my preliminary consulting report is back. excerpts below.
i sent follow up questions because i still need more help understanding whether gaap or non-gaap is the meaningful measure of economic performance. solarcity swears its non-gaap and those numbers look horrible. as in, really really bad. does anyone here have a clear understanding of why non-gaap solarcity earnings are the correct measure of their performance?
i also need help reconciling the gaap and non-gaap earnings to the balance sheet, because the balance sheet equity seems to grow consistently despite negative gaap and non-gaap earnings. please chime in if you know. i sent this out to the consulting firm as well.
here's consultant report excerpts - quoted in blue. only a brief sampling.
"Summary: accounting is complicated but once you try to back things out it seems like a range of $30 $100 MM in quarterly net income for the SCTY unit going forward would be reasonable with $65 MM a plausible number."
he points out that the tesla acquisition disrupted business in q2 and that was returning to normal by q3 and q4. some further color on scty's q3 and q4 profits:
on the accounting, they believe it is all legitimate, but confusing. meaning, those profits in the q3/q4 reports are real.
"IMPORTANT: It's possible that the Q2 delay caused a catch-up in Q3 and Q4 of 2016 and Q1 won't be as good. It's also possible that the Q2 delay obscured an inflection point. Hard to know which one but if its the latter then SCTY was a huge steal for TSLA and will add something like $250 MM a quarter in income to TSLA."
"Page 56 [of tesla 10k] suggests that TSLA is going to continue SCTY's accounting plan of attributing losses in energy generation to noncontrolling interests. This suggests that if the SCTY revenues continue as in 2016Q4, TSLA may indeed see a pop in earnings from them (at least in this accounting method). "
i think the 250m number is wrong, it's way too high. i feel gaap eps for q1 17 will see a 100-150m benefit from solarcity, but i'll await more verification from consultant before explaining further.
"In fact, one could argue that the 2016 SCTY numbers are somewhat meaningless for a number of reasons related to timing. For example, it seems like SCTY is allocated major losses to non-controlling interests (NCI) as usual and as if for a full year but almost no interest payments for Q4. "
i find arguing scty 2016 numbers are meaningless due to timing is wrong, i included to show the report wasn't all roses. important to me is interest payments from solarcity's q4 got shifted on tesla financials due to timing issues. so tesla's q4 understates profitability for solarcity by 22m (the interest they paid for solarcity).
more later after the second round comes back.
i sent follow up questions because i still need more help understanding whether gaap or non-gaap is the meaningful measure of economic performance. solarcity swears its non-gaap and those numbers look horrible. as in, really really bad. does anyone here have a clear understanding of why non-gaap solarcity earnings are the correct measure of their performance?
i also need help reconciling the gaap and non-gaap earnings to the balance sheet, because the balance sheet equity seems to grow consistently despite negative gaap and non-gaap earnings. please chime in if you know. i sent this out to the consulting firm as well.
here's consultant report excerpts - quoted in blue. only a brief sampling.
"Summary: accounting is complicated but once you try to back things out it seems like a range of $30 $100 MM in quarterly net income for the SCTY unit going forward would be reasonable with $65 MM a plausible number."
he points out that the tesla acquisition disrupted business in q2 and that was returning to normal by q3 and q4. some further color on scty's q3 and q4 profits:
" [quotes scty filing] The Tesla announcement delayed our tax equity funds and just the tax equity fund had to go back to credit committee to get approval. Those have all now been approved and have been funded, but this caused a delay in Q2.
So basically, they had a hiccup in their ramp in Q2 and got an extra boost in Q3 or Q4 along with continuing the ramp and reducing acquisition costs and getting some operating leverage. "on the accounting, they believe it is all legitimate, but confusing. meaning, those profits in the q3/q4 reports are real.
"IMPORTANT: It's possible that the Q2 delay caused a catch-up in Q3 and Q4 of 2016 and Q1 won't be as good. It's also possible that the Q2 delay obscured an inflection point. Hard to know which one but if its the latter then SCTY was a huge steal for TSLA and will add something like $250 MM a quarter in income to TSLA."
"Page 56 [of tesla 10k] suggests that TSLA is going to continue SCTY's accounting plan of attributing losses in energy generation to noncontrolling interests. This suggests that if the SCTY revenues continue as in 2016Q4, TSLA may indeed see a pop in earnings from them (at least in this accounting method). "
i think the 250m number is wrong, it's way too high. i feel gaap eps for q1 17 will see a 100-150m benefit from solarcity, but i'll await more verification from consultant before explaining further.
"In fact, one could argue that the 2016 SCTY numbers are somewhat meaningless for a number of reasons related to timing. For example, it seems like SCTY is allocated major losses to non-controlling interests (NCI) as usual and as if for a full year but almost no interest payments for Q4. "
i find arguing scty 2016 numbers are meaningless due to timing is wrong, i included to show the report wasn't all roses. important to me is interest payments from solarcity's q4 got shifted on tesla financials due to timing issues. so tesla's q4 understates profitability for solarcity by 22m (the interest they paid for solarcity).
more later after the second round comes back.
