SolarCity Announces Third Quarter 2013 Financial Results

Operating Lease Revenue Up 78% Year-Over-Year, Residential Megawatts (MWs) Deployed Grew 151% Year-Over-Year, Estimated Nominal Contracted Payments Up to $1.7 Billion

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| Source: SolarCity Corporation

SAN MATEO, Calif., Nov. 6, 2013 (GLOBE NEWSWIRE) -- SolarCity (Nasdaq:SCTY), a leading provider of clean energy, today announced financial results for the third quarter ended September 30, 2013.

"With new energy contracts, MW booked, MW deployed, and operating lease revenue all reaching new highs in Q3 2013, SolarCity continues to demonstrate that demand, execution, and financing remain strong tailwinds supporting growth toward our one million customer goal by mid-2018," said Lyndon Rive, CEO. "Moreover, with estimated nominal contracted payments remaining rising to $1.7 billion and cumulative retained value per Watt up to $1.37/W, we are not only creating more value every day but also retaining more value for shareholders with each new customer signed."

Q3 2013 Operating Highlights

In the third quarter of 2013, SolarCity continued to make progress in building out its platform for delivering cleaner and cheaper distributed energy. Key operating and development highlights in the quarter include:

  • MWs Deployed reached a new quarterly record of 78 MW as residential MWs deployed grew 151% year-over-year to 60 MW. Cumulative total MWs deployed stood at 464 MW as of September 30, 2013.
  • MWs Booked totaled 91 MW.
  • Cumulative Energy Contracts increased 155% since the end of the third quarter of 2012 (and 21% since the end of the second quarter of 2013) to 72,506.
  • Cumulative Customers grew to 82,235, up 133% since the end of the third quarter of 2012 (and 18% since the end of the second quarter of 2013).

Estimated Nominal Contracted Payments and Retained Value

Due to the long-term nature of its operating lease contracts—of up to 20 years—and the related GAAP accounting for such contracts, the Company views the following operating metrics as a better representation of its new sales activity and business outlook:

  • Estimated Nominal Contracted Payments Remaining of $1,737 million at September 30, 2013, up 23% from $1,409 million at June 30, 2013.
  • Retained Value forecast of $846 millionat September 30, 2013, equating to retained value per watt forecast of $1.37/W at September 30, 2013.

Investing and Financing Activities

With each new Energy Contract, SolarCity creates a recurring, predictable cash flow stream. Its financial strategy is to maximize retained value for shareholders by covering Investing Activities with cash generated from Operating and Financing Activities.

Its Investing Activities are primarily comprised of the capital investment in distributed generation solar energy systems under long-term Energy Contracts with customers, while its Financing Activities represent the funding of its solar energy systems investments through its investor partners and lenders. Key highlights of SolarCity's Investing and Financing Activities include:

  • Investments in Solar Energy Systems, Leased and to Be Leased, of $211.4 million bringing the cumulative total through the first nine months of 2013 to $507.7 million
  • Undeployed Tax Equity Financing Capacity of 149 MW as of November 1, 2013

Q3 2013 GAAP Cash Flows

For the third quarter ended September 30, 2013, net cash provided by Operating Activities was $100.0 million, while net cash used in Investing Activities was $217.1 million and net cash provided by Financing Activities (before the exercise of stock options and common stock warrants) was $86.4 million.

Defined as Operating Cash Flows plus Financing Cash Flows net of Investing Cash Flows (excluding equity issuance), net cash flow was negative $30.7 million in the quarter ended September 30, 2013. Cash and cash equivalents totaled $133.0 million as of September 30, 2013.

Condensed Statement of Cash Flows
$ in thousands Three Months Ended:
Net Cash Provided (Used) In: September 30, 2012 June 30, 2013 September 30, 2013
       
Operating activities $34,074 $74,039 $100,006
Investing activities ($117,249) ($159,571) ($217,133)
Financing activities (before stock options/warrants exercise) $70,352 $104,978 $86,438
       
Net cash provided (used) before stock options/warrants exercise ($12,823) $19,446 ($30,689)
 Net cash provided by exercise of stock options/warrants $362 $12,866 $4,069
       
Net increase (decrease) in cash and cash equivalents ($12,461) $32,312 ($26,620)

Q3 2013 GAAP Operating Income Statement

For the third quarter of 2013, Operating Lease revenue was $24.8 million, rising 78% from $13.9 million in the third quarter of 2012. Total revenue increased 52% year-over-year to $48.6 million.

Gross Profit was $17.5 million, growing 11% year-over-year from $15.8 million in the third quarter of 2012 and yielding Gross Profit Margin of 36%. Operating Lease gross margin was 66%.

Total Operating Expenses were $46.2 million, rising from $30.7 million in the third quarter of 2012, largely owing to higher employee compensation expenses and professional services fees. Loss from Operations was $28.7 million as compared to $14.9 million in the year-ago period.

GAAP net income attributable to stockholders per diluted share was $0.04, owing largely to an increase in net losses attributable to noncontrolling interests .

Non-GAAP Earnings per Share [EPS] Before Noncontrolling Interests

While GAAP EPS is based upon net income (loss) attributable to common stockholders, the Company also reports non-GAAP EPS based upon net income (loss). The only difference between GAAP EPS and non-GAAP EPS is the sole line item net income (loss) attributable to non-controlling interests.

Under GAAP accounting, the Company reports net income (loss) attributable to noncontrolling interests to reflect the Company's joint venture fund investors' allocable share in the results of the Company's joint venture financing funds. Income (loss) attributable to noncontrolling interests is calculated based primarily on the hypothetical liquidation at book value, or HLBV method, which assumes that the joint venture funds are liquidated at the reporting date, even though liquidation may or may not ever occur. Additionally the returns that will be allocated to the investors over the expected terms of the funds may differ significantly from the amounts calculated under the HLBV method. Accordingly, the Company also reports non-GAAP EPS based on earnings before net income (loss) attributable to noncontrolling interests per share, which it views as a better measure of its operating performance.

Under this definition, the Company reported third quarter 2013 non-GAAP earnings before noncontrolling interests per share of ($0.43). See below for a reconciliation of GAAP EPS to non-GAAP EPS.

Guidance for Q4 2013 and Update to 2013 and 2014 Outlook

For Q4 2013, the Company expects to deploy 101 MW and thus reaffirms its guidance for 2013 MW deployed of 278 MW.

For Q4 2013, the Company also expects:

  • GAAP Operating Lease Revenue: $22 million - $24 million
  • GAAP Solar Energy Systems Sale Revenue: $18 million - $22 million
  • GAAP Gross Margin: 30%-40%
  • GAAP Operating Expenses: $50 million - $55 million
  • Non-GAAP EPS (before Income (Loss) Attributable to Noncontrolling Interests): ($0.55) – ($0.65)
  • Positive net cash flow

The Company will not be providing GAAP EPS guidance due to the difficulties of forecasting HLBV.

For 2014, the Company reiterates its guidance for MW deployed in a range of 475 MW – 525 MW.

Earnings Conference Call

The Company will hold a conference call today to discuss its third quarter results and its outlook for the remainder of 2013 at 5:00 pm Eastern. A live webcast of the call may be accessed over the Internet from the Company's Investor Relations website at http://investors.solarcity.com.

Participants should follow the instructions provided on the website to download and install the necessary audio applications. In addition, the earnings presentation slides will be available on the Company's Investor Relations site at 5:00 pm Eastern. The conference call can be accessed live over the phone by dialing 1-877-407-0784, or for international callers, 1-201-689-8560. A replay will be available two hours after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for the live call and the replay is 421091. The replay will be available until November 13, 2013.

About SolarCity

SolarCity® (Nasdaq:SCTY) provides clean energy. The company has disrupted the century-old energy industry by providing renewable electricity directly to homeowners, businesses and government organizations for less than they spend on utility bills. SolarCity gives customers control of their energy costs to protect them from rising rates. The company offers solar power, energy efficiency and electric vehicle services, and makes clean energy easy by taking care of everything from design and permitting to monitoring and maintenance. SolarCity currently serves 14 states and signs a new customer every five minutes. Visit the company online at www.solarcity.com and follow the company on Facebook & Twitter.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding SolarCity's customer and market growth opportunities, financial strategies for cash generation and increasing shareholder value, the deployment of megawatts including estimated 2013 and 2014 megawatt deployment, estimated nominal contracted payments remaining, forecasted retained value per watt under energy contracts, the amount of megawatts that can be deployed based on committed available financing, forecasted cash flow in 2013, expected future GAAP and non-GAAP income statement results, and assumptions relating to the foregoing.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved, if at all. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. As of the date hereof, we have bookings and financing for only a small percentage of the orders needed to achieve our 2014 megawatt projections and therefore expect the megawatts deployed in 2014 to be sourced almost exclusively from new deployments of solar systems not currently under contract. In order to meet our projections, we will need to substantially expand our workforce, increase our installation efficiency and exceed our existing bookings rate relative to what we have achieved to date. Additional key risks and uncertainties include the level of demand for our solar energy systems, the availability of a sufficient and timely supply of solar panels and balance of system components, changes in federal tax treatment, the effect of electric utility industry regulations, net metering and related policies, the availability and amount of rebates, tax credits and other financial incentives, the availability and amount of financing from fund investors, the retail price of utility-generated electricity or the availability of alternative energy sources, risks associated with SolarCity's rapid growth, risks that consumers who have executed energy contracts included in reported nominal contracted payments remaining and backlog may seek to cancel those contracts, assumptions as to retained value under energy contracts and contract renewal rates and terms, including applicable net present values, performance-based incentives, and other rebates, credits and expenses, SolarCity's limited operating history, particularly as a new public company, changes in strategic planning decisions by management or reallocation of internal resources, and general market, political, economic and business conditions. You should read the section entitled "Risk Factors" in our registration statement on Form S-1 related to our recent offering of common stock and refer to our most recent Quarterly Report on Form 10-Q, which have been filed with the Securities and Exchange Commission, which identify certain of these and additional risks and uncertainties. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as otherwise required by law.

 
SolarCity Corporation
Condensed Consolidated Balance Sheets
     
(In Thousands) December 31, September 30,
  2012 2013
Assets  (audited) (unaudited)
Current assets:     
Cash and cash equivalents   $ 160,080  $ 132,986
Restricted cash   7,516  3,269
Accounts receivable, net  25,145  32,791
Rebates receivable   17,501  19,158
Inventories   87,903  90,753
Deferred income tax asset  5,770  7,762
Prepaid expenses and other current assets   11,502  25,527
Total current assets   315,417  312,246
     
Restricted cash   2,810  1,701
Solar energy systems – net   1,002,184  1,491,941
Property, plant and equipment – net   18,635  20,471
Goodwill and intangible assets – net  626  105,351
Other assets  22,170  28,625
Total assets   $ 1,361,842  $ 1,960,335
     
Liabilities and equity     
Current liabilities:     
Accounts payable   $ 62,986  $ 134,123
Distributions payable to noncontrolling interests  12,028  17,634
Current portion of deferred U.S. Treasury grants income  11,376  15,404
Accrued and other current liabilities   52,334  51,800
Customer deposits   8,753  9,208
Current portion of deferred revenue   31,516  52,989
Current portion of long-term debt   20,613  9,158
Current portion of lease pass-through financing obligation  13,622  29,629
Current portion of sale leaseback financing obligation  389  410
Total current liabilities   213,617  320,355
     
Deferred revenue, net of current portion   204,396  326,884
Long-term debt, net of current portion   83,533  132,149
Long-term deferred tax liability  5,790  7,791
Lease passthrough financing obligation, net of current portion  125,884  103,128
Sale leaseback financing obligation, net of current portion  14,755  14,444
Deferred U.S. Treasury grants income, net of current portion  286,884  411,316
Other liabilities  112,056  182,288
Total liabilities   1,046,915  1,498,355
     
Stockholders' equity:     
Common stock 7 8
Additional paid-in capital   325,705  469,053
Accumulated deficit   (111,392)  (162,915)
Total stockholders' equity   214,320  306,146
Noncontrolling interests in subsidiaries  100,607  155,834
Total equity   314,927  461,980
Total liabilities and equity   $ 1,361,842  $ 1,960,335
 
SolarCity Corporation
Condensed Consolidated Statements of Operations
     
(In Thousands Except Per Share Amounts) Three Months Ended
  Sept. 30, 2012 Sept. 30, 2013
  (unaudited) (unaudited)
Revenue:     
Operating leases   $ 13,917  $ 24,796
Solar energy systems sales   18,057  23,804
Total revenues   31,974  48,600
     
Cost of revenue:     
Operating leases  2,323  8,423
Solar energy systems   13,900  22,640
Total cost of revenues   16,223  31,063
     
Gross profit  15,751  17,537
     
Operating expenses:     
Sales and marketing   18,145  24,310
General and administrative   12,554  21,893
Total operating expenses   30,699  46,203
     
Loss from operations   (14,948)  (28,666)
     
Interest expense, net  6,587  5,781
     
Other expense, net   7,466  123
     
Loss before income taxes  (29,001)  (34,570)
Income tax provision  (42)  (23)
Net loss  (29,043)  (34,593)
Net income (loss) attributable to noncontrolling interests  9,028  (37,949)
Net (loss) income attributable to stockholders  $ (38,071)  $ 3,356
     
Net (loss) income per share attributable to common stockholders  
 Basic ($3.41) $0.04
 Diluted ($3.41) $0.04
     
Weighted average shares used to compute net (loss) income per share attributable to common stockholders
 Basic  11,162  79,918
 Diluted  11,162  88,054
 
SolarCity Corporation
Condensed Consolidated Statements of Cash Flows
(In Thousands) Nine Months
Ended
Nine Months
Ended
  Sept. 30, 2012 Sept. 30, 2013
  (Unaudited) (Unaudited)
Operating activities:    
Net loss  $ (77,954)  $ (95,397)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Loss on disposal of property, plant and equipment  10  30
Depreciation and amortization net of amortization of deferred U.S. Treasury grant income  14,277  26,275
Interest on lease pass-thorough financing obligation  8,948  10,035
Stock-based compensation  7,749  17,166
Revaluation of convertible redeemable preferred stock warrants  16,713  –
Revaluation of preferred stock forward contract  350  –
Deferred income taxes  9  9
Reduction in lease pass-through financing obligation  (12,057)  (25,525)
Changes in operating assets and liabilities:    
Restricted cash  (6,709)  1,454
Accounts receivable  (29,977)  (7,646)
Rebates receivable  (2,825)  (1,657)
Inventories  29,829  (2,850)
Prepaid expenses and other current assets  2,615  (17,449)
Other assets  (7,218)  (3,411)
Accounts payable  (75,967)  71,137
Accrued and other liabilities  41,137  66,635
Customer deposits  (3,884)  455
Deferred revenue  90,564  143,682
Net cash (used in) provided by operating activities  (4,390)  182,943
Investing activities:    
Payments for the cost of solar energy systems, leased and to be leased  (290,371)  (507,695)
Purchase of property and equipment  (7,400)  (5,827)
Acquisition of business, net of cash acquired  –  (3,758)
Net cash used in investing activities  (297,771)  (517,280)
     
Financing activities:    
Investment fund financings and bank borrowings:    
Borrowings under long-term debt  119,008  57,161
Repayments of long-term debt  (32,168)  (24,690)
Borrowings under bank line of credit  19,418  –
Repayments of bank line of credit  (25,000)  –
Repayments of sale-leaseback financing obligation  (268)  (290)
Proceeds from lease pass-through financing obligation  138,775  31,233
Repayment of capital lease obligations  (27,356)  (1,594)
Proceeds from investment by noncontrolling interests in subsidiaries  63,532  221,175
Distributions paid to noncontrolling interests in subsidiaries  (137,276)  (117,017)
Proceeds from U.S. Treasury grants  99,916  123,816
Net cash provided by financing activites before equity issuances  218,581  289,794
Equity issuances:     
Proceeds from exercise of stock options  1,409  9,415
Proceeds from issuance of convertible redeemable preferred stock  80,868  –
Proceeds from the exercise of convertible redeemable preferred stock warrants  150  –
Proceeds from exercise of common stock warrants  –  8,034
Net cash provided by equity issuances   82,427  17,449
Net cash provided by financing activities  301,008  307,243
     
Net decrease in cash and cash equivalents  (1,153)  (27,094)
Cash and cash equivalents, beginning of period  50,471  160,080
Cash and cash equivalents, end of period  $ 49,318  $ 132,986
     
Reconcilation from GAAP EPS to Non-GAAP EPS:    
       
  GAAP Net Income GAAP Net Loss Non-GAAP Net Loss
  Attributable to Attributable to Before Noncontrolling 
in thousands except per share Stockholders Noncontrolling Interests Interests
Net Income (loss) $3,356 ($37,949) ($34,593)
       
/ Weighted Average Common Shares Outstanding 88,054 79,918 79,918
       
= Net Loss Per Share $0.04 ($0.47) ($0.43)
       
             
Operating Activity Metrics:            
             
    Q3 2012 Q2 2013 Q3 2013   Cumulative
MW Deployed   37 53 78   464
             
New Customers   6,437 9,563 12,386   82,235
Energy Contracts   5,785 9,040 12,339   72,506
             
Estimated Nominal Contracted Payments Remaining -- $m           $1,737
             
"MW" or "megawatts" represents the DC nameplate megawatt production capacity.
"Backlog" represents the aggregate megawatt capacity of solar energy systems not yet deployed as of the date specified pursuant to Energy Contracts and contracts for solar energy system direct sales executed as of such date.
"Customers" includes all residential, commercial and government buildings where we have installed or contracted to install a solar energy system, or performed or contracted to perform an energy efficiency evaluation or other energy efficiency services.
"Energy Contracts" includes all residential, commercial and government leases and power purchase agreements pursuant to which consumers use or will use energy generated by a solar energy system that we have installed or contracted to install. For landlord-tenant structures in which we contract with the landlord or development company, we include each residence as an individual contract. For commercial customers with multiple locations, each location is deemed a contract if we maintain a separate contract for that location.
"MW Booked" represents the aggregate megawatt production capacity of solar energy systems pursuant to customer contracts signed during the applicable period net of cancellations during the applicable period. This metric includes solar energy systems booked under Energy Contracts as well as solar energy system direct sales.
"MW Deployed" represents the megawatt production capacity of solar energy systems that have had all required building department inspections completed during the applicable period. This metric includes solar energy systems deployed under Energy Contracts as well as solar energy system direct sales.
"Nominal Contracted Payments Remaining" equals the sum of cash payments obligated to be paid to us under our Energy Contracts over the remaining term of such contracts. This metric includes Energy Contracts for solar energy systems already deployed and in Backlog. As an example, if a customer is 2 years into her 20 year contract, then 18 years of contract payments remain. As an additional example, if a customer chose to pre-pay her Energy Contract, then it is included in Nominal Contracted Payments Remaining only while it is in Backlog as the pre-payment has not been received. Payments for direct sales are not included. 
"Retained Value" forecast represents the sum of both "Retained Value under Energy Contract" and "Retained Value Renewal." Retained Value Under Energy Contract represents the forecasted net present value of Nominal Contracted Payments Remaining and estimated performance-based incentives allocated to us, net of amounts we are obligated to distribute to our fund investors, upfront rebates, depreciation, renewable energy certificates, solar renewable energy certificates and estimated operations and maintenance, insurance, administrative and inverter replacement costs. This metric includes Energy Contracts for solar energy systems deployed and in Backlog. Retained Value of Renewal represents the forecasted net present value of the payments SolarCity would receive upon Energy Contract renewal through a total term of 30 years, assuming all Energy Contracts are renewed at a rate equal to 90% of the contractual rate in effect at expiration of the initial term. This metric is net of estimated operations and maintenance, insurance, administrative and inverter replacement costs and includes Energy Contracts for solar energy systems deployed and in Backlog. Our calculation of retained value assumes a discount rate of 6%.
"Retained Value per Watt" is computed by dividing cumulative retained value as of such date by the sum of total MWs deployed under Energy Contracts as of such date plus MWs booked under Energy Contracts as of such date but not yet deployed.
"Undeployed Tax Equity Financing Capacity" represents a forecast of the amount of MW that can be deployed based on committed available tax equity financing for Energy Contracts.
Aaron Chew