RGS Energy, a residential and small commercial solar company since 1978, has reported results for its second quarter ended June 30, 2016. The company also filed today its quarterly report on Form 10-Q.
Business Turnaround and Capital Raising Update
Commencing the fourth quarter of 2014, the Company began executing a business turnaround strategy designed to reduce the required level of sales necessary to achieve break-even or better operating results. To execute the business turnaround strategy, the Company has to become better capitalized. The Company has successfully raised additional financial capital from investors that is expected to become available to the Company during the fourth quarter. The company’s most recent Investor Presentation, which describes the Company’s business turnaround strategy, is included on the investor relations’ section of the Company’s website.
Recently, the Company has arranged for gross capital proceeds of approximately $10 million. On April 1, 2016, $10 million of convertible notes were issued and as of June 30, 2016, the company had received $1.75 million of cash. The remaining restricted cash of $8.25 million the Company expects to become available, depending upon market conditions and the timing of the note holders’ elections to convert, beginning as early as October 1, 2016 and continuing thereafter. Additionally, on July 21, 2016, the company filed a registration statement (the “Registration Statement”) on Securities and Exchange Commission (“SEC”) Form S-1 for 5,000 units of securities where each unit is comprised of one share of the Company’s to-be-created convertible preferred stock and one warrant to acquire a fraction of one share of the Company’s common stock. The Registration Statement has not yet been declared effective by the SEC.
On August 22, 2016, the Company and its senior lender entered into a second modification to the Company’s senior lending facility. Under this modification, certain of the Company’s assets, accounts receivable due from third parties, are extended in time as to the collateral’s advance rate under the lending facility. This had the effect of increasing the amount that the Company is able to draw under the lending facility.
Management Commentary
“We believe that the additional capital resources from our capital raising efforts, the convertible note offering, the proceeds that are expected to be received in the offering to be conducted under the recently filed Registration Statement, will provide the capital to successfully execute our business turnaround strategy,” said Dennis Lacey, chief executive officer of RGS Energy. “We look forward to being able to deploy the additional capital in the coming months to grow our revenue.”
Segment Results:
| Residential Segment: | 2nd Quarter | 1st Quarter | 2nd Quarter | |||||||||
| (000’s omitted) | 2016 | 2016 | 2015 | |||||||||
| Revenue | $ | 3,296 | $ | 3,752 | $ | 11,110 | ||||||
| Cost of goods sold | 2,842 | 3,315 | 9,422 | |||||||||
| Gross Margin | 454 | 437 | 1,688 | |||||||||
| Gross Margin % | 13.77 | % | 11.65 | % | 15.19 | % | ||||||
| Operating Expenses | 1,347 | 1,701 | 2,197 | |||||||||
| Business Unit Contribution | $ | (893 | ) | $ | (1,264 | ) | $ | (509 | ) | |||
| Backlog | $ | 8,225 | $ | 9,837 | $ | 17,553 | ||||||
During the second quarter of 2016, the residential segment did not have access to sufficient capital to grow revenue. The company installed solar equipment on 98 roofs in the second quarter of 2016, as compared to 107 installations in the previous quarter and 374 installations in the second quarter of 2015.
The current quarter’s gross margin percentage decline from the year-ago quarter reflects the impact of declining revenue compressing the gross margin arising from less efficient absorption of the fixed portion of operating costs. The increase in the gross margin percentage from the first quarter arose from more efficient construction operations and the benefit of better pricing on materials.
Residential segment backlog decreased to $8.2 million at June 30, 2016 from $9.8 million at March 31, 2016. New sales orders decreased 18% to $3.7 million during the second quarter of 2016 as compared to $5.2 million in the prior year quarter. Net cancellations decreased 60.7% to $2.2 million in the second quarter of 2016 as compared to $5.7 million in the second quarter of 2015.
| Sunetric Segment: | 2nd Quarter | 1st Quarter | 2nd Quarter | |||||||||
| (000’s omitted) | 2016 | 2016 | 2015 | |||||||||
| Revenue | $ | 1,588 | $ | 1,187 | $ | 3,617 | ||||||
| Cost of goods sold | 1,625 | 1,541 | 2,856 | |||||||||
| Gross Margin | -37 | -354 | 761 | |||||||||
| Gross Margin % | -2.33 | % | -29.82 | % | 21.04 | % | ||||||
| Operating Expenses | 254 | 444 | 614 | |||||||||
| Business Unit Contribution | $ | (291 | ) | $ | (798 | ) | $ | 147 | ||||
| Backlog | $ | 4,757 | $ | 6,345 | $ | 12,624 | ||||||
During the second quarter of 2016, the Sunetric segment did not have access to sufficient capital to grow revenue. Sales for Sunetric have been adversely impacted by the regulations of the local utility and, in response, Sunetric began piloting sales of other energy savings products. The gross margin percentage during 2016 reflects declining revenue resulting from the inefficient absorption of the fixed cost component of operating costs. The improvement in the gross margin percentage from the first quarter results from installing more commercial projects with higher margins.
| Corporate Segment & Other: | ||||||||||||
| (000’s omitted) | 2nd Quarter | 1st Quarter | 2nd Quarter | |||||||||
| Corporate Segment: | 2016 | 2016 | 2015 | |||||||||
| General and Administrative expenses | $ | 1,478 | $ | 1,386 | $ | 1,658 | ||||||
| Stock Option Compensation | 177 | 165 | 155 | |||||||||
| Litigation | – | 24 | 500 | |||||||||
| Restructuring | – | – | 200 | |||||||||
| Depreciation & amortization | 101 | 102 | 112 | |||||||||
| Business Unit Contribution | $ | (1,756 | ) | $ | (1,677 | ) | $ | (2,625 | ) | |||
| Other: | ||||||||||||
| Other Income and Interest Expense | $ | (876 | ) | $ | (30 | ) | $ | 94 | ||||
| Change in derivative liabilities, net | 309 | (42 | ) | 4,509 | ||||||||
| Income Taxes | 27 | – | 41 | |||||||||
| Discontinued Operations | 70 | 161 | (133 | ) | ||||||||
Change in valuation of derivative liabilities, net, was $309,000 in the quarter versus a gain of $42,000 in the previous quarter and a gain of $4.5 million for the second quarter of 2015. The gain for the current quarter is principally related to change in value of the embedded derivatives liability arising from the convertible note financing.
Income from discontinued operations, net of tax, was $0.1 million, reflecting winding down of the company’s Large Commercial segment. This compares to a loss from discontinued operations, net of tax, of $0.1 million in the second quarter of 2015.
Q2 2016 Financing Capacity Highlights & Subsequent Event
The Company’s strategy is to arrange direct sales to customers versus leasing to customers. For the second quarter, payments from customer installations was 63% from customer cash, 36% from cash arranged through third-party financing, and only 1% of our customers utilized company or third-party lease programs.
Cash and cash equivalents were $0.5 million at June 30, 2016 versus $0.6 million at December 31, 2015. The company’s revolving line-of-credit facility sweeps all operating cash received daily and applies it to reduce the balance on the line.
On April 1, 2016, the company entered into an agreement with private investors for convertible notes with warrants raising $10 million of gross proceeds, of which the company has to-date received $1,750,000, with the remainder deposited in restricted cash accounts to be released in future periods subject to release conditions.
On July 21, 2016, the Company filed the Registration Statement to raise additional capital from the offering of 5,000 units as described above. The SEC has not yet declared the Company’s Registration Statement effective.
Conference Call
RGS Energy will hold a conference call to discuss its second quarter 2016 financial as noted below.
Date: Tuesday August 23, 2016
Time: 11:00 a.m. Eastern time (9:00 a.m. Mountain time)
Toll-free dial-in number: 1-888-208-1379
International dial-in number: 1-913-981-5544
Conference ID: 1897326
Webcast: http://public.viavid.com/player/index.php?id=120930
The conference call will be webcast live and available for replay via the investor relations section of the company’s website at RGSEnergy.com.
Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.
A replay of the call will be available after 2:00 p.m. Eastern time on the same day through August 30, 2016.
Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay ID: 1897326
