Rodman and Renshaw on POWR 3/28/2011
POWR: 4Q10 Earnings Update
4Q Results: POWR announced its 4Q10 results of $26.5 MM in Non-GAAP revenues, $431k in net income, and $0.02 in EPS, compared to our expectations of $27.6 MM, $330 K, and $0.02, respectively. Excluding discontinued operations (Southern Flow business), the company made a loss of $525K in the quarter, or $(0.03) per share. The company sold its Southern Flow unit during the last quarter. We have updated and present our model on a Non-GAAP basis, which considers Southern Flow as a continuing operation.
Full Year Results: On a full year basis, revenue, net income and diluted EPS were $116.9 MM, $3.5 MM, and $0.19, respectively. Full year revenue increased by 14.0% y-o-y from FY09, while gross profit grew to $42.8 MM from $35.5 MM.
GAAP Numbers: If we exclude the contribution from Southern Flow, GAAP revenue for the quarter declined by 19% Y-o-Y from 4Q09, mainly driven by a 24% y-o-y decrease in IDG business and 44% drop in Energy Efficiency business. However the gross margin for the quarter was up by 3.3% over last year to 42.3%, thanks to a favorable project mix. Net loss from continuing operations without contribution from Southern Flow business was $(693 K), or $(0.03) per share. The company ended the quarter with $8.2 MM in cash.
Backlog Still Strong: POWR provided an updated backlog number of $150 MM, including $50 MM, $29 MM, and $71 MM in near-term (1Q11~3Q11), long-term (4Q11~FY13), and recurring revenue. This compares to $138 MM of total backlog number released in 3Q10 earnings update.
Key Takeaways: We view management’s effort to exit non-core businesses as a positive. The company’s product mix continues to remain relevant driven by consumer / corporate sensitivity to the environment. We maintain that POWR is a healthy long term story as indicated by the positive backlog build up. However, from a short term perspective we would like to see improvements in operating leverage. Incremental bottom line improvements over the next few quarters would be fundamental catalysts for the stock.
1Q11 Estimates: We are expecting 1Q11 revenue, net income, and diluted EPS of $22.2 MM, $366.4 K, and $0.01 per share. Our full year projections are $123.0 MM, $7.8 MM, and $0.41, respectively.
Valuation: We are using the Price / Sales multiple as our valuation metric as a majority of the comparables in this industry are yet to generate any earnings. On a P/S basis, at current levels, POWR trades at ~1.1x to our FY11 revenue estimates. At our $15.00 price target POWR would trade at P/S multiple of ~2.3x compared to the average 2.0x for comparable companies. We maintain our Market Outperform rating.
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