Capstone Companies' (CAPC) CEO Stewart Wallach on Q3 2016 Results - Earnings Call Transcript

| About: Capstone Companies, (CAPC)

Capstone Companies, Inc. (OTCQB:CAPC) Q3 2016 Earnings Conference Call November 15, 2016 10:30 AM ET

Executives

Garett Gough - IR, Kei Advisors LLC

Stewart Wallach - President and CEO

Gerry McClinton - CFO and COO

Aimee Gaudet - Corporate Secretary

Analysts

Tomer Cohen - Five Roads Capital

Michael Levine - Private Investor

Operator

Greetings and welcome to the Capstone Companies’ Third Quarter 2016 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Garett Gough, Investor Relations for Capstone. Please go ahead.

Garett Gough

Thank you, Michelle and good morning everyone. We appreciate your time and interest in Capstone Companies. On the call today is Stewart Wallach, Capstone’s President and Chief Executive Officer and Gerry McClinton, Chief Financial Officer and Chief Operating Officer. They will be discussing the third quarter results as well as giving you an update on their strategy and outlook. If you do not have the release that was distributed yesterday afternoon, it’s available on the company’s website at www.capstonecompaniesinc.com.

As you are aware, we may make forward-looking statements during today’s teleconference. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from what we say today. These factors are outlined in our earnings release as well as in the documents filed by the company with the SEC, which can be found at capstonecompaniesinc.com or at sec.gov.

With that, I will now turn the call over to you, Stewart.

Stewart Wallach

Thank you, Garett, and good morning to everyone. I appreciate your time with us today. Well, we are quite pleased to report that we continued to exceed our plan in the third quarter delivering a record of nearly $12 million in sales. In fact, we believe we have reached a significant inflection point for Capstone. We expect revenue to continue to grow and believe that our strong operating leverage will drive earnings growth as well. Our strategy for growth is straightforward.

First, we will continue to identify niche opportunities in the HOME LED lighting space that are not yet recognized or underexploited by the competition. Then, we must have speed to market advantage. This requires having a pipeline of innovative new LED lighting products for the home that are differentiated from the competition on capabilities, functionality, durability, reliability as well as price. Our current product lineup includes battery-operated accent lighting, induction power failure lighting, battery powered night lighting, power failure light bulbs, our unique hardwired bath vanity fixtures and outdoor lighting fixtures, as well as various motion-activated lighting products.

Second, we are and will continue to be a low cost operator with very well established operations in China. This enables us to develop products that are efficient in their specifications and design, bill of materials and labor input, all of which lends to speed to market. And finally, we must have strong channels to market. Our established Capstone lighting brand as well as our Hoover HOME LED lighting brand provides us differentiation amongst channels and as such minimizes barriers to entry. Our strong performance based relationships with major retailers with whom we have developed a reputation of innovator and source reliability are key to our success of reaching and expanding the market. We think our financial performance validates the success of our strategy and expect that we will continue to execute on it as well.

Let me turn it to Gerry now to cover the financials. Gerry?

Gerry McClinton

Thank you, Stewart, and good morning everyone. I would like to start by reminding everyone that on July 25, 2016 we effected a 1-for-15 reverse split. And as a result, the historical financial results that were included in today’s release have been adjusted where appropriate to reflect the post reverse split share count. Net revenue in the third quarter of 2016 was approximately $11,690,000 which is up $3,940,000 or 51% from our third quarter 2015 revenue of approximately $7,750,000. This marks the second consecutive quarter that we have reported record-breaking revenue. And worthy of note, the Q3 2015 revenue was a record when we reported last year.

Third quarter revenue growth was driven by strong results in our accent lighting category under both the Capstone Lighting and Hoover HOME LED brands and in the wireless remote control category. International sales were approximately $297,000 in the third quarter and approximately $1,840,000 in the nine months of 2016 which is up $1,050,000 from $789,000 of sales in the nine months of 2015. Gross profit of approximately $2,850,000 in the third quarter of 2016 increased $871,000 or 44% from approximately $1,980,000 in the third quarter of 2015.

Gross margin as a percent of sales was 24.4% compared with 25.6% in the third quarter 2015. This significant increase in gross profit resulted from strong revenue growth. Lower gross margin was due to a significantly higher level of promotional allowances in the quarter which reduced gross margin by approximately 5 points. We expect this to be a more typical event as you work with channel partners to drive sales. While the margin percentage may not expand significantly, the conversion rate of revenue to net income will multiply given our lean operating structure and business model.

Operating expenses in the third quarter of approximately $1,250,000 increased by $626,000. Most of the increase was in sales and marketing expense which increased by approximately $471,000 in the quarter. Almost half of that expense was for royalty payments to meet our obligations with the North American trademark license agreement for Hoover. The increased sales commissions related to higher volume and promotional marketing investments also contributed to higher sales and marketing expense. As a percent of revenue, sales and marketing expense was 4% of sales. We also invested approximately $127,000 towards new product development in the quarter compared with $75,000 in the prior year period.

Now, in order for Capstone to grow in the future, we need to be continuously developing new products. As a result, the timing of product development spending is determined by the product development cycles as opposed to quarter-to-quarter revenue fluctuations. Higher other general and admin expenses was a result of increased bank processing fees associated with the record revenue in the quarter. Growth in revenue led to an 18% increase in operating income to approximately $1.6 million operating margin was 13.7%, which was down from the particularly high operating margin of 17.5% in the prior year period.

As I mentioned, regarding operating expenses, royalty fees will become a normal cost item as we continue to succeed with the Hoover HOME LED lighting brand. Net income and the earnings per share were almost 20% higher, net income of approximately $1,290,000 improved by $243,000. Diluted earnings per share was $0.31, up $0.005. For the nine months 2016 net revenue grew $13,920,000 or nearly 160% to $22,700,000. This demonstrates strong consumer customer acceptance of our products, success with our channel partner strategy and demonstrates our ability to rapidly scale the business.

Gross profit for the nine month period was approximately $5,590,000, an increase of $3,250,000 or 139% from $2,340,000 in the same period 2015. Gross profit as a percent of sales was 24.7% compared with 26.7% in the same period 2015. Our promotional allowances have the impact of reducing the gross margins, but clearly, build sales volume. In the end, we generate more net income through higher sales.

Operating income of approximately $2,720,000 was up $2.37 million, over 6x greater than the prior year period. Operating margin for the nine months was 12%. Net income for the 2016 year-to-date period was approximately $2.47 million. Earnings per share – diluted share were – was $0.05 per share, more than 5x greater than the first nine months of 2015.

Now, let’s turn to cash flow and our balance sheet. During the third quarter, cash used in operating activities was approximately $2.12. Now, this was primarily a result of the $4.34 million increase in accounts receivable during the quarter that was associated with a strong third quarter shipment. This was partially offset by $792,000 increase in accounts payable and our significantly improved net income. Capital expenditures during the period was $10,000 compared with $21,000 in the prior year period. We were also able curtail the level of borrowing required to fund increasing working capital requirements associated with our growth by negotiating more favorable payment terms with our overseas suppliers. This also enables us to repay more of our insider loans they provided to the company in 2010 and 2013.

Now, while we think having insiders provide capital support our growth is an extremely strong testament to the opportunities in front of us, but as a public company we are moving the insider transactions mix for easier and cleaner reporting. During the quarter we repaid $714,000 of old related party debt, bringing total related party down to $1.3 million as of September 30, 2016. Total debt as of September 30, 2016, was $7.9 million, up from $6 million on June 30, 2016. Now, we utilized our credit line to fund a significant level of third quarter shipment. Borrowing on the line was $6.6 million at the end of September, up from $4 million at June 30, 2016. We believe the very strong financial performance we have delivered to-date clearly demonstrates how our growth strategy is rapidly transforming Capstone Companies.

This concludes my financial summary for the third quarter 2016. So let’s turn it back to you Stewart.

Stewart Wallach

Thank you, Gerry. Let me provide some key highlights that have driven our strong performance. As we continued to build momentum within our existing channels, the frequency of product placements has increased resulting in the revenue expansion. These additional product placements are a result of continued strong sell-through of innovative unique products developed and owned by Capstone. We are maintaining a significant product portfolio which means we are presenting products continually for future retail placement. It is unreasonable to think that all of our products will be purchased and supported equally. However, as we have expanded our portfolio, retailers have more opportunities to support our programs as evidenced in this reporting.

I would also like to highlight our progress in the international markets. Over the course of 2016, we increased our international business by an estimated $1 million. This growth results from strong sell-through within those markets which increases their respective interest in other Capstone products as well. And I see this trend continuing into 2017 and ’18. As you should know our reverse split and up-listing to the OTCQB were completed in the third quarter. We are working with OTC to maximize the exposure that market can bring us. These efforts combined with our growth and strong operating performance are being received will by investors. Since the reverse split, our stock has improved 43% and average daily trading volume is also up 62% versus the average volume for 1 year leading up to the split.

In October, we participated in our first investment conference the Money Show in Dallas. This is an investor fair basically focused on the retail investor audience. We had solid foot traffic at our booth and a good showing at our presentation. We have seen improving volume and price appreciation since the show. We have several additional events planned in early 2017 that we expect will also help to attract new investors. As they solidify, we will post our planned events on our website. Our website by the way is another development we have underway owned for helping consumers to learn our brand as well to provide a strong portal for investors to learn about Capstone Companies. While we didn’t buyback any shares in the quarter, we did institute a stock buyback program that will authorizes us to buy up to $750,000 of shares. It’s important to point out that we plan to use this opportunistically as our priority for capital remains investing in growth.

If I summarize the financials excuse me, if I summarize the financials which Gerry reviewed, we have had a great quarter. We have had a great year and we have generated momentum that we expect to continue through 2017 and into 2018 based on the order pipeline we are currently building. And well beyond that our vision is to become a much larger company as we advance our LED programs, innovate and create new products and continue to build upon our brands while expanding our market channel partners. Equally as important, our business model delivered strong earnings power and generates cash.

Once again, to our long time shareholders, I would like to personally thank you for your continued support. And to our new and potential shareholders I would like to welcome you to this exciting time in our company’s history.

With that operator, I would like to open this up for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]

Garett Gough

Thank you. This is Garett, I just would like to add that if you would like to ask the question via webcast, you can do that online, there is a question form there and we will be monitoring that as well, so you can ask live questions via the phone or the webcast. And while we wait for the queue to fill, we did receive some questions through e-mail in the week leading up to the call. So Aimee and Stewart will address those now.

Aimee Gaudet

Okay, fantastic. Thank you, Garett. This first question came in regarding international sales, maybe Stewart you can help us with it. Will the increase in international sales along with new product introductions mitigate the historical seasonal slowdown that we often have in Q1?

Stewart Wallach

The historical slowdown in Q1 is actually less an issue of seasonality than it is promotional scheduling in Q2. Keep in mind that we typically ship our product a full quarter before product placement dates. So if we have a strong promotional window in Q1, then those shipments would take place in effect in Q4. However that being said, an increase in international sales does significantly affect our business on an annual basis if not specific to Q1 as evidenced by this reporting.

Aimee Gaudet

Okay, great. Thank you. Next question, hypothetically, if you just repeat the substantial order for $10 million for new products, would the need to raise capital or factory availability be limiting factors to your growth?

Gerry McClinton

Let me answer that one. We would not need to raise capital to accommodate $10 million order or would I at all be concerned with the factory availability, it’s not an issue at all.

Aimee Gaudet

Okay. So we did receive numerous questions that came in regarding our technology and CPC bulb, I am thinking Stewart might be able to give us some answers. So I grouped these together. The first question, you mentioned that CPC license agreements may occur with different factories, does this refer to competitors in the LED bulb industry or using CPC technology in other applications?

Stewart Wallach

The CPC technology in other applications is our first priority. We are exploring those and have been exploring those and prototyping over the course of the last year. However, that would not preclude CPC technology license arrangements taking place with competition particularly in markets outside North America where our brand presence is not as prevalent.

Aimee Gaudet

Okay. And next question, does management expect competition products for the CPC bulbs in the market, is the CPC bulb a unique product in the market at this time?

Stewart Wallach

There are competitive emergency bulbs, not to call power failure, but emergency bulbs with battery backups. However, that does not mean that they have the same capabilities. Our bulbs are controlled at the switch. We can incorporate our bulb into an array of multiple bulbs on a single switch. The lumen strength which is compatible to today’s most popular bulbs and most importantly particularly over what we have accomplished the last year, the configuration and form of our bulb reflects that of a normal LED light bulb. Our early stage bulb looked different. We were dealing with heat dissipations and some other challenges that caused the bulb to be bulky for basically for all the wrong reasons. Today, the bulb looks very much like a standard LED bulb. And most importantly, we have reengineered the bulb over the course of the year to be more competitive. The important aspect of this is that you are seeing some bulbs in a market very expensive, but if this is to become a mainstream product, the relationship of price and perception of value relative to a standard bulb had to be minimized. Today, one year ago, let’s just say, one year ago an LED light bulb 60 watt was selling for $9.99. Today, that bulb is selling for $2.50, $3. A year ago, you saw light bulbs, emergency light bulbs that we are selling for $29, $39. Prices have come down now into the $20 range. You can see that at that point that was possibly a $10 difference between the standard bulb and a power failure bulb. We expect to be significantly under that price table and we will be demonstrating this in the early part of 2017.

Aimee Gaudet

Great. Hopefully that gives some of our shareholders some perspective. This question came in regarding the patent; can you provide us with an update on the CPC patent license development?

Stewart Wallach

The patents were issued and published in August 2016. In addition, we filed international patents in China and Germany as there has been interest in those markets. The efforts are being spearheaded currently by Capstone HK office which is headed by President, Larry Sloven.

Aimee Gaudet

Great. Okay, sure. So, it seems like Q3 had a significant majority of sales were driven by the puck lights and the surface-mounted accent light is that correct? Further, can you maintain the sales velocity in those product lines through 2017?

Stewart Wallach

Through Q3, we have had very strong sell-through of our surface-mounted accent lights both in the Capstone lighting and Hoover HOME LED brands. That strong sell-through has precipitated additional product placements, which contributes to the growth. Relative to sales velocity, we are currently finalizing and presenting next generation products that offer users additional features and improved performance which are planned to sustain this velocity. So, the short answer would be yes, we believe we can maintain this sales velocity into 2017 and ‘18.

Aimee Gaudet

Okay, great. I know a lot of shareholders have been wondering why aren’t you buying any stock back, at what price will you be purchasing shares?

Gerry McClinton

Let me answer that one. Any stock purchases the company makes is required to be purchased each quarter. As you might imagine, we aren’t going to discuss our share repurchase strategy. The plan was put in place to be opportunistic and we can use available capital for the stock buyback, but we also must prioritize our uses for cash and we will continue invest in our growth as Stewart had mentioned earlier.

Aimee Gaudet

Okay, great. This question came in from one of our shareholder, [Dan] [ph], are you still selling the Eco-i-Lite type power failure lights, maybe Stewart can…?

Stewart Wallach

Yes, actually we are. In fact, we have a couple of new generations of the product, but we have also turned our focus to more expensive and feature-rich product offerings. This was part of our strategy, which discussed in 2015. A single Eco-i-Lite for instance could retail from $9.99 to $14.99, whereas a multi-pack of accent lights would retail for $19.99 and vanity lights could retail upwards of $75 to $100 each. So, you can see that our emphasis here again has been turned toward more expensive and feature-rich product offerings. This is a very effective way of growing our revenue and utilizing our resources and our leverage points overseas.

Aimee Gaudet

Okay, great. I know everyone is….

Garett Gough

And this is Garett, I just want to – I want to jump in quickly and just clarify, sorry, Gerry’s answer to the buyback question, any purchases are required to be reported on a quarterly basis at the end of the quarter. I just want to make sure that’s clear to everybody, [inaudible] purchase [after we report them] [ph] at the end of the quarter. Sorry about that.

Stewart Wallach

Thanks, Garett.

Aimee Gaudet

Thank you. So, this question is directed towards the bath vanity lights directly, why did we see the bath vanity lights advertised on Amazon, yet there was no promotion of any retail sales channel distribution or orders, Stewart?

Stewart Wallach

Our intentions were to place our bath vanity lights on Amazon to see how an expensive feature-rich bath vanity light would resonate with online consumers. Without being specific, we also have vanity lights being tested in retail markets throughout the U.S. at this time. The vanity light business is a very mature category with well ceded supply base. Our entry into this market will require patience and persistence for the retailer to fully understand and accept our innovative concepts. Of course, this is no different than the early days of Capstone when we entered into power failure lighting.

Aimee Gaudet

Okay, great. Gerry, maybe you can answer this question, will the growth in sales and new product mix affect margins going forward?

Gerry McClinton

As mentioned in our earlier webcast, we plan to continue to invest in retail promotional programming, which drives our sales. Certainly, the product mix in any one period will influence quarterly margins, particularly as we introduced new innovative products. However, the margins that we are currently reporting would be commensurate with future margins with room to expand.

Aimee Gaudet

Yes, thank you. There is actually another question regarding the CPC, this question came in from one of our long-time shareholders? As management has often told, they can’t provide information regarding the actual placements of our products like the CPC bulb because of the competition. But at this moment, there are competitive power failure light bulbs on the shop. So, why don’t the investors get clear information about our product and where the products are available and when they are available? Stewart?

Stewart Wallach

Well, I am sorry that you don’t feel you get clear information about our products or placement, however. Our strategy over the past couple of years to remain under the radar has proven to be very effective. Today, it’s lesser of an issue of competition than it was in the past, but more because our vendor agreements do not permit us to discuss product placement in advance of products being available at retail. Once of course they are available at retail, we have no problem announcing that and I look into sharing that information in an effective way. But keep in mind that our retail partners recognize our commitment to the respected confidentiality and in many cases we are selling retailers to compete head on. So, it’s a slippery slope if you will by sharing any information that could be perceived as a violation of that trust.

Aimee Gaudet

Okay. Let’s think we just have a few more questions that came in via e-mail, can management imagine cooperate with bigger players in the lighting industry concerning the CPC patent?

Stewart Wallach

I can imagine it and it is a possibility.

Aimee Gaudet

And then regarding the upcoming event, what investor events are you planning for 2017?

Gerry McClinton

Well, let me answer that. We will be participating in the money show again, this time, it’s in Orlando. They have been holding this event for well over 20 years there and have generated quite a following. The others are still being decided upon, but as I mentioned, we will post them to our website as we lock them down.

Aimee Gaudet

Okay. Great, Gerry. Thanks. Last question, can you provide any information as to which product we are part of the 2015 holiday sales promotions mentioned in the Q2 call?

Stewart Wallach

Yes, those were in fact the accent light category.

Aimee Gaudet

Okay, great. We believe that concludes our…

Stewart Wallach

That’s all the e-mails

Aimee Gaudet

Yes.

Stewart Wallach

Okay.

Aimee Gaudet

Okay, that concludes our questions.

Garett Gough

Okay. Operator, we have – we will take the questions that came in on the line and then when we are done with those, I do have one that came through the webcast also, but we will do the telephone ones first.

Operator

Okay. Our first question comes from the line of Tomer Cohen with Five Roads Capital. Please proceed with your question.

Tomer Cohen

Hi guys. Congrats on a very good quarter. I bet a lot of people and we are happy to see these results.

Stewart Wallach

Thank you, Tomer.

Gerry McClinton

Thanks Tomer.

Tomer Cohen

My first question was on the wireless remote control products mentioned in the press release, can you just give us a little more color on what that product is and how big it is in your portfolio?

Stewart Wallach

Wireless, mentioned in the press release, I am not familiar with the exact which release the most recent release or…?

Tomer Cohen

Yes. Within the Q3 release?

Stewart Wallach

We have various wireless remote, so is it in this…

Tomer Cohen

Yes. It will be in the time Q2…

Gerry McClinton

Yes. The category of wireless remote control products is what Tomer…

Stewart Wallach

Okay. There were actually – there is a series of products one of which is currently in the market and two are also being updated to accommodating WiFi control as well. The product, if the question is being what we call the control outlet. And this is a unit that goes into your wall socket and allows us to control that whatever is plugged into that Tomer, from a remote location with a remote control. It takes up three controls on each remote and it’s been a very effective product, particularly in the winter season, because it seems to be a very popular product to be used with things like Christmas lights and Christmas ornaments, etcetera.

Tomer Cohen

Okay.

Stewart Wallach

The others falling into that category, as I have mentioned are being updated with WiFi control capabilities. The next generation, of course and a commonly used phrase is home automation. This is a very challenging market. We will be seeing products entering the market in a sporadic fashion because the category is not ubiquitous and that there is not one control methodology. These products have evolved with proprietary programming and individuals are reluctant to continue to expand that because when they get home they will possibly my light that I buy with Capstone will interface with my echo system which will interface with my HA Apple system when in fact they do not. So the market is evolving. There is access now to those platforms and what I can share with you is that we are looking to participate in that market not as a leader in home automation, but as a leader in products that can be run through home automation systems. I hope that’s clear.

Tomer Cohen

Yes, that makes a lot of sense. And could you say anything about roughly what portion of your portfolio is the remote control products…

Stewart Wallach

It’s a very small portion right now.

Tomer Cohen

Okay, that’s helpful. And then on the accent light, I am curious how you think about market saturation, I am just wondering given how wild they have sold, what makes you feel good that the next generation will be entering the market it isn’t already saturated?

Stewart Wallach

If your question is does that keep me up at night, yes it does. Let me say this, when we launched that product, it was so unique and that nobody had ever considered creating such a small unit, a down size unit that look like very upscale halogen type lighting, that was the approach, that was our market entry approach. To say that the sell-through wasn’t surprising would be misleading because it was, both with us and our retail partners. It’s amazing how many of these units we actually sell. That being the case, I can tell you that I am working on second and third generation products right now. In fact we will be making presentations in the next 60 days on products that would fall into the same category, but are significantly different. Different feature, different capabilities, higher performance standards. We have invested a lot of time, effort and money into extending battery life on a product which is the single biggest challenge as it relates to any battery operated product. So I feel very confident that we are going to remain ahead of the curve and provide products that would incentivize people to re-enter the market and expand their use of the existing products.

Tomer Cohen

Okay, that’s helpful. And then I think Q3 results have mentioned promotions for new products and I am curious if you could give any color on which product has [indiscernible]?

Stewart Wallach

At this point I can’t comment on that. I can say that our promotional schedules are locked in on a much further out timeline if that’s the right way to say it. I can tell you we are working a year out right now on promotional scheduling. And that’s a by-product of two things. One is that we are being included into reviews and presentations with the understanding that we deliver very high volume activity during key promotional periods and also our business model necessitates that retailers work with us on a much longer plan. This has been extremely helpful to us and that while we are continuing to build our portfolio, we also have several products in the queue under review. So the goal is always to have potentially a year’s worth of business being built with actual reviews and a year’s worth of products being developed at the same time. So we are constantly presenting products to our retail partners.

Tomer Cohen

Thanks. And then I guess just last question, can you help me understand when you say promotional activity, I mean do you mean discounts that the retailer is offering to the ultimate buyer, how does that affect your…?

Stewart Wallach

Keep in mind, when you are talking promotional activity that is guaranteed, what I mean by that is an instant rebate for instance on a product, that’s what’s reflected in our cost of goods which is why our gross margin has been impacted. Then there were other promotional activity that could fall below the line that would be possibly an add, something along those lines. But the promotions that we found a bit more successful and that we are utilizing is basically a off-priced reduction in the form of instant rebate that translates immediately to value to the consumer. They don’t have to really do anything other than decide to make the purchase. And it’s proved very effectively and fortunately because of our efforts overseas and our team being able to source so competitively and to keep our factories engaged in our business with us. We have been able to underwrite this. This is what Gerry has referenced earlier by saying that this is more indicative of what will occur in the future and today’s gross margins are more indicative of a long-term picture. The sales that you are seeing, the revenue being driven is substantial and the increments will contribute significantly to our bottom line.

Tomer Cohen

Okay. Well, thanks again for a great quarter. And hopefully this great momentum continues.

Stewart Wallach

Thanks for your participation.

Operator

Thank you. Our next question comes from Michael Levine. Please proceed with your question.

Michael Levine

Good morning everyone.

Stewart Wallach

Good morning.

Michael Levine

My question is can you comment on Q4 order backlog and will the Q4 eventually show more of a product mix, now let’s say Q2 and Q3?

Stewart Wallach

Well, can I comment right now on the order backlog, its – believe or not it’s still in development. There are some adjustments relative to shipping windows which is what drives and I have shared this many times when you would look at this company on a quarter-to-quarter basis, there really isn’t an accurate assessment a trailing 12 is more accurate assessment because retailers may want to boost something forward etcetera. I can tell you this much that based upon the guidance we have provided you where we are looking at a $30 million year end that you could see that our Q4 is very close to our last year’s sales activity and over and of course of the best selling years we have added I think three top years were right in the mix with 5% to 6%. So it’s a very strong quarter, but I can’t tell you that some of that activity may end up moving into Q1 if for no other reason logistics issues. So we are waiting for our container confirmations which right now is one of the single greatest challenge is logistically is we have to book our containers and get confirmation of those containers until we know exactly when those are going to be leaving overseas. And so far as product mix, you will see more and more differentiation quarter-to-quarter as we get more placements. Right now, let me say in 2015, I think we had one to two products running at this course of time. Today, I can tell you we have four to five products that are placed committed to and will be available at retail between Q1 and Q2. And it’s a significant increase over last year’s availability.

Michael Levine

If I can just follow-up on that the power control bulb would they be available let’s say for retail some time in 2017 is that a fair assessment?

Stewart Wallach

It’s a fair assessment and we have backed are comfortable that they will be available in certain markets in Q2 of 2017. Let me comment on that because let me just expand upon that just for your ratification. We did pull back on the product when we saw retails plummeting on every day LED light bulbs. I think it was a smart move on our part because to have put the product out at $20 versus a light bulb at $2.5 to $3 there would have been significant question at the point of sale and it would no longer become an impulse it would have to become a planned purchase. We went back to work, Larry Sloven and his team overseas worked diligently on this over the course of the year. And I had said two objectives for them. One, make it look like a light bulb. It didn’t look like a light bulb. Many of the light bulbs out there the competitive emergency bulbs or battery backup don’t look like light bulbs. And number two, get the price down and utilize all the technology, all the capabilities and all the sourcing possible to bring us closer to what is now mainstream everyday LED pricing. So, our target and I guess I can say our target at that point in development was to be in the $9.99 market with the power failure bulb whereas today they are anywhere from $20 to $30.

Michael Levine

Okay. And then finally do you maintain a discipline to stick with your business model?

Stewart Wallach

I am sorry I didn’t hear that.

Michael Levine

Yes. How do stay disciplined to stick with your business model?

Stewart Wallach

30 years of practice. We – frankly I mean that sincerely we have always operated our businesses in this format. I have never been a big proponent of heavy inventory intense companies. The markets are too dynamic and obsolesce and poor selling product are significant distractions but also could cost the company a lot of money. If you will remember and I will go back when we first received the license on Hoover for North America, we had two of our worst quarters in our history which was Q1 and Q2 at that time. And the reason that those quarters were so low, I actually halted the marketing of Capstone products because we knew that if we flooded the market or continued to supply Capstone products and then there was a preference for an alternate brand. The only way the alternate brand was getting on the shelf would be if we would buyback that inventory. That is a common occurrence at retail. It is not a common occurrence with Capstone. We sell everything, of course FOB China. We work on very long-term. We do not support backup inventories in some cases minimally on a very high volume item where our retail partner A want the flexibility to replenish based on the rate of sale in a particular territory versus another one. We don’t have any problem bringing in one or two containers and holding it for them, but those goods as well are pretty sold. So our business model works and it throws off a lot of cash. It enables us to be very competitive, because our investment in overheads is minimal for our growth usually service personnel. Top management is not required to be expanded, which is the most significant cost of any business. So, our hiring is driven by revenue and need and it’s just been the way we have operated as long as I can recall and there is no reason for us to change. We are comfortable with the model. If I would point out, if we would have been operating differently and have the transition to this model, it would be a very painful process and I don’t think typical companies that are comfortable in daily replenishment and warehousing, I don’t think those companies are disciplined to operate the way we do.

Michael Levine

Okay, thank you.

Stewart Wallach

You bet.

Operator

Thank you. [Operator Instructions]

Garett Gough

While we see if there are any other questions from the teleconference, we did get one question from the webcast is well, I will read the question. I think it’s a bit that I could answer, but I will also ask Stewart, Gerry, and Aimee an opportunity to respond as well. The question is, are we looking to get research covered from a small broker soon? I will just start out by saying it’s not really appropriate for us to comment on our expectation of any kind of a research – equity research coverage upcoming in the future. However, we do realize that there is lot of value in becoming a covered company. There are some challenges that we would have to get past given our current stock profile. However, lot of the actions we have been doing, including the up-list, the reverse split, obviously Stewart and Gerry and Aimee delivering very well on the fundamentals and the business itself, but we definitely recognized the value of research coverage and we would make it, it is part of our strategy to make that more of a likelihood as much as we can within our confines. And Stewart and Gerry, if you would like to add anything, feel free?

Stewart Wallach

No, I think you covered that. I mean, it’s – I think listen as I shared with our long-time shareholders last year, this is not an overnight sensation, this is a company – it’s a real company, real people, real products dealing with some of the greatest retailers in the world today. And our plan always was to grow in a methodical manner in a measured growth that was sustainable. And each step we take strategically leads to another which is what our intent. And we are doing the same thing with the stock. As you know, I have never been a proponent of stock promotion per se just putting up fluff PR. We are a substitute company. We take pride in what we do. And we are going to approach building stock value in the same manner. We are exploring all the tools available to us. And I think even this show we call it a toe in the water with the money show has already proven to me that I personally need to spend more time on that endeavor keeping in mind that my first and primary focus is to – as earlier I believe Michael Levine was pointed out, we are disciplined to operate this model in a certain way, I play a very active role in the sales and marketing side of the company. So, I have to split my intelligently, but I can’t say as we are developing longer range plans and building our pipeline further out, this is also part of the plan of freeing me up to do more in the investment community. So, we are up to the task and we are exploring every option available to us in getting guidance in those areas from our board as well.

Operator

Thank you. There are no further questions at this time. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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