SunPower publicizes restructuring geared toward doubling down on residential market

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Construction workers install SunPower tiles on homes in San Ramon, California.

Robert Nickelsberg | Getty Images

SunPower announced Tuesday that it is restructuring its operations to focus solely on the fast-growing residential solar market. The company is acquiring the private solar company Blue Raven and plans to sell its commercial and industrial business at the same time.

Peter Faricy, CEO of SunPower, said the acquisition is a natural fit for a number of reasons, including the fact that Blue Raven’s customer-centric approach is in line with SunPower’s motto. Additionally, over 90% of Blue Raven’s customers are in 14 states, which make up only 5% of SunPower’s revenue. In other words, the acquisition expands SunPower’s presence in places where the company has struggled to gain market share.

“Strategically, this transaction is an example of something that will allow us to serve consumers much faster than we would otherwise,” said Faricy, adding that the deal has shown positive sales and EBITDA from day one will.

SunPower will add more than 20,000 Blue Raven customers to the 376,000 residential customers it had at the end of the second quarter.

The total transaction value of the acquisition is up to $ 165 million, with the cash required to complete the transaction up to $ 145 million. SunPower used cash from operations to fund the acquisition, with the majority of the money coming in after the company sold 1 million shares of Enphase Energy.

Focus on residential solar

Faricy said that while the commercial and industrial solar segment is an attractive location with lots of growth, the company’s decision to sell the business was due to capital allocation and the opportunity for a streamlined business.

He noted that the unit has piqued the interest of potential buyers, but did not disclose individual names. Faricy also pointed out the attractiveness of the asset, saying that SunPower is currently making money managing contracts in the commercial and industrial sectors, while a future owner could take advantage of both the administration and financing side of the company.

SunPower intends to use the cash from a potential sale to invest in its new core residential real estate business, including customer acquisition and expanded digital services for homeowners.

“In our case, we are pleased to now have clarity for investors about this uniquely focused strategy that focuses on residential real estate advancement,” said Faricy.

Such a reorganization is not the first for SunPower. In August 2020, the company spun off photovoltaic module maker Maxeon Solar, although the two separate entities continue to work together.

For Faricy, who took over the helm of SunPower in April, it may seem natural to shift the company’s focus to individual consumers. Previously, he was CEO of Global Direct-to-Consumer for Discovery Inc. and also vice president of Amazon Marketplace.

And while commercial and industrial solar systems offer alternative growth avenues, most of SunPower’s revenue comes from residential customers.

Full-year 2020 revenue from residential and commercial real estate was $ 848 million, while the commercial and industrial unit raised $ 254.8 million. The residential unit is also more profitable. Gross margins per watt increased from 19 cents in 2019 to 66 cents this year, while commercial and industrial division margins fell from $ 0.25 to $ 0.06 over the same period.

“The facts are that the residential real estate business is bigger, growing faster, and more profitable,” Faricy summarized. “[Residential] is the right place for us to focus on in the future and I think we expect it to be well received by investors. “

Looking ahead, SunPower aims to be a one-stop-shop for consumers. Rather than building a one-time customer relationship when the system is installed, the company adds energy storage, electric vehicle features, and a variety of digital products, including energy management systems.

Solar systems in residential buildings have skyrocketed in recent years. But as of the end of 2020, only 2.7 million, or 3%, of homes in the US had roof panels. President Joe Biden’s climate agenda calls for solar power to increase its share of electricity generation from 3% today to 40% by 2035. In order to achieve these goals, solar systems will have to increase sharply in the coming years.

But opportunities don’t always result in returns for investors looking to capitalize on long-term trends. According to a 2020 banner, solar stocks suffered in 2021. Bottlenecks in the supply chain, rising raw material costs and political uncertainty are some of the factors that are dampening sentiment.

Faricy noted that SunPower remained largely shielded from the chip shortage and said the company would have transparency through the end of the calendar year. However, he acknowledged the difficulty of securing components and said supply chains are a “lifelong challenge”.

SunPower’s shares are up nearly 6% last month, helped by a nearly 10% increase last Friday after S&P Dow Jones Indices announced that SunPower would be admitted to the S&P MidCap 400 before Tuesday’s opening bell. The Invesco Solar ETF is down 10% from last month.

SunPower stock was up 2% in pre-trading on Tuesday.

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