Overview
You should read the following discussion together with our consolidated financial statements and the related notes included in Item 8 of this report. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of the many factors, including those we describe under Item 1A "Risk Factors" and elsewhere in this report. See "Forward-Looking Statements."
Business Overview
We offer distributed solar energy - electricity generated by a solar energy system installed at or near customers' locations - to residential customers primarily through a customer-focused and neighborhood-driven direct-to-home sales model. 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. 38
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Our primary product offerings include 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. PPAs typically have a term of 20 years and beginning in 2020, 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. • 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 typically have a term of 20 years and beginning
in 2020, 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, generators 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 our 233.1 megawatts installed in 2019, approximately 67% were installed under PPAs, 16% were installed under Solar Leases and 17% were installed under System Sales. We will continue to maximize the value of the solar energy systems we install as well as continue to evaluate pricing to optimize our use of capital based on market conditions and utility rates. 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 investment tax credits, or 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, theU.S. federal tax attributes offset taxes that otherwise would have been payable on the investors' other operations. The terms and conditions of each investment fund vary significantly by investor and by fund. We continue to negotiate with financial investors to create additional investment funds. 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 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 consolidated balance sheets. These income or loss allocations, reflected on our 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. 39
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Recent Developments
Refer to Note 21-Subsequent Events for details on recent developments.
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.
• 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 customer 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 customer premises. • 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
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 typical 20-year term of our
PPAs and Solar Leases plus the value of contracted solar renewable energy
certificates, or SRECs.
• Estimated gross retained value of renewal. Estimated gross retained value
of renewal represents the estimated retained value associated with an
assumed 10-year renewal term following the expiration of the initial PPA or
Solar Lease term. To calculate estimated gross 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 gross 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 gross retained value. 40
-------------------------------------------------------------------------------- Year Ended
2019
2018
Solar energy system installations 33,693 27,768 Megawatts installed 233.1 196.0 As of December 31, 2019 2018 Cumulative solar energy system installations 188,291
154,598
Cumulative megawatts installed 1,294.0
1,060.9
Estimated nominal contracted payments remaining (in millions)
$ 4,434.0
$ 1,690.0 $ 1,517.0 Estimated gross retained value of renewal (in millions)$ 600.7 $ 479.7 Estimated gross retained value (in millions)$ 2,290.7 $ 1,996.7 Estimated gross retained value per watt$ 1.98
Factors Affecting Our Performance
Financing Availability
Our future success depends in part on our ability to raise capital from third-party investors on competitive terms to help finance the deployment of our residential solar energy systems under long-term customer contracts. There are a limited number of potential investment fund investors and the competition for this investment capital is intense. The principal tax credit on which fund investors in our industry rely is the ITC. The amount of the ITC is equal to 30% of the basis of eligible solar property as long as construction of the solar energy system began byDecember 31, 2019 . By statute, the ITC percentage decreases to 26% of the basis of a solar energy system for systems where construction begins in 2020, 22% for systems where construction begins in 2021 and 10% for systems where construction begins after 2021 or, regardless of when construction begins, where the solar energy system is placed into service after 2023. We intend to create additional investment funds with financial investors and corporate investors. We also use debt, equity or other financing strategies to fund our operations, including our obligations to make contributions to investment funds. Such other financing strategies may increase our cost of capital. Our future success also depends in part on our ability to partner with third-parties who administer solar loan products. We require significant capital to operate our business and will require additional financing to meet our planned growth objectives. If we are unable to raise additional capital or generate sufficient cash flows in our operations, our growth objectives may not be achieved, and we may be unable to meet the growth expectations of investors in our common stock. Incentives; Net Metering Our cost of capital, the price we can charge for electricity, the cost of our systems and the demand for residential distributed solar energy is impacted by a number of federal, state and local government incentives and regulations, including: tax credits, particularly the ITC; tax abatements; rebate programs; net metering; and SRECs. These programs have on occasion been challenged by incumbent utilities and questioned by those in government and others arguing for less governmental spending and involvement in the energy market. In recent years, net metering programs have been subject to regulatory scrutiny or legislative proposals in several states in which we operate. Many utilities have proposed and are proposing new and varied revisions to their net metering programs, with such proposals ultimately determined by the state public utilities commissions. These revisions include, but are not limited to, capping the numbers of customers that can elect net metering within a utility service territory, imposing new fixed charges for grid service or interconnection, reducing the retail rate value of the net metered generation, and imposing consumer protection requirements on solar companies.
Customer Acquisition Costs
Customer acquisition costs primarily consist of sales commissions to our direct-to-home sales professionals. There is significant competition for sales talent in our industry, and from time to time we may need to adjust our compensation model to respond to this competition. These adjustments have caused and may continue to cause our customer acquisition costs to increase and could otherwise adversely impact our operating results and financial performance. Presently, the direct-to-home sales model results in high customer acquisition costs. In order to successfully grow in a strategic and profitable manner, we may need to expand into new sales channels to reduce customer acquisition costs. If we fail to expand effectively into new sales channels and reduce our customer acquisition costs, our operating results and growth prospects could be adversely affected. We may also incur significant costs to expand into new sales channels and may not be able to compete successfully with companies with a historical presence in such channels. 41
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System Equipment Costs
We purchase solar panels, inverters and other system components from a limited number of suppliers. Substantially all of our solar panels and inverters are produced outside ofthe United States . Various tariffs have been imposed by theU.S. government in recent years on materials that we use to construct our solar energy systems. These tariffs may lead to increases in our system equipment costs. See "-Suppliers" within "Item 1. Business" for further discussion of these tariffs. Despite recent increases in solar panel prices due to the tariffs imposed sinceFebruary 2018 and a general decrease in supply in the solar panel market, industry experts indicate that solar panel and raw material prices are expected to decline in the future. It is possible, however, that prices will not decline at the same rate as they have over the past several years or that prices may increase. In addition, growth in the solar industry inthe United States and abroad and the resulting increase in demand for solar panels and the raw materials necessary to manufacture them may put upward pressure on prices.
Sustainable Growth
We operate in states whose utility prices, sun exposure, climate conditions and regulatory policies provide for the most compelling market for distributed solar energy. Utility rates, availability of state incentives, other state, regional and local regulations, sun exposure and weather conditions, which can impact sales, installation and system productivity, vary by market. For example, markets inCalifornia typically have higher utility rates than markets in theEastern United States . As a result, systems inCalifornia typically have a higher retained value than systems in theEastern United States . However, we are entitled to receive SRECs and other state incentives in many Eastern states that are not available in theWestern United States . As a result, our financial and operating results will be affected by the geographic mix of the systems we install. Competition also varies by market and we may compete with national and local solar companies that offer products similar to ours. We plan to enlarge our addressable market by expanding our presence to new states on a measured basis. Our investments into new sales channels such as the homebuilder and retail channels are designed to allow us to expand into additional markets.
Sales Channels
We place our integrated solar energy systems through a sales organization that primarily uses a direct-to-home sales model. We believe that a direct, customer-facing sales model is important throughout our sales process to maximize our sales success and customer experience. The members of our sales force typically reside and work within the market they support. We also generate sales through customer referrals. Customer referrals increase in relation to our penetration in a market and become an increasingly effective way to market our solar energy systems shortly after market entry. In addition to direct sales, we sell to customers through our inside sales team and through various sales dealer agreements into which we have entered. We also sell to customers through the homebuilder and retail distribution channels. We continue to explore opportunities to sell solar energy systems to customers through a number of other distribution channels, including relationships with real estate management companies, large construction, electrical and roofing companies and other third parties that have access to large numbers of potential solar customers, as well as direct to consumers through online sales.
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 theNortheastern United States and other areas where winter weather is impactful. Such delays can impact the timing of when we can install and begin to generate revenue from solar energy systems. However, the true extent of these fluctuations may have been masked by our historical growth rates and thus may not be readily apparent from our historical operating results and may be difficult to predict. As such, our historical operating results may not be indicative of future performance.
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 expect customer agreements and incentives revenue to increase in 2020 compared to 2019. 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. 42 -------------------------------------------------------------------------------- Solar Energy System and Product Sales. Solar energy system and product sales primarily includes revenue from System Sales. Revenue for 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. We expect revenue from System Sales to increase in 2020 compared to 2019. 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):
Year EndedDecember 31, 2019 2018
Revenue:
Customer agreements and other incentives
SREC sales 48,435
43,890
Total customer agreements and incentives 217,331 174,066
System sales 121,177
113,308
Photovoltaic installation products 2,533
2,947
Total solar energy system and product sales 123,710 116,255 Total revenue$ 341,041 $ 290,321 Operating Expenses 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 and in 2018 included the amortization of related initial direct costs, which were being amortized over the terms of the long-term customer contracts. 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 which are paid in connection with certain SREC transactions. In 2020, we expect the cost of customer agreements and incentives revenue will increase in absolute dollars compared to 2019. 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 and in 2018 included related costs to obtain contracts associated with System Sales. 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. In 2020, we expect the cost of solar energy system and product sales to increase in absolute dollars compared to 2019. 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, beginning in 2019, 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. In 2020, we expect sales and marketing costs will increase in absolute dollars compared to 2019. 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. In 2020, we expect research and development costs will remain relatively consistent in absolute dollars compared to 2019. 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 and structured finance services; travel; and allocated facilities and information technology costs. In 2020, we expect that general and administrative expenses will remain relatively consistent in absolute dollars compared to 2019. 43
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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. Additionally, our debt facilities accrue interest at floating rates and increases in the floating rates would result in higher interest expense.
Other Expense (Income), net. Other expense (income), 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
Net Loss Attributable to 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. We have determined that the legal provisions in the contractual arrangements of the investment funds in which there is a non-controlling interest represent substantive profit-sharing arrangements, where the allocation to the partners differs from the stated ownership percentages. We have further determined that the appropriate methodology for attributing income and loss to the non-controlling interests and redeemable non-controlling interests each period is a balance sheet approach using the hypothetical liquidation at book value, or HLBV, method. Under the HLBV method, the amounts of income and loss attributed to the non-controlling interests and redeemable non-controlling interests in the consolidated statements of operations reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements of these funds, assuming the net assets of the respective investment funds were liquidated at recorded amounts determined in accordance withU.S. generally accepted accounting principles, or GAAP. The fund investors' interest in the results of operations of these investment funds is determined as the difference in the fund investors' claim under the HLBV method at the start and end of each reporting period, after taking into account any capital transactions between the fund and the fund investors. For all of our investment funds in which we have an equity interest, the application of HLBV is performed consistently. However, the results of that application and its impact on the income or loss allocated between us and the non-controlling interests and redeemable non-controlling interests depend on the respective funds' specific contractual liquidation provisions. HLBV results are generally affected by, among other factors, the tax attributes allocated to the fund investors including tax bonus depreciation and ITCs, the amount of preferred returns that have been paid to the fund investors by the investment funds, and the allocation of taxable income or losses in a liquidation scenario. As ofDecember 31, 2019 , we had one operational investment fund that did not utilize the HLBV method to allocate gains and losses, as we own 100% of the equity of that fund and there is no non-controlling interest attributable to a fund investor. The contractual liquidation provisions of our existing funds in which there is a non-controlling interest provide that the allocation percentages between us and the investor change, or "flip," under certain circumstances. Prior to the point at which the allocation percentage flips, the investor is entitled to receive a contractually agreed upon allocation of the value generated by the solar energy systems. The allocation of cash payments received from customers may differ from the allocation of other tax benefits. Afterwards, we are entitled to receive the majority of the value generated by the solar energy systems. The difference between our current inverted lease structures and our current partnership structures that drives a significant impact on our results from the application of the HLBV method is how the flip point is determined. Additionally, we have the option to buy out the non-controlling interest in each fund after the flip. The purchase price of the non-controlling interest is defined in each fund's respective fund agreements. The purchase price paid to buy out the non-controlling interest can have a significant impact on the HLBV calculation if the purchase price is materially different than the carrying value of the non-controlling interest. The HLBV calculation is also impacted by the difference between the cash received by us from the investment funds and the carrying value of the solar energy systems contributed to the investment funds. The purchase price paid for solar energy systems by an investment fund is based on the fair market value, as determined by an independent appraiser. As we consolidate both the subsidiary that develops the solar energy systems and the investment fund, the sales of the solar energy systems are considered transactions under common control and are therefore reflected at their historical cost, or their carryover basis. Cash received in excess of the installed purchased solar energy systems' carryover basis is treated as deemed distributions from the investment fund to us. In most cases, any excess of the purchase price over the carryover basis of the solar energy systems would result in allocations of income to us. 44 -------------------------------------------------------------------------------- A portion of the solar energy systems purchased by, or contributed to, an investment fund are not installed at the time of purchase or contribution and therefore do not have any carryover basis allocated to them. Our wholly owned subsidiary has an obligation to purchase, install and provide the solar energy system equipment to an investment fund for any in-progress projects that were previously purchased by such fund. If our wholly owned subsidiary does not ultimately provide the investment fund with the solar energy systems that it purchased, it is required to refund the purchase price to the investment fund. In these specific cases, we determined that the portion of the cash purchase price paid by an investment fund that relates to in-progress projects should be recorded as a receivable by the investment fund, representing the investment fund's right to receive solar panels and related equipment for solar energy systems that are installed after the project is purchased by the investment fund. Given that our subsidiary controls the investment fund, we have accounted for the receivable balance as a reduction in the investment fund's members' equity in accordance with GAAP. Initially this may result in allocations of losses amongst the partners, as the GAAP equity balance is less than the tax capital account. The allocations of such losses amongst the partners follow the contractual liquidation provisions of the partnership agreements. When such solar energy systems are subsequently installed, the systems are recorded at their carryover basis as a common control transaction and the receivable balance is eliminated. With the elimination of the receivable, the investment fund's member's equity is increased to the extent of the carrying amount of the assets contributed, which results in the reversal of a portion of the prior allocation of losses. In most cases, the reversal of such losses occurs within a short period of time, approximately three to six months. As discussed above, the difference between the receivable balance eliminated and the carryover basis of the installed solar energy systems is treated as deemed distributions from the investment fund to us, and as a result, that portion of the prior allocation of losses is not reversed over time. We classify certain non-controlling interests with redemption features that are not solely within our control outside of permanent equity. The fair values of these redemption features are calculated by discounting the cash flows subsequent to the expected flip date of the respective investment funds. When the redemption value of our redeemable non-controlling interests exceeds their carrying value after attribution of income or loss under the HLBV method in any period, we make an additional attribution of income to our redeemable non-controlling interests such that their carrying value at least equals the redemption value. Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and related notes included elsewhere in this report.
The following table sets forth selected consolidated statements of operations data for each of the periods indicated.
Year Ended December 31, 2019 2018 (In thousands) Revenue: Customer agreements and incentives$ 217,331 $
174,066
Solar energy system and product sales 123,710
116,255
Total revenue 341,041
290,321
Cost of revenue: Cost of revenue-customer agreements and incentives 186,325
164,920
Cost of revenue-solar energy system and product sales 72,221
83,375 Total cost of revenue 258,546 248,295 Gross profit 82,495 42,026 Operating expenses: Sales and marketing 151,194 58,950 Research and development 2,043 1,867 General and administrative 117,822 93,703 Total operating expenses 271,059 154,520 Loss from operations (188,564 ) (112,494 ) Interest expense, net 82,323 65,308 Other expense (income), net 1,434 (4,538 ) Loss before income taxes (272,321 ) (173,264 ) Income tax expense 150,999 106,299 Net loss (423,320 )
(279,563 ) Net loss attributable to non-controlling interests and redeemable
non-controlling interests (321,145 ) (263,971 ) Net loss attributable to common stockholders$ (102,175 ) $ (15,592 ) 45
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Comparison of Years Ended
Revenue Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands) Revenue:
Customer agreements and incentives
43,265
Solar energy system and product sales 123,710 116,255
7,455 Total revenue$ 341,041 $ 290,321 $ 50,720 Customer Agreements and Incentives. The$43.3 million increase was due in part to a$38.1 million increase in customer agreement revenue as the total megawatts of solar energy systems placed in service under these long-term customer contracts increased by 22% and a$4.5 million increase in SREC revenue. Solar Energy System and Product Sales. The$7.5 million increase was primarily due to an increase in solar energy systems placed in service under System Sales compared to 2018, primarily resulting from higher volumes which were driven in part by an increase in volume related to the homebuilder program. Cost of Revenue Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands) Cost of revenue: Cost of revenue-customer agreements and incentives$ 186,325 $ 164,920 $ 21,405 Cost of revenue-solar energy system and product sales 72,221 83,375 (11,154 ) Total cost of revenue$ 258,546 $ 248,295 $ 10,251 Cost of Revenue-Customer Agreements and Incentives. The$21.4 million increase was due in part to a$13.5 million increase in compensation and benefits for the installation and operations organizations driven by an increase in headcount and other associated costs to accommodate a 19% increase in installation volumes compared to 2018, a$10.2 million increase related to growth in the post-installation maintenance organization to accommodate the increase in the number of solar energy systems placed in service, a$7.7 million increase in depreciation of solar energy system equipment costs due to the increase in the number of solar energy systems placed in service and a$3.6 million increase in other operational costs such as permitting and other filing and incentive fees related to installation volume growth. Additionally, as part of our annual impairment test for long-lived assets, we determined that certain solar energy systems were impaired and required any remaining net asset value to be written off, resulting in charges of approximately$3.4 million to cost of revenue-customer agreements and incentives. These increases were partially offset by a$17.5 million decrease in the amortization of initial direct costs resulting from these costs being recorded in this line item during 2018 while similar costs are recorded in sales and marketing expense beginning in 2019 as a result of adopting ASU 2016-02, Leases (Topic 842), or Topic 842. Cost of Revenue-Solar Energy System and Product Sales. The$11.2 million decrease is primarily attributable to a$19.1 million decrease in costs to obtain contracts resulting from these costs being recorded in this line item during 2018 while similar costs are recorded in sales and marketing expense beginning in 2019 as a result of adopting Topic 842. This decrease was partially offset by a$7.7 million increase in costs related to new homebuilder program volume and an increase in structural and electrical upgrade services driven by the increase in System Sales volume. Operating Expenses Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands) Operating expenses: Sales and marketing$ 151,194 $ 58,950 $ 92,244
Research and development 2,043 1,867
176
General and administrative 117,822 93,703
24,119
Total operating expenses
46 -------------------------------------------------------------------------------- Sales and Marketing. The$92.2 million increase was primarily due to$52.4 million in costs to obtain contracts and amortization of previously capitalized costs to obtain contracts being included in this line item for the current period as a result of adopting Topic 842 while these costs were included in cost of revenue during 2018, a$31.2 million increase in compensation and benefits due in part to an increase in inside sales headcount to support new sales channels and an increase in non-capitalized residual commission payments, including a one-time$5.9 million accrual in the third quarter of 2019 related to a proposed settlement of theFebruary 2018 legal proceeding, a$3.4 million increase in marketing and lead generation activities, a$2.0 million increase in allocated facility and information technology expenses and a$1.8 million increase in professional services related to our retail sales channel, including one-time fees of$1.3 million . Additionally, as part of our annual impairment test for long-lived assets, we determined that certain solar energy systems were impaired and required any remaining net costs to obtain the contract to be written off, resulting in charges of approximately$0.6 million to sales and marketing. General and Administrative. The$24.1 million increase was primarily due to an$11.7 million increase in legal settlement costs, a$4.9 million increase in compensation and benefits, including stock-based compensation, a$3.9 million increase in professional fees and a$2.7 million increase in insurance costs. See Note 19-Commitments and Contingencies for additional details on the legal settlement costs. Non-Operating Expenses Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands)
Interest expense, net
17,015
Other expense (income), net 1,434 (4,538 )
5,972
Interest Expense. Interest expense increased$17.0 million primarily due to a$7.8 million increase in interest expense resulting from additional borrowings year over year, a$6.8 million reduction in interest expense in the same period in 2018 due to one-time items related to the refinancing and termination of debt facilities and a$2.5 million increase related to deferred financing costs recognized in interest expense as a result of terminating the Aggregation Facility. See Note 11-Debt Obligations for details about the termination of the Aggregation Facility. Other Expense (Income), net. The$6.0 million change from other income to other expense was primarily due to a$3.9 million change in the fair value of our derivative financial instruments and a$2.1 million payment received in 2018 as an initial distribution to us in one of our legal proceedings. Income Taxes Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands) Income tax expense$ 150,999 $ 106,299 $ 44,700 The$44.7 million increase to income tax expense was primarily attributable to a$35.0 million additional expense as a result of increased tax gains recognized on the sale of solar energy systems to investment funds, and a$12.0 million tax-effected increase in non-controlling interests and redeemable non-controlling interests. These increases in income tax expense were partially offset by a tax-effected$1.3 million reduced loss before income taxes. Net Loss Attributable to Non-Controlling Interests and Redeemable Non-Controlling Interests Year Ended December 31, $ Change 2019 2018 2019 from 2018 (In thousands) Net loss attributable to non-controlling interests and redeemable non-controlling interests$ (321,145 ) $ (263,971 ) $ (57,174 ) 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. 47
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flows and related footnote disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Our future consolidated financial statements will be affected to the extent that our actual results materially differ from these estimates. 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 consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Investment Tax Credits We receive ITCs under Section 48(a) of the Internal Revenue Code. The amount of the ITC is equal to 30% of the basis of eligible solar property as long as construction of the solar energy system began byDecember 31, 2019 . We receive minimal allocations of ITCs for solar energy systems placed in our investment funds as the majority of such credits are allocated to the fund investors. Some of our investment funds obligate us to make certain fund investors whole for losses that the investors may suffer in certain limited circumstances resulting from the disallowance or recapture of ITCs as a result of the Internal Revenue Service's, or theIRS , assessment of the fair value of such systems. We have concluded that the likelihood of a recapture event related to these assessments is remote and consequently have not recorded any liability in the consolidated financial statements for any potential recapture exposure. However, several recent investment funds and debt obligations have required us to prepay insurance premiums to cover the risk of ITC recapture. We amortize this prepaid insurance expense over the ITC recapture period. We receive all ITCs for solar energy systems that are not sold to customers or placed in our investment funds. We account for our ITCs as a reduction of income tax expense in the year in which the credits arise.
Revenue Recognition
In accordance with Accounting Standards Codification, or ASC, 606: Revenue from Contracts with Customers, we recognize revenue according to the following steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue when, or as, we satisfy a performance obligation. Our revenue is composed of customer agreements and incentives, and solar energy system and product sales as captioned in the consolidated statements of operations. Customer agreements and incentives revenue includes PPA and Solar Lease revenue and SREC sales. Solar energy system and product sales revenue includes System Sales, which may include structural upgrades in sales contracts and SREC sales related to sold systems, and the sale of photovoltaic installation products. Revenue is recorded net of any sales tax collected.
Customer Agreements and Incentives Revenue
We enter into PPAs with residential customers under which the customer agrees to purchase all of the power generated by the solar energy system for the term of the contract, which is most commonly 20 years. The agreement includes a fixed price per kilowatt hour with a fixed annual price escalation percentage. Customers have not historically been charged for installation or activation of the solar energy system. For all PPAs, we assess the probability of collectability on a customer-by-customer basis through a credit review process that evaluates their financial condition and ability to pay. PPA revenue is recognized based on the actual amount of power generated at rates specified under the contracts. We also offer solar energy systems to customers pursuant to Solar Leases in certain markets. The customer agreements are structured as Solar Leases due to local regulations that can be read to prohibit the sale of electricity pursuant to the our standard PPA. Pursuant to Solar Leases, the customers' monthly payments are a pre-determined amount calculated based on the expected solar energy generation by the system and typically have included an annual fixed percentage price escalation over the period of the contracts, which is most commonly 20 years, though some markets offer Solar Leases with no annual price escalation. Revenue from Solar Leases is recognized on a straight-line basis over the contractual term. We record a straight-line Solar Lease asset in other non-current assets, net, which represents revenue recognized in advance of customer payments. We provide our Solar Lease customers a performance guarantee, under which we agree to refund certain payments at the end of each year to the customer if the solar energy system does not meet a guaranteed production level in the prior 12-month period. The guaranteed production levels have varying terms. Solar energy performance guarantees are recognized as contra-revenue in the period in which the liabilities are recorded. 48 -------------------------------------------------------------------------------- At times we make nominal cash payments to customers in order to facilitate the finalization of long-term customer contracts and the installation of related solar energy systems. These sales incentives are deferred and recognized over the term of the contract as a reduction of revenue. We apply for and receive SRECs in certain jurisdictions for power generated by solar energy systems we have installed. When SRECs are granted, we typically sell them to other companies directly, or to brokers, to assist them in meeting their own mandatory emission reduction or conservation requirements. We recognize revenue related to the sale of these certificates upon delivery, assuming the other revenue recognition criteria discussed above are met.
Solar Energy System and Product Sales
Our principal performance obligation for System Sales is to design and install a solar energy system that is interconnected to the local power grid and granted permission to operate. When the solar energy system has been granted permission to operate, the customer retains all of the significant risks and rewards of ownership of the solar energy system. For certain System Sales, we provide limited post-sale services to monitor the productivity of the solar energy system for 20 years after it has been placed in service. We collect cash during the installation process and recognize revenue for System Sales and other product sales at the placed in-service date or product delivery date less any revenue allocated to monitoring services. We allocate a portion of the transaction price to the monitoring services by estimating the fair market price that we would charge for these services if offered separately from the sale of the solar energy system. All costs to obtain and fulfill contracts associated with System Sales and other product sales are expensed as a cost of revenue when we have fulfilled our performance obligation and the products have been placed into service or delivered to the customer.
Solar Energy Systems, Net
We sell energy to customers through PPAs or lease solar energy systems to customers through Solar Leases. The solar energy systems installed at customers' homes are stated at cost, less accumulated depreciation and amortization. Systems that are sold to customers through System Sales are not part of solar energy systems, net. Solar energy systems, net is composed of system equipment costs related to solar energy systems subject to PPAs or Solar Leases. Prior to the implementation of Topic 842 onJanuary 1, 2019 , solar energy systems, net also included capitalized initial direct costs. Subsequent to the adoption of Topic 842, previously capitalized initial direct costs and related accumulated amortization were removed from solar energy systems, net and recorded in other non-current assets, net as incremental costs of obtaining contracts. System equipment costs include components such as solar panels, inverters, racking systems and other electrical equipment, as well as costs for design and installation activities once a long-term customer contract has been executed. System equipment costs are depreciated using the straight-line method over 30 years, which is the estimated useful life of the equipment. We commence depreciation of our solar energy systems once the respective systems have been installed, interconnected to the power grid and received permission to operate. The determination of the useful lives of assets included within solar energy systems involves significant judgment on the part of management.
Impairment of Long-Lived Assets
The carrying amounts of our long-lived assets, including solar energy systems, property and equipment and finite-lived intangible assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. Factors that we consider in deciding when to perform an impairment review include significant negative industry or economic trends, customer payment history and significant changes or planned changes in our use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining useful life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life. As part of our annual impairment test for long-lived assets for the year endedDecember 31, 2019 , we determined that certain solar energy systems were impaired and required any remaining net asset value and net costs to obtain the contract to be written off, resulting in charges of approximately$3.4 million to cost of revenue-customer agreements and incentives and$0.6 million to sales and marketing. 49
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Stock-Based Compensation
Stock-based compensation expense for equity instruments issued to employees is measured based on the grant-date fair value of the awards. The fair value of each restricted stock unit is determined as the closing price of our stock on the date of grant. The fair value of each time-based employee stock option is estimated on the date of grant using the Black-Scholes-Merton stock option pricing valuation model. We recognize compensation costs using the accelerated attribution method for all time-based equity compensation awards over the requisite service period of the awards, which is generally the awards' vesting period. For performance-based equity compensation awards, we generally recognized compensation expense for each vesting tranche over the related performance period. Use of the Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including (1) the expected term of the option, (2) the expected volatility of the price of our common stock, (3) risk-free interest rates and (4) the expected dividend yield of our common stock. The assumptions used in the option-pricing model represent our best estimates. These estimates involve inherent uncertainties and the application of our judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
Provision for Income Taxes
We account for income taxes under an asset and liability approach. Deferred income taxes are classified as long-term and reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. As required by ASC 740, we recognize the effect of tax rate and law changes on deferred taxes in the reporting period in which the legislation is enacted. We determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. We use a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within income tax expense. We sell solar energy systems to the investment funds for income tax purposes. As the investment funds are consolidated by us, the gain on the sale of the solar energy systems is eliminated in the consolidated financial statements. However, this gain is recognized for tax reporting purposes. We account for the income tax consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur. We recognize income tax effects directly to continuing operations and accumulated other comprehensive loss, or AOCI, pursuant to applicable intraperiod allocation rules. Our policy is to release income tax effects from AOCI using an item-by-item approach when the circumstances upon which they are premised cease to exist.
Derivative Financial Instruments
We maintain interest rate swaps as required by the terms of our debt agreements. The interest rate swaps related to the Solar Asset Backed Notes, Series 2018-2 are designated as cash flow hedges. Changes in the fair value of these cash flow hedges are recorded in other comprehensive loss, or OCI, and will subsequently be reclassified to interest expense over the life of the related debt facility as interest payments are made. As interest payments for the associated debt agreement and derivatives are recognized, we include the effect of these payments in cash flows from operating activities within the consolidated statements of cash flows. The interest rate swaps related to the Warehouse Facility are not designated as hedge instruments and any changes in fair value are accounted for in other expense (income), net. Derivative instruments may be offset under master netting arrangements.
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset, or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to determine whether an accrual is required or should be adjusted or whether a range of possible loss should be disclosed. 50
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Non-Controlling Interests and Redeemable Non-Controlling Interests
Non-controlling interests and redeemable non-controlling interests represent fund investors' interests in the net assets of certain consolidated investment funds that we have entered into in order to finance the costs of solar energy systems under long-term customer contracts. We have determined that the provisions in the contractual arrangements of the investment funds represent substantive profit-sharing arrangements, which give rise to the non-controlling interests and redeemable non-controlling interests. We have further determined that the appropriate methodology for attributing income and loss to the non-controlling interests and redeemable non-controlling interests each period is a balance sheet approach using the HLBV method. Under the HLBV method, the amounts of income and loss attributed to the non-controlling interests and redeemable non-controlling interests in the consolidated statements of operations reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements for these structures, assuming the net assets of these funding structures were liquidated at recorded amounts. The fund investors' non-controlling interests in the results of operations of these funding structures are determined as the difference in the non-controlling interests' and redeemable non-controlling interests' claims under the HLBV method at the start and end of each reporting period, after considering any capital transactions, such as contributions or distributions, between the fund and the fund investors. Attributing income and loss to the non-controlling interests and redeemable non-controlling interests under the HLBV method requires the use of significant assumptions and estimates to calculate the amounts that fund investors would receive upon a hypothetical liquidation. Changes in these assumptions and estimates can have a significant impact on the amount that fund investors would receive upon a hypothetical liquidation. The use of the HLBV methodology to allocate income to the non-controlling and redeemable non-controlling interest holders may create volatility in our consolidated statements of operations as the application of HLBV can drive changes in net income available and loss attributable to non-controlling interests and redeemable non-controlling interests from quarter to quarter. We classify certain non-controlling interests with redemption features that are not solely within our control outside of permanent equity on our consolidated balance sheets. Estimated redemption value is calculated as the discounted cash flows subsequent to the expected flip date of the respective investment funds. Redeemable non-controlling interests are reported using the greater of their carrying value at each reporting date as determined by the HLBV method or their estimated redemption value in each reporting period. Estimating the redemption value of the redeemable non-controlling interests requires the use of significant assumptions and estimates. Changes in these assumptions and estimates can have a significant impact on the calculation of the redemption value.
Liquidity and Capital Resources
As ofDecember 31, 2019 , we had cash and cash equivalents of$166.0 million , which consisted principally of cash and time deposits with high-credit-quality financial institutions. As discussed in Note 11-Debt Obligations and Note 14-Investment Funds, we do not have full access to a portion of our cash and cash equivalents. We finance our operations primarily from investment fund arrangements that we have formed with fund investors, from borrowings, and from cash inflows from operations. 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. However, 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 and intent to reduce operations to the level of available financial resources for at least the next 12 months, if necessary. 51
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Sources of Funds
Investment Fund Commitments
As ofFebruary 29, 2020 , we had raised 28 investment funds to which investors such as banks and other large financial investors have committed to invest approximately$2.2 billion . The undrawn committed capital for these funds as ofFebruary 29, 2020 was approximately$133 million , which we estimate will fund approximately 59 megawatts of future deployments.
Debt Instruments
Debt obligations consisted of the following as of
Principal Unused Borrowings Borrowing Interest Maturity Outstanding Capacity Rate Date Solar asset backed notes, Series 2018-1(1)$ 448,277 $ - 5.1 % October 2028 Solar asset backed notes, Series 2018-2(2)(3) 338,294 - 5.5 August 2023 2017 Term loan facility 180,365 - 6.0 January 2035 2018 Forward flow loan facility 124,800 - 4.7 November 2039 2019 Forward flow loan facility 82,813 67,187 4.7 (4) Credit agreement 1,266 - 6.5 February 2023 Revolving lines of credit Warehouse facility 250,000 75,000 4.3 August 2023 Asset Financing Facility(5) 99,000 81,362 5.2 June 2023 Total debt$ 1,524,815 $ 223,549
(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 this facility 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 year endedDecember 31, 2019 , we generated$217.3 million in revenue from customer agreements and incentives, which approximates cash inflow. Cash related to our System Sales is generally received prior to revenue recognition, and we received$121.6 million related to System Sales for the year endedDecember 31, 2019 . The cash from our revenue partially offsets the cash used in operations for the period. Uses of Funds Our principal uses of cash are funding our operations, including the costs of acquisition and installation of solar energy systems, satisfaction of our obligations under our debt instruments and other working capital requirements. From time to time, we also reimburse portions of fund investors' capital as a result of delays in the installation process and interconnection to the power grid of solar energy systems and other factors. We expect our capital expenditures to continue to increase as we continue to install additional solar energy systems. We will need to raise financing to support our operations, and such financing may not be available to us on acceptable terms, or at all. 52
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Historical Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended
2019
2018
Net cash (used in) provided by: (In thousands) Operating activities$ (323,167 ) $ (45,655 ) Investing activities (315,836 ) (329,103 ) Financing activities 604,047 510,716 Net increase in cash and cash equivalents, including restricted amounts$ (34,956 ) $ 135,958 Operating Activities In 2019, we had a net cash outflow from operations of$323.2 million . This was primarily due to outflows of$156.1 million from our net loss excluding noncash and non-operating items and$167.1 million of outflows from changes in working capital. A significant portion of the increase in cash outflows from operations from 2018 to 2019 was a result of adopting Topic 842. Under Topic 842, costs to obtain contracts are no longer considered part of solar energy systems, net, and therefore cash outflows related to costs to obtain contracts are considered operating cash flows in 2019 while they were investing cash flows in 2018. See Note 2-Summary of Significant Accounting Policies for additional details on the adoption of Topic 842. Investing Activities In 2019, we used$315.8 million in investing activities primarily due to costs associated with the design, acquisition and installation of solar energy systems. As noted above, cash outflows related to costs to obtain contracts were included in investing cash flows in 2018 while they are included in operating cash flows in 2019 as a result of adopting Topic 842. See Note 2-Summary of Significant Accounting Policies for additional details on the adoption of Topic 842. Financing Activities In 2019, we generated$604.0 million from financing activities, of which$563.5 million represented proceeds from long-term debt,$384.4 million represented proceeds from investments by non-controlling interests and redeemable non-controlling interests received by our investment funds, and$3.7 million represented proceeds from our lease pass-through financing obligation. These proceeds were partially offset by repayments of long-term debt of$279.1 million , distributions to non-controlling interests and redeemable non-controlling interests of$51.9 million and payments for debt issuance costs of$16.1 million . 53
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Contractual Obligations
Our contractual commitments and obligations were as follows as ofDecember 31, 2019 : Payments Due by Period(1) Less than More than 1 Year 1-3 Years 3-5 Years 5 Years Total (In thousands) Long-term debt$ 14,425 $ 36,868 $ 733,709 $ 739,813 $ 1,524,815
Interest payments related to long-term debt(2) 78,918 155,258 102,260 193,927 530,363 Distributions payable to non-controlling interests and redeemable non-controlling interests(3) 10,253 - - - 10,253 Finance lease obligations 2,806 5,424 1,607 - 9,837 Operating lease obligations 11,883 15,260 9,841 31,877 68,861 Total$ 118,285 $ 212,810 $ 847,417 $ 965,617 $ 2,144,129
(1) Does not include amounts related to redeemable put options held by fund
investors. The redemption price for the fund investors' interest in the
respective fund is equal to the sum of: (1) any unpaid, accrued priority
return, and (2) the greater of: (a) a fixed price and (b) the fair market
value of such interest at the date the option is exercised. Due to
uncertainties associated with estimating the timing and amount of the
redemption price, we cannot determine the potential future payments that we
could have to make under these redemption options. For additional information
regarding the redeemable put options, see Note 15-Redeemable Non-Controlling
Interests and Equity and Preferred Stock to our consolidated financial
statements. As of
aggregate of
regarding our investment funds, see Note 14-Investment Funds to our
consolidated financial statements. (2) Interest payments related to long-term debt are calculated and estimated for
the periods presented based on the amount of debt outstanding and the
interest rates as of
result of the contractual guarantees we have made with certain investors in
our investment funds. The amounts of any potential payments we may be
required to make depend on the amount and timing of future distributions to
the relevant fund investors and the ITCs that accrue to such investors from
the funds' activities. Due to uncertainties associated with estimating the
timing and amounts of distributions and likelihood of an event that may
trigger repayment of any forfeiture or recapture of ITCs to such investors,
we cannot determine the potential maximum future payments that we could have
to make under these guarantees. As a result of these guarantees, as of
cash equivalents on our consolidated balance sheet. For additional information, see Note 14-Investment Funds to our consolidated financial statements.
Off-Balance Sheet Arrangements
We include in our 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 will impact us, see Note 2-Summary of Significant Accounting Policies.
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