SolarCity Corp (NASDAQ:SCTY) disclosed financial and operating results for the fourth fiscal quarter and full fiscal year ended December 31, 2015.
In 2015, SolarCity delivered record results in both residential and commercial MW Installed, Cost per Watt, and value creation. Moreover, we exited the year with a portfolio of 1.7 GW Deployed under Energy Contracts, generating an annualized run rate of ~2.4 TWh of energy, and operations deploying Energy Contracts at an annualized run rate over 1 GW with a Pre-Tax Unlevered NPV at a 6% discount rate of $3.64 per watt ($3.32 per watt contracted) at a cost of $2.71 per watt. We entered 2016 as the clear volume and relative cost leader of the U.S. distributed solar industry.
Solar Deployments Reach New Highs, as Costs Decline to Record Lows
- MW Installed: Record 272 MW, up 54% year-over-year
- MW Deployed: 253 MW, up 44% year-over-year
- Value of MW Deployed under Energy Contracts: $3.64 per watt at a 6% discount rate ($3.32 per watt contracted and $0.32 per watt estimated renewal)
- Cost per Watt: $2.71 per watt, down 5% year-over-year
With new highs in both residential and commercial installations, we installed a record 272 MW in the fourth quarter of 2015, up 54% year-over-year. For the full year 2015, we installed 870 MW, growing 73% from 503 MW in 2014. Based on GTM Research/SEIA’s most recent estimate for 2015 U.S. solar installations, SolarCity accounted for 35% of U.S. residential solar, 28% of U.S. distributed solar, and 12% of total U.S. solar capacity installed in 2015.
The 272 MW we installed in Q4 2015 compared to guidance of 280-300 MW, which had incorporated 15 MW of projects that were not completed by year-end, largely attributable to three large ground-mount projects in the East Coast that encountered greater challenges with terrain conditions than we had anticipated from our initial survey. All of these projects are under construction and are expected to be installed in Q1 2016. Even with this delay, commercial installations grew 82% year-over-year to 51 MW in the fourth quarter (and 139 MW for the full year). Our residential installations were also impacted by the closure of our Nevada operations in December. Residential installations grew 49% year-over-year to 221 MW (731 MW for the full year). Our top crews—Merlin and Horseshoe Crabs—installed over 400 kW and 350 kW, respectively, in the final month of the year.
As we discussed in detail in our 2015 Analyst Day presentation, the Value of MW Deployed is derived from (1) the upfront proceeds from Tax Equity Investment as well as Upfront Cash Rebates and Prepayments, plus (2) the NPV of Unlevered Project Cash Flow from customers and solar renewable energy credits (SRECs) after tax equity distributions, and (3) excluding the payment of income and other taxes. The Value of MW Deployed in Q4 2015 was $3.64 per watt at a 6% discount rate ($3.32 per watt contracted and $0.32 per watt from estimated renewal). Of this, $1.56 per watt was generated upfront with $2.08 per watt in forecasted NPV of Unlevered Project Cash Flow remaining. Value of MW Deployed discount rate sensitivities are provided at the end of this letter.
Cost per Watt declined to a new record low of $2.71 per watt in the fourth quarter of 2015. Benefiting from greater residential efficiencies and a larger portion of vertically-integrated commercial installations, our blended installation cost declined 9% as compared to Q4 2014 and 1% as compared to Q3 2015 to $1.90 per watt. Sales costs declined 2% as compared to Q4 2014 and 13% as compared to Q3 2015 to $0.56 per watt, as we invested less in sales and marketing. G&A costs were $0.25 per watt, declining 7% quarter-over-quarter on cost controls and scale benefits. We remain on target for our cost goal of $2.25 per watt in 2017. The reconciliation of our cost per watt to our GAAP financial statements is available on our investor relations website (at investors.solarcity.com).
Asset Financing of $2.40 per Watt Captured 66% of the Value of MW Deployed Upfront
- Asset Financing in Q4 2015: $2.40 per watt
- Tax Equity Investment in Q4 2015: $1.55 per watt (or $1.38 per watt blended with MyPower)
- Asset Financing in 2015: $2.73 per watt (after adjustment for net non-recourse debt proceeds received in Jan. 2016 for MW Deployed in 2015)
Out of the total $3.64 per watt Value of MW Deployed under Energy Contract in the fourth quarter, we monetized $2.40 per watt upfront. Tax Equity Investment totaled $1.38 per watt on a blended basis including all MW Deployed under Energy Contracts (or $1.55 per watt solely on the lease and PPA MW that utilize tax equity). Upfront Cash Rebates and Prepayments contributed an additional $0.07 per watt. Non-recourse Debt Proceeds provided $0.95 per watt, representing only aggregation facility debt drawn down as we issued no asset-backed securitization (ABS) debt in the fourth quarter. Total Asset Financing of $2.40 per watt, or $586 million, in the fourth quarter compared to $3.20 per watt, or $633 million, in the third quarter of 2015, which included the incremental proceeds of our $124 million LMC4 securitization. For the full year, Asset Financing was $2.58 per watt in 2015.
In January 2016, we issued our fifth ABS debt issuance for $185 million, the first secured by the unlevered cash flows of a 64 MW portfolio of MyPower loans and closed on a $160 million five-year non-recourse debt facility secured by the unlevered cash flows of a 195 MW lease/PPA portfolio. Including the proceeds of these financings in early 2016, Asset Financing in 2015 would have been $2.73 per watt, higher than our Q4 2015 cost of $2.71 per watt. The reconciliation of our asset financing in period to our GAAP financial statements is available on our investor relations website (at investors.solarcity.com).
Continued Investment in Technology Focused on Improving Our Competitive Edge
- Capital Expenditures in Q4 2015: $29 million
- R&D Expense in Q4 2015: $23 million including $3.4 million in stock compensation
Beyond the upfront investment in new installations, the other primary cash expenditures we incur—which are not captured in our Cost Per Watt—are (1) Research and Development Operating Expenses (R&D) and (2) corporate-level Capital Expenditures. Both largely represent investment in our technology platform to improve our differentiated product offering and best-in-class cost structure.
R&D expenses of $23 million (including $3.4 million of non-cash stock compensation) were focused on the development of (a) high-efficiency cell/module production, (b) mounting hardware design and development (c) software, (d) storage, and (e) grid services. Corporate Capital Expenditures were $29 million with investment in our module manufacturing operations accounting for the bulk of it—$17 million—as we began production from our 100-MW R&D line at our Fab2 in Fremont, CA and continued purchasing for our 1-GW Fab3 manufacturing facility in Buffalo, NY.
Following the grand opening of our Fab2 in November 2015, our first operational 100-MW cell-module manufacturing line is up and running, producing modules with average efficiencies exceeding 20% today and expected to surpass 21% by the end of the year. In addition, we continue to innovate in our Zep mounting hardware with our latest technological development reducing part count from 8 to 3 and enabling the installation of 16 modules (~4 kW) in 20 minutes, all while reducing risk of roof damage. We expect even greater innovation in the years ahead.
$394 Million in Cash and Investments and $879 Million in Committed Project Financing
- Cash and Investments: $394 million
- Change in Working Capital: ($38 million)
Following the installation of 272 MW in the quarter and $49 million in technology investment (excluding stock compensation), we closed out 2015 with a strong position of cash and available financing. As of December 31, 2015, unrestricted Cash and Investments totaled $394 million, as compared to $418 million on September 30, 2015. The quarterly decline in cash of $137 million (net of $113 million in net proceeds from convertible debt issued to Silver Lake, our Chairman and our Chief Executive Officer in December 2015) was driven largely by (1) $687 million of development investment in Energy Contracts deployed in the quarter (Installation, Sales, and G&A costs)—offset by (2) Asset Financing in Period of $586 million— as well as (3) $49 million in cash R&D (excluding stock compensation) and corporate capital expenditures, (4) $81 million in cash expenditures on systems under construction, (5) $87 million in recourse debt proceeds, (6) $13 million in corporate cash interest, and $18 million in other (including PowerCo cash flows, cash taxes, and other changes in working capital and timing differences.
As of December 31, 2015, total recourse debt was $1.5 billion, including convertible debt of $909 million (and total debt was $2.8 billion including non-recourse debt of $1.2 billion). In addition, we ended the year with $658 million in undeployed tax equity capacity, $194 million in unused aggregation facility capacity and $27 million in MyPower facility debt capacity.
GAAP Q4 2015 Operating Results
GAAP revenue was $115 million in the fourth quarter of 2015, up 61% year-over-year, with Operating Lease and Solar Energy Incentive Revenue of $75 million (up 53% year-over-year) and Solar Energy Systems Sale Revenue of $40 million (up 77% year-over-year). Operating Lease Gross Margins were 34% (or 40% excluding non-cash amortization of intangibles). Solar Energy System Sale Gross Margins were 7%. Operating expenses were $227 million, up 68% year-over-year. Non-GAAP EPS was ($2.37) per share.
- Cumulative MW Deployed under Energy Contract: 1,742 MW, up 76% year-over-year
- Energy Production: 1.6 terawatt-hours (TWh) in 2015
- Unlevered Pre-Tax NPV (Less Non-Recourse Debt): $2.0 billion at a 6% discount rate
Following significant investment and development in Q4 2015, our PowerCo portfolio stood at 1.7 GW (net of 0.2 GW of system sales) as of the end of the year with ~56% PPAs, ~38% leases, and ~6% MyPower loans. For the full year 2015, PowerCo’s deployed portfolio produced 1.6 Terawatt-Hour (TWh) of energy, up 76% as compared to 2014. Energy Production continues to come in largely within forecast.
Delinquencies of 180+ days remain comfortably below 1%. Average FICO score for PowerCo’s residential customers as of the end of 2015 was 747.
As of the end of 2015, the Pre-Tax Unlevered NPV of the Unlevered Project Cash Flow underlying our PowerCo portfolio is forecast at $3.2 billion at a 6% discount rate. Though we have historically highlighted Gross Retained Value to measure our estimated value of our unlevered cash flow stream, Retained Value represents the forecasted value of our total Energy Contract bookings, and thus includes backlog not yet deployed. Due to the difficulty in accurately forecasting costs and financing of the backlog, we will focus solely on the Project Cash Flows and NPVs of MW Deployed going forward.
Supportive U.S. Distributed Solar Policies Largely Maintained—though Nevada Falls Off Track
The outlook for distributed solar growth in the years to come not only remains bright but has dramatically improved following a series of supportive regulatory and policy developments last quarter that evolved out of the hard work and dedication of our policy team and that of key forward-looking legislators, regulators, and utility executives seeking to ensure the true benefits of cleaner, lower cost distributed solar energy are recognized.
Thanks to the support of key Democrat and Republican lawmakers, a five-year extension of the federal investment tax credit (ITC) was passed in December, ensuring that solar will not be excluded from the supportive policies/tax incentives that aid fossil fuel energy sources. In addition, California approved a new net metering regime that was largely supportive of continued distributed solar growth, keeping net metering intact and requiring future customers to go on time-of-use (TOU) rates. We look forward to participating in upcoming California regulatory dockets to precisely determine the best TOU periods to advance solar deployment while assisting with grid needs. Finally, in a disappointing decision, the Nevada Public Utilities Commission eliminated favorable tariffs relied upon to deploy solar. Despite this interim setback, we remain convinced that the decision will be reversed.
Outlook and Q1 2016 Guidance
We closed out a strong 2015 with installations growing 73% to a record 870 MW and costs falling to new lows, though we fell short of our installation goals more than once. We are not happy with these results, and recognize our need to revamp our guidance methodology to avoid any potential shortfalls going forward. Notably, residential has consistently performed above our expectations over the last year, and we missed guidance largely on commercial installations. While we had expected the introduction in mid-2015 of a new guidance methodology that incorporated only commercial projects that were already under construction to minimize risk, clearly this wasn’t sufficient. With larger projects (particularly ground-mount) this methodology still leaves sufficient time for delays to push construction past deadlines. Going forward, we plan on removing from guidance any large projects with construction deadlines late in the quarter.
Looking ahead to 2016, we continue to target 1.25 GW Installed. Though the ITC extension certainly provides us with more tailwinds to growth, the primary focus of our company in 2016 is our goal of generating positive cash by year-end. As we highlighted in last quarter’s shareholder letter, the primary focus of the company is on cash generation, with growth our secondary focus. Though we are projecting a lower rate of growth in 2016 than in years past, our guidance still implies over 40% annual growth in 2016, a rate of growth that would be the envy of most industries and companies in this country.
Our long-term vision is to lead the way in driving distributed solar to a plurality of U.S. (and ultimately global) electricity generation. Such an ambitious goal will likely take decades, and we simply will not be able to accomplish it unless we begin generating positive cash. Our goal entails achieving a state where we can self-sustainably install new MW without cash balance declining (including project finance such as tax equity and non-recourse debt). The first step is to take out an additional $0.40/W+ out of our cost structure, a plan we laid out in our December 2015 Analyst Day. The second step involves increasing the velocity, magnitude and degree of monetization of our assets. Our recent securitization of MyPower loans along with the syndicated 5-year non-recourse debt facility are good first steps, but we believe the key will be the cash equity monetization of up to 100% of the contracted value of a portion of our new assets with no (or much lower) debt. We expect to have an update on this strategic initiative soon. Stay tuned.
For Q1 2016 we expect to install 180 MW, representing growth of 18% year-over-year, and a 34% decline as compared to Q4 2015. This represents a higher-than-usual seasonal slowdown that we have historically experienced after strong fourth quarters largely owing to two reasons. First is the impact of our decision to end Nevada operations in December 2015; NV contributed 23 MW in Q4 2015. It also reflects our renewed focus on our cash conversion cycle, particularly in longer lead-time commercial projects. While the ultimate result will be shorter time from the start of construction to operation and thus higher cash generation, the initial impact is lower installations in the first period implemented. We expect installations—and cash generation—to ramp throughout 2016.
For Q1 2016, we also expect GAAP Operating Expenses of $230 million – $240 million (including between $30 million and $32 million in non-cash amortization of intangibles and stock compensation expense) and Non-GAAP Loss Per Share (before Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests)* between ($2.55) – ($2.65).
Solid Set-Up for a Strong 2016
In conclusion, we closed out 2015 with the strongest quarter of installations and value creation in our history. Moreover, we entered into 2016 in our best position yet to continue creating meaningful value for equity shareholders. Our PowerCo represents the value of the 1.7 GW portfolio we have already deployed that is generating an annualized unlevered cash flow stream valued at a 6% discount rate at $3.2 billion before non-recourse debt of $1.2 billion. Our DevCo is our growth engine that is currently installing at a run rate >1 GW per year, is expected to grow at a pace over 40% in 2016, and is producing an unlevered cash flow stream valued at a 6% discount rate at ~$3.64 per watt ($3.32 per watt contracted) at a cost of $2.71 per watt.
Though last year certainly did not lack its share of challenges, we entered into 2016 with a bright outlook bolstered by strong demand, best-in-class operations, an extension of the federal tax credit, and continued access to capital to fund our growth. As we announced last November, our Chief Financial Officer Brad Buss will be retiring this month and we would like to not only thank him for the impact he has had on strengthening our finance and accounting departments but also offer him our best wishes in finally being able to settle down with his family. In addition, we express our sincere gratitude for the tireless work, sacrifice, and dedication of all our employees and their families, our customers, our partners—and of course regulators and policy makers—who are enabling our vision of a cleaner, distributed energy future come to fruition. (Original Source)
Shares of SolarCity are falling nearly 24% in after-hours trading. SCTY has a 1-year high of $63.79 and a 1-year low of $24.07. The stock’s 50-day moving average is $40.95 and its 200-day moving average is $42.23.
On the ratings front, SolarCity has been the subject of a number of recent research reports. In a report released yesterday, Deutsche Bank analyst Vishal Shah reiterated a Buy rating on SCTY, with a price target of $64, which represents a potential upside of 136.6% from where the stock is currently trading. Separately, on January 28, Morgan Stanley’s Stephen Byrd maintained a Buy rating on the stock and has a price target of $104.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Vishal Shah and Stephen Byrd have a total average return of -21.1% and -4.3% respectively. Shah has a success rate of 23.7% and is ranked #3530 out of 3556 analysts, while Byrd has a success rate of 46.2% and is ranked #2528.
The street is mostly Bullish on SCTY stock. Out of 9 analysts who cover the stock, 7 suggest a Buy rating , one suggests a Sell and one recommends to Hold the stock.
SolarCity Corp is engaged in designing, sale, engineering, installation, monitoring, maintenance and financing of solar energy systems to residential and commercial customers.