Sunrun Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone Q4 report; selected Q4 results are noted below. Unless stated otherwise, financial amounts are in U.S. dollars.
Business context
Sunrun provides residential solar systems, primarily through 20-year leases and power purchase agreements, and monitors, maintains, and insures the systems. It also sells solar systems and products. At year-end it served approximately 111,000 customers in 15 states and the District of Columbia, with 596.3 MW cumulatively deployed. Its growth depends substantially on outside tax-equity, debt, and other financing.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $304.6 million | $198.6 million |
| Operating loss | $(219.2) million | $(132.6) million |
| Net loss | $(248.9) million | $(157.5) million |
| Net loss attributable to common stockholders | $(28.2) million | $(70.9) million |
| Net loss per share available to common stockholders | $(0.96) | $(3.11) |
| Cash provided by/(used in) operating activities | $(105.3) million | $(7.9) million |
Revenue increased 53%. Operating leases and incentives revenue rose 40% to $118.0 million; solar-system and product sales rose 63% to $186.6 million. The latter category includes product and lead sales, and its growth reflected business expansion and the CEE acquisition. Total cost of revenue was $280.5 million, implying gross profit of approximately $29.1 million and gross margin of 9.5%, versus approximately $29.9 million and 15.1% in 2014. Operating expenses rose 58% to $523.8 million, including sales and marketing of $145.5 million, up 85%.
The consolidated net loss includes substantial losses allocated to fund investors through noncontrolling interests; the smaller loss attributable to common shareholders is not the same as consolidated net loss. A $24.9 million noncash deemed dividend to preferred holders increased the FY2015 loss available to common shareholders.
Q4 2015 revenue was $99.6 million, compared with $60.1 million in Q4 2014. Q4 operating loss was $65.2 million versus $42.4 million; net loss was $74.3 million versus $55.0 million. Quarterly results are unaudited and subject to seasonality.
At year-end, cash was $203.9 million, total assets $2.74 billion, and current assets/current liabilities were $360.5 million/$253.2 million. Cash used in investing was $627.5 million, mainly for solar-system deployment; financing activities provided $784.5 million. Reported debt was $538.3 million, including a $195.0 million line of credit and $343.3 million of non-recourse debt. Separately, lease pass-through financing obligations were $156.9 million and capital lease obligations were $24.0 million. Undrawn investment-fund commitments were $392.0 million, restricted to system purchases and installations. Management said cash, fund commitments, and available borrowings were expected to cover anticipated cash needs for at least 12 months.
Estimated nominal contracted payments remaining were $2.40 billion and estimated retained value was $1.52 billion at year-end; these are company-defined estimates, not recognized revenue or cash balances. Accumulated deficit was $87.2 million.
Changes, outlook, and risks
- Expansion and acquisition activity materially changed the revenue mix. The MEC acquisition enabled direct sales, installation, and product distribution; CEE added lead-generation operations in 2015.
- Deployment grew: MW booked were 273.8 in 2015 versus 162.9 in 2014; MW deployed were 202.9 versus 129.6. Estimated retained value per watt declined to $2.33 from $2.40.
- Congress extended the 30% federal investment tax credits in December 2015: they phase down to 26% in 2020 and 22% in 2021; the commercial credit remains 10% thereafter, while the individual credit expires after 2021.
- Sunrun slowed Nevada operations in late 2015 and ceased them in early 2016 after state rules eliminated net metering. The filing also describes reduced net-metering compensation and interconnection limits as material market risks.
- In January 2016, subsidiaries entered into up to $250 million of secured, non-recourse credit facilities; in March 2016, a subsidiary entered into a $24.5 million non-recourse loan. These subsequent financings are not year-end debt balances.
- Management provided no specific revenue or earnings guidance. The company expected continued investment and losses and emphasized dependence on tax-equity investors, financing availability, incentives, and cost control.
- The Treasury/Justice investigation into Section 1603 grant valuations remained open; Sunrun had cooperated, no claim had been brought, and the company could not estimate the outcome or potential loss. Three investment funds were under IRS audit. Potential repayment or indemnification exposure tied to grant or tax-credit valuations was not clearly quantifiable.
- Other material risks include concentrated exposure to California, utility-rate and policy changes, competition, installation and supplier constraints, interest-rate and homeowner-credit risks, warranty/performance obligations, and the possibility of additional debt. Arizona leased-panel property-tax litigation was ongoing.
- The financial statements received an unqualified audit opinion. Management said disclosure controls were effective; the filing also recounts prior material weaknesses in financial close and tax accounting and ongoing remediation. No management assessment or auditor attestation of internal control over financial reporting was included under the newly public company transition period.
Important facts for investors to verify
- Availability and terms of future tax-equity funding, committed capital, and borrowing facilities, including covenant compliance and restricted or non-recourse cash flows.
- Progress and potential financial consequences of the Treasury/Justice investigation and IRS fund audits, including any valuation-related indemnities.
- Effects of Nevada’s exit and net-metering, rate-design, incentive, or interconnection changes in other major markets.
- Whether growth in deployments and contracted value converts into sustainable margins and cash generation, given operating losses and significant investment needs.
- Debt and financing obligations, redemption or true-up provisions in investment funds, and the assumptions underlying estimated retained value and residual system values.
- Remediation of previously identified control weaknesses, and the timing and results of required internal-control reporting.