Capital Raising and Growth Strategy Update
RGS Energy’s goal of raising additional working capital was achieved:
- In 2016, the company raised net proceeds totaling $16.5 million from offerings of convertible notes, convertible preferred stock, common stock and warrants.
- In February 2017, the company raised net proceeds of $16.1 million from offerings of common stock and warrants.
The funding has enabled the company to focus on its growth strategy, which includes:
- Hiring and training for its homeowner sales, sales support and in-house construction teams.
- Expanding its small commercial sales team.
- Expanding the marketing team and securing effective marketing agreements for customer leads to support a larger sales organization.
- Continue to reduce the cost of materials, which supports stronger margins and more competitive pricing.
- Continue to focus on the company’s niche: consumers looking to purchase solar systems with cash or third-party financing rather than leasing.
Q4 2016 Financial Summary
Given its improved working capital position, the company more than doubled its revenue sequentially to $5.1 million in the fourth quarter of 2016.
Gross margin percentage was 24.5% in the fourth quarter of 2016, up from 4.8% in the previous quarter.
Net loss totaled $10.5 million in the fourth quarter of 2016 as compared to $7.7 million in the previous quarter. The increase was primarily due to non-cash charges to income totaling $8.3 million for the change in derivative liabilities, net and loss on debt extinguishment, with these charges representing more than 80% of the loss for the quarter. The company does not expect to incur similar non-cash charges of a material amount in 2017.
Cash was $2.9 million and stockholders’ equity totaled $5.0 million at December 31, 2016. Subsequent to the year-end, the company’s cash and stockholder’s equity increased by $16.1 million as a result of the February 2017 capital raises. The additional capital has allowed the company to pay off and terminate its revolving line of credit facility. As a result, the company is now debt free.
Management Commentary
“Our sales and installation teams have been picking up the pace since we improved our working capital position,” said Dennis Lacey, CEO of RGS Energy. “Macroeconomic tailwinds are in our favor, including rising electricity rates, declining cost of materials, and extension of the investment tax credit for homeowners who purchase rather than lease their solar systems. In 2017, we will invest in our sales and construction teams, training programs, marketing spend, and diversifying our product offerings, all with the goal of growing top line revenue.”
Segment Results
| Residential Segment: (000’s omitted) |
4th Quarter 2016 |
3rd Quarter 2016 |
4th Quarter 2015 |
||||||||
| Revenue | $ | 4,800 | $ | 1,427 | $ | 5,344 | |||||
| Cost of goods sold | 3,502 | 1,591 | 4,480 | ||||||||
| Gross margin | 1,298 | (164 | ) | 864 | |||||||
| Gross margin % | 27.04 | % | -11.49 | % | 16.17 | % | |||||
| Operating expenses | 1,128 | 1,235 | 2,101 | ||||||||
| Operating income(loss) | 170 | (1,399 | ) | (1,237 | ) | ||||||
| Backlog | $ | 5,934 | $ | 9,722 | $ | 9,503 | |||||
The company installed solar equipment on 138 roofs in the fourth quarter of 2016, compared to 54 installations in the previous quarter and 151 installations in the fourth quarter of 2015.
Residential segment gross margin percentage in the fourth quarter of 2016 was 27.04% versus a negative 11.49% in previous quarter and up from positive 16.17% in year-ago quarter. The sequential improvement was due to increased revenue and having better pricing on materials with current vendors. Compared to the year-ago quarter, the improvement reflects the reduced cost of materials and process efficiencies of the company’s installation crews.
Residential segment backlog decreased to $5.9 million at December 31, 2016 from $9.7 million at September 30, 2016. New sales orders decreased 55% to $2.5 million during the fourth quarter of 2016 as compared to $5.6 million in the year-ago quarter. Net cancellations decreased 33% to $1.8 million in the fourth quarter of 2016 as compared to $2.6 million in the same year-ago quarter.
| Sunetric Segment: (000’s omitted) |
4th Quarter 2016 |
3rd Quarter 2016 |
4th Quarter 2015 |
||||||||
| Revenue | $ | 339 | $ | 1,036 | $ | 4,405 | |||||
| Cost of goods sold | 379 | 755 | 3,740 | ||||||||
| Gross margin | (40 | ) | 281 | 665 | |||||||
| Gross margin % | -11.80 | % | 27.12 | % | 15.10 | % | |||||
| Operating expenses | 438 | 381 | 810 | ||||||||
| Operating income (loss) | (478 | ) | (100 | ) | (145 | ) | |||||
| Backlog | $ | 2,448 | $ | 2,871 | $ | 7,195 | |||||
Residential sales for Sunetric have been adversely impacted by the regulations of the local utility and, in response, Sunetric is building a sales organization around commercial sales.
| Corporate Segment & Other: (000’s omitted) |
4th Quarter 2016 |
3rd Quarter 2016 |
4th Quarter 2015 |
|||||||||
| Corporate Segment: | ||||||||||||
| General and administrative expenses | $ | 1,257 | $ | 1,268 | $ | 1,866 | ||||||
| Stock option compensation | 191 | 175 | 253 | |||||||||
| Litigation | – | – | 420 | |||||||||
| Depreciation & amortization | 103 | 96 | 99 | |||||||||
| Operating income (loss) | $ | (1,551 | ) | $ | (1,539 | ) | $ | (2,638 | ) | |||
| Other: | ||||||||||||
| Other income and interest expense | $ | (596 | ) | $ | (1,330 | ) | $ | (101 | ) | |||
| Change in derivative liabilities, net and loss on debt extinguishment | (8,296 | ) | (3,366 | ) | 203 | |||||||
| Income taxes | – | – | 31 | |||||||||
| Discontinued operations | $ | 272 | $ | (1 | ) | (260 | ) | |||||
The net non-cash charge for change in derivative liabilities and debt extinguishment increased sequentially as the convertible notes were substantially converted to Class A common stock during the fourth quarter of 2016. Additional paid-in capital was increased for the debt extinguishment.
Conference Call
RGS Energy will hold a conference call to discuss its fourth quarter 2016 financial results later today.
Date: Thursday, March 9, 2017
Time: 4:30 p.m. Eastern time (2:30 p.m. Mountain time)
Toll-free dial-in number: 1-800-239-9838
International dial-in number: 1-913-312-1295
Conference ID: 4013622
Webcast: http://public.viavid.com/index.php?id=123147
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 CMA at 1-949-432-7566.
A replay of the call will be available after 7:30 p.m. Eastern time on the same day through March 16, 2017.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 4013622
