Sunrun Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless otherwise noted. Sunrun provides residential solar services and sells solar systems and products. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / prior period |
|---|---|---|
| Revenue | $194.5 | $144.4; up 35% |
| Operating loss | $(44.2) | $(56.7) |
| Net loss | $(86.9) | $(91.4) |
| Net income (loss) attributable to common stockholders | $(13.9), or $(0.12) per diluted share | $28.0, or $0.25 per diluted share |
| Operating cash flow | $11.4 | $(45.8) |
| Investing cash flow | $(201.4) | $(164.7) |
| Financing cash flow | $195.5 | $212.0 |
| Cash and restricted cash at quarter-end | $309.9, including $245.6 cash and $64.3 restricted cash | $304.4 at December 31, 2018 |
- Total revenue less the two reported cost-of-revenue categories was $47.2 million, approximately 24.3% of revenue, compared with $25.2 million, or 17.5%, in Q1 2018. The operating loss margin improved to approximately 22.7% negative from 39.3% negative.
- Revenue from customer agreements and incentives was $99.9 million, up 49%; solar energy systems and product sales revenue was $94.7 million, up 22%. Incentive revenue rose to $21.3 million from $5.3 million, while product revenue declined 17% to $36.2 million.
- Interest expense, net, rose 47% to $41.3 million, primarily reflecting additional non-recourse and pass-through financing debt. Other expense was $4.8 million, primarily from debt extinguishment.
- At March 31, total debt carrying value was $1.824 billion: $239.0 million recourse and $1.585 billion non-recourse. Pass-through financing obligations were separately reported at approximately $340.8 million. Debt and obligations are subject to differing recourse and structural terms.
- Current assets were $463.1 million and current liabilities $336.8 million. Operating cash flow included a $101.8 million increase in deferred revenue; reported operating cash flow therefore should be considered alongside working-capital movements and the SREC transaction below.
Material changes and operating context
- Revenue growth reflected more systems under customer agreements, higher incentive revenue, and increased solar system sales through retail partners. Product sales fell from a prior-year period that benefited from wholesale purchasing ahead of tariffs.
- Operating expenses increased 19% to $238.7 million. Sales and marketing increased 27%, mainly from higher headcount and compensation; general and administrative expense decreased 12%, partly because Q1 2018 included a one-time reserve related to partner construction-in-progress.
- Capital spending remained substantial: cash payments for solar energy systems were $198.9 million, versus $163.2 million in Q1 2018. The company reported 1,661 cumulative megawatts deployed and approximately $3.17 billion of Gross Earning Assets at March 31, 2019, up from 1,269 MW and $2.38 billion a year earlier. Gross Earning Assets is a management estimate dependent on assumptions, including discount, default, and renewal or purchase values.
- Sunrun served approximately 242,000 customers in 22 states, the District of Columbia, and Puerto Rico; more than 40% of customers were in California.
Outlook, risks, and unusual items
- Management stated that cash, investment fund commitments, and available borrowings were expected to meet anticipated cash needs for at least the next 12 months, while emphasizing dependence on continued third-party financing and the possibility that financing may not be available on acceptable terms.
- The company had approximately $157.3 million of undrawn committed investment-fund capital, restricted to purchasing and installing solar systems. Its $239.0 million working-capital facility matures in April 2020; management believed extension or refinancing before maturity was probable but gave no assurance. The company reported compliance with debt covenants at quarter-end.
- Management gave no specific numerical operating guidance in the supplied filing text. It cautioned that results may fluctuate and are exposed to financing availability and interest rates, customer demand and cancellations, system installation costs, supply constraints and tariffs, utility rates, net-metering and other policy changes, and reductions in federal solar tax incentives. The filing describes scheduled ITC reductions beginning in 2020.
- During Q1, Sunrun sold rights to SRECs expected to be generated over the next 10–15 years, increasing deferred revenue by $95.5 million; it repaid debt previously drawn against those rights. Separately, an early repayment of a pass-through financing obligation resulted in a $4.4 million debt extinguishment expense.
- Contingencies include an IRS review of fair market values used in claiming ITCs, with potential indemnification exposure that the company said it could not reliably quantify; insurance covers certain funds, subject to exclusions and limits. The filing also describes Arizona property-tax litigation and legal matters, including a proposed $5.5 million TCPA settlement subject to final documentation and court approval. The company said the obligation was accrued and denied liability.
Important facts for investors to verify
- Whether financing commitments and new capital remain available on acceptable terms, and whether the working-capital facility is extended or refinanced before April 2020.
- How much reported operating cash generation depends on deferred revenue and SREC monetization, versus recurring customer cash receipts.
- Debt and pass-through financing repayment terms, interest-rate exposure, covenant headroom, and the distinction between recourse and non-recourse obligations.
- Assumptions underlying Gross Earning Assets, including customer defaults, discount rates, and renewal or purchase values.
- Developments in ITC eligibility and valuation reviews, state and local solar policies, tariffs and supply availability, and disclosed litigation or indemnification exposures.