VIVINT SOLAR, INC. Forward-Looking Statements
This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this report. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are identified by words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may," "seek" and other similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.
These forward-looking statements include, but are not limited to:
• the proposed acquisition of us by Sunrun Inc., or Sunrun;
• the duration and severity of the COVID-19 pandemic;
• the success of our plans to mitigate the negative economic impacts of
COVID-19;
• federal, state and local regulations and policies governing the electric
utility industry;
• the regulatory regime for our offerings and for third-party owned solar
energy systems;
• technical limitations imposed by operators of the power grid;
• the continuation of rebates, tax credits and incentives, including changes
to the rates of the U.S. federal investment tax credit, or ITC;
• the price of utility-generated electricity and electricity from other
sources;
• our ability to finance the installation of solar energy systems;
• our ability to efficiently install and interconnect solar energy systems to
the power grid;
• our ability to manage growth, product offering mix and costs;
• our ability to further penetrate existing markets and expand into new
markets;
• our ability to develop new product offerings and distribution channels;
• our relationship with our sister company Vivint Smart Home, Inc., or Vivint ,
and The Blackstone Group L.P. , our Sponsor;
• our ability to manage our supply chain;
• the cost of equipment and the residual value of solar panels after the
expiration of our customer contracts;
• the course and outcome of litigation, regulatory investigations and other
disputes; and
• our ability to maintain our brand and protect our intellectual property.
In combination with the risk factors we have identified, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all, or as predictions of future events. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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Overview
Our business operations have experienced significant disruptions due to the
unprecedented conditions surrounding COVID-19 in
Management has devoted significant time and attention to assessing the potential impact of COVID-19 and related events on our operations and financial position and has developed operational and financial plans to address those matters. We have taken many actions, including, but not limited to, having employees work from home where possible, practicing social distancing in all aspects of our business, reducing our workforce, temporarily reducing compensation, temporarily closing warehouses and sales offices, and eliminating expenditures. As a result of these actions, we saw our expense structure decrease in the second quarter of 2020. Recently we have been able to bring back most of our furloughed workforce and reinstate compensation and have most recently seen our expense structure trending upward. The timing and extent to which our expense structure will fluctuate in the future depends on whether these or similar actions need to be re-implemented, when and to what extent government restrictions related to COVID-19 are relaxed or re-implemented, and how our business practices may change as a result of long-term shifts in consumer behavior resulting from the COVID-19 pandemic.
There is no certainty that such measures will be sufficient to mitigate the
risks posed by the pandemic, and our ability to perform certain functions could
be negatively impacted. While the potential impact and duration of the COVID-19
pandemic on the
We offer distributed solar energy - electricity generated by a solar energy system installed at or near customers' locations - to residential customers. Historically, we have primarily offered our products through a customer-focused and neighborhood-driven direct-to-home sales model. During the COVID-19 pandemic we have been following the recommendations of state and local health authorities to minimize the exposure risk for team members and customers, which has required our direct-to-home sales force to quickly adapt to remote sales practices, though recently they have been able to resume direct-to-home sales activities in most markets. We believe we are disrupting the traditional electricity market by satisfying customers' demand for increased energy independence and less expensive, more socially responsible electricity generation. As a result, we primarily compete with traditional utilities in the markets we serve, and our strategy is to price the energy we sell below prevailing retail electricity rates. The price our customers pay to buy energy from us varies depending on the state where the customer is located, the impact of the local traditional utility, customer price sensitivity, the availability of incentives and rebates, the need to offer a compelling financial benefit and the price other solar energy companies charge in the region. We also compete with distributed solar energy system providers for solar energy system sales on the basis of price, service and availability of financing options.
Our primary product offering includes the following:
• Power Purchase Agreements. Under power purchase agreements, or PPAs, we
charge customers a fee per kilowatt hour based on the electricity production
of the solar energy system, which is billed monthly. We also offer PPAs that
include battery storage systems. PPAs have a term of either 20 or 25 years
and are subject to an annual price escalator of 2.9%. Over the term of the
PPA, we operate the system and agree to maintain it in good condition.
Customers who buy energy from us under PPAs are covered by our workmanship
warranty equal to the length of the term of these agreements.
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• Legal-form Leases. Under legal-form leases, or Solar Leases, we charge
customers a fixed monthly payment to lease the solar energy system, which is
based on a calculation that accounts for expected solar energy generation.
Solar Leases have a term of either 20 or 25 years and are typically subject
to an annual price escalator of 2.9%, though some markets offer Solar Leases
with no annual price escalator. We provide our Solar Lease customers a
performance guarantee under which we agree to refund certain payments to the
customer if the solar energy system does not meet the guaranteed production
level in the prior 12-month period. Over the term of the Solar Lease, we
operate the system and agree to maintain it in good condition, and in some
markets, we offer to install a battery storage system along with the solar
energy system. Customers who lease equipment from us under Solar Leases are
covered by our workmanship warranty equal to the length of the term of these
agreements.
• Solar Energy System Sales. Under solar energy system sales, or System Sales,
we offer our customers the option to purchase solar energy systems for cash
or through third-party financing. The price for these contracts is
determined as a function of the respective market rate and the size of the
solar energy system to be installed. Customers can additionally contract
with us for certain structural upgrades, smart home products, battery
storage systems, electric vehicle charging stations and other accessories in
connection with the installation of a solar energy system based on the
market where they are located. We believe System Sales are advantageous to
us as they provide immediate access to cash.
Of the 99.7 megawatts installed in the six months ended
Our ability to offer long-term customer contracts depends in part on our ability
to finance the installation of the solar energy systems by co-investing or
entering into lease arrangements with fund investors who value the resulting
customer receivables and ITCs, accelerated tax depreciation and other incentives
related to the solar energy systems primarily through structured investments
known as "tax equity." Tax equity investments are generally structured as
non-recourse project financings known as investment funds. In the context of the
distributed solar energy market, tax equity investors make an upfront advance
payment to a sponsor through an investment fund in exchange for a share of the
tax attributes and cash flows emanating from an underlying portfolio of solar
energy systems. In these investment funds, the
In general, our investment funds have adopted the partnership or inverted lease structures. Under partnership structures, we and our fund investors contribute cash into a partnership company. The partnership uses this cash to acquire solar energy systems developed by us and sells energy from such systems to customers or directly leases the solar energy systems to customers. Under our existing inverted lease structures, we and the fund investor set up a multi-tiered investment vehicle, composed of two partnership entities, that facilitates the pass through of the tax benefits to the fund investors. In this structure, we contribute solar energy systems to a lessor partnership entity in exchange for interests in the lessor partnership and the fund investors contribute cash to a lessee partnership in exchange for interests in the lessee partnership which in turn makes an investment in the lessor partnership entity in exchange for interests in the lessor partnership. The lessor partnership distributes the cash contributions received from the lessee partnership to our wholly owned subsidiary that contributed the projects to the lessor partnership. The lessor partnership leases the contributed solar energy systems to the lessee partnership under a master lease, and the lessee partnership pays the lessor partnership rent for those systems.
We have determined that we are the primary beneficiary in these partnership and inverted lease structures for accounting purposes. Accordingly, we consolidate the assets and liabilities and operating results of these partnerships in our condensed consolidated financial statements. We recognize the fund investors' share of the net assets of the investment funds as non-controlling interests and redeemable non-controlling interests in our condensed consolidated balance sheets. These income or loss allocations, reflected on our condensed consolidated statements of operations, may create significant volatility in our reported results of operations, including potentially changing net loss attributable to common stockholders from loss to income, or vice versa, from quarter to quarter.
Substantially all of our solar energy systems installed through the date of this report have been eligible for ITCs. Pursuant to statute, the ITC rate declined for construction purposes beginning in 2020. If such reductions continue as scheduled, our ability to obtain tax equity financing may be reduced or be available on less advantageous terms. Furthermore, ITCs have historically supported our ability to provide attractive pricing to customers. If the ITC is reduced as contemplated, demand for our solar energy systems and our operating results could be adversely affected if we are unable to offset the impact of such reductions.
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Key Operating Metrics
We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Some of our key operating metrics are estimates. These estimates are based on our management's beliefs and assumptions and on information currently available to management. Although we believe that we have a reasonable basis for each of these estimates, these estimates are based on a combination of assumptions that may not prove to be accurate over time, particularly given that a number of them involve estimates of cash flows up to 30 years in the future. Underperformance of the solar energy systems, payment defaults by our customers, cancellation of signed contracts, competition from other distributed solar energy companies, development in the distributed solar energy market and the energy market more broadly, technical innovation or other factors described under the section of this report captioned "Risk Factors" could cause our actual results to differ materially from our calculations. Furthermore, while we believe we have calculated these key metrics in a manner consistent with those used by others in our industry, other companies may in fact calculate these metrics differently than we do now or in the future, which would reduce their usefulness as a comparative measure.
• Solar energy system installations. Solar energy system installations
represents the number of solar energy systems installed on customers'
premises. Cumulative solar energy system installations represents the
aggregate number of solar energy systems that have been installed on
customers' premises. We track the number of solar energy system
installations as of the end of a given period as an indicator of our
historical growth and as an indicator of our rate of growth from period to
period. We expect solar energy installations to be adversely affected by the
COVID-19 related restrictions on our business and consumer behavior.
• Megawatts installed. Megawatts installed represents the aggregate megawatt
nameplate capacity of solar energy systems for which panels, inverters, and
mounting and racking hardware have been installed on customers' premises in
the period. Cumulative megawatts installed represents the aggregate megawatt
nameplate capacity of solar energy systems for which panels, inverters, and
mounting and racking hardware have been installed on customers' premises. We
expect megawatts installed to be adversely affected by the COVID-19 related
restrictions on our business and consumer behavior.
• Estimated nominal contracted payments remaining. Estimated nominal
contracted payments remaining equals the sum of the remaining cash payments
that our customers are expected to pay over the term of their PPAs or Solar
Leases with us for systems installed as of the measurement date. For a PPA,
we multiply the contract price per kilowatt-hour by the estimated annual
energy output of the associated solar energy system to determine the
estimated nominal contracted payments. For a Solar Lease, we include the
monthly fees and upfront fee, if any, as set forth in the lease.
• Estimated gross retained value. Estimated gross retained value represents
the net cash flows discounted at 6% that we expect to receive from customers
pursuant to PPAs and Solar Leases plus the value of contracted solar
renewable energy certificates, or SRECs, net of estimated cash distributions
to fund investors, debt associated with our forward flow facilities and
estimated operating expenses for systems installed as of the measurement
date.
• Estimated gross retained value under energy contracts. Estimated gross
retained value under energy contracts represents the estimated retained
value from the solar energy systems during the 20-year or 25-year term of
our PPAs and Solar Leases plus the value of contracted SRECs.
• Estimated gross retained value of renewal. Estimated gross retained value of
renewal represents the estimated retained value associated with an assumed
5-year or 10-year renewal term following the expiration of the initial PPA
or Solar Lease term. To calculate estimated retained value of renewal, we
assume all PPAs and Solar Leases are renewed at 90% of the contractual price
in effect at the expiration of the initial term.
• Estimated gross retained value per watt. Estimated gross retained value per
watt is calculated by dividing the estimated retained value as of the
measurement date by the aggregate nameplate capacity of solar energy systems
under PPAs and Solar Leases that have been installed as of such date and is
subject to the same assumptions and uncertainties as estimated retained
value.
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Solar energy system installations 6,735 8,163 14,973 14,677
Megawatts installed 43.6 56.0 99.7 101.6
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June 30, December 31,
2020 2019
Cumulative solar energy system installations 203,264 188,291
Cumulative megawatts installed 1,393.7 1,294.0
Estimated nominal contracted payments remaining (in millions)
$ 4,784.3 $ 4,434.0
Estimated gross retained value under energy contracts (in millions)
$ 1,810.5 $ 1,690.0 Estimated gross retained value of renewal (in millions)$ 652.3 $ 600.7 Estimated gross retained value (in millions)$ 2,462.8 $ 2,290.7 Estimated gross retained value per watt$ 1.98 $ 1.98
Seasonality
We experience seasonal fluctuations in our operations. For example, the amount
of revenue we recognize in a given period from PPAs is dependent in part on the
amount of energy generated by solar energy systems under such contracts. As a
result, customer agreements and incentives revenue is impacted by seasonally
shorter daylight hours in winter months. In addition, our ability to install
solar energy systems is impacted by weather. For example, we have limited
ability to install solar energy systems during the winter months in the
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based on our condensed consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in
We believe that the assumptions and estimates associated with ITCs, revenue recognition, solar energy systems, net, the impairment analysis of long-lived assets, stock-based compensation, the provision for income taxes, the valuation of derivative financial instruments, the recognition and measurement of loss contingencies, and non-controlling interests and redeemable non-controlling interests have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Effective
There have been no other material changes to our critical accounting policies
and estimates during the six months ended
Recent Developments
On
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If the Merger is completed, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger, except for certain specified shares, will be converted automatically into the right to receive 0.55 fully paid and nonassessable shares of Sunrun common stock and, if applicable, an amount in cash, without interest and less any applicable withholding taxes, rounded down to the nearest cent, in lieu of any fractional share interest in Sunrun common stock to which the holder otherwise would have been entitled.
The completion of the Merger is subject to customary conditions. We anticipate that the Merger will be completed in the fourth quarter of 2020. However, we cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if other uncertainties may arise.
The Merger Agreement provides for certain termination rights for both parties.
If the Merger Agreement is terminated due to our or Sunrun's breach of certain
representations, warranties, covenants or agreements under certain specified
circumstances, we would be required to pay Sunrun a termination fee of
Components of Results of Operations
Revenue
Customer Agreements and Incentives. We recognize revenue for our PPAs based on the actual amount of power generated at rates specified under the contracts. We recognize revenue for our Solar Leases, which include performance guarantees, on a straight-line basis over the lease term.
We apply for and receive SRECs in certain jurisdictions for power generated by solar energy systems we have installed. We generally recognize revenue related to the sale of SRECs upon delivery to the buyer. The market for SRECs is extremely volatile and sellers are often able to obtain better unit pricing by selling a large quantity of SRECs. As a result, we may sell SRECs infrequently, at opportune times and in large quantities and the timing and volume of our SREC sales may lead to fluctuations in our quarterly results.
Solar Energy System and Product Sales. Solar energy systems and product sales primarily includes revenue from System Sales. Revenue from System Sales is recognized when systems are interconnected to local power grids and granted permission to operate, assuming all other revenue recognition criteria are met. Revenue related to the sale of photovoltaic installation products is recognized at the time of product shipment to the customer, assuming the remaining revenue recognition criteria have been met. Revenue mix will likely vary on a period-to-period basis as a result of regulatory, competitive and other local market conditions.
The following table sets forth our revenue by major product (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenue:
Customer agreements and other incentives
12,441 10,956 24,934 20,351
Total customer agreements and incentives 81,835 63,355 133,111 102,958
System Sales 24,360 26,759 63,352 56,058 Photovoltaic installation products 199 643 1,082 1,112 Total solar energy system and product sales 24,559 27,402 64,434 57,170 Total revenue$ 106,394 $ 90,757 $ 197,545 $ 160,128 32
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Operating Expenses
At the end of the first quarter of 2020, we took a number of cost reduction initiatives, including decreasing a significant portion of our workforce through furloughs and layoffs, salary reductions, and temporarily closing warehouses and sales offices. Recently we have been able to bring back most of our furloughed workforce and reinstate compensation. The timing and extent to which our expense structure will fluctuate in the future depends on the severity and duration of the COVID-19 pandemic and whether such actions need to be re-implemented. In addition, if we have to re-implement these actions, we may be unable to hire, or rehire, our workforce in a timely way as COVID-19 restrictions are loosened and if we are unable to meet the demand for our solar energy systems, our future operating results and prospects may be adversely affected.
Cost of Revenue-Customer Agreements and Incentives. Cost of revenue-customer agreements and incentives includes the depreciation of the cost of solar energy systems under long-term customer contracts, which are depreciated for accounting purposes over 30 years. It also includes allocated indirect material and labor costs related to the processing; account creation; design; installation; interconnection and servicing of solar energy systems that are not capitalized, such as personnel costs not directly associated to a solar energy system installation; warehouse rent and utilities; and fleet vehicle executory costs. The cost of customer agreements and incentives also includes allocated facilities and information technology costs. The cost of revenue for the sales of SRECs is limited to broker fees that are paid in connection with certain SREC transactions.
Cost of Revenue-Solar Energy System and Product Sales. Cost of revenue-solar energy system and product sales consists of direct and allocated indirect material and labor costs and overhead costs for System Sales, photovoltaic installation products and structural upgrades. Indirect material and labor costs are ratably allocated to System Sales and include costs related to the processing; account creation; design; installation; interconnection and servicing of solar energy systems, such as personnel costs not directly associated to a solar energy system installation; warehouse rent and utilities; and fleet vehicle executory costs. The cost of solar energy system and product sales also includes allocated facilities and information technology costs. Costs of solar energy system sales are recognized in conjunction with the related revenue upon the solar energy system passing an inspection by the responsible governmental department after completion of system installation and interconnection to the power grid, assuming all other revenue recognition criteria are met.
Sales and Marketing. Sales and marketing expenses include personnel costs, such as salaries, benefits, bonuses and stock-based compensation for our corporate sales and marketing employees, certain non-capitalizable commission payments and the amortization of capitalized incremental costs to obtain customer contracts. Sales and marketing expenses also include advertising, promotional and other marketing-related expenses; allocated facilities and information technology costs; travel; professional services and costs related to pre-installation sales activities.
Research and Development. Research and development expense is composed primarily of salaries and benefits and other costs related to the development of photovoltaic installation products and other solar technologies. Research and development costs are charged to expense when incurred.
General and Administrative. General and administrative expenses include personnel costs, such as salaries, bonuses and stock-based compensation related to our general and administrative personnel; professional fees related to legal, human resources, accounting, structured finance and Merger related services; litigation settlements; travel; and allocated facilities and information technology costs.
Non-Operating Expenses
Interest Expense. Interest expense primarily consists of the interest charges associated with our indebtedness including the amortization of debt issuance costs and the interest component of finance lease obligations. In 2020, we expect our interest expense to increase in absolute dollars compared to 2019 as we have incurred additional indebtedness.
Other Expense, net. Other expense, net primarily consists of changes in fair value for our interest rate swaps not designated as hedges.
Income Tax Expense. All of our business is conducted in
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Net Loss Attributable to Common Stockholders
We determine the net loss attributable to common stockholders by deducting from
net loss the net loss attributable to non-controlling interests and redeemable
non-controlling interests, which represents the investment fund investors'
allocable share in the results of operations of the investment funds that we
consolidate. Generally, gains and losses that are allocated to the fund
investors under the hypothetical liquidation at book value, or HLBV, method
relate to hypothetical liquidation gains and losses resulting from differences
between the net assets of the investment fund and the partners' respective tax
capital accounts in the investment fund. As of
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report.
The following table sets forth selected condensed consolidated statements of operations data for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(In thousands)
Revenue:
Customer agreements and incentives
106,394 90,757 197,545 160,128
Cost of revenue:
Cost of revenue-customer agreements and
incentives 44,331 43,074 97,154 83,265
Cost of revenue-solar energy system and
product sales 15,627 15,791 37,675 33,054
Total cost of revenue 59,958 58,865 134,829 116,319
Gross profit 46,436 31,892 62,716 43,809
Operating expenses:
Sales and marketing 35,394 37,037 75,002 66,671
Research and development 286 524 842 993
General and administrative 36,860 31,205 64,886 54,254
Total operating expenses 72,540 68,766 140,730 121,918
Loss from operations (26,104 ) (36,874 ) (78,014 ) (78,109 )
Interest expense, net 24,712 19,472 46,344 38,599
Other expense, net 1,145 1,365 29,503 2,750
Loss before income taxes (51,961 ) (57,711 ) (153,861 ) (119,458 )
Income tax expense 32,406 29,950 55,820 57,437
Net loss (84,367 ) (87,661 ) (209,681 ) (176,895 )
Net loss attributable to non-controlling
interests and redeemable
non-controlling interests (83,126 ) (59,094 ) (168,180 ) (122,086 )
Net loss attributable to common
stockholders $ (1,241 ) $ (28,567 ) $ (41,501 ) $ (54,809 ) Comparison of Three Months Ended
Revenue
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Revenue:
Customer agreements and incentives
(2,843 )
Total revenue $ 106,394 $ 90,757 $ 15,637
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Customer Agreements and Incentives. The
Solar Energy System and Product Sales. The
Cost of Revenue
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Cost of revenue:
Cost of revenue-customer agreements and
incentives $ 44,331 $ 43,074 $ 1,257
Cost of revenue-solar energy system and
product sales 15,627 15,791 (164 )
Total cost of revenue $ 59,958 $ 58,865 $ 1,093
Cost of Revenue-Customer Agreements and Incentives. The
Operating Expenses
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Operating expenses:
Sales and marketing
(238 )
General and administrative 36,860 31,205 5,655
Total operating expenses
Sales and Marketing. The
General and Administrative. The
Non-Operating Expenses
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Interest expense, net
(220 )
Interest Expense, net. Interest expense increased
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Income Taxes
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Income tax expense
The
Net Loss Attributable to Non-Controlling Interests and Redeemable
Non-Controlling Interests
Three Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Net loss attributable to non-controlling
interests and redeemable
non-controlling interests $ (83,126 ) $ (59,094 ) $ (24,032 ) Net loss attributable to non-controlling interests and redeemable non-controlling interests was allocated using the HLBV method. Generally, gains and losses that are allocated to the fund investors relate to hypothetical liquidation gains and losses resulting from differences between the net assets of the investment fund and the partners' respective tax capital accounts in the investment fund. Losses allocated to the fund investors are generally derived from the receipt of ITCs and tax depreciation under Internal Revenue Code Section 168. These tax benefits are primarily allocated to the investors and reduce the fund investors' tax capital account.
Comparison of Six Months Ended
Revenue
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Revenue:
Customer agreements and incentives
7,264
Total revenue $ 197,545 $ 160,128 $ 37,417
Customer Agreements and Incentives. The
Solar Energy System and Product Sales. The
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Cost of Revenue
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Cost of revenue:
Cost of revenue-customer agreements and
incentives $ 97,154 $ 83,265 $ 13,889
Cost of revenue-solar energy system and
product sales 37,675 33,054 4,621
Total cost of revenue $ 134,829 $ 116,319 $ 18,510
Cost of Revenue-Customer Agreements and Incentives. The
Cost of Revenue-Solar Energy System and Product Sales. The
Operating Expenses
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Operating expenses:
Sales and marketing
993 (151 )
General and administrative 64,886 54,254 10,632
Total operating expenses
Sales and Marketing. The
General and Administrative. The
Non-Operating Expenses
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Interest expense, net
26,753
Interest Expense, net. Interest expense increased
Other Expense, net. The
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Income Taxes
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Income tax expense
The
Net Loss Attributable to Non-Controlling Interests and Redeemable
Non-Controlling Interests
Six Months Ended
June 30, $ Change
2020 2019 2020 from 2019
(In thousands)
Net loss attributable to non-controlling
interests and redeemable
non-controlling interests $ (168,180 ) $ (122,086 ) $ (46,094 ) Net loss attributable to non-controlling interests and redeemable non-controlling interests was allocated using the HLBV method. Generally, gains and losses that are allocated to the fund investors relate to hypothetical liquidation gains and losses resulting from differences between the net assets of the investment fund and the partners' respective tax capital accounts in the investment fund. Losses allocated to the fund investors are generally derived from the receipt of ITCs and tax depreciation under Internal Revenue Code Section 168. These tax benefits are primarily allocated to the investors and reduce the fund investors' tax capital account.
Liquidity and Capital Resources
As of
Our principal uses of cash are funding our operations, including the costs of acquisition and installation of solar energy systems, working capital requirements and the satisfaction of our obligations under our debt instruments. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy systems. While there can be no assurances, we anticipate raising additional required capital from new and existing fund investors, additional borrowings, cash from System Sales and other potential financing vehicles.
We may seek to raise financing through the sale of equity, equity-linked securities, additional borrowings or other financing vehicles. Additional equity or equity-linked financing may be dilutive to our stockholders. If we raise funding through additional borrowings, such borrowings would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. We believe our cash and cash equivalents, including our investment fund commitments, projected investment fund contributions and our current debt facilities as further described below, in addition to financing that we may obtain from other sources, including our financial sponsors, will be sufficient to meet our anticipated cash needs for at least the next 12 months. The impact of COVID-19 has resulted in changes to the capital markets. The timing and type of funding the Company expects to obtain as part of its planned business processes has been disrupted in the recent past as a result of COVID-19 and may be disrupted in the future. Future funding may prove to be more expensive and less favorable than previously expected. If we are unable to secure additional financing when needed, or upon desirable terms, we may be unable to finance installation of our customers' systems in a manner consistent with our past performance, our cost of capital could increase, or we may be required to significantly reduce the scope of our operations, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, our investment funds and debt instruments impose restrictions on our ability to draw on financing commitments. If we are unable to satisfy such conditions, we may incur penalties for non-performance under certain investment funds, experience installation delays, or be unable to make installations in accordance with our plans or at all. Any of these factors could also impact customer satisfaction, our business, operating results, prospects and financial condition. While we believe additional financing is available and will continue to be available to support our current level of operations, we believe we have the ability to reduce operations to the level of available financial resources for at least the next 12 months, if necessary.
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Sources of Funds Investment Fund Commitments
As of
Debt Instruments
Debt obligations consisted of the following as ofJune 30, 2020 (in thousands, except interest rates): Principal Unused Borrowings Borrowing Interest Maturity Outstanding Capacity Rate Date Solar asset backed notes, Series 2018-1(1)$ 442,669 $ - 5.1 % October 2028 Solar asset backed notes, Series 2018-2(2)(3) 336,767 - 5.0 August 2023 2017 Term loan facility 176,474 - 6.0 January 2035 2018 Forward flow loan facility 124,133 - 4.7 November 2039 2019 Forward flow loan facility 136,226 13,774 4.7 (4) HoldCo Financing Facility 200,000 100,000 8.0 May 2023 Credit agreement 1,256 - 6.5 February 2023 Revolving lines of credit Warehouse facility 329,000 241,000 4.4 August 2023 Asset Financing Facility(5) 106,000 74,362 3.6 June 2023 Total debt$ 1,852,525 $ 429,136
(1) The interest rate disclosed in the table above is a weighted-average rate.
The Series 2018-1 Notes are composed of Class A and Class
Notes accrue interest at 4.73%. Class
Notes accrue interest at a rate of LIBOR plus 4.75%. Class A Notes accrue
interest at a variable spread over LIBOR that results in a weighted-average
spread for all 2018-2 Notes of 2.95%.
(3) The interest rate of these notes is partially hedged to an effective
interest rate of 6.0% for
Note 13-Derivative Financial Instruments.
(4) The maturity date for this facility is 20 years from the end date of the
borrowing availability period when all borrowings are aggregated into one
term loan, which will be no later than
our general assets. All of our other debt obligations are non-recourse,
which refers to debt that is only collateralized by specified assets or our
subsidiaries.
See Note 11-Debt Obligations for additional details regarding the debt
facilities outstanding at
Revenue from Operations
In the three and six months ended
Uses of Funds
Our principal uses of cash are funding our operations, including the costs of acquisition and installation of solar energy systems, satisfaction of our obligations under our debt instruments and other working capital requirements. From time to time, we also reimburse portions of fund investors' capital as a result of delays in the installation process and interconnection to the power grid of solar energy systems and other factors. We expect our capital expenditures to continue to increase as we continue to install additional solar energy systems. We will need to raise financing to support our operations, and such financing may not be available to us on acceptable terms, or at all.
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Historical Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended
June 30,
2020 2019
Net cash (used in) provided by: (In thousands)
Operating activities $ (150,762 ) $ (141,084 )
Investing activities (137,343 ) (124,381 )
Financing activities 455,111 252,087
Net increase (decrease) in cash and cash equivalents,
including restricted amounts $ 167,006 $ (13,378 )
Operating Activities
In the six months ended
Investing Activities
In the six months ended
Financing Activities
In the six months ended
Contractual Obligations
Our contractual commitments and obligations are set forth in our Annual Report
on Form 10-K for the year ended
• Additional borrowings and repayments resulted in a net $327.7 million
increase in principal borrowings and $83.5 million in additional expected
interest. For additional information, see Note 11-Debt Obligations.
• Distributions payable to non-controlling interest and redeemable
non-controlling interests increased by $5.2 million .
• Future minimum lease payments have changed as a result of leasing activity
during the period. See Note 12-Leases for current schedules of future
minimum lease payments on our finance and operating leases.
Off-Balance Sheet Arrangements
We include in our condensed consolidated financial statements all assets and liabilities and results of operations of investment fund arrangements that we have entered into. We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements that we are evaluating, see Note 2-Summary of Significant Accounting Policies.
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