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Hurricanes Dim Revolution Lighting’s (RVLT) Near Term Forecast

09/22/2017
By Lisa Thompson

NASDAQ:RVLT

Company Lowers Guidance Due to Impact of Hurricanes

Today management revised Q3 and Q4 guidance primarily due to the impact of the recent hurricanes on business activities. The hurricanes primarily affected the multi-family lighting business at Value. This entity at Revolution (NASDAQ:RVLT) gets as much as 70% of its sales in the last two weeks of the quarter. It was unable to ship product due to the disruption in distribution and travel, as well as the inability for customers to take delivery. In addition, its Georgia and Texas offices were closed for a number of days. Revolution believes this reduced quarterly sales by about $7 million. Additionally a number of large deals at Energy Source slipped into Q4. In an abundance of caution, the company also took down Q4 guidance. As affected areas move to rebuild, new opportunities may arise for LED lighting and fixtures as owners and municipalities take the opportunity to modernize and cut costs by replacing lighting with LED when they otherwise might not have.

Update on Current Business

Backlog has increased $10 million since the end of Q2 when it was $35 to $45 million and the company still anticipates that 80-90% of this backlog will be shipped by the end of Q4.

Since the end of Q2 the company won its first Navy contract. This small order of 2300 tubes is now shipping and Revolution expects to bid on a much larger contract in November for what it expects to be 30,000 – 40,000 tubes. In addition, it won its first bid from the US National Guard. 

In a novel approach to financing for municipalities, the company has created what it is calling “Energy as a Service.” Working with the local utility and banks, the company is now executing LED replacement projects that are being paid for through the payment of an electric bill. Much like when a customer could pay off a new smartphone by signing a contract to pay a higher monthly phone service rate, the government will keep paying a higher electricity bill until it has paid off its project cost for LED replacements. Revolution is enabling a state government (name of state withheld) to switch to LED in 10-15 state owned buildings, with the potential of another 30-40 buildings using this financing technique. Revolution anticipates the state could save as much as $50-$60 million per year on electricity if all the buildings are converted. This contract is expected to start in Q4 could lead to as much as $100 million in sales over the next two years.

Business continues steady at retail stores and more chains are presenting opportunities. The work with the large retailer the company talks about is now onto phase two and this customer is now considering replacing fixtures as well as tubes throughout it stores.  

Q3 2017

The company is now guiding to Q3 2017 revenue in the range of $42 million to $44 million, flat with Q3 2016. It also projects adjusted EBITDA in the 5-6% range. At midpoint this yields $2.4 million in EBITDA for Q3. We are now using breakeven for Q3 2017 versus EPS of $0.11 per share. In Q3 2017 the company has 7% more shares than last year. 

Full Year 2017 Estimate Drops to $177 million

Revenue guidance for the 2017 year was dropped to $171 to $178 million, and EBITDA margin guidance was dropped to 8% from 10%. This leads us to a new non-GAAP EPS estimate of $0.11 for the year down from $0.29 last year. Needless to say, while the hurricanes caused short term disruption to business then should provide even more opportunity in Q4 and beyond as Texas, Florida and Puerto Rico rebuild.

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