Sunrun Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Sunrun designs, installs, owns and maintains residential solar systems, primarily under long-term customer leases and power purchase agreements, and also sells systems and solar products.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $137.8 million | $122.5 million | $242.0 million | $221.3 million |
| Operating loss | $(33.0) million | $(48.4) million | $(83.0) million | $(115.2) million |
| Consolidated net loss | $(65.2) million | $(64.7) million | $(138.3) million | $(142.5) million |
| Net income available to common stockholders | $25.1 million | $32.6 million | $37.8 million | $45.8 million |
| Diluted earnings per share | $0.23 | $0.31 | $0.35 | $0.44 |
Common-stockholder income reflects losses allocated to noncontrolling and redeemable noncontrolling interests; it does not mean the consolidated company was profitable. Operating loss was approximately 24% of revenue in Q2 and 34% in the first half of 2017.
- Q2 revenue rose 12%; operating leases and incentives increased 44% to $65.3 million, while solar system and product sales declined 6% to $72.5 million. For the first half, revenue rose 9%, with operating leases and incentives up 42% and system/product sales down 9%.
- Management attributed lease revenue growth to a larger deployed customer-system base. Incentives revenue increased with ITC and SREC recognition. Lower retail-channel demand reduced system sales. Sales and marketing costs fell 25% in Q2 and 26% for the half, primarily due to reduced third-party lead purchases and greater internally generated leads.
- Net interest expense increased 27% in Q2 and 30% in the first half, reflecting additional borrowing. Income tax expense was $15.5 million in Q2 and $22.8 million for the half despite consolidated pretax losses; management cited deferred tax effects and partnership allocations.
Cash flow, balance sheet and financing
- At June 30, cash was $211.3 million; current assets were $356.3 million and current liabilities $500.8 million. Total assets were $3.49 billion.
- Total debt was $1.027 billion: $247.0 million recourse and $780.2 million non-recourse. The $247.0 million working-capital bank line matures in April 2018; cash was insufficient to repay it in full. Sunrun was negotiating refinancing and said it believed refinancing or extension before maturity was probable, but provided no assurance.
- Six-month operating cash use was $33.5 million, investing cash use $361.2 million (including $356.7 million for solar systems), and financing cash inflow $399.6 million. Cash increased $5.0 million during the period.
- Sunrun reported $273.9 million of undrawn investment-fund commitments, restricted to purchasing and installing solar systems. It said cash, fund commitments and available borrowings were expected to cover anticipated needs for at least 12 months, excluding repayment of the working-capital facility expected to be refinanced.
- Debt obligations including future interest totaled $1.183 billion in contractual payments; total contractual obligations were $1.243 billion. The company reported compliance with debt covenants at quarter-end.
Changes, outlook and material risks
- Operating performance improved year over year, with higher revenue and a narrower operating loss, but consolidated net loss remained broadly similar in Q2. First-half operating cash use improved from $98.4 million to $33.5 million.
- Operating scale increased: Q2 megawatts booked were 88 versus 69, megawatts deployed were 76 versus 65, and cumulative deployed capacity reached 1,027 MW versus 721 MW a year earlier. Management-reported Gross Earning Assets were $1.894 billion versus $1.499 billion, using a 6% discount rate and other estimates; the measure is assumption-sensitive and is not a GAAP financial metric.
- No specific quarterly or annual financial guidance is provided in the supplied filing text. Management emphasized dependence on external fund investors and continued access to financing to support growth.
- A major accounting change adopted in 2017 for intra-entity asset transfers reversed a $378.5 million net prepaid tax asset and recognized $378.2 million in gross deferred tax assets at adoption, with a $0.3 million reduction to retained earnings. The filing also notes a $3.3 million retained-earnings increase from adopting stock-compensation guidance.
- Key risks include refinancing the April 2018 recourse facility, continued access to tax-equity and debt financing, changes to tax credits and incentives, net-metering and utility-rate policies, interest-rate exposure, customer cancellations, and dependence on solar partners and suppliers. About half of cumulative systems were in California.
- Contingencies include a continuing government investigation concerning Section 1603 grant valuations and multiple shareholder securities class actions, including claims relating to customer cancellations and IPO disclosures. The company said it could not estimate the investigation’s ultimate outcome or potential loss; it did not consider ITC/grant indemnification probable based on information available.
Important facts for investors to verify
- Progress and terms for refinancing or extending the $247.0 million working-capital facility before its April 2018 maturity.
- Whether operating cash use, system deployment and revenue growth improve without requiring increasingly costly financing.
- Assumptions behind Gross Earning Assets, especially customer defaults, discount rates, renewal/purchase values and operating costs.
- Developments in the Section 1603 investigation, ITC valuation audits, indemnification exposure and shareholder litigation.
- Effects of evolving net-metering, utility-rate and tax-credit policies on customer economics and access to fund investors.