SunPower , the second largest U.S. solar equipment manufacturer, posted a stronger than expected set of Q4 2015 results, driven primarily by strong revenue recognition in its power plant business and accelerated execution of some projects. Below is a brief review of the company’s quarterly performance and what to expect from SunPower going forward.
We have a $28 price estimate for SunPower, which is roughly 20% ahead of the current market price. We will be updating our model to account for the results and the company’s revised segment reporting structure.
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Quinto Revenue Recognition Drives Power Plant Business
SunPower’s power plant revenues grew by over 200% year-over-year to $1.05 billion, with gross margins rising 11% to 32.9%. The revenue and margin growth was driven by the 135 megawatt Quinto project ($900 million in total non-GAAP revenue) that recently achieved commercial operation, as well as by EPC activity on the company’s 50 MW Hooper project that was completed a full quarter ahead of schedule. SunPower’s utility scale segment could benefit significantly from the recent extension of the U.S. Solar Investment Tax Credit (See below). Per GTM Research, the ITC extension could lead to a 73% increase in utility solar deployments through 2020 in the U.S. The international projects business is also expanding, with the company announcing a new 36 MW project in Mexico. SunPower’s global project pipeline now exceeds 14 GW, spanning a total of 325+ projects with the Middle East and Africa alone accounting for roughly 6.1 GW of the pipeline.
Commercial Business Grows, Margins Can Expand
SunPower’s distributed business did reasonably well, driven by commercial sales that grew by about 28% year-over-year. During Q4, the company dropped down a 20 MW commercial project that it is building for the Kern County School District into 8point3 Energy Partners, its joint venture yieldco. Although gross margins for the commercial business trail the company’s average margins (10.2% vs. 28.8% company-wide), they could improve going forward as deployments increase and as SunPower brings its standardized systems approach to its commercial applications. The company introduced a fully-integrated solar solution dubbed Helix, which combines components such as dual-tilt racking, factory installed connectors, cable management system and monitoring software into a single module. This should allow for quicker installations and lower costs. Soft costs – which include labor, design, engineering and margins – can sometimes account for more than 40% of a solar system’s cost.
While SunPower’s adjusted residential revenues declined by 2% year-over-year during Q4, the segment could gain traction going forward, driven by recent product introductions as well as the company’s partnerships with utility companies and home builders. During Q4, SunPower collaborated with TXU Energy to bring its solutions to the utility’s Texas customers, in addition to expanding its relationship with homebuilder Meritage Homes to supply the firm’s solar systems as a standard feature in all homes that it builds in the Orlando area in 2016. Recent Policy Developments Improve Long-Term Industry Outlook
2015 turned out to be a landmark year of sorts for solar policy. The United States Congress passed a spending package that included a multi-year extension of the Solar Investment Tax Credit – which is the primary federal incentive for solar power in the U.S – beyond December 2016. The extension could potentially double U.S. solar demand between 2017 and 2020 according to Greentech Media. That said, the extension could pressure 2016 results for SunPower, since the company will no longer have to complete its projects in 2016 in order to avail the tax credit, allowing it some flexibility to push project construction into 2017. GTM Research expects U.S. solar demand for 2016 to now stand at 13.5 GW, compared to its pre-ITC Extension forecast of 15.4 GW. Separately, 196 countries signed a landmark climate agreement in Paris, called COP21, which seeks to limit global warming, while potentially boosting the urgency to shift to renewable energy sources. These factors could help global solar demand rise to over 100 GW by 2020, up from levels of about 60 GW in 2015, according to SunPower. ((SunPower Q4 2015 Earnings Presentation))
Key Earnings Metrics Guidance (Non-GAAP)
- Non-GAAP revenues rose by 123% year-over-year to $1,364 million.
- Adjusted gross margins stood at 28.8%, up from 20.4% a year ago.
- Capital expenditures stood at $97.7 million.
- Cash and cash equivalents improved sequentially to $1,027 million.
Q1 2016 Guidance
- Revenues of between $290-$340 million, with 315-340 MW of capacity deployed.
- Gross margins of 12 – 13%
- EBITDA of between $0 – $25 million.
FY2016 Guidance
- Revenues of between $3.2 – $3.4 billion, with 1.7-2 GW of capacity deployed.
- Gross margins of 14 – 16%
- EBITDA of between $450 – $500 million.
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