Sunrun Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited results; comparative 2017 figures were restated following adoption of revenue and lease accounting standards. Sunrun provides residential solar systems and services, typically under 20-year customer agreements, and finances deployments through investment funds and debt.
Financial and operating performance
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Total revenue | $170.5 million | $130.6 million | $314.9 million | $235.7 million |
| Operating loss | $(35.0) million | $(40.7) million | $(91.7) million | $(89.4) million |
| Consolidated net loss | $(71.7) million | $(73.6) million | $(163.1) million | $(148.8) million |
| Net income available to common stockholders | $7.4 million | $18.3 million | $35.4 million | $28.2 million |
| Diluted earnings per share | $0.06 | $0.17 | $0.31 | $0.26 |
- Q2 revenue increased 31%; customer agreements and incentives rose 58%, while solar system and product sales rose 9%. Incentive revenue benefited mainly from ITCs associated with a financing-obligation fund opened in 2018.
- Q2 revenue less the listed cost-of-revenue lines was $48.5 million, about 28.4% of revenue, versus $24.4 million, about 18.7%, a year earlier. This simple measure is not a company-reported margin.
- Operating expenses increased 20% in Q2, including a 40% increase in sales and marketing. Net interest expense increased 45% to $31.9 million, primarily due to additional borrowings.
- Common-stockholder income differs from consolidated net loss because substantial losses were allocated to noncontrolling and redeemable noncontrolling interests. Q2 common income was lower year over year; first-half common income was higher.
Cash flow, balance sheet and funding
- For the first half, operating cash used was $111.2 million, investing cash used was $349.7 million, and financing cash provided was $489.5 million. Operating cash use more than doubled from $49.2 million in the comparable period, mainly reflecting a $59.8 million working-capital outflow.
- Solar-system investment was $347.0 million in the first half. Cash and restricted cash totaled $270.4 million at June 30, including $215.7 million of unrestricted cash.
- Total debt was $1.498 billion: $247.0 million recourse debt and $1.251 billion non-recourse debt. Separately, pass-through financing obligations totaled about $260.2 million. Net interest expense and cash interest paid increased.
- Current assets were $484.0 million and current liabilities $322.5 million. The company reported $406,000 of unused capacity under its $250 million working-capital facility; the balance was $247 million and matures in April 2020.
- Sunrun reported $484.9 million of undrawn investment-fund commitments, restricted to purchasing and installing solar systems. Management said cash, fund commitments and available borrowings were expected to meet anticipated needs for at least 12 months, except that the working-capital facility was expected to be refinanced.
Changes, outlook and key risks
- First-half revenue rose 34%, but consolidated net loss widened to $163.1 million from $148.8 million. Operating loss was broadly similar year over year; higher interest expense and operating costs weighed on results.
- Deployment was 91 MW in Q2 versus 76 MW a year earlier. Cumulative deployed capacity reached 1,360 MW; customers totaled approximately 202,000 across 22 states and the District of Columbia. Management-reported Gross Earning Assets were $2.58 billion, up from $1.89 billion, and depend on assumptions including a 6% discount rate.
- No specific forward financial guidance is provided in the supplied filing text. Management identifies continued growth as dependent on outside financing, investment funds, tax incentives, and access to debt. It also identifies rising interest rates, changes to net-metering and other policy, tariffs on imported solar equipment, customer cancellations, competition, and seasonal or weather effects as risks.
- Legal matters include a proposed $32.0 million settlement of consolidated state securities litigation, with $30.1 million expected from insurers and $1.9 million accrued. After quarter-end, on August 8, the company agreed in principle to a $2.5 million insurer-funded settlement of federal securities litigation, subject to documentation and court approval. A Treasury/Justice investigation concerning historical grant valuations remains unresolved; the filing says the company cannot estimate its outcome or potential loss. Sunrun purchased insurance in April 2018 covering certain ITC-related claims, subject to exclusions and limits.
- Sunrun adopted revenue recognition and lease standards retrospectively, restating prior periods. The accounting changes affected revenue timing, deferred revenue, interest expense and other balance-sheet items, so comparisons should use the restated figures.
Important facts for investors to verify
- Whether fund commitments and access to new financing remain available on acceptable terms, and whether the working-capital facility can be refinanced before maturity.
- How much future cash is required for solar-system deployment, debt service and working capital, given first-half operating cash use and substantial investment spending.
- The sustainability and composition of revenue growth, particularly incentive revenue from ITCs and the timing effects of the newly adopted accounting standards.
- Potential exposure from the government grant investigation, ITC indemnities, and the status and final cost of the securities-litigation settlements.
- Whether policy, tariff, interest-rate, cancellation and customer-credit developments affect system economics, deployment growth, or the assumptions underlying Gross Earning Assets.