SolarCity's (NASDAQ: SCTY ) earnings report eased a lot of fears investors had about the company's lofty valuation. Revenue more than doubled to $63.5 million, and net loss attributable to shareholders fell 41% to $24.1 million, or $0.26 per share.
But the key numbers investors should be focused on are installations, guidance, and value generation long-term. That's where the 82 MW installed were solid, an increase in guidance to 500-550 MW this year was key, and an initial 2015 guidance of 900 MW to 1 GW installed was outstanding. A reported $1.83 per watt was lower than expected, but we'll get into how we should look at that in a minute.
The key for SolarCity is progress in the levers it can control. As I highlighted in my earnings preview last week, SolarCity can control installation growth, value per watt, and whether it's selling leases or cash. Here's a deeper look into how each of those factors looked this quarter.
Growth in installations
This is where SolarCity knocked it out of the park. 82 MW installed was at the top end of its range, and the guidance increase should give confidence that SolarCity will grow around 90% this year.
What's incredible is that management expects to grow nearly 100% again next year, forecasting up to 1 GW installed.
For SolarCity to live up to its valuation, it will have to continue growing, and on that front, it's performing better than I could have imagined.
Retained value per watt
Installation growth is important, but so is the value of each installation SolarCity puts up. If the retained value of each watt installed falls 50%, and installations double, the total installed value is flat. So, SolarCity wants to keep retained value per watt high.
In the first quarter, retained value per watt fell to $1.83 from $1.90 a quarter before. What's important about this figure is that it's down sequentially, and the company spent $1 per watt in operating costs to build that value ($0.60 per watt of systems booked). When we consider that only 75% of the total retained value that SolarCity is actually under contract, the contracted value per watt minus operating expenses was only $0.37 last quarter.
It should be noted that Q1 is a seasonally weak quarter, and as installations grow throughout the year, the retained value minus operating expenses per watt should drop, but the trend is worth watching.
If SolarCity pulled the growth lever hard in Q1, it actually lost ground in retained value per watt. I wouldn't be surprised to see that continue as competition increases around the country.
Cash versus lease
The final trend to look for is whether cash sales are becoming more popular, because cash sales are far lower margin than leases.
If we pull out $8 million of Zep sales, solar system sales were up 78% to $26.5 million last quarter. This compares to 78% growth in installations. If we assume that system prices are falling, it's safe to say that cash sales are a larger percentage of overall sales, but not by much.
The other thing to watch is the number of new energy contracts versus new customers. Of 17,664 new customers last quarter, only 320 didn't sign an energy contract, but that was up from just 4 in the fourth quarter. It's impossible to draw any conclusions from such a small number of system sales, but this is worth keeping an eye on.
Long term, I think we'll see more and more customers choose cash sales or loans versus leases, and there are rumors SolarCity will be introducing a loan product as well. If that's the case, it'll be hard to generate nearly $2 per watt in value, but I don't see that trend taking off based on first-quarter numbers.
The long and short of SolarCity
At the end of the day this was a great quarter for SolarCity, and it's doing an incredible job growing installations in residential and commercial solar. I have concerns about the solar market trending toward cash sales or loans and lowering margins long term, but the growth in installations more than makes up for those trends.
This is still one of the best companies in solar, and with the scale it has developed, it will be a force for many years to come.
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