SPI - IPO Update: SolarJuice Readies $17 Million U.S. IPO Plan

2023-03-07 14:20:49 ET

Summary

• SolarJuice has filed proposed terms for a $16.5 million U.S. IPO.
• The firm makes solar components and provides installation services in Australia and the United States.
• SJA has produced sharply decelerating revenue growth, increasing cash used in operations and faces an uncertain U.S. economic environment.
• I'm on Hold for the SolarJuice IPO.

A Quick Take On SolarJuice

SolarJuice ( SJA ) has filed proposed terms to raise $16.5 million in gross proceeds from the sale of its common stock in an IPO, according to an amended registration statement.

The firm provides a range of solar products and services to end users in Australia and the United States.

Given its sharply decelerating revenue growth and uncertain prospects in the U.S., and despite its rather low valuation assumptions at IPO, I’m still on Hold for SJA’s IPO.

SolarJuice Overview

Sydney, Australia-based SolarJuice was founded to be a manufacturer and wholesaler of solar products in Australia and roofing and solar modules installation services in the five U.S. states of Colorado, California, Nevada, Florida and Texas after acquiring the assets of bankrupt company Petersen-Dean (Solar4America).

Management is headed by Chief Executive Officer Hoong Khoeng Cheong, who has been with the firm since April 2015 and was previously a director of SPI Energy since September 2017 and COO of SPI since May 2014.

The company’s primary offerings include:

• PV modules

• Solar energy converters

• Batteries and storage devices

• Balance of system components

• Accessories

• Resale

• Installation services

As of June 30, 2022, SolarJuice has booked fair market value investment of $35 million as of June 30, 2022, from investors including parent firm SPI Investments Holding Limited.

SolarJuice - Customer Acquisition

The firm wholesales its various solar products in Australia and New Zealand to installers and resellers through its 80%-owned Australian subsidiary, SJ Australia.

The company also manufactures solar modules in California, delivering the Solar4America brand products to customers as well as providing installation services.

SJA has over 5,000 commercial customers in Australia and New Zealand; it expects to expand its California manufacturing capacity to 2.4 gigawatts per year by the end of 2023.

Sales, Marketing & Customer Service expenses as a percentage of total revenue have trended higher as revenues have increased, as the figures below indicate:

(Source - SEC)

The Sales, Marketing & Customer Service efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales, Marketing & Cust. Svc. spend, dropped to 3.5x in the most recent reporting period, as shown in the table below:

(Source - SEC)

SolarJuice’s Market & Competition

According to a 2022 market research report by Mordor Intelligence, in 2021, Australia installed an estimated 360,000 rooftop solar systems, 'an increase of nearly 40% compared to 2020.'

The country has one of the highest solar radiation amounts per square meter but is still behind other countries when it comes to mid-scale and large-scale solar installations.

As of September 30, 2021, Australia counted at least 2.96 million solar installations.

Also, the Australian government plans to approve two large-scale solar projects with a combined energy transmission capacity of 950 megawatts by the end of 2023.

Major competitive or other industry participants include:

• AGL Energy (AGLNF)

• Infigen Energy

• Neoen SA

• First Solar (FSLR)

• SunPower (SPWR)

• Tesla (TSLA)

• SolarCity

• Sunrun (RUN)

• Titan Solar

• Freedom Forever

• Others

SolarJuice Financial Performance

The company’s recent financial results can be summarized as follows:

• Decelerating top-line revenue growth

• Reduced gross profit and lowered gross margin

• Variable operating losses

• Increasing cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

As of June 30, 2022, SolarJuice had $3.2 million in cash and $50.3 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2022, was negative ($8.4 million).

SolarJuice IPO Details

SJA intends to sell three million shares of common stock at a proposed midpoint price of $5.50 per share for gross proceeds of approximately $16.5 million, not including the sale of customary underwriter options.

Potential new shareholder Linton Crystal Technologies Corp. has indicated a non-binding interest in purchasing up to $5.1 million of shares of the IPO at the IPO price.

Post-IPO, the company will continue to be controlled by parent firm SPI Energy Co. ( SPI ).

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $162 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 10.7%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

Expand U.S. assembly factory capacity for solar modules. In addition to our current module manufacturing facility in California, we plan to build a 2.5GW module assembly factory with leased space in the east coast of the U.S. and industry leading machinery that we plan to purchase from Asia. We will invest in new staff hiring and training, as well as raw material purchases. We expect to invest approximately $12.18 million for this purpose.

Expand our distribution business in Australia and other countries by funding the working capital needed to establish inventory levels that can support the growth. We expect to invest approximately $1.0 million for this purpose.

Expand our U.S. roof and solar system installation business by hiring new sales staff, opportunistically purchase in bulk to lower material costs. We expect to invest approximately $1.0 million for this purpose.

Other general corporate purposes. We expect to invest all the rest of offering net proceeds for this purpose.

(Source - SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said the firm was not involved in any legal proceedings that would have a material adverse impact on its financial condition or operations.

The sole listed bookrunner of the IPO is Maxim Group.

Valuation Metrics For SolarJuice

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

(Source - SEC)

Commentary About SolarJuice

SJA is seeking U.S. public capital market funding to invest in increasing its manufacturing capacity and other growth initiatives in the U.S.

The company’s financials have shown increasing top-line revenue, although at a sharply decelerating rate, lowered gross profit and gross margin, fluctuating operating losses and growing cash used in operations.

Free cash flow for the twelve months ended June 30, 2022, was negative ($8.4 million).

Sales, Marketing & Customer Service expenses as a percentage of total revenue have trended higher as revenue has increased; its Sales, Marketing & Customer Service efficiency multiple fell to 3.5x in the most recent reporting period.

The firm currently plans to pay no dividends and expects to retain future earnings to reinvest back into its growth and operational initiatives.

SJA’s trailing twelve-month CapEx Ratio indicates it has spent significantly on capital expenditures as a percentage of its operating cash flow.

Also, the company's financials are out-of-date, with activity showing only through June 30, 2022.

The market opportunity for providing solar products and services in Australia and the U.S. is large and has been growing markedly.

Maxim Group is the lead underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (23.8%) since their IPO. This is a bottom-tier performance for all significant underwriters during the period.

The primary risk to the company’s outlook is slowing revenue growth while producing higher cash burn.

As for valuation expectations, management is asking IPO investors to pay an Enterprise Value / Revenue multiple of approximately 1.0x.

While management may have acquired bankrupt U.S. solar panel installer Solar4America’s assets at a bargain, it faces significant competition in the U.S. and I’m not convinced it can keep up its Australian product sales growth rate.

Given its sharply decelerating revenue growth and uncertain prospects in the U.S. in the midst of slowing economic growth, and despite its rather low valuation assumptions at IPO, I’m still on Hold for SJA’s IPO.

Expected IPO Pricing Date: To be announced

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