Sunrun Inc. — Q3 2021 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021; amounts below are in U.S. dollars. Sunrun designs, installs, owns, and maintains residential solar systems, primarily under 20- or 25-year customer agreements, and also sells systems and products. The October 2020 Vivint Solar acquisition significantly affects comparisons with 2020, which did not include Vivint for the comparable periods.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $438.8 million | $209.8 million | $1,174.7 million | $601.8 million |
| Operating loss | $137.9 million | $62.2 million | $458.2 million | $208.7 million |
| Net loss | $241.3 million | $85.4 million | $659.1 million | $329.5 million |
| Net income (loss) attributable to common stockholders | $24.1 million | $37.4 million | $(40.9) million | $(4.1) million |
| Net cash used in operating activities | Not stated by quarter | $535.8 million | $166.8 million | |
| Net cash used in investing activities | Not stated by quarter | $1,198.0 million | $686.8 million | |
| Net cash provided by financing activities | Not stated by quarter | $1,966.7 million | $871.8 million |
Q3 revenue grew 109%; nine-month revenue grew 95%. The filing attributes much of the increase to Vivint, additional systems placed in service, stronger solar-system and product sales, and higher incentive revenue, including SREC sales. Revenue growth was accompanied by higher costs: gross margin calculated from the two reported cost-of-revenue lines was approximately 20.9% in Q3 versus 27.0% a year earlier, and 17.4% for the nine months versus 21.9%. Operating losses also widened. Higher acquired-system depreciation and sales and marketing costs contributed; acquired solar systems’ fair-value step-up increased depreciation by approximately $32.0 million in Q3 and $95.9 million year to date.
Q3 common-stockholder income was positive despite a consolidated net loss because losses allocated to noncontrolling and redeemable noncontrolling interests exceeded the consolidated loss. For the nine-month period, common stockholders recorded a loss of $40.9 million. Q3 basic and diluted earnings per share were $0.12 and $0.11; nine-month loss per share was $0.20.
Balance sheet, debt, and liquidity
- At September 30, 2021, cash was $717.6 million and restricted cash was $223.5 million. Total current assets were $1,594.7 million and current liabilities $1,283.6 million.
- Total debt, net, was $6,136.8 million, compared with $4,796.1 million at December 31, 2020. This included $5,537.5 million of net non-recourse debt, $599.3 million of net recourse debt, and $390.0 million of convertible notes within recourse debt.
- The $250 million corporate bank line had $209.3 million drawn and matures in April 2022; unused capacity was approximately $0.3 million. The company reported compliance with debt covenants. It also reported $495.3 million of committed and available capital restricted to solar-system purchases and installation.
- Operating cash use rose to $535.8 million, including a $327.6 million working-capital outflow. Investing cash use primarily funded solar systems. Financing inflows included debt and fund-investor contributions; cash and restricted cash increased by $232.9 million over the nine months.
- Significant portions of consolidated assets and liabilities are held in variable interest entities. VIE assets may be used only to settle VIE obligations, and VIE creditors generally have no recourse to Sunrun.
Changes, outlook, and material items
- Scale and operating measures: Networked Solar Energy Capacity was 4,457 MW versus 2,272 MW a year earlier; customers were 630,441 versus 316,056. Gross Earning Assets were reported at $9.16 billion versus $4.54 billion. Vivint’s acquisition contributed materially to year-over-year growth; Gross Earning Assets are management estimates sensitive to assumptions including discount rates, defaults, and customer renewals.
- Financing: Sunrun issued $400 million of 0% convertible senior notes due 2026 in January 2021, with an initial conversion price of approximately $117.91 per share, and spent approximately $28 million on capped calls. Subsequent to quarter-end, an October 8 amendment increased commitments on a non-recourse credit facility from $800 million to $1.8 billion and reduced specified interest-rate spreads.
- Management outlook: Management said cash, investment-fund commitments, and available borrowings were expected to cover anticipated cash needs for at least 12 months, while emphasizing continued reliance on external financing to grow. The filing provides no specific numerical revenue, earnings, or deployment guidance in the supplied text.
- Strategy and management: Sunrun described growth opportunities in batteries, home electrification, EV charging, and grid services, including its Ford partnership. Mary Powell became CEO effective August 31, 2021, with former CEO Lynn Jurich becoming Co-Executive Chair. A Q3 strategic transaction added approximately 2,000 customers and 13 MW of capacity.
- Risks and contingencies: Risks include COVID-19 and supply-chain disruption, equipment availability and trade restrictions, rising interest rates and capital access, dependence on tax incentives and tax-equity investors, and changes to net-metering and utility rate policies. An IRS audit of an investor fund’s system valuations remained ongoing; Sunrun said potential tax liabilities could not be determined. A California contractor-license proceeding could result in sanctions, though enforcement of a disputed electrician licensing decision was stayed after quarter-end. The company also reported a $1.25 million proposed settlement of a Vivint securities class action, with approximately $0.75 million accrued and some amount expected to be covered by insurance.
- Unusual expense and other items: Early repayment of a pass-through financing obligation resulted in a $6.3 million debt-extinguishment expense during Q3. Stock-based compensation was $39.3 million in Q3 and $160.8 million for the nine months, up from $8.2 million and $37.5 million, respectively, in the comparable 2020 periods.
Important facts for investors to verify
- How much reported growth and operating performance reflects Vivint acquisition effects versus organic growth, and whether acquired-system depreciation and customer-acquisition costs trend down.
- Whether operating cash use and working-capital investment remain supportable given substantial system deployment spending and continued reliance on debt and fund-investor capital.
- Debt maturity, covenant, interest-rate, refinancing, and convertible-note dilution or cash-settlement exposure, including the terms and availability of the amended credit facility.
- The outcome and potential financial exposure from the IRS valuation audit, California licensing matter, and other legal proceedings.
- The assumptions behind Gross Earning Assets and other operating metrics, plus exposure to changes in tax incentives, net metering, utility rates, and solar equipment supply and costs.