8point3 Energy Partners (CAFD +0.00%) is in the midst of a strategic review by its sponsors First Solar (FSLR 1.34%) and SunPower (SPWR +0.00%) that could result in the sale of the entire company or a new sponsor stepping in. In the meantime, the yieldco continues to operate as it normally would, generating dividends for investors each quarter.
On Wednesday, the company reported earnings for the fiscal third quarter and once again exceeded expectations. Here are the highlights.
Image source: First Solar.
Beating guidance again
8point3 Energy Partners has a history of beating expectations, mainly because management sets very conservative guidance. You can see in the table below that Q3 2017 results were well ahead of the guidance management set after last quarter.
| Metric | Q3 2017 Guidance | Q3 2017 Actual |
|---|---|---|
| Revenue | $25 million-$26 million | $27.7 million |
| Net income | $21 million-$24 million | $28.7 million |
| Adjusted EBITDA | $44 million-$47.5 million | $53.5 million |
| Cash available for distribution | $28 million-$30 million | $33.2 million |
Data source: 8point3 Energy Partners earnings presentations.
The outperformance wasn't driven by an unusually strong quarter; it was just due to the company setting guidance at a low level.
Now that we're through three quarters of the fiscal year, management was confident enough to increase full-year guidance. Revenue is now expected to be $66.5 million to $69.5 million with cash available for distribution (CAFD) of $106 million to $109 million. Previous guidance was for $63.3 million to $66.7 million in revenue and $91.5 million to $101 million in CAFD.
Growth is still not on the agenda
During the quarter, 8point3 Energy Partners agreed to let SunPower sell a minority stake in the 100 MW Boulder Solar 1 facility in Nevada to a third party. And 8point3 chose not to take advantage of its ability to raise capital by putting up more shares of its stock for sale, which could have generated cash proceeds to fund further acquisitions.
This is another indication that 8point3 Energy Partners doesn't have any intention to buy growth projects, at least until its sponsors are finished completing their strategic review. It could also indicate that the third-party market is valuing projects more highly than the stock market is valuing 8point3 Energy Partners, so it's looking toward a sale rather than trying to grow the existing business.
What to look for now
Operations are going about as expected for 8point3 Energy Partners, so the real question is what will happen with the sale process. I think all signs are pointing to strong interest from buyers given the fact that First Solar and SunPower are finding higher prices for their projects elsewhere.
The questions now are: When will a sale take place? What price will a buyer pay? And what will the final structure of a deal be?
I think a deal will be announced in the next month or two, but the price and the structure are less clear. A buyer who wants to keep the yieldco going may just buy out the sponsors and keep 8point3 Energy Partners publicly traded. A pension fund or private equity firm may want to take the entire company private. And prices may depend on what path they choose. Until we know answers to these questions, there will be uncertainty around 8point3 Energy Partners' stock.
