May 14, 2014 - RGS Energy reported results for the first quarter ended March 31, 2014.
Q1 2014 Highlights
- Acquired Mercury Solar Systems, in a merger transaction, which expanded RGS Energy's presence in the Northeast and added approximately $10 million in cash to accelerate growth in key markets nationwide. The company also completed Mercury's integration, including sales and operational functions.
- Formed RGS Energy Asset Management, a joint venture with Altus Power America Management with access to a dedicated pool of up to $150 million to finance commercial solar projects. The partners formalized the development and financing of a 2.6 megawatt solar system in Massachusetts, the first solar project financed by RGS Energy Asset Management.
- Signed agreement with NextEra Energy Resources to build 6.7 megawatts of solar power this year at the Stockton Unified School District. The project is valued at more than $20 million.
- Completed 1.2 megawatt project for Opici Wine in Glen Rock, New Jersey. The project leveraged the Mercury acquisition, allowing RGS Energy to capitalize on the expanding New Jersey market.
- Completed the integration of Syndicated Solar and successfully accelerated residential sales. Implemented a new inside sales call center which has already surpassed the $1 million per month sales bookings.
- Selected by eight additional Massachusetts communities to bring solar electricity to local home and business owners in the second round of the 2013 Solarize Mass program. Achieved strong results with the Solarize program with record close rates resulting in the company's highest ever backlog in Massachusetts, and opened a new residential sales office in New York.
- Continued with key investments in resources and process in preparation for expected launch of company's own internal residential financing product later this year.
Q1 2014 Financial Results
Net revenue for the first quarter of 2014 was $22.1 million, up 32% from $16.8 million in the same year-ago quarter. The improvement reflects an increase in total solar systems constructed to 6.4 megawatts in the first quarter of 2014 compared to 4.6 megawatts in the first quarter of 2013. The increase was achieved despite harsh weather which delayed construction in both commercial and residential markets.
Gross profit was $3.3 million or 14.9% of net revenue in the first quarter of 2014, compared to $4.6 million or 27.3% of net revenue in the same quarter last year. The decline in gross profit percentage is primarily attributable to labor inefficiencies arising from weather delays. It also reflects investments in engineering and installation capacity to address record backlog from 2013 which was not fully leveraged in the first quarter due to the weather issues and a delayed groundbreaking of a large commercial project.
Total expenses were $10.9 million in the first quarter of 2014, excluding acquisition related costs of $1.3 million compared to $8.0 million in the same year-ago quarter. The increase in expenses is primarily attributable to greater investment in sales and operations infrastructure in the commercial business through the acquisition of Mercury and in the residential business as the company began investing in its in-house financing capabilities and expanded sales and sales support teams.
Excluding non-cash expenses (stock option compensation, depreciation and amortization and charges related to early extinguishment of debt) and costs incurred related to acquisitions, operating expenses were $9.9 million in the first quarter of 2014, as compared to $7.3 million in the same quarter last year. Operating expenses were 44.8% of revenue in the first quarter of 2014, compared to 43.5% in the same quarter last year.
Net loss for the first quarter of 2014 was $13.8 million or $(0.32) per share, compared to a net loss of $3.8 million or $(0.14) per share in the same quarter last year. The net loss in the first quarter of 2014 included a non-cash charge of $6.2 million to record an increase in the warrant derivative liability.
Adjusted EBITDA was a loss of $6.6 million in the first quarter of 2014 versus an adjusted EBITDA loss of $3.0 million in the first quarter of 2013. See "About Presentation of Adjusted EBITDA" below for the definition of adjusted EBITDA, a non-GAAP financial metric.
Cash totaled $11.1 million at March 31, 2014, compared to $12.4 million at December 31, 2013. Working capital increased $1.1 million to $14.5 million in the first quarter of 2014. At March 31, 2014 there were $4.6 million of available borrowings capacity under the $6.5 million revolving line of credit with Silicon Valley Bank. The company has signed a non-binding term sheet with Silicon Valley Bank extending its current agreement to January of 2015 under substantially the same terms and obtained consent to complete the acquisition of Sunetric that RGS Energy announced closing today. In April of 2014, a $1 million note payable to Riverside Partners, the company's largest shareholder, matured and was paid in full.
"We continued to make progress with our strategic roadmap in the first quarter," said RGS Energy CEO Kam Mofid. "Total solar system deployments in megawatts grew 39% compared to Q1 of prior year with residential deployments up 57%. We completed the integration of Syndicated solar and the residential business is now starting to perform well driving significant growth and capturing market share. Improvements in residential sales and operations coupled with our investments in our own financing capabilities are expected to make important contributions to our market position and overall performance. On the commercial front, first quarter was challenging as we began the integration of Mercury and worked through a particularly harsh North East winter. Mercury integration is now complete and we look forward to a much stronger commercial performance in the second half of the year.
"The Sunetric acquisition we closed today brings to RGS Energy one of Hawaii's largest and most respected solar companies. It also will expand our national footprint to Hawaii, a market with extremely high cost of utility power that has made it one of the most attractive markets for solar. Sunetric maintains a substantial pipeline and backlog of commercial and residential projects, plus a strong government portfolio with experience in all branches of the military. We expect Sunetric to be an accretive transaction right from the start. RGS Energy will help increase Sunetric's project development capabilities and expand it depth and breadth of capabilities especially in financing solutions for both its residential and commercial customer."
"We expect our acquisitions and investments in the core business along with strategic investments in developing and deploying in-house financing solutions to position us well for accelerated growth and performance improvements in 2014 and beyond."
RGS Energy continues to expect total deployments of solar energy systems in 2014 to increase to a range of 50-55MW, compared to 35MW in 2013.
Normal seasonal variance in revenue as well as continued investments in sales, marketing and in-house leasing capabilities is expected to affect results in the near term.