SunEdison, Inc. (SUNE)

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SunEdison (SUNE)

Q4 2013 Earnings Call

February 19, 2014 8:00 am ET

Executives

Chris Chaney - Director of Investor Relations

Ahmad R. Chatila - Chief Executive Officer, President and Director

Brian Wuebbels - Chief Financial Officer and Executive Vice President

Analysts

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Stephen Chin - UBS Investment Bank, Research Division

Patrick Jobin - Crédit Suisse AG, Research Division

Shahriar Pourreza - Citigroup Inc, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

Y. Edwin Mok - Needham & Company, LLC, Research Division

Nimal Vallipuram - Gilford Securities Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the SunEdison Fourth Quarter Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Chris Chaney, Director of Investor Relations. Please go ahead.

Chris Chaney

Thank you, Gail. Good morning, and thank you for joining SunEdison's Fourth Quarter 2013 Results Conference Call. I'm Chris Chaney, Director of Investor Relations. And with me today are: Ahmad Chatila, our President and Chief Executive Officer; and Brian Wuebbels, our Chief Financial Officer. After my remarks, Ahmad will provide an overview of the significant events and commentary on the company's fourth quarter performance and Brian will then give a review of the financial results. Brian's discussion will reference slides we have made available in Investor Relations section of our website at www.sunedison.com.

Our discussion today will refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures has been provided in our earnings press release financials published earlier this morning. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the press release and the slides published today for a more complete description.

And now I'd like to turn the call over to Ahmad.

Ahmad R. Chatila

Thanks, Chris. Good morning, everyone. Overall, our results were in line with our updated guidance metrics. Brian will walk through the quarter in more detail in a few minutes. But first, I would like to revisit the value creation discussion we had last quarter and give you an update since it is critical to understand how we continue to position ourselves for future growth.

Last quarter, we said we wanted to provide you with a better understanding of how we think about the solar business and our potential for long-term value creation, especially as it relates to our mission of being the most respected and profitable platform in the industry and hence, the most valuable. To be the most valuable, our megawatt growth rate must be healthy, the value per watt extracted from our installation must be high and we must have a balance sheet that supports making the transition from building and selling projects to building and operating them.

So first, our growth rate. We have grown our annual megawatt completions at a compound growth greater than 90% since 2009. In the fourth quarter, we completed a record 333 megawatts. A couple of years ago, that number of megawatts would have represented a full year's worth of completions, not a quarter. And while we installed a large amount of megawatts in Q4 similar to last quarter, we still have over 500 megawatts under construction at the end of the quarter. And there continues to be a significant demand in the market for our projects. Our diversified pipeline now stands at 3.4 gigawatts, up by about 270 megawatts from last quarter even after completing 333 megawatts.

As a leading brand in a high-growth industry with a fragmented market, we are optimistic about our continued long-term megawatt growth. Our growth is not only fueled by project demand based on our experience and track record but also by strategic initiatives such as the one we recently announced regarding our activities in Saudi Arabia. These initiatives are enabled by our vertically-integrated position and significant IT portfolio in areas such as FBR polysilicon and CCZ crystal technology. We are very excited about the initiative, and we'll talk more about it in the future as it gets finalized and moves forward.

Second, retained value per watt. Last quarter, we said that at a significantly higher quarterly megawatt run rate in the 200 to 250 megawatt per quarter range that we are projecting for this year, we would have new opportunities to optimize value per watt we create and retain that value for the shareholders. We said we would capture that additional value by retaining certain high-value projects on the balance sheet and by using public vehicles, such as the yield vehicle. I'm pleased to report that we have made progress on both fronts.

During the fourth quarter, we retained 127 megawatts on our balance sheet. We create more value when we hold projects, whether outright or for use of a yield vehicle. So we took the opportunity during the quarter to retain some incremental megawatts above our guidance. Retaining these projects during the quarter captured roughly an additional $160 million of value versus what we would have received had we sold them in Q4. So while we forgo higher short-term profitability, giving up about $100 million in Q4 gross margins, we drive higher value, higher long-term value of almost $260 million on the same projects. Brian will walk through the details in a few minutes.

And as previously announced, we filed a confidential draft S-1 with the SEC for the proposed IPO of a yield vehicle subject to SEC review process and market conditions. As a reminder, the significant benefits to SunEdison from utilizing public vehicles like this, including lower our cost of capital, capturing the tail of the project and eliminating much of the friction loss due to the negotiating output and degradation rates with a single buyer. This represents the evolution of our business model that we discussed during our Capital Markets Day last year. Because of our growth driven by global development engine and our balance sheet, we are in a position to increasingly deliver on that promise going forward.

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