SolarCity (SCTY) Tops Q4 EPS by 22c; Issues Light Q1 Outlook

(Updated - February 9, 2016 4:26 PM EST)

SolarCity (Nasdaq: SCTY) reported Q4 EPS of ($2.37), $0.22 better than the analyst estimate of ($2.59). Revenue was $115 million, versus $105.6 million expected.

Installation highlights:

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.

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

-5-

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).

*** The Street sees Q116 loss of $2.36 per share with revenue of $113 million.

For earnings history and earnings-related data on SolarCity (SCTY) click here.

You May Also Be Interested In

• BayCom Corp (BCML) Misses Q1 EPS by 4c
• Five Point Holdings, LLC (FPH) Reports Q1 EPS of $0.03
• Independent Bank (INDB) Misses Q1 EPS by 3c