Revolution Lighting investigates questionable accounting
STAMFORD — Revolution Lighting Technologies has possibly reported incorrect returns for the past four years, the embattled company revealed in records submitted this week to the U.S. Securities and Exchange Commission.
The disclosure stems from an investigation assessing the extent to which the firm might have erroneously reported revenues tied to certain transactions. Revolution’s audit committee has not quantified the size of the potential errors, but the company has concluded that it cannot stand behind its quarterly and annual financial statements filed for 2015, 2016 and 2017 and the first half of 2018.
“Until the company has either restated its financial statements for the periods described above or determined that no such restatements are warranted, investors, analysts and other persons should not rely upon the company’s previously released financial statements for these periods,” Revolution officials wrote in the SEC filing.
The audit committee has so far focused mainly on certain “bill and hold” transactions in 2016, with “apparent errors” identified in financial statements for that year. Inaccurate 2016 data would also affect 2017 records.
In 2017, reported revenues dropped about 12 percent, to around $152 million. The company sustained a loss of $6.7 million for the year.
“The audit committee will continue to assess the accuracy of the company’s previously filed financial statements for the fiscal periods listed above and will assess the impact of the errors on the company’s disclosure controls and procedures and internal control over financial reporting,” the company added in the filing.
Revolution’s filing does not cite any evidence of deliberately falsified records.
The SEC and RSM, the company’s accounting firm, both declined to comment on the case.
Revolution expects “significant” expenses related to its review, and any revising, of its financial statements.
“Recognizing revenue prematurely, particularly over numerous years — as appears to be the case here — is generally viewed as a serious accounting error,” said Stephen Ryan, a professor of accounting in New York University’s business school. “This is suggestive
that there were not very good internal controls.”
Ongoing challenges
Revolution’s accounting issues have emerged as CEO and Chairman Robert LaPenta proposes to take private a company that was already struggling with mounting debt and underwhelming earnings.
The company’s debt last month totaled around $65 million, with LaPenta and his “affiliates” having given the firm $7.5 million in related financing between mid-- October and mid-November. In comparison, Revolution’s market value totals about $14 million.
LaPenta has said additional capital requirements could not be met through third-party financing, but that he and his affiliates would be reluctant to lend more without Revolution changing its operating and cost structure.
“We do not believe that the company is of sufficient scale to justify the costs of remaining a public company and believe that it is
necessary for the company to be a privately held enterprise,” LaPenta wrote in a Nov. 14 letter to the Revolution board’s transaction committee.
In addition, pressure to meet quarterly earnings targets has distracted management, preventing full focus on long-term growth and development, LaPenta has said.
LaPenta has proposed to acquire all of the company’s common stock that he and his affiliates do not own, for $1.50 per share. Company share prices have plunged in recent months, from an annual high of nearly $5 to only about 60 cents.
The board would not decide on LaPenta’s proposal before the transaction committee, which comprises independent board members, reviewed the plan. A majority of “disinterested” shareholders would also need to approve the privatization.
In recent years, Revolution has undertaken major projects, including securing a contract to outfit U.S. Navy ships with LED lights.
But the company has grappled with a number of delays, including in its multifamily-housing lighting and Greenwich-based TriState LED divisions.
As part of its recent reorganization, Revolution consolidated two smaller divisions, All Around Lighting and E-Lighting, into the multifamily-housing group.