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ZBB Energy Corporation (ZBB)

F1Q13 Earnings Call

November 6, 2012 11:00 am ET


Eric Apfelbach – President and Chief Executive Officer

Will Hogoboom – Chief Financial Officer

Charles Stankiewicz – Chief Operating Officer


Ankur Desai – MDB Capital Group LLC

Ramesh Venugopal – VantagePoint Capital Partners



Good morning ladies and gentlemen, and welcome to the ZBB Corporation Quarterly Conference Call. After prepared remarks, we will be opening the call to a Q&A period. (Operator Instructions) As a reminder, this call is being recorded.

It is now pleasure to turn the call over to Mr. Eric Apfelbach, President and CEO, please go ahead Mr. Apfelbach.

Eric Apfelbach

Thank you, Matt. Good morning everybody and welcome to the ZBB call. This is Eric Apfelbach. I’m the President and CEO of ZBB Energy Corporation and I’m joined today by Will Hogoboom, our CFO, and Chuck Stankiewicz, our Chief Operating Officer. First, Will, will review the financials, and then I’ll brief you on the status of the global strategy and Chuck will brief you on the operating activities. and then I’ll close with an overview of various business development activities. Will?

Will Hogoboom

Thank you Eric, and good morning everyone. Thank you for joining us today for ZBB’s conference call for our first quarter of 2013, which ended September 30. ZBB energy’s press release containing first quarter results was sent out by market wire yesterday, November 5. The press release may also be found on our website at I would like to call your attention to the following Safe Harbor statements.

Certain statements made in this conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended that are intended to be covered by the Safe Harbor created by those sections.

Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations can generally be identified by the use of forward-looking terms such as believe, expect, may, will, should, could, seek, intend, plan, estimate , anticipate, or other comparable terms.

Forward-looking statements in this conference call may address the following subjects among others. Statements regarding the sufficiency of our capital resources, expected operating losses, expected revenues and expenses, and our expectations concerning our business strategy.

Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements, as a result of various factors including those risks and uncertainties described in the risk factors and the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our most recently filed Annual Report on 10-K and our subsequently filed Quarterly Reports on Form 10-Q.

We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution participants in this conference call not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein or elsewhere to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Now I will walk through the details of our financial results for the first quarter of 2013 as compared to the first quarter of fiscal 2012. Our revenue for the first quarter was $1.8 million, which was up 11% from the same period a year ago. It is important to note that with the commercialization of our new ZBB EnerSystems products, the Company’s business model is transitioning as product sales are becoming a larger percentage of overall revenue.

As such, during the first quarter, our product revenue was $1.6 million, which was a 610% increase in product sales from the same period a year ago, and our engineering services revenue was $218,000, which declined 85% from the same period a year ago. The engineering services will continue to be an important part of our business going forward, but we expect product revenue to be the larger percentage of our overall revenue.

Our product revenue for Q1 consisted of revenue for four different EnerSystems, including our system that was installed at the Illinois Institute of Technology. Q1 revenue also included $703,000 for the components sales to our China joint venture.

Total costs and expenses for the three months ended September 30 increased approximately $1.4 million compared to last year, which was primarily due to the increase in cost of product sales. Product costs reflect the early higher production costs due to startup production costs, higher initial material costs for low volume purchases and the initial low production volume.

We expect target margins to improve from our current levels as our cost-cutting measures are implemented beginning in Q2 and Q3 production. Costs of engineering and development sales decreased by $481,000, as our engineering and development agreements from the last year keep it off when we moved more into production. Our advanced engineering and development expenses increased $461,000 due to our shift from engineering contracts to product developments and pilot plant operation for the Company’s ZBB EnerStore and ZBB EnerSection systems.

Overall, our net loss increased by approximately $1.2 million in the current year quarter, compared to the same quarter last year, because our overall gross margin was 16% on $1.8 million of revenue in Q1 of this year, compared to 61% gross margin on $1.6 million of revenue in Q1 last year.

The change in gross margin is due to the shift from engineering services to product sales. As mentioned, we expect our product gross margin to improve as we begun to realize our reductions and product costs. For the fourth quarter our net loss was $0.04 per share versus $0.05 per share in the prior year’s first quarter. Excuse me, I meant to say for the first quarter, our net loss was $0.04 per share versus $0.05 per share in the prior year first quarter.

The net loss per share decreased mainly due to the additional number of shares outstanding this year. The Company’s cash balance at the end of the September 2012 quarter was $4.6 million and accounts receivable were $1.2 million. Our current backlog as of today is $5.3 million, including product backlog of $5 million and engineering contract backlog of $300,000. Our product backlog consists of approximately 20 sales contracts including the order we booked yesterday for $860,000 for Hybrid Motor Controllers, plus the prior order from the same customer, our DoD orders, commercial and micro-grid orders and power control systems orders.

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