SunEdison detailed a restructuring plan this morning in an effort to cut costs and assuage investor fears that the company is not on a sustainable growth path.
The investor call came a week after CEO Ahmad Chatila sent an internal memo notifying employees of a coming 10 percent cut to SunEdison's workforce. In an 8-K filed Monday, the company said the cuts would amount to 15 percent.
Layoffs are only one piece of SunEdison's plan to take "difficult but appropriate actions" in order to comfort investors. The company's stock has declined 70 percent over the last few months, partly due to an increase in losses after a blitz of acquisitions and a steep drop in the stock prices of its two YieldCos.
Before markets opened, Chatila and CFO Brian Wuebbels outlined a broad set of actions that included simplifying management structures, consolidating divisions, and selling more projects to third parties.
“We’re not going to sit here and try to change the world right now," said Wuebbels. "We're going to acknowledge reality."
That statement is a turnaround from previous investor calls, when executives said the company was seeking a "platform shift" in an attempt to build "the next generation of the biggest companies on earth."
SunEdison is taking a couple of major actions over the next several quarters.
One is accelerating a 30 percent reduction in operational expenses two years ahead of schedule, which includes cutting redundancies in staff and limiting its geographic scope to high-growth markets. Executives are targeting $0.17 per watt in opex by 2016 -- a change from its previous goal of $0.22 per watt in 2017. Some of these cost reductions will come from fully integrating acquired companies, including residential installer Vivint Solar.
"We’ve made the very difficult decision to reduce fixed costs in order to strengthen and generate positive cash flows," said Wuebbels.
Responding to concerns about its debt, SunEdison's executives said they have enough cash to service short-term debts. Analysts agreed.
"We believe the company is well positioned to manage its debt load" through 2018, wrote Colin Rusch and Noah Kaye of Oppenheimer Equity Research in an investor note.
The second will be a "change in tactics" for how SunEdison handles projects. Rather than shovel projects into its TerraForm or TerraForm Global YieldCos, SunEdison plans to sell 800 megawatts to 1,000 megawatts of projects to third parties, and retain 2.5 gigawatts to 2.7 gigawatts within $5 billion of warehouse facilities. The warehouses will give the company an option of selling projects to the YieldCos at a later date.
Wuebbels said this gives SunEdison more flexibility "as opposed to moving to 100 percent third-party sales now."
With the stock prices of TerraForm and TerraForm Global down by 50 percent from their highs, neither has the ability to raise enough cash to buy projects from SunEdison. Executives are waiting until the "disconnect in the market" makes it an option to sell projects. This inevitably means slower growth.
The company revised its 2016 project guidance to 3.3 gigawatts to 3.7 gigawatts, down from 4.2 gigawatts to 4.5 gigawatts.
Analysts reacted positively to SunEdison's restructuring plan. But they also questioned the long-term implications for YieldCos.
"Will this be the new normal?" wondered Julien Dumoulin-Smith, an equity analyst with UBS, in an interview. "The question is ultimately going to be how SunEdison can re-engage growth and drive back to IDR [Incentive Distribution Rights]."
IDRs are payments to a YieldCo's parent company -- in this case, SunEdison -- when dividends per share hit a certain level.
Some expected the shift in SunEdison's development model.
"In some respect, this is kind of a non-announcement. The stock price made it clear that was bound to happen," said Tom Konrad, manager of the green global equity income portfolio. "If the stock price recovers, the purchase will resume."
Konrad said that both YieldCos are "ridiculously underpriced."
"I'm glut-buying TerraForm Global with every dollar I can find," he said, explaining the price was allowing him to invest in strong global solar assets at a 50 percent discount.
Executives were hoping to send a similar message on today's investor call. Both Chatila and Wuebbels stressed that they are developing "world-class" projects.
"We believe it's technical factors rather than a change in the underlying fundamentals," said Chatila. "Whether or not investor sentiment improves, these projects will get built and financed."
"Clearly there's a disconnect between the underlying value of these assets and what people are willing to pay for them in the YieldCos," said Wuebbels.
By midday, SunEdison's stock was up 7.4 percent, hitting $9.33 per share.