Distributed Energy Systems Corp. (Nasdaq: DESC) has reported revenues of $11.0 million, and a net loss of $3.4 million, or $0.09 per share, for the fourth quarter ended December 31, 2005. During the same period of 2004, revenues were $11.4 million, and the net loss was $4.0 million, or $0.11 per share. For the full 2005 year, Distributed Energy doubled revenues to a record $45.0 million, up from $22.5 million during the prior year. The company’s 2005 net loss was $16.2 million, or $0.45 per share, reflecting an approximately 28% improvement over the prior year’s net loss of $22.4 million, or $0.63 per share.
The company also said that its order backlog now stands at $25 million, but it expects revenues during the first half of the year to be lower than during the first six months of 2005. Distributed Energy now estimates that first-quarter revenues will be off approximately 25% compared with last year’s first quarter, and second-quarter revenues are also expected to be lower, although to a lesser extent, than the second quarter of 2005. It attributed its reduced first-half expectations primarily to the timing of orders and the lagging effects of an unpredictable spike in the price of natural gas affecting its Northern Power Systems’ energy services business.
Regarding the net loss anticipated for the first quarter of 2006, the company said it expects the figure to be about the same as a year ago, before giving effect to the new Statement of Financial Accounting Standard 123 requirement and other non-cash stock compensation charges that will be reflected in the first quarter of 2006. Distributed Energy estimates that this additional charge for the first quarter will be approximately $.07 per share.
2005’s 4th Quarter Results
Distributed Energy said that fourth-quarter and full-year results during 2005 primarily reflected strong performance in the engineering, procurement and construction energy services business, with revenue growth largely coming from on-site and distributed generation power installations for building and industrial applications. In addition, the company said sales of its on-site HOGEN hydrogen-generating equipment, now largely being handled through new industrial gas distribution channels, improved over the prior year. However, the pace of new orders was sluggish at year-end, and that condition is persisting in 2006. The company said that it is actively addressing the situation with its industrial gas distribution partners to better channel its hydrogen systems in parallel with their traditional approach to the industrial gas market.
Gross margins were positive during the fourth quarter of 2005, for the fifth consecutive quarter. In addition, cash and marketable securities as of December 31, 2005, stood at $40.7 million compared with $42.7 million as of September 30, 2005. The change of approximately $2.0 million primarily reflects the net loss for the quarter, offset in part by improvements in working capital requirements (defined as current assets minus current liabilities excluding cash and marketable securities).
Performance and Outlook
“The company clearly made a great deal of progress during 2005,” said Ambrose L. Schwallie, who was appointed Distributed Energy’s CEO earlier this year. “That’s because our businesses are well-positioned participants in high-potential energy markets, and our people have the demonstrated ability to satisfy our customers and enable us to achieve sustained growth over time.”
“After outperforming expectations during most of 2005” he continued, “we got off to a slow start in 2006. This early shortfall mostly reflects the periodic lumpiness in our business and slower energy services orders resulting from a less-favorable “spark spread” — the short-term differences in the cost of power when measured against the spot-market price of the natural gas used to produce electricity.” Mr. Schwallie noted that the price spike has already self-adjusted, leading to what he termed “more normal market conditions.”
“As a result,” Mr. Schwallie stated, “it is important to note that we do not see any long-term deterioration in likely new project commitments from customers. Our solid beginning backlog of business provides us with a good base, and we expect to be adding to revenues as the year progresses, especially in the second half.”
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