SUNE - Sunedison Inc.

[KJP]

 

SUNE doesn't need to pass off projects to TERP and GLBL.  They can sell all the projects to third parties at a very attractive margin   

 

Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future?  I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins.

 

Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP).  What doesn't seem consistent about that and DevCo gross margins?

 

I may not understand SunEdison's accounting.  If it was selling projects to third parties at "attractive margins," wouldn't the Renewable Energy segment be generating significant gross profits and gross margins?  In Q3 the Renewable Energy segment's gross profit was zero; for the last nine months gross margin is around 4%.  See http://investors.sunedison.com/phoenix.zhtml?c=106680&p=irol-newsArticle&ID=2110893

 

If the very profitable sales to third parties don't show up in the Renewable Energy segment's gross margins, then where do they show up?

 

This is why the stock gets beaten down at every earnings announcement.  People focus on GAAP, which more or less reflects economic reality in 99% of cases, but not in this one, and infer SUNE is a crappy business.  In Q3, they sold 106 MW but retained 534MW.  So the operating expenses associated with developing 640MW show up as expenses, but GAAP only records the revenue associated with the sale of the 106MW.  The 534MW retained will result in very modest amounts of revenue spread out over 20 years (which has a positive NPV).  The result is that for a company growing MWs so rapidly, the operating expenses mask the economic value of the developed MWs.  If you look at the presentation from today, they disclosed $0.36/watt in gross margins on the 3rd party sales.  So, if in 2016 they sold all 3,700 MWs developed, there would be $1.3 billion in gross profit.

 

I understand your point about operating expenses.  But I'm focused on gross margins to confirm that the company can actually generate the development margins it claims. 

 

I see the footnote in the presentation that refers to 15% gross margins.  Here is the footnote in full:

 

"Represents 41 MW of GAAP revenue recognition. Project revenue on system sales of 15 MW was $37 M (excluding equipment sales of 26 MW and $46M) ; System sale gross margin was 15% or $0.36/watt (excluding equipment sales)"

 

The footnote was dropped from an entry saying that were third-party sales of $83 million in Q3.  I had the following questions after reading it:

 

1) If $83 million in sales represents 41MW, what happened to the other 64MW sold to third parties?

2) As I read the footnote, the 15% margin applies only to 15MW of the 41MW covered by the $83 million figure.  What was the margin on (i) the other 26MW included in the $83 million revenue figure and (ii) the other 64MW sold to third parties that do not appear to be included in this information?

 

On an unrelated topic, p. 19 of the 3Q presentation says that SunEdison only gets its "development equity" back at the time the projects are dropped to the warehouse line, and then it receives its "margin" at warehouse "exit."  I haven't listened to the call.  Did they explain exactly what "development equity" and "margin" refer to? 

[Palantir]

"2. Dominion JVs are treated as 50% third party and 50% retained"

 

I don't know what the GMs on the other MW sold is, but it is surely lower as 83/41= $2.05/MW which is on the low side. Keep in mind, the retained MW's gross margin will be higher.

[KJP]

"2. Dominion JVs are treated as 50% third party and 50% retained"

 

I don't know what the GMs on the other MW sold is, but it is surely lower as 83/41= $2.05/MW which is on the low side. Keep in mind, the retained MW's gross margin will be higher.

 

I see the other footnote you quote.  How does it relate to my questions about the 15% margins?

 

Also, why will retained MWs necessarily produce higher gross margins if they're dropped into the warehouse lines?  I don't understand the presentation slide that discusses the mechanics of the warehouse lines, in particular the slide's references to "development equity" and "margin."  What will the gross margin be on projects that are dropped to the warehouse line but never then dropped down to TERP or GLBL?

[Palantir]

Retained MW have better economics bc mgmt has visibility into their operations, which is why it chooses to retain.

[KJP]

Retained MW have better economics bc mgmt has visibility into their operations, which is why it chooses to retain.

 

Is that something you're taking on faith, or are there quantitative disclosures that support it? 

[cmlber]

"2. Dominion JVs are treated as 50% third party and 50% retained"

 

I don't know what the GMs on the other MW sold is, but it is surely lower as 83/41= $2.05/MW which is on the low side. Keep in mind, the retained MW's gross margin will be higher.

 

I see the other footnote you quote.  How does it relate to my questions about the 15% margins?

 

Also, why will retained MWs necessarily produce higher gross margins if they're dropped into the warehouse lines?  I don't understand the presentation slide that discusses the mechanics of the warehouse lines, in particular the slide's references to "development equity" and "margin."  What will the gross margin be on projects that are dropped to the warehouse line but never then dropped down to TERP or GLBL?

 

An analyst asked a question about this on the call and they said the gap between 41MW and 106MW was that 65MW of the 106MW are projects under construction that will finish outside of the quarter so the revenue doesn't show up this quarter but they are contracted.  Yes 15W is a small sample, but the company has visibility into 2016 and guided to 36 cents per watt gross margin and 18 cents per watt operating margin.

 

There is some element of "faith" in assuming retained projects have equivalent economics of sold projects (this is what management has said), but it also doesn't make any logical sense that they would be materially different.  I think they go through the portfolio and whichever projects they underwrite at materially lower IRRs then 3rd parties underwrite, they sell.  But there's no reason to believe their underwriting should be materially different on specifically lower value projects, you would think it would be pretty randomly distributed with some projects that they think have an 11% IRR but 3rd parties think 9%, and some where they think 7% but 3rd parties think 5%.  Net effect should be that they are roughly the same quality (management says higher quality) on average.

[Packer16]

What do you guys think of this contrarian view on SUNE:

 

http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/

 

Does anyone know the impact on the valuation if European rates of return appear here in the US?

 

Packer

 

At $32, this mattered.  At this price, yields dropping to 4-6% would be a gigantic catalyst for the stock.  SUNE would be worth many multiples of the current stock price in this scenario.

 

Think about it, they'll be investing ~$7 billion in capital into projects yielding ~9% unlevered IRRs in 2016.  If someone in the market was willing to buy this for a 4.5% iRR (which they must be in order for someone to be willing to develop this for a 4.5% IRR), they created $7 billion in value (market cap $2 billion) in 2016. 

 

And they've got call rights on huge amounts of projects in warehouse facilities with IRRs closer to 9%, so they'd call all those and realize multiples of the stock price on those call rights. 

 

And the projects already in TERP and GLBL would be worth substantially more than current prices (double probably).

 

I think you have misunderstood the implication.  What is implied is the PPAs will provide lower rate of return on capital and thus lower cash flows.  For the initial projects there may be a high rate of return (that may be enhanced by tax credits) but in steady state projects the unlevered return on capital of 4 to 6% sounds more realistic than 8%.  If you add leverage onto the 4 to 6% you can get high single digit utility type returns.  Does anyone know what PPAs have been signed in SUNE's pipeline and how solid these are in terms of IRR?  Given the leverage here, it would interesting to see what the equity looks like with a more market-based utility type of return on these projects.

 

Packer   

[cmlber]

What do you guys think of this contrarian view on SUNE:

 

http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/

 

Does anyone know the impact on the valuation if European rates of return appear here in the US?

 

Packer

 

At $32, this mattered.  At this price, yields dropping to 4-6% would be a gigantic catalyst for the stock.  SUNE would be worth many multiples of the current stock price in this scenario.

 

Think about it, they'll be investing ~$7 billion in capital into projects yielding ~9% unlevered IRRs in 2016.  If someone in the market was willing to buy this for a 4.5% iRR (which they must be in order for someone to be willing to develop this for a 4.5% IRR), they created $7 billion in value (market cap $2 billion) in 2016. 

 

And they've got call rights on huge amounts of projects in warehouse facilities with IRRs closer to 9%, so they'd call all those and realize multiples of the stock price on those call rights. 

 

And the projects already in TERP and GLBL would be worth substantially more than current prices (double probably).

 

I think you have misunderstood the implication.  What is implied is the PPAs will provide lower rate of return on capital and thus lower cash flows.  For the initial projects there may be a high rate of return (that may be enhanced by tax credits) but in steady state projects the unlevered return on capital of 4 to 6% sounds more realistic than 8%.  If you add leverage onto the 4 to 6% you can get high single digit utility type returns.  Does anyone know what PPAs have been signed in SUNE's pipeline and how solid these are in terms of IRR?  Given the leverage here, it would interesting to see what the equity looks like with a more market-based utility type of return on these projects.

 

Packer 

 

Packer, the IRR on a new project isn't the key driver of the DevCo, its the spread between the IRR the developer can create and the IRR a buyer is willing to accept that matters for SUNE.  So 4-6% in itself wouldn't be bad for the DevCo if the spread is the same.  I think you're right, yields will eventually converge to more utility like returns, which will be a catalyst for the stock (but may eventually be bad for the DevCo).  The debt is largely non-recourse project level debt.  If yields compressed to 4% tomorrow, and SUNE stopped developing new projects and just went into run off mode, they would be able to sell all the projects in development for double what they invested, use the proceeds to pay off all the debt, and have a windfall left for shareholders.

 

This is part of the bull thesis, why don't these projects sell for utility like yields?  From Einhorn Q3 letter:

 

The better question is: Do TERP and GLBL have the opportunity to buy projects at returns that exceed the risk? If they do, the capital markets would be wise to fund them. We believe the answer is a resounding “Yes.” A power plant with a long-term power purchase agreement is roughly equivalent to a secured lender. As the customers are strong credits, the ability to buy a portfolio of these projects at a 7% unlevered yield in developed markets and a 10% yield in emerging markets should be very attractive in the current income-starved environment, where 7-year A-rated corporate bonds yield less than 3.5%. We believe that once the market sorts through the mess, TERP and GLBL should recover and regain access to the capital markets. This would allow SUNE to realize substantial additional value.

[LounginMKL]

Strategic buyers like utilities and other financial buyers should theoretically receive more value than YieldCo because they are able to monetize investment tax benefits in yr 1 and 5-yr accelerated depreciation, totaling ~50% of project value. The downside of selling to third parties is that they are more sophisticated- making more conservative assumptions (haircuts on solar production and higher operating expenses). YieldCo investors, on the other hand, can't monetize all tax benefits as incurred (they are carried forward), don't have visibility into project assumptions, are willing to accept lower equity return.

 

In my opinion, investors who bought into YieldCo IPOs are really the patsy (they paid more for less than private market) and unless they come back to buy more of it, SUNE and other developers will have a hard time raising more "takeout financing" (YieldCo) and third party sale should be the base case.

 

This post might not be helpful in valuing SUNE/TERP, but I thought I'd share my experience from selling solar projects =)

[Palantir]

^What IRRs do you typically see? My understanding is they are focusing on industrial rather than utility projects and have higher IRRs.

[KJP]

 

An analyst asked a question about this on the call and they said the gap between 41MW and 106MW was that 65MW of the 106MW are projects under construction that will finish outside of the quarter so the revenue doesn't show up this quarter but they are contracted.  Yes 15W is a small sample, but the company has visibility into 2016 and guided to 36 cents per watt gross margin and 18 cents per watt operating margin.

 

 

That makes sense for the difference between the 41 MW and the 106 MW.  Thanks for the info.  What is the difference between the 15MW about which SunEdison disclosed the margin and the 26 MW about which it did not?

 

 

There is some element of "faith" in assuming retained projects have equivalent economics of sold projects (this is what management has said), but it also doesn't make any logical sense that they would be materially different.  I think they go through the portfolio and whichever projects they underwrite at materially lower IRRs then 3rd parties underwrite, they sell.  But there's no reason to believe their underwriting should be materially different on specifically lower value projects, you would think it would be pretty randomly distributed with some projects that they think have an 11% IRR but 3rd parties think 9%, and some where they think 7% but 3rd parties think 5%.  Net effect should be that they are roughly the same quality (management says higher quality) on average.

 

 

As I understand it, SunEdison incurs costs of X to generate an asset that will produce a stream of cash flows with a present value of Y.  No matter how (and among whom) you ultimately slice up Y, the company is creating value if Y > X, and isn't creating value if X > Y.  A skeptic could argue that SunEdison may be selling projects where X > Y and retaining projects where X < Y to conceal from investors its money-losing projects and to keep the money flowing.  As you mentioned, management has denied this, but is there any way for an outside investor to confirm that from the disclosed financials?

 

Also, do you understand the economics of the warehouse lines and, in particular, (i) what exactly SunEdison receives when a project is transferred to a warehouse facility; (ii) what "margin" it would receive if the project is later dropped to TERP or GLBL; or (iii) what happens if the project is never dropped to GLBL?

 

 

[Packer16]

I looked on the SUNE site and could not find what the IRRs where on the projects with signed PPAs? Has anyone seen this?  I saw a chart of about a dozen projects with higher IRRs but had no idea how to map that to the current pipeline.  Conceptually this sounds like a good idea but I would like to see IRRs to get more comfortable.  TIA.

 

Packer

[roughlyright]

Wow. This looks like forced liquidation. Thoughts?

 

SUNE is dependent on two companies to pass their projects onto.  The Global company had issues with demand right out the gate.  Think people are realizing the risk associated with this company and the need for the markets to be open for both TARP companies.  With the doors closed to the TARP companies raising money people are finally assessing the real risk involved with this growth company and a backlog that might not materialize.  Add to it the recent dilution and takeover and people are reassessing their risk tolerance.  With a complicated company and financials it not hard to see the price where it is right now (at least in my view).

 

I'm still interested in the company but it will have to get below $5 before I reassess and pull the trigger.  Of the companies on my watch list the is the very last one so I'm in no rush one way or the other.

 

I think you'll be waiting a long time for $5.  The stake in TERP at a 10% dividend yield would be worth close to $4/share in a year.  The services business is probably worth another $2-3/share.  What's the DevCo worth?  Who knows, I'd guess not a negative number though.

 

 

$5 is here very quickly  :) I am thinking of buying some LEAPs

[cmlber]

I looked on the SUNE site and could not find what the IRRs where on the projects with signed PPAs? Has anyone seen this?  I saw a chart of about a dozen projects with higher IRRs but had no idea how to map that to the current pipeline.  Conceptually this sounds like a good idea but I would like to see IRRs to get more comfortable.  TIA.

 

Packer

 

In the business update on Oct 7th they had a slide that disclosed their estimated unlevered IRRs (average along with a distribution) for projects signed through 2016.  Average for OECD countries is 10% and non-OECD is 13%.

 

Slide attached.

[LounginMKL]

^What IRRs do you typically see? My understanding is they are focusing on industrial rather than utility projects and have higher IRRs.

 

We've seen unlevered IRRs (assuming ITC and depreciation monetized) for completed credit-worthy utility-scale projects to sell for around 7% (shadow modeling based on offer prices so it's a bit of guesstimate). From past SUNE presentations, I think I've read that their projects have IRRs of ~9%, which is high compared to what I've seen.  Then again, the IRR could be a function of aggressive operating assumptions.

[cmlber]

 

An analyst asked a question about this on the call and they said the gap between 41MW and 106MW was that 65MW of the 106MW are projects under construction that will finish outside of the quarter so the revenue doesn't show up this quarter but they are contracted.  Yes 15W is a small sample, but the company has visibility into 2016 and guided to 36 cents per watt gross margin and 18 cents per watt operating margin.

 

 

That makes sense for the difference between the 41 MW and the 106 MW.  Thanks for the info.  What is the difference between the 15MW about which SunEdison disclosed the margin and the 26 MW about which it did not?

 

 

There is some element of "faith" in assuming retained projects have equivalent economics of sold projects (this is what management has said), but it also doesn't make any logical sense that they would be materially different.  I think they go through the portfolio and whichever projects they underwrite at materially lower IRRs then 3rd parties underwrite, they sell.  But there's no reason to believe their underwriting should be materially different on specifically lower value projects, you would think it would be pretty randomly distributed with some projects that they think have an 11% IRR but 3rd parties think 9%, and some where they think 7% but 3rd parties think 5%.  Net effect should be that they are roughly the same quality (management says higher quality) on average.

 

 

As I understand it, SunEdison incurs costs of X to generate an asset that will produce a stream of cash flows with a present value of Y.  No matter how (and among whom) you ultimately slice up Y, the company is creating value if Y > X, and isn't creating value if X > Y.  A skeptic could argue that SunEdison may be selling projects where X > Y and retaining projects where X < Y to conceal from investors its money-losing projects and to keep the money flowing.  As you mentioned, management has denied this, but is there any way for an outside investor to confirm that from the disclosed financials?

 

Also, do you understand the economics of the warehouse lines and, in particular, (i) what exactly SunEdison receives when a project is transferred to a warehouse facility; (ii) what "margin" it would receive if the project is later dropped to TERP or GLBL; or (iii) what happens if the project is never dropped to GLBL?

 

My understanding (although I'm not certain) is that if they use traditional construction financing and drop a project into a warehouse facility that is operational, they get their margin at the time of the drop down.  But if they use the warehouse facility to finance the construction, then they don't get the margin out until the project exits the warehouse.

 

I think for big projects they will generally use traditional short term construction financing and drop down upon completion to the warehouse, but for smaller projects where that is too much of an administrative burden, they'll finance construction through a warehouse.

 

[MCN]

Hi all, I’m new to this discussion, trying to catch up with a few questions…….

 

 

Solar developers embark on a (utility scale) project only when a PPA has been signed, which may last 20/ 25 years, right? Is the pricing ($/kwh) fixed over the entire term or it varies in relation to wholesale power prices, rises with inflation etc?

 

What are the solar plant operator’s options once the PPA has expired; a new long term PPA or he must sell on a daily basis to wholesalers/ spot market?

 

At the end of the PPA or site lease what happens to all the equipment/ solar panels, do they need replacing/ refurbishing/ removing or can they be left in place until they stop producing completely? Must approvals, such as building permission etc be re-applied for?

 

What time frame is used to calculate the returns/ IRR and can a residual value be estimated?

 

Thanks

 

[physdude]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

[KJP]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials. 

[cmlber]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials.

 

I can only read what's posted online and not his full note, but it's very disingenuous.  He says they guided to 50-70MWs sold to 3rd parties and only sold 41MW, well that's not true they contracted to sell 106MW, they just won't recognize those MWs until Q4 because they aren't completed.  He says they guided to 18-19% margins on 10/7, I looked through the transcript and can't find anywhere where they said 18-19% gross margins.  All they said was $0.35/MW gross margin (maybe he was assuming that meant 18-19%) and they hit that on the 15MW that they sold. 

 

Idk about his claims on TERP, if the runoff claim is true, it's concerning, but shouldn't really matter for SUNE here.

[KJP]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials.

 

I can only read what's posted online and not his full note, but it's very disingenuous.  He says they guided to 50-70MWs sold to 3rd parties and only sold 41MW, well that's not true they contracted to sell 106MW, they just won't recognize those MWs until Q4 because they aren't completed.  He says they guided to 18-19% margins on 10/7, I looked through the transcript and can't find anywhere where they said 18-19% gross margins.  All they said was $0.35/MW gross margin (maybe he was assuming that meant 18-19%) and they hit that on the 15MW that they sold. 

 

Idk about his claims on TERP, if the runoff claim is true, it's concerning, but shouldn't really matter for SUNE here.

 

I also only have access to the online article.  I agree the distinction he's drawing between guidance on MWs sold and GAAP recognition of MWs sold may be dubious.  But isn't the concern about gross margins legitimate?  Put another way, management wants to focus on the margins for 15 of the sold MWs reported in GAAP.  Why are the (apparently very low) margins on the other 26MW not relevant?  What is different about those 26MW that allows them to be ignored? 

 

 

[cmlber]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials.

 

I can only read what's posted online and not his full note, but it's very disingenuous.  He says they guided to 50-70MWs sold to 3rd parties and only sold 41MW, well that's not true they contracted to sell 106MW, they just won't recognize those MWs until Q4 because they aren't completed.  He says they guided to 18-19% margins on 10/7, I looked through the transcript and can't find anywhere where they said 18-19% gross margins.  All they said was $0.35/MW gross margin (maybe he was assuming that meant 18-19%) and they hit that on the 15MW that they sold. 

 

Idk about his claims on TERP, if the runoff claim is true, it's concerning, but shouldn't really matter for SUNE here.

 

I also only have access to the online article.  I agree the distinction he's drawing between guidance on MWs sold and GAAP recognition of MWs sold may be dubious.  But isn't the concern about gross margins legitimate?  Put another way, management wants to focus on the margins for 15 of the sold MWs reported in GAAP.  Why are the (apparently very low) margins on the other 26MW not relevant?  What is different about those 26MW that allows them to be ignored? 

 

 

 

The other 26MW are equipment only sales, so I assume those are just commodity sales.  System sales I believe are fully completed and operating/cash flowing systems installed by SUNE where there is a PPA.  So it's entirely different, I don't know why they sell any equipment but there must be some reason.  Management reiterated guidance for 2016 though of 35 cents gross margins 18 cents operating margin.  We'll find out they are liars in 12 months if they are lying, so why would they lie about that?  What would that get them besides shareholder lawsuits?

[KJP]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials.

 

I can only read what's posted online and not his full note, but it's very disingenuous.  He says they guided to 50-70MWs sold to 3rd parties and only sold 41MW, well that's not true they contracted to sell 106MW, they just won't recognize those MWs until Q4 because they aren't completed.  He says they guided to 18-19% margins on 10/7, I looked through the transcript and can't find anywhere where they said 18-19% gross margins.  All they said was $0.35/MW gross margin (maybe he was assuming that meant 18-19%) and they hit that on the 15MW that they sold. 

 

Idk about his claims on TERP, if the runoff claim is true, it's concerning, but shouldn't really matter for SUNE here.

 

I also only have access to the online article.  I agree the distinction he's drawing between guidance on MWs sold and GAAP recognition of MWs sold may be dubious.  But isn't the concern about gross margins legitimate?  Put another way, management wants to focus on the margins for 15 of the sold MWs reported in GAAP.  Why are the (apparently very low) margins on the other 26MW not relevant?  What is different about those 26MW that allows them to be ignored? 

 

 

 

The other 26MW are equipment only sales, so I assume those are just commodity sales.  System sales I believe are fully completed and operating/cash flowing systems installed by SUNE where there is a PPA.  So it's entirely different, I don't know why they sell any equipment but there must be some reason.  Management reiterated guidance for 2016 though of 35 cents gross margins 18 cents operating margin.  We'll find out they are liars in 12 months if they are lying, so why would they lie about that?  What would that get them besides shareholder lawsuits?

 

I agree that the footnote suggests the distinction you make between system and equipment sales.  As for why lie, there are strong short-term incentives to do so.  That may be just digging a bigger hole for themselves, but it wouldn't be the first time. 

[cmlber]

Downgraded to sell with a price target of $2 by Axiom Capital. http://www.streetinsider.com/Analyst+Comments/SunEdison+%28SUNE%29+Managements+Credibility+Impaired%2C+Says+Analyst%3B+Axiom+Capital+Cuts+Rating+to+Sell/11064450.html

 

Seems like they also can't connect management's gross margin guidance and disclosures to what's actually being reported in the GAAP financials.

 

I can only read what's posted online and not his full note, but it's very disingenuous.  He says they guided to 50-70MWs sold to 3rd parties and only sold 41MW, well that's not true they contracted to sell 106MW, they just won't recognize those MWs until Q4 because they aren't completed.  He says they guided to 18-19% margins on 10/7, I looked through the transcript and can't find anywhere where they said 18-19% gross margins.  All they said was $0.35/MW gross margin (maybe he was assuming that meant 18-19%) and they hit that on the 15MW that they sold. 

 

Idk about his claims on TERP, if the runoff claim is true, it's concerning, but shouldn't really matter for SUNE here.

 

I also only have access to the online article.  I agree the distinction he's drawing between guidance on MWs sold and GAAP recognition of MWs sold may be dubious.  But isn't the concern about gross margins legitimate?  Put another way, management wants to focus on the margins for 15 of the sold MWs reported in GAAP.  Why are the (apparently very low) margins on the other 26MW not relevant?  What is different about those 26MW that allows them to be ignored? 

 

 

 

The other 26MW are equipment only sales, so I assume those are just commodity sales.  System sales I believe are fully completed and operating/cash flowing systems installed by SUNE where there is a PPA.  So it's entirely different, I don't know why they sell any equipment but there must be some reason.  Management reiterated guidance for 2016 though of 35 cents gross margins 18 cents operating margin.  We'll find out they are liars in 12 months if they are lying, so why would they lie about that?  What would that get them besides shareholder lawsuits?

 

I agree that the footnote suggests the distinction you make between system and equipment sales.  As for why lie, there are strong short-term incentives to do so.  That may be just digging a bigger hole for themselves, but it wouldn't be the first time.

 

Agreed, it's possible they are lying, but if they are, they'll both be fired and sued in short order, there's no way to cover it up.  It's more likely for a management to lie in a case where they are making acquisitions and can cover up lies (VRX) with acquisitions (more ponzi scheme like, lie because you can always cover it up with more lies), but SUNE management is intentionally slowing down to show the cash they can create when growth slows, so there's no way to hide that lie for more than a few quarters so it just wouldn't make any sense.

[Palantir]

I don't see why there is any reason to question gross margins for projects retained.