solarcity (scty) earnings report: q2 2015 conference...
TRANSCRIPT
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
SolarCity(SCTY)EarningsReport:Q22015ConferenceCallTranscriptThefollowingSolarCityconferencecalltookplaceonJuly29,2015,05:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
AaronChew;SolarCityCorporation;VPofIRLyndonRive;SolarCityCorporation;CEOTanguySerra;SolarCityCorporation;COOBradBuss;SolarCityCorporation;CFO
OtherPart icipants
PatrickJobin;CreditSuisse;AnalystBrianLee;GoldmanSachs;AnalystPhillipShen;RothCapitalPartners;AnalystVishalShah;DeutscheBank;AnalystEdwinMok;Needham&Company;AnalystBenKallo;RobertW.Baird&Co.;AnalystPaulCoster;JPMorgan;AnalystPavelMolchanov;RaymondJames;AnalystNoahKaye;NorthlandCapitalMarkets;AnalystMichaelMorosi;AvondalePartners;AnalystJulienDumoulin-Smith;UBS;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Greetings,andwelcometotheSolarCitysecond-quarter2015earningscall.
(OperatorInstructions)
Asreminder,thisconferenceisbeingrecorded.Iwouldnowliketoturntheconferenceovertoyourhost,Mr.AaronChew,VicePresidentofInvestorRelations.Thankyou,Mr.Chew,youmaybegin.
AaronChew(VPofIR):
Thankyou,andgoodafternoontoeveryonejoiningustodayforSolarCity'ssecond-quarter2015earningsconferencecall.LeadingthepresentationtodaywillbeadiscussionfromourChiefExecutiveOfficer,LyndonRive;ourChiefOperatingOfficer,TanguySerra;andourChiefFinancialOfficer,BradBuss.Afterwhichpointintimewewillopenitupforquestions.
Asareminder,today'sdiscussionwillcontainforward-lookingstatementsthatinvolveourviewsasoftodaybasedoninformationcurrentlyavailabletous.Forward-lookingstatementsshouldnotbeconsideredaguaranteeoffutureperformanceorresults,andreflectinformationthatmaychangeovertime.PleaserefertoSolarCity'squarterlyshareholderletterissuedtoday,aswellastheslidesaccompanyingthispresentation,aswellasourperiodicreportsfiledwiththeSecuritiesandExchange
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page2of21
Commissionforadiscussionofforward-lookingstatementsandthefactorsandrisksthatcouldcauseouractualresultstodifferfromourforward-lookingstatements.Wedonotundertakeanyobligationtopubliclyupdateorreviseanyforward-lookingstatements.
Inadditionduringthecourseofthecallwewilluseanumberofspeciallydefinedtermsrelatingtoourbusinessmetricsandfinancialresults,includingnon-GAAPfinancialmetrics.WerefertothedefinitionsofthesetermsandtherequiredreconciliationbetweenGAAPandnon-GAAPfinancialmetricsincludedintheshareholderletterissuedtodayandtheslidesaccompanyingthispresentation,whichareavailableonourinvestorrelationsWebsiteatinvestors.solarcity.com.Withthatbehindus,IwouldliketointroduceSolarCity'sChiefExecutiveOfficer,Mr.LyndonRive.
LyndonRive (CEO):
Thankyou,Aaron.Q2wasanamazingquarterforSolarCity.Webookedtwonewrecords,bookingsandinstalls.Aswelookatourbusiness,weessentiallyhavetwocompaniesinone.We'readevelopmentCompanyandapowerCompany.ThedevelopmentCompanyisresponsibleforacquiringcustomersandgettingsolarsystemsinstalled.ThepowerCompanyprovidesthefinancingandcollects30yearsofrecurringrevenueforsellingtheenergy.
AswelookatourCompany,thisquarterwebooked395megawatts.Ourpreviousrecordwas237megawatts.Weinstalled189megawatts,anotherrecordforus,77%year-over-yeargrowth.Wereducedourtotalcostofinstallationto$2.91awatt.TheassetswedeployedachievedanunleveredIRRof12%.Aftercoveringourfullyloadedcostandpayingbackallsystemfinancing,wecreated$196millionofeconomicvalueforthequarter.
Nowlet'slookatthePowerCompany.Wehave262,000customers,addingover44,000customersthisquarter,an86%growthyearoveryear.Wearewellonourwaytoachieveour1millioncustomergoal.Weadded$1.6billionofnominalcontractedpayments,withatotalof$7.7billion.ThePowerCompanygeneratesalotofcash.Thelast12monthsthePowerCompanyhasgenerated$114million.I'mexcitedaboutthisnumber,asthisisthefirstwebrokenoutthecashforthePowerCompanyfromourGAAPfinancials.Bradwillcoverthisinmoredetail.I'mnowgoingtohanditovertoTanguySerra,ourCOO.
T anguySerra(COO):
Thanks,Lyndon.AsLyndonmentioned,wehadareallysolidquarterofinstalls.Wedeployed168megawattsofresidentialsystemsand21megawattsofcommercialsystems.I'mveryhappywithourcontinuedabilitytoscaleand[unbelievably]incrediblystrongsalesandleadershipteamsthatcontinuetoworkhand-in-handtooffercustomersanamazingexperience.Housinginstallsgrewat86%yearonyear.AndasLyndonmentioned,webelievewehavecrackedthecodeoncommercialgrowththroughacombinationofsalesexecutionandsignificantlyloweringofourcommercialinstallcosts,allowingthecommercialteamtobooksignificantprofitablemegawattsinQ2,andtherebyendingourflattishcommercialmegawattdeploymentrecord.Andweexpecttoseesubstantialgrowthincommercialmegawattsinthebackhalfoftheyear.
Ourcostscontinuetodecline.Ourall-incostsaredown3%yearonyearandourinstallcostsaredown7%,despiteflattishpanelpriceswhichspeakstothecontinuedincreasedproductivityofourteams.Ourlike-for-likeinstallcostsonhousingandoncommercialaredownversuslastquarter,butinthisquarterwehadahigherproportionofhighercostprojectslikecarports,whichalsocarryhighPPArates.Andsotheoverallblendofthecostisupversuslastquarter.Butthelike-for-likeproject-liketrendcontinuestobedecliningsequentiallyincosts.
Thesalecost,andtoacertainextenttheG&Aoursizedforthenextquartersofcontinuedgrowth,andtoalwaysincludesomeelementofinvestmenttothefuture.Weseepanelpricesandinverterprices
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page3of21
comingdownoverthenextfewquarters.Thatcombinedwiththeeffectsofourin-sourcingourcommercialprojectsallowsustonicelybridgethegapbetweenthecurrent$2.13ofwhatwe'reweatandthe$1.90targetcostswecallforoperationcosts.Withthat,backtoyou,Lyndon.
LyndonRive (CEO):
Thanks,Tanguy.Sowithourlowercommercialcosts,I'mexcitedtoannouncethatwe'regoingtobeenteringthesmallandmediumcommercialmarket.Thisisamassivemarketthat'sbeenneglectedbythesolarindustry.Untilrecentlyifyouwereasmallbusinessandyouwantedsolar,mostofthelargesolarcompanieswouldnotprovidewithaleaseorpowerpurchaseagreement,unlessyouwereover300kilowattsinsize.ThatincludedSolarCity.
Thetwomajorreasonsforthisiscostandfinancing.Almosteverylargesolarcompanyoutsourcestheinstallationofthecommercialsystems.Thismakesitextremelyhardtobecosteffectiveonsmallbusinesses.AsTanguaymentioned,weareabletobringdownthecostofthecombinationofdoingtheinstallationworkourselvesandoftheuniquecommercialmountinghardwaresystem,calledtheGSP.
Thenextbigchallengeisfinancing.Mostcommercialbuildingsthathavesolartodayhavegoodorinvestment-gradecredit.Withoutgoodcredititmakesithardtofinancesolarsystemsover20years.Thismakesithardtoprovidefinancingforsmallbusinesses.InQ4lastyearinCaliforniathelawchangedtoallowleasesunderthePACEprogram.ThePACEprogramisthePropertyAssessCleanEnergyProgram.WiththecombinationofourlowercostandaddingaleaseprogramtothePACEprogram,weareabletoofferattractivefinancingtooursmallbusinesses.TheeconomicstoSolarCitywillbeverysimilartoourresidentialbusinesswithagrossretainedvalueofaround$1.90awatt.InowmovetoBrad.
BradBuss (CFO):
Thanks,Lyndon.I'mgoingtostartusoffonslide7.Andasusual,wehadaverybusyquarterwithalotofaccomplishmentsinourfinancing.Asyoucansee,we'velaunchedourlatestABSintothemarket.It'sabout$124million.Unfortunatelysincethisofferingisinthemarketthere'snothingfurtherwecansay,oranyofthedetailswecangetintoit.Sowe'llgiveyouafullsummaryonceitcloses.ThisisthefinaltaxequitystructuretoberatedfortheABSmarket,andwenowhavetworatingagenciesandtwobankswellversedinallofourstructures.AndIexpectamuchmorepredictableflowgoingforward.
Withrespecttotaxequity,ourpipelineremainsveryrobust.InQ2weaddedanewfund.Weupsizedanexistingfund.Andweendedthequarterwith447megawattsundeployed.Wehave2015covered.Andweplanonclosingadditionalfundswithnewandexistinginvestorsinthesecondhalf,withafocusonfillingupour2016needs,whichisproceedingverywell.
Inaddition,ourrevolverhasbeenincreasedtosupportgrowthwithadditionalbankingpartnersadded.Ourfinancingfactoryisleadingtheindustryininnovationandcostofcapital.Andweareingreatshapetosupportourcontinuedgrowthin2016andbeyond.Economicvaluecreationisakeymetricweintroducedlastquarter.AnditcapturesthetotalvaluecreationtoequityusingouractualQ2installsandcostwithaforecastfordebt.OurEVCincreased33%fromQ1,drivenmostlybydeploymentgrowthandlowercost.
TheQ2unleveredIRRwas12%,upnicelyfrom11%inQ1.TheNPVonaper-wattbasiswasapproximately$1.14perwatt,suggestingarangeofapproximately$1billion-plusofannualizedequityvaluecreationin2015basedonourmegawattguidance.Ifwerunthisverysamemodelapplyingtheexpectedimpactofa10%ITCin2017withour2017costgoal,wewouldstillmaintainhealthyunleveredIRRsofapproximately7.5%andanequityNPVofroughly60%,or$0.60perwatt.
Nowgettingtothemainevent.Aspromised,weareintroducingnewdisclosurewithrespecttoourcash
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page4of21
flowgeneratedfromourPowerCompany.Thisisveryimportant,sinceduetoourrapidgrowthofstrongcashflowgeneratedbyourPowerCompanyishiddeninourGAAPfinancialsbytheinvestmentinDevCo,whichisdrivingourrapidgrowth.CapfeeisthefocusintheindustryandourPACdisclosure,aswecallpoweravailablecash,isourproxy,giventhatourcapitalstructureisverydifferentthantheaverageyieldco,asweusetaxequityanddebtversusequitytofundbusiness.Thequarterlydetailweprovidedincludesalldirectcosttomanagethepowerbusiness,anditisderivedfromourconsolidatedGAAPfinancials.
Wehavepreparedadetailedwhitepaperthatdetailsourmethodologyandcalculations.Andit'salsoavailableontheWebsite.Thetrailing12-monthPACtotaled$114million,ofwhicharecord$41millionwasproducedinQ2alone,thusadjustinganannualizedrunrateattheendofQ2closerto$160million-plus.WithrespecttoNRV,wecontinuetogeneratestronggrossaswellasnetretainedvalue,andweendedthequarterwithanetretainedvalueof$3.1billion,anincreaseofalmost13%quarteronquarter.Notably,ourgrossretainedvalueperwattincreasedacrosstheboardandcommercialreboundedbacktoitshistoricrange.
I'llwrapupwithsomeguidance.ForQ3weexpecttoinstallapproximately260megawatts,whichisaverystrong90%growthrateyearonyear.Weenteredthequarterwithrecordbookings,andJulyhascontinuedtobeverystrong.WealsohaveourusualGAAPguidancelistedontheslideforyourreference.Forthefullyear2015wearealigningourfull-yearguidancetomegawattsinstalledversusdeployed,whichisconsistentwiththewaywe'vebeenprovidingourguidanceforthelasttwoquarters,andisthewaywe'llprovideguidancegoingforward.
Assuch,weexpecttoinstall920to1000megawattsfor2015.Remember,deploymentstendtolagthisnumberbyseveralweeksonaverageduetoourlargevolumeandtheschedulingofthird-partyinspections.Insummary,IthinkwehadagreatQ2andIexpectanevenbetterQ3.AsaCompanyweremainveryfocusedonrapidgrowth,loweringcostanddrivinghigherequityreturnstoourshareholders.I'llnowturnthecallbacktoLyndon.
LyndonRive (CEO):
Thanks,Brad.Let'swrapthingsup.IreallywanttoexplainhowthemanagementteamthinksabouttheCompanyandtheequityvaluethatwearecreating.WehavePowerCompany.PowerCompanyhas1.4gigawattsdeployedassetsgeneratedgigawatthours.Forthelastyear,thePowerCompanyhasgenerated$114millionofcash.Andthoseassetswillbesteppingupto$166millioninthenextsixorsevenyears,postthetaxequityflip.Thesecashflowsiscontractedwithinvestment-gradeentitiesandhighFICOscores.Ifweweretostopthebusinesstoday,wewouldcollect$9billionoverthenext30years.Usinga6%discountrate,thenetretainvalueofPowerCompanyisover$3billion.
WealsohaveanamazingDevelopmentCompanywithover12,000employeessellingaproductthatischeaperandcleanerthanthealternative.WeinstalloneoutofeverythreehomesintheUS.Wealsohavethebestsafetyrecordandthelowestcostinthecountry.Whenwedeployawatt,wecreateacashflowstreamof$0.07peryear.Ifyoudiscountthatback,it'sworthalittleover$1awattforourequityholders.Overthelastsixmonthswe'vedeployed342megawattsandcreated$343millionofvalue.
Wekeepthisvalueinourparentbalancesheet,andthenweputitontothePowerCompany.Fortheyearweplaninstall920to1000megawatts,whichshouldcreatearound$920millionto$1billionofvaluegrowingat86%.WefeelreallygoodabouttheCompany,andalsofeelreallygoodabouttheCompany'spost-ITCreduction.Webelievethatourcoststructurewillallowtothrivepost-ITCreductionandgenerate$0.60perwattforequityvalue.Iwillopenuptoquestions.
QUESTIONS&ANSWERS
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page5of21
Operator :
(OperatorInstructions)
PatrickJobin,CreditSuisse.
PatrickJobin (Analyst-CreditSuisse):
AsonthenewrecordsandtheIRRs.Firstquestionformejuston,Iguess,thecashflownumber.Lookatthatbeforedeductingtheamortizingdebt,orpartiallyamortizingdebt.Iguessit'sabout$185millionannualizedinQ2.IguesssomeofthosemegawattshavebeenaddedlateQ2aswell.SoIguess,one,isthattherighttothinkaboutit?Andthentwo,lookingatthecapitalstructureforthePowerCo,justhelpusunderstandkindofhowyou'rethinkingaboutoptimizingthatcapitalstructureandanythingtodoforequitythere.Thanks.
BradBuss (CFO):
Hey,thanks,Patrick.It'sBrad.SoIthink--yes,ImeanyourquickmathonyourintrotoyourquestionIthinkisagoodwaytolookatit.Andremember,withtheratethatwereaddingstuff,stuffisconstantlyaddedthroughoutthequarter,right?Sowe'vegivenhistoricalstuff.Imean,obviouslywe'llstartlookingatsomemoreforward-lookingstuffonagoing-forwardbasis.I'msureyou'llallbeaskingforthat.
Wethinkit'sveryimportantthatyoukindofyougetgroundedinkindofthepast.There'salotofassumptionsyoucandoandwe'llprovidesoyoucanseeitgoingforward.AndIthinkasfarasthecapitalstructure,right?Imeanwe'reveryflexible,asyoucansee.We'veledthewayinthesecuritizations.We'vegotacoupleofotherthingsthatwearelookingthrough.Ithinkyou'llcontinuetoseeusdriveinnovationwhereitcan,becauseourfocusisonnotonlyloweringthosecostsbutloweringthatcostofcapitalaswell.
PatrickJobin (Analyst-CreditSuisse):
Gotit.Thenmysecondquestion,justthinkingaboutorganizationalconstraints.So260megawattsforQ3installation.Iguessthatimpliesabout360megawattsatthemidpointforQ4.Justlevelofcomfortaroundtheorganizationalcapacity,givenyou'redoingsomemoreofthecommercialworkyourself.
Andthenasubpartofthatquestion,justthinkingaboutthemixofcommercialinbackhalf,givensomeofyourcommentstherewouldbehelpful.Andthen--sorry,lastsub-point.Ithinkyou'vealreadybroughtthisup,but$900millionto$1billioninvalue,orequityvalue,creditthisyearimpliessomeprettystablereturns.JustwanttomakesureI'minterpretingthatcommentcorrectly,giventhemix.Thanks.
LyndonRive (CEO):
Tanguy,whydon'tyougoaheadandanswerthe(multiplespeakers)questionsandI'llgoaheadandtalkabouttheequityvalue.
T anguySerra(COO):
Sure,Yes,thanks.Wefeelverycomfortableonscaling.Wehavebeenscalinghistoricallyatthatgrowthrate.Andthemostimportantpieceofwhenyouscaleistobuildtheinfrastructuretobeabletoscale.Andsothingsliketrainingcenters,trainingprograms,[closetothe]university,they'reallbuiltout.Andsoweareabletohire,onboard,trainandgetinstallsontheroofsinawaythatmakesalotofsense.Andthere'safairbitofsoftwareandalgorithmsgointopredictingwhereandwhenthosecrewswillbeneeded.Andsowefeelvery,verygoodaboutbeingabletodoscalingaswehavehistorically
LyndonRive (CEO):
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page6of21
OnethingI'daddonthataswellisthecommercialbookings.WehadearlycommercialbookingsinQ1,andnotsogoodcommercialbookingsinQ2.Andthebigdelayforcommercialisthepermits.Andofcoursewebookedthemearlyintheyear,thepermitsshouldcomeoutintimeforustogetit.Sothat'sanotherreasonitmakeseasiertorampupbytheendoftheyear
T anguySerra(COO):
Toansweryourquestion.Themixofcommercialasapercentagewillincreaseinthebackhalfoftheyear
LyndonRive (CEO):
Andregardingtheequityvalue,thisiswhywe'veaddedtheextradisclosures.Soyoucancalculatethe$0.07perwattthatwegenerate.That'sroughly,ifyoudiscountitbacktotoday,it'sroughlyabout$1awatt,alittleover$1awatt.Andit'slessthereasonfortheextradisclosure.TheCompany'sgrowingextremelywellanditcreatestremendousvaluewitheverywattwedeploy
PatrickJobin (Analyst-CreditSuisse):
Thankyou
Operator :
BrianLee,GoldmanSachs
BrianLee (Analyst-GoldmanSachs):
Hey,guys.Thanksfortakingthequestions.SoifIlookatyouraveragemegawattsinstallbaseoverthepast12monthsonthissametrailing12-monthbasisthatyou'relookingatthiscashavailablefordistributionmetricthatyou'redisclosing,itimpliesanunleverednumberofsomewherearound$0.14to$0.15awatt.Andthenleveredperwattrightataround$0.10.Isthatafairwaytothinkaboutthegenerationpotentialandfuturemegawattgrowth?AndthenIhadafollow-up.
BradBuss (CFO):
Yes.Imean,it'sdefinitelyintheballpark,There'sdifferentthingsthatimpactthat,dependingonsomeofourstructuresandprepayments,yada,yada,yada.Butyou'realwaysgoingtohavethat.That'swhywethoughtIwantedtogiveyouthattrailing12soyoucangetaviewseasonality,yada,yada,yada.You'reconcept'stherightwaytolookatit.
BrianLee (Analyst-GoldmanSachs):
Okay,fairenough.That'shelpful.AndBrad,follow-upforyou.Andyoukindofalreadyalludedtoit,butlastquarteryoucitedthattheavailabilityofcapitalwasatanall-timehigh,andyouguyshaveobviouslydoneagreatjobinaddingsometaxequitycapacitysincetheendoflastyear.Butaswemovecloserto2016,howshouldwebethinkingaboutgeneraltaxequityavailabilityfornewfunds,whichIwouldpresumearegoingtostartbeingslatedfor2017volumes?Soquestionwouldjustbeabouthowthe10%creditimpactsthevolumeoftaxequityandalsothecost?Andmaybeifyou'regettinganyearlyindicationsfromthebanks.Thanks.
BradBuss (CFO):
Yes,Ithinkthebigthingyou'llseeisobviouslyalotofstuffontheutilityscalesexpectedto--it'sobviouslydryupprettyheavy.We'veseendollarsthatwereallocatedtowindmovingover,andwe'reactuallyseeingsomepeoplethatwereplayingmoreinthelowincomehousingcreditscomingintothismarket.SoifIthink--ifanything,Ithinkthemovestowardsdistributedsolararepickingupmuchquicker
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page7of21
thanweexpected.Thecompanieswe'redealingwithhaveremainedveryprofitable.Alotofbanksthatwereunderwaterforawhilearecomingbackandnowhavetaxableincomethattheywanttomanage.
SoIthinknet/netthemarketisactuallybetterandbigger.AndIthinktowhereyou'regoing,Ithinkterms,andwithoursize,andmoreimportantlythefrequencyandconsistencythatwecandeliverisbeingverywellnoticed.Andwegetalotofpeoplethatarelike,whywouldIwanttodealwithanybodyelse,becauseyouguyshavegotthetrackrecord.Wehaveagreat[machine]onthefrontandbackend.Andwe--mostimportantly,wedelivertotheseguyswhentheyneedit.I'mverycomfortablefor2016.Andwhoknowswhere2017willgo.ButIdon'tthinkthatwillbeanissue.
BrianLee (Analyst-GoldmanSachs):
Okay,Thanks,guys.
Operator :
PhillipShen,RothCapitalPartners.PhillipShen,yourlineislive
PhillipShen (Analyst-RothCapitalPartners):
Canyouhearmenow?
Operator :
Yes,wecan.
PhillipShen (Analyst-RothCapitalPartners):
Hey,guys.Thanksfortakingmyquestions.Itlookslikeyou'vereducedyou2015outlookbyanimplied6%byshiftingguidanceintheunitsfromdeployedtoinstalled.Andwhatdrovethedecisiontochangetheunits,andwhatwouldittakeforyoutohitthehighendofthereviseguidance?Andcanyouelaborateabitmoreonwhatyourbottlenecksmightbecausingtheshift?Thanks.
LyndonRive (CEO):
Yes,wedidchangethat.Wechangeditfromdeployedtoinstall.Wecancontrolinstall.Andwhatwenoticedhappenedlastyear,aswehaveinthelastvolume,themadrushgoingintoNovember/December,thecitydepartmentsandtheutilityinspectorscannotkeepupwithus.Andthat'stheconstraint.Inordertohitthatyouhavetothentakeintwoweeksoramonthearlier.Andifyoulookatourmonthlyrunrate,itwouldn'tbeabletogetthatdeployednumberbytheendoftheyear.Althoughtheinstallnumberwefeelverygoodabout
BradBuss (CFO):
Ithinkfrommyperspective,wejustwanttobeveryconsistent.Wehavehadafewpeoplethatinconversationsandmodelingofinstallsdeployed,andwewanttobeonthesamepage.Wecancontrolit.Andagain,weareveryconfidentintheinstalls,whichisamostimportantthingfromourperspective,becauseifwedon'tgetinstalled,nothingelseisgoingtomatter.
T anguySerra(COO):
IagreewithBrad.Justcouldusesomecolor.Wefeelvery,verygoodaboutthedeploymentnumbersandtheinstallnumbersthatwe'regivingouthere.Thingsthatcouldswingitbetweenthebottomendandthetopendoftherange,asLyndonsaid,attherunratethatwe'llbeattowardstheoftheyear,it's50megawattsistwoweeks'worthofvolume.Permittimesextendingtwoweeksonagivenprojectcould
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page8of21
swingitbetweenthebottomandtopendoftherange.Butitreallydoesn'tchangethefundamentaleconomics.It'sreallyisweeksoftimingasopposedtowhetherwewillinstallthemarenot.
PhillipShen (Analyst-RothCapitalPartners):
Great.Thanks,everyoneAsformyfollow-up,canyougiveusyourlatestviewonhowyouexpectmegawattstoscalein2016,andpotentiallyinto2017aswell?
LyndonRive (CEO):
Yes.Goodquestion.We'renotreadyyettogiveafullcostfor2016,butweareconfidentthatourgrowthwouldbeabouttheindustrygrowthfor2016.Sowe'rejustnotyetreadytogiveamegawattinstallfor2016.
Operator :
SankarKrish,BankAmerica.
Unidentif iedPart icipant :
Hey,guys.ThisisAndrewonforKrish.Quickquestiononthedeploymentversusinstallbreakdown.Justcuriousifyouhadanestimateofwheredeploymentswouldbein2015.Andthemainpartofthequestionisreallyhow--whataretheimplicationsofthisgoingintonextyearwith--asfarasgettinginstallationsqualifiedfortheInvestmentTaxCredit?Willthatbeanissueifyouhavesomethingonaroofinstalledbytheendof--inmid-December2016butitdoesn'tgetapprovalorisofficiallydeployeduntilsometimein2017?DoesthatraisesomeITCissues?
BradBuss (CFO):
Letmetakethefirstpart.Inourpressreleaseweshowyouinstallsanddeployed.Andwe'regoingtocontinuetoshowyouthoseinformation.We'rejustgoingtoguidetoit,justsoweareclear.Youwillalwaysseethatinformationwhenithappens.Andwe'llputitoutthere.Justsowe'reclearonthat.Butit'stoohardtoguidetorightnow.Imean,theamountofcommercialandthenthehundredsofjurisdictionswe'redealingwith,it'sallovertheplace,especiallywithChristmas.Sowe'dbegladtoprovidetheinformation,talkaboutithistorically,butit'stoohardtopredict.
LyndonRive (CEO):
It'stwo[grains]betweentwotothreeweeksanddelay.Soroughlyspeaking.Sowhateverthe--thatnumberwillgrow,butyouhavetolookatitweeksofmegawattsinstalledversustotalmegawattsbeingdeployed.There'sadifferencebetweeninstalledanddeployed.
Intermsofthesecondquestion,yes,absolutely.ThiswouldbeaconcernonespeciallylargerprojectsthathavetoPTOintimefortheITC.Sothiswillhavetobeincludedintoourguidance.Andhastobebuiltinaswelookat[ceiling].Thewaywewouldlookatit,formostoftheproject--thisismoreapplicableforthecommercialprojectsthatdon't[pencil]withoutit.Butformostoftheprojectsthatweweredeploying,wewillcontinuetojustinstallandhavea$0.60perwatteconomicvaluecreationinsteadofover$1.Butyes,we'lljustcontinue
Unidentif iedPart icipant :
Great.AndthenjustonthePowerCocashflowmodel,andthanksforthatandalltheincrementaldetail.Whenyoulookinto2017,justcuriousifyouguyscancommentonhowquicklydotaxequityobligationsrampdownversushowquicklysortofinterestandamortizationmightrampupasthefinancingmixfornewinstallschanges?Inotherwords,doyouhavelegacytaxequityobligationsthatyou'llhavetopay,
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page9of21
butsincenewsystemswillbepotentiallymoredebtfinanced,theinterestandtheamortizationrequirementsincrease?Thanks.
BradBuss (CFO):
Waytoointhefuture.
LyndonRive (CEO):
ButI'mnotsureIunderstandyourquestion.
BradBuss (CFO):
Andrew,areyouaskingtheextenttowhichyourpre-30%ITCstuffkindofrollsoffasthe10%rollsin,andthepacewithwhichthathappens?
Unidentif iedPart icipant :
Yes,exactly.Ifyourobligationstotaxequitystaykindofwheretheyareentering2017forawhile,asthoselegacy30%dealscontinuetogetpaidoff,butasnewinstallsarebeingdebt-financedyourinterestandamorpaymentsmightincreaseaswell.
LyndonRive (CEO):
Soessentiallywhatwillhappenediswe'lldolesstaxequity,moredebt.Nothingchangeswiththe[past]system.Thoseobligationsstayexactlythesame.Allthesystemswedeployin2016aregoingtohaveasimilarobligationstowhatyou'reseeingin2015.In2017ona10%ITC,we'llberaisinglesstaxequityso[we'llbegiving]lessofthecashflowstothetaxequityinvestorsandthenmorethecashflowtodebtproviders.Ithinkthat(multiplespeakers).
Unidentif iedPart icipant :
Thanks,guys.
Operator :
VishalShah,DeutscheBank.
VishalShah (Analyst-DeutscheBank):
Thanksfortakingmyquestion.Intheneartermhaveyouseeanychangeinthemodularpricingenvironmentbecauseofthechangeinthetradecase[willlink]withallChinesecompaniesthatpricesinthe[stabilized]havegoneupalittlebit?Andthenwhat--canyoumaybetellusaboutyourinternationalstrategy?Areyoustartingtolookatthoseinternationalmarketsasyou'relookingoutinthe2016timeframe?Thankyou.
T anguySerra(COO):
Sure.I'llanswerthefirstoneandthenLyndonwillanswerthesecondone.Butonthefirstone,yes,weareseeing--we'reclearlyseeingexactlywhatyoudescribed,modularpriceshavebeenflattishforthelastseveralquarters,lastfivetosixquarters.Andwe'reseeingnowpricingstartingtocomedown.There'sanumberofreallyhigh-qualitymodulemanufacturers,bothinChinaandoutsideofChina,forwhichwe'regratefulpartnersthatareseeingtheirpricereductionsfromthesequarters.Sothatfeelsreallygoodwhenwelookatourcosttarget.
LyndonRive (CEO):
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
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Yes.Andontheinternationalmarkets,we'reabsolutelyveryinterestedinlookingatinternationalmarkets.Therearemanyinternationalmarketswheretheequityvaluecreationisreallygoodwithoutanyincentives.Soit'sjustpureonthefundamentals.Wearelookingatthose,andstaytuned.
Operator :
EdwinMok,NeedhamandCompany.
EdwinMok(Analyst-Needham&Company):
SoIunderstandyouguyshavetheABSontherowandcan'ttalktoomuchaboutit.Butcanyouactuallyclarifytwothings?FirstisthisABSisonlyforthehistoricalleaseproject.Doesn'tincludeanyMyPower.Thenkindofrelatetothatquestion,howmuchMyPowercontractdoyouthinkyouneedyoubilluptobeforeyoucanactuallydoaMyPowerABS?
BradBuss (CFO):
Edwin,wereallycan'ttalkaboutthatdeal.Iwouldsuggestmayberealignyourquestion.
EdwinMok(Analyst-Needham&Company):
ButthenmyquestionrelatetoMyPowerABS?Anywayyoucanquantifyhowmuchyouthinkyoucanbillup--youneedtobillupinMyPowercontractsbeforeyoucandoaMyPowerABS?
BradBuss (CFO):
Wedon'twanttotalkaboutABSrightnow,ifyoudon'tmind.
EdwinMok(Analyst-Needham&Company):
Okay,Ithinkthat's--
LyndonRive (CEO):
OnMyPower,justwhenwedo--ifwewereanABSonMyPower,yes,ithastoworthwhiletogetintoalargeenoughsizetogothroughthesetransactions.
BradBuss (CFO):
It'seasier,andlikeLyndonsaid,we'rebuildinguptheassetsandthenwe'lllookatthebackleveragingatthetimeasappropriate.AndifABSistherightvehicle,awayitgoes.
EdwinMok(Analyst-Needham&Company):
Isee.Yes,Ikindofagreewiththat.Itseemslikeitshouldbemucheasier.AndthenthanksforprovidingthePowerCocashflowinformation.Thatwasveryhelpful.Anywaywecankindofthinkabout--asIwalkthroughthat,obviouslyyouguysarefinancingalotofitwithdebt,right?Anywaywecankindofthinkabouthowmuch--whatkindofinterestrateweshouldexpectaswelookforward?Howwethinkaboutinterestratethatweshouldexpectthatneeds--youguysneedtopaytofinancethosecashflow?Anykindofwayyoucanhelpusthinkaboutthat?
BradBuss (CFO):
Canyouclarifyexactlywhatyou'reasking?
LyndonRive (CEO):
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
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Wediscloseourinterestrates.Youhavethat.
BradBuss (CFO):
I'malittleunclearwhatexactlyyou'reasking,Edwin.
EdwinMok(Analyst-Needham&Company):
Soyouguysdisclose.Icanusethis[realgoal]informationtogetaroughideaofwhatrate,whatisyourplan,theinterestraterightnowforyourdebtthatyouhave,right?Isthereawaywecanthinkaboutthatlongerterm,whatrateisit--becauseyouguyshavealotofdifferentdebt,differenttypeoffinancing,debtfinancing.Soit'skindofhardforustofigureouthowmuchofwhich--eachcomponentofthatisbakedintotheMyPowerdebt.
BradBuss (CFO):
There'stwoelements,obviously,right?Whathappenswithratesandthenthecorrespondingoffset,hopefully,iswheredoesourcreditspreadcontinuetogo?Ourpaper'sdoingreallywell.We'lltalkaboutthesecuritizationonceit'sdone.Butwe'removingintherightdirection.Theassetsaregreat,soweareinthatlow4%snow,andit'sjustareflectionofwherethosetwonetout.Ithinkwe'regoingtobecomfortablywellbelowallourcompetitorsoutthere,andmoreimportantlybelowthe6%we'vebeenusingforalotofourpresentvaluecalculations.YoutellmewhereratesaregoingtogoandthenI'llfillintherest
EdwinMok(Analyst-Needham&Company):
Yes.Okay,thanksverymuch.Appreciateyouranswer.
BradBuss (CFO):
Allright.Thankyou.
Operator :
[TollyFrank]fromRobertWBaird.
BenKallo (Analyst-RobertW.Baird&Co.):
Hey,guys.It'sBenfromBaird.Thanksforallthedisclosuresthere.Myquestionwasonanykindofbottlenecksyou'reseeinginconstructioncrewsoutthere.We'veheardsomeofthat,andIjustwanttoseewhereyouguysareinyourhiringforinstallationcrews.Andaswelookaheadinto2016,howyoufeelversussomeofthecompetitorsouttherethataren'tverticallyintegrated.
T anguySerra(COO):
Ithinkyouansweredyourquestion.I'mreallygratefulforthat.Beingverticallyintegratedisthekeytothisstuff,whichiswecallit--youcanuseabicyclechainanalogyorwhateveranalogyyouwanttousefortension,whichisifyou'vegotapipelineofsalescomingthrough,andthenafastdeploymentandahigh-qualitydeploymentofaudit,andthenacallcenterinLasVegas,whichisover1000peopletakingthecalls,handingthecustomercareissues,goingthroughthepaperworkandthenpushingthatouttothefieldwithpermittingandultimatelycreatingjobsforinstallers,thattensioniswhatcreatessuccess.
Sowhatthatdoesisthatitallowsustopaypeoplewell,obviously,becausewe'vegotareallysophisticatedformofincentivepayforourinstallers.Andthemorejobsthattheyfilterthrough,themorejobstheygetpaid,whichcreatesareally,reallypositivesenseintheorganization.Andthentheother
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
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thingitdoesisthatbecauseweareabletopayhigherwagesthantheindustrycomparablesatalowercostbecauseourutilizationissignificantlyhigher,itallowsustoattractandrecruitthebestintheindustry,aswellasfromotherindustriesbecauseasIsaidwe'reabletopaymorethancomparablejobs.
Ithinkthat'skeytoallofthisstuff,whichisinstallers'allaboutreally,reallyhavingarealstrongfocusonproductivity.Ifyoufocusonproductivityandyoufocusonkilowattsinstalledpercrewandkeepthatreallyhigh,youcanpaypeoplemore.Ifyoucanpaypeoplemore,youtendtoattractthebest.Andifyouattractthebest,thenyourproductivityishigh.Thatpositivecycleassociatedwiththeverticalintegrationthatyoumentionedisthekeytoallthis.
LyndonRive (CEO):
Intermsofourbottleneck,thehiringinstallcrewsisnotthetopofthelist.Thebiggestbottleneckthatwefaceistakingitfrombookingtogettingitreadyforinstallation.Andthat'swithdealingwithallthepermitting.That'sgoingbacktothecustomers,finalizingthedesign,backandforthcustomdesign,backandforthcustomer'sonvacation.Thattousisourbiggestbottleneck.Andtakingitfromabookingtoactuallygettingitreadyforinstallation.TheinstallationitselfasTanguymentioned,beareallygoodprocesstorampthatup.
BenKallo (Analyst-RobertW.Baird&Co.):
Great.Thankyouverymuch.
Operator :
PaulCoster,JPMorgan.
PaulCoster (Analyst-JPMorgan):
Yes.Thanksverymuchfortakingmyquestion.Justonfromtheeconomicvaluecreationpage,page8or9.Thatyourcapacityfactorsseemtogodownalittlebit.Isthisbecauseofageographicsortofmakeshifttowardsnortheast,oristheresomethingelsegoingon?
LyndonRive (CEO):
Idon'tunderstandyourcapacityfactor.Whatdoyoumeanthere?
BradBuss (CFO):
Howareyoucalculatingthat,Paul?
PaulCoster (Analyst-JPMorgan):
Morehoursperannum.Seemstohavecomedownwhilebitrelativetothe(multiplespeakers).
LyndonRive (CEO):
Okay.That'samix.EastCoastisincreasingintermsofpercentageofourinstallations.That'sjustamix/
PaulCoster (Analyst-JPMorgan):
Okay.AndthencanyoutellusanythingaboutFICOscoresandwhereyou'reheadedultimatelyhere?Andmaybealsowhatkindofdefaultratesyou'reseeingatthemoment,ifanything?
LyndonRive (CEO):
OntheFICOscore,ourgoalasaCompanyistogettoapointwhereawecanmakesolaraffordableto
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
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everyone.Sothat's--we'regoingtotryanddo--we'regoingtodomoreandmoreinnovationtoachievethatgoal.Andthat'smakessolaraffordabletoeveryone.RightnowifyoutakethehistoryoftheCompanywewentfrom725FICOdownto700downto680downto650.AndnowwehavetofigureouthowwemakeitpossibleforeverybodyinAmericatogetcheapercleanenergy.Andsothat's--wejusthavetosolvethat.Intermsoftheactualdefault,it's--
BradBuss (CFO):
They'reminiscule.
LyndonRive (CEO):
Bestthingtolookatisourlostsecuritizationsthatwe'vedone.Thatdescribesitrealwell.
T anguySerra(COO):
Quick,Paul.JusttoclarifyLydon'scomments.Thenumberhegaveyouwereourbottom,ourminimum.Theydon'trepresentouractualaverage.Ouraverageisstillcomfortablyinthe700.730,740.Soyou'renotgoingtoseethat,itchangetooquickly.Thedelinquencies,evenjustaging,iswellbelownormal.It'ssub1%.Justagestuff.Andasfarastruewrite-offs,it'sacoupleofhandfuls.Andit'susuallyduetoanunfortunatecircumstance.
PaulCoster (Analyst-JPMorgan):
Right.Okay,gotit.AndthenlastlyifyoucouldgiveusaquickupdateonthemanufacturingcapacityupinNewYorkStateSilevo,andwhat'syourlatestthinkingonwhenthatcomesonlineandstartscontributingtowardsthelowercosts?
T anguySerra(COO):
Yes,we'reexcitedaboutthat.Wearestillontrack.We'llhavethebuildingsreadytowardtheendofthisyearandequipmentgettinginstalledinH-1nextyear.Andthenrampingupandbeingatfullcapacityin2017.Andthatwillsignificantlycontributetoreductionincosts,bothbecausethepanelsthemselvesonadollars-per-wattbasiswillbecheaper,butalsobecausethey'rehigherefficiencypanels.Andasaconsequencealloftheper-panelcostswillcomedownonaper-wattbasis.
PaulCoster (Analyst-JPMorgan):
Okay.Thankyouverymuch.
Operator :
PavelMolchanov,RaymondJames.
PavelMolchanov(Analyst-RaymondJames):
Thanksforincludingme,guys.CanIaskaboutthesmallbusinessopportunity?Youtalkabouthowit'sinthedonuthole.TherearenoFICOscoresthewayyouhaveinresi,butyoudon'thavecorporatecreditratingseither.Sohowareyougoingtodecidewhichsmallbusinessesarecredit-worthytosignaleaseandwhichonesarenot?
LyndonRive (CEO):
That'sareallygoodquestion.Sothere'sthisnewprogram.It'sactuallynotthatnewbutit'snewtoleasesand[pal]purchaseagreements.It'scalledthePACEprogram.That'sessentiallyaprogramthatallowsyou
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
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totietheleasepaymentstothepropertytaxofthebuilding.Andsowiththatyouessentiallytakeabuildingowneroracustomerthatitwashardtounderwritethecredittoautomaticallyaninvestment-gradecredit.Soit'sreally,reallystrongcredit.Infact,strongerthanmostinvestment-gradecredits.
Andsonowyoucanusethatandthenyoucanfinancethesystems.Andsothenthekeythingistotieittothat.It'savailablerightnowinCalifornia.Weexpectthattheresultsofthiswillshowotherstatestofollowit,becausethePACEprogramisactuallydeployedtoabout14states,butCaliforniaisthefirsttoallowleasesunderthatprogram.Andthewholepurposeoftheprogramistoallowbuildingownerstomakeanoperational--abuildingupgradetothebuildingthatwillreduceitsoperatingcost.Soanybusinessthatactuallydoesthis,thebusinessactuallybecomeshealthierandusingthetax--propertytaxtopayforit.
PavelMolchanov(Analyst-RaymondJames):
Okay,understood.Andisthisviable?Sothisapproachthatyououtlined,thisisapplicableinallofthestateswhereyou'regoingtoberollingoutthesmallbusinessproduct?
LyndonRive (CEO):
Weneedthelawstochangetoallowlease--SoPACEprogramisinabout14states.WhatchangedinCalifornialastyearwastoallowaleaseprogramunderthePACEprogram.Sothat'sakeychange.Soit'sonlyavailablerightnowinCalifornia.Andweexpectthattorollouttootherstatesasthestatesseethejobgrowthandthemovementofsmallcommercial,becausePACEhasbeenaroundforcommercialforfourorfiveyears.Andadoptionhasstillbeenverylower.IfyoucombinePACEandlease,we'reconvincedthattheadoptionwillincreasedramatically.
TheexampleIcouldgive,it'sactuallyverysimilartowhattheresidentialbusinessmarketwasbackin2007.Therewasfinancingavailableforresidentbackin2007,butyouhadtogogethomeequityloanandfinancethesolarsystem.Reallyhardandlowergrowthtodotopayingforcommodity.Nowwemakeiteasy.Wetakecareofeverything,andwejustprovidethemalowercostsourceofenergy.
Oneotherkeythingwhichyoumayhavepickedupinthemediareportsistheleasepaymentislocked.Sothevaluepropositionforthesmallbusinessesistremendous.Theysavemoney,callitabout5%to25%fromdayone.Thentheirleasepaymentislockedinatthatrateforthenext20years
PavelMolchanov(Analyst-RaymondJames):
Okay.Andthenjustquicklyonthegeographicfootprint.Ithinkyouwentintothreenewstatesjustinthepast90days,NewMexico,NewHampshireandRhodeIsland.Shouldweexpectasimilarpaceofnewstateentries,orareyoukindofreachingamore,maybeanaturallimitatthispointinyourfootprint?
BradBuss (CFO):
AsLyndonsaid,ourambitionistoprovidesolartoeveryone.Andwearereallyworkinghardonthat.Thekeytoprovidingsolartoeveryoneiscontinuingtolowercosts.Asandwhenwecontinuetolowercost,thenwehavearegulatoryregimeinstatesthatallowustocreateeconomicvalue,wewillopeninthosestates.Asyousay,weopenedthree.We'vegotacouplemorethatwe'reevaluatingandlikelytoopenprettyquickly.Andthenaswecontinuetolowercosts,we'llbeabletoopenmorestates.Fornow,thosearetheoneswe'regoing[tobeabletoopen].
LyndonRive (CEO):
Somestates'policyneedstochange.LikeyouhaveFlorida,whichwouldbeagoodmarket,butthereneedstobesomepolicychangetheretomakeSolarworkinFlorida.Asthosethingshappen,we'll
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
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[updatethefinancial].
PavelMolchanov(Analyst-RaymondJames):
Appreciateit,guys.
Operator :
ColinRusch,NorthlandCapitalMarkets.
NoahKaye (Analyst-NorthlandCapitalMarkets):
Hi,gentlemen.ThisisNoahKayeinforColin.Let'sjustpickuponthelastquestion,whichturnedtoadiscussionofpolicy.IthinkinyourletteryoumentionedNevadaandHawaiiaskindofanear-termpolicyfocuswhereIguesstheindustry'splayingabitofdefenseonthenetmetering.Sowheredoyouseetheincrementalopportunitiesforprogressivepolicy?Andwhatareyouputtingmostofyourfocusonthesedays?
LyndonRive (CEO):
SoI'mhighlyoptimistwhereweendupinHawaii,CaliforniaandNewYork.Ithinkthesearethethreestatesthataregoingtolookathowdoestheutilityandthesolarindustryofthefuturelooklike,andthey'regoingtocomeupwithprogramsthatallowandcontinuetoacceleratetheadoptionofrenewableenergy.Thosearethethreestatesthatsay--havetheclosestunderstandingofitandthesolutionswillbequiteexciting.
NoahKaye (Analyst-NorthlandCapitalMarkets):
Okay.Turningtoadifferenttopic.Lookingatsalescostandthinkingaboutsalescostefficiency,youhadarecordbookingsnumberinthequarter.That'sahighdenominator.Ithinkyear-over-yearsalescostsarestilltickingup.Canyouhelpusunderstand,andmaybebetterteaseouthowyou'rethinkingaboutdrivingdownthosesalescostsovertime,andwhatyourexpectationsaretolowertheacquisitioncostprocess?
LyndonRive (CEO):
Theacquisitioncostisactuallyquitetiedtoourgrowthaswell.Ifyoulookatourlowestacquisitioncosttodayisreferrals.Andit'sthelargestsourceofournewcustomers.Andsoifwewereto[start]onthegrowth,theacquisitioncostwouldcomedowndramatically.Soit'sthatlastmileinreachingthoseextracustomerswhohaveneverthoughtofsolarbeforeandthenspendingmoneytogetthemexcitedaboutit,oratleastforthemtoatleastunderstandit.
WearegoingtostarttryingtosellovertheWeb.Weareestablishingnewpartners,asyoumaysee.We'veestablishedapartnershipwithDirecTV.WehaveonewithnowBestBuyandHomeDepot,andthosepartnersarestillgoingdoingwell.Buttheacquisitioncostisseeminglytostayflattish,aslightincrease,butflattish.AndunlesswesucceedatreallyfollowingitthroughtheWeborchangingthesalesprocessandgettingmoreunitsthroughthesamesalesteam,that'sthewaywehavetogetthere.It'snotideal.I'dlikeittobealittlelower.
NoahKaye (Analyst-NorthlandCapitalMarkets):
Understood.Thankyou.
Operator :
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
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MichaelMorosi,AvondalePartners.
MichaelMorosi(Analyst-AvondalePartners):
Hi,guys.Thanksfortakingmyquestion,andappreciatetheincrementaldisclosureshere.First,costperwatt.Installationcostswereupquarteroverquarter.AndIwaswonderingifyoucouldmaybehelpquantifytheimpactfromtheinvestmentsthatyou'remakingincapacity,andmaybeanyunder-absorptionthathappendthereasthosecostswereupquarteroverquarter.AndthenalsoC&Iwascalledoutasbeingadriverofhighercostinthequarter,whichkindofsurprisedmebecauseIwouldhaveexpectedC&Iinstallationcoststobeloweronaper-wattbasis.AndIhavefollow-up.
BradBuss (CFO):
Sure.Acoupleofthings.Oneisonalike-for-likebasis,ifyoulookathousing,rooftopsforcommercial,groundmountsforcommercial,carportsforcommercial,onalike-to-likeallthecostsaredownsequentially.Housingisdown.Itcostuslessthisquarterthanlastquartertoinstallagivenhouse.ThisquarterinQ2wehadanumberofhighercostprojects,includinginparticularcarports,whichhaveahighercostperwattthantheaverageblend.Andsowhenyoupullthosethroughthefinancials,theblendedcostgoesup.It'samixeffect.
AsImentionedearlier,theprice--thePPApriceofthosecarportsisalsohigher.Andsoeventhoughthedollars--thecostsarehigher,therevenueassociatedwiththatisalsohigher.Soit'ssomewhatofa--it'samixeffectonthecosts.Onalike-for-likebasisthecostarecontinuingtodecline.Wereallycrackedthecodeonbeingabletogrowwithouthavingexcesscapacityandhiringjust-in-time.Ifyoudon'tdothat,yourcostarejusttoohighreally,reallyquick.Andsoweareveryfocusedonthat.Thatwas,Ithink,thefirstpartofyourquestion.Didyouhaveasecondpart?
MichaelMorosi(Analyst-AvondalePartners):
Yes.Ithinkyoutouchedonitalittlebit,butjustthemixofC&Iandwherethosehighercostscomefromand(multiplespeakers).
T anguySerra(COO):
Soit'scounterintuitive,butwhenyousubcontractoutacommercialinstall,itactuallycostsyoumorethanitwouldcostustodoaresidentialinstall.Ithinkthatspeaksmoretoourresidentialqualityandthequalityofourinstallteams.Alotofourinstallersaretrulyheroesandwe'reabletogetamazingcostontheresispace.Andsothe[counterintuitively]ourcommercialcostshavehistoricallybeenhigherthanourresicosts.Andwhenwe'rein-sourcingthecommercialjobs,we'reseeingsomephenomenalcostsonthecommercialside,whichwefeelreally,reallygoodaboutit.Andthat'sgoingtodragdowntheblendedcostsverysubstantially,Ithink,whichgivesusalotofcomfortinthe$1.90buildcostfor2017.
LyndonRive (CEO):
Andwhichopensupawholenewmarketforus.
T anguySerra(COO):
That'sright.AndIthinkLyndonraisedakeypointhere,whichisthere'sanumberofroofsincommercialthatwehaveaphenomenalproductforbecausewe'vebeenabletocrackthecostoncode--crackthecodeoncosts.
LyndonRive (CEO):
Intermsofroofspace,smallcommercialisabiggermarketthanlargecommercial.Soit'sabigmarket.
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
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MichaelMorosi(Analyst-AvondalePartners):
Thanksforthat.(Multiplespeakers).
T anguySerra(COO):
Onepointjustforfun.Whenwedothecommercialcostsourselves,we'reabletouseZSPeak,oranumberofourZedproducts.Sothat,wereallygetthebenefitofhavingabettermountinghardware,whichalsoispartofthetrickhere.
MichaelMorosi(Analyst-AvondalePartners):
Thanks,guys.Appreciatethatcolor.Thenasafollow-up--
LyndonRive (CEO):
Onemorethingonthatsamepoint.Notgivinguponthisthing.(Laughter)wantforustogivea[education]ofhowitusedtotakeuswhenwesubbeditversusifwedoitourselves.
T anguySerra(COO):
Yes.Thisisafascinatingtopic.Wespentalotofourtimeonit.Wereally,reallythinkwecantakealotofcostoutcommercial.Atypicalbig-boxretailerusedtotakeabout26,27daystoinstall.Andwithgreatsubcontractorssuper-highquality,butwhenwedothejobourselveswithourpeople,SolarCityemployees,allawesomepeople,ourtraining,ourmethods,ourapproach,ourcultureittakesthreedays.
Andthat'sadramaticdifference,obviously,infixedcostbecausethecraneandallofthesortofassociatedfixedcoststhatyoupayperdayjustdramaticallycollapse.Andtheotherthingitdoesisforabig-boxretailerwhoobviouslyeverydayofconstructiononaroofisapain,beingabletotakethatfrom27daysto3dayshasbecomeacompellingandpowerfulsalesargumentforoursalesteam.Andsowe'rewinningalotofbusinessonthatbasis,justbeinglowercost,faster,better,saferthancompetitorsoutthere
LyndonRive (CEO):
Infact,peopledon'tbelieveus.Sowecreatedavideotoshowyouhowwecandoitin3daysversus27days.Youwillseeit.
BradBuss (CFO):
We'llbepostingitonourWebsite.
MichaelMorosi(Analyst-AvondalePartners):
Verygood.AndIhaveafeelingthisanswermightbealittlebitshorter.ButIcan'thelpbutnotice(laughter)Ican'thelpbutnoticethatyoucalledouttheCAFDsharesofbeing$1.18.Sothatbegssomeobviouscomparisonsacrossthe[oco]space,andahealthydiscussionaroundanypremiumsmaybeassociatedwiththelackofdilutionthatittakestogrowthatCAFD.Butalsoitmaybebegsthequestionofwhetherorhowclosewemightbetoseeinganykindofcashreturnedtoshareholders.
LyndonRive (CEO):
CashreturnedtoaSolarCityshareholder,Idon'tthinkyou'regoingtoseeitforalong,longtime.Ourgoaliseverydollarwearemaking,we'regoingtoreinvestingitasfastaswecan,drivingthegrowth.It'sallsolarpenetrations,50%or60%oftheworld.Ithinkthereturnstotheshareholdersaregoingtobefargreaterifwecontinuetogrowandspreadthesolarlove.
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
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MichaelMorosi(Analyst-AvondalePartners):
Allright.Iappreciateit.Thanks,guys.
Operator :
JulienDumoulin-Smith,UBS.
JulienDumoulin-Smith (Analyst-UBS):
Goodafternoon
BradBuss (CFO):
Hi,Julien.
JulienDumoulin-Smith (Analyst-UBS):
Firstquickquestion.ABS.Nottogettootouchy,buthowfrequentlydoyouguysexpecttocometothemarketnow?Justhopefullyironingouttheissuesassociatedwithit.Butshouldweexpectaprettyregularfrequencyatthispoint?
BradBuss (CFO):
We'rereallynotgoingtocommentontheABS.
T anguySerra(COO):
Julien,Brad'slookinglike,no,we'renotgoingtoanswerthatquestion.
BradBuss (CFO):
Yes.I'mgettingthedeathlookfromthelawyer.
JulienDumoulin-Smith (Analyst-UBS):
Itried,right?
BradBuss (CFO):
Askanotherone,though.
JulienDumoulin-Smith (Analyst-UBS):
Fairenough.Andthenonthecommercialefforthereyouguysaretalkingabout.Obviouslysomewhatexciting,butcouldyouhelpquantifythatintermsofamegawattopportunityintermsofleveragingpace?Itseemskindoflikeofastepchange.Ifyoucankindofprovidesomeperspective,bothmaybeinthebackhalfofthisyearasyouthinkaboutthatcontributingtoyourtarget,andthensubsequentlyinyearsonwardsifyoucankindoftalktoit.Maybewhilewe'reatit,margintotheextentpossibleaswell.
LyndonRive (CEO):
Sure.Ithinkthenextquarterisgoingtobeverytelling.Wecrackedthenutonthecodeonthecost.We'vecrackedthenutonfinancing.Nowwehavetocrackthenextnut,andthatisevery--it'sgoingtobethesameprocessasourresidential.Everybodysignsthecontract.There'snonegotiating,nothing.Thisiswhatyouget,thisiswhatpayforthem,andweloweryourcostofenergy.Sothatsalesprocess,we
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
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justlauncheditonTuesday.Wehavetoexperiencethatsalesprocesstoreallygiveyouabetterforecast.Sothenextearningscallwe'llbeabletogiveyoualotmoreinsightintowhat--howthatdivision'sdoing.
Butintermsofmarketsize,itisthesecondbiggestmarketinthecountry.Residential,numberone.Smallcommercial,numbertwo.Andthenlargecommercial,numberthree.Soithasamazingpotentialandifwecrackthat--ifweproveitout,we'llcreatethesimilartypeoffactorywhereyousellon-site,youselloverthephone,yougetcustomerstosignup,wedothedesign,wedotheinstalls.Weleverageourexistingoperationalstandards,wecreatethecrewswithinthatsameinfrastructure.Andwejustscaleit.AndwetakeitfromCaliforniaandtheneventuallytakeittotheEastCoastandexpandittotheotherstates
BradBuss (CFO):
Andmoreimportantly,thereturns,they'reonparrightwithourresibusiness
LyndonRive (CEO):
Grossretainedvaluesshouldbearoundthe$1.90orso.
JulienDumoulin-Smith (Analyst-UBS):
Okay.Soit'ssimilar.
LyndonRive (CEO):
Yes.
JulienDumoulin-Smith (Analyst-UBS):
AndthenjustyoukindofalludedtoitearlierintermsofpolicyforPACE.Areyouseenadoptionelsewhere,ifyoucanspeaktothat,andwhere--whatisyourexpectationfortheadoption,ifyouhaveoneinotherstates?
LyndonRive (CEO):
OfPACE?
JulienDumoulin-Smith (Analyst-UBS):
Yes.
LyndonRive (CEO):
PACEhasagreat--it'sagreatstory.Itcreatesalotofjobsandreducestheoperatingcostofthebuilding.Andit'sagoodprogramtoenablesmallbusinessestousecleanenergy.AndsoI'mconvincedthatassoonaspolicymakersseetheamountofjobgrowthwe'recreatingwiththisprograminCaliforniaandtheamountofsavingswecangivetotheirsmallbusinesses,then--thattheywouldjustchangetheirpolicy,becausetheyalreadyhavetheprograminplace.They'vejustgottosaythatit'sallowedforleases.Soit'snotabiglift.It'snotbringingawholenew--it'snotcreatingthePACEprogram.It'sjustmakingamodificationtoincludeleases.
JulienDumoulin-Smith (Analyst-UBS):
Butnonecessarytimelineofforecastorexpectationsonspecificadditiondates,etcetera?
LyndonRive (CEO):
CompanyName:SolarCityCorpCompanyTicker:SCT YSector:T echnologyIndustry:Electronics
EventDescription:Q22015EarningsCallMarketCapasofEventDate:5.43BPriceasofEventDate:58.05
©2014TheStreet,Inc.Al l R ightsReserved Page20of21
I'mexpectingfirsthalfofnextyear.
JulienDumoulin-Smith (Analyst-UBS):
Gotyou.Allright,great.Thankyou.
Operator :
PatrickJobin,CreditSuisse.
PatrickJobin (Analyst-CreditSuisse):
Thanksfortakingthefollow-up.Ireallyappreciateit.Sothe[bolish]feeison2017atthecosttarget,whichIguessisonlya14%costdeclinetogettothat$0.60of[event]PV.Lookslikethemarketdoesn'tgiveyougettingmuchcreditpost2017.Butwhatotherassumptionsaregoingintothat$0.60?AmIcorrecttoassumeyou'rejustlookingatisolatingthatITCimpactandyou'renotincludinganyutilityrateincreases?Andthenmysecondquestionkindofalignswiththat.HaveyouseenanytractionwithalargersetofcustomersinCalifornia,giventheAB327ratetiercompression,havingmorecustomerspotentiallyviableforsolar?
LyndonRive (CEO):
Firstoff,you'recorrect.Weassuming--there'snotmuchmovementonpricing.It'sacombinationofcostreductionandlesscashgoingtothetaxequityinvestors.Thatgetsustothe$0.60awatt.IntermsofmarketingcreateinCalifornia,thepeopleintheknow,knowit.Mostoftheconsumersdon'tquiteknowityet.We'reexcitedaboutit,asitwillincreaseourupbase.Thechallengehasneverbeenthetoptier.Thechallengehasalwaysbeenthesmallerhomesorthehomesthatuselessenergy.Nowatour$0.15offering,everycustomerwillseeasavings.Sowelikeit.
PatrickJobin (Analyst-CreditSuisse):
Thanks.Greatquarter.
AaronChew(VPofIR):
Thanks,everybody.
LyndonRive (CEO):
Thankyou,andhaveagreatday.We'redone,operator.
Operator :
Ladiesandgentlemen,thisdoesconcludetoday'steleconference.Thankyouforyourparticipation.Youmaybedisconnectyourlinesatthistimeandhaveawonderfulday.
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©2014TheStreet,Inc.Al l R ightsReserved Page21of21
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