Real Goods Solar Energy: Q1 results
LOUISVILLE, Colorado - RGS Energy (Nasdaq:RGSE), one of the nation's leading rooftop installers of solar equipment, has reported results for its first quarter ended March 31, 2015. The company also filed today its quarterly report on Form 10-Q.
Restructuring and Business Climate Effect on 1st Quarter Results
As previously disclosed, the company's first quarter of 2015 operating results were affected by inclement weather on the East Coast, where the company has its largest concentration of backlog, and by limited access to equipment to convert backlog to revenue. The limited access to equipment arose from the company's recent financial and cash operating losses and resulting untimely payments to vendors. The company took actions to address these circumstances, including securing new financing of up to $11.5 million, extending its bank facility on improved terms, and reducing its fixed cash operating infrastructure costs.
As a result of the company's actions to improve its financial condition, including using proceeds received from a capital raise to reduce its accounts payable, the company has regained access to the solar panels it needs to convert its backlog to revenue, beginning with the start of the second quarter of 2015. In April, residential segment revenue was $4.0 million, as compared to $6.9 million for the entire first quarter of 2015. The strong revenue growth in April is primarily due to the access to panels as well as improved weather conditions.
Gross margin percentage in the first quarter was lower due to the anticipated revenue decline while maintaining the fixed costs of a bi-coastal construction organization. The gross margin decline was mitigated by the company's cost improvement plans, which in total reduced, on a comparative quarter to quarter basis, selling and operating expenses, general and administrative expenses, and acquisition-related costs by $3.5 million from the prior year quarter and $3.7 million from the fourth quarter of 2014. The company has since taken action to reduce the fixed cost of its construction organization by closing its California offices and further establishing relationships with third party integrators for installations.
Q1 2015 Financial Summary
In the first quarter of 2015, net revenue decreased 23% to $10.6 million from the prior year quarter.
Residential segment average selling price (ASP) on new sales orders rose 12.4% from the prior year quarter and increased 4% from the fourth quarter of 2014. The increase in ASP is primarily due to the company's continued focus on pricing discipline.
Approximately 33% of the company's revenue for the first quarter of 2014 was from two states, Missouri and Colorado, which previously offered attractive incentives to homeowners. With the repeal of those incentives, the revenue from these states in the first quarter of 2015 was approximately 1% of revenue. The company grew its backlog in the East Coast since the prior year quarter to offset this decline, but was hampered in converting that backlog into revenue by the inclement weather in the East Coast during the first quarter of 2015 and the limited access to solar panels.
Progress on transformative initiatives:
Sales orders for E-sales increased 8% to $2.6 million in the first quarter versus the same prior year quarter.
Sales orders for leasing decreased $1 million sequentially to $0.4 million in the quarter reflecting the company's decision to optimize its use of working capital by originating leases for sale to third parties. There are no sales orders for leasing in the first quarter of 2014 given the leasing program was launched in the third quarter of 2014.
The company installed solar equipment on 264 roofs in the first quarter, as compared to 516 installations in the prior year quarter. The decline in rooftop installations is due to the reduction in the Missouri and Colorado markets, the limited availability of solar panels and the adverse weather on the East Coast.
In the first quarter, the loss from continuing operations, net of tax, improved to $3.5 million as compared to a loss of $12.0 million from the prior year quarter.
Gross margin for the residential segment was 10.3% in the first quarter of 2015, which declined from 20.0% from the prior year quarter. The decline primarily reflects the gross margin percentage declining whenever there is a decrease in revenue, as there is a fixed cost element in the cost of goods sold, and residential segment revenue declined 48% from the prior year quarter.
Sunetric experienced continuing delays in installations arising from the local utility not approving interconnection requests, resulting in a 36% decline in revenue from the fourth quarter of 2014 and causing an adverse impact on the gross margin percentage. However, in April, the local utility approved for installation approximately 40 projects in Sunetric's backlog.
Aggregate selling and operating and general and administrative expenses decreased $2.4 million to $5.6 million in the quarter versus the prior year quarter.The decrease in the selling and operating expenses was in part attributable to management's decision to create a different commission plan structure, reducing the amount of paid leads purchased by marketing, as well as a decrease in headcount.
Acquisition-related costs decreased $1.1 million from the prior year quarter reflecting the company's strategy of not pursuing acquisitions of companies.
Depreciation and amortization decreased $0.5 million from the prior year quarter primarily due to the prior year quarter including amortization expense of purchased intangible assets from acquisitions which have subsequently been impaired.
Derivative gain was $1.8 million in the quarter versus a derivative loss of $4.7 million in the first quarter of 2014. The change in derivative liability is principally due to the company's market capitalization declining from the same prior year quarter.
Loss from discontinued operations, net of tax, was $0.2 million, reflecting the run-off of the Large Commercial segment.
Including both continuing and non-continuing operations, net loss for the quarter totaled $3.7 million or $(0.06) per share, as compared to a net loss of $14.8 million or $(0.34) per share in the first quarter of 2014.
Backlog and Net Sales Orders
Backlog has increased for transactions from acquired companies at the date of acquisition and thereafter for net sales orders (representing newly signed contracts with customers, net of contract cancellations or holds), and decreased for installations reflected in revenue.
Backlog increased 103% to total $45.7 million at March 31, 2015 as compared to total backlog at March 31, 2014. Residential backlog increased 30% to $29.2 million at March 31, 2015 from the prior year quarter.
The year-over-year growth in backlog is primarily due to the Sunetric acquisition as well as new sales orders.
Backlog decreased 26% or $16.0 million from backlog at December 31, 2014.
Sunetric's backlog declined by $5.5 million from December 31, 2014, primarily due to a $5 million contract, which the company decided to cancel, as the variable expense assumptions in the contract no longer met the anticipated profit expectations. Residential segment backlog declined $10.5 million from December 31, 2014 primarily due to installations of approximately $7 million with the remainder representing net cancellations for the quarter in excess of new sales orders for the quarter. The company has historically experienced a higher cancellation rate during the first quarter. On a comparative basis, new sales orders from the prior year quarter declined by $10 million and net cancellations increased by approximately $2 million.
The company did not emphasize originating new sales during the first quarter of 2015 as its strategy was to position the company to be able to convert the existing record backlog to revenue and transform its approach to its sales organization for improved sales efficiency in future periods.
For the quarter, approximately 42% of installations were paid for in-cash by RGS customers, approximately 42% using third-party loan programs, and 16% utilizing company and third-party lease programs.
As previously reported, during the first quarter of 2015, the company arranged for additional capital of up to $11.5 million, of which, net of offering costs of $0.8 million, $6.3 and $8.5 have been received as of March 31, 2015 and May 5, 2015, respectively. The company recorded an initial reduction to equity of approximately $12 million to establish the warrant liability which, over the remaining terms of the warrants, will be reflected in equity.
During the quarter, the company announced an arrangement with a third party lease financier to facilitate the sale of leases.
"The first quarter accomplishments included key milestones in our path to turn around RGS' business," stated Dennis Lacey, RGS Energy's CEO. "These achievements included securing up to $11.5 million in new capital, extending our loan agreements, and restructuring our business to significantly reduce our selling and operating and general and administrative expenses, which have declined 38% or $3.5 million since the fourth quarter of 2014.
"We now have greater access to solar panels and are beginning to convert our backlog to revenue at a faster rate, allowing us to simultaneously redirect greater resources towards our transformative business initiatives. These initiatives include expanding our entire sales organization, including our call center-based sales model, and seeking financing partners for our leasing program. We are encouraged by the progress we are making."
About RGS Energy
RGS Energy (Nasdaq:RGSE) is one of the nation's leading rooftop installers of solar equipment, serving residential and small business customers in the mainland U.S. and Hawaii. Beginning with one of the very first photovoltaic panels sold in 1978, the company has installed tens of thousands solar power systems. RGS Energy makes it very convenient for customers to save on their energy bill by providing a comprehensive solar solution, from design, financing, permitting and installation to ongoing monitoring, maintenance and support.
For more information, visit RGSEnergy.com