Sunrun Inc. — FY2017 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2017; it also presents unaudited fourth-quarter results. Sunrun provides residential solar systems, principally through 20-year leases and power purchase agreements, and operates in 22 states and the District of Columbia. At year-end it reported approximately 180,000 customers and 1,202 cumulative MW deployed, up from 879 MW a year earlier. California represented about half of customers.
Financial and operating performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Total revenue | $529.7 million | $453.9 million |
| Operating leases and incentives revenue | $231.4 million | $168.4 million |
| Solar systems and product sales revenue | $298.3 million | $285.5 million |
| Gross profit (revenue less reported cost of revenue) | $81.6 million; 15.4% margin | $54.7 million; 12.0% margin |
| Operating loss | $(182.2) million | $(214.9) million |
| Consolidated net loss | $(286.7) million | $(303.3) million |
| Net income attributable to common stockholders | $124.5 million; $1.18 diluted EPS | $91.7 million; $0.87 diluted EPS |
| Net cash used in operating activities | $(61.0) million | $(150.6) million |
| Cash and restricted cash at year-end | $241.8 million | $218.2 million |
Important earnings distinction: Sunrun reported a consolidated net loss, while common-stockholder income was positive because $411.3 million of net loss was attributed to noncontrolling and redeemable noncontrolling interests under fund-allocation accounting. Common-stockholder income should not be read as consolidated profitability.
- Revenue grew 17%. Lease and incentive revenue rose 37%, mainly as more systems entered service and prior-year installations contributed a fuller year of revenue. Solar-system sales fell 11% amid softer retail-channel demand; product sales increased 17% on higher wholesale volume.
- Operating expenses increased 6% to $711.9 million. Sales and marketing declined 16% to $137.1 million, while research and development rose 48% to $15.1 million and general and administrative expense rose 16% to $107.4 million.
- Operating loss narrowed by $32.7 million. Net loss narrowed by $16.6 million, but net interest expense increased 32% to $70.5 million, reflecting additional borrowings. Other expense included a loss on early extinguishment of non-recourse debt.
- Investing activities used $812.3 million, including $804.4 million for solar systems and components. Financing activities provided $869.5 million. Operating cash outflow improved year over year but remained negative.
- Year-end debt carrying value was $1.295 billion: $247.0 million recourse and $1.048 billion non-recourse. Current debt was $21.5 million. Cash alone was $202.5 million; an additional $39.3 million was restricted. Undrawn fund commitments were approximately $233.3 million, restricted to system purchases and installation.
- Gross Earning Assets, a company-defined estimate using a 6% discount rate, were $2.213 billion, up from $1.809 billion. The company reduced this measure by $13 million in Q4 for estimated Tax Act effects. MW booked in 2017 were 337 and MW deployed were 323.
Outlook, risks, and notable items
- Management said cash, fund commitments, and available borrowings were expected to cover anticipated cash needs for at least 12 months, while noting continued dependence on external financing. No specific 2018 revenue or earnings guidance is stated in the provided filing text.
- In February 2018, Sunrun extended its $250 million corporate credit facility maturity to April 1, 2020. The amendment raised the minimum interest-coverage covenant from 2.0:1 to 3.0:1 and requires at least $30 million of unencumbered cash at each quarter-end beginning March 31, 2018. The filing reports compliance with covenants at December 31, 2017.
- Sunrun entered into $280.6 million of photovoltaic-module and inverter purchase commitments over 24 months. The company disclosed a 30% U.S. tariff on imported solar cells and panels imposed in January 2018, with annual step-downs; supplier pricing and commitment amounts could vary.
- Key business risks include reliance on tax-equity investors and debt markets; higher interest rates; changes to federal, state, or local incentives, net metering, utility rates, and interconnection rules; component supply and cost pressures; customer cancellations and defaults; and concentration in California. The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21%; Sunrun recorded provisional tax effects and said parts of its analysis remained incomplete.
- Contingencies include a continuing government investigation into Section 1603 Treasury-grant valuations, IRS audits involving one fund and two investors, and securities and consumer class-action litigation. The company said outcomes and potential losses for the government investigation could not be estimated; it stated that it intended to defend the lawsuits.
- Other notable items: Sunrun acquired certain fund-investor interests for $35.4 million in December 2017; it had a $35.4 million reduction in additional paid-in capital associated with these transactions. The company also disclosed a potential Comcast-related warrant for up to 11.8 million shares, subject to installation and marketing milestones.
Most important facts for investors to verify
- Reconcile the consolidated net loss with positive income attributable to common stockholders, including the effects and sustainability of HLBV fund allocations.
- Assess the cash needs and refinancing capacity of the capital-intensive model, including the amended credit-facility covenants, non-recourse debt, and future fund commitments.
- Review cash conversion: operating cash flow remained negative while system investment was substantial and largely financed externally.
- Track the impact of the solar tariff, supplier commitments, and changes to incentives, net metering, utility rates, and tax-equity investor appetite.
- Evaluate the unresolved Treasury-grant valuation investigation, IRS audits and indemnities, and pending litigation; the filing does not quantify a reliable maximum exposure.
- Examine the assumptions behind Gross Earning Assets, including discount rate, defaults, customer renewals or purchases, and Tax Act adjustments; this is a forward-looking company-defined measure, not GAAP revenue or cash.