RGS Energy: Q4 & Full Year Results 2014

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LOUISVILLE, Colorado – RGS Energy (NASDAQ:RGSE), one of the nation’s largest and most recognized rooftop installers of solar equipment, has reported results for its fourth quarter and full year ended December 31, 2014. The company also filed today its Annual Report on Form 10-K.

Restructuring, Business Climate and Impact on 4th Quarter Results

As previously announced, RGS made the strategic decision to exit its Large Commercial business segment. The results of the
segment for all periods are presented as discontinued operations, while the company’s continuing operations are primarily
composed of its residential and Sunetric business segments. As previously announced, during the fourth quarter, the company
divested its retail and catalog business which is included in continuing operations for the quarter.

During 2014, the company devoted significant resources to sales and marketing to drive sales. The company was not successful in
growing its sales in California, due to the competitive landscape and high cost per acquisition of its field sales teams. However,
the company was successful in increasing sales in the East Coast and E-sales, which increased the residential backlog by 40% to
$39.7 million, sufficient to supplant the impact from exiting the Colorado and Missouri markets. Unfortunately, the increased
backlog could not be fully converted to revenue due to the sales growth outpaced the total construction and integrator
installation availability, inclement weather on the East Coast, and vendors’ terms limited access to solar panels as a result of the
company’s historical operating and cash losses. These conditions will also adversely affect the first quarter of 2015 operating
results.

The company was successful in improving its cash inflow in the fourth quarter of 2014. However, the lack of favorable vendor
terms and the reduction of the line-of-credit during the fourth quarter prevented the company from having sufficient access to
solar panels to convert its backlog. To address these circumstances, the company determined that additional financing was
necessary as well as actions to decrease its fixed cash operating infrastructure costs. As previously reported, the company
secured the additional financing, receiving gross proceeds of $3.5 million from the issuance of common stock and warrants in
February 2015, with the opportunity, subject to the satisfaction of certain equity conditions, to raise up to an additional $8
million by effecting a mandatory exercise of certain of the warrants.

Q4 2014 Financial Summary
 In the fourth quarter of 2014, net revenue from continuing operations increased 2.0% to $18.4 million over the same
year-ago quarter.
o The residential segment’s average selling price (ASP) on new sales orders rose 20% over the same year-ago quarter
and increased 2.3% from the third quarter of 2014. The increase in ASP is primarily due to the company’s continued
focus on pricing discipline.

Approximately $4.4 million or 36% of the residential segment’s revenue for the fourth quarter of 2013 was from two
states, Missouri and Colorado, which previously offered attractive incentives to homeowners. With the repeal of
these incentives, the revenue from these states in the fourth quarter of 2014 was 0.3% of the residential segment’s
revenue. Revenue from Missouri and Colorado decreased $0.3 million in the fourth quarter versus the third quarter.
Revenue from the Sunetric segment was $5.9 million in the fourth quarter, versus none for the same year-ago
quarter, as Sunetric was acquired in the second quarter of 2014.
o Progress on transformative initiatives:
 Sales orders for E-sales increased 77% to $3.8 million over the same year-ago quarter and
approximately the same amount as the third quarter of 2014.
 Sales orders for leasing were $1.4 million, for the second full quarter of leasing operations, an increase
of $0.2 million from the third quarter of 2014.
o The company installed solar equipment on 496 roofs in the fourth quarter, as compared to 573 installations in the
same year-ago quarter. The decline in rooftop installations is due to the reduction in the Missouri and Colorado
markets, limited availability of solar panels due to reductions in vendor terms, and adverse weather in the East
Coast, where the company has its largest backlog. Installations in Hawaii were adversely impacted by interconnection
approval delays by the utilities.
 Loss from continuing operations increased $11.1 million to a loss of $13.4 million for the quarter versus the same yearago
quarter.
o As a result of the Hawaiian utility environment and its impact on current sales, which have materially declined,
the company determined that all of the intangible assets arising from Sunetric have been impaired and,
accordingly, an impairment charge of $10.4 million was recorded. Additionally, depreciation and amortization
increased by $0.7 million over the same year-ago quarter, principally related to intangible assets recorded for
the acquisition of Sunetric.
o Gross margin for residential segment was 11.8% in the fourth quarter of 2014, which declined from 21.3% in
the same year-ago quarter. The decline principally 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; residential revenue
declined 28% from the same year ago quarter. The margin was also impacted by a provision to increase the
estimated liability for warranty obligations in the fourth quarter of 2014.
o Aggregate selling and operating and general and administrative expenses increased $2.5 million over the same
year-ago quarter, approximately a quarter of which is attributed to the Sunetric acquisition, and the remainder
is principally the increase in sales and marketing expenses described earlier. Acquisition related costs declined
$0.9 million from the prior year quarter as the company did not make acquisitions during the current quarter.
o The change in common stock warrant liability increased income by $4.2 million over the same year-ago quarter,
as the liability declined with the market capitalization of the company.
 Loss from discontinued operations were $2.8 million, which reflect the competitive pricing embedded in the run-off of
the Large Commercial segment as well as performance obligation charges incurred during the quarter. The company has
entered into a contract to sell portions of its commercial pipeline for cash, with the consideration to be paid dependent
upon the completion of the buyer’s due diligence. During the fourth quarter, $0.4 million was received under the
contract.
 Including both continuing and non-continuing operations, net loss for the quarter totaled $16.2 million or $(0.31) per
share, as compared to a loss of $2.5 million or $(0.08) per share in the fourth quarter of 2013.

Full Year 2014 Financial Summary
 Total revenue, including both continuing and non-continuing operations, increased 14% to $116 million in 2014 from
$101 million in 2013.
 Solar system installations on homes and small businesses increased 7% to 2,127 installations in 2014.
 Loss from continuing operations was $26.2 million, which includes a Sunetric impairment charge of $10.4 million, as
compared to a net loss from continuing operations of $12.3 million in 2013.
 Loss from discontinued operations was $30.9 million in 2014, including asset impairment charges of $11.8 million, as
compared to income from discontinued operations of $1 million in 2013.
 Net loss was $57.1 million as compared to $11.3 million in 2013.

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 119.5% to a record $61.7 million at December 31, 2014 over 2013.
 Backlog increased 5.6% or $3.3 million from backlog at September 30, 2014.
 The year-over-year growth in the company’s backlog is primarily due to the Sunetric acquisition as well as new sales
orders.

Financing Capacity
 For the quarter, approximately 50% of installations were paid for in-cash by RGS customers, approximately 36% using
third-party loan programs, and 14% utilizing company and third-party lease programs.
 As previously reported, the company received gross proceeds of $3.5 million from the issuance of common stock and
warrants in February 2015, with the opportunity, subject to the satisfaction of certain equity conditions, to raise up to
an additional $8 million by effecting a mandatory exercise of certain of the warrants. As of March 30, 2015, $3.6 million
of the warrants have been voluntarily exercised.
 As reported on March 17, 2015, the company renewed its $5 million revolving line-of-credit with Silicon Valley Bank and
$3.15 million subordinated debt for a one-year term.
 As of March 23, 2015, the company had cash and available borrowings of $5.4 million in total.

Management Commentary
“The fourth quarter presented unique cash management challenges that we successfully met,” stated Dennis Lacey, RGS Energy’s
CEO. “During the quarter, we did not burn cash. In fact, we generated a cash inflow from operations of $0.6 million as compared
to an average quarterly cash burn of roughly $10 million for the first nine months of 2014. Furthermore, as recently announced,
we entered into an arrangement with CentroSolar to facilitate installation of our East Coast backlog and arranged for $11.5
million of new financial capital. At the same time we have renewed our bank facility for the ensuing 12 months, and we have recently restructured our operations to significantly reduce the fixed cash operating expenses of the company so we can operate
more profitably in the future. In brief, we have significantly strengthened the financial position of the company and restructured
for improved operating results. We are encouraged by the progress we are making in turning around RGS’ business.”

About RGS Energy
RGS Energy (NASDAQ: RGSE) is one of the nation’s largest and most recognized 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, 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.
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