Sunrun Inc. quarterly report, Q1 FY2023

Sunrun Inc. — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Sunrun designs, installs, owns and maintains residential solar systems, principally under 20- or 25-year customer agreements, and also sells systems and solar products.

Financial and operating performance

Metric	Q1 2023	Q1 2022
Total revenue	$589.8 million	$495.8 million
Operating loss	$227.7 million	$181.5 million
Net loss	$335.8 million	$156.5 million
Net loss attributable to common stockholders	$240.4 million; $1.12 per diluted share	$87.8 million; $0.42 per diluted share
Net cash used in operating activities	$439.3 million	$256.4 million
Net cash used in investing activities	$510.3 million	$502.1 million
Net cash provided by financing activities	$839.8 million	$770.7 million

Customer agreements and incentives revenue was $246.5 million, up 18%; solar energy systems and product sales revenue was $343.4 million, up 20%.
Operating expenses rose 21% to $817.5 million, faster than revenue growth of 19%. Cost of systems and product sales reached 93% of that revenue, versus 87% a year earlier; management cited cost increases outpacing price increases and distribution-volume pricing.
Interest expense, net, increased 55% to $142.7 million, primarily due to additional non-recourse debt. Other expense was $25.0 million, versus $114.0 million of other income in Q1 2022; the change mainly reflected derivative losses and a $47.3 million equity-investment gain recorded in the prior-year quarter.
At March 31, cash was $628.5 million and restricted cash was $214.7 million. Current assets were $2.08 billion and current liabilities $1.15 billion.
Total debt, net, was $8.93 billion, up from $8.40 billion at year-end 2022. This included $552.3 million drawn on the $600 million corporate credit facility, which matures in January 2025, and $7.98 billion of net non-recourse debt. The filing reports compliance with debt covenants.
Operating cash outflow included a $248.6 million working-capital outflow. Investing cash use was mainly for solar systems; financing inflows included $397.8 million of contributions from noncontrolling and redeemable noncontrolling interests and net debt proceeds.

Changes and operating indicators

Networked Solar Energy Capacity increased to 5,907 MW from 4,890 MW, and customers to 829,709 from 689,774.
Gross Earning Assets were approximately $11.55 billion versus $10.16 billion a year earlier. The prior-year measure used a 5% discount rate; on a 6% basis, the filing gives prior-year Gross Earning Assets of approximately $9.05 billion. The metric is an estimate based on assumptions, not a GAAP measure.
Remaining contracted revenue not yet recognized was approximately $20.2 billion; Sunrun expected to recognize about 5% over the next 12 months. This is contracted revenue, not a forecast of cash receipts.
Sunrun used $439.3 million in operating cash, compared with $256.4 million in Q1 2022. Cash and restricted cash decreased by $109.8 million during the quarter.

Outlook, commentary and risks

Management said cash, investment-fund commitments and available borrowings should cover anticipated cash needs for at least 12 months, and expected to raise additional capital. It also stated the business depends on continued outside financing. No specific financial guidance for 2023 is provided in the supplied filing text.
Sunrun reported approximately $673.9 million of committed and available capital restricted to purchasing and installing solar systems, and $286.1 million of supplier purchase commitments for equipment through year-end, generally cancellable without significant penalties.
Higher and volatile interest rates, inflation, financing access and supply-chain constraints may raise costs or limit capital. The bank facility bears a weighted-average rate of 8.64% at quarter-end. Sunrun uses interest-rate swaps to hedge some floating-rate exposure.
California is a key market, representing more than 40% of customers. The state’s new net-billing tariff began accepting applications from new customers in mid-April 2023; lower export credits may alter solar economics, while increasing the importance of paired storage. Potential California fixed charges remained under consideration.
Sunrun performed a quantitative goodwill assessment after a sustained decline in market capitalization; reporting-unit fair value exceeded carrying value at March 31, 2023, so no impairment was recorded. Further market or business deterioration could require reassessment.
The IRS was auditing an investor in a fund over system fair-market-value determinations. The fund was covered by an insurance policy; an adverse final determination could still cause limited out-of-pocket costs and higher insurance premiums. The filing says ordinary-course legal matters were not then expected to have a material adverse effect.
Management identified risks including customer cancellations and installation backlogs, competition, reliance on tax credits and incentives, California policy changes, supplier concentration, workforce availability, and the ability to sustain profitability. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.

Key facts for investors to verify

Whether revenue growth can translate into improved margins as system and product costs, customer-acquisition spending and interest expense remain elevated.
Cash burn, working-capital needs, available financing and the terms and capacity of future tax-equity and debt funding.
Performance under California’s net-billing tariff, demand for solar-plus-storage, and any changes to utility rates or customer incentives.
Assumptions underlying Gross Earning Assets and the $20.2 billion of contracted but unrecognized revenue, including customer retention, defaults, costs and discount rates.
Outcome of the IRS audit, ongoing goodwill impairment sensitivity, and any material developments in litigation or other contingencies.