Programming note—The Market Beat will be out for the next week as I’ll be out for some minor surgery. Cheers!
A Solar Story
The solar industry really knows how to do it like no other—the technology, once heralded at one time as the inevitable future back in the 90s, has gone through wave after wave of booms and busts. It’s enough to make a gold prospector’s head spin. From Solyndra and Energy Conversion Services in the ‘first wave’ of solar circa 2010 to the companies today, it seems that there is an endless supply of hope and optimism for the business model amidst a turnstile parade of operators.
One of the most famous (infamous?) recent operators in the space is Sunrun RUN 0.00%↑. The company has no shortage of detractors. The company posted its quarterly earnings yesterday which… were eventful. In 2020 the company purchased Vivint Solar in an all-stock deal which is, well, not ideal, generally speaking.1 Yes, sure, a company doesn’t have to go out and raise the cash to buy another firm outright, but goodwill2 generated from an all-stock deal is not tax deductible and not amortized. These are boring things that CFOs generally care about.
Yesterday, the company reported that it would be taking a $1.15 billion goodwill impairment charge on its Vivint acquisition, taking a sizable non-cash hit to the bottom line with a loss of $1.3 billion.
While that is a lot of money, it’s surprising (to me, at least) to note that the impairment was only $1.15 billion, considering the huge chunk of goodwill on the books overall.
To take a charge that big and still have 15% of your assets tied up in goodwill is… well, make of that what you will.
Goodwill impairments are generally perceived by the markets as a bad thing, but companies will be quick to point out that the write offs are non-cash—so not all bad! On the other hand, companies will, generally speaking, only take these impairments when they really have to, like, for instance, if an auditor demands it (I’m not saying nor do I know what precipitated the impairment at Sunrun), so that’s also really not good and typically presents a big flashing red light for investors who may think yet another impairment is on the horizon.
Bad news isn’t all that new for the company, however. Several notable investors have taken aim at the company recently, including Jim Chanos and Carson Block from Muddy Waters.
Judging from Chanos’s tweet above, looks like the bond market doesn’t appear happy either.
Final Thoughts…
AI made a new Beatles song. Apple reports earnings after the bell today—here’s what to expect. Financial conditions are getting easier as things tighten. Today’s ‘Why is this a headline?” is Bill Gross’ interest in regional banks. Goldman has high hopes for its wealth management business. HBO’s CEO trolled critics using fake social media accounts.
In the broadest possible terms here. Not investment advice, but all cash comes with fewer strings, in my opinion.
Which is represented as the value of the acquired firm greater than its book value.