LIME

Lime Energy Co. (LIME)

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Lime Energy (LIME)

Q2 2013 Earnings Call

August 19, 2013 4:30 pm ET

Executives

Glen Akselrod

John E. O'Rourke - Chief Executive Officer, President and Director

Jeffrey R. Mistarz - Chief Financial Officer, Chief Accounting Officer, Executive Vice President, Treasurer and Secretary

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Lime Energy Earnings Conference Call. My name is Crystal, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to our host for today, Mr. Glen Akselrod, spokesperson. Please proceed.

Glen Akselrod

Thank you, Crystal, and thank you, everybody, for joining our call this afternoon, Lime Energy's 2013 Second Quarter Financial Results Conference Call. With us today is John O'Rourke, CEO; and Jeff Mistarz, CFO. I hope all of you have had a chance to review the earnings announcement which was released earlier today and which can be accessed on Lime's website at www.lime-energy.com, or for the 10-Q on the SEC website.

Before I hand the discussion over to John, I want to remind everyone that the call today will include some statements that will be considered forward-looking regarding the company's strategy, operations and financial performance. Those statements are subject to many uncertainties and some company's operations and business environment, some of which we'll talk about on the call. I'll also refer you to the complete forward-looking statement disclosure in the earnings release, which is incorporated by reference for the purposes of this call. I'd also like to refer you to the disclosure made on the company's quarterly and annual filings with the SEC.

Finally, before we get started, I want to mention that this call is being broadcast live over the Internet and can be accessed on the Lime Energy website and also on the Thomson/CCBN network. There will be a replay available on both websites until November 19, 2013.

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

John E. O'Rourke

Thank you, Glen, and thank you, and good afternoon, everyone. Results for the quarter were encouraging. Improved performance in gross margin and revenue growth led the way, firm indicators that our efforts to execute against our key initiatives are gaining traction. Highlights for the quarter were: revenue for the utility business increased 61% year-over-year; consolidated gross profit increased 99.4% year-over-year; and excluding one-time expenses, SG&A increased only 4.5% year-over-year.

Our key initiatives remain the same and our focus is unwavering. Our efforts over the last 6 months have been effective as evidenced by the financial and operating results for the quarter.

On our call last week, we spoke about providing key metrics that provide insight into the business. We are in the process of refining our data reporting systems to support accurate and meaningful reporting on a go-forward basis. We hope to provide these metrics in the very near future.

In the near term, our gross margin may fluctuate as we continue to ramp our utility business, refine our back office and administrative processes, and experience changes in revenue contribution from our lower-margin FRR business.

On balance for the year, we are moving in the right direction, and provided we execute against the key initiatives outlined in our annual results call on July 31, we should see continued improvements in gross margin into 2014.

The combination of annual contractual price escalations in our utility contracts, a shortened pace cycle to our supply chain partners once we strengthen our balance sheet and build cash, and improving efficiencies as a result of our technology investment, all will contribute to what we hope will be 30% gross margin levels by 2014.

Our SG&A, as a percent of revenue, remained high at these revenue levels. However, we expect this to decline as revenues increase later in the year. We are striving to achieve the right balance between reducing SG&A as a percent of revenue, supporting and managing our growth, and continuing to make investments in our technology platform that eventually will drive efficiencies in the business, improve service engagement levels with our clients, resulting in better program pricing levels and expanded program opportunities in 2014 and 2015.

I would like to take a minute here to share my perspective on performance for the rest of the year. As I stated on my previous calls, our goal is to turn a profit in the fourth quarter, absent any commercial or operational interruptions in the business. I discussed the need to overcome several difficult and important challenges, including improving our gross margin profile, strengthening our balance sheet, reducing SG&A as a percent of revenues, and continuing to invest in our technology and IT infrastructure. I feel like we're making good progress in addressing each of these challenges.

Our efforts in the gross margin area are showing strong improvement as evidenced in the published results, we are accelerating our efforts to strengthen the balance sheet, and we are continually rolling out new enhancements to our technology.

I would now like to turn the call over to Jeff Mistarz, our Chief Financial Officer.

Jeffrey R. Mistarz

Good afternoon, everyone. I'm glad you're able to join us this afternoon. I'm going to give you a quick overview of our results for the 3-month and 6-month periods ended June 30, 2013.

Beginning with the results for the quarter. Our consolidated revenue increased 35.8% or $3.6 million to $13.7 million during the most recent quarter, from $10.1 million for the year-earlier period. Contributing to this was a $4.9 million or 61% increase in revenue from our utility business, which benefited from increasing revenue contributions from new utility programs begun within the past year, and increased contributions from some of our existing programs.

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