RGS Energy's (RGSE) CEO Dennis Lacey on Q4 2015 Results - Earnings Call Transcript

| About: RGS Energy, (RGSE)

RGS Energy, Inc. (NASDAQ:RGSE)

Q4 2015 Earnings Conference Call

April 1, 2016 4:30 PM ET

Executives

Dennis Lacey – Chief Executive Officer

Alan Fine – VP, Operations and Principal Financial Officer

Seth Wiggins - VP, Sales

Melissa Watson – General Manager-Sunetric

Analysts

Operator

Please stand-by, we’re about to begin. Good afternoon and thank you for joining us today to discuss RGS Energy’s Fourth Quarter and Year Ended December 31, 2015 Earnings. With us today are the company’s Chief Executive Officer, Dennis Lacey; its Principal Financial Officer, Alan Fine; its Vice President of Sales, Seth Wiggins; and the company’s General Manager of Sunetric, Melissa Watson. Following their remarks, we will open up the call to institutions for questions.

And before the conclusion of today’s call, I’ll provide the necessary cautions regarding forward-looking statements made by management during this call. We would like to remind everyone that this call is recorded and will be available for replay through April 8, starting later this evening. A webcast replay will also be available via the link provided in today’s press release, as well as available on the company’s website at rgsenergy.com.

Now, I would like to turn the call over to the Chief Executive Officer of RGS Energy, Mr. Dennis Lacey. Please go ahead, sir.

Dennis Lacey

Good afternoon, everyone, and thank you for joining today’s call. Let me begin by saying some expectations for the call. The first expectation is that for those of you, who have been following us, you already know that we disclosed considerable amounts of information, both financial and commentary wise and our earnings releases in filings with the SEC. Given the granularity of those materials, we don’t intend to take up your time reading to you information you have already read. And still we will provide you with some commentary from some of our leadership team to give you a flavor of how they view the company.

The second expectation is regarding management taking phone calls. We believe it is a best practice to take calls only from sell-side analysts and buy side institutions. We will review the call logs and only take questions from these institutions. Of course, if anyone wishes to speak with me directly, they can reach out to our Investor Relations contact, referenced in our press release, to discuss an arrangement. So with those housekeeping items out of the way, I’ll provide a few comments from my perspective, before I invite other members of management to provide their comments.

First off all CEOs say they are pleased with the results. I have two views with respect to the 2015 results. On the one hand, we made good progress on key financial metrics such as reducing our net loss from the prior year. The improvement in net loss is outlined in a table near the top of our earnings release. On the other hand, it is difficult to go from losing $57 million in one year to making profits the next year, which we did not do, but we cut the loss 80% to $10 million. We also materially reduced the debt leverage of the company and the cost of its operating infrastructure.

Of course I would have preferred that we had operated a profit for 2015. What we have been doing is taking the necessary steps to position the company to first achieve breakeven operating results and thereafter profits. To do that, we have to right size the business to get our arms around it, build a cohesive team and get our fixed operating cost [net] [ph] down to a level that we can envision in raising sufficient levels of sales to operate at breakeven than profits.

We do not want to be in a position where we feel compelled to arrange large volumes of transactions. Instead we want to focus upon a level of sales we feel we can originate profitably. I suspect that is of little consolation to our shareholders to point out that our annual loss for the year of $10 million is what some competitors lose in one case in just a couple of days, some take a week or two to lose that much.

Unfortunately for us the market seem to reward the greater larger net loss results as opposed to our strategy of rightsizing our business and taking the steps to approach breakeven. We don’t make non-GAAP disclosures to show we make money on some other basis of portraying results. We simply disclose the results and point to the trends in those results.

Our approach, and we realize we have to show more progress with that before investors are comfortable, is to design a business that we expect will allow us to operate at a profit. To execute that strategy, the company has to be adequately capitalized. We spent considerable time canvassing the market for capital opportunities including hiring outside experts to assist us and as dictated by the circumstances the best opportunity that we felt was available to us was convertible debt.

The trading volumes in our stock and its trading price have each declined and that precluded our access into capital markets in an even more cost effective manner. However without access to capital, we cannot begin to fully execute our strategy and hope to achieve future breakeven and then thereafter profitable results. To wrap up the new financings were the necessary and critical next steps. That is done.

Now, we are on to operating the business and some of the team that runs the business will talk next, starting with Alan Fine, our Principal Financial Officer.

Alan Fine

Thank you. Picking up where Dennis left off, in regards to the funds for the convertible debt offering. We will receive $750,000 upfront with the remainder held in a restricted cash account. We expect to draw down those funds over the next twelve months subject to release conditions as further described in the Form 10-K – Form 8-K being filed today. We will use these moneys for a variety of purposes, such as catching up on old vendor payables, funding marketing support and expanding our sales force. Besides those uses of cash the new moneys allows us to have a stronger balance sheet than we expect, that we expect will have a myriad of benefits, such as making us more attractive when we respond to proposals as we do with community Solarize programs. And lastly allow us to negotiate better vendor terms.

Prior to closing the convertible debt in March of 2016, we moved our line of credit facility to a major vendor, which allowed us to borrow against assets such as inventory, and leases and other receivables, which our previous lender being ineligible for lending purposes. This was an important first step to accessing sufficient working capital to finance operations and thereby increase our installation capacity. This facility has a maximum draw of $5 million and it by itself is not a solution for increasing the throughput of our business that being installations.

Operational and installation efficiencies directly impact our utilization of the line, namely the time from contract execution to the utility granting permission to operate. This cycle time can vary from 60 days to 150 days depending on the local utility and jurisdictional permitting process each of which are not within our control.

As such we have developed internal processes and procedures for reducing internal pre-construction time, field time and installation quality assurance. As we’ve previously disclosed, our plan is to expand our footprint into new states in 2016. In lieu of creating bricks and mortar operations in those states, hiring installation teams, opening warehouses and storing inventory we will expand our authorized integrator program to make better use of working capital and thereby reduce funding requirements against our line of credit.

Our required capital reflects the nature of our customers’ preferences. For instance, for the fourth quarter of 2015 roughly 60% of our customers paid cash and another 33% used third-party loans when purchasing from us. Our customers prefer the benefits of the investment tax credit, which they would not have if we were primarily a company that focused on leasing. Because of this we do not have to continually raise larger amounts of capital to retain leases on our books, instead uses of capital for us to have the appropriate levels of working capital to support our sales organization and investment in inventory and receivables.

As we disclosed in our fourth quarter press release, as we did not close the new financings in the timeframe we had anticipated, our operating results for the ensuing period will reflect the lack of access to adequate capital during that period, as we were unable to devote adequate resources to growing our sales organization which we intend to do.

Now Seth Wiggins, our Vice President of Sales, will discuss our sales and marketing plans.

Seth Wiggins

Thanks, Alan. We productively use this time while we are right-sizing our business to think through how we can get very strategic about our plans for future sales growth. We know where the goal posts are. We have a certain level of sales we’d like to hit or exceed for breakeven or better results. We know the markets, the prevailing prices and the incentives available. As the oldest solar company in America we have a rich history of experiences to draw upon.

We have a feel for what we can and can’t work in terms of selling in a manner that both satisfies our customers and the company. We also know from past experiences that we have to grow our sales and installation capabilities in tandem, because building up a large backlog that is not installed in a timeframe that meets customer expectations, could lead to customer contract cancellations. We strive every day to learn from our experiences and adjust our business accordingly.

We’ve analyzed most of the states in the U.S. for their desirability of solar, what the prevailing prices are, the cost of delivery, the cost of marketing support, et cetera. Based upon this we’ve identified a few states that are attractive to us for expansion and we intend to launch a new state next month and have plans to launch in another state before the year is over.

Another lesson that we have learned is best approach to market in a balanced manner. In some states we feel it’s better to approach customers from our call center and other states we have found that field sales force is better. Our hiring plans are based upon best talents approach. The influx of new capital is a great value to the sales organization and for achieving its growth at the top line.

We believe our stronger balance sheet will make us a more attractive employer for new sales recruits, as well as strengthen confidence of potential customers that RGS is financially stronger and will be able to meet its obligations. The new capital also provides us more funds to support our marketing plans.

My team and I who are focused on the mainland U.S. are encouraged by our jointly developed turnaround plan that is now made achievable by our new financings. We also have a substantial presence in Hawaii and Melissa Watson, our General Manager of Sunetric will talk about that next.

Melissa Watson

Thanks, Seth. Sunetric closed out 2015 commercial installations and the year in general on an upswing, compared to how 2014 closed out. Of course, there are always challenges and for us the Hawaii Public Utility Commission’s decision to end the Net Metering Program in Q4 of 2015, coupled with Hawaiian Electric rollout of new grid supply and self-supply programs has certainly been disruptive to the Hawaiian market and in particular the residential market. The impact has resulted in a cloudy application process and continued delays and approvals that continue to impact Sunetric’s day-to-day residential sales and operations.

That being the environment, we have readjusted our residential strategy to focus more on the residential energy storage market. With the influx of new capital we’re excited to grow our residential smart appliance and battery storage offering, invest in new marketing strategies for those products and build our sales force.

That being said, we will keep our primary focus on the development of new commercial project where the actions of Hawaii PUC have not been as disruptive as they have been in the residential side of our business. We have strong commercial capabilities at Sunetric and view the commercial market as the growth engine for the future, not residential for the reasons I just discussed.

Now I would like to turn the call back over to Dennis.

Dennis Lacey

Thanks, Alan, Seth, and Melissa for your comments. For the participants on the call, I hope our approach today was informative for you. Now as we mentioned, we review the call logs for potential questions.

Question-and-Answer Session

[Operator Instructions]

Operator

That concludes our question-and-answer session at this time. I’d like to turn the call back over to Mr. Lacey. Sir, please go ahead.

Dennis Lacey

Thanks everyone for joining us today. Thank you, operator.

Operator

Thank you before we end today’s presentation I would like to take a moment to read the company’s Safe Harbor statement that provides important cautions regarding forward-looking statements. Today’s communication includes forward-looking statements that involve risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they provide RGS Energy’s current beliefs expectations, assumptions and forecasts about future events and includes statements regarding its future results of operations and financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations.

The words anticipate, believe, plan, estimate, expect, strive, future, intend, may, will and similar expressions as they relate to RGS Energy are intended to identify such forward-looking statements. Because forward-looking statements relate to the future, they’re subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside the company’s control. RGS Energy’s actual results and financial conditions may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

Important factors that could cause RGS Energy’s actual results and financial conditions to differ materially from those indicated in the forward-looking statements include without limitation, the following; access to and availability of capital to fund planned expansion of marketing, sales and installation capabilities, and to pay past due amounts to vendors, suppliers, and other, ability to satisfy conditions to drawn on funds from convertible note offering held in restricted cash account, ability to expand marketing, sales and installation capabilities, ability to increase installation, ability to achieve operation and installation efficiencies, ability to improve cash flow and operating results, ability to successfully expand into new state, ability to expand authorized integrator program, availability of third-party financing for customers, ability to achieve break-even and profitability, ability to grow sales and revenues, ability to retain existing and recruit new key personnel and employees, ability to meet obligations and other such risk factors as discussed throughout Part I, Item 1A risk factors. And Part II, Item 7, management’s discussion and analysis of financial conditions and results of operations of it’s annual report on Form 10-K for the year ended December 31, 2015. In Part I, Item 2, management’s discussion and analysis of financial condition and results of operations. In Part II, Item 1A risk factors included in its quarterly reports on Form 10-Q. Any forward-looking statement made by RGS Energy in this communication is based only on information currently available to the company. And speaks only of as of the date on which it was made. RGS Energy undertakes no obligations to publicly update any forward-looking statement whether written or oral that may be made from time-to-time, whether as a result of new information, future developments or otherwise.

I would like to remind everyone that this call will be available for replay through April 8 starting in about two hours. Please refer to today’s press release for dial-in replay instructions. A webcast replay will also be available via the company’s website at rgsengery.com. Thank you for joining us for today’s presentation. This concludes today’s call. You may now disconnect.

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