The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: •the potential effects of the COVID-19 pandemic on our business and operations, results of operations and financial position; •the availability of rebates, tax credits and other financial incentives, and decreases to federal solar tax credits; •determinations by the Internal Revenue Service of the fair market value of our solar energy systems; •the retail price of utility-generated electricity or electricity from other energy sources; •regulatory and policy development and changes; •our ability to manage our supply chains and distribution channels and the impact of natural disasters and other events beyond our control, such as the COVID-19 pandemic; •our industry's, and specifically our, continued ability to manage costs (including, but not limited to, equipment costs) associated with solar service offerings; •our strategic partnerships and expected benefits of such partnerships; •the sufficiency of our cash, investment fund commitments and available borrowings to meet our anticipated cash needs; •the expected size and time frame of our stock repurchase program; •our need and ability to raise capital, refinance existing debt, and finance our operations and solar energy systems from new and existing investors; •the potential impact of interest rates on our interest expense; •our business plan and our ability to effectively manage our growth, including our rate of revenue growth; •our ability to further penetrate existing markets, expand into new markets and our expectations regarding market growth (including, but not limited to, expected cancellation rates); •our expectations concerning relationships with third parties, including the attraction, retention and continued existence of qualified solar partners; •the impact of seasonality on our business; •our investment in research and development and new product offerings; •our ability to protect our intellectual property and customer data, as well as to maintain our brand; •technical and capacity limitations imposed by power grid operators; •the willingness of and ability of our solar partners to fulfill their respective warranty and other contractual obligations; •our ability to renew or replace expiring, cancelled or terminated Customer Agreements at favorable rates or on a long-term basis; •the ability of our solar energy systems to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable; •our expectations regarding certain performance objectives and the renewal rates and purchase value of our solar energy systems after expiration of our Customer Agreements; and 31 -------------------------------------------------------------------------------- •the calculation of certain of our key financial and operating metrics and accounting policies. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with theSecurities and Exchange Commission (the "SEC") as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect. OverviewSunrun's mission is to provide our customers with clean, affordable solar energy and storage, and a best-in-class customer experience. In 2007, we pioneered the residential solar service model, creating a low-cost solution for customers seeking to lower their energy bills. By removing the high initial cost and complexity of cash system sales that used to define the residential solar industry, we have fostered the industry's rapid growth and exposed an enormous market opportunity. Our relentless drive to increase the accessibility of solar energy is fueled by our enduring vision: to create a planet run by the sun. We provide clean, solar energy typically at savings compared to traditional utility energy. Our primary customers are residential homeowners. We also offer battery storage along with solar energy systems to our customers in select markets and sell our services to certain commercial developers through our multi-family and new homes offerings. After inventing the residential solar service model and recognizing its enormous market potential, we have built the infrastructure and capabilities necessary to rapidly acquire and serve customers in a low-cost and scalable manner. Today, our scalable operating platform provides us with a number of unique advantages. First, we are able to drive distribution by marketing our solar service offerings through multiple channels, including our diverse partner network and direct-to-consumer operations. This multi-channel model supports broad sales and installation capabilities, which together allow us to achieve capital-efficient growth. Second, we are able to provide differentiated solutions to our customers that, combined with a great customer experience, we believe will drive meaningful margin advantages for us over the long term as we strive to create the industry's most valuable and satisfied customer base. Our core solar service offerings are provided through our lease and power purchase agreements, which we refer to as our "Customer Agreements" and which provide customers with simple, predictable pricing for solar energy that is insulated from rising retail electricity prices. While customers have the option to purchase a solar energy system outright from us, most of our customers choose to buy solar as a service from us through our Customer Agreements without the significant upfront investment of purchasing a solar energy system. With our solar service offerings, we install solar energy systems on our customers' homes and provide them the solar power produced by those systems for typically a 20-year initial term. In certain markets, we offer a 25-year initial term service offering. In addition, we monitor, maintain and insure the system during the term of the contract. In exchange, we receive predictable cash flows from high credit quality customers and qualify for tax and other benefits. We finance portions of these tax benefits and cash flows through tax equity, non-recourse debt and project equity structures in order to fund our upfront costs, overhead and growth investments. We develop valuable customer relationships that can extend beyond this initial contract term and provide us an opportunity to offer 32 -------------------------------------------------------------------------------- additional services in the future, such as our home battery storage service. Since our founding, we have continued to invest in a platform of services and tools to enable large scale operations for us and our partner network, and these partners include solar integrators, sales partners, installation partners and other strategic partners. The platform includes processes and software, as well as fulfillment and acquisition of marketing leads. We believe our platform empowers new market entrants and smaller industry participants to profitably serve our large and underpenetrated market without making the significant investments in technology and infrastructure required to compete effectively against established industry players. Our platform provides the support for our multi-channel model, which drives broad customer reach and capital-efficient growth. Delivering a differentiated customer experience is core to our strategy. We emphasize a customized solution, including a design specific to each customer's home and pricing configurations that typically drive both customer savings and value to us. We believe that our passion for engaging our customers, developing a trusted brand, and providing a customized solar service offering resonates with our customers who are accustomed to a traditional residential power market that is often overpriced and lacking in customer choice. We have experienced substantial growth in our business and operations since our inception in 2007. As ofMarch 31, 2020 , we operated the second largest fleet of residential solar energy systems inthe United States . We have an aggregate of 2,085 Megawatts Deployed as ofMarch 31, 2020 , and our Gross Earning Assets as ofMarch 31, 2020 were approximately$3.9 billion . Please see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Operating Metrics" for more details on how we calculate Megawatts Deployed and Gross Earning Assets. We also have a long track record of attracting low-cost capital from diverse sources, including tax equity and debt investors. Since inception we have raised tax equity investment funds to finance the installation of solar energy systems. Recent Impacts of COVID-19 on Our Business The COVID-19 pandemic and the resulting impact on theU.S. economy have accelerated many of our operational initiatives to deliver best-in-class customer value and to reduce costs. We have invested in technology to streamline our installation processes, including online permitting and interconnection in many locations, as well as employing extensive use of drone technology to complete rooftop surveys. While we continue to install solar systems in most markets, we are monitoring this fluid situation and will follow official regulations to protect our employees and customers. Following the first shelter-in-place orders inCalifornia , we enabled our entire salesforce to complete sales consultations in a virtual setting. Despite the fact that we have paused sourcing leads through certain channels, we have seen more leads through our digital channels at similar or more attractive customer acquisition costs. We believe this transition towards a digital model will position us well to realize sustaining reductions in customer acquisition costs. A significant portion of our business model is directly variable with deployments currently sold and built by our channel partners. In the remainder of our business, we have already taken actions to significantly lower our expenses, primarily from various labor-related cost actions, which we believe strike an appropriate balance that considers the welfare of our employees, protecting the business against possible downside scenarios, and preserving our ability to grow quickly as the situation stabilizes. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. We will continue to monitor developments affecting our workforce, our customers, and our business operations generally and will take additional actions that we determine are necessary in order to mitigate these impacts. Investment Funds Our Customer Agreements provide for recurring customer payments, typically over 20 or 25 years, and the related solar energy systems are generally eligible for Commercial ITCs, accelerated tax depreciation and other government or utility incentives. Our financing strategy is to monetize these benefits at a low weighted average cost 33 -------------------------------------------------------------------------------- of capital. This low cost of capital enables us to offer attractive pricing to our customers for the energy generated by the solar energy system on their homes. Historically, we have monetized a portion of the value created by our Customer Agreements and the related solar energy systems through investment funds. These assets are attractive to fund investors due to the long-term, recurring nature of the cash flows generated by our Customer Agreements, the high credit scores of our customers, the fact that energy is a non-discretionary good and our low loss rates. In addition, fund investors can receive attractive after-tax returns from our investment funds due to their ability to utilize Commercial ITCs, accelerated depreciation and certain government or utility incentives associated with the funds' ownership of solar energy systems. As ofMarch 31, 2020 , we had 34 active investment funds, which are described below. We have established different types of investment funds to implement our asset monetization strategy. Depending on the nature of the investment fund, cash may be contributed to the investment fund by the investor upfront or in stages based on milestones associated with the design, construction or interconnection status of the solar energy systems. The cash contributed by the fund investor is used by the investment fund to purchase solar energy systems. The investment funds either own or enter into a master lease with aSunrun subsidiary for the solar energy systems, Customer Agreements and associated incentives. We receive on-going cash distributions from the investment funds representing a portion of the monthly customer payments received. We use the upfront cash, as well as on-going distributions, to cover our costs associated with designing, purchasing and installing the solar energy systems. In addition, we also use debt, equity and other financing strategies to fund our operations. The allocation of the economic benefits between us and the fund investor and the corresponding accounting treatment varies depending on the structure of the investment fund. We currently utilize three legal structures in our investment funds, which we refer to as: (i) pass-through financing obligations, (ii) partnership flips and (iii) joint venture ("JV") inverted leases. We reflect pass-through financing obligations on our consolidated balance sheet as a pass-through financing obligation. We record the investor's interest in partnership flips or JV inverted leases (which we define collectively as "consolidated joint ventures") as noncontrolling interests or redeemable noncontrolling interests. These consolidated joint ventures are usually redeemable at our option and, in certain cases, at the investor's option. If redemption is at our option or the consolidated joint ventures are not redeemable, we record the investor's interest as a noncontrolling interest and account for the interest using the hypothetical liquidation at book value ("HLBV") method. If the investor has the option to put their interest to us, we record the investor's interest as a redeemable noncontrolling interest at the greater of the HLBV and the redemption value. The table below provides an overview of our current investment funds (dollars in millions): Consolidated Joint Ventures Pass-Through Financing Obligations Partnership Flip JV Inverted Lease Consolidation Owner entity Single entity, Owner and tenant consolidated, tenant consolidated entities entity not consolidated consolidated Balance sheet classification Pass-through financing Redeemable Redeemable obligation noncontrolling noncontrolling interests and interests and noncontrolling noncontrolling interests interests Revenue from ITCs Recognized on the PTO None None date Method of calculating investor interest Effective interest rate Greater of HLBV or Greater of HLBV or method redemption value redemption value; or pro rata Liability balance as of March 31, 2020 $ 338.2 N/A N/A Noncontrolling interest balance (redeemable N/A $ 706.1 $ 35.8
or otherwise) as of
34 -------------------------------------------------------------------------------- For further information regarding our investment funds, including the associated risks, see Part II, Item 1A. Risk Factors- "Our ability to provide our solar service offerings to customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits", as well as Note 10, Pass-through Financing Obligations, Note 11, VIE Arrangements and Note 12, Redeemable Noncontrolling Interests and Equity to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. 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 that 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, we caution you that these estimates are based on a combination of assumptions that may prove to be inaccurate over time. Any inaccuracies could be material to our actual results when compared to our calculations. Please see the section titled "Risk Factors" in this Quarterly Report on Form 10-Q for more information. Furthermore, other companies may calculate these metrics differently than we do now or in the future, which would reduce their usefulness as a comparative measure. •Megawatts Deployed represents the aggregate megawatt production capacity of our solar energy systems, whether sold directly to customers or subject to executed Customer Agreements (i) for which we have confirmation that the systems are installed on the roof, subject to final inspection; (ii) in the case of certain system installations by our partners, for which we have accrued at least 80% of the expected project cost, or (iii) for multi-family and any other systems that have reached NTP, measured on the percentage of the project that has been completed based on expected project cost. •Gross Earning Assets represents the net cash flows (discounted at 6%) we expect to receive during the initial term of our Customer Agreements (typically 20 or 25 years) for systems that have been deployed as of the measurement date, plus a discounted estimate of the value of the Customer Agreement renewal term or solar energy system purchase at the end of the initial term. Consistent with industry standards, we use a discount rate of 6%. We consider a discount rate of 6% to be appropriate and consistent with recent market transactions that demonstrate that a portfolio of residential solar customer contracts is an asset class that can be securitized successfully on a long-term basis, with a coupon of less than 5%. We calculate the Gross Earning Assets value of the purchase or renewal amount at the expiration of the initial contract term assuming either a system purchase or a five year renewal (for our 25-year Customer Agreements) or a 10-year renewal (for our 20-year Customer Agreements), in each case forecasting only a 30-year customer relationship (although the customer may renew for additional years, or thereafter purchase the system), at a contract rate equal to 90% of the customer's contractual rate in effect at the end of the initial contract term. After the initial (generally 20 or 25 year) contract term, our Customer Agreements typically automatically renew on an annual basis and the rate is initially set at up to a 10% discount to then-prevailing power prices. Gross Earning Assets is calculated net of estimated cash distributions to investors in consolidated joint ventures and estimated operating, maintenance and administrative expenses for systems deployed as of the measurement date. In calculating Gross Earning Assets, we deduct estimated cash distributions to our project equity financing providers. In calculating Gross Earning Assets, we do not deduct customer payments we are obligated to pass through to investors in pass-through financing obligations as these amounts are reflected on our balance sheet as long-term and short-term pass-through financing obligations, similar to the way that debt obligations are presented. In determining our finance strategy, we use pass-through financing obligations and long-term debt in an equivalent fashion as the schedule of payments of distributions to pass-through financing obligation investors is more similar to the payment of interest to lenders than the internal rates of return (IRRs) paid to investors in other tax equity structures. •Gross Earning Assets Under Energy Contract represents the net cash flows during the initial term of our Customer Agreements (less substantially all value from SRECs prior toJuly 1, 2015 ), for systems deployed as of the measurement date. •Gross Earning Assets Value of Purchase or Renewal is the forecasted net present value we would receive upon or following the expiration of the initial Customer Agreement term (either 35 --------------------------------------------------------------------------------
in the form of cash payments during any applicable renewal period or a system purchase at the end of the initial term), for systems deployed as of the measurement date.
Gross Earning Assets is forecasted as of a specific date. It is forward-looking, and we use judgment in developing the assumptions used to calculate it. Factors that could impact Gross Earning Assets include, but are not limited to, customer payment defaults, or declines in utility rates or early termination of a contract in certain circumstances, including prior to installation. As of March 31, 2020 2019 Cumulative Megawatts Deployed (end of period) 2,085 1,661 As of March 31, 2020 2019 (in thousands) Gross Earning Assets Under Energy Contract$ 2,671,019 $
2,152,932
Gross Earning Assets Value of Purchase or Renewal 1,190,597 1,013,826 Gross Earning Assets
$ 3,861,616 $ 3,166,758
The tables below provide a range of Gross Earning Asset amounts if different default, discount and purchase and renewal assumptions were used. Gross Earning Assets Under Energy Contract:
As of March 31, 2020 Discount rate Default rate 4% 5% 6% 7% 8% (in thousands) 5%$ 3,054,019 $ 2,813,328 $ 2,589,228 $ 2,414,769 $ 2,249,244 0%$ 3,139,960 $ 2,890,276 $ 2,671,019 $ 2,477,117 $ 2,305,656
Gross Earning Assets Value of Purchase or Renewal:
As of March 31, 2020 Discount rate Purchase or Renewal rate 4% 5% 6% 7% 8% (in thousands) 80%$ 1,552,263 $ 1,266,035 $ 1,036,335 $ 851,350 $ 701,860 90%$ 1,780,480 $ 1,452,083 $ 1,190,597 $ 976,286 $ 804,760 100%$ 2,008,697 $ 1,638,132 $ 1,340,735 $ 1,101,222 $ 907,659 Total Gross Earning Assets: As of March 31, 2020 Discount rate Purchase or Renewal rate 4% 5% 6% 7% 8% (in thousands) 80%$ 4,692,224 $ 4,156,311 $ 3,707,354 $ 3,328,467 $ 3,007,516 90%$ 4,920,440 $ 4,342,359 $ 3,861,616 $ 3,453,403 $ 3,110,416 100%$ 5,148,657 $ 4,528,408 $ 4,011,755 $ 3,578,339 $ 3,213,315 36
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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 financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. Our future financial statements will be affected to the extent that our actual results materially differ from these estimates. For further information on all of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We believe that policies associated with our principles of consolidation, revenue recognition, impairment of long-lived assets, provision for income taxes and calculation of noncontrolling interests and redeemable noncontrolling interests have the greatest impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. 37 -------------------------------------------------------------------------------- Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Three Months Ended
2020 2019 (in thousands, except per share data) Revenue: Customer agreements and incentives $ 99,124$ 99,850 Solar energy systems and product sales 111,607 94,654 Total revenue 210,731 194,504 Operating expenses: Cost of customer agreements and incentives 78,277 69,493 Cost of solar energy systems and product sales 91,598 77,799 Sales and marketing 70,270 55,953 Research and development 4,046 5,474 General and administrative 28,074 29,063 Amortization of intangible assets 1,483 893 Total operating expenses 273,748 238,675 Loss from operations (63,017) (44,171) Interest expense, net 49,924 41,340 Other (income) expenses, net (50) 4,756 Loss before income taxes (112,891) (90,267) Income tax benefit (3,342) (3,361) Net loss (109,549) (86,906)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
(81,590) (73,044) Net loss attributable to common stockholders $
(27,959)
$ (0.23)$ (0.12) Diluted $ (0.23)$ (0.12) Weighted average shares used to compute loss per share attributable to common stockholders Basic 119,220 113,912 Diluted 119,220 113,912 38
-------------------------------------------------------------------------------- Comparison of the Three Months EndedMarch 31, 2020 and 2019 Revenue Three Months Ended March 31, Change 2020 2019 $ % (in thousands) Customer agreements$ 94,253 $ 78,528 $ 15,725 20 % Incentives 4,871 21,322 (16,451) (77) % Customer agreements and incentives 99,124 99,850 (726) (1) % Solar energy systems 71,277 58,436 12,841 22 % Products 40,330 36,218 4,112 11 % Solar energy systems and product sales 111,607 94,654 16,953 18 % Total revenue$ 210,731 $ 194,504 $ 16,227 8 % Customer Agreements and Incentives. The$15.7 million increase in revenue from Customer Agreements was primarily due to both an increase in solar energy systems under Customer Agreements being placed in service in the period fromApril 1, 2019 throughMarch 31, 2020 , plus a full quarter of revenue recognized in the first quarter of 2020 for systems placed in service in the first quarter of 2019 versus only a partial quarter of such revenue related to the period in which the assets were in service in 2019. Revenue from incentives consists of sales of ITCs and SRECs, which decreased by$16.5 million during the three months endedMarch 31, 2020 , compared to the prior year. The decrease was due to the sale of ITCs under a financing obligation fund opened in 2018, with PTO activity in that fund primarily concluding during the second quarter of 2019. There has been no such comparable fund opened in 2019 or 2020. Solar Energy Systems and Product Sales. Revenue from solar energy systems sales increased by$12.8 million compared to the prior year due to increased demand through retail partners. Product sales increased by$4.1 million , primarily due to an increase in the volume of wholesale products sold. Operating Expenses Three Months Ended March 31, Change 2020 2019 $ % (in thousands)
Cost of customer agreements and incentives
13 % Cost of solar energy systems and product sales 91,598 77,799 13,799 18 % Sales and marketing 70,270 55,953 14,317 26 % Research and development 4,046 5,474 (1,428) (26) % General and administrative 28,074 29,063 (989) (3) % Amortization of intangible assets 1,483 893 590 66 % Total operating expenses$ 273,748 $ 238,675 $ 35,073 15 % Cost of Customer Agreements and Incentives. The$8.8 million increase in Cost of customer agreements and incentives was primarily due to the increase in solar energy systems placed in service in the period fromApril 1, 2019 throughMarch 31, 2020 , plus a full quarter of costs recognized in the first quarter of 2020 for systems placed in service in the first quarter of 2019 versus only a partial quarter of such expenses related to the period in which the assets were in service in 2019. 39 -------------------------------------------------------------------------------- The cost of Customer Agreements and incentives increased to 79% of revenue from customer agreements and incentives during the three months endedMarch 31, 2020 , from 70% during the three months endedMarch 31, 2019 due to the$16.5 million decrease in revenue from incentives, as discussed above. The cost of sales related to incentives was minimal. Cost of Solar Energy Systems and Product Sales. The$13.8 million increase in Cost of solar energy systems and product sales was due to the corresponding net increase in the solar energy systems and product sales discussed above. Sales and Marketing Expense. The$14.3 million increase in Sales and marketing expense was primarily attributable to an increase in headcount driving higher employee compensation, as well as an increase in costs to acquire customers through our retail channels and sales lead generating partners. Included in sales and marketing expense is$3.4 million and$2.7 million of amortization of costs to obtain Customer Agreements for the three months endedMarch 31, 2020 and 2019, respectively, as well as$1.0 million related to furlough benefits and severance for the three months endedMarch 31, 2020 . Research and Development Expense. The$1.4 million decrease in Research and development expense was primarily attributable to a slight decrease in headcount resulting in lower employee compensation. General and Administrative Expense. The$1.0 million decrease in General and administrative expenses was primarily attributable to a decrease in consulting and other professional fees. During the three months endedMarch 31, 2020 , we incurred$2.2 million of furlough benefit and severance costs incurred in the following line items within the consolidated statement of operations (in thousands): Cost of customer agreements and incentives$ 807 Cost of solar energy systems and product sales 197 Sales and marketing 1,002 General and administrative 163$ 2,169 Non-Operating Expenses Three Months Ended March 31, Change 2020 2019 $ % (in thousands) Interest expense, net$ 49,924 $ 41,340 $ 8,584 21 % Other (income) expenses, net $ (50)$ 4,756 $ (4,806) (101) % Interest Expense, net. The increase in Interest expense, net of$8.6 million was related to additional non-recourse and pass-through financing obligation debt entered into subsequent toMarch 31, 2019 . Included in net interest expense is$6.1 million and$5.9 million of non-cash interest recognized under Customer Agreements that have a significant financing component for the three months endedMarch 31, 2020 and 2019, respectively. Other (Income) Expenses, net. The decrease in Other (income) expenses, net of$4.8 million relates primarily to losses on extinguishment of debt related to an early repayment of pass-through financing obligation in 2019, with no such comparable activity in the three months endedMarch 31, 2020 . 40 --------------------------------------------------------------------------------
Income Tax Expense Three Months Ended March 31, Change 2020 2019 $ % (in thousands) Income tax (benefit) expense$ (3,342) $ (3,361) $ 19 (1) % The tax benefit at the statutory rate of 21.0% for 2020 was reduced by the allocation of losses to noncontrolling interests and redeemable noncontrolling interests of 15.1%, and increase in valuation allowance of 6.4% and increased by other benefits of 3.4%. The tax benefit at the statutory rate of 21.0% for 2019 was reduced by the allocation of the losses to noncontrolling interests and redeemable noncontrolling interests of 17.0%, and increase in valuation allowance of 6.2% and offset by tax deductions from other miscellaneous items of 5.9%. The tax benefit was flat compared to the prior year. Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests Three Months Ended March 31, Change 2020 2019 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests$ (81,590) $ (73,044) $ (8,546) 12 % The increase in net loss attributable to noncontrolling interests and redeemable noncontrolling interests of$8.5 million was primarily a result of the addition of five investment funds sinceMarch 31, 2019 , as well as the HLBV method used in determining the amount of net loss attributable to noncontrolling interests and redeemable noncontrolling interests, which generally allocates more loss to the noncontrolling interest in the first several years after fund formation. Liquidity and Capital Resources As ofMarch 31, 2020 , we had cash of$286.4 million , which consisted of cash held in checking and savings accounts with financial institutions. We finance our operations mainly through a variety of financing fund arrangements that we have formed with fund investors, borrowings, cash generated from our sources of revenue, and proceeds from secured credit facilities arrangements with a syndicate of banks for up to$265.3 million and from secured, long-term non-recourse loan arrangements for up to$199.0 million . Our principal uses of cash are funding our business, including the costs of acquisition and installation of solar energy systems, satisfaction of our obligations under our debt instruments and other working capital requirements. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy systems. The solar energy systems that are operational are expected to generate a positive return rate over the term of the Customer Agreement, typically 20 or 25 years. However, in order to grow, we will continue to be dependent on financing from outside parties. If financing is not available to us on acceptable terms if and when needed, we may be required to reduce planned spending, which could have a material adverse effect on our operations. While there can be no assurances, we anticipate raising additional required capital from new and existing investors. In connection with our cost reduction measures discussed above implemented in response to COVID-19, we believe our cash, investment fund commitments and available borrowings as further described below will be sufficient to meet our anticipated cash needs for at least the next 12 months. The following table summarizes our cash flows for the periods indicated: 41 --------------------------------------------------------------------------------
Three Months Ended March 31, 2020 2019 (in thousands) Consolidated cash flow data: Net cash (used in) provided by operating activities$ (116,885) $ 11,415 Net cash used in investing activities (210,465) (201,397) Net cash provided by financing activities 330,369 195,517 Net change in cash and restricted cash $ 3,019$ 5,535 Operating Activities During the three months endedMarch 31, 2020 , we used$116.9 million in net cash from operating activities. The driver of our operating cash outflow consists of the cost of our revenue, as well as sales, marketing and general and administrative costs. During the three months endedMarch 31, 2020 , our operating cash outflows were$35.3 million from our net loss excluding non-cash and non-operating items. Changes in working capital resulted in a net cash outflow of$81.6 million . During the three months endedMarch 31, 2019 , we generated$11.4 million in net cash in operating activities. The driver of our operating cash inflow primarily relates to payments received from customers as well as incentives. During the three months endedMarch 31, 2019 , our operating deferred revenue increased by$95.5 million arising from a sale of the right to SRECs to be generated over the next 10 to 15 years by a group of solar energy systems. In connection with the sale, we repaid debt previously drawn against the rights to these SRECs, which is reflected in our financing activities below. During the three months endedMarch 31, 2019 , our operating cash outflows were$42.8 million from our net loss excluding non-cash and non-operating items. Changes in working capital resulted in a net cash inflow of$54.3 million . Investing Activities During the three months endedMarch 31, 2020 , we used$210.5 million in cash in investing activities. The majority was used to design, acquire and install solar energy systems and components under our long-term Customer Agreements. During the three months endedMarch 31, 2019 , we used$201.4 million in cash in investing activities. The majority was used to design, acquire and install solar energy systems and components under our long-term Customer Agreements. Financing Activities During the three months endedMarch 31, 2020 , we generated$330.4 million from financing activities. This was primarily driven by$153.7 million in net proceeds from fund investors and$177.2 million in net proceeds from debt, offset by$3.0 million in repayments under finance lease obligations. During the three months endedMarch 31, 2019 , we generated$195.5 million from financing activities. This was primarily driven by$123.3 million in net proceeds from fund investors and$71.8 million in net proceeds from debt, net of debt issuance costs and repayments, offset by$3.0 million in payments for finance lease obligations. Debt and Investing Fund Commitments As ofMarch 31, 2020 , we had committed and available capital of approximately$717.8 million that may only be used to purchase and install solar energy systems. We intend to establish new investment funds in the future, and we may also use debt, equity or other financing strategies to finance our business. For a discussion of the terms and conditions of debt instruments and changes thereof in the period, refer to Note 8, Indebtedness, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 42 -------------------------------------------------------------------------------- Contractual Obligations and Other Commitments The following table summarizes our contractual obligations as ofMarch 31, 2020 (in thousands): Payments Due by Period Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years Total (in thousands) Contractual Obligations: Debt obligations (including future interest)$ 204,170 $ 925,322 $ 785,860 $ 1,368,209 $ 3,283,561 Purchase commitments 50,946 81,151 - - 132,097 Distributions payable to noncontrolling interests and redeemable noncontrolling interests (1) 17,766 - - -
17,766
Financing lease obligations (including accrued interest) 9,802 10,870 549 1
21,222
Operating lease obligations, net of sublease income 11,761 19,841 11,535 7,330
50,467
Total contractual obligations$ 294,445 $ 1,037,184 $ 797,944 $ 1,375,540 $ 3,505,113
(1) The foregoing table does not include the amounts we could be required to expend under our redemption obligations discussed above.
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 See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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