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Last December, EdisonReport reported that Luminus Devices had sued their primary
debt holder, Hercules. A few
weeks later a press release was issued that the issue was resolved.
Your humble editor recently discussed this issue with Keith T.S. Ward, President
& CEO of Luminus Devices. I
have interviewed Keith before in his role as head of the NEMA enLIGHTen America
Task Force and I cautioned a mutual friend, who was setting up the interview,
that the NEMA discussion was an association interview—meaning relatively easy
questions. I emphasized that if
Keith did agree to the EdisonReport interview, the questions would be much
tougher than the NEMA discussion.
I was told that he understood and was prepared.
As I began my research for the interview, I re-read the news accounts of the
situation. Luminus Devices seemed to
be a business in trouble. I was very curious to talk to Keith and get the real
scoop on where Luminus is right now.
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Ed: Hercules stated that your
financial position had deteriorated so rapidly that Luminus would be unable to
make loan payments. How did you get
into such shape that your VC lost confidence in your business?
Keith: We had not deteriorated
rapidly as much as not hit our stated revenue targets; obviously that put a
financial strain on the company. In
late 2007, the business had a plan to be at $60M by 2010.
This past, September, three months after I started, the business prepared
an Operating Plan for 2010 that was realistic—however much less than the 2007
plan originally discussed with Hercules.
Ed: ….and all hell broke loose….
Keith: Not in September, but things
unraveled very quickly in December.
We were already in negotiations to rework the loan, and throughout the
negotiations the business felt we could work through these challenges.
But by mid month Hercules had decided differently and they seized the
funds in our account. There was
$15.1M left on the loan and they swept $13.6M.
Ed: I read where they have done this
before at another company in which they had invested.
Keith: Yes, I am aware of that now,
but Luminus never violated any covenants in the loan agreement.
Based on the language in the loan, they did have control of the accounts
and were able to do this.
Ed: In addition to not making the
sales number, your new plan called for losing money in 2010.
Keith: That is correct; the business
plan I submitted in September was realistic.
It was not a rosy promise, but it was a realistic plan.
Turning this technology company profitable was never a one-year plan. We
are now on track as a business to be an independent company that can fund itself
for growth and profitability.
The entire company and I are very focused on this!
Ed: So Luminus Devices has lost over
$140M since its start in 2002?
Keith: No, absolutely not. “Lost” is
the wrong word. We had invested $140M since 2002. While this is a very large sum
of money, we have over 163 patents and patents pending.
We have built two factories in New England and developed an extensive
global supply chain. We have unique
and exclusive technology and our customers love our product—so much so that many
offered to invest after the financial issues surfaced.
Ed: Why did Hercules pull their
money? I have never heard of this in
lighting before, although it is more common in the semiconductor space.
Keith: I don’t know why.
We were in the middle of raising equity with existing investors who
regarded Luminus as a solid investment.
The future of Luminus technology is very exciting.
The bottom line is that we were able to raise $19M from our existing
investors (Argonaut Private Equity, Braemar Energy Ventures, Paladin Capital
Group, Stata Venture Partners) who are also on my Board of Directors—people who
believe in Luminus Devices. We are
currently going through a period of First Rights Offering to all current
investors and expect to raise the final balance to $22M.
These are equity investors, not debt investors.
Don’t get me wrong, it was very tough in December, but the leadership of our
company and the guidance of my board allowed us to make difficult decisions that
would allow Luminus to continue as a viable company.
We used the opportunity to restructure our business, focus on the
technology where we have a strong competitive advantage, and redirect our
energies to the marketplace.
The result of these actions made Luminus a much stronger company.
We have 100 dedicated employees now, and we are right-sized for a
business climate which reflects today’s demand and current economic environment.
Furthermore, we made tough choices and cut programs that didn’t deliver
optimum return on our investments.
Ed: What is the present relationship
with Hercules?
Keith: We owe them a little
money. We are deciding whether to
continue to carry that small debt or just pay it off.
Ed: How does 2010 look?
Keith: It looks very strong.
By the end of February, we exceeded our 1Q plan.
In addition, our order backlog is two times the total revenue we had in
2009. December 2009 was our
highest grossing month ever, and in January 2010 we surpassed that.
Ed: Given these sales numbers—which
shows extraordinary growth in the face of huge adversity—how did you do it?
Keith: The first thing we did was to
talk with every major customer about the issues and let them know that the
Luminus investors would support the business.
Every customer told me Luminus LEDs enabled their products, and they
needed the technology to market their products.
Virtually every customer told me that.
Ed: This is all very good, but why?
Is it because you are such a nice guy?
Why did they stick with you?
Keith: It’s about the business. No
one else makes “Big Chip” LEDs. Our
smallest chip is 5mm square versus 1mm in the market place.
If we were a 1mm chip company we would be just another LED company.
Although I am a nice guy, it’s not me, it’s the technology.
Ed: Let’s talk about that
technology.
Keith: We are dominating LED Projection, Display and Entertainment because our
Big Chip technology is ideal for this market. There
are three platforms that optimize and pulse the LED in projectors:
LCOS, DLP and 3LCD. We are
the only company that provides LEDs in all of these design platforms—no one
else.
Ed: Are you able to take this
technology to the other specialty markets?
Keith: Entertainment is next. We are
working with the big, global names in Live Entertainment, Theater, Broadcast,
Movie Production and special effects (including Search Lights.)
We are beginning to see some very nice traction on the medical
side—which, by the way, is quite profitable.
And we are being approached by many niche lighting companies because our
Big Chip provides a better solution than traditional lamp or standard size LED
arrays.
Ed: What about General Lighting
Markets?
Keith: General lighting, with white light, is a huge opportunity for our
technology. We introduced
white Phlatlight LEDs at Lightfair in 2009, where we won the new technology
award. This part of our
business is clearly very exciting and design wins are enabling product launches
with our products. We are in a
very good position right now as our engagements gain traction with both the
large lighting conglomerates and many niche fixtures manufacturers around the
world. They all want a different look or
performance than what they can get with competitors’ small LED arrays.
Luminus High Brightness Chips are enabling outdoor, roadway and high bay
applications right now.
We are investing in areas where we can get higher LPW and stay on track with the
Department of Energy performance roadmap.
Luminus has a suite of technologies in our IP portfolio that drives LPW
performance growth. In addition, we
are developing a high power UV product for industrial processes and curing.
25% of revenue is invested back in the business.
Ed: How do you go to market?
Keith: Today we have a global sales
force with offices in the US, Europe and Asia.
We solicit major accounts direct and market our product through
electronic distributors like Avnet and EBV.
Ed: What is the exit strategy?
Keith: That subject is way too
early. However, the Board put me in
this job to grow the business and create value for our shareholders—that’s what
I am doing. They expect to make a
healthy return on their investment and I am working to make that happen.
Our strategy is to grow shareholder value while we ensure our technology
enables the marketplace.
Ed: You left a fairly traditional
job at EYE Lighting for this. Any
regrets?
Keith: I loved the people at EYE,
loved the job and EYE grew substantially while I was there. But the skills and
knowledge I brought to Luminus are ideal in this job. I have no regrets
whatsoever. Luminus is a fascinating
company, growing very fast and I have had to develop some new skills as well.
At the end of last year, within six weeks, we went from a normal
business… to liquidity starved… to equity raising… to a complete restructuring
of the company with a new operating plan.
It was brutal and difficult, but now we are a recapitalized company with
a stronger balance sheet. As a
streamlined organization we can move faster, just like what is happening to
lighting with LED technology.
Luminus LED technology.
But positively no regrets. I am exactly where I need to be.