RGS Energy (NASDAQ:RGSE), the nation’s original solar company since
1978, provided a business update on its progress during the third
quarter.
Summary of Expectations Versus Results:
|
July 17, 2017 Business Update
Expectation |
3rd Quarter
Preliminary Results versus Q2 |
Sales |
Growth |
Gross
sales increased ≈33%Net sales increased ≈59% |
Installation
Revenue |
Growth |
Increased ≈36% |
Sales
organization |
Growth |
Increased ≈15% |
Customer
acquisition expense |
Cost
effective |
Decreased ≈5% |
Residential
cycle time |
Reduce |
Reduced
≈11% |
Cost of goods
sold per watt |
Reduce |
Decreased ≈19% |
Cash
flow |
Outflow
until break-even |
Outflow |
|
|
|
Management Commentary:
Dennis Lacey, RGS Energy’s chief executive officer, commented:
“We raised capital during February 2017. That capital positioned us
to develop a revenue growth plan, which we commenced during April.
Since then, to be transparent, we have been issuing business
updates. This is the second update in a row where we met or
exceeded the expectations we set. We have been moving very
quickly in making progress over this brief six-month period, and we
are pleased with the results.”
“Beyond the progress on our revenue growth plan, on September
29th we were awarded the worldwide exclusive license for
POWERHOUSE™, an aesthetically innovative solar shingle system that
integrates into a house rooftop,” continued Lacey. “We believe that
the revenue potential for this product is huge and, as discussed
during our recent investor call announcing the license, we are
working toward UL certification during second quarter of 2018.”
Growing Sales for Future Revenue:
|
|
|
3rd
Quarter 2017 (Preliminary) |
2nd
Quarter 2017 (Reported) |
% change from
Q2 |
Building
current backlog: (000’s omitted) |
|
|
|
|
|
Beginning
backlog |
|
|
|
$9,675 |
|
|
$7,392 |
|
31 |
% |
Gross
sales: |
|
|
|
|
|
Residential homeowners |
|
|
|
7,528 |
|
|
4,871 |
|
55 |
% |
Small business commercial |
|
|
|
520 |
|
|
1,531 |
|
-66 |
% |
Sunetric (Hawaii) |
|
|
|
1,809 |
|
|
1,004 |
|
80 |
% |
Total |
|
|
|
9,857 |
|
|
7,406 |
|
33 |
% |
Cancellations |
|
|
|
(1,944) |
|
|
(2,415) |
|
-20 |
% |
Net
sales |
|
|
|
7,913 |
|
|
4,991 |
|
59 |
% |
Installation
revenue |
|
|
|
3,677 |
|
|
2,708 |
|
36 |
% |
|
|
|
|
|
|
Ending
backlog |
|
|
|
$13,911 |
|
|
$9,675 |
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
Service and
other revenue |
|
|
|
332 |
|
|
289 |
|
15 |
% |
Total revenue |
|
|
|
$4,009 |
|
|
$2,997 |
|
34 |
% |
|
|
|
|
|
|
Growth of Sales
Organization: (monthly average headcount during
quarter) |
|
|
|
|
|
Customer acquisition employees |
|
|
|
71 |
|
|
62 |
|
15 |
% |
Direct sales representatives |
|
|
|
49 |
|
|
41 |
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
Foundations for Profitability for our Residential
Segment, RGS Energy’s Largest Segment:
|
3rd Quarter
2017
(Preliminary) |
2nd Quarter
2017
(Reported) |
% change from Q2
|
Productivity of
Sales Organization: |
|
|
|
Number of sales |
|
284 |
|
|
173 |
|
64 |
% |
Sales per direct salesperson (avg) |
|
43 |
|
|
36 |
|
18 |
% |
Controlling
Customer Acquisition Expense: |
|
|
|
Per gross watt sold |
$ |
0.68 |
|
$ |
0.62 |
|
11 |
% |
Ratio of expense to net sales |
|
0.25 |
|
|
0.26 |
|
-5 |
% |
Increasing
Installation Revenue Gross Margin Percentage: |
|
|
|
Installation cycle time (avg days) |
|
99 |
|
|
111 |
|
-11 |
% |
COGS per watt |
$ |
2.43 |
|
$ |
3.01 |
|
-19 |
% |
Gross margin % on actual installation time |
|
30% |
|
|
16% |
|
87 |
% |
Gross margin % including idle time |
|
17% |
|
|
4% |
|
276 |
% |
|
|
|
|
|
|
|
|
|
Financing in Place to Grow Sales:
Working Capital: (000’s omitted) |
|
|
|
|
Sept 30,
2017(Preliminary) |
|
June 30,
2017(Reported) |
Cash |
|
|
|
|
$4,658 |
|
$9,745 |
Other Current Assets |
|
|
|
|
6,634 |
|
6,516 |
Total Current Assets |
|
|
|
|
11,292 |
|
16,261 |
Current Liabilities |
|
|
|
|
3,715 |
|
3,518 |
Accrued License Fee Payable |
|
|
|
|
1,000 |
|
0 |
Total Current Liabilities |
|
|
|
|
4,715 |
|
3,518 |
Working Capital |
|
|
|
|
$6,577 |
|
$12,743 |
Debt |
|
|
|
|
$1 |
|
$1 |
|
Management Commentary:
Solar Division: “We are hitting on all
cylinders during the first six months of our revenue growth
strategy,” said Seth Wiggins, RGS Energy’s senior vice president of
the Solar Division. “Gross sales increased, cancellations are down,
net sales increased, revenue increased, installation cycle time
improved, gross margin percentage increased by more than 270% from
the prior quarter, our backlog increased and our small commercial
sales pipeline is growing. As we have explained before, we must
first grow sales and backlog, and we are expecting revenue growth
in the next six months from our revenue growth strategy.”
The overall average sales price per watt for the residential
segment in the third quarter was $3.62 versus $3.27 in the second
quarter of 2017. The increase was in part due to the company
selling less small commercial business during the third quarter as
compared to the second quarter. Generally, small commercial
involves larger systems, with more watts sold at a lower per watt
sales price. Compared to the second quarter, the company’s
residential segment net sales increased by 32% and watts sold
increased 15%, resulting in an increase in the overall acquisition
cost per watt. Customer acquisition expense as a percentage of net
sales declined from the second quarter from the company’s
cost-effective marketing strategy.
Wiggins continued: “We continue to innovate; for example, as
planned, we commenced beta testing of our new customer centric
software, which sets up a portal for our customers. In addition, we
announced a smart battery storage program and we are also working
towards launching a home energy score program, which we expect will
generate leads and reduce our future acquisition expense.”
Finance/Working Capital: “Consistent with the
expectation we set, we are utilizing cash to build a business that
will ultimately operate on a positive cash flow basis,” noted Alan
Fine, RGS Energy’s chief financial officer. “Additionally, because
the 201 Tariff petition has created uncertainty regarding future
solar panel costs, we strategically expended cash to purchase
additional inventory in excess of our current needs so we could
meet our future revenue targets. This caused our inventory to
increase approximately $1.3 million since June 30, 2017.”
“Our strategy has been to expend cash, investing it in manner
expected to allow us to meet and exceed our quarterly break-even
results during 2018,” continued Fine. “Further, we expect to expend
cash during the fourth quarter of 2017 and, if we, as projected,
achieve revenue to operate profitably during the second quarter of
2018, our business will thereafter begin to operate on a positive
cash flow basis. To achieve this outcome, we have been investing
cash in our sales organization, marketing and a larger inventory of
equipment for future installation. We project our cash balance at
June 30, 2018, exclusive of cash activity for our new POWERHOUSE™
segment, to be approximately $2 million.”
The company recorded a non-current asset of $1 million for the
POWERHOUSE™ license on September 29, 2017 and a corresponding $1
million current liability for the initial up-front license payment.
The current liability of $1 million was paid by the company on
October 6, 2017; an additional $2 million becomes payable 30 days
after receiving UL product certification, which RGS Energy
anticipates receiving during the second quarter of 2018. Recording
the current liability resulted in a decrease of working
capital.
Fine continued: “Following our announcement of our exclusive
license for POWERHOUSE™, we received approximately $1 million in
cash from conversions of about 600,000 common stock warrants. As
the license was just awarded, it is premature to provide overall
company financial expectations. As such, the ‘Targets and
Expectations’ below are for our legacy segments, not consolidated
with the new POWERHOUSE™ segment.”
Rhode Island National Grid Renewable Energy Growth
Program:
On October 12, 2017, the company was notified by the Rhode
Island National Grid that approvals under its Renewable Energy
Growth program for residential solar systems has been suspended,
and that there may be additional approvals made prior to March 31,
2018. A new program is scheduled to begin April 1, 2018.
As of September 30, 2017, the company’s backlog of $13.9
million includes $2.3 million of sales to Rhode Island residential
homeowners not yet approved under the current Renewable Energy
Growth program. The company believes that revenue from these
contracts will be recognized when the new program begins during the
second quarter of 2018.
Targets and Expectations for RGS Energy’s Solar Division
and Corporate Segments:
- Achieve break-even revenue in the second quarter of 2018.
- Steady and improving progress in sales for the remainder of
2017, with installation revenue growth delayed a quarter.
- Digital and content marketing, not vendor lead programs, to
become the principal source of customer sourcing.
- Introduce new products and services, such as battery storage
and energy audits.
- Cash outflow from operations until break-even results are
achieved.
Glossary:
Business Segments – The Solar Division consists
of RGS Energy’s Residential and Sunetric business segments. The
Corporate segment includes administrative costs associated with
administrative services, legal settlements, legal, information
systems, and accounting and finance. Commencing September 29, 2017,
POWERHOUSE™ is a new business segment.
Gross Sales – The contract value of contracts
signed by customers.
Cancellations – The reduction in backlog from
customers canceling contracts; customer deposits retained by the
company are recognized as revenue at cancellation. Customers may
cancel contracts during statutory rescission periods or for other
reasons such as accepting a competitor’s offer or following final
site evaluation, a customer determining the solar system will not
meet expectations.
Installation and Service Revenue – The company
recognizes revenue on residential and small business commercial
projects at the time of substantial completion of construction, and
on large commercial projects on a percentage of completion basis.
Service revenue is recognized as earned.
Substantial Completion – The solar power system
is fully operational and capable of generating energy, but has not
yet received permission to operate from the utility.
Backlog – Represents the dollar amount of
revenue that may be recognized in the future from signed contracts
to install solar energy systems that have not yet been
installed without taking into account possible future
cancellations. Backlog is not a measure defined by generally
accepted accounting principles, and is not a measure of contract
profitability. The company’s methodology for determining backlog
may not be comparable to methodologies used by other companies in
determining their backlog amounts. The backlog amounts we disclose
are net of cancellations received and include anticipated revenues
associated with (i) the original contract amounts, and (ii) change
orders for which we have received written confirmations from
customers. Backlog may not be indicative of future operating
results, and projects in our backlog may be cancelled, modified or
otherwise altered by customers.
Customer Acquisition Expense per Watt –
Customer acquisition expenses represent the aggregate compensation
of the sales and marketing organizations and the cost of acquiring
customers leads such as purchasing paid leads, the cost of digital
marketing, and other marketing campaigns to acquire
customers. Customer acquisition per watt represents the
customer acquisition expense incurred during the period divided by
the watts on solar systems sold during the period. The company
internally measures cost of customer acquisition using several
methods and principally as a percentage of revenue. The company
presents certain metrics on a per watt basis as it believes this is
a typical reporting convention for the solar installation
industry.
Cycle Time - Number of days from signing of
customer contracts until substantial completion.
COGS Per Watt and Gross Margin Percentage on
Installations - Cost of goods sold (“COGS”) include direct
project installation costs (materials, labor, travel, financing
fees, and estimated warranty costs) and indirect costs for project
installation support (including un-utilized labor of idle time of
construction crews, supplies, and insurance). The company
employs an internal time reporting system to determine COGS and
resulting gross margin percentage used by the company to measure
its performance in achieving gross margin percentage targets.
Further, the company measures COGS per watt based upon COGS,
excluding idle time, divided by the aggregate watts of systems
installed during the period. For financial reporting purposes, COGS
include the idle time of construction crews currently maintained by
the company in anticipation of future growth of backlog.
About RGS EnergyRGS Energy (Nasdaq:RGSE) is
America’s Original Solar Company providing solar, storage and
energy services whose mission is clean energy savings. The company
sells, designs, installs solar systems for residential homeowners
and small business companies, and is also the exclusive
manufacturer of POWERHOUSE™, an innovative in-roof solar shingle
using technology developed by The Dow Chemical Company.
For more information, visit RGSEnergy.com, RGSPOWERHOUSE.com, on
Facebook at www.facebook.com/RGSEnergy and on Twitter at
twitter.com/rgsenergy. Information on such websites is not
incorporated by reference into this press release.
RGS Energy is the Company’s registered trade name. The Company
files periodic and other reports with the Securities and Exchange
Commission under its official name “Real Goods Solar, Inc.”
Forward-Looking Statements and Cautionary
StatementsThe preliminary financial data discussed above
consists of estimates derived from RGS Energy’s internal books and
records and has been prepared by, and are the responsibility of,
the company’s management. The preliminary estimates discussed above
are subject to the completion of financial closing procedures,
final adjustments and other developments that may arise between now
and the time the financial results for the third quarter ended
September 30, 2017 are finalized. Therefore, actual results may
differ materially from these estimates and all of these preliminary
estimates are subject to change.
This press release contains forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties, including statements
regarding the RGS Energy’s results of operations and financial
positions, and RGS Energy’s business and financial
strategies. Forward-looking statements are neither historical
facts nor assurances of future performance. Instead, they
provide our current beliefs, expectations, assumptions, forecasts,
and hypothetical constructs about future events, and include
statements regarding our future results of operations and financial
position, business strategy, budgets, projected costs, plans and
objectives of management for future operations. The words
“forecast,” “project,” “expect,” “plan,” “future,” “believe,”
“may,” “hypothetical,” “will,” “estimate,” “target,” “anticipate”
and similar expressions as they relate to RGS Energy or Dow are
intended to identify such forward-looking statements.
Forward-looking statements should not be read as a guarantee of
future performance or results, and will not necessarily be accurate
indications of the times at, or by, which such performance or
results will be achieved, if at all. Forward looking
statements are subject to risks and uncertainties that could cause
actual performance or results to differ materially from those
expressed in or suggested by the forward-looking statements.
Therefore, RGS Energy cautions you against relying on any of these
forward-looking statements.
Key risks and uncertainties that may cause a change in any
forward-looking statement or that could cause our actual results
and financial condition to differ materially from those indicated
in the forward-looking statements include: rules, regulations and
policies pertaining to electricity pricing and technical
interconnection of customer-owned electricity generation such as
net energy metering; the continuation and level of government
subsidies and incentives for solar energy; the continuation and
level of utility and state incentives for solar energy; RGS
Energy’s ability to successfully implement its revenue growth
strategy, achieve its target level of sales, generate cash flow
from operations, achieve break-even and better results for its
solar division, expand its sales and installation teams and
marketing, decrease its customer acquisition cost, develop and
implement new products and services, and expand into new states;
RGS Energy’s current capital resources being sufficient to
implement its revenue growth strategy; the ability to successfully
and timely commercialize POWERHOUSE™ 3.0 to homeowners and new home
builders; the ability to obtain requisite certification of
POWERHOUSE™ 3.0; the adequacy of, and access to, necessary capital
to commercialize POWERHOUSE™ 3.0; the satisfaction of other
conditions to the POWERHOUSE™ 3.0 license agreement; RGS Energy’s
ability to manage supply chain in order to have production levels
and pricing of the POWERHOUSE™ 3.0 shingles to be competitive; the
ability of RGS Energy to successfully expand its operations and
employees and realize profitable revenue growth from the sale and
installation of POWERHOUSE™ 3.0, and to the extent, anticipated;
the potential impact of the announcement of RGS Energy’s expansion
into the POWERHOUSE™ 3.0 business with employees, suppliers,
customers and competitors; RGS Energy’s ability to successfully and
timely expand its POWERHOUSE™ 3.0 business outside of the United
States; foreign exchange risks associated with the POWERHOUSE™ 3.0
business; changes in general economic, business and political
conditions, including tariffs on imported solar cells and changes
in the financial markets; significant competition that RGS Energy
faces; RGS Energy’s ability to successfully complete the customer
portal software development project on a timely basis and integrate
the resulting software with RGS Energy’s existing software and
business; customer acceptance of, experience with and satisfaction
with the customer portal software; continued access to competitive
third party financiers to finance customer solar installations;
compliance with extensive government regulation; the potential
impact on backlog and timing of revenue from the Rhode Island
National Grid delay of approvals; and future cancellations and
backlog.
You should read the section entitled “Risk Factors” in our 2016
Annual Report on Form 10-K, as amended, and in our Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 2017, each of which
has been filed with the Securities and Exchange Commission, which
identify certain of these and additional risks and uncertainties.
Any forward-looking statements made by us in this press release
speak only as of the date of this press release. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible for us to predict all of them. We
do not undertake any obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by
law.
POWERHOUSE™ is a trademark of The Dow Chemical Company, used
under license.
Investor Relations Contact
Ron Both
Managing Partner, CMA
Tel 1-949-432-7566
RGSE@cma.team