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Revolution Lighting (RVLT) Slashes Q4 Expectations as Texas Projects Are Delayed

10/26/2017
By Lisa Thompson

NASDAQ:RVLT

A significant disruption in business at Revolution (NASDAQ:RVLT) due to hurricanes has caused a large revenue shortfall in the second half of 2017. Following a weak Q3, Revolution expects the shortfall continue in Q4 2017. Fortunately for investors this act of God could provide a buying opportunity as the company works its way back to normal operations. Though RVLT reported Q3 revenues in line with its preannouncement, the company just guided down significantly for Q4 from $60-66 million to $47-50 million in revenues having again reviewed the status of its customer’s projects. While 50-60 projects had been affected by the weather, management believed that they would be taking product by Q4. Upon checking with customers, it was found that only 20-40% of these projects would be ready to accept delivery in Q4. 

Revolution reported Q3 revenues of $43.1 million versus $50.2 million a year ago, down 14%. The majority of the shortfall was pinned on Texas. There the hurricane, plus management issues, resulted in business slipping out of the quarter, but not lost. Revenues from Texas are expected to be only $13 million to $14 million in the second half of 2017 versus the $25 million in sales in the same period last year. Management at Value Lighting has been shuffled and facilities in that region are to be consolidated resulting in lower G&A going forward. The building market in Texas continues to be robust so there is not a demand problem. As noted in the revised guidance given last month, the hurricanes primarily affected the multi-family lighting business at Value Lighting. This entity at Revolution gets as much as 70% of its sales in the last two weeks of the quarter. It was unable to ship product and customer were unable to receive product due to the disruption in travel and business closures. Also, Revolution’s Georgia and Texas offices were closed for a number of days. These customers had been expected to require electrical product but construction delays set their projects behind schedule. Revolution believes these delays reduced quarterly sales by about $7 million. Additionally, a number of large deals expected at Energy Source in Connecticut and Rhode Island slipped out of the quarter. The Connecticut government has just now agreed to take some money from the utilities’ Energy Efficiency Fund to pay its bills, as it cannot close its budget gap. This will reduce future available subsidies.

Gross margins held steady sequentially at 32.2% and were up slightly from 31.7% in 2016. The company is optimistic that margins will increase going forward as it sells more higher margin fixtures and controls rather than just lamps and tubes. This company continues to increase spending on R&D while taking steps to negate this increase by consolidating facilities and streamlining operations. Total expenses ex-one time expenses were $14.2 versus $13.4 million in Q3 2016. Interest expense was $943,000 versus $747,000 a year ago. They company continues to improve DSOs and inventory turns and is working to reduce borrowings.

GAAP EPS came in at loss of $0.12 versus a gain of $0.08 last year. Non-GAAP EPS without stock based compensation and one-time expenses was a loss of $0.03 versus a gain of $0.11 a year ago. Adjusted EBITA was $2.3 million for the quarter versus $4.6 in 2016.

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