Nexxus Lighting Announces 2007 4th Quarter & Full Year Financial Results

For more information:

Richard Heiner, Director of Marketing, Nexxus Lighting, Inc.
407-857-9900   Email:  rheiner@nexxuslighting.com

Nexxus Lighting Announces 2007 4th Quarter & Full Year Financial Results

CHARLOTTE, NC, March 31, 2008 – Nexxus Lighting, Inc. (NASDAQ Capital Market: NEXS) today announced financial results for the fourth quarter and the 2007 calendar year. 

4th Quarter Results

Total revenues for the three months ended December 31, 2007 increased approximately 11% to approximately $2,639,000 as compared to approximately $2,384,000 for the fourth quarter of 2006. Commercial lighting revenue increased 18% or approximately $174,000 in the quarter, as compared to the same period in 2006.  This increase was driven by the acquisition of Advanced Lighting Systems (ALS) in September 2007.  Pool and spa revenue, which had been down as much as 32% earlier in the year, increased by 13%, or approximately $107,000, in the fourth quarter of 2007 as compared to the fourth quarter of 2006.  Sales to International customers decreased in the quarter by 6%, or $36,000, as compared to the same period in 2006.

“As we begin to feel the impact of our acquisition strategy, we are pleased with the growth potential ALS and its products bring to Nexxus Lighting,” stated Mike Bauer, President & CEO. “We have begun the process of introducing ALS products to our international distribution network and we have just introduced our Savi® SHO White Floodlight, which is the industry’s first line voltage LED floodlight.  We believe the introduction of the Savi® SHO White Floodlight, combined with our planned introduction of four new products aimed at the “white light” general illumination market and two new RGB LED lighting systems, sets the stage for growth in commercial lighting in 2008.  On the pool and spa side of our business, we feel that in an industry reeling from the housing market collapse that our fourth quarter growth in pool and spa sales is very positive.  Our new pool and spa management team, which was hired in the fall, is doing an excellent job of gaining market share in a down market.  We have two new pool and spa products that we expect to introduce in the first half of 2008. Despite the state of the industry, we expect to continue to gain market share” added Mr. Bauer.

Gross Profit

Gross profit for the quarter ended December 31, 2007 improved to approximately $556,000 or 21% of revenue as compared to approximately $289,000 or 12% of revenue for the same period in 2006.  Direct gross margin, which is revenue less material cost, for the fourth quarter of 2007 decreased to 51% of revenue from 57% in the same period of 2006 as material costs increased slightly in the period.

Operating Expenses

Operating expenses for the quarter ended December 31, 2007 increased approximately $164,000 to approximately $1,926,000, as compared to the same period in 2006, primarily as the result of the one time benefit of approximately $507,000 the Company realized in the fourth quarter of 2006 from the loss on the sale of fixed asset disposals related to the termination of the Company’s capital lease in 2006.  Excluding that one time benefit in 2006, operating expenses actually decreased by $343,000 from 2006. 

General and administrative expenses in the fourth quarter of 2007 decreased approximately $366,000, or 23%, to approximately $1,193,000 from approximately $1,559,000 in the same period in 2006 primarily due to lower legal and consulting costs. Sales and marketing expenses increased 2%, or approximately $13,000, to approximately $614,000 in the fourth quarter of 2007 as compared to approximately $601,000 in the same period in 2006.  The increase in selling expense was primarily related to the additional sales resources added to our Pool and Spa division as well as marketing costs for new literature and selling materials for both Pool and Spa and ALS.
Research and development costs were approximately $119,000 during the three months ended December 31, 2007 as compared to approximately $109,000 during the same period in 2006, an increase of approximately $10,000 or 9%. This increase was mainly due to the timing of expenses for new product development as compared to the same period in 2006.

4th Quarter Net Loss

As a result of the increased revenue and improved gross margins, offset slightly by higher operating expenses, and research and development expenses during the quarter, the Company’s net loss decreased for the three months ended December 31, 2007 to approximately $1,326,000 or $0.19 per basic and diluted common share, as compared to a net loss of approximately $1,511,000, or $0.42 per basic and diluted common share, for the three months ended December 31, 2006. 

“In 2007 we took several actions to enable the Company to execute its strategy for growth including adding several senior management personnel, beginning the execution of a defined plan to improve our operational areas, including the implementation of Lean Principles concepts, investing in our information technology infrastructure and organizing into divisions with defined market focuses” stated John Oakley, Chief Financial Officer of Nexxus Lighting.  “While we did see some initial impact of certain initiatives in the fourth quarter of 2007, we expect continued improvement as we progress through 2008.”

2007 Full Year Performance

Revenues for 2007 decreased 7% to approximately $10,200,000 as compared to approximately $11,001,000 during the preceding year.  Excluding the impact of approximately $448,000 in sales of ALS products, the Company’s revenues decreased $1,243,000 or 11% in a year over year comparison.

Commercial lighting sales (includes sales in the architectural and entertainment markets) increased 5%, or $193,000 in 2007, driven by $392,000 in commercial sales from the Company’s September 2007 acquisition of ALS.  Excluding sales attributable to ALS, the Company’s commercial sales decreased 6%, or $241,000 in 2007 driven primarily by a 15% decrease in sales of fiber optic products in the commercial market due to customer shifts to LED based lighting products.  In the fourth quarter of 2007, the Company implemented a strategic upgrade to its sale representation in North America by making sales representative changes in Las Vegas, Los Angeles and Raleigh. As a result, fourth quarter 2007 commercial revenue increased 18%, or $178,000. In addition, in February 2008, the Company changed its SV Lighting representation in Chicago.  The Company has plans to continue to align itself with the top manufacturer’s representatives in every major city in North America.

Pool and spa sales decreased by 17%, or $788,000 in 2007 as compared to 2006, with fiber optic sales declining 26% and LED sales declining 15% due to significant year over year reductions in new pool construction tied to the steep drop in residential construction nationally and more specifically in the states of Florida, California and Arizona where pool construction has led the rest of the country in the last five years. The overall portable spa market is also suffering a steep decline, which, we believe, directly corresponds to the housing market.  However, in September 2007, the Company hired a new Vice President for its Pool and Spa Division. Under this new direction, management has begun several initiatives to position the Company for potential future growth and market share gains despite the current housing market conditions and their overall effect on pool and spa construction.  We believe the results are beginning to show.  Pool and Spa sales in the fourth quarter of 2007 increased 13% over the comparable quarter of 2006.  A 13% increase in revenue from pool and spa sales in the fourth quarter of 2007 compares to a decrease in revenue of 17% in the third quarter, a 20% decrease in the second quarter, and a 32% decrease in the first quarter of 2007. We believe that this positive trend indicates that our new management team is having an impact as our pool and spa revenues are improving despite the severely depressed market.  These results are being accomplished through new product introductions, sales of the Company’s new Savi™ Note lighting system and focused marketing efforts.

International sales decreased 10%, or $249,000, in 2007 as compared to 2006, with LED and fiber optic sales down 17% and 3%, respectively.  The decline in international sales was primarily driven by decreases in sales in several markets where the Company had enjoyed previous successes. We experienced the most significant decline in Asia and Mexico partially offset by sales gains in the Middle East.  With the acquisition of Advanced Lighting Systems, the Company is in the process of consolidating international sales and customer service at its new headquarters in Charlotte, North Carolina. This will allow the Company’s international distributors and customers to have a one-stop shop for receiving design assistance and project proposals as well as placing orders with any of the Nexxus Lighting divisions. In addition, Advanced Lighting Systems’ products will be introduced to the Company’s complete network of international distributors as new products to sell in the first quarter of 2008.

2007 Gross Profit

Gross margins in 2007 decreased to 27% from 36% in 2006 due to consolidated cost of goods sold increasing 5.5% to approximately $7,454,000 in 2007 as compared to approximately $7,064,000 in 2006 while revenue decreased 7% in 2007.  This increase in cost of goods sold resulted from increased variable cost of goods sold of approximately $484,000 as direct gross margin (revenue less cost of direct material only) eroded to 56% as compared to 58% in 2006. 
. 
Excluding the impact of sales by ALS in the 4th quarter of 2007, revenue decreased 11% and cost of goods sold increased to approximately $7,138,000, an increase of approximately $74,000 or 1% resulting in a decline in gross margin to 27%.  While the loss of revenue was attributable primarily to the significant year over year reduction in new pool construction, pricing pressures in the international markets combined with pricing discounts in the commercial market in order to maintain a competitive advantage also contributed to the revenue decline and this required discounting was not accompanied by reduced costs from suppliers.  This caused a slight erosion of direct gross margins to 57% from 52% in 2006. 

Offsetting the decrease in cost of goods sold due to decreasing revenue, production costs increased approximately $419,000 in 2007 due primarily to a $158,000 increase in charges for excess and obsolete inventories, $185,000 higher expense for capitalized labor and overhead as the Company reduced its inventory, increases in health insurance expense of $58,000, $37,000 in relocation expenses for the Company’s move to its new Orlando operating facility, and $36,000 in higher wages and temporary labor costs due to higher assembly requirements in 2007 versus contract manufactured products in 2006.  These increased expenses were offset slightly by a $62,000 decrease in physical inventory adjustments over 2006.

2007 Operating Expenses 

General and administrative (G&A) expenses decreased $389,000 or 11% and selling expenses decreased $81,000 or 3% in 2007 as compared to the prior year.  Excluding the impact of ALS expenses, G&A expenses decreased $617,000 or 17% in 2007 compared to 2006.  These decreases in 2007 were due primarily to decreases in legal expenses of $917,000, due to the negotiated settlement or final resolution of pending litigation in 2006, and a $262,000 decease in consulting fees paid to Brett M. Kingstone, the Company’s chairman of the board, pursuant to the Participation Agreement between the Company and Mr. Kingstone in 2006.

These decreases were partially offset by increases of $105,000 in wages and taxes due to additions of management positions, $83,000 in Sarbanes Oxley compliance related expenses, executive recruiting costs of $78,000, increases in the Company’s property insurance costs of $58,000 primarily due to the changes in our insurance costs in the state of Florida, increases in health insurance costs of $39,000, severance costs of $35,000 and employee relocation costs of $35,000.

Sales and marketing expenses decreased $81,000 to approximately $2,385,000 in 2007 as compared to $2,466,000 for the same period in 2006 as a result of decreased commissions on lower commission-based revenue.    

Research and development expenses decreased in 2007 compared to 2006 by approximately $121,000 or 22% mainly due to a reduction in wage and benefit related costs and a reduction in new product engineering and prototype expenses.  Despite the reductions, we continued to invest a significant amount of time and resources in new product development projects in 2007 that we believe will contribute to our growth in the future. Most of these products are now entering production and we anticipate beginning selling efforts for these new products in the 2nd and 3rd quarters of 2008. 

2007 Net Loss

The net loss for the year ended December 31, 2007 was approximately $2,940,000, or $0.44 per basic and diluted common share, as compared to a net loss of approximately $2,235,000, or $0.80 per basic and diluted common share, for the year ended December 31, 2006. 

 Nexxus Lighting, Inc.    Life’s Brighter!™
For more information, please visit the new Nexxus Lighting web site at www.nexxuslighting.com

Certain of the above statements contained in this press release are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Reference is made to Nexxus Lighting’s filings under the Securities Exchange Act for factors that could cause actual results to differ materially. Nexxus Lighting undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements.

###