Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

PowerSecure International, Inc. (NYSE:POWR)

Q2 2008 Earnings Call Transcript

August 07, 2008 5:15 pm ET

Executives

Chris Hutter - CFO

Sidney Hinton - CEO

Analysts

Bob Evans - Craig-Hallum Capital

William Bremer - Maxim Group

Forest Timble - Flyline Partners

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 PowerSecure International Incorporated Earnings Conference Call. My name is [Chenalle] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).

Before we begin, I would now like to read the safe harbor. All forward-looking statements in this discussion are made under 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 future financial performance and outlook for the business.

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 could cause actual results to differ materially from those expressed, projected or implied in this discussion.

Important risks and uncertainties and other factors include but are not limited to those factors are identified in the company’s annual report on Form 10-K for 2007, and subsequent filings with the Securities and Exchange Commission including reports on Form 10-Q and 8-K.

Accordingly, there can be no assurance that the results expressed, projected or implied by any forward-looking statements will be achieved, and listeners are cautioned not to place undue reliance on any forward-looking statements. The company assumes no duty or obligation to update or revise any forward-looking statements contained in this discussion.

I would now like to turn the call over to your host for today’s conference, Mr. Chris Hutter, Chief Financial Officer. Please proceed.

Chris Hutter

Thanks [Chenille], and welcome everybody to the PowerSecure International, Inc. second quarter ‘08 earnings results conference call. Thank you for your time and interest in our company. With me today I have Sidney Hinton, our Chief Executive Officer.

Our agenda today will be that Sidney will provide an overview of our second quarter of 2008 results and also lead a strategic business discussion. I’ll then go into more detail on our second quarter financial results. We’ll then open up the phones to Q&A, and Sidney will wrap up with a few closing remarks.

And with that, I’ll turn it to Sidney.

Sidney Hinton

Good afternoon, everybody. We appreciate you all joined us. I do promise to speak slower this time. I got that feedback from some prior call, so you all can, I am here, touch me if I am not doing that.

We are excited about the call today. We could not be more pleased with the results that we have blessed and experienced in the second quarter. And before I go into those results, I want to take a moment and thank our people for their amazing efforts. They made these results possible.

I have said it before on these calls, but I’m going to emphasize it again. Our people are our major differentiator in the marketplace. They have an unmatched drive to deliver superior value to our customers, to be smarter, faster, and more dedicated than anybody else out there.

As investors, I know it can be difficult for you to evaluate the people in the companies you’re investing in. So, let me assure you that when you invested in PowerSecure, you got a company full with great people. And those great people are committed to serving the customers, and that service to the customer is ultimately what drives shareholder value.

Let’s move on and talk about the second quarter results. First, I want to talk about the revenues and just a record financial performance. Our revenue is $42 million which is a record. It’s a first time we have been at $40 million or above in our history, and we set a new quarterly revenue record for us. The cool thing to that is it just gives us new mark to achieve forward.

In terms of growth, our second quarter revenues were up a strong 87% versus last year’s second quarter. They were 14% over our previous record quarter, which was the fourth quarter of 2007, and they were 25% on a sequential basis over Q1.

Our profit’s results were also very positive. Gross profit was 32.8% for the quarter, up a strong 7.9 percentage points versus last year, and up 3 percentage point a sequential basis. Diluted EPS was $0.29 versus $0.02 last year. The last year number adjust out the charge we have taken, so it’s up 15 times. The cool thing and exciting thing when you look it; those numbers speak for themselves, and I trust that all of you who are along in the stock are very excited to see it.

Let me tell you something that’s not obvious when you look at those numbers, and that’s the quality of these results and the positive implications it has for – these results have for PowerSecure. We’ve talked about the record financial results. So, let me point out four more things. One is our record operational results. We completed, we placed a 140 generators during the second quarter, we tied-in 130 generators during the second quarter.

Let me point out to our backlog, the third item. Our backlog has grown. While we were at a record revenue level, we still were able to grow our backlog, which you can think about it, that’s a double dip. We grew the backlog 20%, while at the same time clipping a very high burn rate at the prior backlog from a revenue standpoint.

On a fourth point, we’ve been able to firm up our intermediate financial view, and Chris will talk about that with the backlog and the timing of it, but it is exciting to see a firming up. And fifth and the most important thing from a long-term perspective is that we have made solid progress on our long-term growth plan and the correspondent diversification efforts.

Let me talk about those diversification efforts and give you some feel for the across the board aspect. When we look at the business internationally, we have changed our discussions internally from talking about the multitude of business units that you’ve heard us mentioned on these calls to really bulling it down into four things. We have talked about Interactive Distributed Generation, that’s the core historical PowerSecure business, and the NexGear base which is our switchgear.

We talked about utility infrastructure, a bund of that we would have Utility Engineering, PowerServices, Utility Services, and federal. We have talked about energy conservation and efficiency. That’s our energy efficient – energy lights business and our EfficientLights business in our energy light business. And the fourth category is energy services. That’s our WaterSecure in Southern Flow investment. So again, the four categories; Interactive Distributed Generation, utility infrastructure, energy conservation and efficiency, and energy services.

So briefly, our gains across all those, in revenues year-over-year growth rates were 23% to 194% across those categories. It’s a huge validation that we are invested in the right opportunities at the right time with the right people. One of the things I would encourage those, I know some people have been a little nervous about our investments, this show up in our SG&A. One of the things, the key driver there is the efficiency of those investments.

I would like to point out that our sales we generate rich dollar of SG&A or roughly $4, and that’s for this year. And as you look back, and if you compare that which we have done, we won’t call the names, but if you’re going to compare with other people in our space, you would find that’s very, very efficient in a market-leading position.

Our successes in this quarter have been spread across all of these business units. One of the great things I would like to point out and echo from the press release is that our non-Publix revenue in the second quarter of $22.7 million exceeded our entire revenue including Publix from a year ago.

One of the exciting things about the growth we have been blessed to experience and the achievements when I refer to a 140 generators installed and 130 tied-in is the operational capabilities and organizational tough madness to execute sophisticated demanding contracts such our Publix against tough timelines and very stringent customer demands.

In fact for Publix alone when we finish this year, we will have over 700 systems installed all over 37 different utilities and each of those utilities will have a different interconnect standard that we will have tied into parallel with and design custom systems for. This operational excellence has provided the catalysts for our reputation to accelerate out in the market, particularly with retailers around the country.

Moving to our backlog. It grew $16 million during this quarter. We saw a nice pick up in the new deals awarded with announcements totaling $50 million of new revenue. This brought our total revenue backlog to a $112 million, which Chris will detail in a moment. But just to be clear this backlog includes our project-based deals as well as our revenue remaining to be recognized on recurring revenue deals, both the project that were in services prior to June 30th as well as those to be place in the service after June 30th.

The figure we quoted last quarter was $85 million, which would have been $96 million under our new methodology, and Chris will explain this $11 million that we have added for some prior shared savings type contracts.

Let me talk about some key qualitative accomplishments that we have been able to achieve in each of our strategic businesses, again the four business areas; Interactive Distributed Generation, utility infrastructure, energy efficiency and conservation, and energy services.

Interactive Distributed Generation; two major things I would like to highlight there. First is the unbelievable accomplishment that our team did on behalf of public that we worked incredibly hard than our folks did to get Publix ready for the hurricane season. From our standpoint, it would have been a better from a financial standpoint, and you’re asked from an investor standpoint to have levelized those revenues.

That is some we did not pursue to do, and we knew that the urgency and key driver for Publix is being ready for hurricane season, and we moved with the complete resources of the company and skills to do just that. And it’s amazing what our folks have accomplished.

Secondly, I would like to point out that we have received our first contract ever in our history for a base load operation. All of our other distributed generation systems are [picking]. This facility is being built up in the Midwest and we will be serving our plant that was wanted to come on line at a pace faster than the utility was able to get sufficient electrical service, because it’s a large electrical load out to them. So, this base load plant using a new engine technology for us will be going in at the end of this year that we are excited about.

Utility infrastructure; a major headline from this business unit is there are executions, and I’ll emphasize that. I hope that’s what you picked up on the first point of distributed generation, execution, execution, execution. Within our utility infrastructure business which is a newer, younger business for us, our execution just gets better and better.

We are enhancing our gross margins by the efficiencies. There are also ringing out of the projects and we are picking up the pace of the work that we are completing. And we appear to be ahead of the schedule that we thought was aggressive in the first place of self imposed schedule. This business unit, utility infrastructure has posted gains and revenues of a 194% versus last year. These gains will help us grow the business and grow the scale level.

Moving to the third business unit; energy efficiency and conservation, we will talk about EfficientLights. I can’t begin to express our excitement and enthusiasm about this business unit and the progress it’s made. We made the investment in it in the fourth quarter of last year. There were certain unknowns, and that’s really what presented the opportunity.

There was a market validation to be done on the technology, and there were even some few remaining technical issues to be solved. Well, the EfficientLights team has done all that and more. They have been out in the marketplace, getting validation continuously. We are excited about what they have experienced.

In the last quarter, we have added two major grocery change to our pilot programs. And this is where they had a competitive detailed process to evaluate, and they selected us to go forward in a pilot. We estimate that takes us from three to five major change. We estimate that the revenue opportunity we are working with those five change is approximately $150 million, again $150 million.

Key thing to note, we are not playing small ball. We are investing to unlock meaningful opportunities. We continue to receive very positive feedback on our efforts, including emerging as a leader in key areas; energy efficiency, product cost, and customer experience/lighting quality.

I was blessed to be out on the call during the second quarter with our team, and I got here it light from the lift, so one of these changes. He was speaking to his internal finance team, those were the three points he made to them that we evaluated this company is the leader when it comes to product quality, product cost and energy efficiency. That’s like the triple crown for the EfficientLights business.

I’m also pleased to report that one change thus far as we have converted our leadership position into a stream of ongoing revenues as they are now looking to retrofit their existing stores and use our lights in their new stores. We think this is an opportunity between $1 million and $1.5 million a year for the next three to four years. This feedback progress gives us great confidence that we have got the right formula. Those big three items I was talking about; the best quality light, the best energy efficiency, so the least cost to operate and then the best price point.

The issue right now, the obstacle from keeping us to get those big orders is simply capital constraints on the budget. We are optimistic that this is a timing issue and that we continue chip away in the opportunity and is a big plan we are chipping into.

Our energy light business also continues to see traction this quarter, having successful some of our utility partners, in fact, as we announced we named our partner with one of our utilities on a large school system. In addition to that we have tuned our energy light focused a little bit to take any overlap out between new and EfficientLights. Our EfficientLights just do it so well. And we want to concentrate all our marketing efforts in the retail side, only EfficientLights and concentrate our energy light on the commercial and industrial market outside of retail.

Moving to the fourth area; energy services. Energy services, again, includes our WaterSecure investment and Southern Flow. Let me take a minute talking about Southern Flow. When we made the decision, we went though the process of evaluating our strategic alternatives and made the decision to retain that business, we didn’t without thought. We proceed opportunities to grow that business and as due to the management team there at Southern Flow.

They have made investments and receiving the fruits of those investments. 23% gain in revenues at that level as well as a significant gain in their gross profit margin. They are doing an outstanding job of embracing the growth initiatives, structuring the growth initiatives, embracing them and then delivering on them. We are very excited about potential to grow that business and grow them significantly in the coming quarters and coming years.

The last piece of energy services are WaterSecure and this definitely out of tier. The management team of WaterSecure continuous to set the standard for service in their marketplace. They have done a great job of operating that business and combining with strong dynamics due to the price of oil and gas, they are delivering strong gains in that business.

Additionally, we did increase our investment by 4 percentage points. During the last quarter, we bought an additional 4% which for us increases our ownership position by 11%, 4 percentage points from prior 36%, now to just over 40%.

Lastly, let me turn to the overall business outlook. I hope that you have picked from the tone and just, I pray that the excitement about the opportunities we have in front of us comes across, as I speak. We continue to be bullish on the needs that we see development across the energy marketplace and our proven key thing, proven ability to deliver solutions who satisfy those needs.

We are encouraged to see our customer’s look into this, we are encouraged to see our utilities look into us. We are encouraged by the strong performance at this quarter in a growth of a backlog. Chris will provide some more commentary on that and how that will recognized over the next few quarters.

As we stated last quarter, we do remain prudently cautious about the near term given the reality of the challenging economic and capital environment. However, we are having confidence that we are in the right place at the right time, and we strongly believe in our prospects for sustained long-term profitable growth. Once again, credit for our wonderful performance and strong position in the marketplace goes to the amazing efforts of our people who bring us steadfast focus of delivering strong value to our customers, the major differentiator in asset of our company.

With that I’ll turn it over to Chris.

Chris Hutter

Thanks Sidney. As I usually do, I’ll start with revenue and I’ll work my way down to financial statement and P&L particular.

Just overall on the same page, all the numbers that I am going to discuss are after we adjust for the restructuring charge taken in the second quarter of last year, which was $14.1 million and I will point you to our non-GAAP financial measure disclosures in our press release for that reconciliation.

Revenue for the quarter was $42 million which was extremely strong and almost doubled the prior’s years revenue figure and something obviously we are very proud of. Publix revenues for the quarter were $19.2 million and non-Publix revenues were $22.7 million. Importantly as Sidney discussed, our non-profits revenue continue to show strong gains and accelerated positive result for the last several quarters. And I point everyone in the chart that we issued in our press release, which I really think speaks for itself in terms of a non-Publix revenue trend. Third quarter of ’07 was $13 million and we really shown some nice steady gains there.

The really nice thing I think about all of this is that it really demonstrates that our diversification strategy is working and also that is being driven by investments we have made across our strategic growth areas as Sidney discussed.

In terms of the individual business units, the growth rates were really impressive across the Board. Our interactive distributed generation business unit realized an 84% increase in revenue from distributed generation and next gear business units. Our Utility Infrastructure division realized 194% increase in revenue from utility services, several utility engineering and power service business units, our energy conservation and efficiency strategic area realized a 98%. These are all year-over-year increase in revenue from both our energy light and the efficient light business unit. And in terms of our energy service business unit, we realized a 23% increase in revenue from our Southern Flow business.

Additionally, although it is accounted for utilizing the equity method, our water secure business unit which falls under energy services now and holds our water processing business and conserves, natural gas producers in Colorado also showed very strong results for the quarter posting pre-tax income of 1.2 million, which was up 82.3% over the prior year period with very strong underlying revenue growth.

As Sidney mentioned, we recently increased our ownership in this business to 40% versus the 36%, what was recognized in the second quarter. So, on going forward, we will also enjoy and see an increase in our share of the income from this business due to that opportunistic investment.

We also continued our strong gains in gross profit, which increased by 83% with 7.9 percentage points due to the combination of our terrific revenue performance by volume driven gains as well as margin expansion as a result of positive mix of projects and continuing to leverage our operation cost due to large amount of work completed during the quarter.

I would like to quickly add that we are quite proud of the ability of our organization to post, what is a rare combination of delivering revenue increases simultaneously with margin expansion and I just want to hit on the point, we have done this three quarters in a row. I often get the question from new investors of what is the one thing that is un-appreciated by your store and I have to say that haven’t a disciplined required to deliver this kind of consistent result in a very difficult economic environment is hugely un-appreciated.

Our operating expense for the quarter were $10 million, up $3.9 million versus the prior year period and by the way this is of course excluding the restructuring charge in the prior year. The increase was driven by sales expense related to our strong revenue gains as well as investments in G&A infrastructure and business development to drive future growth and broaden our revenue base in this and future quarters.

As those who had been following us are aware, these investments and investments which Sidney talked about may primarily in late 2007 and the first quarter of 2008. This means that on a sequential basis, as you would expect our operating expenses were not up, of course its high as that, they were up only $900,000 and this was largely driven by increases in selling expense related to the sequential revenue gains.

Our second quarter G&A expense by the way, little bit like to know, these numbers were also includes our FAS 123R, stock-comp expense of $600,000 which is a $300,000 increase over the prior year period. Just get head on to expenses for a moment, the specific breakdown of our operating expenses is as follows.

Our SG&A expense was $2.6 million, a 60% of that is for people related cost. People, incentive comp benefits, travel, etcetera. The 12% of for rent facilities, and vehicle expense, 13% is for the stock-comp expense that I just talked about, 5% is for the investment we are making at our Southern Flow business to drive their future growth and 11% for the mix in that.

Our selling expense was up $1.2 million, 30% of this was due to increases in the number of sales executives, 50% of the increase as you would imagine was due to increases in commission driven by our strong quarterly performance, 17% of the increase was due to one isolated bad debt frankly and we call it bad debt. In fact the matter is it doesn’t have any due of credit the underlying credit of customers, frankly more sales allowance, and 3% with other general increases.

In terms of a overall cost structure, during the second quarter, sort of took a hard look, thought about that our business has changed but not over the last few quarters it was time to perform an organizational review, through which we identified areas where due to our changing business needs, we can save some expense dollars. We did implement those changes and expect that they will save approximately $1 million to $1.5 million annually and that will start on third quarter.

Moving down the P&L, sort of below the one, I guess the one major item to point out there is basically I already talked about and that is the income from Water Secure which continues to perform extremely well.

And finally, all these adds up to deliver diluted EPS of $0.29 which was up a very strong $0.27 over the last year’s $0.02 adjusting for restructuring charge or about 15 fold.

Let me take a second to just look forward and talk about the backlog for a moment. As I want to make sure that everyone has lots the clarity on that and the fact that one of the things we are very proud about quarter is, despite that large burn rate on the quarter, we were able to grow our backlog by $16 million or about 20%. First of all, 112 million is our total backlog.

A $49 million of this total backlog is for project bases work, meaning work where we are supplying capital to deliver. That expense goes to our cost of sales and revenue and properties recognized when the work is completed. We think that $49 million will largely be completed and recognized over the course of the next few quarters, three quarters.

Specifically, hold in on 2008 and the realization of these revenues, we think this revenue we will be recognized 40% in the third quarter of '08, 45% in the fourth quarter of '08. Most of you, after doing those calculations, will probably calculate that the third quarter figure of 40% of that $49 million is lower than the more even like spread that most of you had modeled. And this is a factor of two items. First, the incredible progress we have made on behalf of Publix in the second quarter, which means that there was Publix revenue which is recognized ahead of schedule and moves into the second quarter from the third quarter.

Second, the new sales announcements we made recently will impact our fourth quarter in a positive way, more than our third quarter and result in accelerating our revenues as we end the year. The great news here is that the new business we announced in 2Q really fund-up the back half of 2008 for overall, and we expect on a strong positive trajectories we enter 2009.

The other item I would quickly add here is that lower revenue number in 3Q, means that we do expect our selling/incentive comp expense to also be significant lower than our current run rate and this combined with our recently enacted cost reduction means that our overall operating expenses should turn down in 3Q and partially mitigate the movement of revenue out of 3Q and into 2Q and 4Q.

Turning to our long return backlog, and again I would also point you to the chart in the press release. It is really hard to bring complete priority to that and really laid it out to. So, we all had a great understanding of where we stand. $32 million of the total backlog is for longer term project base work.

Again, project base work that we originally anticipated, will be recognized fairly evenly from 2009 until 2011, that’s what we disclosed when we announced that business. However, there is some really good news here as well. I think we now expect the waiting in this business to be more like 60% in 2009, 20% in 2010 and 20% in 2012. And frankly there is even a chance that we could see some of this business fall in our the fourth quarter of this year.

The last slug of new business, the backlog that I want to talk about is $20 million of total backlog that we currently have on our tail for our recurring revenue projects and those are the one that are expected to be placed in service during the second half of 2008 we have already announced this they are in backlog and once they are placed in service, we will begin to recognize those revenues and the way we are going to do the backlog on these recurring revenue project is as we recognize those revenues, we will burn those revenues off of our backlog. And on those $20 million, we have contract terms that range from 7 to 10 years and what we put in a press release as we do expect that the primary recognition period for that would be the second half of 2008 through 2013.

So, just to summarize, again I pointed at press release, the $49 million plus the $32 million, and plus the $20 million is $101 million. That $101 million figure, is the figure that compares to the $85 million backlog we announced from last quarter and what is driving the $16 million increase in our backlog.

I want to add, in response to frankly some of the feedbacks, very good feedbacks that we received from shareholders suggesting that we were understating our backlog. This quarter we have included $11 million of recurring revenue contracts, that currently -- already placed in service prior to the end of second quarter. And those projects vary in length in terms of the recognition of that $11 million, but the primary recognition period is really between now and 2014. So, hopefully that brings a lot more priority to that backlog in a go forward scenario.

And now let me turn to the balance sheet and cash flow, the headline for which is, that we really continue to be in a very strong position. The major items to highlight are, that our cash balance at the end of the quarter was $10.3 million, that was down just over 20 million but primarily driven by $7.6 million of CapEx spend during the quarter, I am sorry down from $21 million at the end of the prior quarter driven primarily by $7.6 million of CapEx which of course increased our PPNE. You will see it -- land on the balance sheet there and that CapEx was broken down at $7 million roughly was for recurrent revenue generation equipment that was put in ground and $0.5 million was for investments in other operational equipment and infrastructure.

I would like to point out we finished quarter with no outstanding on a $25 million revolver. And I’d also like to add we are very much in the mode of keeping our powder dry and I got a lot of questions on that, but the headline there is, we see very significant potential to deliver recurring revenue projects that are highly accretive and we are keeping our powder dry for those opportunities in near-term. And we do look forward to utilizing the financial capacity we have to smartly grow this terrific business model and opportunity.

Net-net, we remain in a very strong financial position and are very pleased to be in a position to play off fence and act strategically and opportunistically with that capital base.

And with that I’ll turn it back to [Chenille] to open-up the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Bob Evans of Craig-Hallum Capital. Please proceed.

Bob Evans - Craig-Hallum Capital

Hello, good afternoon everyone.

Sidney Hinton

Hey, Bob.

Bob Evans - Craig-Hallum Capital

Can you comment as it relates to, how should we think about Q3 versus Q2, basically trying to get an understanding of revenue, if we look at it, I believe you said the 40% of the backlog near-term would hit Q3 and then we are going to have some recurring revenue hit those well if I give just to the averages on years. I am getting to about $6 million annually right now, is that the right run rate? Again, I am just trying to think about this mathematically from what you laid out it is, if I take that $6 million and divide it by 4, I mean that’s the right way to think about Power Secure revenue or what might have been missing.

Sidney Hinton

Yeah, let me help you a little bit. We do want to sort of draw line here about not giving specific guidance, but I think we can do without doing that. Near-term project base revenues is $49 million. What we think is the rate around 40% of that. Again, with all the appropriate caveats about projects moving on and all those things bring about 40% of the right target. But what we expect to recognize of that $49 million in Q3.

In terms of the recurring revenue, one of the way to think about it is, okay, a large portion of each quarter’s revenue is made up of revenues that went our backlog. On an average, you can in addition to what burns on our backlog, you can get anywhere from $6 million to $8 million on top of that through a combination of drop in business as well as business, for example, from our Southern Flow subsidiary. You should take that million into that -- 40% or $49 million and say okay, let me add a chunk to that because I know generally there is business on top of that.

The recurring revenue, I would say while that will continue to increase into the P&L from a revenue standpoint it is not going to be a huge contributor, the reason is because you really have to take, for example, that $20 million that we expect to begin to be recognized in the second half. That is going to recognized through 2013. So you have to take that $20 million and divide basically by seven years to understand that there is going to be maybe a $1 million recognized in the back half of 2008 on that recurring revenue pieces. It is less about -- building about adding recurring revenue to the back half, although there will be recurring revenue there. It is more about taking that backlog and then adding a slog on top of that, that really gets generated outside the backlog.

Bob Evans - Craig-Hallum Capital

And along those lines about $6 million to $8 million that you have referenced, if you take out Southern Flow then you might be talking to the $4 million from other businesses?

Chris Hutter

That’s right.

Bob Evans - Craig-Hallum Capital

Okay. Okay, thank you. That’s helpful. And how about as you look at your cash flow generation versus your CapEx requirements for the projects that you are seeing, do you feel your -- you've got kind of ample firepower, if you will, to take care of your CapEx needs?

Chris Hutter

Very, we haven't touched our line. We’ve finished with $10 million in cash. That’s really remains steady, particularly hover, I would say that most of the back half of the month of June through July, we have been hovering right around $10 million. So, we don’t see any issues there at all and then certainly give out the full support of our banking partners and -- we don’t expect any issue there at all.

Bob Evans - Craig-Hallum Capital

Okay, and given your cash and cash generation, might we see -- is it possible to see any form of buyback given your trust stock price or perhaps instead of buying given when the stock is trading lately?

Sidney Hinton

The real answer on that is Bob, we see huge value in terms of the opportunity to buy that stock, but the fact of the matter is we see bigger value in terms of what we see on the horizon is potential to view that capital for the current revenue project. That is going to be priority number one. Today, as we sit on this call today that’s priority number one, we are saving our power for that. The fact of the matter is we’re always evaluating that, if we get down the road a month from now, two months from now depending on how we see the timing of those projects, you may or may not see us in the market, but know that it's something we are always evaluating and thinking about. Insider buying, I don’t want to comment too much on that, I guess the main thing to say there is, one, we are all very invested in terms of the outcome of our results both through stock holdings, and of course we get up everyday and come in here, and work really hard on behalf of shareholders. But the second thing is, just know that there are rules. There are blackout periods when certain things are going on whether it is deals coming down the pipeline etcetera, it is not that easy, it is not sort of sure since the earning release, executives can buy. So, I don’t want to say too much more than that because I don’t want to say too much and -- I am happy referring things from it, but we understand, I guess, is the headline, and obviously believe in the company much stronger.

Bob Evans - Craig-Hallum Capital

Fair enough, I will let others to ask questions. Thank you.

Chris Hutter

Thanks Bob.

Operator

Your next question comes from the line of William Bremer of Maxim Group.

William Bremer - Maxim Group

All right, gentlemen, how are you?

Chris Hutter

Hi, Bill, how are you doing?

William Bremer - Maxim Group

Great. Chris, can you just warm up one of your comments that you just mentioned on Southern Flow, you said $6 million to $8 million, does that include the equity income from the affiliate?

Chris Hutter

No.

William Bremer - Maxim Group

Okay, so that’s $6 million to $8 million outside of that, okay. Second, can you give us an idea of how much revenue EfficientLights did in the quarter; the first quarter was approximately $500,000?

Chris Hutter

Yes. It was about $400,000 in the first quarter; we’ve got the payment in the second quarter.

William Bremer - Maxim Group

Okay. Can you go on and tell us little bit more about these two other grocery platforms and pilots, have they retrofitted a store too similar to the other three?

Sidney Hinton

No. At this point they have made awards to us to do that and we are in the process of doing it.

William Bremer - Maxim Group

Okay, so that will be done in the next couple of weeks?

Sidney Hinton

It will be done in the next -- it will be done before the end of the year depending upon their -- as they select the stores they want to use as their pilots.

William Bremer - Maxim Group

Okay, Sidney I got it. Also, last quarter you referenced a material new higher in individual that came on with expertise in the switchgear and was leading the efforts internationally. It's the first time in since I followed this company back in -- from the Metretek days that you referenced internationally, can you give us a little more light on that?

Sidney Hinton

No, we did. We did bring somebody on and they have undertaken that task to expand our market areas for us, and they are helping us to understand what's the most effective way to enter into that market, and for us effective using means we don’t want to spend a ton of money but we want to make it. So what's the most effective way to get up there and get some sales, get our feet at that as they we will look to expand it. We are big believers, don’t pay and as we go and that’s what we’re strategizing and implementing.

William Bremer - Maxim Group

Hey Chris, I am coming back to you on the breakdown that you gave us very helpful. It looks as though that this maybe the process going forward, is this what I should be expecting in terms of possibly breaking down revenue per quarter for at least four divisions?

Chris Hutter

I am very sorry, Bill, could you repeat that?

William Bremer - Maxim Group

The breakdown that you gave us in terms of the four different divisions that you mentioned during the press release?

Chris Hutter

Yes.

William Bremer - Maxim Group

Okay, is this like a prelude to what is coming in terms of potentially breaking down revenue based upon these four divisions?

Chris Hutter

Let's us move one step at a time on this.

William Bremer - Maxim Group

Okay.

Chris Hutter

When we definitely wanted to do more, we are pleased that we did more. I hope it gives people more color and it really helps break the business down. But I want to be -- I just want to be cautious in terms of too much too soon, so let us think about that.

William Bremer - Maxim Group

Okay, the $1 million to $1.5 million of a reduction in operating expenses, that’s sort of a -- that’s an annual figure correct?

Chris Hutter

Yes, that is a annual figure.

William Bremer - Maxim Group

Okay, and that is officially starting this coming quarter. Can you talk about pricing in the markets given the environment that we are in right now, you held very well. Nice increase over the first quarter even though we did have some one-time charges in the first quarter, as I remember, how does it look in terms of the latter half year?

Sidney Hinton

Bill, I didn’t understand the question, I apologies.

William Bremer - Maxim Group

How does pricing look in terms of your gross margin look in the latter half of '08?

Sidney Hinton

We feel good about it. We may have -- there is some inflationary pressures out there just for raw commodities, but in general, we are very disciplined pricers and disciplined purchasers. To the extent revenue dips, I will caution you a 100%, there is direct correlation. Our gross margin does drag down as revenue decline. It is very natural, because we have a few weeks. We tried over the years to not have as many fixed cost in there, but there are some fixed cost in SG&A I mean in cogs, and so when you are advertising over lower revenue base that percentage drops down. But there is nothing on the horizon, that we look at and say, all right we have -- we sold something that does not hit our, what we would expect. No where is there a single cost item that’s -- this is really tampering our efforts to protect our gross margin. At this point, any fluctuations would be primarily driven by our revenue fluctuations, and of course, by the composition of it, but we have a healthy outlook on gross margin with the one caveat being revenues are down and the gross margin slide with it some.

William Bremer - Maxim Group

Okay. I will get back in the queue. Thank you.

Operator

And your next question comes from the line of [Forest Timble] of [Flyline] Partners.

Forest Timble - Flyline Partners

Hi, guys. How are you? Can you hear me?

Sidney Hinton

Proxy is fine.

Forest Timble - Flyline Partners

Question for you on, in EBITDA basis, Chris I guess this is for you, on a run-rate basis, if I take Southern Flow and the Colorado waste water properties, what's the six months kind of run-rate of EBITDA for the first six months of this year?

Chris Hutter

You are talking about just those two guys?

Forest Timble - Flyline Partners

Yes, just those two.

Chris Hutter

Yes, well I have got -- for the first six months I have got $2.2 million from the water property, and I have got a lot -- I have got $1.7 million from Southern Flow.

Forest Timble - Flyline Partners

And that’s EBIT or is that EBITDA?

Chris Hutter

It is basically the same, there is no really EBITDA.

Forest Timble - Flyline Partners

Okay. So call that 394 run-rate of about $8 million a year?

Chris Hutter

Yes.

Forest Timble - Flyline Partners

That’s awesome. Chris, and I guess to me this could be either one of you guys, what's the right capital structure for this company longer-term? Shouldn’t it be able to maintain some debt with that kind of -- those are pretty stable cash flows of those two businesses, you guys, I think, we have talked about this before, but I just wanted to revisit, you are not afraid to carry some debt and, in fact, I guess, we would look at it and then say you probably should have some?

Chris Hutter

Yes, we concur that this particularly these projects, I mean, as we implement recurring revenue our dream would end up with hundreds of millions of dollars of debt as we invest in a $1 billion worth of assets. Those are the scale of opportunities we have in front of us, and that’s what we are working -- for the capital structure in place that will accomplish that.

Forest Timble - Flyline Partners

You brought up a good point about the margins being up, it hasn’t been talked about enough, Sidney you have done a great job. You told us you do it, you did it. When I read the 10-Q just kind of while were waiting for the call to happen, and one of the statements in there say that the SG&A on the sale side, you are probably at the right number of folks right now, that implies to me maybe we can leverage this for a while before adding folks what is the next 12 to 24 months look like in terms of needing to add sales people over time but we are now and what we can handle now with the group we have?

Chris Hutter

Well, we like to add sales people all the time, because we have a great track record of adding on productivity. As I mentioned earlier, $4 -- for every SG&A, not just us but SG&A, we are getting a $4 dollar return annually on sales. We like that, we love that, but we look at the market and say we need to be prudent and how we do that. We are not going to cannibalize our earnings. So it is just a balance between future opportunity because, absolutely, when you add a sales person you should assume that you are going to spend $250,000 of costs over 12-month period without a return support norm and all the travel and so forth. And it is just balance from that, but as opportunities arise for certain markets we will pounce with no hesitation. But we like where we are at, we like all the markets we are into right now. We are really bullish on the -- as we refer to, the crop is in the field. The crop that we have been blessed to see coming up are really bullish, and we want to see that harvest come in.

Forest Timble - Flyline Partners

The previous comment about a buyback, it's nice that you guys say enough to make sure exclusive in that yield do anything that for enhancing shareholder value, I appreciate that adjective. Thanks very much guys, that’s a fantastic quarter.

Chris Hutter

Thanks.

Operator

[Operator Instruction]. And that concludes the Q&A session. I will now like to turn the call back over to Mr. Chris Hutter.

Chris Hutter

It is great, and I'll just turn it right to Sidney.

Sidney Hinton

Well again, just to wrap up, I would like to point out the five things, a few more after that, but the five key things: One record financials results; Two, record operational results; Three, a growing backlog up 20%; Four, firming up of our intermediate financial view which is over the next four quarters last two of this June, first two of next, and solid progress on our long-term growth plan.

We pray that we are blessed to continue reporting these stock quarters. Importantly, we want to continue to see the growth across each of our strategic areas, distributed generation, utility infrastructure, energy conservation efficiency, and energy services. We continue to build a strong business outside of public, and we are happy with the pace of that growth as well as the growth of our backlog. We are doubly pleased with the ability of our leadership team. This is big time. We are doubly pleased with the ability of our leadership team to grow the top line while they are growing the gross profit margin.

We continue to be bullish on the needs that we see development in the market place and our proven ability to deliver solutions, which satisfy those needs. We remain prudently cautious about the near-term given the reality of the challenging economic and capital environment, but we know that we are in the right place at the right time, and strongly believe in our prospects versus sustained long-term profitable growth. And again, credit for our wonderful performance, a strong position in the market place goes to the amazing efforts of our people, who bring a steadfast focus on delivering strong value to our customers, a major differentiator and asset of this company. We appreciate your time listening today's, those of you who are investors, those of you who are customers, those of you who are vendors, and those of you who work in this company. Thanks. You all have a good evening.

Operator

Ladies and gentleman, that concludes the presentation. Thank you for your participation. You may now disconnect. Have an excellent day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: PowerSecure International, Inc. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts