Sunrun Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Sunrun provides residential solar energy systems and related services, primarily through long-term customer agreements. Results include Vivint Solar, acquired October 8, 2020; prior-year comparisons do not include Vivint for the comparable periods.
Financial and operating performance
- Revenue: Q2 revenue was $401.2 million, up 121% from $181.3 million. First-half revenue was $736.0 million, up 88% from $392.0 million. Growth reflected the Vivint acquisition, new systems placed in service, higher incentive revenue and recovery in product sales from COVID-affected 2020 levels.
- Profitability: Q2 operating loss was $141.8 million versus $83.5 million; net loss was $213.4 million versus $134.5 million. Net loss attributable to common stockholders was $41.2 million, or $0.20 per share, versus $13.6 million, or $0.11 per share. First-half operating loss was $320.3 million and net loss attributable to common stockholders was $65.0 million, or $0.32 per share, compared with $146.5 million and $41.5 million, or $0.35 per share, respectively.
- Margins: Calculated gross margin was approximately 18.0% in Q2 versus 18.8% a year earlier; first-half gross margin was approximately 15.3% versus 19.1%. Management attributed the first-half customer-agreement cost increase partly to seasonal lower production at Vivint and acquisition-related depreciation step-ups. Operating losses also reflect substantial sales and marketing and general and administrative costs.
- Cash flow: First-half operating cash outflow was $355.8 million, compared with $152.3 million in 2020; investing outflow was $757.1 million versus $364.4 million, primarily for solar systems. Financing provided $1.262 billion versus $507.7 million. Cash and restricted cash increased $149.4 million to $857.6 million.
- Liquidity: June 30 cash was $679.6 million, with a further $178.0 million restricted. Working capital was approximately $277.5 million. Sunrun reported $650.6 million of committed and available capital restricted to purchasing and installing solar systems.
- Debt: Total debt, net, was $5.610 billion, up from $4.796 billion at year-end 2020. This included $217.3 million drawn on the $250 million corporate bank line and $389.5 million carrying value of $400 million in 0% convertible notes due 2026; most remaining debt was non-recourse project financing. The company reported compliance with debt covenants.
- Scale: Networked Solar Energy Capacity was 4,238 MW versus 2,163 MW, and customers numbered 599,743 versus 301,310. Gross Earning Assets were $8.613 billion versus $4.387 billion; management noted the measure uses forecast assumptions and a 5% discount rate.
Changes, outlook and risks
- Revenue more than doubled in Q2, but operating costs rose 105%; customer-agreement costs remained about 81% of that revenue category in Q2. First-half customer-agreement costs rose to 86% of related revenue from 79%.
- Interest expense increased 48% in both Q2 and the first half, largely due to Vivint debt and additional borrowing. Other expense in Q2 included derivative losses; first-half other income primarily reflected derivative gains.
- Management said cash, investment fund commitments and available borrowings should meet anticipated cash needs for at least the next 12 months, while emphasizing continued dependence on outside financing. No specific financial guidance is provided in the supplied filing text.
- Key exposures include COVID-19 and supply-chain disruption, component availability and costs, interest rates and access to capital, changes to tax incentives and net-metering/rate policies, customer cancellations, seasonality, and integration of Vivint. California workforce rules for battery installations may also constrain growth and increase costs.
- An IRS audit of an investment fund’s claimed solar-system fair market value remained ongoing; Sunrun said it could not determine potential tax liabilities. A California contractor-license proceeding could result in sanctions, including suspension or revocation; the company denies wrongdoing. The filing also describes other legal matters, including settlements.
- Subsequent event: Sunrun announced on August 5 that Mary Powell would become CEO effective August 31, with Lynn Jurich transitioning to Co-Executive Chair.
Investor verification priorities
- Assess how much reported growth reflects Vivint and whether integration delivers expected operating efficiencies and improved margins.
- Track operating cash burn, working-capital needs, debt growth, financing availability and the conditions attached to the $650.6 million of committed capital.
- Review the assumptions behind Gross Earning Assets, including discount, default, renewal and customer-purchase assumptions.
- Monitor the IRS audit, potential indemnification exposure, California contractor-license proceeding and other unresolved legal matters.
- Evaluate the impact of changing net-metering rules, tax-credit step-downs, interest rates, supply constraints and California storage-installation licensing requirements.