SolarCity: Short-Term Cost Reductions Include Layoffs; Rives Reduce Their Annual Salary to $1

The company had a net loss of $250 million last quarter and is making an unspecified number of layoffs to adjust costs.

Eric Wesoff August 18, 2016

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

It's been a tumultuous 2016 for SolarCity.

Independent board members have approved Tesla's bid to acquire SolarCity in an all-stock transition worth $2.6 billion. And that means the most recent earnings might be its last as a freestanding solar company.

Last week's earnings call had the residential solar leader beating forecast or consensus on metrics such as revenue, EPS and installs -- but the company had a net loss of $250 million.

In order to slow the bleeding, SolarCity is making an unspecified number of layoffs, and in a symbolic gesture, CEO Lyndon Rive and CTO Peter Rive are reducing their salaries to $1 per year, from $275,000.

The company noted that it is "launching two new products in the coming months -- one focused on residential solar and storage and the other on new residential roofing," adding, "We are also gaining good traction from our recent grid services launch with projects underway with PG&E, Southern California Edison, and the California Energy Commission, and we are now evaluating a pipeline in excess of $100 million."

The layoffs come upon news of a reduced guidance for megawatts installed in 2016 and will mean $3 million to $5 million in restructuring charges, according to an SEC filing.

A SolarCity spokesperson noted, "While sales improved significantly in the second quarter as compared to the first, we still fell short of our overall expectations for the first half of the year. We’ve been adjusting our costs to align with the amount of solar we expect to install in the second half of the year, and unfortunately that also includes headcount reductions. Out of respect for those impacted, we’re not going to provide additional details. We’ll be launching two new products in integrated storage and solar roofing that have no equal in the market, and we expect them to significantly expand the number of customers we can serve next year. We fully expect to grow again in 2017, but we must reduce costs in the short term to be in position to do so."

Here are the details from last week's call.

SolarCity installed 201 megawatts, beating guidance of 185 megawatts
Residential installations were 177 megawatts, up 5 percent year-over-year; C&I installations were 24 megawatts, up 14 percent year-over-year
SolarCity has cumulative installations of more than 2,360 megawatts
In July, solar loans and cash system sales represented 19 percent of gross megawatts booked, and the company "expects this to increase further in the quarters ahead."
Bookings increased 40 percent over last quarter to 227 megawatts
GAAP revenue was $185.8 million in the second quarter of 2016, up 81 percent year-over-year, beating consensus -- but at a net loss of $250 million
Customer acquisition costs came down 27 percent compared to Q1 2016 with expectations of further reductions next quarter
Cost-per-watt declined 4 percent to $3.05
Average residential FICO score at the end of the quarter was 744

Overall year-end guidance has been reduced to 900 to 1,000 megawatts.

2016 guidance updated to 900 megawatts to 1,000 megawatts installed, down from prior guidance of 1,000 megawatts to 1,100 megawatts
This implies roughly 170 megawatts of installations in Q3 and Q4 2016 guidance of 315 megawatts to 415 megawatts, with C&I seeing a significant uptick
"We expect to report one of the lowest cost-per-watt quarters in our history in Q4 2016."
Customer acquisition costs decreased during the quarter and are expected to decline throughout the rest of the year