Lighting Science Group Corporation (LSCG-OTCPK)
November 20, 2009 Issue
The Most Powerful Name In Corporate News and Information
Lighting Science Group Corporation Is Focused On Providing Energy Efficient LED Lighting In A Way That Is Economically Compelling, With A Particular Focus On The Infrastructure, Retail And Commercial Market Segments
Lighting Science Group Corporation designs,
develops, manufactures and markets LED lighting solutions that are
environmentally friendlier and more energy efficient than traditional
lighting products. LSG offers retrofit LED lamps in form factors that match
the form factor of traditional lamps or bulbs and LED luminaires for a range
of applications including public and private infrastructure for both indoor
and outdoor applications. LSG's Custom Solutions business unit designs,
develops and manufactures custom LED lighting solutions for architectural
and artistic projects. LSG is headquartered in Satellite Beach, Florida;
LSG's Custom Solutions business unit is based in Rancho Cordova, California;
LSG's European operations are based in Goes, The Netherlands; and, LSG has
sales offices in Tokyo, Japan, Buckinghamshire, England and Sydney,
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – November 20, 2009
Mr. Gibler: The overall vision for our company is to provide high performance lighting solutions and significantly reduce our customers’ carbon footprint and energy demand in a way that is economically compelling and adds to their bottom line.
CEOCFO: How can you reduce the carbon footprint economically?
Mr. Gibler: We focus predominantly on solid state lighting technologies and applications where we can provide a substantial reduction in energy consumption by using LED or solid state lighting as a replacement for incumbent technologies. We focus on applications where reduction in energy has a simple payback in terms of the cost of equipment used to replace incumbent technology somewhere between one and three years. By focusing on those particular applications, we can provide a financial return to our customers that is pretty compelling. We do it in a couple of different ways. Obviously, if the customers have the capital available to invest in a relighting program using this advanced technology, they can do so, but often we find we are competing for capital for other things or the customers are financially constrained in other ways. We have established financial vehicles focused on lighting applications where essentially the new LED lighting equipment can pay for itself and create an immediate positive cash flow impact for the end user by reducing their operational costs.
CEOCFO: Would you give us an example of projects you have done?
Mr. Gibler: A good example of a project that we have done is for Simon Properties, which is one of the largest mall operators in the US. We replaced the lighting in the kiosk in their malls. Previously, the lighting they used was incandescent halogen, consuming about 35 watts per lamp and there are about thirteen lamps on every kiosk, for a total of about 100,000 traditional technology light bulbs on their system. We provided them a solution that replaced those 35 watt lamps with a product that provided the exact same lighting, but does it for about 5 watts -- a 30 watt reduction and only about 14% of the energy of the incumbent technology. There was obviously a capital investment required to roll out our technology, so we offered them a financing solution, but they ended up deciding to internally finance the retrofit. The incandescent halogen lamps that were in there kiosks last about two to three thousand hours resulting in the incandescent lamps having to be replaced one to two times per year. In contrast, our LED retrofit lamps are expected to last about 25,000 hours or 10 times longer. The initial proposal that we put before them was to pay us what they pay for the incumbent technology, so that there would be no additional cost from an operational perspective. We would provide the new technology and then they would pay us a portion of the operational savings. The products we are providing to them last about ten times longer than the product we are replacing. So at the end of a set term, a year in this case, we would have recouped the price of the new LED retrofit lamps and then equipment from them and then they would get to keep 100% of the savings. However, they looked at it and decided to go ahead and cover the capital cost themselves because it was a very good return and only about a nine month return on investment for changing out. The bottom line is the new technology we will save them about $300,000 a month on about a $2.2 million investment.
CEOCFO: What is it that you are physically putting in and how does it work?
Mr. Gibler: What we are doing is replacing the incumbent technology with an LED light source that is much more energy efficient. In the case for Simon Malls, we provided new LED retrofit lamps that directly replace the existing light bulbs. It was the same type of economic story for the American Airlines Parking Garage, where we just completed relighting the parking garage at their corporate headquarters. The application required a higher output light source. We replaced incumbent technology, in this case, high intensity discharge or HID with an LED fixture, our Flat Low Bay luminaire. With LEDs, the energy usage is cut by about 60% and, by leveraging utility rebates, American Airlines realized a payback simple pay back in about sixteen months on their capital investment. The new LED fixtures will last more than ten years and eliminate substantial future maintenance.
CEOCFO: What is the competitive landscape?
Mr. Gibler: It is a very competitive industry with many players entering into the space. However, the significant installed base on incumbent technology and the compelling economics of retrofitting to LEDs has resulted in a very strong market for the new technology and demand is clearly out pacing supply. The industry is challenged to develop solutions for all of the various lighting applications and there is a very high demand for development resources. We anticipate that the demand will outpace supply for several years as new products are brought on line.
Lighting Science Group brought together four companies over the last 28 months or so, with specific intellectual property as well as knowledge in integration of LED technology. This allows us to have products that are significantly more efficient than the competing alternatives in terms of converting electricity into light and at a cost that is significantly lower than the competition. Lighting Science is strong in a variety of the specific technical aspects of LED lighting technology, such as thermal management and electronics, and that know-how contributes to our leadership position. We are very focused on how to provide energy efficient lighting solutions that are economically compelling for our customers so that they find it easy to replace the incumbent technology with LED technology. We focus on the installed base of the incumbent lighting technology, where can we change the old lighting today and put in LED lighting that lasts longer, uses a lot less energy, that results in a financial return to the customer that is very compelling. In addition, we have a business model that allows us to take on the risk of making the change -- if a product does not perform, we do not get paid. It is low risk for our clients, if the product performs we get paid and make money and so do the clients through the operational savings of the LED technology.
CEOCFO: How do you reach your potential customers?
Mr. Gibler: We tend to focus on customers that have a relatively significant installed base of traditional technology lighting, whether it is retail customers, such as Simon Properties, infrastructure such as the American Airlines parking garage, or municipalities, for example, with a design partner, we are working on the winning new New York City streetlight design. Unlike the traditional lighting industry, we tend to focus our efforts at a financial solution sold to the C-level executives at the customer, to whom we can demonstrate a return on investment, one that has the potential to create positive cash flow for them from day one of installation. In addition to regular sales efforts, we have a network of advisors who have C-level relationships with major corporations as well as major cities. We look for the opportunity to demonstrate the potential return on investment and explaining our financing options to the level that makes financial decisions.
CEOCFO: You have a global footprint; where are you and where would you like to be?
Mr. Gibler: Yes, we are global. Our headquarters is in Satellite Beach, Florida. We found a good technology base here, near to NASA, and we have a very strong connection to that industry. We recently announced that the director of material science for NASA is joining Lighting Science. He will support our work on advanced materials to improve thermal management, reduce weight, and to make our products using environmentally sustainable materials. We have a very strong environmental focus at Lighting Science, it is in fact a cornerstone of the company.
We also have a sales and marketing operations office in Europe out of Holland that is predominantly focused on access to the European market. Europe is a very interesting market for us because the energy rates tend to be quite a bit higher than they are in North America, and consequently the payback periods are very short and the financial returns can be higher in Europe than they are in the United States. We also have an office in Japan. Some of the primary research on LEDs is done in Japan and we have very strong relationships with the Japanese companies that have developed and are continuing to develop LED technology.
In California, we have a creative design, development and manufacturing capability that works more on large, spectacular lighting projects like the Times Square Ball the New York World Trade Center Seven. These types of new to the world theatrical, architectural and ornamental lighting projects are an important part of our business in that it keeps us in the forefront of technology innovation for LED lighting. We also have a presence in Australia and Hong Kong, predominantly focused on sales and marketing. Most of our focus for growth is on North America and Europe because of the growing sustainability consciousness and energy usage and cost making the financial benefits compelling.
CEOCFO: You have been CEO for about three or four months now; what might be changing under your leadership?
Mr. Gibler: Probably the most significant refinement of our strategy is to narrow our focus on lighting applications where the financial return is the highest. We previously had been a bit broader in terms of our market approach and my direction for the company has really been to ‘target applications’ that will have the most significant financial returns for our customers. The three major areas are infrastructure, retail and commercial applications.
In the infrastructure market, outdoor public street lighting is an area where we have a unique position from a performance and price standpoint. It is a segment where the economics are compelling and the political environment is supportive for municipalities in North America and Europe to deploy more energy efficient solutions.
In the retail market, customers tend to have
significantly long operational hours, so the lights are on for long periods
of time, they use lighting to highlight products and they look for
particular light quality. Retail customers also understand the financial
implications of their operations. LED technology is quite compelling in a
retail application where we can significantly reduce the operational costs
and provide the specific light desired by the customer.
The cost improvements will make the technology more compelling to consumers. We are bringing to market a range of LED retrofit lamps where the payback can be less than a year and that is very compelling to make the change. Until just recently, LED technology could do the lighting job effectively, but it could not do it cost effectively. Now with the increase in performance and the reduction in cost we are at a tipping point in the industry where we think that LED replacement technology will really start to take off and you will begin to see these products widely available through the retail segment for consumers.
CEOCFO: What is the financial picture like at Lighting Sciences?
Mr. Gibler: We are not quite profitable yet. We made significant investments both in acquisitions of companies and developing the core technology. The last couple of years have been focused on investing and in building the platform. We are working on reducing our burn rate and getting closer to being a break-even business with substantial growth. We are well capitalized and have enough resources to continue to drive forward. We are moving toward being cash-flow positive, and perhaps may do so in the first or second quarter of next year.
CEOCFO: In closing, why should potential investors be interested and what might they miss that they should understand about Lighting Science Group Corp?
Mr. Gibler: I think that investors should first to understand that the technology is advancing at a very fast rate and that there is a tremendous opportunity to covert traditional inefficient lighting technology to energy efficient LED lighting technology. To give you a sense of scale, there are about four billion light sockets in the United States alone and there are sixty million streetlights in the United States. LED lighting technology is at the point where it is economically viable and compelling to convert. External pressure includes a political environment where certain types of the traditional lighting technology in the United States, Europe and Australia have been or are in the process of being legislated out of use.
So the lighting industry, and the LED lighting
industry in particular, is very dynamic and exciting right now. We think
that Lighting Science is doing the right thing to participate in and excel
in the market, picking the best lighting applications to pursue, developing
leading technology, and providing customers with a financial solutions t
that enables the adoption of Lighting Science’s products. I believe that
Lighting Science is strongly positioned to take advantage of the change to
energy efficient LED lighting.
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