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.

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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, the
U.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.

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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.




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                                                           Year Ended 

December 31,


                                                           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

$ 3,638.1 Estimated gross retained value under energy contracts (in millions)

$     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

$ 2.06

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 by December 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.

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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 of the United States. Various tariffs have been imposed by the
U.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 since February 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 in the 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 in California typically have higher utility rates than markets in the
Eastern United States. As a result, systems in California typically have a
higher retained value than systems in the Eastern United States. However, we are
entitled to receive SRECs and other state incentives in many Eastern states that
are not available in the Western 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 the
Northeastern 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.

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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 Ended December 31,
                                                      2019             2018

Revenue:

Customer agreements and other incentives $ 168,896 $ 130,176


      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.

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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 the United States, and therefore income tax expense consists of current and deferred income taxes incurred in U.S federal, state and local jurisdictions.

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 with U.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 of December 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.

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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 December 31, 2019 and 2018



Revenue



                                         Year Ended December 31,            $ Change
                                           2019             2018         2019 from 2018
                                                        (In thousands)
 Revenue:

Customer agreements and incentives $ 217,331 $ 174,066 $

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 $ 271,059 $ 154,520 $ 116,539




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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 the February 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 $ 82,323 $ 65,308 $

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 by December 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 the IRS, 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.

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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 on January 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
ended December 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.

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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.

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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 of December 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.

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Sources of Funds

Investment Fund Commitments



As of February 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 of
February 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 December 31, 2019 (in thousands, except interest rates):



                                    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 B Notes. Class A

Notes accrue interest at 4.73%. Class B Notes accrue interest at 7.37%. (2) The Series 2018-2 Notes are composed of Class A and Class B Notes. Class B

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 $323.6 million of the principal borrowings. See

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 November 20, 2020. (5) Facility is recourse debt, which refers to debt that is collateralized by

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 December 31, 2019.

Revenue from Operations



In the year ended December 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 ended December 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.

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Historical Cash Flows

The following table summarizes our cash flows for the periods indicated:



                                                          Year Ended 

December 31,


                                                           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.


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Contractual Obligations



Our contractual commitments and obligations were as follows as of December 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 December 31, 2019, all fund investors have contributed an

aggregate of $1,949.7 million into the funds. For additional information

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 December 31, 2019. (3) Does not include any potential contractual obligations that may arise as a

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

December 31, 2019, we were required to hold a minimum balance of

$10.0 million in the aggregate, which is classified as restricted cash and


    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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