Real Goods Solar, Inc.’s (RGSE) Positive Outlook Helps Shares Rise

Real Goods Solar, Inc. (NASDAQ:RGSE) investors have a smile on their faces Monday morning, after the solar firm disclosed that its first-quarter net sales increased 194%, compared with the fourth quarter of 2016. In addition, RGSE increased the size of the residential segment sales organization by 70%.

Real Goods Solar shares reacted to the news, rising nearly 19% to $1.31 in Monday’s trading session.

RGS Energy’s positive outlook is supported by strong tailwinds emerging in the U.S. residential solar market, which is projected to grow at 9% in 2017, per GTM Research, with direct ownership predicted to overtake leasing for the first time. GTM projects total installed U.S. solar PV capacity to nearly triple over the next five years.

“We made the strategic decision not to adopt the business model of major solar companies whereby it appears to us the more they grow, the more they lose,” said Dennis Lacey, RGS Energy’s CEO.  “I feel we have been making the right calls.  We were the first public residential focused solar company to adopt direct ownership versus leasing.  We also made the call early on that the industry model for customer acquisition costs was too expensive, exited unprofitable markets such as large commercial, and physically exited the highly saturated costly California market. We have already taken the painful steps to optimize our operating cost structure and are the only debt-free public residential focused solar company in the United States.”

“We have a long history with community solarize programs having done 39 in our history in which we have typically enjoyed higher lead to sales rates,” noted Tom Champlin, RGS Energy’s Head of East Coast Sales.  “On April 5, we launched the Granby, Connecticut solarize program; the township has set a four-month selling period.  We typically enjoy higher lead to sale rates for community solarize programs.  The traditional season for community solarize programs is just beginning, and we expect to bid on additional programs in the coming months.”

Update on Sunetric Organization:

The company reported April 17, 2017 on the very timely ruling by the Hawaii Public Utility Commission (“PUC”) authorizing an estimated 20 megawatts of additional capacity for its customer grid-supply solar program. This has coincided with Sunetric’s focus on building its sales and construction teams in Hawaii for growth.

“As previously disclosed, the market in Hawaii has been quite challenging for solar companies,” said Alan Fine, RGS Energy’s Principal Financial Officer.  “However, our view has recently become bullish due to the recent announcement by the PUC and our new local management team, who for the first 19 days of April, have already sold $125k, more than the entire first quarter.”

“We plan to add to our construction crews very soon to meet the growth in sales,” said Brad Bentzen, RGS Energy’s Director of Residential Operations. “To maximize the customer experience, we have set and are meeting the goal of reducing our cycle time for installations.”

“As the first quarter is seasonally a challenge for construction, the average cost per watt is higher during this period,” continued Bentzen. “We expect this metric to decline throughout the year as our revenue grows.”

Update on Cost Effective Residential Marketing:

 “For profitability, we set the goal to move away from the industry approach of purchasing paid lead lists, regardless of whether it results in a signed customer contract,” said Seth Wiggins, RGS Energy’s Vice President of Sales. “We are currently signing vendor contracts where we pay for performance, meaning it results in a signed customer contract.”

Wiggins further stated: “As announced on April 20, 2017, we achieved a significant milestone this month, switching from our in-house digital marketing to launching a digital marketing program with Madwire’s Marketing 360 customer acquisition platform. We have enjoyed a better lead-to-sale rate with digital marketing than paid lead vendor programs and expect this milestone will allow our growing sales teams to be more successful and grow our revenue at a lower cost.”

Targets and Expectations:

  • Achieving break-even results in the fourth quarter of 2017 or the first quarter of 2018.
  • Steady and improving progress in sales growth for the remainder of 2017, with installation revenue growth delayed a quarter due to typical construction cycle time.
  • Expand into new states for sales of solar systems.
  • Digital and content marketing, not vendor lead programs, to be the principal source of customer sourcing.
  • A reduction in construction cycle time.
  • Cash outflow from operations until break-even results are achieved.  The company preliminarily expects to report working capital at March 31, 2017 of approximately $16 million.

Real Goods Solar, Inc. is a residential and commercial solar energy engineering, procurement, and construction company. It offers turnkey services, including design, procurement, permitting, build-out, grid connection, financing referrals, and warranty and customer satisfaction activities.

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