From the 10-K:
"We provide photo voltaic ("PV") based power systems for the residential, commercial and agricultural markets in California and Nevada. Through our operating subsidiaries, we design, arrange financing, integrate, install and manage systems ranging in size from 2kW (kilowatt) for residential loads to multi MW (megawatt) systems for larger commercial projects. Commercial installations have included office buildings, manufacturing plants, warehouses, and agricultural facilities such as farms, wineries and dairies. The Company provides a full range of installation services to our solar energy customers including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring and maintenance."
The question I ask is: How does Sunworks actually have 27% gross margins? I can not see how they add value. They purchase material from 3rd parties, use 3rd parties for financing and pay 3rd parties for installation. Where in the chain are they adding value to justify a 27% gross margin? If they are simply a logistics company, then 27% gross margins seem very high. Why can't manufacturers of solar panels like First Solar just undercut them?
This seems like a long shot at best. You should always be wary of "asset-lite" models unless there is significant IP behind the company. In this case, I can not see a reason in the long term for them to be very profitable.
If you look at their income statement, the R&D was ZERO last quarter. So no IP to speak of except this weird mention of 3-D solar cell technology which they have practically done zero testing or prototyping on.
There's a big chunk of money they spend on S&M and G&A (saw a big jump QoQ and YoY).
The focus on Sales & Marketing (coupled with miniscule R&D) should cause you concern as an investor, since it tells you that this is a sales driven organization, not a product driven one (which is not good for long term success)>
Here's what they say about their S&M developments over the quarter:
"For the three months ended September 30, 2016, the Company had selling and marketing or S&M expenses of $2,145,000 compared to $1,835,000 for the three months ended September 30, 2015. S&M expenses increased primarily due to increases in media advertising expenses and in commercial sales related personnel costs. During the third quarter, the decision was made to shift the focus of the residential sales effort from media advertising and from staffing a call center to a direct sales approach. The call center was closed and new media advertising was significantly reduced. The larger portion of these cost reductions will not be experienced until the 4 th quarter. We have substantially increased the number of commercial and agricultural sales team members and their compensation. As a percentage of revenue, S&M expenses were 12% of third quarter revenues in 2016 compared to 9% in the third quarter of 2015. We have specially-designed marketing efforts and tracking systems in place that enable us to attract new customers at a lower cost and higher conversion rate than what we believe to be the industry average. This same tracking system also helps to identify which marketing efforts are productive and was a basis for determining that the residential direct sales marketing approach may be more cost effective."
I don't like how this sounds.
Here's how they explain G&A jump:
"Total general and administrative or G&A expenses increased to $4,250,000 for the three months ended September 30, 2016, compared to $1,744,000 for the three months ended September 30, 2015. Some of the increase in G&A expenses was due to the costs associated with acquisition of Elite Solar. Furthermore, there are additional costs associated with opening four new offices, additional personnel, vehicles, insurance and a variety of professional expenses driven by the significant organic growth realized by the Sunworks operations compared to the prior year. As a percentage of revenue, G&A expenses increased to 24% in the third quarter compared to 9% in the third quarter of 2015. Certain G&A expenses are fixed costs, over the short term which results in a the costs being a higher percentage of revenue when calculated based upon a lower revenue amount. "
Fair enough but the acquisitions are focused on sales teams, not product.
Anyhow, Sunworks seems to me like a logistics company with no product and a very heavy focus on sales in a highly competitive and government driven marketplace. This is really a long shot but should be interesting to monitor developments going forward.
"We provide photo voltaic ("PV") based power systems for the residential, commercial and agricultural markets in California and Nevada. Through our operating subsidiaries, we design, arrange financing, integrate, install and manage systems ranging in size from 2kW (kilowatt) for residential loads to multi MW (megawatt) systems for larger commercial projects. Commercial installations have included office buildings, manufacturing plants, warehouses, and agricultural facilities such as farms, wineries and dairies. The Company provides a full range of installation services to our solar energy customers including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring and maintenance."
The question I ask is: How does Sunworks actually have 27% gross margins? I can not see how they add value. They purchase material from 3rd parties, use 3rd parties for financing and pay 3rd parties for installation. Where in the chain are they adding value to justify a 27% gross margin? If they are simply a logistics company, then 27% gross margins seem very high. Why can't manufacturers of solar panels like First Solar just undercut them?
This seems like a long shot at best. You should always be wary of "asset-lite" models unless there is significant IP behind the company. In this case, I can not see a reason in the long term for them to be very profitable.
If you look at their income statement, the R&D was ZERO last quarter. So no IP to speak of except this weird mention of 3-D solar cell technology which they have practically done zero testing or prototyping on.
There's a big chunk of money they spend on S&M and G&A (saw a big jump QoQ and YoY).
The focus on Sales & Marketing (coupled with miniscule R&D) should cause you concern as an investor, since it tells you that this is a sales driven organization, not a product driven one (which is not good for long term success)>
Here's what they say about their S&M developments over the quarter:
"For the three months ended September 30, 2016, the Company had selling and marketing or S&M expenses of $2,145,000 compared to $1,835,000 for the three months ended September 30, 2015. S&M expenses increased primarily due to increases in media advertising expenses and in commercial sales related personnel costs. During the third quarter, the decision was made to shift the focus of the residential sales effort from media advertising and from staffing a call center to a direct sales approach. The call center was closed and new media advertising was significantly reduced. The larger portion of these cost reductions will not be experienced until the 4 th quarter. We have substantially increased the number of commercial and agricultural sales team members and their compensation. As a percentage of revenue, S&M expenses were 12% of third quarter revenues in 2016 compared to 9% in the third quarter of 2015. We have specially-designed marketing efforts and tracking systems in place that enable us to attract new customers at a lower cost and higher conversion rate than what we believe to be the industry average. This same tracking system also helps to identify which marketing efforts are productive and was a basis for determining that the residential direct sales marketing approach may be more cost effective."
I don't like how this sounds.
Here's how they explain G&A jump:
"Total general and administrative or G&A expenses increased to $4,250,000 for the three months ended September 30, 2016, compared to $1,744,000 for the three months ended September 30, 2015. Some of the increase in G&A expenses was due to the costs associated with acquisition of Elite Solar. Furthermore, there are additional costs associated with opening four new offices, additional personnel, vehicles, insurance and a variety of professional expenses driven by the significant organic growth realized by the Sunworks operations compared to the prior year. As a percentage of revenue, G&A expenses increased to 24% in the third quarter compared to 9% in the third quarter of 2015. Certain G&A expenses are fixed costs, over the short term which results in a the costs being a higher percentage of revenue when calculated based upon a lower revenue amount. "
Fair enough but the acquisitions are focused on sales teams, not product.
Anyhow, Sunworks seems to me like a logistics company with no product and a very heavy focus on sales in a highly competitive and government driven marketplace. This is really a long shot but should be interesting to monitor developments going forward.
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