What happened
Shares of the residential solar point-of-sale financing company Sunlight Financial Holdings (SUNL) had plunged more than 60% as of 10:30 a.m. ET Thursday after the company announced a surprising impairment charge that will impact its full-year performance.
So what
Sunlight announced late yesterday that one of its solar installation partners is closing up shop due to cash flow issues, which will not allow it to meet financial commitments in the future. Sunlight will take a $30 million to $33 million hit because the company made advancements to this partner.
This is a noncash charge, but Sunlight said it would suffer one-time expenses in relation to solar loans in which installations by this partner may not have passed inspection. Sunlight had roughly $64 million of cash and cash equivalents on its balance sheet as of Sept. 23.
"Given our close business relationships with our installers, we are disappointed by this development and we are working to minimize the potential impact to Sunlight," Sunlight CEO Matt Potere said in a statement. "While our risk exposure with other contractor advances is much smaller (the next three largest partner advances being $10 million, $7 million, and $5 million respectively), we are reunderwriting all contractor partners' advances to further mitigate risk going forward."
Now what
I had initially been intrigued by Sunlight's business model, but there is simply no room for a surprise like this in these kinds of challenging market conditions, and the stock is being severely punished as a result.
Until investors can be sure that management has the situation fully under control, I would recommend staying away from the stock.
