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RVLT: After Restructuring, Growth Returns to Revolution Lighting

05/01/2018
By Lisa Thompson

NASDAQ:RVLT

Revolution Lighting Technologies (NASDAQ:RVLT) returned to revenue growth by reporting Q1 revenues of $33.7 million versus $30.6 million a year ago, up 10%. While some sales did slip from Q4 into Q1, restructuring right sized the company’s costs and profitability also improved. Some management changes have also improved operations. To quote the CEO “we finally got our act together.” The company showed continued success penetrating the government and military markets shipping its first large order to the Navy. Increasing sales to this market could not only provide upside to estimates, sales here also lead to margin improvement.

In Q1 2018, the company had a gross margin of 34.1%, an improvement of 1.1 percentage points over last year mostly due to product mix and combined with cost reductions. The company continues its push to higher margin lamps, fixtures, and controls.

Operating expenses were $12.8 million versus $14.2 a year ago when acquisition, severance, and transition costs are included. Without those in both quarters, operating costs were $12.6 million versus $13.6 million in 2017. $400,000 of the difference was a decline in stock-based compensation.

Interest expense increased to $932,000 for the quarter from $802,000 in Q1 2017. The company expects cash flow and collections to improve throughout the course of the year and it should begin to pay down some borrowings later in the year.

GAAP net loss was $2.2 million versus a loss of $5.0 million a year ago. The company pays no taxes and has a federal tax loss carry forward of more than $50 million and a state tax loss carry forward of approximately $36 million.

GAAP EPS loss per share was $0.10 versus a loss of $0.24 per share in 2017. Excluding charges and stock based compensation the non-GAAP EPS loss was $0.06 versus a loss of $0.15 per share in Q1 2017.

Adjusted EBITDA for the quarter was $1 million versus a negative $0.4 million in 2017. The company uses EBITDA as its goal metric. This was an EBITDA margin of 2.8%.

Forecast Guidance

Management expects Q2 2018 revenue in the $40 - $43 million range and adjusted EBITDA in the 6% - 8% range. It maintains its full year 2018 revenue guidance of $165 - $175 million, versus $152 million in 2017, and adjusted EBITDA in the 8% - 10% range.

The biggest plus for the company this year is that the LED market is not showing the same price declines as last year where prices came down 35%. Prices are expected to decline only 5-10% in 2018. Other product mix factors will also help the company’s profitability. More of revenues will come from higher margin fixtures. Controls should start to grow because of having a leading edge product. While only a couple million in sales of controls are in forecasts for this year, controls sells at 70-80% margins, double the company average. There is also the possibility that the company can license its controls technology to other companies.

RVLT got a second award from a large box retailer, which will start to be delivered in Q2, and is in a pilot with this retailer to replace fixtures also leading to even more upside if successful.

Sales to government and military are also improving. It has had success with military bases and VA hospitals and looks for more opportunities in these verticals. In this market it has strong partners in Honeywell and Siemens.

RVLT already delivered its first large order to the Navy and is bidding more work domestically and internationally. Sales to the Navy are at higher margins as the product is higher ticket ($30-60) and there is less competition. The company already sold $4 million to the Navy and has only put $5-6 million in its guidance for the full year. Certainly Revolution’s ability to meet Made in America standards as well as Trade Agreement Act compliance have helped in the US government market.

The company is keeping its guidance conservative and we are sticking to the low end of that having been burned in the past. Certainly business prospects look very good especially with the ability to now sell to the Navy with the hopes of penetrating other navies worldwide. The company’s strategy of providing high quality product is bearing fruit as customers become more sophisticated and learn that quality saves them money in the long run.

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