|6 Months Ended|
Jun. 30, 2018
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, Multi-Family and Tri-State LED, 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. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have 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 included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017. The Condensed Consolidated Balance Sheet as of December 31, 2017 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 as required by Regulation S-X, Rule 10-01. 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 six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 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 $1.4 million and $1.2 million for the three months ended June 30, 2018 and 2017, respectively, and $2.4 million and $1.9 million for the six months ended June 30, 2018 and 2017, respectively.
Liquidity and Capital Resources
Our liquidity as of June 30, 2018 and December 31, 2017 was $2.5 million and $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 $2.0 million and $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, 2018 and December 31, 2017, we had working capital of $45.5 million and $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 February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases,” which requires lessees to recognize a right-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.
Recently adopted accounting pronouncements
On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), using the modified retrospective approach. ASC 606 replaces all current GAAP guidance on this topic and eliminates all industry-specific guidance, and provides a unified model to determine how revenue is recognized. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in 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 ASC 606 did not have a material effect on our financial statements. We have updated our processes and controls necessary for implementing this standard, including the increased disclosure requirements.
On January 1, 2018, we adopted 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 adoption of this standard did not have a material effect on our financial statements.
On January 1, 2018, we adopted ASU 2017-01, “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 adoption of this standard had no impact on our financial statements.
On January 1, 2018, we adopted 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 adoption of this standard did not have a material impact on our financial statements.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef