Construction workers install SunPower tiles on homes in San Ramon, Calif.
Robert Nickelsberg | Getty Images
SunPower on Tuesday said it is restructuring its operations to focus exclusively on the fast-growing residential solar market. The company is acquiring residential solar provider Blue Raven, while also looking to sell its commercial and industrial businesses.
SunPower CEO Peter Farisi said the acquisition was naturally appropriate for a number of reasons, including that Blue Raven’s customer-first approach aligns with SunPower’s motto. Additionally, over 90% of Blue Raven’s customers are in 14 states that account for only 5% of SunPower’s sales. In other words, the acquisition expands SunPower’s footprint in places where the company has struggled to seize market share.
“From a strategy standpoint, this transaction is an example of something that allows us to serve consumers much faster than we can,” Faris said, adding that the deal would be revenue and EBITDA positive.
SunPower will get over 20,000 customers from Blue Raven, with 376,000 residential customers at the end of Q2.
The total transaction value of the acquisition is up to $165 million, with the cash needed to close the deal worth up to $145 million. SunPower used cash from operations to fund the acquisition, with most of the money raised after the company sold 1 million shares of Enphase Energy.
focus on residential solar
Farsi said that while the commercial and industrial solar segment is an attractive place to work with considerable growth ahead, the company’s decision to sell the division came down to capital allocation and a streamlined business opportunity.
He said the unit has drawn interest from potential buyers, but did not disclose any individual names. Farsi also pointed to the attractiveness of the asset, saying that SunPower currently makes money in commercial and industrial through managing contracts, while future owners can take advantage of both the management and financing sides of operations.
SunPower intends to use the proceeds from the potential sale to reinvest in its new core residential business, which includes customer acquisition and expanded digital services for homeowners.
“In our case, we are pleased to have clarity for investors on this singularly focused strategy, focused on residential going forward,” Faris said.
Such a restructuring isn’t the first for SunPower. Company exited photovoltaic module manufacturer in August 2020 Maxion Solar, although the two separate entities still operate together.
Shifting the company’s focus to individual consumers is perhaps a natural fit for Farsi, who took over at SunPower in April. He was previously CEO of Discovery Inc.’s Global Direct-to-Consumer, and also served as Vice President of Amazon Marketplace.
And while commercial and industrial solar offer alternative growth avenues, most of SunPower’s revenue comes from residential operations.
Full-year 2020 sales from residential and light commercial totaled $848 million, while the commercial and industrial unit brought in $254.8 million. The residential unit is also more profitable. Gross margin per watt increased from $0.19 in 2019 to $0.66 this year, while margins from the Commercial and Industrial division fell from $0.25 to $0.06 during the same period.
“The fact is that the residential business is bigger, it’s growing faster and it’s more profitable,” Faris summarized. “[Residential] This is the right place for us to focus as we move forward, and I think we expect it to be well received by investors.”
Looking ahead, SunPower aspires to be the one-stop shop for the consumers. Instead of having a one-time customer relationship when the system is installed, the company is adding a range of digital products, including energy storage, electric vehicle capabilities and energy management systems.
Residential solar installations have boomed in recent years, but only 2.7 million, or 3%, of homes across the US have rooftop panels at the end of 2020. President Joe Biden’s climate agenda calls for increasing the solar share of electricity generation from 3% today to 40% by 2035. Solar installations will need to grow in the coming years to meet these goals.
But opportunity doesn’t always translate into returns for investors looking to capitalize on longer-term trends. After a banner 2020, solar stocks have suffered in 2021. Supply chain bottlenecks, rising raw material costs and policy uncertainty are among the factors that have impacted sentiment.
Farsi noted that SunPower has remained largely untouched by chip shortages, adding that the company has visibility until the end of the calendar year. That said, he acknowledged the difficulty of securing components, saying the supply chain is a “lifelong challenge”.
Shares of SunPower are up nearly 6% over the past month, following the announcement by the S&P Dow Jones Indices last Friday that SunPower would gain about 10%. couple Up to the S&P Midcap 400 before Tuesday’s opening bell. By comparison, the Invesco Solar ETF is down 10% over the past month.
SunPower shares were up 2% during premarket trading on Tuesday.
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