Business context and reporting period
Sunrun Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2021. The company designs, installs, owns and maintains residential solar systems, primarily through 20- or 25-year customer agreements. Results include Vivint Solar, acquired October 8, 2020; therefore, year-over-year comparisons are not fully like-for-like.
Financial and operating performance
Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
- Revenue: $334.8, up 59% from $210.7. Customer agreements and incentives contributed $174.6, up 76%; solar system and product sales were $160.2, up 44%.
- Profit and margins: Operating loss was $178.5 versus $63.0; net loss was $204.3 versus $109.5. Net loss attributable to common stockholders was $23.8, or $0.12 per diluted share, compared with $28.0, or $0.23 per share. Calculated gross margin after the two reported cost-of-revenue lines was approximately 12.1%, down from 19.4%. Customer-agreement and incentives cost rose to 92% of that revenue from 79%; management cited Vivint Solar’s winter-season production and added depreciation.
- Cash flow: Operating cash use was $185.6 versus $116.9; investing cash use was $357.1 versus $210.5, mainly for solar systems. Financing provided $647.9 versus $330.4. Cash and restricted cash increased by $105.2 to $813.4; this includes restricted cash.
- Liquidity: Cash was $649.5 and restricted cash was $163.9 at quarter-end. Management said cash, investment-fund commitments and available borrowings should cover anticipated cash needs for at least 12 months. It reported $746.7 of committed and available capital restricted to purchasing and installing solar systems.
- Debt: Total debt, net of discounts and premiums, was $5.274 billion, versus $4.796 billion at December 31, 2020. The quarter-end balance included $400 million principal of 0% convertible notes due 2026; the notes generated approximately $389 million net proceeds. The company also reported $180.2 million drawn on its $250 million corporate bank line, with $32.5 million unused capacity. Pass-through financing obligations of $339.2 million are reported separately from total debt.
- Other metrics: Networked Solar Energy Capacity was 4,052 MW versus 2,085 MW; customers totaled 573,634 versus 290,711. Gross Earning Assets were $8.12 billion versus $4.34 billion. These figures include the Vivint Solar acquisition; Gross Earning Assets use management estimates and a 5% discount rate.
Material changes versus the prior comparable period
- Revenue growth reflects the acquired Vivint Solar fleet, additional systems placed in service, and a full quarter of revenue from systems that were only partly in service in Q1 2020. Product-sales comparisons also reflect lower 2020 wholesale volume during COVID-19.
- Operating expenses rose 88% to $513.3 million. Sales and marketing increased 79% to $126.1 million, while general and administrative expense rose 205% to $85.6 million. The increases included Vivint Solar costs and elevated stock-based compensation.
- Net interest expense rose 49% to $74.3 million, including $20.7 million of interest expense associated with Vivint Solar debt. Other income was $34.3 million, primarily from derivative gains, compared with $0.1 million in the prior-year quarter.
- Stock-based compensation expense was $78.0 million versus $18.9 million. The share count also increased substantially year over year, in part reflecting the acquisition.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no specific quarterly or annual financial guidance. Management expects to continue raising capital to fund growth and states that available cash, commitments and borrowings are expected to meet needs for at least 12 months.
- Financing and rates: Growth depends on tax-equity investors, project financing and debt. The filing highlights risks from financing availability and cost, rising interest rates, substantial debt, and transition away from LIBOR. The company reported compliance with debt covenants at March 31, 2021.
- Acquisition and pandemic: Integration of Vivint Solar remains a risk. COVID-19 may disrupt sales, installations, staffing, customer payments and access to capital; management described expanded digital sales and operational measures but said the ultimate effects remain uncertain.
- Regulatory and operating risks: Changes to net metering, utility rates, tax credits and other incentives could reduce customer savings or financing availability. The company also cited supplier concentration, component costs, weather, cancellations, customer credit and competition.
- Contingencies: An IRS audit of an investor fund concerns the fair market value of solar systems used for Commercial ITCs; the company said potential tax liabilities could not be determined. A California Contractors State License Board proceeding could result in fines or licensing action; its potential financial effect is unknown. A $5.5 million TCPA class-action settlement was accrued and remained subject to court approval, with a final approval hearing scheduled for May 6, 2021.
- Subsequent financing: On April 20, 2021, a subsidiary entered a non-recourse revolving warehouse facility of up to $630 million, expandable to $800 million, with floating-rate interest and a four-year maturity.
- Unusual item: The January 2021 convertible-note issuance was paired with capped-call transactions costing approximately $28 million, intended to reduce dilution or offset certain cash payments, subject to a cap.
Important facts for investors to verify
- How much reported cash and financing capacity is unrestricted and available to the parent, given restricted cash, VIE assets and project-specific funding commitments?
- How much of revenue growth and operating-cost increases is attributable to Vivint Solar, and what are post-acquisition operating and integration trends?
- Whether customer-agreement margins, cash use and system deployment economics improve beyond the seasonally weak quarter.
- Developments in the IRS audit, CSLB proceeding and settlement approval, including any financial or operating consequences.
- Assumptions behind Gross Earning Assets and the company’s ability to secure financing on acceptable terms while managing debt and interest-rate exposure.