{
  "docId": "019dd923-622c-750b-8b97-4517b3b2214e",
  "docSlug": "00da6c52307d",
  "documentTitle": "Sunrun Inc. (RUN)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2022-07-28 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.77272725,
  "pageNumber": 16,
  "pageCount": 33,
  "prevPage": 15,
  "nextPage": 17,
  "slideType": "preempt_rebuttal",
  "function": "preempt_rebuttal",
  "density": "overcrowded",
  "nDataPoints": 7,
  "notes": "The slide uses a critical tone to challenge the company's valuation methodology, specifically citing IRS guidelines and comparing their findings to a Kroll report.",
  "elementsJson": [
    "paragraph",
    "bullet_list",
    "footnote"
  ],
  "metadataConfidence": 0.95,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b97-4517b3b2214e/16",
  "deckHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e#slide-16",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "We believe that RUN uses disallowed costs as part of its tax basis. Our Adjusted Cost Approach valuation suggests that RUN’s Cost Approach Tax Model valuation is overstated by 25.7%.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd952-e6e9-749a-ba77-cab251522e89",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.12,
        "w": 0.7,
        "x": 0.14,
        "y": 0.6
      },
      "kind": "list",
      "text": "Installation; RUN-Built Systems; Channel Partner Systems; Sales & Marketing; General & Administrative; Platform Services Credit (netted out in the company's calculation)",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "fda41a52-4009-4222-bb9f-0e64f809b6bc",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "metric",
      "text": "Cost Approach FMV: $4.93",
      "attrs": null,
      "subkind": "primary",
      "toolName": "Quantification",
      "toolSlug": "quantification",
      "confidence": null,
      "componentId": "019dd952-e6e9-749a-ba77-ce03d44ec1e9",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.14,
        "w": 0.764,
        "x": 0.118,
        "y": 0.23
      },
      "kind": "paragraph",
      "text": "These figures are close to the figures and haircuts calculated by Kroll in its Athena 2018 pre-sale report. Our valuation is lower than Kroll's because Kroll does not appear to have reviewed a PPA that lays out all of the financial obligations running from RUN to the homeowner (e.g., PV System removal). Kroll applied a total haircut of 49.3% with no value placed on the non-contracted cashflows. With these non-contracted cashflows considered the haircut is 40.4%. While the figures may be slightly different from the figures we have calculated, the conclusion remains that RUN is significantly overstating the value of its PPAs.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "0f35b8d0-856e-49ff-9ff8-06987364f5d1",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.14,
        "w": 0.764,
        "x": 0.118,
        "y": 0.425
      },
      "kind": "paragraph",
      "text": "RUN, in our view, uses similarly unrealistic figures to pad the Cost Approach Tax Model. We believe that RUN uses disallowed costs as part of its tax basis. Our Adjusted Cost Approach valuation suggests that RUN's Cost Approach Tax Model valuation is overstated by 25.7%. RUN discloses customer \"Creation Cost\", which roughly approximates the Company's Cost Approach valuation after the addition of a developer margin. For Q1 2022, RUN's reported Creation Cost was $4.11 per watt, to which a 20% developer margin is added for an estimated claimed Cost Approach FMV of $4.93 per watt.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "71140fc4-4853-4ffb-a40e-7748995228ce",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.12,
        "w": 0.764,
        "x": 0.118,
        "y": 0.11
      },
      "kind": "paragraph",
      "text": "Note that our adjusted Income Approach sits well below RUN's price of $3.38 / watt for systems it sold directly to customers in Q1 2022. Because the Income Approach should yield this result lower than the direct selling price, as we show infra, to be company favorable, the Tax Models should average RUN's direct selling price with a (more intellectually honest) Cost Approach. (Averaging the $3.38 / watt direct selling price with our adjusted Cost Approach yields a tax basis of only $3.65 / watt.)",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "be27a9b1-a00f-4ffe-a522-3889f82ecef5",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.08,
        "w": 0.764,
        "x": 0.118,
        "y": 0.73
      },
      "kind": "paragraph",
      "text": "However, RUN includes costs in Creation Cost that are seemingly not permitted by IRS guidelines for Cost Approach valuation: Construction in Progress, certain P&L Costs, and Profit from Acquired Systems. RUN, we understand, adds an inappropriately large Developer Margin of approximately 20%.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e0aa1186-7947-44de-88ce-a29b473f42f2",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.764,
        "x": 0.118,
        "y": 0.85
      },
      "kind": "source-note",
      "text": "29 RUN Q3 2021 Historical Model... 30 Conversation with RUN Investor Relations, December 2021 31 RUN Q2 2021 Historic Financial and Metric Model",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "c0d14f1c-53b8-4a68-b5b2-93e789294f5d",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.764,
        "x": 0.118,
        "y": 0.39
      },
      "kind": "title",
      "text": "Why RUN's Cost Approach Tax Model Doesn't Hold Water",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e716ff62-fd4a-45c2-a538-ed4c3ba74a3e",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [],
  "arcBeats": [
    {
      "to": 20,
      "from": 6,
      "beatId": "cf489be1-5d4b-47b0-b96c-139ebc5df28c",
      "arcName": "Overcoming the Monster",
      "arcSlug": "overcoming-monster",
      "beatName": "The Struggle",
      "beatSlug": "overcoming-monster-the-struggle",
      "evidence": "RUN's business practices and financial modeling are critiqued in detail.",
      "position": 1,
      "confidence": 0.8,
      "parentBeatName": "Development",
      "parentBeatSlug": "development"
    }
  ],
  "loops": [],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}