Why Revolution Lighting Technologies, Inc. Stock Has Crashed 46% This Year

Nothing burns me more than misleading headlines or sub headlines from a public company's management. In the case of Revolution Lighting Technologies it unfortunately seems to have been par for the course. Between disappointing results and questionable communications, it's no wonder Revolution Lighting's stock is hitting new 52-week lows.

The second-quarter bust
On Aug. 7, Revolution reported second-quarter results. The third bullet point at the top of the press release read, "Net Income of $2.4 Million." Sounds fantastic for a company with a long history of sizable net losses, right? I confess that I fell for it for a moment myself. But this was only the result of a one-time gain.

The company was relatively quick to point out one-time gains in the year-ago comparable quarter and one-time expenses in the second quarter, but it was only deep into the release that it declared the one-time "benefit of a reduction of the deferred tax valuation allowance of $6.0 million." If not for this benefit, that $2.4 million net income would have actually been a $3.6 million net loss. And even that's not mentioning the over $1.3 million preferred stock dividend.

I'll give Revolution props for beating its revenue guidance of between $15 million and $17 million, with sales that came in at $17.5 million. However, the company was also calling for adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of between 12% and 15% of sales for the last three quarters of the year. But Revolution reported an adjusted EBITDA loss for the second quarter.

It gets worse
With the new report came new guidance. Revolution is now calling for EBITDA of between 10% and 12% in the final two quarters of the year, a sharp reduction from the previous projection. It also expects to become cash flow positive in the fourth quarter. If achieved, the reduced guidance still would probably translate to bottom-line net income profitability.

The problem is the Street doesn't seem to trust Revolution. The earnings miss and guidance reduction follow an ongoing perverse pattern dating to last year. For the second quarter of 2013, CEO Robert V. LaPenta told investors to "expect a continued acceleration in revenue and profitability as the year progresses." Instead, revenue collapsed and profitability was nowhere in sight.

After the disappointing third quarter of last year, the company basically said don't worry, we'll make up for in the fourth quarter. Instead, revenue came in more than 30% below guidance. The company has blamed seasonality, delayed international orders, and bad weather. What is puzzling is that its guidance for each quarter is made when the quarter is already nearly halfway over, yet Revolution still somehow ends up severely off the mark. Is it deliberate or is management really just that bad at forecasting?

All told, missed forecasts and ongoing losses have caused the Street to mistrust Revolution Lighting Technologies' stock, and the result is a share price that's in a tailspin. It's hard to blame the Street, which seems to be taking a "show me first" attitude before buying pressure returns strong enough to reverse the negative trend.

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The article Why Revolution Lighting Technologies, Inc. Stock Has Crashed 46% This Year originally appeared on Fool.com.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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