margins were 29.7%, down 430 basis points from the previous year 2015 second quarter, and down only 20 basis points sequential from the 2016 first quarter. The year-over-year gross profit margin declined as attributed to the mix of programs, shifting utility measures and various cost overruns on projects that exceeded our expectation.

Selling, general and administrative expenses for the 2016 second quarter were $10.2 million, an increase in $800,000 year-over-year. All this resulted in a net loss for the second quarter of $3.4 million which Bruce will cover in more detail. Lime Energy has weathered what we had projected would be a very difficult patch in the first half of 2016 and we have a clear line of sight into improving revenues and profitability during the second half of the year.

At this time I would like to welcome and introduce our new CFO, Bruce Torkelson, he will provide more details on the quarter.

Bruce Torkelson

Thanks, Adam. I'm glad to join the Lime Energy team. Continuing with our second quarter results other income for the second quarter of 2016 was $1.1 million for the three months ended June 30, 2016, compared to other expense of $1.7 million for the three months ended June 30, 2015. The $2.8 million improvement was primarily a result of a $4.4 million increase in the gain from the change in the derivative liability offset by $1 million charge from the SEC investigation and $600,000 increase in interest expense.

During the second quarter of 2016, the Company reached an agreement in principal with the SEC staff to resolve the investigation. At this time in accordance with accounting standards 450 regarding contingencies, the Company has recorded a $1 million charge to income being the amount it believes is now probable will be paid. The SEC staff has not yet presented the proposed settlement to the commission and no assurance can be given that the commission will approve the proposed settlement or the amount estimated will not change.

The Company ended the quarter with $2.7 million in cash, and $5.9 million of availability to borrow under our credit facility for a total liquidity of $8.6 million. This assumes a positive covenant resolution with our lender. Currently we are not in compliance with our EBITDA covenant with our credit facility and we are expecting to receive a waiver from the bank along with renegotiating the EBITDA covenant targets, the asset coverage and the borrowing base calculations are in compliance. In the second quarter of 2016 Heritage Bank approved an increase to the credit facility to $10 million from $6 million. At June 30, we have no principal borrowings under the credit facility although there are two letters of credit outstanding amounting to $1.4 million.

During the second quarter, the company generated $364,000 of cash. This was mostly a function of collecting our accounts receivable and increasing our accounts payable. We are closely monitoring our working capital position with the cash-on-hand improving operations with the restarting of delayed programs and our strong relationship with Heritage Bank; we feel that we have the ability to fund our operations.

The net loss for the quarter was $3.4 million, down from a net loss of $1 million in the second quarter of 2015. The increased loss for the quarter was attributed mostly to the decline in revenues from the delayed utility programs and a small increase in SG&A. With the operating losses in Q1 and Q2 our stockholders' equity feel below $2.5 million, triggering a delisting notice from NASDAQ. As previously reported Form 8-Ks, the Company currently does not need to continue listing requirements set forth in Listing Rule 5550(b)(1), which requires the companies listed on the NASDAQ Capital Market to maintain a minimum of $2.5 million in stockholders' equity for continued listing. On July 12, 2016, we received a letter from the NASDAQ Listing Qualification staff indicating that, unless the Company timely requests a hearing before the NASDAQ Listing Qualifications Panel, the Company's securities would be delisted from the NASDAQ Capital Market due to the Company's non-compliance with Rule 5550(b).

We have a hearing before the Panel scheduled on August 25, 2016, at which we will present a plan to evidence compliance with the Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2.5 million in stockholders' equity, or with Listing Rule 5550(b)(3), which requires net income from continuing operations of $500,000. The Company's common stock will continue to trade on the NASDAQ Capital Market under the symbol LIME pending the completion of the hearing process and expiration of any extension period granted by the Panel. A ruling is likely to be received seven days after the hearing.

There can be no assurance that we will be successful in receiving an extension from the Panel to regain compliance or maintaining its listing on the NASDAQ Capital Market, which could impair the liquidity and market price of the Company's common stock including limited availability of market quotations for its stock.

At this point, I will turn the call back over to Adam.

Adam Procell

Thank you, Bruce. So as I said earlier, Lime Energy is working towards returning to profitability.

In the second half of 2016, our top priorities are; number one, restarting of delayed programs, one restarted and one to go; winning of new programs and we are hard at work submitting proposals to win new programs today; reducing of SG&A costs, the decline in revenue during Q1 and Q2 of 2016 reiterates the need for us to have efficient operations. We are completing and evaluating further cost cutting initiatives over the next six months including reducing labor travel rents and other SG&A cost to bring SG&A more in line with our revenues, while trying not to jeopardize revenue growth. And four, eliminating outside distractions, we are looking forward to wrapping up the SEC investigation in the near future and to move on with the next chapter in Lime Energy's history, bring resolution or other alternatives to the NASDAQ delisting proceedings which proves; I had talked about earlier.

Lime Energy's innovations in providing energy services to commercial customers while delivering real energy efficiency results for our utility clients have had a profound impact on the utility industry. The industry is undergoing a once in a lifetime shift which is creating opportunities for those companies which can cost effectively provide clean energy solutions which simultaneously benefit consumers, utilities, the grid and society as a whole. Throughout our participation in ground-breaking regulatory policy work, our contributions to critical federal energy legislation and through the work that our people do every day, Lime Energy is making a difference. As always, I would like to thank our Lime Energy employees, they have worked tirelessly over the last six years to turn our efficiency business into the Company that it is today.

With that, we will open it up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Todd Felte with Source Capital Group.

Todd Felte

Just following up earlier regarding the Bison Note and its most recent amendments, you had mentioned in the last call be it hope not to have to pay both tiers of the penalties by the third of fourth quarter. Are we still on schedule to achieve that?

Adam Procell

Most likely with the loss in the second quarter, we most likely will be paying those penalties in the third and fourth quarter. So we look out past that hopefully we can get the EBITDA, coverage up and avoid those going into 2017.

Todd Felte

Okay. Also in the past, I've been a shareholder for years with several clients, you'd given guidance a long time ago in the past and now that we've hopefully turned to the real [ph] corner and gotten past in speed bumps and delays, is there any kind of color or guidance of what we can expect over the next 12 months?

Adam Procell

Todd, we're not giving any guidance at this time. We do -- as I said, I would say on a pro forma basis in the second half, we anticipate getting back the business back up to the pace that we had seen last year and that's a run rate discussion for the second half of the year and that gives a little bit of color. We had said that -- we thought that's where we would be on the last call where we thought we would be for the second half, and we still that that's where we'll be for the second half and get the run rate of the business up to where it was last year.

Bruce Torkelson

And we're still pending hearing about the New Jersey program, so that's a big if still out there.

Todd Felte

And that's an 8-K worthy event if you get the renewal with the New Jersey program. You'll make a press release if that happens this month?

Adam Procell

Yes.

Todd Felte

Okay. Last question, I know the last two quarters have been challenging for the Company and they've been tough for our shareholders as well. We haven't had any open market buys by insiders in over two years; is there a chance we could see this happen? I know it would be a much needed boost of confidence. We're kind of a little in the dark here but we do have faith and I think the corner has been turned.

Adam Procell

Yes, it's really hard to predict what the major insiders will do at this time. So also just subject to different blackout periods and other stallers as you know, so it's -- really can't comment on that.

Todd Felte

Okay. And are you going to be coming more proactive in certain investor conferences or any IR events? I know it's just been -- it's been tough to get any updates or really speak to anyone from the Company, it doesn't seem like you've been doing many IR events or conferences.

Adam Procell

Yes, we're at the ROTH Conference earlier this year and we were at Callen's speaking on a panel. So it's -- I think it has much to do to be honest with you as try to limit distractions and stay pretty focused on improving the efficiency of the business. I understand that that's tough from the investor's perspective but your observation is correct, we've been very focused internally on the improvement of the business and I think that we would expect that to probably continue.

Todd Felte

All right. Well, thanks for the questions, I think you guys have turned the corner and I'm excited for the future. Thank you very much.

Adam Procell

Thanks, Todd.

Operator

[Operator Instructions] And I'm showing no further questions at this time.

Glen Akselrod

Okay. Adam, maybe some closing remarks?

Adam Procell

Sure. Again, I want to thank everybody for getting on the call and once again, as usual, thanks to the Lime Energy team for all of our employees and their hard work in getting us here. And as I said, we're very excited as we are heading to the second half and start to turn things around and believe that the future is bright as we've talked about on past calls. So thank you all for tuning in and we look forward to talking to you again in the future.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does concludes today's program, you may all disconnect. Everyone have a great day.

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