Sunrun Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; the provided text does not give standalone fourth-quarter results. Sunrun provides residential solar and storage systems, primarily through 20- or 25-year leases and power purchase agreements. Results include Vivint Solar from its acquisition date, October 8, 2020, so year-over-year comparisons are not fully comparable.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $922.2 million | $858.6 million |
| Operating loss | $465.1 million | $215.7 million |
| Net loss | $626.9 million | $391.0 million |
| Net income (loss) attributable to common stockholders | $(173.4) million | $26.3 million |
| Net cash used in operating activities | $318.0 million | $204.5 million |
| Cash and restricted cash at year-end | $708.2 million | $363.2 million |
| Total debt, net of discount and including premium | $4.80 billion | $2.25 billion |
Revenue increased 7%. Customer-agreement and incentive revenue rose 25% to $484.2 million, while solar-system and product sales declined 7% to $438.0 million. Gross profit, calculated as revenue less the two reported cost-of-revenue lines, was approximately $178.7 million, or 19.4% of revenue, compared with $212.7 million, or 24.8%, in 2019. The filing attributes weaker customer-agreement gross margin in part to Vivint Solar’s seasonality and acquisition-related fair-value step-up depreciation.
FY2020 financing cash flow was $1.16 billion; investing cash outflow was $497.8 million. Year-end cash was $520.0 million, including $433.2 million acquired with Vivint Solar, and restricted cash was $188.2 million. Sunrun reported $332.5 million of committed, available investment-fund capital designated for system purchases and installations. Management said cash, fund commitments, and available borrowings should cover anticipated needs for at least 12 months, while noting continued dependence on external financing.
Reported debt includes $230.7 million of recourse debt and $4.51 billion of non-recourse debt before debt premium and discount. The company also reported $4.80 billion total debt on a net carrying-value basis. At year-end, it had $230.7 million drawn on its $250 million corporate bank line and $60 million drawn on a $200 million Vivint Solar asset-financing facility. Debt covenants were reported as satisfied.
Operating scale expanded substantially: networked solar capacity was 3,885 MW versus 1,987 MW, and cumulative customers were 550,078 versus 277,228. Gross Earning Assets were $7.77 billion versus $4.15 billion; the Vivint acquisition contributed $2.9 billion. Sunrun changed the discount rate used in this operating metric from 6% to 5%, affecting comparability.
Material changes and significant transactions
- Sunrun acquired Vivint Solar for estimated consideration of $5.04 billion, principally Sunrun shares. Vivint added approximately 210,000 customers and 1,441 MW of capacity. The acquisition contributed $81.3 million of revenue and $167.7 million of net loss from October 8 through year-end.
- Goodwill increased to $4.28 billion, primarily from the Vivint transaction. Purchase accounting valuations remained provisional, with further adjustments possible during the measurement period.
- General and administrative expense more than doubled to $266.7 million, including acquisition-related costs, a $6.7 million legal-settlement accrual, and elevated stock-based compensation. Total stock-based compensation rose to $170.6 million from $26.3 million.
- Interest expense, net, increased 32% to $230.6 million, reflecting acquired Vivint debt and additional financing. Operating loss widened, and common-stockholder results shifted from income to loss.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific numeric operating or financial guidance. Management described accelerating digital sales, online permitting, and drone-based roof surveys, and said digital channels were generating more leads at similar or more attractive customer-acquisition costs. Expected merger benefits include scale, cost efficiencies, and improved access to financing; realization and timing are uncertain.
- Key risks include COVID-19 impacts on sales, installation, customer credit, and capital markets; successful Vivint integration; access to tax-equity and debt financing; interest rates; supplier concentration and equipment costs; and changes to net-metering rules, utility rates, tax credits, or other incentives.
- Sunrun reported a $5.5 million proposed class-action settlement relating to alleged telephone solicitation violations, subject to court approval. A California Contractors State License Board proceeding could result in fines or affect its contractor license; Sunrun disputes the allegations. The filing says potential effects are unknown for this proceeding and that loss ranges cannot be estimated for certain other litigation.
- An IRS audit of a tax-equity fund is reviewing solar-system fair-market-value determinations. The potential tax liability, if any, was not estimable in the filing. Sunrun may have indemnification obligations to investors, and its insurance has limitations.
- In January 2021, after year-end, Sunrun issued $400 million of 0% convertible senior notes due 2026, receiving approximately $389 million net proceeds, and spent approximately $28 million on capped-call transactions. This subsequent financing was not part of FY2020 year-end debt.
- The auditor issued unqualified opinions on the financial statements and on internal control over financial reporting. Management’s control assessment, and the auditor’s control audit, excluded Vivint Solar’s internal controls, although Vivint’s results were consolidated.
Important facts for investors to verify
- How much of reported growth and operating performance reflects Vivint’s partial-year inclusion, and how the combined business is progressing on integration and expected synergies.
- Cash generation, operating cash use, debt maturities and refinancing needs, and continued availability and cost of tax-equity and project financing.
- Assumptions behind Gross Earning Assets, including the revised 5% discount rate, customer defaults, renewal or purchase behavior, and system operating costs.
- Status and potential financial exposure from the IRS audit, the proposed $5.5 million settlement, and the CSLB proceeding.
- Whether policy changes, utility rate design, or reduced incentives affect customer savings, demand, and the economics of solar deployments.