RGS Energy: Q3 Results
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LOUISVILLE, Colorado - RGS Energy (RGSE), a residential and small commercial solar company since 1978, has reported results for its third quarter ended September 30, 2015. The company also filed today its quarterly report on Form 10-Q.
Business Turnaround and Liquidity Update
“During the quarter, we continued to make progress on our turnaround plan, including cutting our operating loss more than in half compared to the same year-ago quarter,” said Dennis Lacey, CEO of RGS Energy. “However, the lower revenue reflects how our challenging financial condition has continued to limit our ability to grow our sales and installation capabilities.
“To continue to execute our turnaround strategy, which includes expanding our sales and installation capabilities, and to comply with the liquidity covenant of our amended loan agreement, we have engaged an investment-banking firm to assist us with raising additional capital through debt or equity financing. We expect to complete such a transaction by the end of the month.
“Our more than 37-years of experience serving the residential and small commercial solar markets gives us confidence in our plan to grow sales, reduce cost of goods sold, and optimize acquisition costs, as well as attract investors on favorable terms. In all, we believe the continued execution of our turn-around plan will put us in the position to deliver 20 megawatts of installation revenue and overall breakeven results for 2016.”
Q3 2015 Financial Summary
In the third quarter of 2015, net revenue decreased to $10.4 million from $14.7 million in the previous quarter and $18.9 million in the third quarter of 2014. The company did not emphasize originating new sales during 2015, as it focused on converting its long-standing backlog to revenue and achieving a better balance between sales and construction. Now that the company has reduced its backlog, it is now refocused on new sales order generation.
Residential segment average selling price (ASP) on new sales orders decreased 4.9% from the previous quarter and rose 1.6% from the third quarter of 2014.
The company installed solar equipment on 253 roofs in the third quarter of 2015, as compared to 438 installations in the previous quarter and 548 installations in the third quarter of 2014.
In the third quarter of 2015, income from continuing operations, net of tax, decreased to a loss of $3.9 million, as compared to a gain of $1.6 million in the previous quarter and a loss of $2.5 million in the same year ago quarter.
Gross margin for the residential segment was 12.5% in the third quarter of 2015, which decreased from 15.2% in the previous quarter and 19.7% from the third quarter of 2014. The decrease from the year-ago quarter primarily reflects the gross margin percentage decreasing whenever there is a decrease in revenue as there is a fixed cost element in cost of goods sold. The year-over-year decline reflects residential segment revenue declining by 52% and continued customer cancellations. The customer cancellations principally arose from the company’s previous inability to make installations at an appropriate rate.
Gross margin for the Sunetric segment was 19.6% in the third quarter of 2015, which decreased from 21.0% in the second quarter of 2015 and increased from 4.0% in the third quarter of 2014. The sequential increase primarily reflects increased residential installations, as well as the company’s refocus on its Hawaiian Island business for commercial projects.
The Sunetric segment contributed $110,000 in the third quarter of 2015, as compared to a loss of $1.4 million in the same year-ago quarter. The increase was attributable to an increased level of residential approval by the local utility and improved integration of business activities, including cost saving initiatives.
Aggregate selling and operating and general and administrative expenses decreased $4.5 million to $4.7 million in the quarter versus the prior year quarter. The decrease in the selling and operating expenses was primarily attributable to a decrease in headcount; general and administrative cost saving initiatives; the restructuring of the sales organization and commission plan; and, reducing the cost of customer leads. Given RGS Energy plans to increase the size of its sales organization, it expects to incur up-front sales and marketing costs that will increase its total selling and operating expenses both in dollar amount and as a percentage of revenue for the remainder of 2015.
Litigation expenses were $1.1 million during the quarter related to the July 2014 capital raise.
Derivative gain, net, was $0.7 million in the quarter versus $4.5 million in the previous quarter and $6.8 million in the third quarter of 2014. The change in derivative liability is principally due to the company’s market capitalization declining from the same prior year. In the second quarter of 2015, the company completed a warrant exchange transaction that eliminated the majority of the company’s derivative warrant liabilities. By removing the majority of the outstanding derivative warrant liabilities, the company’s financial results will no longer be subject to same degree of material volatility from non-cash charges to income that result from changes in the values of these derivative warrant liabilities in the past.
Loss from discontinued operations, net of tax, was $0.4 million, reflecting the winding down of the company’s Large Commercial segment. For the prior year quarter, discontinued operations were a loss of $2.2 million, underscoring management’s earlier announced strategic decision to exit the Large Commercial business in mainland U.S.
Including both continuing and non-continuing operations, net loss totaled $4.3 million or $(0.35) per share, as compared to a net loss of $4.8 million or $(1.86) per share in the third quarter of 2014.
Nine Months Ended September 30, 2015
Net revenue decreased 31.6% to $35.8 million versus $52.3 million the same year-ago period.
Solar system installations on homes and small businesses decreased 41.5% to 955 installations in the period versus 1,632 installations in the same year-ago period.
Operating loss from continuing operations was $12.5 million, as compared to $21.8 million in the same year-ago period.
Loss from discontinued operations, net of tax, was $0.7 million, as compared to a loss of $28.1 million in the same year-ago period.
Net loss was $6.6 million or $(0.97) per share, as compared to a loss of $40.9 million or $(17.57) per share in the same year-ago period. The improvement from the prior year is primarily attributable to management’s decision to exit the Large Commercial segment in mainland U.S. and actions to reduce operating costs.
Backlog and Net Sales Orders
Backlog is 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, which are reflected in revenue.
Backlog decreased 61.6% to $22.5 million at September 30, 2015, as compared to $58.4 million at September 30, 2014. Residential backlog decreased 65.8% to $11.5 million at September 30, 2015 versus $32.9 million at September 30, 2014. As mentioned above, the company did not focus on new sales order generation during the first half of 2015 as it had to first obtain the necessary financing to convert the backlog, and then work-off its long standing backlog. Backlog declined due to customer cancellations arising from the backlog not being installed at a faster rate. As such, new sales orders for the company’s residential segment declined by $16.8 million.
Backlog decreased 25.6% to $22.5 million at September 30, 2015 versus $30.2 million at June 30, 2015.
Sunetric’s backlog declined to $11.0 million at September 30, 2015 versus $12.6 million at June 30, 2015. The decline was due to increased level of residential installation approvals by the local utility.
Residential segment backlog declined 34% to $11.5 million at September 30, 2015 versus $17.6 million at June 30, 2015. The decline was primarily due to installations of approximately $7 million. New sales orders increased 13.7% to $5.8 million during the third quarter as compared to $5.1 million in the prior quarter. Net cancellations decreased 10.3% to $5.2 million in the quarter as compared to $5.8 million in the second quarter of 2015.
Q3 2015 Financing Capacity Highlights
Cash and cash equivalents were $1.2 million at September 30, 2015 versus $1.9 million at December 31, 2014.
For installations during the quarter, 54% were paid for in-cash, 32% were financed with third-party loan programs, and 12% utilized company and third-party lease programs.
As previously reported, on July 1, 2015, the company raised net proceeds totaling approximately $4.4 million.
RGS Energy National Footprint
RGS Energy serves residential and small business customers in eight mainland U.S. states and Hawaii. The company markets its solar power systems through a mix of field sales teams and e-sales call center approach, as well as installs its systems using in-house and third-party integrators. For East Coast operations, the company primarily utilizes field sales through solarize programs and in-house construction crews. In California and Colorado, the company markets solely through its e-sales, call center-based approach and installs only through its authorized third-party integrators.
About RGS Energy
RGS Energy (RGSE) a rooftop installer 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 possible 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, on Facebook at www.facebook.com/rgsenergy and on Twitter at www.twitter.com/rgsenergy. RGS Energy is a trade name and RGS Energy makes filings with the Securities and Exchange Commission under its official name “Real Goods Solar, Inc.” For more information about the company, visit www.rgsenergy.com.