Sunrun Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone quarterly filing; selected fourth-quarter results are included below. Amounts are in U.S. dollars unless stated otherwise.
Business context
Sunrun provides residential solar energy, primarily through 20- or 25-year leases and power purchase agreements, and also sells solar systems and related products. Its model depends on long-term customer contracts, tax-equity investment funds, debt financing and government incentives. At year-end, Sunrun reported 1,987 cumulative megawatts deployed and approximately $3.7 billion of Gross Earning Assets, a company-defined estimate of future contract cash flows and renewal or purchase value.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $858.6 million | $760.0 million |
| Operating loss | $215.7 million | $121.9 million |
| Net loss | $391.0 million | $260.2 million |
| Net income attributable to common stockholders | $26.3 million | $26.7 million |
| Net cash used in operating activities | $204.5 million | $62.5 million |
| Net cash used in investing activities | $843.3 million | $811.3 million |
| Net cash provided by financing activities | $1,106.6 million | $936.4 million |
Revenue grew 13%. Customer-agreement revenue rose 27% to $345.5 million, while incentives revenue fell 68% to $42.3 million, mainly because a financing fund established in 2018 generated less Commercial ITC revenue in 2019. Solar-system sales increased 52% to $283.4 million, primarily reflecting retail-partner demand; product sales rose 11% to $187.3 million.
Combined reported cost of customer agreements and incentives and cost of system and product sales was $645.8 million, implying a gross margin of approximately 24.8%, versus 29.6% in 2018. Operating expenses rose 22% to $1,074.3 million, including sales and marketing expense up 33% to $275.1 million. Higher interest expense, up 32% to $174.2 million, also contributed to the wider consolidated loss.
The consolidated net loss and common-stockholder result differ substantially because losses allocated to noncontrolling and redeemable noncontrolling interests were $417.4 million. Common-stockholder net income was $26.3 million, or $0.23 per basic share, compared with $26.7 million, or $0.24, in 2018.
Fourth quarter: Revenue was $243.9 million versus $240.1 million in Q4 2018. Consolidated net loss was $87.0 million versus $49.5 million; net income attributable to common stockholders was $12.5 million versus a $5.9 million loss.
At December 31, 2019, cash was $269.6 million and restricted cash was $93.7 million. Current assets were $733.8 million and current liabilities were $530.1 million. Total debt, net of discounts, was $2.255 billion: $239.5 million of recourse debt and $2.015 billion of non-recourse debt. Pass-through financing obligations, presented separately, totaled approximately $339.0 million. Sunrun had $581.3 million of undrawn investment-fund commitments restricted to system purchases and installation. Management stated that cash, fund commitments and available borrowings were expected to cover anticipated cash needs for at least 12 months.
Material changes versus prior year
- Revenue increased, led by customer agreements and solar-system sales, but the decline in incentive revenue and rising operating costs contributed to a larger operating and consolidated net loss.
- Operating cash use increased to $204.5 million from $62.5 million, including a significant inventory cash outflow; inventory rose to $260.6 million from $79.5 million.
- Non-recourse debt rose to $2.015 billion from $1.502 billion. Solar energy systems, net increased to $4.493 billion from $3.820 billion.
- Gross Earning Assets increased to $3.684 billion from $3.062 billion, and cumulative deployed capacity rose to 1,987 MW from 1,575 MW.
- Sunrun repurchased 369,000 shares for approximately $5.0 million under a new $50 million, three-year authorization; approximately $45 million remained authorized at year-end.
Outlook, risks and unusual items
- Outlook: The filing provides no specific forward financial guidance. Management cited continued dependence on outside financing to fund growth and anticipated raising additional capital from new and existing investors.
- Tax incentives: The Commercial ITC was 30% for qualifying 2019 projects and generally stepped down to 26% in 2020, 22% for projects commencing construction in 2021, and 10% in 2022. Sunrun sought safe-harbor treatment for approximately 500 MW of projects and held $132.6 million of related equipment inventory at year-end. Qualification, usability and IRS interpretation remain risks.
- Funding and leverage: Continued expansion depends on tax-equity investors, project financing and debt markets. Rising rates could raise funding costs and reduce the value of future contract cash flows. The corporate bank line had $239.5 million outstanding against a $250 million commitment and matures in April 2022; Sunrun reported compliance with debt covenants at year-end.
- Policy and market risks: Changes to net-metering, utility rates, interconnection rules, tax incentives or treatment of third-party-owned systems could weaken customer savings and demand. More than 40% of customers were in California, creating geographic concentration risk.
- Operations and supply chain: The company depends on a limited supplier base, faces installation, cancellation, labor, weather and performance-guarantee risks, and noted uncertainty about the potential effects of the coronavirus outbreak first identified in December 2019.
- Tax and legal contingencies: An IRS audit of an investment fund and an investor audit include review of system fair market values; adverse findings could create investor indemnity obligations. A shareholder derivative settlement received final court approval in November 2019 and required governance measures, without admission of liability. A putative TCPA/privacy class action remained pending; Sunrun disputed the claims and said vendors were contractually obligated to indemnify it.
- Other items: The Omni Energy acquisition included $20.8 million of estimated contingent consideration, valued at $11.8 million at year-end. A Comcast-related warrant expired unvested after its initial vesting conditions were not met. Auditors issued unqualified opinions on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How customer-agreement growth, sales-channel mix and lower incentive revenue affect recurring revenue, margins and cash generation.
- Whether operating cash use and inventory build convert into completed installations and collections, and whether available financing remains sufficient.
- The composition, maturities, rates, covenants and recourse limitations of debt, including separately reported pass-through financing obligations.
- Actual eligibility and utilization of safe-harbored equipment and exposure to IRS fair-market-value challenges or investor indemnities.
- Sensitivity of the $3.684 billion Gross Earning Assets estimate to customer defaults, discount rates, renewal or purchase assumptions and policy changes.
- Developments in net-metering and utility-rate policies, especially in California, and the outcome or financial exposure of pending litigation and contingencies.