SolarCity (SCTY)

[TheTalkingMule]

Decent article out yesterday on SCTY, finally.

SolarCity Is Growing Like Mad, but Bears Abound: What to Look For in Earnings

Key metrics to follow
There's little doubt that SolarCity will report higher operating expenses when earnings come out, and it will probably report a loss, but context is key here. As CEO Lyndon Rive described in the most recent shareholder letter, the company is divided into two key parts: The sales and installation business, which it calls the "Devco," and the portfolio of long-term contracts, the "Powerco." The vast majority of the company's increased expenses are tied to the Devco, which is the growth engine of the business.


At times, these costs will grow faster than sales as the company expands into new markets and makes investments in new staff, real estate, and marketing before a market actually begins contributing. But once a market begins producing business, those initial investments lead to rapid growth in sales and long-term contracted cash flows.



The company's cost per watt, one of the best measures of cost efficiency in the solar industry, declined sequentially last quarter but was higher than in the third and fourth quarter of the prior year. This isn't because SolarCity's expenses for maintaining its existing customer base went up, but because the company had recently started major expansions in new markets. So for a couple of quarters, costs per watt jumped sequentially. If you look at the chart, you'll see that the same thing happened at the beginning of 2014.


The point? These are scalable cost increases to grow the business, not operational expenses dragging down the long-term results. Take the time to understand where the company is spending, since all expenses aren't created equally.

 

[TheTalkingMule]

With a bank loan or lease, they discount payments with they risk free yield curve and also account for features like default and prepayment risk. Banks use the yield curve because they are actively managing interest rate risk. They actually quantify the sentivity to changes in the interest rate environment and will trade in hedging instruments like fixed/floating interest rate swaps to manage this risk. Prepayment risk goes up as interest rates fall. So it is also important to model borrower behaviour around refinancing and other forms of prepayment. Interest rates also impact default behaviour, especially in ARM mortgages. Other macroeconomic factors like housing prices impact both prepayment and default behaviour. All these things are fed into valuation models which drive hedging, reporting, reserving and other risk management actions. (I happen to work in a bank group that does this sort of modeling and hedging, and I work mostly on modeling home prices.)

So banks essentially model the value of loans and other products. SolarCity is doing the same thing with retained value, but it is a relativity simple model using fairly robust assumptions. For example, discounting at 6% is very conservative and robust, until of course interest rates go above 6%. I expect they'll cross that bridge when they need to.

I certainly don't think net assets or shareholder equity is an adequate way to measure the value of any company with going concern. Value investors trying to value a distressed company will do a fair amount of analysis of the balance sheet. But that is pretty much focused on the value of a company at liquidation.

The value that I see in NRV is that it values the primary asset that the company is actually building. This asset is marketable. It could be sold to a yieldco for example.

It's easy enough to see how much cash SCTY has "coming to them" on these contracts, but where does the upfront cost land? How much of the install costs hit the balance sheet immediately and how much is spread out via bonds? Is there an easy way to track the amount of bond payments owed by SCTY along side the payments owed to SCTY from customers?

Sorry if this is an ultra-novice question.

 

[SBenson]

It's easy enough to see how much cash SCTY has "coming to them" on these contracts, but where does the upfront cost land? How much of the install costs hit the balance sheet immediately and how much is spread out via bonds? Is there an easy way to track the amount of bond payments owed by SCTY along side the payments owed to SCTY from customers?

Sorry if this is an ultra-novice question.

I will let jhm answer the specifics. But my understanding is that their Retained Value slide from the quarterly deck captures "everything".

The few analyst reports I have seen directly use the retained-value metrics for their models. Nevertheless, Mr.Market doesn't seem to put much faith in analyst models. As of this morning, the average analyst price target is $72. The most bearish target (excluding the pure troll Axiom) is $48 from UBS. The most optimistic is at $105 by Credit Suisse.

 

[doggusfluffy]

SolarCity expansion includes warehouse in Lansdowne - Baltimore Sun

The California-based company has opened a warehouse in Lansdowne with a half-dozen employees, expanded a Beltsville operations center to add an employee training facility and is building an operations and sales center in Upper Marlboro.

SolarCity has about 700 employees in Maryland, a number that is expected to grow to 800 with the new facilities, said Lee Keshishian, a regional vice president for SolarCity.

http://www.bizjournals.com/baltimor...city-opens-baltimore-county-distribution.html

The site receives large container cargo loads and ships materials to five smaller warehouse operations spread across four states — Maryland, Delaware, Pennsylvania and New Jersey — where crews install residential and commercial solar panels.
Solar City has opened a new distribution facility south of Baltimore to supply its operations in Maryland, Delaware, Pennsylvania and New Jersey.

That means its proximity to the Port of Baltimore is important, said SolarCity's regional vice president of East Coast operations, Lee Keshishian. The new distribution center opened within the last two months, employing six logistics experts, he said.

 

[TheTalkingMule]

I'll be interesting to see who's the first one to bring up extending the ITC solar subsidy as part of these budget negotiations. Talk about a short squeeze! :scared:

Some hints today around R&D spending, etc...

US budget deal could ease uncertainty over science spending

Leaders in the US Congress and President Barack Obama have agreed on a deal that could avoid a December showdown over government funding — and a possible shutdown.

Struck on 26 October, the deal would raise mandatory spending caps for two years in exchange for cuts to several social programmes and other offsets. The agreement must be approved by the Senate, the House of Representatives and Obama to take effect.

The deal paves the way for an agreement on a full-fledged budget before a short-term spending bill expires on 11 December. Obama had previously threatened to veto any spending bill that did not increase spending caps and avoid the mandatory cuts known as sequestration.

Much research funding comes from the non-defence, or discretionary, budget. But it is not yet clear how the extra $25 billion would be split among all discretionary programmes, including those that fund scientific research and development.

Those negotiations will happen behind closed doors, says Jennifer Zeitzer, the director of legislative relations at the Federation of American Societies for Experimental Biology in Bethesda, Maryland. She adds that should the bill pass, lawmakers will have a little more than a month before the December deadline to hammer out how the money will be allocated to various agencies.

 

[jhm]

It's easy enough to see how much cash SCTY has "coming to them" on these contracts, but where does the upfront cost land? How much of the install costs hit the balance sheet immediately and how much is spread out via bonds? Is there an easy way to track the amount of bond payments owed by SCTY along side the payments owed to SCTY from customers?

Sorry if this is an ultra-novice question.

I think digging into the quarterly value creation analysis and available cash analysis may answer your questions. These should both be refreshed in the shareholder presentation. So let's wait until that comes out today. Then we can take the time to digest the new numbers while shoring up our understanding of the concepts.

Actually, the more I think about it, it may be useful for us to discuss the whole investor presentation deck slide by slide. They really load a lot of good information in it, and I find myself consulting it on an almost daily basis. One of the best things we can do as a group of investors is get a solid grip on this material.

 

[dalalsid]

results out:
http://files.shareholder.com/downlo...olarCity_3Q15_Earnings_Presentation_FINAL.pdf
Investor Relations - SolarCity

2016 Guidance: MW Installed: 1,250

From the newsletter:
"we are not targeting the same growth rates that have gotten us to our currentscale going forward. Specifically it is our goal to achieve positive cash flow by 2016 year-end and be insolid shape prior to the planned ITC expiration in 2017."

 

[farzyness]

Any reactions? After hours down big - is it warranted?

 

[mdemetri]

results out:
http://files.shareholder.com/downlo...olarCity_3Q15_Earnings_Presentation_FINAL.pdf
Investor Relations - SolarCity

2016 Guidance: MW Installed: 1,250

Why is the stock tanking; is it the 2016 Guidance of 1250?

 

[TheTalkingMule]

Install cost is what jumps out to me. Last 7 quarters:

2.44
2.28
2.19
2.09
2.09
2.13
1.92 <---- 3Q15 (I guess this is due to a higher % of commercial installs)

Stock tanking after hours. Massively.

- - - Updated - - -

Why is the stock tanking; is it the 2016 Guidance of 1250?

Computers see earnings underperform and push the button.

 

[dalalsid]

Install cost is what jumps out to me. Last 7 quarters:

2.44
2.28
2.19
2.09
2.09
2.13
1.92 <---- 3Q15 (I guess this is due to a higher % of commercial installs)

Stock tanking after hours. Massively.

- - - Updated - - -



Computers see earnings underperform and push the button.

I wish I could buy more AH. Hopefully this low price sticks around a few more days.

 

[TheTalkingMule]

I wish I could buy more AH. Hopefully this low price sticks around a few more days.

Yeah, that's the only thing I'm annoyed about, did not think it was physcially possible to push this stock down further and I'm pretty much invested to 120% of what I intended. Nothing to do but find a way to buy I guesses.

Can't imagine this $32 is going to stick around, that's a lower valuation than the current net retained value.

 

[aznt1217]

Well those shorters have got to be super happy now.

 

[Perfectlogic]

SPWR and FSLR up 10-13% after their earnings, looks like utility scale is winning.

 

[dalalsid]

Well those shorters have got to be super happy now.

Aaand it keeps falling. Now -18%!

 

[TheTalkingMule]

SPWR and FSLR up 10-13% after their earnings, looks like utility scale is winning.

Of course, it was a huge quarter for solar installs. Problem is, a panel maker gets all their cash up front, SCTY not so much.

I guess it's gonna take a few more quarters for people to understand the value.

Chanos is literally rolling in cash right now. So annoying.

 

[hirox]

how long until webcast?

 

[drinkerofkoolaid]

Wait for the conference call. Less than 1 million shares traded.

 

[TheTalkingMule]

That would just be awesome!

Don't mean to be a Debbie Downer but want to highlight that in general SCTY falls after ER, probably because the bots are coded to look at EPS. As we know more the growth, more negative the eps and bots think the worse the matters are.

Here is a list of 1-day price moves for each quarter after ER, latest first:

2.64%
1.43%
-5.76%
-5.33%
-7.26%
12.35%
-5.71%
-16.70%
-10.80%
-12.37%
-14.43%

I am just alerting you guys to keep yourself open to a downswing possibility. Not necessarily predicting it.

If 2016 guidance was released independently, just in terms of MWs and such, the stock will rocket. There will be a squeeze. But if they do it together with traditional metrics, I am not so sure. Because bots (and idiots) will have a say in it.

We were told exactly what would happen and didn't listen, now someone else will be getting the bargains tomorrow. Bots react to EPS and we should be sitting there to take advantage. Grrrrrrrrrrrrrrrr

Nothing worse than mistiming a bargain.

 

[aznt1217]

I'm struggling as to why it's down. I'm going through the report and I'm seeing a few things that I like... we all know SCTY is a little bit more obscure to understand but at the end of the day in layman's terms it makes money via leases.

- Their customer base has an average credit score of >750 ... this is a great thing
- Their costs have decreased for installations (this is huge), their only thing that caused an uptick was SG&A which makes sense as they grow the sales force and expand
- Revenues are up
- Losses widened YoY but I feel this was a given because of the huge expansion in sales and company infrastructure

ANDDD this is why.
SolarCity Corp. (SCTY) said Thursday it lost $234 million, or 20 cents a share, in the third quarter, compared with a loss $70 million in the year-ago quarter. The rooftop solar-power installer said its revenue reached $113.9 million in the quarter, up from $58 million a year ago, thanks to "increased installations and high system performance in our seasonally strong" third quarter, the company said. Adjusted for one-time items, SolarCity lost $2.10 a share in the quarter. Analysts polled by FactSet had expected the rooftop solar-power installer to report an adjusted loss of $1.95 a share on sales of $111 million. Shares of SolarCity fell 15% in late trading Thursday after ending the regular trading day down 0.7%.