Recommendations: 5
Hi swcaraway,
Sure thing. Please forgive the leftright scroll nature of this. Model first, explanation second (using Excel Column / Row to help).
For this, you'll also need to look at least at the slide deck at http://files.shareholder.com/downloads/AMDA14LQRE/264987892.... Some of the numbers also came from the Q1 and Q2 2013 releases, I believe.
A B C D E F G H I J K 1 2011 2012 Q12013 Q22013 2013E 2014E 2015E 2016E 2017E 2 MW installed 287 334 387 557 924 1357 1830 2323 3 Incremental MW 72 157 46 53 270 367 433 472 493 4 YoY 118% 12% 71% 72% 36% 18% 9% 4% 5 6 New customers 9034 30950 8773 8559 7 YoY 243% 65% 8 9 New energy contracts outstanding 7132 26327 7363 8087 10 YoY 269% 72% 11 12 Est. Nominal Pymts Remaining $486 $1,109 $1,222 $1,409 13 Incremental $623 $113 $187 $810 $1,166 $1,455 $1,679 $1,856 14 $$ / incremental MW $3.97 $2.46 $3.53 3.00 3.17 3.36 3.55 3.76 15 16 Retained Value (NPV at 6%) 17 Under Energy Contract $294 $305 $364 $497 $582 $691 $357 $868 18 % of Est. Nominal Pymts Remaining 27% 25% 26% 25% 24% 23% 21% 20% 19 Incremental $11 $59 $203 $277 $327 $357 $371 20 Renewal $246 $264 $298 $416 $497 $575 $302 $732 21 % of Est. Nominal Pymts Remaining 22% 22% 21% 21% 20% 19% 18% 17% 22 % of customers renewing 100% 100% 100% 100% 100% 23 Incremental $18 $34 $170 $233 $277 $302 $316 24 Total $536 $569 $662 $913 $1,079 $1,266 $659 $1,599 25 26 27 RV = NPV of cash flow to shareholders $913 $1,079 $1,266 $659 $1,599 28 assuming company halts growth Mkt cap $2,241 $4,798 29 and installations today and runs P / RV 3.39 3.00 30 out all current contracts + 10year 19.2% CAGR 31 extensions
• In columns B  E are actual numbers, G  K are projections.
• I first started off with total MW installed (Row 2) and how much additional there was added in each time period (Row 3). Yearoveryear (YoY) growth is in Row 4. The company projects 270 MW installed this year (G3).
• For H3  K3, it takes the prior year's YoY growth and halves it, so it goes from 72% to 4.5% by 2017E (Row 4).
• Rows 610 turn out to be just informational.
• Row 12 shows Estimated Nominal Payments Remaining (future cash flows from leases) at the end of each period.
• Row 13 shows additional amounts and Row 14 just divides Row 13 by Row 3 to get $$ per incremental MW installed.
• In G14, I start off at an assumed lower level and then grow it by the 5.5% projected annual savings in costs from there (that's given by the company, and it made a point of saying that it's currently ahead of projections). Actually, I divided by 0.945, which accounts for that 5.5% savings (1  0.055). See slide 6 from the deck.
• Row 13 is Row 14 ($$ / Incremental MW) multiplied by the projected added MW (Row 3), and therefore is the incremental addition to the amount of Est. Nom. Pymts. Remaining ("ENPR" going forward).
The rest of this is all about Retained Value (RV). The company knows how much nominal (undiscounted) cash flow is expected to come in each year because it knows the details of all its contracts. It then subtracts nominal estimated expenses for warranty work, inverter replacement, payback of investors (including interest), and various other costs to get nominal cash flows that belong to the company each year. It then discounts each year back by 6% annually and adds them all up (that's "NPV at 6%" in Row 16; NPV = net present value). The total of all this work is RV (slide 10 from the deck).
Aside: RV has two components (also on slide 10): From current leases (Row 17, Under Energy Contract) and from the projection that it will be able to renew those leases for another 10 years. This second part is a significant contributor to total RV and comes from the following argument.
The company is estimating total life of the systems it installs as 30 years, presumably based on industry and supplier data. However, it is selling bonds on only 20 years of the cash flows, the lifetime of the current leases. It assumes that it can sign up its customers again for 10 more years, starting at 90% of the then rate in effect. It no longer has to pay back any investors, so it keeps a much larger portion of these cash flows from years 21  30. I addressed this point (briefly) in the article and gave that 100% of customers assumption a pretty severe haircut to see what happened to the projected value.
Back to the point, now. Because I don't know what all those nominal expenses are  and certainly not by year  I can't go year by year and model those out and then play with the discount rate (which is supposed to be the company's cost of capital) and so on. So, the best way I can get from Incremental Nominal Pymts. (Row 13) to Incremental RV (Rows 19 and 23) is to take the ratio between RV and ENPR for the time periods for which I have data.
• Row 18 and Row 21 first calculate what the ratio between RV (each component) and ENPR in Columns C  E. In Columns G  K, I start slightly lower and then drop it steadily from there, and a bit more quickly for the Under Energy Contract part of RV.
It's that decline of RV / ENPR ratio that I use to account for increases to the cost of capital (the discount rate used to generate RV) and increases in cost of components and labor and stuff. Row 14 (starting at a lower $$ / Incremental MW) also does that kind of correction.
• Rows 19 and 23, then, shows the incremental addition to RV for each year (assuming 100% of customers add 10 more years at the end), the subtotals of RV are in Rows 17 and 20, and the total is in Row 24 (and Row 27).
• Cell E28 shows the market cap as of Tuesday's close, and Cell E29 is the P / RV ratio.
• Cell K29 drops that ratio to 3.0 and then the projected 2017 market cap is calculated by multiplying that by the projected 2017 total RV, in cell K28.
• Cell I30 shows the 4.33 year CAGR between that market cap and the recent market cap.
• Finally, I changed the % of customers renewing to 33% (Row 22) which affects Row 23 and cascades to Rows 20 and 24. This resulted in the lower market cap mentioned in the article.
So that's the model and an explanation of what I was trying to do as I built it.
If you have any questions, I'd be happy to answer them.
Cheers, Jim



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