RGS Energy (RGSE) Reports Prelim. Q3 Net Sales of $7.91M

RGS Energy (NASDAQ: RGSE), the nation’s original solar company since 1978, provided a business update on its progress during the third quarter.

Summary of Expectations Versus Results:

Management Commentary:

Dennis Lacey, RGS Energy’s chief executive officer, commented: “We raised capital during February 2017. That capital positioned us to develop a revenue growth plan, which we commenced during April. Since then, to be transparent, we have been issuing business updates. This is the second update in a row where we met or exceeded the expectations we set. We have been moving very quickly in making progress over this brief six-month period, and we are pleased with the results.”

“Beyond the progress on our revenue growth plan, on September 29th we were awarded the worldwide exclusive license for POWERHOUSE™, an aesthetically innovative solar shingle system that integrates into a house rooftop,” continued Lacey. “We believe that the revenue potential for this product is huge and, as discussed during our recent investor call announcing the license, we are working toward UL certification during second quarter of 2018.”

Growing Sales for Future Revenue:

Foundations for Profitability for our Residential Segment, RGS Energy’s Largest Segment:

Financing in Place to Grow Sales:

Management Commentary:

Solar Division: “We are hitting on all cylinders during the first six months of our revenue growth strategy,” said Seth Wiggins, RGS Energy’s senior vice president of the Solar Division. “Gross sales increased, cancellations are down, net sales increased, revenue increased, installation cycle time improved, gross margin percentage increased by more than 270% from the prior quarter, our backlog increased and our small commercial sales pipeline is growing. As we have explained before, we must first grow sales and backlog, and we are expecting revenue growth in the next six months from our revenue growth strategy.”

The overall average sales price per watt for the residential segment in the third quarter was $3.62 versus $3.27 in the second quarter of 2017. The increase was in part due to the company selling less small commercial business during the third quarter as compared to the second quarter. Generally, small commercial involves larger systems, with more watts sold at a lower per watt sales price. Compared to the second quarter, the company’s residential segment net sales increased by 32% and watts sold increased 15%, resulting in an increase in the overall acquisition cost per watt. Customer acquisition expense as a percentage of net sales declined from the second quarter from the company’s cost-effective marketing strategy.

Wiggins continued: “We continue to innovate; for example, as planned, we commenced beta testing of our new customer centric software, which sets up a portal for our customers. In addition, we announced a smart battery storage program and we are also working towards launching a home energy score program, which we expect will generate leads and reduce our future acquisition expense.”

Finance/Working Capital: “Consistent with the expectation we set, we are utilizing cash to build a business that will ultimately operate on a positive cash flow basis,” noted Alan Fine, RGS Energy’s chief financial officer. “Additionally, because the 201 Tariff petition has created uncertainty regarding future solar panel costs, we strategically expended cash to purchase additional inventory in excess of our current needs so we could meet our future revenue targets. This caused our inventory to increase approximately $1.3 million since June 30, 2017.”

“Our strategy has been to expend cash, investing it in manner expected to allow us to meet and exceed our quarterly break-even results during 2018,” continued Fine. “Further, we expect to expend cash during the fourth quarter of 2017 and, if we, as projected, achieve revenue to operate profitably during the second quarter of 2018, our business will thereafter begin to operate on a positive cash flow basis. To achieve this outcome, we have been investing cash in our sales organization, marketing and a larger inventory of equipment for future installation. We project our cash balance at June 30, 2018, exclusive of cash activity for our new POWERHOUSE™ segment, to be approximately $2 million.”

The company recorded a non-current asset of $1 million for the POWERHOUSE™ license on September 29, 2017 and a corresponding $1 million current liability for the initial up-front license payment. The current liability of $1 million was paid by the company on October 6, 2017; an additional $2 million becomes payable 30 days after receiving UL product certification, which RGS Energy anticipates receiving during the second quarter of 2018. Recording the current liability resulted in a decrease of working capital.

Fine continued: “Following our announcement of our exclusive license for POWERHOUSE™, we received approximately $1 million in cash from conversions of about 600,000 common stock warrants. As the license was just awarded, it is premature to provide overall company financial expectations. As such, the ‘Targets and Expectations’ below are for our legacy segments, not consolidated with the new POWERHOUSE™ segment.”

Rhode Island National Grid Renewable Energy Growth Program:

On October 12, 2017, the company was notified by the Rhode Island National Grid that approvals under its Renewable Energy Growth program for residential solar systems has been suspended, and that there may be additional approvals made prior to March 31, 2018. A new program is scheduled to begin April 1, 2018.

As of September 30, 2017, the company’s backlog of $13.9 million includes $2.3 million of sales to Rhode Island residential homeowners not yet approved under the current Renewable Energy Growth program. The company believes that revenue from these contracts will be recognized when the new program begins during the second quarter of 2018.

Targets and Expectations for RGS Energy’s Solar Division and Corporate Segments:

• Achieve break-even revenue in the second quarter of 2018.
• Steady and improving progress in sales for the remainder of 2017, with installation revenue growth delayed a quarter.
• Digital and content marketing, not vendor lead programs, to become the principal source of customer sourcing.
• Introduce new products and services, such as battery storage and energy audits.
• Cash outflow from operations until break-even results are achieved.

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