We believe the following trends will contribute to the growth and prospects of our business:
·
Growing Market for Solar Energy. The market for residential distributed solar energy is growing rapidly. According to research compiled by GTM Research, an industry research firm, and the Solar Energy Industries Association, or SEIA, 4,751 megawatts of capacity were installed within the U.S. solar energy market in 2013, up 41% over 2012. GTM Research/SEIA forecasts that installations in 2014 will be up 36% over 2013. We believe that the market is growing rapidly yet possesses significant growth opportunities solar energy is still a
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small percentage of the U.S. energy market. We believe that there is a significant opportunity for distributed solar energy to increasingly displace traditional retail electricity generated from fossil fuels. ·
Strong Regional Markets. According to the U.S. Department of Energy, four gigawatts of solar power were installed in the US in the first 3 quarters of 2014, of which over half were installed in California and Nevada, our target market. According to GTM Research/ SEIA California’s residential market has grown by at least 50% year-over-year every quarter since the first quarter of 2013. ·
Highly Fragmented Industry. The solar installer industry is highly fragmented and populated with many companies that have been born out of the electrical contractors industry. The solar installer industry has already undergone significant consolidation with the number of installers in California alone dropping, according to the U.S. Department of Energy, from 1,000 between 2009 and 2013 to 600 in 2014. We believe that there is opportunity for further consolidation.
Strategy
Solar3D’s strategy for growth is twofold. First, we plan to continue to expand the reach and penetration of our existing businesses. Second, we also to plan to strategically acquire PV installers that are financially stable, quality oriented, profitable and have a strong management team that is compatible with our existing team.
Our acquisition candidates primarily consist of small independent companies that generate between $10 million to $30 million of revenues profitably, but lack the resources to scale their businesses. This limits the exit options for the owners of these companies. We believe that a sale to Solar3D will offer them a liquidity opportunity and an opportunity to participate in the continued growth of the business with our resources through convertible notes used in the acquisition.
Our acquisition criteria include the following:
·
Same Target Market – Companies in the residential and commercial markets. ·
Willingness to Continue Participation – Prefer management of acquired companies to continue in an operating role. ·
Compatible and Collaborative Management – Target management must be willing to accept our best practices. ·
Profitable – Companies that generate an operating profit. ·
Location – Currently focused on the California and Nevada markets.
We believe the keys to success in our roll-up strategy are to buy the right company, with a good transaction structure, and with strong management in place. Our management team has experience in successfully executing a strategy of acquiring companies that have become successful enterprises under their new ownership.
Company Operations
Employees
We employ a total of approximately 90 full-time employees. We also utilize outside subcontractors to assist with providing solar systems to our customers. While SUNworks splits its direct labor between employees and contract labor, MD Energy exclusively uses subcontractors for its direct labor. With each acquisition, we look to transition the majority of back office functions to Solar3D corporate headquarters to reduce costs and make our operations consistent across our subsidiaries. We believe that our strategy of consolidating such functions as purchasing, supplier relations, accounting, human resources and other basic functions help to realize cost reductions and strategic synergies.
Sales and Marketing
We have approximately 15 employees primarily focused on sales and marketing in California. Substantially all of our sales to the commercial market and approximately 20% of our sales to the residential market are generated by referrals.
In Northern California, we have specially-designed marketing efforts and tracking systems in place that enable us to attract new customers at a low cost and higher conversion rate than what we believe to be the industry average. SUNworks utilizes several marketing tools and business strategies to differentiate itself from its competitors and attract new customers, including its proprietary proposal tool, its proprietary CRM (customer relationship management software), radio shows and celebrity endorsements, the SUNworks website, search engine optimization, social media, email marketing, direct mailers, its solar outreach division (canvassing, shows and events, solar open houses), call center, strategic partnerships/joint ventures, sponsorships, shared space in retail stores, solar stations (kiosks) and its referral program.
In our Southern California operations, we have a strong advantage at MD Energy given our extensive contact list resulting from MD Energy’s experience in the commercial and industrial construction market, which provides access to customer lists. Through our network of vendors and independent sales consultants, we now have a growing list of repeat clients, as well as an active and loyal referral network.
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