U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20172018
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission FileNo. 000-23590
REVOLUTION LIGHTING TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE | 59-3046866 | |
(State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
177 BROAD STREET, 12th FLOOR, STAMFORD, CT 06901
(Address of Principal Executive Offices) (Zip Code)
(203) 504-1111
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 21, 2017,27, 2018, the Registrant had 21,069,47522,477,859 shares of Common Stock, $.001 par value, outstanding.
RevolutionRevolution Lighting Technologies, Inc.
Index to Form10-Q
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
21 | ||||||
Item 1. | 22 | |||||
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PART I – FINANCIAL INFORMATION
Page No. | ||||
Revolution Lighting Technologies, Inc. Unaudited Financial Statements | ||||
Condensed Consolidated Balance Sheets at June 30, | ||||
Revolution Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share data)
June 30, | December 31, | |||||||||||||||
June 30, 2017 | December 31, 2016 | 2018 | 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | $ | 475 | $ | 883 | $ | 457 | $ | 945 | ||||||||
Trade receivable, net of allowance for doubtful accounts | 50,664 | 53,347 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 34,963 | 34,972 | ||||||||||||||
Unbilled contracts receivable | 6,255 | 10,167 | 6,813 | 6,083 | ||||||||||||
Inventories, net | 31,234 | 26,678 | 26,706 | 26,164 | ||||||||||||
Other current assets | 9,814 | 8,363 | ||||||||||||||
Vendor deposits, prepaid expenses and other | 9,554 | 9,510 | ||||||||||||||
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Total current assets | 98,442 | 99,438 | 78,493 | 77,674 | ||||||||||||
Property and equipment, net | 1,651 | 1,474 | 2,051 | 1,603 | ||||||||||||
Goodwill | 72,210 | 72,074 | 61,508 | 61,508 | ||||||||||||
Intangible assets, net | 41,166 | 43,809 | 27,164 | 28,372 | ||||||||||||
Other assets, net | 1,202 | 704 | 999 | 1,077 | ||||||||||||
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Total assets | $ | 214,671 | $ | 217,499 | $ | 170,215 | $ | 170,234 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accounts payable | $ | 26,294 | $ | 32,409 | $ | 23,476 | $ | 28,833 | ||||||||
Accrued and other liabilities | 11,556 | 10,541 | 7,990 | 11,570 | ||||||||||||
Notes payable | 2,360 | 2,360 | ||||||||||||||
Acquisition payable | 510 | 1,796 | ||||||||||||||
Related party notes payable | — | 1,500 | 1,000 | 1,000 | ||||||||||||
Purchase price obligations | 561 | 1,327 | — | 130 | ||||||||||||
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Total current liabilities | 40,771 | 48,137 | 32,976 | 43,329 | ||||||||||||
Revolving credit facility | 38,741 | 25,993 | 42,107 | 38,633 | ||||||||||||
Notes payable | 1,886 | 12,066 | ||||||||||||||
Acquisition payable | 1,326 | 270 | ||||||||||||||
Related party notes payable | 11,065 | 2,565 | 17,728 | 11,720 | ||||||||||||
Purchase price obligations | — | 1,716 | ||||||||||||||
Other noncurrent liabilities | 386 | 1,309 | 244 | 419 | ||||||||||||
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Total liabilities | 92,849 | 91,786 | 94,381 | 94,371 | ||||||||||||
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Contingencies and Commitments | ||||||||||||||||
Stockholders’ Equity | ||||||||||||||||
Common stock, par value $0.001 — 35,000 shares authorized and 21,048 shares issued and outstanding at June 30, 2017 and 35,000 shares authorized and 20,893 shares issued and outstanding at December 31, 2016 | 21 | 21 | ||||||||||||||
Common stock, par value $0.001 — 35,000 shares authorized and 22,418 shares issued and outstanding at June 30, 2018 and 35,000 shares authorized and 21,352 shares issued and outstanding at December 31, 2017 | 22 | 21 | ||||||||||||||
Additional paid-in-capital | 202,678 | 200,887 | 209,302 | 204,944 | ||||||||||||
Accumulated deficit | (80,877 | ) | (75,195 | ) | (133,490 | ) | (129,102 | ) | ||||||||
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Total stockholders’ equity | 121,822 | 125,713 | 75,834 | 75,863 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 214,671 | $ | 217,499 | $ | 170,215 | $ | 170,234 | ||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.statements.
Revolution Lighting Technologies, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Revenue | $ | 43,375 | $ | 43,122 | $ | 73,945 | $ | 70,711 | $ | 36,444 | $ | 43,375 | $ | 70,183 | $ | 73,945 | ||||||||||||||||
Cost of sales | 29,127 | 29,774 | 49,623 | 48,313 | 24,669 | 29,127 | 46,909 | 49,623 | ||||||||||||||||||||||||
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Gross profit | 14,248 | 13,348 | 24,322 | 22,398 | 11,775 | 14,248 | 23,274 | 24,322 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 10,368 | 9,283 | 20,458 | 16,874 | 9,585 | 10,368 | 19,681 | 20,458 | ||||||||||||||||||||||||
Research and development | 694 | 588 | 1,116 | 1,219 | 934 | 694 | 1,752 | 1,116 | ||||||||||||||||||||||||
Amortization and depreciation | 1,793 | 1,565 | 3,732 | 2,875 | 1,047 | 1,793 | 2,048 | 3,732 | ||||||||||||||||||||||||
Acquisition, severance and transition costs | 883 | 1,860 | 1,541 | 3,001 | 790 | 883 | 959 | 1,541 | ||||||||||||||||||||||||
Stock-based compensation | 478 | 593 | 1,596 | 1,023 | 522 | 478 | 1,195 | 1,596 | ||||||||||||||||||||||||
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Total operating expenses | 14,216 | 13,889 | 28,443 | 24,992 | 12,878 | 14,216 | 25,635 | 28,443 | ||||||||||||||||||||||||
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Operating income (loss) | 32 | (541 | ) | (4,121 | ) | (2,594 | ) | (1,103 | ) | 32 | (2,361 | ) | (4,121 | ) | ||||||||||||||||||
Interest expense and other charges | (759 | ) | (586 | ) | (1,561 | ) | (1,149 | ) | (1,095 | ) | (759 | ) | (2,027 | ) | (1,561 | ) | ||||||||||||||||
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Net loss | $ | (727 | ) | $ | (1,127 | ) | $ | (5,682 | ) | $ | (3,743 | ) | $ | (2,198 | ) | $ | (727 | ) | $ | (4,388 | ) | $ | (5,682 | ) | ||||||||
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Loss per share, basic and diluted | $ | (0.03 | ) | $ | (0.06 | ) | $ | (0.27 | ) | $ | (0.21 | ) | ||||||||||||||||||||
Net loss per share, basic and diluted | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.20 | ) | $ | (0.27 | ) | ||||||||||||||||||||
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Weighted average shares outstanding, basic and diluted | 20,761 | 18,850 | 20,680 | 17,699 | 22,232 | 20,761 | 22,027 | 20,680 | ||||||||||||||||||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
Revolution Lighting Technologies, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Year Ended December 31, 2017 and Six Months Ended June 30, 2018
(In thousands)
Common Stock | Additional Paid-in- Capital | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||
Balance, January 1, 2016 | $ | 16 | $ | 176,760 | $ | (74,673 | ) | $ | 102,103 | |||||||||||||||||||||||
Stock-based compensation | 1 | 1,310 | — | 1,311 | ||||||||||||||||||||||||||||
Issuance of common stock for cash, net of issuance costs | 3 | 16,189 | — | 16,192 | ||||||||||||||||||||||||||||
Shares issued for contingent consideration and acquisition | 1 | 6,628 | — | 6,629 | ||||||||||||||||||||||||||||
Net loss | — | — | (522 | ) | (522 | ) | ||||||||||||||||||||||||||
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Balance, January 1, 2017 | 21 | 200,887 | (75,195 | ) | 125,713 | 21 | 200,887 | (75,195 | ) | 125,713 | ||||||||||||||||||||||
Stock-based compensation | — | 1,237 | — | 1,237 | — | 2,861 | — | 2,861 | ||||||||||||||||||||||||
Shares issued for contingent consideration | — | 554 | — | 554 | — | 1,196 | — | 1,196 | ||||||||||||||||||||||||
Net loss | — | — | (5,682 | ) | (5,682 | ) | — | — | (53,907 | ) | (53,907 | ) | ||||||||||||||||||||
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Balance, June 30, 2017 | $ | 21 | $ | 202,678 | $ | (80,877 | ) | $ | 121,822 | |||||||||||||||||||||||
Balance, December 31, 2017 | $ | 21 | $ | 204,944 | $ | (129,102 | ) | $ | 75,863 | |||||||||||||||||||||||
Stock-based compensation | — | 759 | — | 759 | ||||||||||||||||||||||||||||
Issuance of common stock for cash, net of issuance costs | 1 | 3,599 | — | 3,600 | ||||||||||||||||||||||||||||
Net loss | — | — | (4,388 | ) | (4,388 | ) | ||||||||||||||||||||||||||
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Balance, June 30, 2018 | $ | 22 | $ | 209,302 | $ | (133,490 | ) | $ | 75,834 | |||||||||||||||||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
Revolution Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net loss | $ | (5,682 | ) | $ | (3,743 | ) | $ | (4,388 | ) | $ | (5,682 | ) | ||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||
Depreciation | 261 | 198 | ||||||||||||||
Amortization of intangible and other assets | 3,471 | 2,677 | ||||||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Amortization and depreciation | 2,825 | 3,732 | ||||||||||||||
Stock-based compensation | 1,596 | 1,023 | 1,195 | 1,596 | ||||||||||||
Change in fair value of contingent consideration | (1,645 | ) | 832 | — | (1,645 | ) | ||||||||||
Other noncash items affecting net income | (103 | ) | — | 186 | (103 | ) | ||||||||||
Changes in operating assets and liabilities, net of the effect of the acquisition: | ||||||||||||||||
(Increase) decrease in trade receivables, net | 2,683 | (413 | ) | 9 | 2,683 | |||||||||||
(Increase) decrease in unbilled contracts receivable | 3,912 | 910 | (730 | ) | 3,912 | |||||||||||
(Increase) decrease in inventories, net | (4,556 | ) | (3,043 | ) | (542 | ) | (4,556 | ) | ||||||||
(Increase) decrease in prepaid and other assets | (1,994 | ) | (1,352 | ) | (1,514 | ) | (1,994 | ) | ||||||||
Increase (decrease) in accounts payable and accrued liabilities | (6,379 | ) | 1,981 | (8,253 | ) | (6,379 | ) | |||||||||
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Net cash used in operating activities | (8,436 | ) | (930 | ) | (11,212 | ) | (8,436 | ) | ||||||||
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Cash Flows from Investing Activities: | ||||||||||||||||
Payment of acquisition obligations | (284 | ) | (1,015 | ) | (137 | ) | (284 | ) | ||||||||
Purchase of property and equipment | (652 | ) | (110 | ) | ||||||||||||
Acquisition of business and other, net of cash acquired | — | (9,464 | ) | |||||||||||||
Purchase of property and equipment and other | (1,403 | ) | (652 | ) | ||||||||||||
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Net cash used in investing activities | (936 | ) | (10,589 | ) | (1,540 | ) | (936 | ) | ||||||||
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Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from the issuance of common stock | 3,600 | — | ||||||||||||||
Net proceeds from revolving credit facility | 12,747 | 550 | 3,474 | 12,747 | ||||||||||||
Net proceeds from related party notes payable | 7,000 | — | 5,280 | 7,000 | ||||||||||||
Repayments of notes payable and short-term borrowings | (10,180 | ) | (180 | ) | (90 | ) | (10,180 | ) | ||||||||
Proceeds from issuance of common stock, net of issuance costs | — | 16,191 | ||||||||||||||
Fees pertaining to issuance of debt | (603 | ) | — | — | (603 | ) | ||||||||||
Fees pertaining to issuance of common stock | — | (71 | ) | |||||||||||||
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Net cash provided by financing activities | 8,964 | 16,490 | 12,264 | 8,964 | ||||||||||||
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Net (decrease) increase in cash and cash equivalents | (408 | ) | 4,971 | |||||||||||||
Cash and cash equivalents, beginning of period | 883 | 219 | ||||||||||||||
Net decrease in cash and cash equivalents | (488 | ) | (408 | ) | ||||||||||||
Cash and cash equivalents, beginning of year | 945 | 883 | ||||||||||||||
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Cash and cash equivalents, end of period | $ | 475 | $ | 5,190 | ||||||||||||
Cash and cash equivalents, end of year | $ | 457 | $ | 475 | ||||||||||||
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Non-cash investing and financing activities: | Non-cash investing and financing activities: |
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Issuance of common stock for contingent consideration | $ | 554 | $ | 6,051 | $ | — | $ | 554 | ||||||||
Contingent consideration and other | $ | — | $ | 5,632 |
See accompanying notes to unaudited condensed consolidated financial statements.
Revolution Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Unaudited)
(In millions, except share and per share data, or unless otherwise noted)
1. The Company
Revolution Lighting Technologies, Inc., together with its wholly-owned subsidiaries (“Revolution”, “we”, “us” or “our”), is a leader in the designing, manufacturing, marketing, and selling of light-emitting diode (“LED”) lighting solutions focusing on the industrial, commercial and government markets in the United States, Canada, and internationally. Through advanced LED technologies, we have created an innovative lighting company that offers a comprehensive advanced product platform of high-quality interior and exterior LED lamps and fixtures, including signage and control systems. We are uniquely positioned to act as an expert partner, offering full-service lighting solutions through our operating divisions, including Energy Source, Value Lighting, Multi-Family andTri-State LED, E-Lighting, All-Around Lighting and TNT Energy, to transform lighting into a source of superior energy savings, quality light and well-being.
We generate revenue by selling lighting products and solutions for use in the commercial, industrial and government markets, which include vertical markets such as military, municipal, commercial office, industrial, warehouse, education, hospitality, retail, healthcare, multi-family and signage-media-accent markets. We market and distribute our products globally through networks of distributors, independent sales agencies and representatives, electrical supply companies, as well as internal marketing and sales forces.
Our operations consist of one reportable segment for financial reporting purposes: Lighting Products and Solutions (principally LED fixtures, controls and lamps).
Basis of presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all theCertain information and footnotes required bynote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for completehave been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosure made are adequate to make the information not misleading. The condensed financial statements andincluded in this Form10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form10-K for the year ended December 31, 2016.2017. The Condensed Consolidated Balance Sheet as of December 31, 20162017 was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
In the opinion of management, these accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state our financial position, results of operations, and cash flows as of and for the dates and periods presented.presented as required by RegulationS-X, Rule10-01. The unaudited condensed consolidated financial statements include the accounts of Revolution Lighting Technologies, Inc. and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to valuation of receivables and inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, income taxes and contingencies. Actual results could differ from those estimates.
The results of operations for the three and six months ended June 30, 20172018 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2017,2018, or for any other future period. Our business exhibits some seasonality, with net sales being affected by the impact of weather and seasonal demand on construction and installation programs, particularly during the winter months. Because of these seasonal factors, we have historically experienced increasing revenue as the year progresses.
Purchase Price Obligations
In connection with the acquisition of Energy Source, we were obligated to issue contingent consideration of $0.1 million at December 31, 2017, which was paid on April 4, 2018.
Sales Tax Revenue
We record sales tax revenue on a gross basis (included in both “Revenue” and “Cost of sales” in the unaudited Condensed Consolidated Statements of Operations). Revenues from sales taxes were $1.2$1.4 million and $1.3$1.2 million for the three months ended June 30, 20172018 and 2016,2017, respectively, and $1.9$2.4 million and $2.2$1.9 million for the six months ended June 30, 2018 and 2017, and 2016, respectively.
Liquidity and Capital Resources
On January 26, 2017, we amended the Revolving Credit Facility which enabled us to borrow up to $50.0 million on a revolving basis, based upon specified percentages of eligible receivables and inventory, which matures on January 26, 2020. See Note 7.
Our liquidity as of June 30, 20172018 and December 31, 20162017 was $4.5$2.5 million and $1.9$7.4 million, respectively, which consisted of cash and cash equivalents of $0.5 million and $0.9 million, respectively, and additional borrowing capacity under the Revolving Credit Facility of $4.0$2.0 million and $1.0$6.5 million, respectively.
Historically, our significant shareholder, RVL 1 LLC (“RVL”), and its affiliates have been a significant source of financing, and they continue to support our operations. See Note 13.
At June 30, 20172018 and December 31, 2016,2017, we had working capital of $57.7$45.5 million and $51.3$34.3 million, respectively. We believe we have adequate resources to meet our cash requirements for the foreseeable future.
Recent accounting pronouncements not yet adopted
In July 2015,February 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory”, which require an entity to measure inventory at the lower of cost and net realizable value. The standard was effective for fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material effect on our financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to recognize aright-of-use asset and a lease liability for virtually all of their leases. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The adoption of this standard is not expected to have a material effect on our results of operations.
In May 2014, the FASB issuedRecently adopted accounting pronouncements
On January 1, 2018, we adopted ASU2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”), with amendments issued during 2016. This standard is intended to improveusing the operability and understandability of the implementationmodified retrospective approach. ASC 606 replaces all current GAAP guidance on principal versus agent considerations.this topic and eliminates all industry-specific guidance, and provides a unified model to determine how revenue is recognized. The provisionscore principle of this ASU are effective with either a full retrospective approachASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or a modified retrospective approach for periods beginning after December 15, 2017. For revenue recognized from our product sales upon shipment or deliveryservices to customers we do not believein an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In doing so, companies need to use more judgment and make more estimates than under prior guidance. Judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each performance obligation. The adoption of this standard willASC 606 did not have an impacta material effect on our unaudited condensed consolidated financial statements. For revenue recognized using the percentage-of-completion method of accounting, we believe that the adoption of this standard willWe have an impact on our consolidated financial statements; however we believe the impact will not be material. We are currently updatingupdated our processes and controls necessary for implementing this standard, including the increased disclosure requirements, and expect to adopt the new guidance beginning inrequirements.
On January 1, 2018, using the modified retrospective approach.
In March 2016, the FASB issuedwe adopted ASU 2016-09, “Compensation – Stock Compensation,” which is intended to simplify the accounting for share-based payment awards, including accounting for the income tax consequences, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. The standard was effective for fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material effect on our financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight specific cash flow issues. The provisions of this standard are effective for periods beginning after December 15, 2017. The adoption of this standard isdid not expected to have a material effect on our financial statements.
InOn January 2017, the FASB issued1, 2018, we adopted ASU2017-01, “Business Combinations: Clarifying the Definition of a Business,” which assists entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The provisions of this standard are effective for periods beginning after December 15, 2017. The adoption of this standard is not expected to have a materialhad no impact on our financial statements.
InOn January 2017, the FASB issued1, 2018, we adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which simplifies the subsequent measure of goodwill by eliminating the second step from the goodwill impairment test. The provisions of this standard are effective for periods beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on our financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation: Scope of Modification Accounting” which provides guidance about which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting. The provisions of this standard are effective for periods beginning after December 15, 2017. The adoption of this standard isdid not expected to have a material impact on our financial statements.
2. Revenue from Contracts with Customers
We recognize revenue from fixed-price and modified fixed-price contracts for turnkey energy conservation projects using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of net contract revenue and the total estimated cost to determine our progress towards contract completion and to calculate the corresponding amount of revenue recognized. Cost-based input methods are used to reflect contract progress as costs are incurred. The transaction price is determined based on the contract price, which has a fixed or determinable fee. If estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.
Unbilled contracts receivable represents a contract asset for revenue that has been recognized in advance of billing the customer, which is common for construction-type contracts. Billing requirements vary by contract and are generally structured as milestone-based or in accordance with prescribed billing dates (i.e. first and middle of the month) to coincide with the completion of the project. From time to time, certain of our turnkey energy conservation projects may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed but held for payment by the customer as a form of security, until a specific period of time has elapsed.
Revenue, disaggregated by revenue stream, consisted of the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue from the sale of LED products | $ | 26.3 | $ | 30.2 | $ | 49.8 | $ | 50.0 | ||||||||
Revenue from fixed-price and modified fixed-price contracts for turnkey energy conservation projects (predominately related to LED products) | 10.2 | 13.1 | 20.4 | 23.9 | ||||||||||||
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Revenue | $ | 36.5 | $ | 43.3 | $ | 70.2 | $ | 73.9 | ||||||||
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For the three and six months ended June 30, 2018 and 2017, revenue earned outside of the United States was less than 1% for each period.
Practical Expedients and Exemptions
We have excluded disclosure related to the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at June 30, 2018 as the contract periods are of one year or less. Additionally, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. At June 30, 2018, we had no contracts with an original expected length of greater than one year.
We generally expense sales commissions in “Selling, general and administrative expenses” in the unaudited Condensed Consolidated Statements of Operations at the time the applicable revenue is recorded. Shipping and handling costs are treated as fulfillment activities and not as promised services, and are expensed as incurred.
3. Accounts Receivable, Net of Allowance for Doubtful Accounts
Accounts receivable, net of allowance for doubtful accounts, consisted of the following:
June 30, | December 31, | |||||||||||||||
June 30, 2017 | December 31, 2016 | 2018 | 2017 | |||||||||||||
Trade receivables | $ | 51.2 | $ | 54.7 | $ | 35.4 | $ | 35.5 | ||||||||
Allowance for doubtful accounts | (0.5 | ) | (1.4 | ) | (0.4 | ) | (0.5 | ) | ||||||||
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Accounts receivable, net of allowance for doubtful accounts | $ | 50.7 | $ | 53.3 | $ | 35.0 | $ | 35.0 | ||||||||
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Write-offs and other adjustments,Bad debt expense, which arewas recorded in “Other selling,“Selling, general and administrative” in the unaudited Condensed Consolidated Statements of Operations, were $0.4was less than $0.1 million and $0.3$0.4 million for the three months ended June 30, 20172018 and 2016,2017, respectively, and $0.4less than $0.1 million and $0.5$0.4 million for the six months ended June 30, 2018 and 2017, and 2016, respectively.
4. Inventories, Net
Inventories, which are primarily purchased from third parties, consisted of the following:
June 30, | December 31, | |||||||||||||||
June 30, 2017 | December 31, 2016 | 2018 | 2017 | |||||||||||||
Raw materials | $ | 2.6 | $ | 2.4 | $ | 0.8 | $ | 0.3 | ||||||||
Finished goods, net | 30.3 | 26.1 | ||||||||||||||
Finished goods | 26.5 | 27.1 | ||||||||||||||
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Total | 32.9 | 28.5 | 27.3 | 27.4 | ||||||||||||
Less: Provision for obsolescence | (1.7 | ) | (1.8 | ) | (0.6 | ) | (1.2 | ) | ||||||||
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Inventories, net | $ | 31.2 | $ | 26.7 | $ | 26.7 | $ | 26.2 | ||||||||
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During the three and six months ended June 30, 2018, we reduced both finished goods and the provision for obsolescence by $0.3 million.
5. Property and Equipment
Property and equipment, net of accumulated depreciation, consisted of the following:
June 30, | December 31, | |||||||||||||||
June 30, 2017 | December 31, 2016 | 2018 | 2017 | |||||||||||||
Total property and equipment | $ | 3.6 | $ | 3.2 | $ | 3.8 | $ | 3.0 | ||||||||
Less accumulated depreciation | (2.0 | ) | (1.7 | ) | (1.7 | ) | (1.4 | ) | ||||||||
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Property and equipment, net | $ | 1.6 | $ | 1.5 | $ | 2.1 | $ | 1.6 | ||||||||
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Depreciation expense related to property and equipment, which was recorded in “Amortization and depreciation” in the unaudited Condensed Consolidated Statements of Operations, was $0.2 million and $0.1 million for both the three months ended June 30, 20172018 and 2016,2017, respectively, and $0.3 million and $0.2 million for both the six months ended June 30, 20172018 and 2016,2017, respectively.
6. Intangible Assets
Intangible assets consisted of the following:
June 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross Cost | Accumulated Amortization | Net Carrying Amount | Gross Cost | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Customer relationships and product supply agreements | $ | 35.2 | $ | (9.8 | ) | $ | 25.4 | $ | 35.0 | $ | (7.9 | ) | $ | 27.1 | ||||||||||
Trademarks/Trade Names | 17.6 | (4.0 | ) | 13.6 | 17.6 | (3.4 | ) | 14.2 | ||||||||||||||||
Technology | 2.0 | (0.6 | ) | 1.4 | 2.0 | (0.6 | ) | 1.4 | ||||||||||||||||
Non-compete agreement | 1.4 | (0.9 | ) | 0.5 | 1.4 | (0.7 | ) | 0.7 | ||||||||||||||||
Customer contracts and backlog | 3.3 | (3.2 | ) | 0.1 | 3.3 | (3.1 | ) | 0.2 | ||||||||||||||||
Other | 0.6 | (0.4 | ) | 0.2 | 0.6 | (0.4 | ) | 0.2 | ||||||||||||||||
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Intangible assets, net | $ | 60.1 | $ | (18.9 | ) | $ | 41.2 | $ | 59.9 | $ | (16.1 | ) | $ | 43.8 | ||||||||||
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Customer relationships and product supply agreements Trademarks/Trade Names Other Intangible assets June 30, 2018 December 31, 2017 Gross
Cost Accumulated
Amortization Net Carrying
Amount Gross
Cost Accumulated
Amortization Net Carrying
Amount $ 25.1 $ (7.8 ) $ 17.3 $ 24.6 $ (6.6 ) $ 18.0 12.2 (2.7 ) 9.5 12.2 (2.3 ) 9.9 1.3 (0.9 ) 0.4 1.3 (0.8 ) 0.5 $ 38.6 $ (11.4 ) $ 27.2 $ 38.1 $ (9.7 ) $ 28.4
Amortization expense related to intangible assets, which was recorded in “Amortization and depreciation” onin the unaudited Condensed Consolidated Statements of Operations, was $1.4$0.8 million and $1.3$1.4 million for the three months ended June 30, 20172018 and 2016,2017, respectively, and $2.8$1.7 million and $2.4$2.8 million for the six months ended June 30, 2018 and 2017, respectively.
7. Accrued and 2016, respectively.Other Current Liabilities
Accrued and other current liabilities consisted of the following:
June 30, | December 31, | |||||||||||||||
June 30, 2017 | December 31, 2016 | 2018 | 2017 | |||||||||||||
Compensation, benefits and commissions | $ | 4.5 | $ | 4.4 | $ | 2.8 | $ | 3.7 | ||||||||
Accruals and other liabilities | 7.1 | 6.1 | ||||||||||||||
Accrued restructuring costs (1) | 1.3 | 1.8 | ||||||||||||||
Accruals and other current liabilities | 3.9 | 6.1 | ||||||||||||||
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Accrued and other current liabilities | $ | 11.6 | $ | 10.5 | $ | 8.0 | $ | 11.6 | ||||||||
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8. Financings
Revolving Credit Facility
On January 26, 2017, we amended the loan and security agreement with Bank of America to borrow up to $50.0 million on a revolving basis, based upon specified percentages of eligible receivables and inventory, which matures on January 26, 2020 (the “Revolving Credit Facility”). Under the Revolving Credit Facility, the maximum applicable margin for LIBOR rate loans is 2.75%, and the maximum applicable margin for base rate loans is 1.75%. As of June 30, 2017,2018, our Chairman, Chief Executive Officer and President had guaranteed $10.0 million of the borrowings under the Revolving Credit Facility (see Note 13). At June 30, 20172018 and December 31, 2016,2017, the balance outstanding on the Revolving Credit Facility was $38.7$42.1 million and $26.0$38.6 million, respectively. We recorded interest expense of $0.5 million and $0.2 million for both the three months ended June 30, 20172018 and 2016,2017, respectively, and $0.9$1.0 million and $0.4$0.9 million for the six months ended June 30, 20172018 and 2016,2017, respectively.
In connection with obtaining the revolving credit facility, we incurred debt issuance costs, which are being amortized through the maturity date. At June 30, 20172018 and December 31, 2016,2017, we had $0.7$0.5 million and $0.2$0.6 million, respectively, of deferred debt issuance costs, which are recorded in “Other assets, net” in the unaudited Condensed Consolidated Balance Sheets.” Amortization expense of deferred debt issuance costs was less than $0.1 million and less than $0.1 million for the three months ended June 30, 20172018 and 2016,2017, respectively, and $0.2$0.1 million and $0.1$0.2 million for the six months ended June 30, 20172018 and 2016,2017, respectively.
NotesAcquisition Payable
Notes payable consisted of the following:
June 30, 2017 | December 31, 2016 | |||||||
Value Lighting acquisition note | $ | 2.3 | $ | 2.4 | ||||
TNT acquisition notes | 2.0 | 2.0 | ||||||
Energy Source acquisition notes | — | 10.0 | ||||||
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Total notes payable | $ | 4.3 | $ | 14.4 | ||||
Less: Notes payable—current | (2.4 | ) | (2.4 | ) | ||||
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Notes payable—noncurrent | $ | 1.9 | $ | 12.0 | ||||
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Value Lighting Acquisition Note
In conjunction with the acquisition of Value Lighting, we refinanced $3.7 million of Value Lighting’s trade accounts payable. The acquisition payable, by issuing a note payable towhich was modified during the creditor. The notesecond quarter of 2018, is payablepaid in monthly installments through October 2019 and a lump sum payment of $1.4$1.2 million due on November 22, 2018,2019, which may be settled, at our option, in either cash or an equivalent amount of our common shares based upon their then-current market value.
TNT Acquisition Notes
In connection with the acquisition of TNT in May 2016, we issued $2.0 million in promissory notes bearing interest at 5% per annum, of which $1.0 million was due on April 21, 2017 and $1.0 million was due on November 6, 2017. In February 2017, the maturity date was extended to November 6, 2017 for all of the TNT promissory notes. Our Chairman, Chief Executive Officer, and President has provided irrevocable letters of credit to support the TNT acquisition notes (see Note 13). We recorded accrued interest of $0.1 million and less than $0.1 million at At June 30, 20172018 and December 31, 2016, respectively. We recorded interest expense of less than $0.1 million for both the three and six months ended June 30, 2017.
Energy Source Acquisition Notes
In connection with2017, the acquisition of Energy Source in August 2015, we issued $10.0 million in promissory notes bearing interest at 5% per annum due July 20, 2016, which were supported by an irrevocable letter of credit from RVL. In July 2016, the maturity datepayable was extended to January 20, 2017, with an interest rate of 7%. On January 26, 2017, we repaid the Energy Source acquisition notes, including interest of $0.4 million, using proceeds from the amended Revolving Credit Facility, and the related guarantee provided by RVL was terminated. We recorded interest expense of less than $0.1$1.8 million and $0.2$2.1 million, for the three months ended June 30, 2017 and 2016, respectively, and less than $0.1of which $0.5 million and $0.3$1.8 million, for the six months ended June 30, 2017 and 2016, respectively.respectively, was current.
Debt Maturities9. Stockholders’ Equity
At June 30, 2017, the scheduled maturities of our borrowings were as follows:
Total Notes Payable | ||||
2017 | $ | 2.2 | ||
2018 | 1.8 | |||
2019 | 39.0 | |||
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Total borrowings | $ | 43.0 | ||
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Changes in the fair value of purchase price obligations were as follows:
Fair value, January 1, 2017 (1) | $ | 3.0 | ||
Fair value of acquisition liabilities paid (2) | (0.8 | ) | ||
Change in fair value (3) | (1.6 | ) | ||
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Fair value, June 30, 2017 (4) | $ | 0.6 | ||
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The following table presents quantitative information about Level 3 fair value measurements as of June 30, 2017:
Fair Value | Valuation Technique | Unobservable Inputs | ||||||
Earnout liabilities | $ | 0.3 | Income approach | Discount rate – 19.5% | ||||
Stock distribution price floor | 0.3 | Monte Carlo simulation | Volatility – 60% | |||||
Risk free rate – 1.2% Dividend yield – 0% | ||||||||
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Fair value | $ | 0.6 | ||||||
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Common Stock
The changes in issued and outstanding common stock during the six months ended June 30, 20172018 were as follows:
Shares | ||||
Balance at January 1, | ||||
Shares issued for stock-based compensation | ||||
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Balance at June 30, | ||||
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During the first quarter of 2018, our Chief Executive Officer purchased an additional 850,000 shares of common stock and our Chief Financial Officer purchased an additional 150,000 shares of common stock for a total of $3.6 million. At June 30, 2017, 8,670,386 shares,2018, 9,670,386, or 41%43% of our outstanding shares were owned by RVL and its affiliates.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of preferred stock. There were no shares of preferred stock outstanding at June 30, 2017.2018.
10. Income Taxes
New Tax Legislation
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. This legislation makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (iii) modifying the officer’s compensation limitation, and (iv) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Specifically, the TCJA limits the amount the Company is able to deduct for net operating loss carryforwards generated in taxable years beginning after December 31, 2017 to 80% of taxable income; however, these net operating loss carryforwards can be carried forward indefinitely.
We recognize the effects of changes in tax law, including the TCJA, in the period the law is enacted. Accordingly, the effects of the TCJA were recognized in the financial statements for the year ended December 31, 2017. Under the Act, our $60.6 million in federal net operating loss carryforwards generated as of June 30, 2018 will continue to be carried forward for 20 years and are expected to be available to fully offset taxable income earned in future tax years.
At June 30, 2018, we had not completed our accounting for the tax effects of the enactment of the TCJA; however in certain cases we have made a reasonable estimate of the effects of the TCJA. Our preliminary estimate of the effects of the TCJA, including the remeasurement of deferred tax assets and liabilities and the recognition of an income tax benefit related to AMT tax credit carryforwards, is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the TCJA may require further adjustments and changes in our estimates. The final determination of the effects of the TCJA will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law. However, we do not expect this to have a material impact on our operating results or financial condition.
Income Taxes
We file income tax returns in the United States federal jurisdiction, as well as in various state jurisdictions. We did not record any current or deferred U.S. federal income tax provision or benefit during the three and six months ended June 30, 20172018 and 20162017 because we have experienced operating losses since inception. We have recognized a full valuation allowance related to our net deferred tax assets, including substantial net operating loss carryforwards. As of June 30, 2017,2018, we had approximately $61.0$60.6 million of net operating loss carryforwards and amortizable expenses related to acquisitions that can be used to offset our income for federal and state tax purposes.
11. Loss per Share
The computation of basic and diluted net loss per share for the periods indicated is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Net loss | $ | (0.7 | ) | $ | (1.1 | ) | $ | (5.7 | ) | $ | (3.7 | ) | $ | (2.2 | ) | $ | (0.7 | ) | $ | (4.4 | ) | $ | (5.7 | ) | ||||||||
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Weighted-average common shares (in thousands) – basic and diluted | 20,761 | 18,850 | 20,680 | 17,699 | 22,232 | 20,761 | 22,027 | 20,680 | ||||||||||||||||||||||||
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Loss per share, basic and diluted | $ | (0.03 | ) | $ | (0.06 | ) | $ | (0.27 | ) | $ | (0.21 | ) | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.20 | ) | $ | (0.27 | ) | ||||||||
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Included in the computation of basic net loss per share for the three and six months ended June 30, 2017 and 2016 were 26,669 and 80,001 potentially dilutive shares, respectively.
shares. Additionally, at June 30, 2017, and 2016, we were contingently obligated to pay $0.2 million and $4.3 million, which may be settled, at our option, in either cash or an equivalent amount of our common shares based upon their then-current market value, if certain performance criteria had been met. The equivalent amount of common shares have been excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2017, and 2016, as they were antidilutive.
At June 30, 2018 and 2017, 24,875 and 2016, 24,928 and 27,828 outstanding options, respectively, with an average exercise price of $44.45 and $43.34, respectively,for both periods, were not recognized in the diluted earnings per share calculation as they were antidilutive.
12. Stock-Based Compensation
The 2003 Plan
The following table presents a summary of activity for the six months ended June 30, 2017:2018:
Number of Options | Weighted Average Exercise Price | Weighted Average Contractual Life | ||||||||||
Outstanding, January 1, 2017 | 27,828 | $ | 44.76 | 3.01 | ||||||||
Expired | (2,900 | ) | 47.40 | |||||||||
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Outstanding and expected to vest, June 30, 2017 | 24,928 | $ | 44.45 | 2.82 | ||||||||
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Exercisable, June 30, 2017 | 24,928 | $ | 44.45 | 2.82 | ||||||||
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Number of Options | Weighted Average Exercise Price | Weighted Average Contractual Life | ||||||||||
Outstanding, January 1, 2018 | 24,875 | $ | 44.45 | 2.57 | ||||||||
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Outstanding and expected to vest, June 30, 2018 | 24,875 | $ | 44.45 | 2.57 | ||||||||
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Exercisable, June 30, 2018 | 24,875 | $ | 44.45 | 2.57 | ||||||||
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During the six months ended June 30, 2017,2018, no options were issued. We issue new common shares upon the exercise of options. Options outstanding at June 30, 20172018 had no intrinsic value. At June 30, 2017,2018, unrecognized compensation expense related to options was less than $0.1 million, which is expected to be recognized over a weighted-average period of less than one year.
The 2013 Plan
On May 2, 2017,1, 2018, our stockholders voted on a fourth amendment to the 2013 Plan (the “2013 Plan”) to increase the number of common shares that may be issued to officers, employees,non-employee directors and consultants of Revolution and its affiliates under the 2013 Plan to 1,600,000.2,600,000.
Restricted Shares
The following table presents a summary of activity for the six months ended June 30, 2017:2018:
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Outstanding, January 1, 2017 | 360,305 | $ | 7.32 | |||||
Vested | (131,038 | ) | 8.35 | |||||
Forfeited | (767 | ) | 17.68 | |||||
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Outstanding and expected to vest, June 30, 2017 | 228,500 | $ | 6.69 | |||||
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Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Outstanding, January 1, 2018 | 223,499 | $ | 6.46 | |||||
Vested | (122,663 | ) | $ | 6.87 | ||||
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Outstanding and expected to vest, June 30, 2018 | 100,836 | $ | 5.95 | |||||
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At June 30, 2017,2018, there was $1.5$0.6 million of unrecognized compensation expense related to nonvested restricted shares, which is expected to be recognized over a weighted-average period of 2.8 years.1 year. The total fair value of restricted shares that vested during the six months ended June 30, 20162018 and 2017 was $0.8 million and $1.1 million.million, respectively.
Restricted Share Units
During the six months ended June 30, 2017,2018, we granted restricted share units to employees which vest ratably over a three-year period. These awards are classified as equity awards, and are accounted for using the fair value established at the grant date.
The following table presents a summary of activity for the six yearsmonths ended June 30, 2017:2018:
Number of Units | Weighted Average Grant Date Fair Value | Number of Units | Weighted Average Grant Date Fair Value | |||||||||||||
Outstanding, January 1, 2017 | 132,517 | $ | 6.84 | |||||||||||||
Outstanding, January 1, 2018 | 242,684 | $ | 7.17 | |||||||||||||
Granted | 79,223 | 7.47 | 243,062 | 4.04 | ||||||||||||
Vested | (53,806 | ) | 7.83 | (65,918 | ) | 3.85 | ||||||||||
Forfeited | (48,150 | ) | 6.97 | |||||||||||||
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Outstanding and expected to vest, June 30, 2017 | 157,934 | $ | 6.82 | |||||||||||||
Outstanding and expected to vest, June 30, 2018 | 371,678 | $ | 5.43 | |||||||||||||
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At June 30, 2017,2018, there was $1.1$2.0 million of unrecognized compensation expense related to nonvested restricted share units, which is expected to be recognized over a weighted-average period of 1.82.4 years. The total fair value of restricted shares that vested duringwas $0.3 million and $0.4 million for the six months ended June 30, 2018 and 2017, was $0.4 million.
Chairman, Chief Executive Officer and President
As of June 30, 2017,2018, our Chairman, Chief Executive Officer, and President has guaranteed $10.0 million of borrowings under our Revolving Credit Facility. In addition,See Note 8.
During the first quarter of 2018, our Chairman, Chief Executive Officer purchased an additional 850,000 shares of common stock and President has provided irrevocable lettersour Chief Financial Officer purchased an additional 150,000 shares of credit to support $2.0 millioncommon stock for a total of the TNT acquisition notes.$3.6 million. See Note 7.9.
Aston Capital, LLC
On April 1, 2016,During the second quarter of 2018, we entered into a $2.6 millionan amended and restated promissory note with Aston which bears interest at 9% annuallyCapital, LLC (“Aston”) increasing the amount to $17.7 million, and matures on Aprilextending the due date to July 1, 2019,2020, which can be prepaid at our option. In May 2017, weThe amended note payable bears interest at 9% annually and can be paidin-kind.
During the promissory note with Aston to include an additional $7.0 million of borrowings. Atsix months ended June 30, 2018 and 2017, Aston provided $0.2 million and $1.5 million, respectively, in advances that bear interest annually at 9%. At both June 30, 2018 and December 31, 2016, we had accrued interest of $0.52017, the balance was $1.0 million, and $0.2 million, respectively. which was included in “Related party notes payable” in the unaudited Condensed Consolidated Balance Sheets.
We recorded interest expense related to financing agreements with Aston of $0.2$0.3 million and less than $0.1$0.2 million for the three months ended June 30, 20172018 and 2016,2017, respectively, and $0.2$0.6 million and $0.1$0.2 million for the six months ended June 30, 2018 and 2017, and 2016, respectively. At December 31, 2017, we had accrued interest of $0.1 million.
On January 5, 2017, we ratified a management services agreement with Aston (the “Management Agreement”) to memorialize certain management services that Aston has been providing to us since RVL acquired majority control of our voting securities in September 2012. Pursuant to the Management Agreement, Aston provides consulting services in connection with financing matters, budgeting, strategic planning and business development, including, without limitation, assisting us in (i) analyzing the operations and historical performance of target companies; (ii) analyzing and evaluating the transactions with such target companies; (iii) conducting financial, business and operational due diligence, and (iv) evaluating related structuring and other matters. In addition, two of the Aston members hold executive positions in Revolution, and receive no compensation. On May 12, 2016, we granted 250,000 shares of restricted stock to Aston, which vest in three annual installments on May 12, 2017, 2018, and 2019. The Audit Committee of the Board will consider from time to time (at a minimum at such times when the Compensation Committee of the Board evaluates director compensation) whether additional compensation to Aston is appropriate given the nature of the services provided.
In March 2017, Aston provided a $1.5 million advance that bears interest annually at 9%, which is included in “Related party notes payable” on the unaudited Condensed Consolidated Balance Sheets at June 30, 2017. On November 30, 2016, Aston provided a $1.5 million advance that bore interest annually at 9%, which is included in “Related party notes payable” on the unaudited Condensed Consolidated Balance Sheets at December 31, 2016, and was repaid on January 26, 2017 using proceeds from the amended Revolving Credit Facility.
Our corporate headquarters utilizes space in Stamford, Connecticut, which is also occupied by affiliates of our Chairman and Chief Executive Officer. Our proportionate share of the space under the underlying lease, which we paid to Aston, was $0.1 million and $0.1 million during both the three months ended June 30, 20172018 and 2016, respectively,2017, and $0.2 million and $0.2 million during both the six months ended June 30, 2018 and 2017.
14. Restructuring Activities
In the fourth quarter of 2017, we announced a restructuring plan to further streamline our operations, eliminate redundancies at certain divisions and address certain operational functions. As part of the restructuring, we (i) consolidated the operations of three divisions into one, (ii) consolidated our sales, purchasing, bidding and proposal and accounting functions, (iii) expanded and refocused our marketing resources, including changes to key management positions at certain divisions, and (iv) exited certain product lines and related operations, including the eliminations of a number of warehouse locations.
Restructuring charges are recorded in accordance with ASC420-10, “Exit or Disposal Cost Obligations.” Under ASC420-10, we established a liability for costs associated with an exit or disposal activity, including severance and lease termination obligations, and other related costs. We will reassess the expected cost to complete the exit or disposal activities at the end of each reporting period and adjust our remaining estimated liabilities, if necessary. It is expected that the actions taken for this restructuring will be substantially completed by the end of 2018.
At December 31, 2017, we had recorded a liability of $1.8 million related to certain components of the restructuring reserve, which was included in “Accrued and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. During the six months ended June 30, 2018, we reduced such liability to $1.3 million to reflect certain restructuring activities.
15. Commitments and Contingencies
In the ordinary course of business, we may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters. Based upon such evaluation, at June 30, 2018, we were not party to any pending legal or administrative proceedings that may have a material adverse effect, either individually or in the aggregate, on our business, financial condition or results of operations.
We were required to make payments under a certain channel distribution agreement if revenue targets are achieved. The maximum amount of such payments was $0.5 million, which was accrued as of December 31, 2017, and 2016, respectively.was subsequently paid in April 2018.
TNT Energy, LLC16. Subsequent Events
On May 6, 2016,Effective August 3, 2018, we completedissued 1.1 million shares of our common stock to Aston in exchange for $3.3 million of our outstanding debt due to Aston, which reduced the acquisition of TNT, a turnkey provider of LED lighting-based energy savings projects within the commercial, industrial, hospitality, retail, education and municipal sectors. TNT’s headquarters is located in Raynham, Massachusetts. The acquisition of TNT is expectedoutstanding balance from $17.7 million to expand our footprint within key lighting retrofit markets in the United States. We believe this is a direct complementary fit with our division, Energy Source, based in Providence, RI. In addition to its broad existing customer base, TNT is a contract vendor for the Small C&I Business Programs of northeast utility companies, with a defined territory of approximately 120 municipalities throughout Massachusetts. We acquired TNT for its management team, its client base and operational and business development synergies.$14.4 million (see Note 13).
We accounted for the acquisition of TNT under ASC 805,Business Combinations (“ASC 805”), which requires recording assets and liabilities at fair value. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liabilities assumed were recorded based on their estimated fair values on the date of the acquisition.
Consideration: | ||||
Cash paid | $ | 8.6 | ||
Promissory note | 2.0 | |||
Contingent consideration | 4.1 | |||
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Net Assets | $ | 14.7 | ||
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Fair Value of Assets Acquired and Liabilities Assumed: | ||||
Working capital, net | $ | 0.9 | ||
Goodwill (1) | 7.9 | |||
Intangible assets | 5.9 | |||
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Net Assets | $ | 14.7 | ||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Revolution Lighting Technologies unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form10-K for the year ended December 31, 2016.2017. This discussion and other sections in this Quarterly Report on Form10-Q contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, and actual results could differ materially from those discussed in the forward-looking statements as a result of numerous factors. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. The forward-looking statements are subject to risks, uncertainties and assumptions, which are presented in detail in our Form10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain financial measures, which are not presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We are presenting thesenon-U.S. GAAP financial measures because we believe they provide us, and readers of this Form10-Q, with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend for these non-U.Snon-U.S. GAAP financial measures to be a substitute for any U.S. GAAP financial information. Readers of these statements should use thesenon-U.S. GAAP financial measures only in conjunction with the comparable U.S. GAAP financial measures.
Executive Overview
We are a leader in the designing, manufacturing, marketing, and selling of LED lighting solutions focusing on the industrial, commercial and government markets in the United States, Canada, and internationally. Through advanced LED technologies, we have created an innovative lighting company that offers a comprehensive advanced product platform of high-quality interior and exterior LED lamps and fixtures, including signage and control systems. We are uniquely positioned to act as an expert partner, offering full-service lighting solutions through our operating divisions, including Energy Source, Value Lighting, Multi-Family andTri-State LED, E-Lighting, All-Around Lighting and TNT Energy, to transform lighting into a source of superior energy savings, quality light and well-being.
We generate revenue by selling lighting products and solutions for use in the commercial, industrial and government markets, which include vertical markets such as military, municipal, commercial office, industrial, warehouse, education, hospitality, retail, healthcare, multi-family and signage-media-accent markets. We market and distribute our products globally through networks of distributors, independent sales agencies and representatives, electrical supply companies, as well as internal marketing and sales forces.
Our operations consist of one reportable segment for financial reporting purposes: Lighting Products and Solutions (principally LED fixtures, controls and lamps).
In the fourth quarter of 2017, we announced a restructuring plan to further streamline our operations, eliminate redundancies at certain divisions and address certain operational functions. As part of the restructuring, we (i) consolidated the operations of three divisions into one, (ii) consolidated sales, purchasing, bidding and proposal and accounting functions, (iii) expanded and refocused our marketing resources, including changes to key management positions at certain divisions, and (iv) exited certain product lines and related operations, including the eliminations of a number of warehouse locations. At June 30, 2018 and December 31, 2017, the liability established for restructuring, which is included in “Accrued and other liabilities” in the unaudited Condensed Consolidated Balance Sheets, was $1.3 million and $1.8 million, respectively.
Recent Developments
Amended Revolving Credit Facility Expansion—On January 26, 2017, During the second quarter of 2018, we amended the Revolving Credit Facility which enabled us to borrow up to $50.0 million onannounced a revolving basis, based upon specified percentagesplanned expansion of eligible receivables and inventory, which matures on January 26, 2020 (the “amended Revolving Credit Facility”). See Note 7 of Notes to unaudited Condensed Consolidated Financial Statements.
Opening of Buy American Act Facility– In March 2017, we opened a new state of the artour facility in Simi Valley, California, which expanded our warehouse and production spaceto support the increased demand for our industry leading LED technologies, including our high performance Buy American Act (“BAA”) and Trade Agreements Act (“TAA”) compliant LED solutions. The plant, which opened in 2017, will double its footprint to 125,000 sq. ft. Since the opening of the facility, we have continued to produce BAA and TAA compliant LED tubes for installation, and fixtures. The new facility offers significantly larger space for inventory,we expect production and testing.to ramp up significantly.
Certification byPrivate Placement— During the U.S. Navyfirst quarter of 2018, our Chief Executive Officer purchased an additional 850,000 shares of common stock and our Chief Financial Officer purchased an additional 150,000 shares of common stock for a total of $3.6 million. See Note 9 of Notes to unaudited Condensed Consolidated Financial Statements.
Lighting Controls – In AprilDuring 2017, the U.S. Navy certified our two foot T8 LED tube for the military standard, which is ready for usewe developed a leading lighting control solution, providing a simple, flexible and scalable system to meet customer needs, now and in the U.S. Navy fleet. Additionally,future, for Internet of Things (“IOT”), Power-over-Ethernet (“PoE”) and important security programs. In the first quarter we received an official parta number that can be usedof customer orders and we expect revenue from lighting control solutions to accelerate throughout the fleet to order our advanced high efficiency LED tube. U.S. Navy ships will now be able to purchase our certified LED tube through the standard U.S. Navy supply chain.2018 and beyond.
Results of Operations
Three Months Ended
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 36.5 | $ | 43.3 | $ | 70.2 | $ | 73.9 | ||||||||
Cost of sales | 24.7 | 29.1 | 46.9 | 49.6 | ||||||||||||
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Gross profit | 11.8 | 14.2 | 23.3 | 24.3 | ||||||||||||
Gross profit as a percentage of revenue | 32 | % | 33 | % | 33 | % | 33 | % | ||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 9.6 | 10.3 | 19.7 | 20.4 | ||||||||||||
Research and development | 0.9 | 0.7 | 1.7 | 1.1 | ||||||||||||
Amortization and depreciation | 1.1 | 1.7 | 2.1 | 3.7 | ||||||||||||
Acquisition, severance and transition costs | 0.8 | 0.9 | 1.0 | 1.6 | ||||||||||||
Stock-based compensation | 0.5 | 0.5 | 1.2 | 1.6 | ||||||||||||
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Total operating expenses | 12.9 | 14.1 | 25.7 | 28.4 | ||||||||||||
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Operating loss | (1.1 | ) | 0.1 | (2.4 | ) | (4.1 | ) | |||||||||
Interest expense and other charges | (1.1 | ) | (0.8 | ) | (2.0 | ) | (1.6 | ) | ||||||||
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Net loss | $ | (2.2 | ) | $ | (0.7 | ) | $ | (4.4 | ) | $ | (5.7 | ) | ||||
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Despite a significant increase in our backlog, our overall revenue decreased for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 Comparedprimarily due to the Three Months Ended June 30, 2016lower levels of deliveries of products primarily due to project delays.
Three Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
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Revenue | $ | 43.3 | $ | 43.1 | ||||
Cost of sales | 29.1 | 29.8 | ||||||
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Gross profit | 14.2 | 13.3 | ||||||
Gross margin | 33 | % | 31 | % | ||||
Operating expenses: | ||||||||
Selling, general and administrative | 10.3 | 9.2 | ||||||
Research and development | 0.7 | 0.6 | ||||||
Amortization and depreciation | 1.7 | 1.6 | ||||||
Acquisition, severance and transition costs | 0.9 | 1.9 | ||||||
Stock-based compensation | 0.5 | 0.6 | ||||||
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Total operating expenses | 14.1 | 13.9 | ||||||
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Operating income (loss) | 0.1 | (0.6 | ) | |||||
Interest expense and other charges | (0.8 | ) | (0.5 | ) | ||||
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Net loss | $ | (0.7 | ) | $ | (1.1 | ) | ||
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RevenueSelling, general and administrative expenses decreased $0.7 million or 7% for the three months ended June 30, 2017 increased $0.2 million, as2018 compared to the three months ended June 30, 2016. The increase reflects strong volume growth in product sales, as demand for LED lighting continued to rise. This increase was partially offset by lower prices in certain retrofit2017 and related-LED products. Despite overall lower unit sale prices, we increased our gross profit margin to 33%$0.7 million or 3% for the threesix months ended June 30, 2017 from 31% for2018 compared to the threesix months ended June 30, 2016 reflecting an improved mix2017. Such decreases reflect our continuing efforts to effectively reduce our operating costs through a variety of products as we expandinitiatives focused on process and performance improvement.
Research and development costs increased due to our ongoing investments in expanding our portfolio of LED fixtures.
Operating expenses during the three months ended June 30, 2017 increased $0.2 million, or 1%, as compared to the three months ended June 30, 2016. The increase was primarily due to the following:
Amortization and depreciation expense decreased due to the reduction of intangible assets in 2017.
The increase in amortization and depreciation was primarily due to amortization associated with distribution-related costs, as well as increased amortization of deferred financing costs associated with amending the Bank of America Revolving Credit Facility during 2017 (see Note 7).
Interestinterest expense and other expenses for the three months ended June 30, 2017 increased $0.3 million from the three months ended June 30, 2016,charges primarily as a result of higher balances outstanding under our Bank of America Revolving Credit Facility (see Note 7) and the amended note payable with Aston (see Note 13), partially offset by the payoff of the $10.0 million Energy Source note on January 26, 2017 (see Note 7)8).
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
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2017 | 2016 | |||||||
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Revenue | $ | 73.9 | $ | 70.7 | ||||
Cost of sales | 49.6 | 48.3 | ||||||
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Gross profit | 24.3 | 22.4 | ||||||
Gross margin | 33 | % | 32 | % | ||||
Operating expenses: | ||||||||
Selling, general and administrative | 20.4 | 16.9 | ||||||
Research and development | 1.1 | 1.2 | ||||||
Amortization and depreciation | 3.7 | 2.9 | ||||||
Acquisition, severance and transition costs | 1.6 | 3.0 | ||||||
Stock-based compensation | 1.6 | 1.0 | ||||||
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Total operating expenses | 28.4 | 25.0 | ||||||
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Operating loss | (4.1 | ) | (2.6 | ) | ||||
Interest expense and other charges | (1.6 | ) | (1.1 | ) | ||||
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Net loss | $ | (5.7 | ) | $ | (3.7 | ) | ||
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Revenue for the six months ended June 30, 2017 increased $3.2 million, or 5%, as compared to the six months ended June 30, 2016. The increase reflects strong volume growth in product sales, as demand for LED lighting continued to rise, as well as the acquisition of TNT, which was acquired in May 2016. These increases were partially offset by lower prices in certain retrofit and related-LED products. Despite overall lower unit sale prices, we increased our gross profit margin to 33% for the six months ended June 30, 2017 from 32% for the six months ended June 30, 2016 reflecting an improved mix of products as we expand our portfolio of LED fixtures.
Operating expenses during the six months ended June 30, 2017 increased $3.4 million, or 14%, as compared to the six months ended June 30, 2016. The increase was primarily due to the following:
Interest and other expenses for the six months ended June 30, 2017 increased $0.5 million from the six months ended June 30, 2016, primarily as a result of higher balances outstanding under our Bank of America Revolving Credit Facility (see Note 7) and the amended note payable with Aston (see Note 13), partially offset by the payoff of the $10.0 million Energy Source note on January 26, 2017 (see Note 7).
Non-GAAP Financial Measure
Management uses non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA as non-U.S. GAAP measures of financial performance and consider such measures to be important indicators of our operational strength and performance, and a useful measure of historical and prospective trends. However, there are significant limitations of the use of these non-GAAP measures since they exclude acquisition related charges and stock-based compensation, both of which affect profitability. We believe that these limitations are compensated by providing these non-GAAP measures along with U.S. GAAP performance measures and clearly identifying the differences between the two measures. Consequently, non-GAAP net income (loss), non-GAAP
net income (loss) per share and adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), operating income (loss) or net income (loss) per share presented in accordance with U.S. GAAP. Moreover, non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA, as defined by Revolution, may not be comparable to similarly titled measures provided by other entities.
These non-GAAP measures are provided to investors to supplement the results of operations reported in accordance with U.S. GAAP. Management believes that these non-GAAP measures are useful to help investors analyze the operating trends in the business and to assess the relative underlying performance of the business. Management believes that these non-GAAP measures provide an additional tool for investors to use in comparing our financial results with other companies that use non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA in their communications with investors. Management also uses non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA to evaluate potential acquisitions, establish internal budgets and goals, and evaluate the performance of business units and management.
Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) Per Share
The following table reconciles net loss to non-GAAP net loss for the periods presented:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
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Net loss | $ | (0.7 | ) | $ | (1.1 | ) | $ | (5.7 | ) | $ | (3.7 | ) | ||||
Acquisition, severance and transition costs | 0.9 | 1.9 | 1.6 | 3.0 | ||||||||||||
Stock-based compensation | 0.5 | 0.6 | 1.6 | 1.0 | ||||||||||||
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Non-GAAP net income (loss) | $ | 0.7 | $ | 1.4 | $ | (2.5 | ) | $ | 0.3 | |||||||
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The following table reconciles diluted net loss per share to non-GAAP net loss per share for the periods presented:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
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Net loss | $ | (0.03 | ) | $ | (0.06 | ) | $ | (0.27 | ) | $ | (0.21 | ) | ||||
Acquisition, severance and transition costs | 0.04 | 0.10 | 0.07 | 0.17 | ||||||||||||
Stock-based compensation | 0.02 | 0.04 | 0.08 | 0.06 | ||||||||||||
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Non-GAAP net income (loss) | $ | 0.03 | $ | 0.08 | $ | (0.12 | ) | $ | 0.02 | |||||||
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Weighted average shares outstanding, diluted (In thousands) | 20,761 | 18,850 | 20,680 | 17,699 | ||||||||||||
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By excluding acquisition related costs and stock-based compensation, investors can evaluate our operations and compare our results with the results of other companies on a more consistent basis.
Acquisition, severance and transition costs include earn out liability adjustments related to our acquired businesses, acquisition costs, legal and professional services fees, costs related to the streamlining of our operations and costs associated with eliminating redundancies at our divisions. Acquisition, severance and transition costs are excluded from non-GAAP net income (loss) and non-GAAP net income (loss) per share as they represent costs incurred in association with particular acquisitions. As such, once the acquisitions are complete, expenses associated with those particular acquisitions will no longer be incurred, and therefore, are not indicative of our operating performance. While we evaluate our performance excluding acquisition, severance and transition costs, investors should not presume these excluded items to be one-time costs. If we were to enter into additional acquisitions, similar costs could reoccur. Stock-based compensation expense is excluded from non-GAAP net income (loss) and non-GAAP net income (loss) per share as it is a non-cash expense, and is not indicative of our operating performance.
Non-GAAP Adjusted EBITDA
The following table reconciles net loss to non-GAAP Adjusted EBITDA for the periods presented:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
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Net loss | $ | (0.7 | ) | $ | (1.1 | ) | $ | (5.7 | ) | $ | (3.7 | ) | ||||
Amortization and depreciation | 1.7 | 1.6 | 3.7 | 2.9 | ||||||||||||
Stock-based compensation | 0.5 | 0.6 | 1.6 | 1.0 | ||||||||||||
Acquisition, severance and transition costs | 0.9 | 1.9 | 1.6 | 3.0 | ||||||||||||
Interest expense and other charges | 0.8 | 0.5 | 1.6 | 1.1 | ||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 3.2 | $ | 3.5 | $ | 2.8 | $ | 4.3 | ||||||||
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Liquidity and Capital Resources
On January 26, 2017, we entered into an amended Revolving Credit Facility, which enables us to borrow up to $50.0 million on a revolving basis, based upon specified percentages of eligible receivables and inventory.
Our liquidity as of June 30, 20172018 and December 31, 20162017 was $4.5$2.5 million and $1.9$7.4 million, respectively, which consisted of cash and cash equivalents of $0.5 million and $0.9 million, respectively, and additional borrowing capacity under the Revolving Credit Facility of $4.0$2.0 million and $1.0$6.5 million, respectively.
As of June 30, 2017,2018, we were in compliance with our covenants under the Bank of America Revolving Credit Facility.
At June 30, 20172018 and December 31, 2016,2017, we had working capital of $57.7$45.5 million and $51.3$34.3 million, respectively. We believe we have adequate resources to meet our cash requirements for the foreseeable future.
Although we realizedrecognized revenues of $73.9$70.2 million during the six months ended June 30, 2017, which represents a 5% increase from the six months ended June 30, 2016,2018, we may face challenges regarding profitability. There can be no assurance that we will achieve positive cash flows from operations or profitability in future periods. Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to establish profitable operations, maintain our revolving credit facility, or raise additional capital through public or private debt or equity financing,financings, or other sources of financing to fund operations, as well as support of our principal stockholder.operations. There can be no assurance such financing will be available on terms acceptable to us or that any financing transaction will not be dilutive to our current stockholders. In addition, our significant shareholder, RVL, and its affiliates have historically been a significant source of financing, and they continue to support our operations.
Cash Flows
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
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Cash used in operating activities | $ | (8.4 | ) | $ | (0.9 | ) | ||||||||||
Cash used in operating activities, including interest expense | $ | (11.2 | ) | $ | (8.4 | ) | ||||||||||
Cash used in investing activities | (1.0 | ) | (10.6 | ) | (1.5 | ) | (1.0 | ) | ||||||||
Cash provided by financing activities | 9.0 | 16.5 | 12.3 | 9.0 | ||||||||||||
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Net (decrease) increase in cash and cash equivalents | $ | (0.4 | ) | $ | 5.0 | |||||||||||
Net decrease in cash and cash equivalents | $ | (0.4 | ) | $ | (0.4 | ) | ||||||||||
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Cash Flows used in Operating Activities—ActivitiesDuring the six months ended June 30, 2017, we used—Operating cash in operations of $8.4 million compared to $0.9 millionflows during the six months ended June 30, 2016.2018 primarily reflects vendor deposits and other assets to support our future customer requirements for the second half of 2018, offset by decreased accounts payable and accrued liabilities. Operating cash flows during the six months ended June 30, 2017 primarily reflect increases in inventory and prepaid and other assets to support or expandingour operations, offset by decreased trade and unbilled contracts receivable. Operating cash flows during the six months ended June 30, 2016 primarily reflect increases in inventory, as well as increases in accounts payable to support our greatly expanded operations.
Cash Flows used in Investing Activities —The use of cash in investing activities during the six months ended June 30, 2018 and 2017 was primarily attributable to purchases of property and equipment and other of $1.4 million and $0.7 million, respectively, and the payment of acquisition obligations of $0.1 million and $0.3 million. The use of cash during the six months ended June 30, 2016 was primarily attributable to the acquisition of TNT.million, respectively.
Cash Flows provided by Financing Activities —Net cash provided by financing activities during the six months ended June 30, 2018 was attributable to $3.6 million of proceeds from the issuance of common stock and $8.7 million of net proceeds from borrowings. Net cash provided during the six months ended June 30, 2017 was primarily attributable to $7.0 million of net proceeds from related party notes payable (see Note 13 of Notes to unaudited Condensed Consolidated Financial Statements) and $12.7 million of net proceeds from the Revolving Credit Facility, partially offset by repayments on notes payable of $10.2 million, including the $10.0 million Energy Source note and fees pertaining to the issuance of debt totaling $0.6 million. Net cash provided during the six months ended June 30, 2016 was primarily attributable to $16.2 million of net proceeds from the issuance of common stock, $0.6 million of net proceeds from the Revolving Credit Facility, partially offset by repayments on notes payable and fees pertaining to the issuance of common stock totaling $0.2 million.
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of June 30, 2017:2018:
Contractual Obligation Payments Due by Year (3)(4) | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
(Millions of U.S. dollars) | ||||||||||||||||||||
Operating lease obligations | $ | 14.4 | $ | 3.7 | $ | 6.2 | $ | 3.7 | $ | 0.8 | ||||||||||
Purchase price obligations and other (1) (2) | 0.6 | 0.6 | — | — | — | |||||||||||||||
Total debt, including interest | 55.6 | 3.2 | 13.7 | 38.7 | — | |||||||||||||||
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Total | $ | 70.6 | $ | 7.5 | $ | 19.9 | $ | 42.4 | $ | 0.8 | ||||||||||
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Contractual Obligation Payments Due by Year (3)(4) | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
(Millions of U.S. dollars) | ||||||||||||||||||||
Operating lease obligations | $ | 12.6 | $ | 4.1 | $ | 5.7 | $ | 2.4 | $ | 0.4 | ||||||||||
Total debt, including interest | 66.9 | 2.2 | 64.7 | — | — | |||||||||||||||
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Total | $ | 79.5 | $ | 6.3 | $ | 70.4 | $ | 2.4 | $ | 0.4 | ||||||||||
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RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 ofto the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form10-Qfor recently issuedinformation related to new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2017,2018, we were exposed to interest rate risk in connection with our variable-rate Bank of America Revolving Credit Facility pursuant to which we may borrow up to $50.0 million. As such, during 2017, we are exposed to interest rate risk in connection with our Revolving Credit Facility.million on a revolving basis. See Note 78 of the Notes to unaudited Condensed Consolidated Financial Statements.
ITEMItem 4. CONTROLS AND PROCEDURESControls and Procedures
We maintain disclosureEvaluation of our Disclosure Controls
Disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) that are controls and other procedures designed to ensure that information required to be disclosed in the reports we filefiled or submitted under the Securities Exchange ActSEA of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating theour disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily wasis required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control, and misstatements due to error or fraud may occur and not be detected on a timely basis.
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form10-Q. Based on this evaluation, due to the material weakness in internal controls over financial reporting described below, our management concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of the end of the period covered by the report.
Material Weakness in Internal Control over Financial Reporting
As of December 31, 2017, our management conducted an evaluation of our internal control over financial reporting and determined that our internal control over financial reporting was effective. At such date we identified a significant deficiency related to the controls over the proper identification of certain collection patterns relevant for bill and hold revenue recognition. Since December 31, 2017, our management has implemented changes in internal control over financial reporting to address this significant deficiency, including changing the design of existing controls and implementing additional transaction level and review controls. In addition, corporate management is strengthening the internal accounting functions at the divisional or subsidiary level, where appropriate.
At June 30, 2018, we have determined that certain of the transaction level and review controls over revenue recognition have not operated effectively. Specifically, our management has identified control deficiencies related to the proper identification of certain collection patterns and the finalization and review of executed contracts related to bill and hold arrangements and controls over the recording of material costs. We have determined that these control deficiencies aggregate to a material weakness at June 30, 2018.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. The errors identified related to the material weakness did not result in a material impact to our reported financial results. The implementation of remedial measures to address the deficiencies identified is ongoing and additional measures may be implemented to improve our internal control over financial reporting in the future.
Evaluation of Changes in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management’s authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control, and misstatements due to error or fraud may occur and not be detected on a timely basis.
Beginning January 1, 2018, we implemented ASC 606, “Revenue from Contracts with Customers.” Although the new revenue standard had an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, and gathering of information provided for disclosures.
There wasExcept as described above, there have been no changechanges in our internal control over financial reporting (as defined inRules 13a-15(f) and15d-15(f) of the Exchange Act) that occurred during the second quarter ended June 30, 2017of fiscal 2018 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to any material legal proceeding required to be disclosed under Item 103 of RegulationS-K.
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. of our Annual Report on Form10-K for the year ended December 31, 2016,2017, which was filed with the Securities Exchange Commission on March 9, 2017.8, 2018.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
None.
The information contained in Notes 7 and 13 of Notes to unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 6.Exhibits and Financial Statement Schedules
Exhibit Number | Document Description | |
31.1* | Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101*** | The following financial statements from Revolution Lighting Technologies, Inc.’s Quarterly Report on Form10-Q for the quarter ended June 30, |
* | Filed herewith |
** | Furnished herewith |
*** | Submitted electronically with this Report pursuant to Rule 405 of RegulationS-T |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REVOLUTION LIGHTING TECHNOLOGIES, INC. | ||||||||
By: | /s/ Robert V. LaPenta | Date: | ||||||
Robert V. LaPenta | ||||||||
Chairman of the Board, Chief Executive Officer and President | ||||||||
(Principal Executive Officer) | ||||||||
By: | /s/ James A. DePalma | Date: | ||||||
James A. DePalma | ||||||||
Chief Financial Officer | ||||||||
(Principal Financial Officer) |
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