Steven Ralston, CFA
XZERES reports 56% sequential revenue growth; raise target to $1.60
Today, XZERES (XPWR) reported results for the first fiscal quarter ending May 31, 2011. Quarterly revenues sequentially increased 56.1% to $1.017 million from $652 thousand, well above our expectations of $873 thousand, primarily due to the management’s initiative of addressing the direct sales channel with the Direct Buy program, along with increasing the number of sales personnel. Direct sales of wind power systems increased from 32.8% to 47.2% of total revenues. The gross profit margin sequentially contracted 337 basis points to 24.7% due to the aggressive expansion of sales and marketing support; marketing expense increased 308% sequentially. However, management expects the gross margin to rise substantially over the next two fiscal years as new products, services and business models are developed and deployed. XZERES reported a quarterly loss of $1.999 million or $0.11 per diluted share. During the first fiscal quarter, the company successfully raised $2,356,961 through a stock and warrant offering.
Management is seeing a dramatic increase in sales for small wind power systems in the Unites States and the UK. The first container holding nine 442SR small wind power systems has been shipped to the United Kingdom. In addition, there are significant opportunities in Asia, especially in Vietnam for micro-grid island electrification applications and where the company has initiated a pilot project utilizing the 442SR 10-kilowatt wind system.
XZERES Corporation is an engineered systems company, with a focus on clean and renewable energy. XZERES primarily designs, develops, manufactures and markets premium small wind turbine systems and related equipment for the generation of electrical power to a wide range of customers. In April, the company acquired Rochester Power Saver and now also offers power efficiency products, which management expects to be a significant contributor to sales growth going forward.
Sequential quarterly sales growth has exceeded easily 30% and is increasing. Due to the many initiatives recently implemented and also planned for fiscal 2012, such as expansion into Asia, we expect that the company’s sequential sales growth rate will continue to be at least 34% during fiscal 2012. Management’s internal goal (not guidance) is to generate over $5.9 million in revenues during fiscal 2012. In addition, management expects that ultimately, the majority of sales will be through the direct channel, leading to a higher gross margin.
We reiterate our Outperform rating on XZERES. Due to the higher-than-expected sequential sales growth, we are raising our target to $1.60.
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