Business context and reporting period
Sunrun Inc. (Nasdaq: RUN) filed this Form 10-K for the fiscal year ended December 31, 2021; the filing does not provide a separate Q4-only financial summary. Sunrun sells, installs, owns and maintains residential solar systems, primarily under 20- or 25-year lease and power purchase agreements, and also offers batteries and sells systems and products. The 2021 comparison is affected by the October 2020 Vivint Solar acquisition: 2021 includes a full year of Vivint results, versus only the period since acquisition in 2020.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.610 billion | $922.2 million |
| Customer agreements and incentives revenue | $826.6 million | $484.2 million |
| Solar systems and product sales revenue | $783.4 million | $438.0 million |
| Operating loss | $666.2 million | $465.1 million |
| Net loss | $980.5 million | $626.9 million |
| Net loss attributable to common stockholders | $79.4 million ($0.39/share) | $173.4 million ($1.24/share) |
| Net cash used in operating activities | $817.2 million | $318.0 million |
| Net cash used in investing activities | $1.686 billion | $497.8 million |
| Net cash provided by financing activities | $2.646 billion | $1.161 billion |
- Revenue grew 75%; customer agreements and incentives rose 71%, while system and product sales rose 79%. Management attributed growth to the Vivint acquisition, new systems placed in service, increased system sales and retail-partner demand, and recovery in product sales from COVID-affected 2020 levels.
- Reported cost of revenue was $1.365 billion in 2021. Revenue less these two cost-of-revenue lines implies gross profit of about $244.5 million, or 15.2% of revenue, compared with about $178.7 million, or 19.4%, in 2020. Customer-agreement cost rose to 85% of related revenue from 80%, partly due to $107.6 million of acquisition-related depreciation step-up.
- Sales and marketing expense rose 77% to $623.0 million, mainly from higher headcount and customer-acquisition spending. Net interest expense increased 42% to $327.7 million, including a full year of interest on Vivint debt and additional non-recourse borrowings.
- Consolidated net loss includes substantial losses allocated to fund investors: $901.1 million in 2021 versus $453.6 million in 2020. Common-stockholder net loss was therefore materially smaller than consolidated net loss.
- Cash and cash equivalents were $617.6 million at year-end; restricted cash was an additional $232.8 million. Current assets were $1.548 billion and current liabilities $1.012 billion. Working-capital changes used $485.1 million of operating cash in 2021.
- Total debt, net of unamortized items, was $6.503 billion, compared with $4.796 billion a year earlier; this includes $5.901 billion of non-recourse debt, net. The company issued $400 million of 0% convertible notes due 2026, receiving approximately $389 million net before the capped-call cost treatment described in the filing. At year-end, $211.1 million was outstanding on its former $250 million corporate line; it was repaid with a new $425 million facility in January 2022, maturing in 2025.
- Sunrun reported $288.7 million of committed, available investment-fund capital, restricted to purchasing and installing solar systems, and $43.1 million of additional non-recourse borrowing capacity at year-end. Management said cash, fund commitments and available borrowings should cover anticipated needs for at least 12 months, while noting dependence on continuing external financing.
- Networked Solar Energy Capacity increased to 4,677 MW from 3,885 MW; customers increased to 660,311 from 550,078. Management-reported Gross Earning Assets rose to $9.672 billion from $7.773 billion. This forward-looking estimate uses a 5% discount rate and depends on assumptions about defaults, renewals or purchases, operating costs and other factors.
Changes, outlook and material risks
- Sunrun described growth in home electrification and grid services as strategic opportunities, including solar-plus-storage, EV charging, home energy management and virtual power plants. It cited its Ford partnership for home backup integration with the F-150 Lightning and said it was delivering demand-response and capacity services in multiple geographies. The filing provides no specific 2022 financial guidance.
- Management highlighted digital sales, online permitting and interconnection, virtual consultations and drone roof surveys as initiatives intended to improve efficiency and reduce customer-acquisition costs.
- Key exposures include changes to net-metering and utility rate rules, particularly California policy proposals; dependence on tax credits and tax-equity investors; rising interest rates and capital needs; supplier concentration, equipment availability, tariffs and forced-labor import restrictions; COVID-related workforce and supply disruptions; customer cancellations; and installation labor constraints, including potential California electrician-license restrictions.
- Tax-equity investors may require true-up payments, additional assets or repurchases of fund interests under specified conditions. The IRS was auditing a fund’s solar-system fair-market-value determination; Sunrun said the outcome was uncertain and insurance coverage has limits. The company also disclosed customer, securities and regulatory matters, including a Vivint customer class action for which it could not estimate a loss range, and a California contractor-board settlement involving citations and additional conditions; Sunrun denied wrongdoing and made no admission.
- Sunrun reported no goodwill impairment in 2021; goodwill was $4.280 billion, largely recorded in the Vivint acquisition. The company said it would continue monitoring impairment indicators, including the subsequent decline in its stock price.
- Ernst & Young issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of year-end. The auditor identified fund-investor allocations under the hypothetical liquidation at book value method as a critical audit matter.
Investor verification priorities
- Assess whether operating cash use and system investment can be funded sustainably, and review debt maturities, covenants, borrowing availability and the terms of the January 2022 credit facility.
- Track California net-metering and rate-design decisions and their potential effects on customer savings, demand, system economics and Gross Earning Assets assumptions.
- Review equipment sourcing, delivery constraints, component costs and any effects of trade enforcement or labor-related import restrictions.
- Monitor IRS review of system valuations and tax credits, potential indemnification exposure, and the availability and terms of tax-equity funding.
- Test the assumptions behind long-term customer cash flows, cancellation and default rates, renewal or purchase values, and the reported $15.5 billion of contracted revenue not yet recognized; about 5% was expected to be recognized over the next 12 months.
- Evaluate acquisition-related costs and integration, California installation workforce constraints, and potential dilution, including stock-based compensation and convertible-note conversion terms.