A series of reports from the The Wall Street Journal is raising questions about Sunrun's handling ofsolarcontract cancellations. Sunrun is pushing back against the accusations.
On Monday, the Journal reported that two former employees admitted to delaying the cancellation of hundreds of rooftop solar contracts in Hawaii over a five-month period in 2015. The story suggested that sales managers were purposefully inflating their customer numbers in the months leading up to Sunrun's IPO in August 2015.
"Around the time of the IPO, Sunrun’s cancellation data influenced at least two of the company’s key financial metrics: its number of customers and its amount of 'megawatts booked,' which describes the amount of energy production generated by home energy systems sold to customers," wrote WSJ.
GTM spoke with two of the former employees quoted in the story. Both corroborated their earlier accounts, saying that regional sales managers were encouraged by their superiors to delay bookings on a conference call. They did, however, say that there was no mention of the IPO or a clearly stated reason for the delays. Rather, they blamed a Wild West sales culture and extreme pressure to hit monthly targets.
"It was never verbally said we were doing this for the IPO. We didn’t feel that we were doing anything wrong or deceitful. But there was directive," said Darren Jennings, a former Hawaii sales manager, who said he was personally asked to "hold cancellations" by a superior.
Evan Stockdale, a former regional manager in the Central Valley of California, also said there was "no specific directive" to change numbers leading up to the IPO. But he did describe a chaotic sales environment in which managers would do anything they could to help their numbers. He said one senior branch manager would "blatantly roll over jobs" in order to reach a certain sales target. The manager even ordered an installation at 11 p.m. "with all these nighttime lights" in order to hit installation goals -- literally in the final hour of the month.
"There was no standard operating procedure. We were very reactive. I don't think there was any malfeasance; I would put it on poor management," said Stockdale.
Sunrun is the No. 2 residential solar company in the U.S. Its hybrid model relies on in-house sales and installation teams, as well as local contractors across the country. Efforts to establish standards and quality control brought mixed results during their tenure, said both men. Often, local contractors would poach jobs from Sunrun salespeople.
GTM reached out to several sales managers currently working at the company, but was not able to get a comment.
Sunrun officials are denying the claims, saying an audit found "no evidence" that sales managers changed the dates of canceled contracts in order to inflate sales numbers. They also say that "megawatts booked" -- a term that includes customers with signed contracts who have not yet installed solar -- is an operational metric that has no impact on financials. Bookings were not disclosed in Sunrun's prospectus.
The bookings metric was changed last quarter to reflect only customers with a notice to proceed with an installation, not just a signed contract. Sunrun revised its 2015 megawatts booked by 44 megawatts after the new standard was put in place.
The company is staying quiet. It has not released any "material" information to investors related to the stories. In a prepared statement, CEO Lynn Jurich said an internal review has not yet found evidence of reporting delays.
"We take these issues seriously, so when we first heard about these claims from The Wall Street Journal, we reviewed the digital audit trail in our systems. As to your specific claims, our review to date has turned up no evidence that our sales employees changed cancellation dates in our systems to delay the reporting of cancellations," read the statement.
Vishal Shah, a managing director at Deutsche Bank, wrote in a research note that the news "appears to be immaterial" to Sunrun's financial performance thus far.
"RUN never disclosed bookings in the IPO prospectus and...the comments refer to only about 200 homes, which represents roughly 1 MW of bookings, a fairly immaterial number in our view. The company has a much more stringent bookings process in place now compared to a few years ago and installations (as opposed to bookings) are the primary driver of valuation. Net-net, this news appears to be immaterial at this point, although it's certainly something to watch out for," wrote Shah.
The Journal reported earlier this month that the Securities and Exchange Commission is looking into whether Sunrun and SolarCity should be reporting cancellation numbers more transparently. Neither company reports exact cancellation rates, but they do report customer acquisition costs.
On Tuesday, Kaplan Fox & Kilsheimer filed a class-action complaint on behalf of investors based on the Journal's reporting.
Speaking on stage at GTM's Solar Summit last week, Jurich did not comment directly on the reported SEC investigation or the exact cancellation rates. But she challenged the assumption that Sunrun had done anything wrong. "I think the sales process is misunderstood and mischaracterized," she said.
Cancellation rates do not influence direct installation reporting or guidance, explained Jurich. "When we report our publicly disclosed bookings, we subtract cancellations out of the period. And I believe that was also mischaracterized."
Companies like Sunrun have an incentive to ensure the customer actually installs solar. Once a proposal is delivered, the company starts spending money on the customer -- "sending a tech out to their house, customizing a system, spending the time educating the consumer on what solar is, how it works," said Jurich. "All the money we spend on that sales process is seen in our financial statements."
Journal sources speculated that Sunrun's cancellation rate is around 40 percent.
"That sounds about right," said Jennings, when asked about the number.
Stockdale left Sunrun in January 2016 to work for SolarCity. He said SolarCity's cancellation rate was "astronomical" -- far above Sunrun's. "That's part of the reason why they are part of Tesla now."
In a statement, Jurich described her desire to create a strong, customer-centric company culture.
"There is some judgment in determining when an installation might not proceed -- my direction to our employees is to make these calls with integrity and always focused on the customer. I’ve been operating this business for 10 years, and I do it because our planet needs it, and not for short-term financial gain."
Sunrun stock is up 10 cents since Monday's news broke.