RGS Energy (NASDAQ: RGSE), the exclusive worldwide licensee of
POWERHOUSE™, an innovative and visually stunning solar shingle
system using technology developed by The Dow Chemical Company,
reported results for its second quarter ended June 30, 2018 and
filed its quarterly report on Form 10-Q. RGS Energy encourages
investors to read the filing for a complete report of its results
for the second quarter.
Reinvented Company Focused on POWERHOUSE™
RGS believes it will be the first mover and an industry leader
of built-in photovoltaic shingles, as the manufacturer of
POWERHOUSE™ 3.0. Recent legislation such as the California Solar
Mandate places the company in a position to significantly grow
revenue. The manufacturing supply chain is in place and the product
is progressing towards receiving UL certification. Due to UL
closing their facility where POWERHOUSE™ is currently being tested,
RGS currently expects to complete UL certification at another
facility in October. The company has received over $96 million
to-date in written reservations from roofing companies.
“We believe we already have written reservations for future
annual revenue for us to operate at a profit,” said Dennis Lacey,
CEO of RGS Energy. “Now more than ever, we believe POWERHOUSE™
represents a major game-changer for RGS. Looking ahead, we see
strong growth and expect profits in 2019.”
The company needed financial capital to commercially launch
POWERHOUSE™ 3.0, which it obtained from an April convertible notes
and common stock warrants offering.
New Cash Resulting from the Convertible Note
Financing
|
Cash |
Note Principal
andAdditionalAmount |
Series Q CommonStock Warrants
Shares |
At closing of the
offering on April 9, 2018 |
$ |
5,000,000 |
|
|
$ |
11,500,000 |
|
|
9,857,143 |
|
Conversions of notes to
Class A common stock |
|
|
(6,438,000 |
) |
|
Exercises of
warrants |
|
112,000 |
|
|
|
- |
|
|
(200,000 |
) |
Placement agent
fees |
|
(454,197 |
) |
|
|
- |
|
|
- |
|
As of June 30,
2018 |
|
4,657,803 |
|
|
|
5,062,000 |
|
|
9,657,143 |
|
|
|
|
|
Activity during
the period July 1 to August 10, 2018 |
|
|
|
Additional amounts arising from shareholder approval reset |
|
- |
|
|
|
25,577,431 |
|
|
- |
|
Exercises
of warrants |
|
8,166,667 |
|
|
|
|
(7,191,667 |
) |
Conversions of notes to Class A common stock |
|
1,672,956 |
|
|
|
(16,039,109 |
) |
|
Placement
agent fees |
|
(117,107 |
) |
|
|
- |
|
|
- |
|
As of August
10, 2018 |
|
14,380,319 |
|
|
|
14,600,322 |
|
|
2,465,476 |
|
|
|
|
|
Expected future
activity: |
|
|
|
Series Q
common stock warrants |
|
- |
|
|
|
- |
|
|
(1,735,317 |
) |
Placement
agent common stock warrants |
|
- |
|
|
|
- |
|
|
(730,159 |
) |
Funding
of remaining balance on Investor Notes |
|
3,327,044 |
|
|
|
(3,327,044 |
) |
|
- |
|
Conversions of notes to Class A common stock |
|
- |
|
|
|
(13,057,278 |
) |
|
- |
|
Placement
agent fees |
|
(232,893 |
) |
|
|
- |
|
|
- |
|
Expected net
cash from the 2018 Convertible Note Offering |
$ |
17,474,470 |
|
|
$ |
0 |
|
|
0 |
|
|
|
Accounting for the Convertible Notes and Series Q
Warrants
The 2018 convertible notes and Series Q common stock warrants
include terms that are derivatives under generally accepted
accounting principles. The company engaged an independent
third party appraiser to value the convertible notes and related
common stock warrants.
The company expects to ultimately receive cash from the
convertible note financing as follows:
Gross proceeds received
through August 10, 2018 |
$ |
14,951,623 |
|
Expected proceeds from
Convertible Note |
|
3,327,044 |
|
Gross cash proceeds
from Convertible Note and Series Q common stock warrants |
|
18,278,667 |
|
Fees and expenses
related to the 2018 Convertible Note Offering |
|
(804,197 |
) |
Expected net
cash from the 2018 Convertible Note Offering |
$ |
17,474,470 |
|
Ultimately, the company expects it will record an increase in
shareholders’ equity equal to the net cash of $17.5 million.
However, due to the recording of non-cash derivative items, the
financing will be reflected separately in the statement of
operations and the statement of shareholders’ equity and in
different accounting periods as follows:
($000’s omitted) |
ThroughJune 30,
2018 |
July 1, 2018 -Aug 10, 2018 |
FuturePeriods |
Total |
|
|
|
|
|
Statement of
Operations: |
|
|
|
|
Derivative loss,
assuming average stock price in future periods of $1.00 through
April 9, 2019 |
$ |
4,564 |
|
|
$ |
9,800 |
|
|
$ |
7,300 |
|
|
$ |
21,664 |
|
Reflected in statement
of operations |
$ |
(4,564 |
) |
|
$ |
(9,800 |
) |
|
$ |
(7,300 |
) |
|
$ |
(21,664 |
) |
|
|
|
|
|
Statement of
Shareholders’ Equity: |
|
|
|
|
Issuance of Class A
shares for convertible notes and warrants |
$ |
4,204 |
|
|
$ |
19,590 |
|
|
$ |
15,344 |
|
|
$ |
39,138 |
|
Reflected in statement
of operations |
|
(4,564 |
) |
|
|
(9,800 |
) |
|
|
(7,300 |
) |
|
|
(21,664 |
) |
Change in shareholders’
equity from 2018 Note Offering |
$ |
(360 |
) |
|
$ |
9,790 |
|
|
$ |
8,044 |
|
|
$ |
17,474 |
|
2nd Quarter Financial Summary
The company expects revenue from POWERHOUSE™ to begin during the
fourth quarter of 2018 and, accordingly, the results for the second
quarter do not reflect what the company believes the reinvented
company will operate at in future periods.
($000’s omitted) |
Q2 2018 |
Q2 2017 |
Operational
Data: |
|
|
Net
sales |
$ |
4,997 |
|
$ |
4,991 |
|
Total
Revenue |
|
3,630 |
|
|
2,997 |
|
Backlog
(at quarter end) |
|
15,683 |
|
|
9,685 |
|
|
|
|
Financial
Data: |
|
|
Cash |
$ |
1,541 |
|
$ |
9,745 |
|
Convertible Debt |
|
290 |
|
|
1 |
|
Shareholders’ (deficit) equity* |
|
(123 |
) |
|
13,904 |
|
Operating
cash outflow |
|
(3,379 |
) |
|
(4,212 |
) |
Net
loss |
|
(7,762 |
) |
|
(4,034 |
) |
Working
capital |
|
2,300 |
|
|
12,743 |
|
*The Company’s Stockholders’ Equity at June 30, 2018 reflects
the recording of a non-cash derivative loss of $4.6 million.
From July 1, 2018 through August, 10, 2018, the company has
recorded an increase in shareholders’ equity of $9.8 million
arising from issuances of class A common shares, net of non-cash
derivative losses.
Updated Company Financial Model
Presented below are hypothetical examples of earnings per share
at varying degrees of future market share in succeeding years,
ranging from a low of one-quarter of one percent of the addressable
market to a full one percent of the addressable market.
|
ReservationsthroughAug 13,
2018 |
One Quarter ofOne
Percent |
One Half ofOne
Percent |
One Percent |
POWERHOUSE™ annual
revenue |
$ |
96,000,000 |
|
$ |
250,000,000 |
|
$ |
500,000,000 |
|
$ |
1,000,000,000 |
Anticipated gross
profit percentage |
|
28% |
|
|
31% |
|
|
34% |
|
|
37% |
POWERHOUSE™ gross
profit |
|
26,676,366 |
|
|
77,500,000 |
|
|
170,000,000 |
|
|
370,000,000 |
Anticipated POWERHOUSE™
Division expenses |
|
(3,447,199) |
|
|
(6,750,000) |
|
|
(12,000,000) |
|
|
(22,000,000) |
POWERHOUSE™ license
fee |
|
(2,341,686) |
|
|
(5,829,000) |
|
|
(11,405,000) |
|
|
(22,644,000) |
Contribution from Solar
Division |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
Corporate segment
expenses |
|
(7,200,000) |
|
|
(7,200,000) |
|
|
(7,200,000) |
|
|
(7,200,000) |
Pre-tax income |
|
13,687,480 |
|
|
57,721,000 |
|
|
139,395,000 |
|
|
318,156,000 |
Taxes @ 25% |
|
(3,421,870) |
|
|
(14,430,250) |
|
|
(34,848,750) |
|
|
(79,539,000) |
Hypothetical net
income |
$ |
10,265,610 |
|
$ |
43,290,750 |
|
$ |
104,546,250 |
|
$ |
238,617,000 |
|
|
|
|
|
Hypothetical
Fully Diluted Shares Outstanding: |
|
|
|
|
Shares outstanding as
of August 13, 2018 |
|
45,100,000 |
|
|
45,100,000 |
|
|
45,100,000 |
|
|
45,100,000 |
Convertible Note |
|
47,200,000 |
|
|
47,200,000 |
|
|
47,200,000 |
|
|
47,200,000 |
Common stock
warrants |
|
8,000,000 |
|
|
8,000,000 |
|
|
8,000,000 |
|
|
8,000,000 |
Employee stock
options |
|
1,300,000 |
|
|
1,300,000 |
|
|
1,300,000 |
|
|
1,300,000 |
Fully diluted shares
outstanding |
|
101,600,000 |
|
|
101,600,000 |
|
|
101,600,000 |
|
|
101,600,000 |
|
|
|
|
|
Hypothetical
EPS |
$ |
0.10 |
|
$ |
0.43 |
|
$ |
1.03 |
|
$ |
2.35 |
|
|
|
|
|
Hypothetical Cash from exercise of common stock
warrants |
|
$ |
19,000,000 |
|
The financial model above is not a forecast or a projection but
a mathematical demonstration of financial information with
hypothetical future revenue from written reservations received
to-date and different future hypothetical levels of market
penetration of the annual reroof market. Additionally:
- Gross margins include the cost of the Section 201 and 301
tariffs on imported materials.
- The hypothetical maximum cash from exercise of common stock
warrants is the mathematical result of the number of warrant shares
times the respective exercise price per share. The hypothetical
results are premised upon an increase in the future trading value
of the company’s common stock resulting in the exercise of common
stock warrants. It further assumes all investors, except the Series
Q warrant holder elect cash exercises (not cashless exercises) and
warrant exercise prices are not reduced or reset to a lower amount.
The majority of common stock warrants have exercise prices at or
below $3.10 per share.
Conference Call
RGS Energy will hold a conference call tomorrow to discuss its
current financial results and position.
Date: Wednesday, August 15, 2018Time: 4:30 p.m. Eastern time
(2:30 p.m. Mountain time)Toll-free dial-in number:
1-800-289-0438International dial-in number:
1-323-794-2423Conference ID: 3269302Webcast:
http://public.viavid.com/index.php?id=130978
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 August 22, 2018.
Toll-free replay number: 1-844-512-2921International replay
number: 1-412-317-6671Replay ID: 3269302
About RGS Energy
RGS Energy (Nasdaq: RGSE) is America’s Original Solar Company
providing solar, storage and energy services whose mission is clean
energy savings. The company is the exclusive manufacturer of
POWERHOUSE™, an innovative in-roof solar shingle using technology
developed by The Dow Chemical Company. RGS Energy also sells,
designs and installs solar systems for residential homeowners,
commercial businesses, non-profit organizations and government
entities.
For more information, visit RGSEnergy.com and RGSPOWERHOUSE.com,
on Facebook at www.facebook.com/RGSEnergy and on Twitter at
twitter.com/rgsenergy. Information on such websites and the
websites referred to above in this press release is not
incorporated by reference into this press release.
RGS Energy is the company’s registered trade name. RGS Energy
files periodic and other reports with the SEC under its official
name “Real Goods Solar, Inc.”
POWERHOUSE™ is a trademark of The Dow Chemical Company, used
under license.
Forward-Looking Statements and Cautionary
Statements
This press release contains forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties, including statements
regarding RGS Energy’s results of operations and financial
positions, and RGS Energy’s business and financial
strategies. Forward-looking statements are neither historical
facts nor assurances of future performance. Instead, they provide
our current beliefs, expectations, assumptions, forecasts, and
hypothetical constructs about future events, and include statements
regarding our future results of operations and financial position,
business strategy, budgets, projected costs, plans and objectives
of management for future operations. The words “believe,” “plan,”
“expect,” “future,” “may,” “will” and similar expressions as they
relate to us are intended to identify such forward-looking
statements.
Forward-looking statements should not be read as a guarantee of
future performance or results, and will not necessarily be accurate
indications of the times at, or by, which such performance or
results will be achieved, if at all. Forward looking
statements are subject to risks and uncertainties that could cause
actual performance or results to differ materially from those
expressed in or suggested by the forward looking statements.
Therefore, RGS Energy cautions you against relying on any of these
forward-looking statements.
Key risks and uncertainties that may cause a change in any
forward-looking statement or that could cause our actual results
and financial condition to differ materially from those indicated
in the forward-looking statements include: RGS Energy’s ability to
successfully implement its revenue growth strategy, achieve its
target level of sales, generate cash flow from operations, and
achieve break-even and better results; RGS Energy’s current capital
resources being sufficient to implement its revenue growth
strategy; RGS Energy’s ability to successfully and timely
commercialize POWERHOUSE™ 3.0; the ability to obtain requisite UL
certification of POWERHOUSE™ 3.0; the adequacy of, and access to,
capital necessary to commercialize POWERHOUSE™ 3.0; RGS Energy’s
ability to satisfy the conditions and obligations under the
POWERHOUSE™ 3.0 license agreement; RGS Energy’s ability to manage
supply chain in order to have production levels and pricing of the
POWERHOUSE™ 3.0 shingles to be competitive; the ability of RGS
Energy to successfully expand its operations and employees and
realize profitable revenue growth from the sale and installation of
POWERHOUSE™ 3.0, and to the extent, anticipated; competition in the
built-in photovoltaic solar system business; RGS Energy’s
ability to realize revenue from sales of POWERHOUSE™ arising from
the California Energy Commissions’ mandate for solar systems with
new home building commencing in 2020; RGS Energy’s ability to
realize revenue from written reservations for initial POWERHOUSE™
deliveries; and RGS Energy’s ability to obtain future written
reservations for POWERHOUSE™ deliveries; the continuation and level
of government and utility subsidies and incentives for solar
energy; changes in general economic, business and political
conditions, including tariffs on imported solar cells and changes
in the financial markets; RGS Energy’s stock price and
shareholders’ equity; the performance of the Solar Division; RGS
Energy’s ability to satisfy the conditions to receive additional
funds underlying the investor promissory notes received in the 2018
convertible note offering; the number of shares of Class A common
stock actually issued under the 2018 convertible notes; whether RGS
Energy will receive any proceeds from the exercise of warrants; and
other risks and uncertainties included in the Company’s filings
with the Securities and Exchange Commission.
You should read the section entitled “Risk Factors” in our 2017
Annual Report on Form 10-K and in our Quarterly Reports on Form
10-Q for the quarter ended March 30, 2018 and June 30, 2018, each
of which has been filed with the Securities and Exchange
Commission, which identify certain of these and additional risks
and uncertainties. Any forward-looking statements made by us
in this press release speak only as of the date of this press
release. Factors or events that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We do not undertake any obligation to
publicly update or revise any forward-looking statement, whether as
a result of new information, future developments or otherwise,
except as may be required by law.
Investor Relations ContactRon BothManaging
Partner, CMATel 1-949-432-7566RGSE@cma.team