SolarCity (SCTY) late Wednesday released what could be the company's last earnings report as an independent, beating expectations for the quarter but doing little to quash concerns about its long-term future.
The San Mateo, Calif.-based solar panel installer reported a loss of $2.27 per share, two cents better than consensus expectations, on sales of $201 million. The numbers were released with little publicity, in part because the company has a deal in place to sell to corporate cousin Tesla Motors (TSLA) for $2.6 billion.
For shareholders of both Tesla and SolarCity set to vote on the deal on Nov. 17, the outlook for SolarCity remains hazy. Shares of the company dropped 4% post-election on fear that a Donald Trump presidency might mean a drop off in government incentives to install renewable energy products, and fell an additional 3.7% at midday Thursday.
The merger is being championed by Tesla CEO Elon Musk, who is also chairman of SolarCity and owner of 22% of its shares as the creation of the first integrated clean energy company, but some critics have worried that saddling Tesla with SolarCity's losses and weak balance sheet could slow the rate of growth of the auto business.
The company ended the quarter with $1.37 billion in net debt. And SolarCity in its results reduced its full-year installation guidance for the third time, with the company now expecting to install about 900 megawatts worth of panels in 2016, well-below their initial guidance for more than 1,200 megawatts worth of installations for the year.
But SolarCity CEO Lyndon Rive, Musk's cousin, and CFO Radford Small in a letter to investors said that things are looking up for the company. "We are heading into the potential combination with a strengthening cash balance, year-to-date revenue up 79% and gross profit up 91% vs. last year," they wrote. The company installed more solar capacity than anticipated during the recently completed quarter.
SolarCity said its costs for every watt of solar generating capacity it installs fell by 5% to $2.89 per watt as sales costs declined by 18 percent. It's cash balance, which hit a low of $146 million at the end of June, rose to $259 million thanks largely to a series of financing deals closed in the quarter.
The company is hoping that a transition from its former model of installing panels on long-term leases to direct sales will mean more upfront payments and less need to finance its installation costs over time. But those sales are proving more difficult to close than leasing deals, which coupled with steps taken to reduce its customer acquisition costs, are causing the shortfall in hitting installation targets.
Musk has argued that the Tesla merger should help boost sales at SolarCity by putting the automaker's well-liked brand, network of showrooms and marketing power to work selling solar panels. Tesla officials in a Q&A session with analysts earlier this month estimated that SolarCity would actually add more than $500 million in cash to the combined company's balance sheet over the next three years, which would be a shocking reversal compared to the company's current trajectory.
But the company during that session offered no concrete estimates on how many car drivers are interested in solar panels or a solar roof, and admitted that multiple sales to a single customer were likely to be spread out over a number of years.
The deal has received mixed reviews from proxy advisory firms, with Institutional Shareholder Services recommending shareholders back the deal while Glass Lewis & Co. came out against it.