SolarCity Corporation (SCTY)

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SolarCity (SCTY)

Q4 2013 Results Update Conference Call

March 3, 2014, 8:00 a.m. ET


Aaron Chew - Vice President of Investor Relations

Lyndon Rive - Chief Executive Officer

Bob Kelly - Chief Financial Officer

Peter Rive - Chief Operations Officer, Chief Technology Officer


Krish Sankar - Bank of America Merrill Lynch

Phillip Shen - Roth Capital

Patrick Jobin - Credit Suisse

Edwin Mok - Needham & Company

Ben Kallo - Robert W. Baird

Vishal Shah - Deutsche Bank

Brian Lee - Goldman Sachs

Paul Coster - JPMorgan

Pavel Molchanov - Raymond James



Good morning, and welcome to SolarCity's conference call. Today’s call is being recorded and will begin with prepared remarks followed by Q&A. Management will be utilizing a slide presentation for this call, which is available now for download on SolarCity’s investor relations page at

[Operator instructions.] At this time, I would like to turn the conference call over to Aaron Chew, vice president of investor relations at SolarCity. Please go ahead.

Aaron Chew

Thank you, operator. Good morning to everyone joining us today for SolarCity's fourth quarter 2013 update conference call, particularly in light of the short lead time and potential scheduling conflicts. Leading the presentation today will be a discussion from our CEO Lyndon Rive and our CFO Bob Kelly, after which point in time we will open up the call to a brief Q&A.

As a reminder, today's discussion will contain forward-looking statements that involve risks and uncertainties including statements regarding the date of SolarCity’s anticipated filing of Q4 and full year 2013 and restated 2012 financial statements, the anticipated impact on our 2012 and 2013 financial results, full year 2014 megawatt deployment, estimated nominal contracted payments remaining, forecasted retained value under energy contrasts, forecasts of cash flow in 2014, and all assumptions related to the foregoing.

Forward-looking statements should not be considered a guarantee of future performance or results and will not necessarily be accurate indications of the time at or by which such performance or results will be achieved, if at all.

Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements, including risks identified in SolarCity's press release issued today and the slides accompanying this presentation, as well as additional risks and uncertainties identified in the section entitled Risk Factors in our quarterly report on form 10-Q, which has been filed with the Securities and Exchange Commission.

We do not undertake any obligation to publicly update or revise any forward looking statement, whether as a result of new information, future developments, or otherwise. In addition, during the course of this call, we will use a number of specially defined terms relating to our business metrics and financial results. We refer to definitions of these terms included in the slides accompanying this presentation, which are available on our Investor Relations website at

And with that finally behind us, I will introduce SolarCity's Chief Executive Officer, Mr. Lyndon Rive.

Lyndon Rive

Thank you, Aaron. Thank you, everybody for joining this call today. Last week when we spoke to you, we mentioned we would have the financials ready for you today. Just as a reminder, there were two primary reasons for the delay. The first reason was the additional associated workload from the two acquisitions, and then the second reasons were challenges with overhead allocation. So we have now completed incorporating the financials of Zep and Paramount Solar.

This week, as we looked at completing the 2013 year-end financials, our internal controls discovered an overhead allocation error. What brought it to light was the large volume increase in Q4 of our solar lease systems. Once we identified this overhead allocation error, we discussed it with our auditors, and they agreed that a correction was needed.

That being said, I want to apologize for the error and the delay that this has caused. Let me give you a quick summary of this error of misallocation. What this is is we’re taking overhead from the balance sheet to the income statement. Total overhead has not changed. I think that’s a really important point to mention. Total overhead has not changed, we’re just moving it from the balance sheet to the income statement.

Nothing has changed with the business, net capital has stayed the same. There is no impact in the core business operations. In fact, the business has never been healthier. Contracted payments are still at $2 billion, retained value is at $1 billion. The bookings, as I mentioned, have never been stronger.

We’re looking forward to March, and for the next few weeks we’re going to be 100% focused on delivering the updated financials on March 18. I’m now going to hand it over to Bob Kelly, our CFO, to walk you through the details.

Bob Kelly

Thanks, Lyndon, and good morning everybody. Let’s start on slide five, by walking through the overhead allocation process, what we do here at SolarCity. First, we determine the amount of overhead which can be allocated. These are non-direct expenses such as warehouse rents, safety services, fleet expenses, etc. Any costs along the lines of panels and [girders], installation labor, these are easily identifiable to a particular job as a direct expense.

Next, we determine the allocation, allocable overhead divided by direct expenses to get a burden ratio. The burden ratio is the key driver in the process. The burden ratio is applied to direct expenses to determine the overhead allocation for operating lease assets.

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