RGS Energy Announces New CEO and Refocus on Residential Solar

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Solar provider RGS Energy (Nasdaq:RGSE) yesterday reported results for the second quarter ended June 30, 2014.

The company emphasized the positive performance of its residential operations and recently acquired Sunetric, noting it’s now organized in four reportable segments: Residential, Commercial, Sunetric, and Other (retail store and corporate operations). The company also pointed to improvements it’s made in pricing, construction capacity, and staffing.

A major announcement was the promotion of Dennis Lacey to CEO, replacing Kam Mofid, who has “departed to pursue other interests.” In addition, the company is refocusing on the residential market.

David Belluck, RGS Energy’s Chairman of the Board, emphasized the benefits of having Lacey at the helm for this transition. He stated in a press release, “After completing a comprehensive review of each of our businesses, the Board of Directors has determined that the best opportunity lies with our new Residential and Sunetric segments for maximizing future shareholder value. Dennis Lacey is uniquely qualified for the CEO role. He has not only served effectively as our President of Residential since April 2014, but also has a successful track record in turnaround situations of public companies. Our current circumstances require that we focus our business activities on residential solar, which is still in its early stages as an industry, and around a leader with the necessary background and skill set to return our business to profitability.”

Lacey said, “Since being appointed President of our Mainland Residential segment in April, we have made progress within the Residential segment; for instance, comparing the 1st quarter to the 2nd quarter, the close rate by our sales force has doubled, the average sales price increased 7.8%, our cost per acquisition decreased by 7.5%, our backlog increased 28.9%, and to address capacity and efficiency, through the end of July, the headcount has been reduced 19% from April. In addition, our Esales team averaged approximately $1 million in sales per month for the quarter and our East Coast residential sales team sold $15 million for the quarter. This strong performance by our East Coast team is 175% higher than they achieved in the first quarter presenting our operations team with the enviable challenge of keeping up with sales.”

In a conference call yesterday, Lacey opened by explaining how his previous experience will help in his new role, emphasizing his success with business turnarounds. “I have had the good fortune during my career of being part of multiple successful business turnarounds, something I believe we can accomplish here. In brief I’ve been instrumental with three turnarounds of public companies and different industries. Equipment leasing, QSR restaurants and call centers. In each of these situations the companies were stabilized and returned to profitable operations and their stock prices increased very nicely,” he said.

He added, “In fact two of those situations have a direct correlation to our future plans. One being to use call centers to reduce customer acquisition costs. And another being adding leasing to our product set as a new source of income. There are certain common themes to all business turnarounds. And there are eventual pathways to financial health. Usually these involve a focus on the basics, blocking and tackling well if you will. In our case we are not going to be pursuing the acquisitions of other EPC companies; we are going to focus on pricing discipline and efforts to streamline costs and improve operational efficiency. Our plan is to take the appropriate steps to return the company to profitable operations at a point they’re in 2015.”

In the press release, Lacey stated, “The current quarter’s results reflect that there are now three primary reportable segments within our Company: Residential, Commercial, and Sunetric, with significantly different economics. Our Residential segment grew revenue and gross margin dollars over the prior year quarter. Furthermore, we intend to devote significant internal resources to growing our Residential segment by increasing the size of our sales force, building out our installation capabilities, and launching our leasing platform. On the other hand, the results of our Commercial segment were adversely impacted by increased pricing pressures and longer cycle times for commercial projects. As a result, we plan to reduce our focus on the commercial solar market in the future.”

He added, “We have already taken actions to further improve our performance in the Residential segment, such as closing unprofitable offices, investing in improved sales training for our employees, test launching our leasing program in one market, and delivering better customer service. We had very strong performance this quarter from our East Coast sales team, which sold $15 million worth of installation jobs, much of which is in our current backlog.”

Tony Dipaolo, RGS Energy’s Chief Financial Officer, said, “We have maintained our working capital over the past year, while incurring the costs of integrating three acquisitions. Our plan is to further streamline operations and complete the integration of these companies. Our stockholders’ equity and goodwill have also grown since the end of 2013, reflecting the shares issued in connection with these acquisitions.”

Conference call and webcast

A transcript of RGS Energy’s conference call can be found here.

The conference call webcast is available via the investor relations section of the Company’s website at RGSEnergy.com. A replay of the call will be available through August 26 2014:

Toll-free replay number:

1-877-870-5176

International replay number:

1-858-384-5517

Replay ID:

2127358

Summary results

For more details, see the RGS Energy press release.

For Calendar 2014

For Calendar 2013

($’000)

2nd Quarter

6 Months

2nd Quarter

6 Months

MW Installed

11.39

17.76

5.57

10.15

Revenue

$35,180

$57,323

$20,666

$37,458

Gross Margin

$3,863

$7,154

$4,768

$9,359

Gross Margin %

11.0%

12.5%

23.1%

25.0%

Operating Loss

$ (28,417)

$ (38,351)

$ (3,171)

$ (6,537)

Net Loss

$ (21,355)

$ (36,183)

$ (2,908)

$ (6,701)

EPS – Diluted

$ (0.46)

$ (0.82)

$ (0.11)

$ (0.25)

Adjusted EBTIDA

$ (6,883)

$ (13,534)

$ (2,870)

$ (5,887)

Second Quarter Results

($’000)

2014

2013

Residential:

Revenue

$15,942

$10,719

COGS

$12,428

$7,551

Gross Margin

$3,514

$3,168

GM%

22.0%

29.6%

Commercial:

Revenue

$15,544

$8,761

COGS

$16,184

$7,568

Gross Margin

($640)

$1,193

GM%

(4.1%)

13.6%

Sunetric:

Revenue

$3,071

$–

COGS

$2,264

$–

Gross Margin

$807

$–

GM%

26.3%

–%