2017Q1 results

[brian45011]

How does the shifting of accounts payable factor into the income statement for Q3 of 2016? As I recall, there was a big jump in accounts payable (increased by $628M from $1673 M to $2301 M).
Accounts receivable also increased from $178M to $326M, but that's a smaller $148M. A net increase of $480M in (AP+AR). Does this explain the lower 'Cost of revenue' line in income statement? I don't think that kind of delaying of payments can be repeated for Q1 of 2017.

Quarterly changes of AP and AR amounts on the Balance Sheet affect the Cash Flow Statement not the Income Statement.

Secondly, a question for the accounting pros. How is the stock based compensation expense computed under GAAP? IIRC, there is ~4% dilution each year. Is it expensed based on grant date price? As the stock has been much higher in the last 3-4 years, will this expense be much higher in coming quarters?

Not an accountant, but I do read the SEC filings:

"We use the fair value method of accounting for our stock options and restricted stock units (RSUs) granted to employees and our Employee Stock Purchase Plan (ESPP) to measure the cost of employee services received in exchange for the stock-based awards. The fair value of stock options and ESPP are estimated on the grant date and offering date using the Black-Scholes option-pricing model. The fair value of RSUs is measured on the grant date based on the closing fair market value of our common stock. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period which is generally four years for stock options and RSUs and six months for the ESPP. Stock-based compensation expense is recognized on a straight-line basis, net of estimated forfeitures.

The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. Further, the forfeiture rate also affects the amount of aggregate compensation. These inputs are subjective and generally require significant judgment.

We estimate our forfeiture rate based on an analysis of our actual forfeiture experience and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements.

As we accumulate additional employee stock-based awards data over time and as we incorporate market data related to our common stock, we may calculate significantly different volatilities, expected lives and forfeiture rates, which could materially impact the valuation of our stock-based awards and the stock-based compensation expense that we will recognize in future periods. Stock-based compensation expense is recorded in our cost of revenues, research and development expenses, and selling, general and administrative expenses"

PS: The Q4 letter also says, a lot of M3 capex has been delayed to right before M3 production start. Seeing lower than projected capex in the last many quarters, some people have guessed that Tesla may be leasing the manufacturing equipment ( robots etc.) to reduce capital outlay. If any of that is true, we should be seeing increased expenses going forward.

Robot leasing is highly improbable. PO terms could have the effect of deferring payment liability until some performance capability is demonstrated.

 

[mmd]

Quarterly changes of AP and AR amounts on the Balance Sheet affect the Cash Flow Statement not the Income Statement.
..

Thanks. I was thinking, if some of the COGS or expenses are not paid in that quarter, those do not appear in the COGS or expense lines , and move into accounts payable. The big jump in AP still looks unusual. There was no liquidity crunch in Q3, so I don't know why the AP will jump so much. The goal in Q3 was to show profitability (per ELon's letter to employees).

If I understand you right, you are saying that the COGS and expenses must be recognized, whether they are paid or not. OK, got it. Thanks.

 

[brian45011]

Thanks. I was thinking, if some of the COGS or expenses are not paid in that quarter, those do not appear in the COGS or expense lines , and move into accounts payable. The big jump in AP still looks unusual. There was no liquidity crunch in Q3, so I don't know why the AP will jump so much. The goal in Q3 was to show profitability (per ELon's letter to employees).

If I understand you right, you are saying that the COGS and expenses must be recognized, whether they are paid or not. OK, got it. Thanks.

Essentially, yes; but I suggest you spend some time doing a few searches about accrual (vs cash) accounting and focus on the nuances about when costs are recognized.

 

[austinEV]

I have to admit that I've become somewhat jaded in regards to Tesla's quarterly guidance over the years. I think somewhere in 2014 or so they started giving guidance that they mostly couldn't meet. And it continued for a few years. Occasionally they would meet or beat, but more of than not, they would disappoint. As a result, I've grown accustomed to taking Tesla's quarterly guidance as "aspirational" and not something that they're really committed to. Thus, when they guide gross margin in Q1 2017 to Q3 2016 levels, I take it more as they're hoping for that but not committed to it.

However, I've always(?) had this feeling that at some point things would change and the momentum would turn in Tesla's favor, and they would start outperforming the guidance they give. I thought Q3 2017 was that quarter... but Q4 disappointed. But I still think perhaps Q3 2016 was that turning point (with an anomaly in Q4)... thus I'm inclined to think perhaps your enthusiasm is actually perhaps more reliable than my skepticism.

Anyway, we shall see in a week.

I have a theory/hope that Andrea James in IR is making it her mission to craft more achievable investor letters. She would uniquely know what would be recieved as good news, and help take out stuff that sounds good but the market will actually choke on, which they have also done.

 

[MitchJi]

if we're all satisfied that we have our own reasonable model with standardized analyst estimates for comparison purposes, now we can start to discuss where we think the price goes if the eps numbers come in at _____?

My opinion is (definitely not a trading advice!):
I think the biggest factor either positive or negative will be the "color" on the M3 ramp. IMO this statement atr TED, five days before the ER means that the odds of this being a positive catalyst are almost 100%:
"Musk said the Model 3 was likely to start production in July."

I think at least $5-$15 on this alone. IMO the only reasonable argument against that is that due to that statement and the subsequent rise is that it's already "priced in". I think that might be partially true (which is my main reason for the $5).

I also think that the eps amount is less important than how Tesla achieves it. Two examples:
1. $50 million in TE, with great guidance for Q2..Q4 is worth more IMO than $100 million from tax creduts.
2. Any amount from SCTY will be worth a lot more if Tesla can show that it's going to be an ongoing source of income for 4-8 quarters rather than a one time source of income from an impossible to understand bookkeeping trick.

S&P effect, no idea.

i'm torn between keeping some 5/19 330s i put on vs. just exiting with a modest loss.

Overall my wild guess is +$10 to +$20, based partly on the "Stormy weather in Shortville" tweet.

Not a trading advice!

 

[luvb2b]

regarding model 3, the ted talk transcript he confirms program is on track, so maybe that's some of the move you're getting today.

for better or worse i've decided to exit my otm options gamble for may. i feel like a lot is priced in and i don't want to risk that capital on the may options which would have 100% loss in an adverse circumstance.

i'm trying instead to do some otm septembers, which will have a much lower loss in an adverse outcome. if the earnings are really good they may still do quite well, although certainly not as may otm's.

the main feature of the september options is that they will provide exposure to that risk of an s&p 500 addition.

My opinion is (definitely not a trading advice!):
I think the biggest factor either positive or negative will be the "color" on the M3 ramp. IMO this statement atr TED, five days before the ER means that the odds of this being a positive catalyst are almost 100%:
"Musk said the Model 3 was likely to start production in July."

I think at least $5-$15 on this alone. IMO the only reasonable argument against that is that due to that statement and the subsequent rise is that it's already "priced in". I think that might be partially true (which is my main reason for the $5).

I also think that the eps amount is less important than how Tesla achieves it. Two examples:
1. $50 million in TE, with great guidance for Q2..Q4 is worth more IMO than $100 million from tax creduts.
2. Any amount from SCTY will be worth a lot more if Tesla can show that it's going to be an ongoing source of income for 4-8 quarters rather than a one time source of income from an impossible to understand bookkeeping trick.

S&P effect, no idea.


Overall my wild guess is +$10 to +$20, based partly on the "Stormy weather in Shortville" tweet.

Not a trading advice!

 

[DaveT]

Earnings is in two days, but wanted to thank @luvb2b and others on this thread for the discussion on Q1 earnings. I was most impressed by luvb2b's belief and determination that Solarcity's role in earnings could be deciphered and broken down, as well as getting into the details of Tesla's earnings. The research and discussion added a lot of value. Much respect to you luvb2b ... I'm a big fan!

 

[DaveT]

so you're saying there's a chance then!

And yes, there's a chance!

 

[MitchJi]

Earnings is in two days, but wanted to thank @luvb2b and others on this thread for the discussion on Q1 earnings. I was most impressed by luvb2b's belief and determination that Solarcity's role in earnings could be deciphered and broken down, as well as getting into the details of Tesla's earnings. The research and discussion added a lot of value. Much respect to you luvb2b ... I'm a big fan!

Me too! Outstanding contributions!

 

[MitchJi]

the main feature of the september options is that they will provide exposure to that risk of an s&p 500 addition.

I've been thinking more about that and I'd like to very respectfully add a comment.

I think that it's possible that in September the s&p addition will be significant, but imo over the course of the next 4-12 months I believe that it will be mouse nuts.

 

[luvb2b]

thanks for the kind words, but i think they are best saved for when we know for sure.

as we've seen on stinking alfa, anyone can take an opinion and find all sorts of ways to support it.

edit for @Jeeps17:
it's the actual results that separate the girls from the ladies.

Earnings is in two days, but wanted to thank @luvb2b and others on this thread for the discussion on Q1 earnings. I was most impressed by luvb2b's belief and determination that Solarcity's role in earnings could be deciphered and broken down, as well as getting into the details of Tesla's earnings. The research and discussion added a lot of value. Much respect to you luvb2b ... I'm a big fan!

I've been thinking more about that and I'd like to very respectfully add a comment.

I think that it's possible that in September the s&p addition will be significant, but imo over the course of the next 4-12 months I believe that it will be mouse nuts.

 

[Jeeps17]

it's the actual results that separate the ladies from the gentlemen.

While I agree with the underlying concept you were conveying, may I suggest "separate the boys from the men" as an alternate ending ?

 

[surfside]

thanks for the kind words, but i think they are best saved for when we know for sure

Totally agreed.

With where the stock is at heading into ER (at least as of close today), this is going to be an interesting earnings, that is for sure.

Something AIMc mentioned/posted in another thread got me thinking though, and that is what folks view as "consensus" going into earnings. Based on the table we have put together, it looks to me like "consensus" would be meaningfully negative EPS for the first quarter (ala at least -1.00 EPS). However, electrek cited the Wall Street consensus loss of -0.16 and when I googled Tesla 1Q 2017 consensus estimate, Nasdaq.com and marketbeat only have one estimate (for a "consensus" of -0.67), wsj.com has the current estimate at -0.81 (it isn't clear how many analysts wsj is taking into account) and FT.com has the current estimate at -0.82 (based on 16 analysts, although FT doesn't say which ones).

Any sense/thoughts on where folks are getting the numbers and whether or not there is an "official" consensus?

surfside

 

[neroden]

I think the key point is that all estimates of Wall Street "consensus" are negative (it does depend how many analysts you include in your average). I think zero has a great psychological power. So I think any postitive number will be perceived as a beat. I think a "less negative" number won't be.

 

[Zhelko Dimic]

Totally agreed.

With where the stock is at heading into ER (at least as of close today), this is going to be an interesting earnings, that is for sure.

Something AIMc mentioned/posted in another thread got me thinking though, and that is what folks view as "consensus" going into earnings. Based on the table we have put together, it looks to me like "consensus" would be meaningfully negative EPS for the first quarter (ala at least -1.00 EPS). However, electrek cited the Wall Street consensus loss of -0.16 and when I googled Tesla 1Q 2017 consensus estimate, Nasdaq.com and marketbeat only have one estimate (for a "consensus" of -0.67), wsj.com has the current estimate at -0.81 (it isn't clear how many analysts wsj is taking into account) and FT.com has the current estimate at -0.82 (based on 16 analysts, although FT doesn't say which ones).

Any sense/thoughts on where folks are getting the numbers and whether or not there is an "official" consensus?

surfside

Could be GAAP vs non GAAP confusion?
In any case estimize.com shows this, in line with electrec:

 

[Bgarret]

regarding model 3, the ted talk transcript he confirms program is on track, so maybe that's some of the move you're getting today.

for better or worse i've decided to exit my otm options gamble for may. i feel like a lot is priced in and i don't want to risk that capital on the may options which would have 100% loss in an adverse circumstance.

i'm trying instead to do some otm septembers, which will have a much lower loss in an adverse outcome. if the earnings are really good they may still do quite well, although certainly not as may otm's.

the main feature of the september options is that they will provide exposure to that risk of an s&p 500 addition.

I understand the concern about how much stock appreciation is already priced in, then I read an article like this:

Solar Shifts Could Fry Tesla Earnings

An article that misrepresents:

- That Tesla reduced the number of solar roof options initially available from 4 to 2, when Tesla actually increased roofs initially available from 1 to 2.
- That moving from solar leases to solar system purchases is somehow BAD for Tesla energy financially, when many have shown the benefits of that shift.
- That ending door-to-door selling is a negative sign for Tesla, when the Cost of Sales was what was killing SolarCity and cutting head count and ending expensive sales practices will benefit Tesla long term.

Couple this with the lock-step of big bank analysts reiterating Sell ratings and poor analysis, technical analysts seeing further upside and short interest not appreciably dropping, and there may be more room to run.

I have a bifurcated strategy, with and Sep 2017 and January 2019 in-the-money options in one account. In another account, I have May out of the money options which I hedged with 1/2 of the position in puts when TSLA was above 325 today (the price I guessed it would be at around earnings) for essentially a delayed Strangle. The pessimist in me believes this dooms TSLA to being pinned at 325 for the next 10 days. My real feeling is that the move out of this earnings will be violent, with a lot of bets on each side. There is also cash on the sidelines in case there is a surprising big move in the next couple days.

One thing to consider, is that if @luvb2b is right, and many of us think she is, the bigger move could come the following week if analysts reassess their models based on SCTY GAAP and Model III launch. I think it was Feb of 2014, when there was a little bump after earnings, followed by a larger jump when everyone updated their models.

Good luck all. Thanks for all the work luvb2b and all others.

 

[luvb2b]

"the consensus" is a total mess this report. i re-copied our table below for easy reference.

you notice how some analysts forecast solar city, some do not. some include nci's, some do not. some forecast gaap, and some non-gaap. the point of the table was to try to get an apples-to-apples comparison of the different estimates.

i feel confident in saying first call, estimize, wsj, and other sites have not delved so deeply into the nuances of this quarter's report to do anything more than trying to get all estimates at gaap or non-gaap. to make matters worse i don't even know if the "consensus" reported is a gaap or non-gaap number. a properly constructed official "consensus" would take these moving parts into account by holding them consistent across models as we tried to do.

whatever the headline gaap eps number and initial reaction are, the people following this thread (i think) would know they have to look deeper to find the operational performance. to that end i had put together the "net income zero nci's" column in the table below - that's the number before net income is adjusted for non controlling interests. that one number that should give a quick read on how tesla did operationally.

just about everyone is estimating a gaap loss (except jp morgan who also modeled meaningful solarcity nci's). and everyone including me is expecting "net income zero nci's" to be -148m or less. i still think something is wrong with a ubs target of 160 while our read on their model has them at the highest "net income zero nci's" estimate.

my opinion continues to be that positive gaap and non-gaap earnings will come riding on the back of the solarcity nci accounting. i believe that the eps beat will be viewed as low quality, with the positive offset being a positive gaap eps number brings the s&p index addition into play. i believe operationally tesla executed well, that will also help if it shows through in the report. i believe analysts smarter than us figured most of this out by mid-march with most doubts erased at the release of the deliveries number.

the hard part about being very early is that you've been thinking one thing for so long you fail to understand how far behind the rest of the world is. this has happened to me many times in my trading and i still don't know how to fight that feeling.

on market sentiment: the options market appears decidedly tipped positive - there seems to be more outstanding calls than puts. options are bullish for what i call "relative event risk." that is, if you look at equally far out of the money calls vs. puts, you find the calls are somewhat more expensive. you see this happen when people are buying more calls and selling more puts going into an event - especially in the farther out of the money options the pricing now is driven nearly 100% by event risk. example: stock closed near 322.50, 300 put was 1.70x1.75 but 345 call is 1.83 x 2.00. this is different from how i remember 2013, when puts were skewed high due to the high cost to borrow.

another concern is we haven't seen large stocks make huge moves on earnings this season. most of the big movers have been 2nd tier type stocks, and i can't think of one that went for even +25%.

apologize for repeating many things i've said before, just trying to summarize the cross-currents i see. while i remain positive on the actual report, i am feeling less confident that the market reaction will be extremely positive - especially after the recent 27 point move off the 300 level. i think the best value for my out of the money gamble might be 5/5 370's for 25c. a surprise 15% move would bring those into play and the price is low enough to be able to snag a 20x+ winner. i don't like selling the puts because i'm not being paid well to do it.

here's an options table showing open interest for 5/5, notice the at-the-money level in yellow and see how many more calls there are vs. puts?

Totally agreed.
Any sense/thoughts on where folks are getting the numbers and whether or not there is an "official" consensus?
surfside

Bank	Price Target	Q1 GAAP EPS	net income zero nci's	Operating Income	Net Income	Include any NCI's?	Comments
UBS	$160	-0.39	-148	Full Year -561	Full Year -477 GAAP	Yes: $338 for FYE 2017	n/a
luvb2b	n/a	0.61	-176	-52	99 gaap	yes: $275 for q1	non gaap figure 50c higher than gaap eps at 1.11
Barclays	$165	-1.57	-256	-199	-173 non-GAAP	No	forecasted -1.07 non-gaap eps
Baird	$368	-1.73	-282	-230	-198 non-GAAP	No	forecast -1.23 non-gaap eps
Morgan Stanley	$305	-1.94	-326	-255	-326 GAAP	No	Does not forecast SolarCity.
merrill lynch	$160	-1.44	-395	-325	-245 GAAP	yes: 150m per quarter in '17	non-gaap eps estimate at -0.85, includes 100m stock comp on 170m shares
muppet sacks	$160	-1.07	-466	Full Year -864 non-gaap	Full Year -1348 nonGAAP	Yes: $1166 for full yr 2017	working off what appears to be a non-gaap eps figure of -0.57 - figures may be inaccurate need better data

[TR][TD][/TD][/TR] [TD][/TD] [TD][/TD] [TD][/TD] [TD][/TD] [TD][/TD] [TD][/TD] [TD][/TD] [TR][TD]Deutsche Bank[/TD][TD]$240[/TD][TD]-1.41[/TD][TD]-230[/TD][TD]n/a[/TD] [TD]n/a[/TD] [TD]No[/TD][TD]Had forecasted +4.19 of EPS for FYE 2017 prior to 3.14.17[/TD][/TR]
[TR][TD]J.P. Morgan[/TD][TD]$185[/TD][TD]0.27[/TD][TD]-256[/TD][TD]-159[/TD] [TD]134 non-GAAP; 44 GAAP[/TD] [TD]Yes: $1,050 for FYE 2017 and $300 for q1-17[/TD][TD]Was previously forecasting -1.52 of EPS for Q1 before modeling impact of SolarCity. forecasted 0.83 non-gaap eps.[/TD][/TR]

 

[surfside]

interesting tidbit - Paulo Santos just published an article indicating he closed his short position last week given the potential impact of the NCI's, calling it a short trap...

You can bet he is kicking himself for not closing his short on April 4th when he wrote his article about Tesla's hand being full of aces.

surfside

 

[kenliles]

interesting tidbit - Paulo Santos just published an article indicating he closed his short position last week given the potential impact of the NCI's, calling it a short trap...

must have been lurking around here somewhere--
sell him an umbrella--

 

[luvb2b]

that article reads suspiciously like this thread, right down to all the earnings tailwinds in the quarter. if we get it right he will look like a genius, other than the fact he was wrong for so long.

interesting tidbit - Paulo Santos just published an article indicating he closed his short position last week given the potential impact of the NCI's, calling it a short trap...

You can bet he is kicking himself for not closing his short on April 4th when he wrote his article about Tesla's hand being full of aces.

surfside