Vivint Solar, No. 2 US Solar Installer, Sets IPO Terms to Raise $370M

Vivint Solar, owned by the Blackstone Group, set its IPO terms to offer 20.6 million shares at between $16 and $18 per share. That would give the Provo, Utah-based installer and financier a market cap of approximately $1.79 billion, if it priced in the middle of the range. Goldman Sachs, BofA Merrill Lynch and Credit Suisse are serving as lead underwriters. 

Ranked second only to SolarCity as an installer, Vivint Solar could also benefit from the increased access to capital afforded by going public.

The IPO hopeful is the solar integrator and PPA financier unit within Vivint, one of the largest home-alarm system and home automation companies, which was acquired by Blackstone for more than $2 billion in September 2012. Vivint has more than 675,000 customers for its home security and automation services across the country.

Here's the updated SEC S-1 IPO registration document, and here is some earlier reporting on the company's financials:

Tidbits from the S-1

• Vivint is growing fast -- and losing money fast as well.
• Vivint Solar has installed a total of 129.7 megawatts of solar at more than 21,900 homes in seven states, with an average solar system size of approximately 5.9 kilowatts.
• The company has raised nine investment funds to which banks have committed to invest approximately $443 million. This will allow Vivint to install PV systems of approximately $1.1 billion in value.
• Vivint Solar also has LOIs from three financial institutions in amounts totaling up to $250 million, enough to fund approximately 111 megawatts of future rooftop installations. 
• The company notes that "the recent acquisition of Zep Solar, Inc., who sold us virtually all of the racking systems used in our hardware in 2013, by one of our competitors and the resulting limitation in our ability to acquire Zep Solar, Inc. products required us to redesign certain aspects of our systems to accommodate alternative racking hardware."

Here are some of the points that caught the eyes of our analysts:

• The company had this to say about its relationship with Zep: "We have successfully transitioned away from using racking systems procured from Zep Solar, Inc., although we currently have a limited inventory remaining in certain of our markets which we are using primarily as replacement parts on service calls. Once that inventory is gone, we will no longer use any racking systems from Zep Solar, Inc. We believe that our new racking system providers will be able to meet all of our needs going forward, and we do not expect any interruption to our business as a result of, or following, this transition."
• Average FICO score across all Vivint customers: 750 
• "Most of our current customer contracts contain price escalators ranging from 2.9% to 3.9% annually." 
• Assumed O&M and asset management costs over the lifetime of the system is $0.60 per watt to $0.80 per watt
• Solmetric acquisition was $12.2 million.
• Five funds are using partnership-flip, and four funds are using inverted leases.
• Sales turnover is high: "43% of the sales force on January 1, 2013 were no longer providing services to us by the end of the year."

 GTM Research's Nicole Litvak provided some analysis on Vivint Solar earlier this month, which is excerpted below.

Regional presence

Surprisingly, Vivint is active in far fewer markets than other national installers such as SolarCity, Sungevity, and Solar Universe (which are active in a dozen or more states). Instead, Vivint has put all of its sales efforts into just six states, not including its recently announced expansion to Arizona. The large gap between SolarCity and Vivint is most drastic in California, but Vivint has beat the national leader in New York and Massachusetts for the past several quarters.

FIGURE: Vivint's State-by-State Market Share, 2013

Source: GTM Research U.S. PV Leaderboard

Sales strategy

Vivint Solar is well known for its sales model, which was adopted from its parent company Vivint Inc. and consists almost entirely of door-to-door soliciting (in addition to referrals). This strategy may explain the company’s slow expansion to new states, as it requires hiring a large sales team. The map below shows just how concentrated the door-to-door sales method must be, even when implemented in a small state like Massachusetts. Vivint’s acquisition of Solmetric was meant to further increase the efficiency of its door-to-door sales by allowing sales reps to take roof measurements, create a preliminary design, and potentially close the sale on the first visit. The installer even foregoes state incentives in some cases to speed up the installation process.

FIGURE: Vivint Solar Installations in Massachusetts, Jan. 2012-June 2013

Source: GTM Research report U.S. Residential Solar PV Customer Acquisition

Suppliers

Vivint’s overall business model involves simplifying as many areas of its operations as possible, such as using one primary sales method. Another key area to which this applies is its suppliers. Vivint Solar’s top module suppliers in 2013 were Trina Solar (also the leading supplier to SolarCity) followed by Yingli Solar and Canadian Solar -- three of the top five suppliers to the U.S. residential solar market, according to the GTM Research U.S. PV Leaderboard. The installer also uses just one inverter supplier, Enphase Energy, partly due to the flexibility that microinverters offer for making last-minute changes during installation. Just last week, the two companies signed a three-year strategic agreement to continue this supply relationship. Vivint Solar used only Zep Solar mounting structures until that supplier was acquired by SolarCity.

FIGURE: Module Suppliers to Vivint Solar, 2013

Source: GTM Research U.S. PV Leaderboard

Financing strategy

Vivint Solar is one of the industry’s two completely vertically integrated financiers, meaning it both finances and installs systems. Its consumer financing options are limited, in line with the rest of its streamlined operations. Originally, the installer only offered power-purchase agreements, but it has recently added a lease option. Vivint Solar is the only leading financier that has shown no signs of intending to add a loan product.