XZERES reports 61% sequential revenue growth in third
By Steven Ralston, CFA
XZERES (OTC Markets:
filed its 10-Q quarterly report for its third fiscal quarter
ending November 30, 2012. Impressively, quarterly revenues
increased 61.3% sequentially to a record $1,912,850 from
$1,186,101 reinitiating double-digit sequential quarterly growth.
However, again the gross profit margin was pressured, declining
401 basis points sequentially to 11.7%, primarily due to
significantly higher shipping costs incurred by inefficient
delivery schedules. XZERES benefited from the working capital
injections from recent financings, specifically the $510,000
purchase order debt financing agreement signed in late May, a
$1.5 million financing facility announced in early August and a
private offering of units (Series A Convertible Preferred stock
and warrants) for $1.5 million in October. Management continues
to concentrate on lowering operating expenses reflected by the
12.1% sequential decline in G&A expense, although sales
expense increased 61.2% and Engineering/R&D increased 89.8%.
Nevertheless, total operating expenses declined 0.7% sequentially
to $1.71 million, following a 9.1% sequential decline the prior
quarter. XZERES quarterly loss sequentially expanded 10.2% to
$1.78 million or $0.07 per diluted share.
The company continues to be challenged by a limited working
capital position and requires additional working capital to
fulfill the existing backlog of orders. Management has
demonstrated its ability to execute through this liquidity event,
including creatively utilizing an alternative form of funding
(collateral-based purchase order financing). Financing activities
provided $3,765,588 during the first nine months of fiscal 2013.
However, additional working capital is needed, especially to
achieve efficient delivery schedules with regular shipping
Since revenue traction has been demonstrated for two
consecutive quarters, the company's sales profile is expected to
once again experience sequential growth. XZERES has a strong
presence in the United Kingdom and continues to actively pursue
opportunities in Vietnam, the Caribbean and Italy. In addition,
XZERES continues to upgrade its small wind systems. Recent system
improvements that have increased the average power production
output, and as a result, a price increase has been implemented.
Ultimately, the growing revenue stream should manifest itself
into positive earnings. Our price target of $0.60 is derived from
utilizing a price-to-sales valuation ratio of 2.2 on normalized
annual sales of $7.95 million.
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