Energy Focus's (EFOI) CEO James Tu on Q2 2016 Results - Earnings Call Transcript
Aug. 11, 2016 11:41 PM ET| About: Energy Focus, Inc. (EFOI)
Q2 2016 Earnings Summary
Energy Focus, Inc. (NASDAQ:EFOI)
Q2 2016 Earnings Conference Call
August 11, 2016, 11:00 AM ET
Executives
Marcia Miller - CFO
James Tu - Executive Chairman, President and CEO
Analysts
Colin Rusch - Oppenheimer
Amit Dayal - Rodman & Renshaw
Mark Miller - Benchmark
Nate Mitchell - FBR
Craig Irwin - ROTH Capital Partners
Operator
Good day, and welcome to the Energy Focus Second Quarter 2016 Earnings Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Ms. Marcia Miller. Please go ahead.
Marcia Miller
Thank you, operator. Good morning, everyone and thank you for joining us for Energy Focus second quarter 2016 earnings conference call.
Today, James Tu, our President and CEO, and I will report on our results for the quarter. Michael Port our Corporate Controller who will take up as Interim CFO is also with us today. The news release and our quarterly report filed on Form 10-Q have been posted to our website under the Investors Section.
As a reminder, today’s discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. These forward-looking statements are subject to numerous risks and uncertainties. We encourage you to review our most recent filings with the SEC including our 10-Q and 10-K for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. We are not obligating ourselves to publicly release any revisions to these forward-looking statements in light of new information or further events.
Now, I’d like to turn the call over to James.
James Tu
Thanks Marcia and good morning, everyone. As you have seen from our press release, the second quarter of 2016 has marked with both challenging financial results and continuing progress in stabilizing our military business while growing our commercial business.
Our sales came in below our guidance due to a combination of factors that we believe are transitional in nature. First, our military sales at $3.8 million were roughly equal to our first quarter military sales relevant than the higher levels we originally expected.
During the quarter, we undertook a necessary and strategic move to renegotiate our contract with our exclusive distributor. So they are now required to maintain certain level of inventory. By doing so, with the continuing recovery of purchases from the navy ships, we can gradually reduce their inventory to a level that is expected to provide more stable quarterly military sales for the remainder of the year.
Second, during the process of augmenting our logistics operations, we've discovered an operating error that resulted in some product being manufactured in a manner that did not follow our internally determined process for this product.
As we said in the press release the error surrounds mainly a tender for our internal manufacturing process requested by some customers and do not relate to any safety or performance issue.
We voluntarily took the action to income-affected customers about the issue, which resulted in taking back products and issuing credits to these customers for approximately $814,000.
We have evaluated and are implementing improvements to our sales, supply chain and manufacturing processes. We are also enhancing our communications with our customers regarding their purchase requirements and are implementing internal processes to ensure that our inventory fulfillment is in line with those needs.
Third, a few of our commercial projects was approximately $1 million mainly from the public sector were delayed. As we have repeatedly said, contract timing is a factor we cannot effectively predict and control. That said, we are working to build a stronger sales pipeline to offset such risks going forward.
In the meantime despite of the short term financial challenges we have experienced over the past two quarters, we continue to make exciting progress in business development and new account generation.
[color=blue]With respect to our military maritime business, we are extremely happy to announce that after few quarters of due diligence and testing, the Royal Canadian Navy has placed their first order with us.
While the initial order size is modest, we believe that it did not trade our competitive advantage in retrofitting the Canadian Navy fleet with our military products.
Serving the LED lighting needs of the country's navy is both an honor and an ultimate testament of our product's performance and quality. And we're excited to be entering the Canadian market by first supplying our product to the Canadian Navy.
During the quarter, we also received additional orders from the Australian Navy and retrofitted eight additional shipments for the military come in where Energy Focus continues to be the dominant LED lighting supplier.
With respect to our commercial business, we are paying several marquee accounts including a national footwear retail chain with 1250 stores, a Midwest-based family owned shoe retail chain with 150 stores.
Three of the top 10 largest universities in the U.S. located in Florida, Ohio and Minnesota, as well as an Ivy League University.
In addition, we retrofitted a number of profit building of 10 federal state and local government agencies and 21 public school districts. We're particularly excited to see the higher education markets led by large universities with strong sustainability programs prior to open up.
In addition, we're very excited to report that in July we received our first order from the largest membership-only warehouse club in the United States to retrofit the [house] area of their 600-plus stores.
Again working directly with this high-profile Fortune 50 client, we're able to provide them with their choice as the most compelling LED lighting solution against incumbent lighting brands.
And in healthcare, we received our first order from Fortune 50 healthcare service company to retrofit their 120-plus distribution center as well as from the National Institute of Health
These orders follow our retrofit of the National Cancer Institute in the first quarter. With these wins and on top of the continuous sales to the Northeast Ohio Hospital system, which completed these retrofit of another 13 buildings during the quarter we're clearly on our way to achieve our goal of becoming the LED lighting company of choice for the healthcare industry.[/color]
These leading public and private enterprises choose to work with Energy Focus because of our superior proven product that we believe provide the best return on investment on a long-term basis.
We also believe that these enterprises appreciate and recognize the critical importance of following with the leading LED Lighting Technology company like Energy Focus.
Through this partnership we've demonstrated our dedication to educating, analyzing and helping our customers implement LED lighting product and solutions quickly and in an impactful fashion, so they can achieve their targeted goal.
We believe that the growing list of enthusiastic clients will continue to expand in the coming quarters, as the initiative intensify across the upper echelon of the public and private sectors.
Furthermore during the second quarter, we added 16 contracting and installation partners who we refer to as Intra World Partners or IWP. The total number of IWPs reached 35 at the end of second quarters. These IWPs can be significant contributors to our sales and growth efforts as they have the potential to lead the large recurring orders, although not every one of them they are the best luck of our continuing growth.
As they either use substantial amount of our products in their facilities or specify our product in the project they're involved with. On product development, our global engineering teams continue to move forward with developing new product offerings for our customers.
In addition to new product unveiled during last year in late April by the end of this year we expect to have an extensive income sized portfolio of high quality LED lighting products that cover an overwhelming maturity of lighting needs for both interior and exterior retrofit. We will make specific announcement as we launch these new product line.
Another key initiative we undertook during the second quarter and into the third quarter is strengthening our senior leadership. As we will be announcing within the next week also, we have just hired our Senior Vice President of Marketing, Jennifer Deutsch, who brings with her exceptionally strong global brand building and management experiences, for an extensive range of B2B and B2C businesses, including a number of globally well known brands.
With our initial success in these vertical, we have focused on over the past few years, now is the time for us to substantially upgrade and expand our marketing campaign for both brand building and degeneration within these key verticals.
In the meantime, we're continuing the process of interviewing candidates for additional Senior Leadership positions including a CFO and Senior Sales Leader and we expect this process to continue over the next few months, as we seek world-class professionals in this key discipline to complete the initial line-up of our new leadership team.
And as we also announced today through an 8-K filings our Board of Directors have appointed Ron Black, previously our Lead Director and our current CEO of Rambus Cooperation is our now Executive Chairman of the Board effective immediately.
Three years ago in addition to the Chairman role I took on the road of CEO of Energy Focus to initiate a restructuring and repositioning CEO of the company. These efforts resulted in our rapid penetration into the U.S. Navy fleet and our early wins in select commercial verticals such as healthcare and retail.
As the economies of LED lighting retrofit have significant improved and government and business institutions are now driving fuller with the Sun TV clearly initiative and our reputation, Energy Focus is going through another method multiples to elevate our level of competency and execution to take advantage of this market and to leverage our early successes in these targeted vertical.
We appointed Ron as our Chairman to oversee matter and to provide me and the company's Senior Leadership Team with greater opportunities to benefit from his experience while improve our focus on ensuring that we are executing our plans to optimum growth.
Ron has been a highly successful leader and exchange agent in the high-tech industry over the past two decades and we very much appreciate his elevated commitment to Energy Focus.
In closing, I would like to again express gratitude to all our employees for working together during the past during two financially challenging quarters as we went through some growing pain. Now unlike all this positioning few years ago we are now resetting the company for growth ahead.
While our large accounts take quarters or even years to fully develop, as we continue to win new markets and IWP account and expand our sales force, our sales pipeline and commercial sales are expected to grow in the third quarter and beyond.
For the first quarter as we layout in the earnings release we are focusing sales to range between $8 million to $10 million. Again as we have said, the first focus we’ll provide is the rise on our current outlook of our sales pipeline and is subject to project planning change.
Before I turn the call to Marcia, on behalf of the whole company, I would like to thank Marcia for stepping up to the CFO position more than a year ago to help us improve our finance operation and build our financial team.
Her professionalism and dedication to our company over the past four years of her tenure are exemplary and wish her the best in her future prospects.
Now I would to turn the call to Marcia to talk further about our financial.
Marcia Miller
Thank you, James. Net sales for the second quarter were $7.1 million down 56% compared to the second quarter of 2016. The current year's quarter included a reduction in revenue of $814,000 to assess the return of commercial products and related discount and product sold during the fourth quarter of 2015 and the first quarter of 2016.
We determine that certain shipments during those timeframes did not comply with our process to assemble finished products in accordance with the applicable standards for those orders.
The operational errors did not relate to safety or quality of the product, but to conform with the manufacturing standards represented with respect to the product. We also recorded an adjustment to inventory and cost of sales for $221,000 for the return product and to write down the value of products remaining in inventory at June 30, 2016, to the applicable standard cost.
In total, the adjustment resulted in an increase to our net loss by $593,000 or $0.05 per share for the quarter. We have evaluated and are implementing and prudent to our sales, supply chain and manufacturing processes, will also enhance in communication with our customers regarding their purchasing requirement and have implemented internal processes to ensure that our inventory performance is in line with those needs.
We have estimated an amount of the potential credits for the remaining effective customers and determine that the impact is not likely to be material.
Net sales of our military maritime products decreased $10.3 million or 73% compared to the prior year's second quarter.
As we said in our press release, we've strategically amended our contract with our military product distributor, so we can obtain and maintain on more stable quarterly sales run rate of our military imperative products for the rest of the year and Energy Focus remains the only approved provider of revenue estimate.
Commercial product sales as reported, increased 54% from the prior year second quarter excluding the $814,000 revenue reduction. Commercial sales increased 92% from the prior year’s quarter.
For the quarter, commercial sales represented 46% of net sales while military maritime products comprised 54% of net sales. This shift in product mix resulted in gross margins of 35.4% a decline of 10.4 points from the second quarter of 2015 where military maritime products represented 87% of our total sales.
Additionally, adjustment to sales and cost of sales I spoke of earlier decreased gross profit by $592,000 or 3.8 basis points. We expect that our gross margins would decrease from the levels we saw in 2015 at sales of commercial products became a bigger part of our total sales, but we do expect some to increase somewhat in the third quarter of 2016 due to the absence of the revenue and inventory adjustments that occurred in the second quarter.
Operating expenses of $6.4 million increase by $2.2 million from the prior year’s second quarter, the majority of which was due to higher SG&A expenses.
Sales commissions increased approximately $373,000 compared to the prior year's second quarter as we changed our selling relationship for our military maritime products for the U.S. navy effective October 1, 2015. Under this new relationship, we began using an outside sales representative who earns a commission on these sales rather than purchasing them at distributor pricing.
Higher spending across a variety of areas, including consulting services, stock-based compensation, severance cost, network and software cost, legal and trade show expenses contributed to the majority of the increase from the prior year.
At the end of the second quarter, we had about 40 sales, marketing and sales support personal, which is about the same number we had at the end of the first quarter. This compares to 25 at the end of the second quarter of 2015.
We had about a 123 full time employees worldwide at the end of June, which is consistent with the first quarter and the fourth quarter of 2015. The number of personnel is expected to increase during the third quarter and we've already added -- will have scheduled start dates for about a 1,000 people since June 30, the majority of whom are in sales and marketing.
Due to the operating loss incurred in the quarter and after the application of the annual limitation under Section 382 of the internal revenue code, we’ve recorded no provision for U.S. federal income taxes and have a full valuation recorded against our deferred tax assets.
The net loss for the quarter was $3.9 million or $0.34 per share compared to net income of $2.1 million or $0.21 per share in the prior year’s second quarter.
Net sales for the first half of 2016 of $16.6 million decreased 46% from the prior year’s first half. While sales of our commercial products doubled from the prior year, our military management product sales decreased 69%.
The gross margin for the first half was 36.4% of net sales compared to 43.7% in the prior year's half with the decrease being primarily attributable to a change in product mix between commercial and military management product sales.
The net loss for the first half was $5.9 million or $0.51 per share compared to net income of $3.2 million or $0.32 per share in the prior year.
In regard to the balance sheet, cash decreased $4.7 million during the second quarter to $25.4 million at June 30. The decrease was primarily due to the net loss and an increase in net inventory of $3.1 million to meet the demand principally for our commercial products, which has been slower than the anticipated.
We don’t expect inventory levels to rise much if at all during the third quarter, but that is dependent upon sales level as the majority of inventory has long lead times and most of the purchasing of these items have already taken place for the quarter.
The accounts receivable balance was $5.2 million at June 30, 2016, compared to $6 million at the end of the first quarter. The sales outstanding was 32 days at June 30 compared to 29 at March 31.
As we have said during our last few quarterly calls, our operating expenses are expected to continue to grow as we're planning to stay the course to build business development infrastructure and strengthen our management team as we seek to grow commercial product sales.
This Monday, August 15, will be my last day with Energy Focus and I leave the company in the very capable hands of Michael Port, our Corporate Controller as he takes over as Interim CFO until a new CFO is brought on Board.
It's been my pleasure and honor to work with James and the rest of the leadership team and I am grateful for the opportunity to have served as the company's CFO.
With that, I’ll turn the call back to the operator for questions. Ron, can assist us with that?
Question-and-Answer Session
Operator
Yes indeed. [Operator Instructions] And we’ll take our first question from Colin Rusch from Oppenheimer. Please go ahead
Colin Rusch
Thanks so much guys. As you look at the guidance for the third quarter and the new contract with your distributor, how much of that guidance is actually sell in to get inventory levels up to the range that you need them to be in, offer them to have them minimum.
James Tu
Well, there was a level of inventory that they need to maintain over the course of the contract and we have eliminated that and instead we're selling them a fixed number in the next two quarters and so to help them remove the inventory as much as possible. So that is really the strategy as opposed to requiring them to maintain that inventory.
Colin Rusch
Okay. That's actually helpful in terms of clarity…
James Tu
Yes.
Colin Rusch
Go ahead.
James Tu
No, I was going to say that the whole strategy is to start stabilizing the whole military sales. So it wouldn't be a volatile factor of quarterly results. As we have said in the reporting that we're still the only approved provider for the U.S. navy shift to retrofit that for the plan. So the total market is still the same. It has never changed over the past few quarters, our sales fluctuate.
So the strategy is to resolve that inventory requirement. So we wouldn't be in the fast -- same type of situation. These are same situations going forward.
Colin Rusch
Perfect. Okay, and then with this manufacturing glitch or excursion, can you talk little bit about how you found it and how quickly it took to resolve?
James Tu
So I can talk a little bit about it and Marcia can elaborate but, we were implementing a barcode system of the past few months and we found that there was some inventory mismatch, which is how we found that some product was not being used and some product were used more and that’s where we discovered the situation.
So, obviously our protection capacity has grown multiple times over the past two years and this is way we are implementing the bar-coding system and this is where we found the problem. So, as we said, we voluntarily reach out to the customers and they are all now happy about us reaching out to them proactively and each have been gradually resoled.
Colin Rusch
So just that I understand that this is not an actual defect with the product or the manufacturing process, it was really about an inventory management system.
James Tu
You can say that, if the manufacturing process glitch, it's not about as we said, has nothing to do with safety or performance of the product.
Colin Rusch
Okay. Perfect, I think that’s it. I'll take the rest of it offline. Thanks so much.
James Tu
Thanks Colin.
Operator
And our next question comes from Amit Dayal from Rodman and Renshaw.
Amit Dayal
Thank you good morning James, Marcia.
James Tu
Good morning, Amit.
Amit Dayal
Hi, just a follow-up on this return product situation, I may have missed it. I apologize if I did. This looks like a one-time event is that correct?
James Tu
Yes, it’s very much a one-time event. As I've said in the script that couple things actually came together in the quarter and we were really -- as we have said and I've said in the past that we are really elaborating the whole not just leadership, the whole company’s execution capability over the past few months and we found some problems and we tried to adjust them as quickly as possible.
Really if you look at the fundamental side of our business, the growth momentum, the addressable market side, none of that has changed, everything actually has gotten better, but there are issues that as we grow, we did make some mistakes and the fact that we had to rectify these errors as they came along.
Amit Dayal
Understood. Thank you. And just trying to dig into the second quarter results relative to guidance, is it that we had the contracts in place to meet the guidance, but we may have that issues in deployment or fulfillment and how should we look at what has transpired?
James Tu
Yes, I think with the previous requirement we were -- which is high level, a pretty high level inventory requirement for the distributor to be exclusive with us.
We have to -- we were expecting more sales because just to feel the inventory minimum level, but we don’t think that is clinical way to develop a stable and steady military business going forward. So took the step to renegotiate with the distributor.
So in another words Amit, it’s a pretty simple math, we're currently selling them a fixed number of military interactive product and we're hoping that we should supply more and more higher than that number.
So their inventory will be coming down. So we are not subject to -- I'll just speak exclusive relationship with the distributor and held them move the inventory factor.
Amit Dayal
Right, so just to follow up on that, I guess the way to look at it is you are previously dealing exclusively with this distributor for military sales and now you potentially could work with other distributors who have relationships into the military?
James Tu
Well that’s a possibility, but the key thing is that we have to help them remove the -- reduce the inventory level so both sides feel better.
Amit Dayal
Right, understood and your comments around some of the commercial opportunities and contracts you have won especially with this large national wholesaler I guess, what’s the time transfer deployment? Is it order to deploy limited number of stores initially or is it a full time track for the 600 stores.
James Tu
Yeah, as we mentioned, as I talked about, we already got the initial orders obviously. These institutions are large institutions. So, we do expect them to take a few quarters or even the longer to deploy our product in all their stores or facilities, but I don’t expect this to be three, five year type of projects, but it will be over a certain number of quarters.
Amit Dayal
Wow, that’s great. I think that's all I have James. I will follow up with you after this. Thank you.
James Tu
Thank you, Amit.
Operator
Our next question comes from Mark Miller from Benchmark.
Mark Miller
Just wondering with the expansion of your sales team and the SG&A reporting this quarter, are we still or have we moved beyond a breakeven revenue level of $14 million to $15 million.
James Tu
We are probably a little bit higher than that now. Obviously we are expecting commercial sales to grow and at some point if it is not growing as fast as we like, then we’d like to see them -- we have to look at our expenses and slowdown a little bit on the expansion of the sales force. By this point we are moving forward in anticipation of continuing incremental commercial sales growth.
Marcia Miller
I would add that those $15 million breakeven had a higher component of military sales than the current than our current though is based on the change that we made with our distributor contract and as we said, when we changed the mix, the margin changes as well. So that’s the piece of it also.
Mark Miller
Great. Thank you.
James Tu
Thanks Mark.
Operator
Our next question comes from Nate Mitchell from FBR.
Nate Mitchell
Hi, thanks for taking my question this is Nate in for Carter. Just was wondering if you could give us an update on the rollout with cause, how is it going and any additional details you can provide there?
James Tu
Yeah, we haven’t got our next phase. We have retrofit the first about 20 stores. We have not got our first the next phase of the orders, but we believe that on a long term basis, they are still going to be using our product. We don’t have the latest update on the next shipment.
Nate Mitchell
Great. Thank you and then just one more, the new warehouse customer if you could compare or contrast it with cause, is it a similar type of rollout.
James Tu
It is very different in terms of the facilities, the course are for the stores, part of the stores. For this healthcare service company, it’s for their distribution facilities. We're working on the first four facilities, but they love our products and we expect the rollout to continue and probably accelerate in the next quarter or two.
Nate Mitchell
Great. Thank you.
James Tu
Thanks Nate.
Operator
And our next question comes from Craig Irwin from ROTH Capital Partners.
Craig Irwin
Hi, good morning and thank you for taking my question James.
James Tu
Good morning.
Craig Irwin
So, James, you’ve got a nice cash cushion I guess sitting on more than $25 million in cash, can you say whether or not you would consider strategic options may be acquisitions of adjacent product lines or companies that could be synergistic with what your sales force is doing.
And can you may be describe how you prioritize the use of your cash over the next couple of quarter, whether or not getting back to breakeven is your number one priority or if may be you are still prioritizing revenue growth over cash preservation.
James Tu
Good questions. So the first one is the potential M&A target. We actually look at potential M&A target pretty much all the time. We just haven't pulled on anything yet.
I think that the point is that we'll be running in such an infancy stage of adoption for the enterprise market and we just see a lot of demand out there and we're leading the side by our sales force as I've said that in the past, these customers again we only reach out to the market accounts.
These are inevitably large companies that will take time to make decision, but also rollout the product, but I think incrementally quarter-over-quarter we are going to start seeing these accounts start to held up and contribute to growth.
So that’s our top priority, but if they are impactful technologies we could incorporate into our sales force process and we're definitely looking at that, but that’s just not out top priorities.
But to your question we are, we have been looking at technologies. I cannot say that we will, we will not buy a company, a technology to incorporate in the near term because we look at them all the time. We just haven’t found really exciting ones yet.
The second question is about the cash use. At this point, I would say that we are still looking at growing the company, growing our brand. We have got pretty exciting and successful progress in these verticals that we focus on and we mentioned about that healthcare of K-12 higher add retail.
And so we’re continuing to deploy our sales force and expand our brand building effort in these verticals. Again as I mentioned earlier, if our sales growth is not there or not strong enough, we might need to look at our expansion pace and slow down a little bit if that’s the case.
But at this point, we’re expecting incremental growth on commercial sales. This is the time to really own the market in a way because the markets are open up and that’s what the investors expect us to do, to grow the company.
Craig Irwin
Excellent. Thank you for that. So my question, my second question relates to the military C&I is a great market, it's a huge market, but you've shown the ability to make good money of sales of tubular LED products to military.
There is another competitor out there making a lot of noise about intention to participate in this market. Do you still expect to retain all of the tubular LED sales to the Navy or would you now may be consider it a positive outcome to see Energy Focus retain a large share of the sales of tubular LED products to Navy and revenue to be at a higher run rate then what we’ve seen over the last couple quarters? Would you see that as a positive outcome?
James Tu
Let me try to get to your question and you let me know if I answer your question. As we mentioned in the press release, our penetration rates with the U.S. Navy fleet is now at 35% and the sailors and the mangers at the ships, they love our product.
To get through the approval process, testing and approval process, to get the product into the Navy ship is a very lengthy one and that is showing when we have 35% market share penetration rate. I just couldn’t see. Again I’m not going to predict that there is now competitor, we can never be sure of that.
But I think the economics of having for the new competitor to come in and compete with Energy Focus is just not appealing. We just again I think as we indicated, there are some noises I think about having about new competition coming into our space. We just haven’t seen it. We just have not seen it.
And we continue to as we mentioned to expand our aggressive efforts, our business development professionals are on shipyard all the time. So, again I just don’t see competition coming in and for the Navy to actually adopt a different product at the stage of the penetration.
Now recovery sales run rate, as I've said, we strategically made the decision to start take our military sales that addressable market is still the same, it's still there.
In fact if you look back two years ago versus now when we have dramatically higher penetration rate of the market, our positioning is even better than two years ago.
Now the key here is you get $10 million out of the quarter or $5 million a quarter, you will get $10 million a quarter for three years or $5 million a quarter for six years. I think from protection, efficiency standpoint and stability of quarterly financials we would like to stay at a lower number, but it will be a much more sustainable level.
Craig Irwin
Thanks again for taking my questions.
James Tu
Thanks Craig.
Operator
[Operator Instructions] And we’ll take our next question from [Ken Kiora] a Private Investor.
Unidentified Analyst
Good morning or good afternoon, excuse me. I’d like to focus in on the commercial side, I see that we've got a lot of contact that have been made and trying to understand what is the size of the contract and as things like under that contract there were subset of orders.
What is the average size of the contract? What is the average dollar size of each order and what’s the average amount of orders to fill the contract over what period of time?
James Tu
Hi, Ken we actually don’t -- typically don’t get contracts with the amount of contract last year when we started working with the Cleveland Clinic, that was a contract they have specified that they like buy 250,000 tubular LEDs from us in that contract, but typically most of the enterprises we work with, they started by installing our products in a few facilities after a lengthy evaluation obviously.
But once you pass that testing and validation process, we get the first orders to retrofit some stores or some facilities. So there is no, there is usually not a contract but continuing orders to hopefully retrofit all their facilities.
Unidentified Analyst
I see and one quick last question is what do you feel is your capacity now see it from in a year from now and what is your ideal capacity without sacrificing delivery time or margin?
James Tu
Well, we have multiple product lines. Some of the product lines are manufactured or assembled here in Ohio. Some of them are made in Asia. So, we have pretty handful capacities from the whole supply chain at this point.
I don’t see capacity constrains as a factor for our growth at this point because over the past year and year and half, we have really build up a very strong supply chain with very strong component and past manufactures in Asia and even in the United Sates. So I don’t see capacity constraint as an issue for us at this point.
Unidentified Analyst
What do you think that capacity level is?
James Tu
At least three fold, quadruple where we are and with…
Unidentified Analyst
Thank you.
James Tu
Thank you.
Operator
And it appears there are no further questions at this time. I’d like to turn the conference back over to Mr. James Tu for any closing remarks.
James Tu
Thank you very much for your time again and interest and we look forward to talking to you in a quarter’s time. Thank you. Have a good day.
Operator
And that will conclude today’s conference. We thank you for your participation. You may now disconnect.
