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RVLT: Revolution Lighting Restructures To Improve Profitability

03/12/2018
By Lisa Thompson

NASDAQ:RVLT

Sweeping the slate clean, Revolution Lighting (NASDAQ:RVLT) took large one-time write offs of costs and impairment charges totally $41.5 million to position the company for 2018 and beyond. Of this $41.5 million, $38.1 million were non-cash charges. The company had restructuring costs of $16.9 million, wrote down intangibles ($10.5 million) and goodwill ($10.7 million), and claimed another $6.1 million in acquisition, severance, and transition costs. Actions taken included reducing warehouses locations, consolidating three divisions into one, and exiting certain product lines and related operations. The company has now consolidated eight businesses into four operating units, replaced management, and reduced the employee count from 310 to 268 people during the course of the year. With these changes Revolution expects breakeven to be at $115 – 120 million in annual revenues and $27 – 30 million in quarterly revenues. 

Inline with its preannouncement, the company reported revenues of $35.3 million for Q4 2017 versus $51.2 million in Q4 2016, however its non-cash charge was far below the $65 million it had expected to take, “due primarily to (its) overall market capitalization.” 

The main reason for the revenue decline was from projects pushed out to the future from both the hurricanes and we believe, uncertainty from the effect of new tax laws on construction. Projects were pushed out, particularly at Value Lighting, and the company is beginning 2018 with a record backlog. Initial guidance given for Q1 2018 was $33 to $35 in revenues, with gross profit margin of 32% and adjusted EBITDA of 3%. 

In Q4 2017, the company had a gross margin of 9.8% including a restricting cost of $9.3 million. Without the restructuring, gross margin would have been 36.0%. This compares with gross margin of 34.4% in Q4 2016 and 32.2% in Q3 2017. The company continues its push to higher margin lamps, fixtures, and controls.

Operating expenses were $19.0 million versus $15.4 a year ago when acquisition, severance, and transition costs are included. Without those in both quarters, operating costs were $15.7 million versus $14.7 million in 2017.

Interest expense increased $739,000 for the quarter a year ago and increased $406,000 from Q3 2017. 

Without the charges, the net loss would have been $4.3 million versus a profit of $2.3 million a year ago. The company pays no taxes and has a federal tax loss carry forward of $49.9 million and a state tax loss carry forward of $36.3 million.

GAAP EPS loss per share was $2.17 versus a profit of $0.08 per share in 2016. Excluding charges and stock based compensation the non-GAAP EPS loss was $0.16 versus a profit of $0.14 per share in Q4 2016. 

2017 Year

The 2017 year did not turn out at all as expected primarily due to the three hurricanes disrupting construction as well as due to competitive forces. Industry prices declined somewhat in 2017 but it has remained stable in the past six to nine months. In 2018 the company expects possible price declines of 5-6% depending on the product.

Revenues for the year came in at $152 million, down 12% from the $172 million reported in 2016 as revenue growth rapidly decelerated when the hurricanes hit and the company never recovered. Not including the restructuring charge, gross margin increased to 33.4% versus 32.5% in 2016. Operating expenses increased by $6.8 million as Revolution invested heavily in sales and marketing and distribution. The company had an operating loss of $5.9 million not including one-time charges versus a profit of $5.8 million a year ago. 

GAAP EPS for the year was a loss of $2.59 versus a loss of $0.03 a year ago. Non-GAAP EPS was a loss of $0.32 versus a profit of $0.29 on 9.5% more shares outstanding.

EBITDA for the year was $4.7 million down from $14.1 million a year ago. 

Forecast Guidance

The company is expecting 2018 to be within “$165 - $175 million in revenues, an increase of 9% - 15% over 2017, gross profit margin of 32% - 33% and adjusted EBITDA in the 8% - 10% range with positive free cash flow in the 6% - 7% range.” 

Revolution is entering 2018 with a record backlog, in excess of $40 million caused in part by the delay of projects in 2017 and as a result, expects a strong rebound in growth this year. Its Lighting As a Service business—when a bank lends the cash to pay for a retrofit while the customer pays the bank back from energy savings—should begin to book revenues in Q2 of 2018. Also in Q2, the company will begin shipping phase two of an order from a big box retailer. 

The North American market for LED lighting solutions continues to increase as its market share goes from approximately 15% of today’s total installed lighting base, to 35% by 2020 and 65% by 2025. The industry growth, combined with a strong US economy should provide Revolution with solid growth in 2018 however we remain conservative in our forecasts due to past disappointments.

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