- Non-GAAP sales may swell to $3.5 billion from selling plants
- Company working with accountants to develop new standards
SunPower Corp. expects revenue to climb next year to as much as $3.5 billion -- if you disregard Generally Accepted Accounting Principles. If the rules are applied, sales will decline, to as low as $1.2 billion.
That huge swing is due to 8Point3 Energy Partners LP, a joint venture it formed with First Solar Inc. to buy completed solar farms. To accountants, those transactions look more like internal transfers, and the money from the deal is recognized over several years; for SunPower, a sale is a sale and the company wants investors to see the revenue immediately.
That’s why the second-largest U.S. panel manufacturer offered two sets of forecasts during an analyst presentation Thursday. One shows San Jose, California-based SunPower easily beating a $2.53 billion forecast for 2016 revenue, the average of six estimates compiled by Bloomberg. The other is a big miss. By comparison, the company expects 2015 revenue of about $1.5 billion (that’s the GAAP figure it announced last month).
“GAAP has an esoteric revenue rule that defers recognition into the future,” Chief Financial Officer Chuck Boynton said at the company’s investor presentation in New York. “We’ll get that money back over time.”
Here’s an example. When SunPower sells a $100 million plant to another company, it counts the entire amount as revenue and records a $25 million profit on a plant that cost $75 million to build. When it sells the same solar farm to 8Point3, under GAAP rules it records no revenue, no cost and no net income.
The non-GAAP sales number “is absolutely more meaningful,” Pavel Molchanov, an analyst at Raymond James Financial in Houston, said in an interview Thursday. “It’s cash coming into the bank because they already sold projects.”
This type of accounting issue is common with project developers and isn’t limited to SunPower, said Molchanov.
“It’s a matter of revenue recognition,” he said. While the difference may be confusing to investors, “there’s nothing troubling about it.”
SunPower is working with a group of accountants to develop broader International Financial Reporting Standards that will let the company report more of that revenue when the sale is made. Boynton expects that to be effective in 2018.
Under those new rules, sales to 8Point3 would match up more closely to deals with outside companies, with only a minor difference in how SunPower accounts for costs and gross margins.