Lime Energy (NASD:LIME) reported first quarter earnings after market close on Thursday with a loss of 19 cents per share, 5 cents below analyst expectations.
Revenue in the first quarter was 3.5% lower than a year ago, with the drop attributable to declining revenues in Lime’s Commercial and Industrial (C&I) business following last year’s decision to refocus this business on opportunities where Lime has a competitive advantage.
Utility Programs
Those opportunities are falling into place nicely. Central to Lime’s strategy is the company’s utility business, where they bid for long term contracts to implement utility Demand Side Management (DSM) programs.
As I wrote last week, this strategy is being validated by contract wins. A year ago, Lime had two utility contracts, today they have seven. In the first quarter alone, they added four new contracts accounting for $65 million in potential revenue.
Lime’s Strategy
Utility direct install programs are the basis for Lime’s edge in the very competitive energy efficiency business. Utility contracts tend to be long term, and less competitive because of the bureaucratic nature of utilities and their regulators. Lime’s track record of successful implementation and experience in dealing with utility clients gives them an advantage. The long term nature of the contracts means that Lime will also have a competitive advantage in bidding for future contracts from the same utility because they will have an infrastructure in place from having serviced the previous contract.
Utility programs have an added benefit. They give Lime access to smaller C&I customers which competitors find difficult to reach. In the process of implementing a utility program, Lime is paid by the utility to contact the customer and install a defined menu of energy efficiency improvements. Once the relationship is established, Lime can go on to offer the customer energy upgrades that fall outside the utility program, but which are profitable to both Lime and the customer.
Investment Community Opinion
Lime’s utility-centric strategy has largely escaped the notice of the investment community. I polled my panel of eleven green money managers and analysts about Lime last week. None said they were paying attention to this micro-cap company, and those who responded were negative.
Most of the comments focused on the highly competitive nature of the industry, and showed a lack of awareness of Lime’s current strategy. No one on my panel wanted to be quoted by name, but one called it a lousy business “with no barriers to entry and low margins. No technology; it’s just a body shop without any recurring revenues.”
As you can see, this shows a lack of awareness of Lime’s utility business, which produces both recurring revenues and a barrier to entry. To me, that makes Lime an excellent candidate: Lime has adopted a new, more viable strategy in the last year which which should start having a noticeable impact on both the top and bottom lines next quarter, but most investors are still thinking about the company as if nothing had changed in the last two years.
