Sunrun Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparison is Q1 2021. Sunrun designs, installs, owns and maintains U.S. residential solar systems, principally under 20- or 25-year customer agreements, and also sells systems and products.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $495.8 million | $334.8 million |
| Operating loss | $181.5 million | $178.5 million |
| Net loss | $156.5 million | $204.3 million |
| Net loss attributable to common stockholders; diluted loss per share | $87.8 million; $0.42 | $23.8 million; $0.12 |
| Net cash used in operating activities | $256.4 million | $185.6 million |
| Net cash used in investing activities | $502.1 million | $357.1 million |
| Net cash provided by financing activities | $770.7 million | $647.9 million |
- Revenue rose 48%. Customer agreements and incentives revenue grew 20% to $209.7 million; solar system and product sales rose 79% to $286.1 million, including a 125% increase in system sales.
- Cost of the two revenue categories totaled $451.6 million, implying gross profit of approximately $44.2 million, or 8.9% of revenue, compared with $40.4 million, or 12.1%, in Q1 2021. Customer-agreement and incentive costs were 96% of that revenue versus 92% a year earlier.
- Sales and marketing expense increased 39% to $174.9 million, while general and administrative expense fell 50% to $43.1 million, primarily because of lower stock-based compensation. Operating expenses increased 32% overall.
- Net loss improved year over year, but common-stockholder loss widened and diluted loss per share increased. The improvement in consolidated net loss included a smaller loss allocated to noncontrolling interests and redeemable noncontrolling interests.
- Other income was $114.0 million, including a $47.3 million gain on an equity investment and gains on derivatives. Net interest expense rose 24% to $92.3 million, primarily due to additional non-recourse debt.
- Operating cash outflow increased, with a $142.8 million net working-capital cash outflow. Investing outflow included $420.6 million for solar systems and a $75.0 million equity investment.
- At March 31, cash was $629.2 million and restricted cash was $233.5 million. Current assets were $1.71 billion and current liabilities $1.07 billion.
- Total debt, net, as presented in the debt note, was $7.14 billion, up from $6.50 billion at year-end. This includes $470.0 million drawn on a $600.0 million corporate credit facility; the filing reports $81.1 million of unused borrowing capacity under that facility. Separately, the company reported $467.1 million of committed and available capital restricted to purchasing and installing solar systems. Debt figures exclude the separately reported $319.1 million pass-through financing obligation.
- Balance-sheet assets and liabilities include consolidated VIE amounts. At quarter-end, $8.64 billion of VIE assets were available only to settle VIE obligations, and $2.09 billion of VIE liabilities were non-recourse to Sunrun.
Material changes and operating indicators
- Networked Solar Energy Capacity increased to 4,890 MW from 4,052 MW a year earlier; customers increased to 689,774 from 573,634.
- Gross Earning Assets were $10.16 billion, up from $8.12 billion. This is a management estimate of discounted future net cash flows, not a reported balance-sheet asset; the calculation assumes a 5% discount rate and a 90% renewal or purchase rate.
- Operating cash use and solar-system investment increased. Financing inflows included $620.5 million in net debt proceeds and $181.2 million in net proceeds from fund investors.
- Inventory rose to $555.9 million from $506.8 million at year-end. Accounts payable increased to $385.3 million from $288.1 million.
Outlook, risks and contingencies
- Management said cash, investment-fund commitments and available borrowings should meet anticipated cash needs for at least the next 12 months, while noting continued dependence on outside financing and the possibility that capital may not be available on acceptable terms. No quantified operating guidance for the year is provided in the supplied filing text.
- Key risks include rising interest rates and substantial financing needs; supply shortages, tariffs and trade restrictions affecting solar equipment; installation backlog, labor availability and customer cancellations; and regulatory changes to net metering, utility rates and incentives. The filing highlights California’s pending net-metering changes and potential restrictions on electricians installing storage systems.
- The company had $393.1 million of supplier purchase commitments for photovoltaic modules, inverters and batteries due by year-end; the commitments could be canceled without significant penalties. It also reported $23.2 million of unused letters of credit and a requirement to maintain $35.0 million of unencumbered cash for certain funds and facilities.
- An IRS audit of an investor involving solar-system fair market value was ongoing; the company said it could not determine whether it would result in an adverse final determination. Sunrun has insurance for certain related exposures, subject to exclusions and limits.
- In a customer class action concerning Vivint Solar agreements, a court certified a class of approximately 1,000 customers in March 2022; Sunrun said it could not estimate a loss range. A separate securities class-action settlement for $1.25 million had preliminary court approval, with final approval hearing scheduled for May 5, 2022.
- The company reported no goodwill impairment in Q1, but said it would monitor the effect of the decline in its stock price on impairment indicators. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- Subsequent to quarter-end, Sunrun announced that CFO Tom vonReichbauer would transition to consultant effective May 30, 2022, and Danny Abajian would become CFO.
Important facts for investors to verify
- Whether operating cash outflows and installation-related working-capital demands remain manageable as the business grows.
- Availability, cost and covenants of debt and tax-equity financing, including the distinction between unrestricted cash, restricted cash and purpose-limited committed capital.
- Whether sales growth can translate into improved margins amid higher customer acquisition, equipment, labor and financing costs.
- Potential effects of California and other jurisdictions’ net-metering, rate-design and licensing decisions on customer economics and demand.
- Resolution and potential financial exposure from the IRS audit, customer litigation and other contingencies.
- Assumptions underlying Gross Earning Assets and the pace at which the installation backlog converts into operating systems and revenue.