Nexxus Lighting Reports Full Year 2011 Results

CHARLOTTE, N.C., March 28, 2012 /PRNewswire/ -- Nexxus Lighting, Inc. (NASDAQ Capital Market: NEXS) today reported its full year 2011 results.  Highlights include:

• Full year revenue increased 66% to $9.0 million in 2011 versus $5.4 million in 2010
• Sales of Array® LED replacement light bulbs increased 173% to $4.9 million in 2011 versus $1.8 million in 2010
• Produced a 41% direct gross margin level despite tremendous market price pressures
• Launched the Array brand into the consumer market channel
• Expanded our patent portfolio to 41 issued patents and 33 pending patents
• Developed and introduced new PAR20 and PAR30 lamps, continuing our product leadership position

2011 Full Year Performance

Revenue

Total revenue for the year ended December 31, 2011 increased 66% to approximately $8,988,000 as compared to the year ended December 31, 2010.  As a result of our growth in national sign programs and other commercial applications, sales of Lumificient products increased approximately 12% from approximately $3,615,000 for the year ended December 31, 2010 to approximately $4,049,000 for the year ended December 31, 2011.  

Sales of our Array LED lamps increased 173% to approximately $4,939,000 for the year ended December 31, 2011 compared to approximately $1,808,000 for the year ended December 31, 2010.  The sales increase of approximately $3,131,000 reflects the launch of Array products for sale through the consumer market channel.  In the second quarter of 2011, we completed our initial shipments of Array products to approximately 1,100 home improvement stores across the United States. The home improvement retailer offers seventeen different Array products, including our PAR38, R30, R16, MR16 and GU10 lamps that have qualified for the Energy Star rating.  

We believe the 2011 launch of our Array products into the consumer market channel represents an important step in our company's strategy and demonstrates our ability to respond operationally to significant growth in a cost effective manner.  Sales of our products to the consumer market channel are affected by the resale of these products by our customer to the consumer.  While we do not provide specific information on consumer demand due to confidentiality and other obligations, sales of Array products to the consumer have been slower than anticipated.  In partnership with our major customer, we are exploring additional opportunities to increase retail sales and in-store inventory turns.  These opportunities may include utility rebate programs, price concessions, sales initiatives, marketing programs, advertising campaigns, training sessions and point-of-sale educational materials.  Based on our experience we also are working with this customer to identify other products to add to their offering in response to customer demand for existing products.  However, based on our experience, we do not anticipate that our sales to this customer will be as significant in 2012 as they were in 2011.

"We are excited about the achievements that we made in 2011, including our sales growth and entry into the consumer market channel where we have begun the process of building a national consumer brand," stated Mike Bauer, Nexxus' President and Chief Executive Officer.  "During this process we maintained our quality and performance market position and, despite intense competitive pressure, we refrained from cutting prices to untenable levels. We also demonstrated our ability to expand Array production cost-effectively and service the more challenging consumer market channel."  

"Unfortunately, retail sales levels did not meet our expectations nor those of our customer,"  added Bauer.  "We continue to work with this customer while also pursuing new retailers in 2012 to balance our sales across a greater number of customers within the consumer market channel."  

Gross Profit

Gross profit for the years ended December 31, 2011 and 2010 was approximately $1,913,000 and $1,363,000, respectively.  Gross margins decreased from approximately 25% of sales in 2010 to approximately 21% of sales in 2011.  Direct gross margin, which is revenue less material cost, decreased from 45% for the year ended December 31, 2010 to 41% for the same period of 2011, reflecting a shift in sales mix to Array products and the impact of launching the Array product line into the consumer market channel.  We do not expect that we will be able to command our historical margins for sales through the consumer market channel.  However, the additional unit volume generated by sales through this channel has allowed us to significantly lower our costs, leverage our investment in equipment and compete more effectively across all market channels.

For the year ended December 31, 2011, distribution costs, which include some light assembly costs, increased to approximately $1,774,000, or 20% of revenue, as compared to approximately $1,075,000, or 20% of revenue, for the year ended December 31, 2010.  The increase of approximately $699,000 in distribution costs for the year ended December 31, 2011, as compared to the year ended December 31, 2010, includes an increase of approximately $424,000 in our inventory reserves for excess Array and Lumificient product.  The reserves relate primarily to our 230v Array product for sale in international markets, certain Array products made with natural white and cool white LEDs, and inventory purchased in anticipation of launching a new product for Lumificient which was subsequently abandoned.  

As a result of the increased revenue, in 2011 we incurred higher freight expenses of approximately $235,000 and an increase in warranty costs of approximately $38,000 as compared to 2010.  However, we were able to leverage our sales growth across our supply chain assets.  In particular, depreciation expense decreased from 11% of Array sales for the year ended December 31, 2010 to 5% of Array sales for the year ended December 31, 2011.  

"Throughout 2011 and as we move into 2012, we remain optimistic about our ability to take advantage of the positive trends in our industry," commented Gary Langford, Nexxus' Chief Financial Officer.  "We anticipate LED lighting adoption to accelerate in both commercial and consumer markets.  In addition, we expect LED and other material costs to continue their decline, further spurring adoption.  It will be our challenge to demonstrate the strength and flexibility of our operating structure to take advantage of these trends, much as we did in 2011.  The non-GAAP financial measures presented below reflect the impact that a number of noncash items had on our results and demonstrate our ability to leverage our sales growth."

Operating Expenses  

Selling, general and administrative ("SG&A") expenses were approximately $5,981,000 for the year ended December 31, 2011 as compared to approximately $6,097,000 for the same period in 2010, a decrease of approximately $115,000, or 2%.  The decrease in SG&A primarily reflects a reduction in payroll, bad debt and advertising expenses for the year ended December 31, 2011 as compared to the same period in 2010.  Offsetting these lower expenses was an increase of approximately $126,000 in net expenses relating to our Orlando facility.  We subleased a portion of this facility to the purchaser of our Legacy Commercial and Pool Lighting Businesses, but we continue to incur expenses for the remainder of the leased space.  The lease for this facility expires on March 31, 2012, at which time we expect to have vacated the facility.  We also incurred approximately $111,000 of expenses related to the closure of one of our contract manufacturers in China.

Research and development costs were approximately $834,000 for the year ended December 31, 2011 as compared to approximately $944,000 for the year ended December 31, 2010. This decrease of approximately $110,000 was primarily due to lower project-related costs of approximately $83,000 and lower payroll expenses of approximately $29,000, in 2011 as compared to 2010.

We recorded a goodwill impairment charge of approximately $407,000 for the year ended December 31, 2011 as a result of lowering the projected revenue growth and cashflows for Lumificient compared to previous projections. 

Net Loss

Net loss for the years ended December 31, 2011 and 2010 was approximately $5,469,000 and $8,011,000, respectively, including a loss from discontinued operations related to the Legacy Commercial and Pool Lighting Businesses of approximately $44,000 and $1,646,000 in 2011 and 2010, respectively.  Basic and diluted loss per common share was $0.33 and $0.49 for the years ended December 31, 2011 and 2010, respectively. Basic and diluted loss per common share from continuing operations was $0.33 and $0.39 for the years ended December 31, 2011 and 2010, respectively. Basic and diluted loss per common share from discontinued operations was $0.00 and $0.10 for the years ended December 31, 2011 and 2010, respectively.  

Non-GAAP Financial Measures

Although our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"), we believe the following non-GAAP financial measures provide additional information that is useful to the assessment of our operating performance and trends.  These non-GAAP financial measures are not in accordance with, nor are they a substitute for, the comparable GAAP financial measures and are intended to supplement our financial results that are prepared in accordance with GAAP.

Our results for the years ended December 31, 2011 and 2010 reflect actual product requirements and rates of LED lamp adoption that differed from what was anticipated.  These differences resulted in higher expenses relative to sales results.  Specifically, our provisions for inventory valuations for 2011 and 2010 represent 8% and 5% of sales, respectively.  These reserves primarily reflect challenges penetrating international markets and issues relating to product specification.  In addition, noncash expenses such as depreciation and amortization, impairment and stock-based compensation expense for 2011 and 2010 represent 16% and 19% of sales, respectively.  The depreciation expense primarily relates to tooling and other investments made for the Array products.  The amortization expense primarily relates to Array intellectual property and intangibles associated with the Lumificient acquisition.  Noncash expenses for depreciation, amortization and stock-based compensation totaled approximately $1.0 million in both 2011 and 2010.  We expect that our existing level of noncash expenses will remain relatively flat in 2012.

Going forward, we believe that the inventory risk associated with anticipating the market's specification of products will decrease.  Since the launch of the Array product, we believe the market has formed into a narrower band of color temperatures ranging between 2700 degrees and 3000 degrees Kelvin, with some lower levels of demand in the 5000 degrees Kelvin range.  We do not anticipate this range changing.  However, we will continue to face challenges managing product mix and product evolution given the fast pace of advancement in LEDs and lighting.

Cash and Recent Activities

As of December 31, 2011, we had cash and cash equivalents of $3,015,000 and long term debt of $2,315,000, net of an unamortized debt discount of approximately $109,000.  

Our long term debt consists of convertible promissory notes issued in exchange for our preferred stock in December 2009.  These notes have a principal amount of $2.4 million, provided for interest at 1% per annum, were originally to mature three years from the date of issuance and are convertible into shares of common stock at a fixed conversion price of $5.33.  On February 28, 2012, our company and the holders of the notes amended the notes.  As of the amendment date, the notes bear interest at 10% per annum and mature on June 30, 2013.  Interest on the outstanding principal amount of the notes will be due and payable on the maturity date.  The notes remain convertible into 450,281 shares of common stock at a fixed conversion price of $5.33.

Nexxus Lighting, Inc.    Life's Brighter!™

For more information, please visit the new Nexxus Lighting web site at www.nexxuslighting.com

Certain of the above statements contained in this press release are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Reference is made to Nexxus Lighting's filings under the Securities Exchange Act for factors that could cause actual results to differ materially. Nexxus Lighting undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements.

SOURCE Nexxus Lighting, Inc.

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