Foul Weather Widens Loss at SolarCity, View Up - Analyst Blog

The solar power service provider SolarCity Corp. SCTY posted a non-GAAP first quarter 2014 loss of 82 cents per share, wider than a loss of 41 cents per share in the year-ago quarter and the Zacks Consensus Estimate of a loss of 73 cents. The company's performance was hit by slower sequential installations during the quarter because of treacherous weather, mainly in the Northeast.

On a GAAP basis, the company incurred a loss of 26 cents a share compared with a loss of 54 cents a year ago.

SolarCity usually succeeds in hitting expectations it sets every quarter on the back of vigorous demand, supported by a proficient execution strategy. This past quarter can be regarded as an exception with installations slowing down sequentially in the wake of a particularly arduous winter.

Top Line & Gross Profit

The company's top line surged 111.9% year over year to $63.5 million during the quarter, ahead of the Zacks Consensus Estimate of $52.0 million by 22.1%. Its lease revenue during the quarter stood at $29.1 million, up 92.7% year over year, on the higher end of the company's guided range.

During the quarter under review, SolarCity's gross profit advanced significantly to $14.8 million from $7.5 million in the first quarter 2013.

But operating costs increased even faster than revenue, increasing 138.8% year over year on a GAAP basis in the quarter.

Operating Highlights

The company successfully installed 82 MW of panels in the quarter, up sharply from 46 MW a year ago, but down 20.4% sequentially. The customer count also expanded 48.8% year over year and 64.1% sequentially. Notably, residential installations grew 107% year over year to 67 MW during the quarter. This brings the total cumulative installation to 649 MW as of Mar 31, 2014.

Financial Position

SolarCity, which made its first appearance on the Nasdaq in Dec 2012, had a cash balance of $525.9 million (including restricted cash) as of Mar 31, 2014 compared with $596.3 million on Dec 31, 2013. Long-term debt (including current portion) stood at $300.3 million versus $246.0 million as on Dec 31, 2013.

For the March quarter, net cash used in operating activities was $23.3 million versus net cash provided by operating activities of $1.5 million in the year-ago quarter.

Guidance

SolarCity foresees 105 MW to 110 MW of panel installations for the second quarter of 2014. For 2014, management increased its installation guidance to 500–550 MW from its earlier projection of 475–525 MW. For the next year, SolarCity sees installations climbing to as much as 900 MW to 1 GW.

Meanwhile, the company guided an adjusted quarterly loss for the second quarter 2014. It expects to see a loss between 90 cents and $1.00 a share. That's a much deeper loss than the Zacks Consensus Estimate of a loss of 66 cents.

Solar on the Rise

SunPower Corp. SPWR registered encouraging results as its first-quarter 2014 adjusted earnings per share of 49 cents comfortably surpassed the Zacks Consensus Estimate of 32 cents by 53.1%. Earnings in the reported quarter were up almost 122.7% from the year-ago adjusted earnings of 22 cents per share.

Maxwell Technologies, Inc. MXWL posted first quarter 2014 earnings of 4 cents per share, comfortably surpassing the Zacks Consensus Estimate of a loss of 8 cents. The quarterly figure also jumped 100% from earnings of 2 cents a year ago. This bottom-line improvement is directly attributable to higher sales volume.

Zacks Rank

SolarCity presently carries a Zacks Rank #4 (Sell).

Although the company reported in the red, its retained value increased $239 million to $1.29 billion during the first quarter 2014. The retained value is an estimate of total cash flows from leases over more than 20 years. System sales on the other hand were higher than expected at $345 million in the reported quarter. This implies that there was a wider uptake of system sales in the quarter than leasing activity. We however note that the leasing business carries higher margins.

SolarCity is indeed performing well supported by a booming U.S. solar market. We also like its business model that allows residential customers to pay back for their solar installations on a monthly basis over a period of 20 years. This not only helps customers to evade bulky upfront payments, but also lends top-line visibility to the company.

Backed by Tesla Motors Inc. TSLA founder Elon Musk, the SolarCity stock has rallied almost 29.1% so far this year and 554% since its first appearance in the stock market. The company has a market cap of $6.4 billion.