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How Did Sunrun’s Costs in 3Q16 Affect Its Gross Margins?

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Sunrun’s gross margins

For 3Q16, Sunrun’s (RUN) gross margin came in at 12.5% compared with analysts’ estimate of 17.3%. The decrease is mainly attributable to lower-than-expected revenue that could not be offset by a marginal decrease in the cost of revenue on a quarter-over-quarter basis.

However, the company’s cost per watt fell due to higher megawatts deployed on a quarter-over-quarter basis. Sunrun’s blended cost per watt is not directly comparable with its downstream solar (TAN) peers such as Vivint Solar (VSLR), SolarCity (SCTY), and SunPower (SPWR) due to its channel partner business.

With resolved regulatory issues, an expected decline in equipment costs, and higher-than-forecasted BrightBox as well as photovoltaic products bookings, analysts expect Sunrun’s gross margins to improve in 4Q16.

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Operating losses

Sunrun reported an operating loss of ~$51 million for 3Q16 compared to an operating loss of $48 million in 2Q16 and $63 million in 3Q15. The quarter-over-quarter increase in operating losses is primarily due to lower revenue, which is marginally offset by a decrease in its cost of revenue and sales and marketing expenses. However, losses from operations were lower than analysts’ expectations of $61 million in operating losses for 3Q16.

Net income

Sunrun (RUN) reported net income attributable to common shareholders at about $17 million against analysts’ expectations of -$17 million. The deviation from analysts’ expectations was primarily due to an allocation of the majority of the losses to non-controlling interests. As a result, the company reported higher EPS (earnings per share) of $0.16 compared to analysts’ EPS estimate of -$0.20 for 3Q16.

In the next part of this series, we’ll look at Sunrun’s leverage and liquidity position.

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