“According to the filing, ALL of the systems installed by Vivint Solar use Enphase inverters … That means, Vivint Solar bought over 215,000 Enphase products in 2014″

Residential solar has been growing at a pace beyond anybody’s expectation. With SolarCity’s IPO less than a year behind us, Vivint Solar hopes to go public in its latest round of fundraising. While there are comparable data points, Vivint Solar and SolarCity have distinctions as well. From markets, financing products to technology, we break down the Vivint Solar IPO filing, also known as the S-1 filing.

Vivint Solar is owned by Blackstone L.P., a global investment and advisory firm with about $279 billion dollars in assets, as part of the deal where Vivint was sold for around $2 billion. Vivint is labeled in the IPO as a sister company, focused on providing residential home security systems and services to over 850,000 customers throughout the US. Vivint Solar is expected to trade under the ticker $VSLR and Blackstone will remain the majority owner of the company. Vivint (home security unit) will not be part of the IPO process.

The Market Information

Vivint Solar is currently operating in 7 States including: Arizona, California, Hawaii, Maryland, Massachussets, New Jersey and New York. In 2014, the company expects to open 20 new offices in new and existing markets. Our guess is that Vivint Solar will follow in SolarCity’s path and enter markets where they are not yet overlapping, such as: Nevada, Connecticut, Colorado, Washington D.C., Delaware, Oregon, Pennsylvania and Texas. Of course each State has a timing issue around incentives and costs of electricity which would determine the value of entering the new market.

Vivint Solar maintains a unique sales approach, employing mainly direct sales personnel (canvassing) signing customers up by knocking on doors. The company has 489 salespeople, many of which came from the sister company. After the IPO, the movement of personnel could be limited in a non-poaching relationship. However, the two companies will pay lead referrral fees to each other to help the synergies continue. Keep in mind that Vivint has 850,000 customers and Vivint Solar has only penetrated 2.5% of that amount with 21,921 customers, meaning there is a lot more room for growth from that channel.

Financial Products and Customers

Being a part of Vivint and Blackstone is not without advantages. Financially, Vivint Solar maintains access to a credit line of $70 million dollars from Vivint and the Blackstone relationship brings financial crediblity to the table. Viving Solar currently lists $443million in funds and 53MW of tax equity available to invest. To date, Vivint Solar has contracted with 21,921 customers, with 8,625 customers signing in 2014 almost doubling all of 2013. Keep in mind that SolarCity signed up almost 30,000 customers in Q2 of 2014, still a wide gap. On a total basis, $VSLR has 129MW of systems, bringing the average to 5.9kW though the 2014 average is 6.6kW.

From a financial product standpoint, Vivint stands out. As of June 30th, Vivint has not contracted any leases. Meaning that their projects were done through power purchase agreements (PPAs) with some cash sales likely. The leases will encumber the balance sheet with a production warranty similar to the other market participants. The PPAs are averaging a 2.9%-3.9% annual escalation. Customers are still leaning towards the higher end of the credit risk, with an average FICO score of 750.

Solar Installation Technology Specifications

From 2013 to 2014, the average system size increased from 5.9kW to 6.6kW. The assumption would trend that the increased volume made purchasing higher efficiency panels feasible. Vivint states that the top manufacturers as Yingli and Trina; solar trade tariffs are listed as a risk item but no explicit purchasing strategy is mentioned that would signal a departure from current module suppliers. From a technology risk point of view, Vivint specifically mentioned the Zep acquisition by SolarCity and what it meant losing access to their preferred racking vendor. It appears that being committed to a single supplier is a risk Vivint Solar is willing to continue taking by looking at their inverter purchasing.

Enphase is the preferred inverter choice for Vivint Solar. According to the filing, ALL of the systems use Enphase microinverters. With 30 thousand residential solar installations at this point, that is a lot of Enphase product, and one question we had was exactly how much of North American product went to Vivint Solar. By reviewing the quarterly filings released by $ENPH, we were able to estimate 867,850 inverters sold to the North American market in 2014. During that same timeframe, Vivint Solar installed 8,625 systems/56.9MW with an esimated 25 panels per system. That means, Vivint Solar bought over 215,000 Enphase inverters or 25% of the total North American sales by the company. A risk for both companies for technical and business purposes for sure. Will investors be concerned or ask for a strategy to mitigate the risk seeing that no system has been operational for longer than 3 years thus far.

Financial Position and Review

The balance sheet seems strong, so let’s review the key metrics we are becoming accustomed to seeing from solar asset owners. $VSLR is sitting on $25 million dollars in cash and has credit lines of $57 million with interest rates between 7.5% and 12%. Each individual contract represents a contracted cash flow, meaning that Vivint Solar currently has $647 million dollars in outstanding contracted revenue.

Retained value has become the metric that is not yet standardized across peers. At the last quarter, SolarCity called for a retained value of $1.76/watt while Vivint Solar calls theirs $2.39/watt. At this point, it probably means comparing apples and oranges but will continue to sort itself out.

The IPO

Vivint Solar is ready for its IPO, or so the executives and owners seem to think. The solar industry wants the IPO to succeed, mostly because another strong round of capital injection will support the retail investment thesis that solar represents. Having two comparable publicly traded solar companies is a good to have in the limelight, as more homeowners look to add solar to their home.

Getting the IPO out will be the key, there are challenges ahead which may not be related to solar but how the deal is structured. Remember, SolarCity barely made it out in a more difficult financial climate when it went public at $8 per share. Today, trading at almost 10x that number, we see the financial market ready to bring another company on. But the hope remains that the other peers in the downstream finance space follow and make the IPO leap.