UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
_______________________________________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-38995
_______________________________________________________________________________
Sunnova Energy International Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________
Delaware
30-1192746
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
20 East Greenway Plaza, Suite 475
Houston, Texas 77046
(Address, including zip code, of principal executive offices)
(281) 985-9904
(Registrant's telephone number, including area code)
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share
NOVA
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the common stock held by non-affiliates of the Registrant, based on the closing price of such shares of common stock of $11.20 as
reported on the New York Stock Exchange on July 29, 2019, was approximately $339.8 million. The Registrant has elected to use July 29, 2019, which was the
closing date of its initial public offering on the New York Stock Exchange, as the calculation date because on June 30, 2019 (the last business day of the
Registrant's most recently completed second fiscal quarter), the Registrant was a privately held company.
The registrant had 84,001,062 shares of common stock outstanding as of February 21, 2020.
Portions of the information called for by Part III of this Form 10-K are hereby incorporated by reference from either the definitive Proxy Statement for our annual
meeting of stockholders or an amendment to this Form 10-K, either of which will be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 2019.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Forward-looking statements generally relate to future events or Sunnova's future financial
or operating performance. Actual outcomes and results may differ materially from what is expressed or forecast
in such forward-looking statements. In some cases, you can identify these statements because they contain
words such as "may," "will," "likely," "should," "expect," "anticipate," "could," "contemplate," "target,"
"future," "plan," "believe," "intend," "goal," "seek," "estimate," "project," "target," "predict," "potential,"
"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 report include, but are not limited to,
statements about:
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federal, state and local statutes, regulations and policies;
determinations of the Internal Revenue Service of the fair market value of our solar energy systems;
the price of centralized utility-generated electricity and electricity from other sources and technologies;
technical and capacity limitations imposed by operators of the power grid;
the availability of tax rebates, credits and incentives, including changes to the rates of, or expiration of,
federal tax credits and the availability of related safe harbors;
our need and ability to raise capital to finance the installation and acquisition of distributed residential
solar energy systems, refinance existing debt or otherwise meet our liquidity needs;
our expectations concerning relationships with third parties, including the attraction, retention and
continued existence of our dealers;
our ability to retain or upgrade current customers, further penetrate existing markets or expand into
new markets;
our investment in our platform and new product offerings and the demand for and expected benefits of
our platform and product offerings;
the ability of our solar energy systems, energy storage systems or other product offerings to operate or
deliver energy for any reason, including if interconnection or transmission facilities on which we rely
become unavailable;
our ability to maintain our brand and protect our intellectual property and customer data;
our ability to manage the cost of solar energy systems, energy storage systems and our service
offerings;
the willingness of and ability of our dealers and suppliers to fulfill their respective warranty and other
contractual obligations;
our expectations regarding litigation and administrative proceedings; and
our ability to renew or replace expiring, canceled or terminated solar service agreements at favorable
rates or on a long-term basis.
Our actual results and timing of these events may differ materially from those anticipated in these forward-
looking statements as a result of many factors, including but not limited to those discussed under "Risk Factors"
and elsewhere in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K may not occur and actual results could
differ materially and adversely from those anticipated or implied in the forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements for any reason after the date of this
Annual Report on Form 10-K to conform these statements to actual results or to changes in our expectations,
except as required by law.
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Table of Contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits
Signatures
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PART I
Item 1. Business.
Mission
Our mission is to power energy independence.
Overview
We are a leading residential solar and energy storage service provider, serving more than 80,000 customers
in more than 20 United States ("U.S.") states and territories. Our goal is to be the leading provider of clean,
affordable and reliable energy for consumers, and we operate with a simple mission: to power energy
independence. We were founded to deliver customers a better energy service at a better price; and, through our
solar and solar plus energy storage service offerings, we are disrupting the traditional energy landscape and the
way the 21st century customer generates and consumes electricity.
We have a differentiated residential solar dealer model in which we partner with local dealers who
originate, design and install our customers' solar energy systems and energy storage systems on our behalf. Our
focus on our dealer model enables us to leverage our dealers' specialized knowledge, connections and
experience in local markets to drive customer origination while providing our dealers with access to high
quality products at competitive prices and technical oversight and expertise. We believe this structure provides
operational flexibility, reduced exposure to labor shortages and lower fixed costs relative to our peers,
furthering our competitive advantage.
We offer customers products to power their homes with affordable solar energy. We are able to offer
savings and storage opportunities to most customers compared to utility-based retail rates with little to no up-
front expense to the customer, and we are able to provide energy resiliency and reliability to our solar plus
energy storage customers. Our solar service agreements take the form of a lease, power purchase agreement
("PPA") or loan. The initial term of our solar service agreements is typically either 10 or 25 years. Service is an
integral part of our agreements and includes operations and maintenance, monitoring, repairs and replacements,
equipment upgrades, on-site power optimization for the customer (for both supply and demand), the ability to
efficiently switch power sources among the solar panel, grid and energy storage system, as appropriate, and
diagnostics. During the life of the contract we have the opportunity to integrate related and evolving home
servicing and monitoring technologies to upgrade the flexibility and reduce the cost of our customers' energy
supply.
In the case of leases and PPAs, we also currently receive tax benefits and other incentives from federal,
state and local governments, a portion of which we finance through tax equity, non-recourse debt structures and
hedging arrangements in order to fund our upfront costs, overhead and growth investments. We have an
established track record of attracting capital from diverse sources. From our inception through December 31,
2019, we have raised more than $4.7 billion in total capital commitments from equity, debt and tax equity
investors.
In addition to providing ongoing service as a standard component of our solar service agreements, we also
offer ongoing energy services to customers who purchased their solar energy system through unaffiliated third
parties. Under these arrangements, we agree to provide such monitoring, maintenance and repair services to
these customers for the life of the service contract they sign with us. We believe the quality and scope of our
comprehensive energy service offerings, whether to customers that obtained their solar energy system through
us or through another party, is a key differentiator between us and our competitors.
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We commenced operations in January 2013 and began providing solar energy services under our first solar
energy system in April 2013. Since then, our brand, innovation and focused execution have driven significant
growth in our market share and in the number of customers on our platform. We operate one of the largest fleets
of residential solar energy systems in the U.S., comprising more than 572 megawatts of generation capacity and
serving more than 80,000 customers. We define number of customers to include each customer that is party to
an in-service solar service agreement. For further discussion of how we define number of customers, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and
Operational Metrics". The following chart illustrates the growth in our number of customers from December
31, 2015 through December 31, 2019.
Our Dealer Network Model
While many of our competitors maintain a large, geographically diverse base of employees in local
markets, including a direct sales force comprised of home improvement installers, we limit the cost associated
with that structure by utilizing a network of local, independent dealers to market, sell and install solar energy
systems and energy storage systems on our behalf. Our dealers typically reside and work within the markets
they serve and provide a localized, customer-focused marketing, installation and servicing process. These
dealers are often leading local solar installation companies who serve customers that are actively searching for
solar power or who were referred by existing customers. When entering new markets, our dealer model
immediately provides scale by enabling us to develop relationships with existing local businesses and avoiding
the delay and expense required to establish new sales and installation offices. Similarly, because we do not
typically maintain local offices, we can quickly refocus our origination efforts and capital deployment strategy
to different markets in response to changing dynamics and regulatory developments. Furthermore, because of
the low marginal cost to maintain relationships with individual dealers in currently unfavorable markets, we can
maintain a strategic presence in anticipation of future developments that may make the economics of distributed
residential solar energy in those markets more attractive.
Our dealers realize value in partnering with us for a variety of reasons. Although each of our dealer
relationships is unique, we believe our dealers choose to work with us because:
• we do not compete with our dealers;
• we receive preferred equipment pricing as a result of our strong supplier relationships;
• we offer a wide variety of product structures;
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• we provide easy-to-use software to dealers to assist with the installation process and to price potential
solar energy systems and energy storage systems;
dealers can leverage our brand to support their businesses;
•
• we provide comprehensive training to dealers; and
• we are a stable counterparty our dealers can trust to make payments on time.
Origination, Installation, Monitoring and Servicing Processes
Through our dealer network model, we provide a streamlined approach for the origination of solar service
agreements and the installation of solar energy systems and energy storage systems. The principal elements of
our origination, installation, monitoring and servicing processes are described below:
• Customer Origination and Consultation. Our dealers serve as a local, direct-to-home sales force
providing in-person consultations to source potential customers in each geographic market where we
operate. Our dealers reach potential customers through various means, including online, telemarketing,
in-store sales, cross-marketing with complementary products and door-to-door canvasing. Using our
technology platform and proprietary pricing tool, the dealer and the customer select one of our
standard-form solar service agreements for the relevant market and the dealer submits its proposal to
us for approval. Before proceeding to the design phase, we call every customer to validate the
customer understands the terms of their contract with us as well as the expected benefits of the system.
• Design and Engineering. Prior to the dealer's purchase and installation of the equipment, we and the
dealers work together to design each solar energy system and, if applicable, energy storage system. All
of our solar energy systems and energy storage systems are designed with equipment from a pre-
approved list of manufacturers. We utilize our extensive tools and services platform, standardized
procedures and existing databases to help our dealers comply with our pricing requirements, residential
solar best practices, contract terms, and state, territorial and local regulations. For each solar service
agreement, an individualized power production estimate is created by analyzing geographic, solar and
weather data with the design's proposed orientation, components and shading. We continue to pursue
technological innovation to streamline our review of design and engineering, to expedite installation
and to lower costs for our dealers.
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Installation, Commissioning and Interconnection. The installation and commissioning phase requires
the dealer to obtain all necessary permits for installation and complete our commissioning process for
the solar energy system and energy storage system (if applicable), which entails submitting supporting
documentation and photographs illustrating the installation of the solar energy system and energy
storage system (if applicable) to our engineering team for review. Following completion of these steps
and our approval of these materials the dealer submits required paperwork to the applicable electric
distribution utility to obtain permission to operate the equipment, schedule required regulatory
inspections and arrange for interconnection of the solar energy system to the electrical grid. The
customer's billing begins at the earlier of (a) 90 days after installation or (b) completion of
interconnection.
• Monitoring and Servicing. Our monitoring systems utilize cellular connections that allow us to confirm
the continuing operation of the solar energy system and energy storage system (if applicable) and
identify and solve maintenance issues through our dealers, third-party service providers or our own
personnel. We also collect performance data to improve our pricing, generation estimates and services
for our customers.
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Our Relationships With Our Dealers
We carefully recruit our dealers, who must meet and maintain our standards to be an approved dealer.
Qualifications to be a dealer include: experience in the residential solar industry (or success in complementary
industries such as home security, heating, ventilation and air-conditioning, electrical services, and satellite
television), experienced and appropriately certified employees (including multiple installation teams) and
possession of applicable licenses. We also perform a review of the prospective dealer's financial condition as
part of our recruitment process as well as a background check on the principal owners of the organization. Upon
engagement, the dealer enters into a standard dealer agreement with us, which may be amended from time to
time, that sets ongoing standards for operations and payment obligations based on different milestones for each
project. We provide training, field support and continuing education to help our dealers operate efficiently. This
includes training related to our processes, standards and services platform, sales training and compliance
education regarding applicable rules and regulations. We actively review our dealers' performance and
compliance with our requirements to determine whether to terminate our relationship with any dealer that is
unable to meet our performance standards.
We devote significant resources to maintaining and expanding our relationships with existing dealers.
Although most of our dealer agreements allow the dealer to sell services and products from our competitors, we
believe dealers find our proprietary technology and operations platform, established supply chain group,
commitment to training, quality of service and prompt payment to be an incentive to prioritize selling our
services. Furthermore, many of our dealers may be hesitant to work with our competitors that have developed
internal sales and installation personnel that may compete with certain aspects of the dealers' business. Taken as
a whole, we believe these considerations promote long-lasting relationships with our dealers.
For the years ended December 31, 2019 and 2018, Trinity Solar, Inc. ("Trinity") accounted for
approximately 41% and 52% of our originations for such periods, respectively. In March 2019, we amended our
agreement with Trinity pursuant to which Trinity has agreed to perform services or work exclusively for us for
four years, with certain exceptions, including (a) the sale of solar energy systems to individuals on a "cash"
basis that do not involve any third-party financing, (b) the sale of solar energy systems pursuant to customer
agreements we do not elect to accept under the terms of the arrangement and (c) the sale of solar energy systems
pursuant to customer agreements executed prior to the date of the amendment to the dealer agreement. In
addition, Trinity may market, sell and install solar energy systems for our competitors in instances in which
such competitor has provided the leads for such solar energy system customer directly to Trinity. Under this
arrangement, we have agreed to provide annual bonuses to Trinity in the amount of $20 million in year one and
$10 million each year thereafter, subject to clawback if minimum annual origination targets are not reached and
additional per watt incentive payments if higher annual origination targets are exceeded. The minimum and
higher origination targets increase by approximately 15% to 20% each year and limits competing work by
Trinity to 10% of Trinity's annual gross revenues. Unlike most of our dealer agreements, the arrangement with
Trinity does not permit the parties to terminate for convenience and only permits termination in specified
circumstances including material breach (subject to applicable cure periods), prolonged force majeure events, a
change of control, certain insolvency events or mutual agreement. For purposes of the Trinity agreement,
"change of control" means (a) the sale of all or substantially all of the assets of a party or (b) any merger,
acquisition, or other transaction or series of transactions that results in a change of ownership of more than fifty
percent of the voting securities of a party (other than in connection with an initial public offering of either party
or a transfer among Trinity's existing owners). Additionally, the arrangement provides for a $10 million
liquidated damages payment by the applicable party in the event of termination for material breach, certain
insolvency events of or wrongful termination by the other party.
We have similar contractual arrangements with several other key dealers. For certain other dealers,
substantially all of the solar service agreements originated by such dealers are Sunnova agreements, although
they are under no exclusivity arrangement. No dealer other than Trinity and Infinity Energy, Inc. accounted for
more than 10% of our total expenditures to dealers relating to costs incurred for solar energy systems for the
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year ended December 31, 2019. Only Trinity accounted for more than 10% of our total expenditures to dealers
relating to costs incurred for solar energy systems for the year ended December 31, 2018.
Platform of Tools and Services
We have developed a cloud-based technology platform for origination, installation, administration and
servicing of our solar energy systems and energy storage systems. All of our dealers are trained in and use this
platform. Our software platform includes a proprietary technology suite, including a contact center to assist
dealers in lead generation, project tracking and service obligations, a quoting tool to standardize customer
quotes and solar service agreements, and other services to manage payments, billing and monitoring. The
technology suite also includes tools to streamline the approval process for the design and installation of solar
energy systems and energy storage systems and establish a standard process for ongoing service and warranty
management. The platform leverages cloud-based infrastructure and software capabilities using multiple third-
party providers, including Salesforce, Amazon Web Services, Heroku and FinancialForce. It is compatible with
multiple end-user device types, including smartphone, tablet and desktop/laptop interfaces.
We have invested in proprietary software systems and technology that have been designed to tie into third-
party platforms and applications of our dealers and other systems. Our key software systems include:
• Pricing Tool: Customer pricing and quoting is delivered by a combination of cloud-based technologies
including Genability, PV Watts (a service of the National Renewable Energy Laboratory) and
proprietary applications running on Amazon Web Services and Heroku. This collection of tools is
made available to us and our dealers through a web, tablet or mobile device interface. We permit
dealers to generate solar service agreement quotes and proposal documents on demand for presentation
to prospective customers. Each completed quote is transferred into Salesforce for solar service
agreement generation, customer access and reporting.
• MySunnova: MySunnova is our online portal for customers that allows them to view their solar energy
systems' production history, view energy storage system data, pay their bills, manage their online
account and contact information, make referrals and contact our customer service team.
•
Salesforce: Salesforce is our central repository and system of record for all contracts, process
documentation, customer account information, maintenance information and payment tracking for the
life of the solar service agreement. This single system allows for integrated and comprehensive
reporting for the entire life cycle of the customer, from quote to end of the solar service agreement
term. Many of our other systems interact with the Salesforce platform.
• FinancialForce: FinancialForce is a cloud-based accounting system built on the Salesforce platform.
Because it shares similar architecture to our Salesforce system, FinancialForce allows for integration
between our operations and accounting.
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Customer Agreements
Agreement
Sunnova Offering(s)
Description
Initial Term
Lease
PPA
Loan
Easy Save
Easy Save Simple
Easy Save Monthly
Lease of solar energy system
Sale of solar energy production
25 years
Easy Own
Sale of solar energy system
10 or 25 years
Energy Storage
Sunnova SunSafe
Sunnova +SunSafe
Lease or sale of energy storage system to
be used with a solar energy system
10, 15 or 25
years
Service Only
Sunnova Protect Services
Monitoring & warranty services for non-
Sunnova solar energy systems
1, 5, 10 or 20
years
We focus on growing a geographically diverse customer base with a strong credit profile. We perceive our
recurring customer payments as high-quality assets given the broad and relatively inelastic demand for
electricity and because our customers typically have high credit scores. As of December 31, 2019, our
customers had, at the time of signing the solar service agreement, an average FICO® score of 739. The purpose
of our stringent credit approval policy is to ensure reliability of collecting payment over the duration of the solar
service agreements. As of December 31, 2019, approximately 0.8% of our customers were in default (over 120
days past due) under their solar service agreements.
Most of our solar service agreements have an initial term of 25 years with an opportunity for customers to
renew for up to an additional 10 years via two five-year renewal periods. The customer is obligated to make
payments to us on a monthly basis and we operate and maintain the solar energy system and energy storage
system, if applicable, in good condition throughout the duration of the agreement. Under our lease agreements
and PPAs, the customer's monthly payment or price per kilowatt hour ("kWh") is set based on a calculation that
takes into account expected solar energy generation. The customer has an option of choosing a flat rate without
an escalator or a lower initial rate with an escalator. As of December 31, 2019, approximately 68% of our lease
agreements and PPAs contained a price escalator, ranging from 0.9% to 3.0% annually.
Our solar service agreements are designed to offer the customer energy cost savings and bill stability
relative to centralized utility prices, often resulting in an immediate reduction in the customer's overall utility
bill, with little or no upfront costs. We provide our services through long-term residential solar service
agreements in the following formats:
•
•
Lease Agreements. Under a lease agreement, or Easy Save Agreement, the customer leases a solar
energy system from us at a fixed monthly rate that is typically subject to annual escalation. We own,
operate and maintain the solar energy system under our lease agreements. In most cases, lease
agreements include a performance guarantee under which we will refund payments or credit the
customer if the solar energy system fails to meet a guaranteed minimum level of power production for
specified time periods.
PPAs. We offer PPAs through our Easy Save Monthly Agreement, for monthly generation billing, and
the Easy Save Simple Agreement, for a levelized monthly payment. We own, operate and maintain the
solar energy system under our PPAs.
•
Easy Save Monthly Agreements. Pursuant to an Easy Save Monthly Agreement, the customer
agrees to pay for all power generated by a solar energy system at a price per kWh that is typically
lower than the local utility rate. The monthly rate is typically subject to annual escalation.
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• Easy Save Simple Agreements. The Easy Save Simple Agreement is similar to the Easy Save
Monthly Agreement except the customer's payments are levelized over the course of a year based
on an annual production estimate so the customer's payments are insulated from monthly
fluctuations in electricity production subject to a true-up at the end of such period. The fixed
monthly rate is typically subject to annual escalation. Should the annual production estimate
exceed actual production, the customer will receive a bill credit at the end of the applicable period
and we may decrease the estimated production (and corresponding monthly payments) for the
subsequent year. Should actual production exceed the annual estimate, we may apply the
overproduction to a subsequent year or increase the estimated annual production and
corresponding monthly payments for the subsequent year. The estimated annual production will
not increase more than 110% from the estimated annual production for the first year.
•
Loan Agreements. Pursuant to an Easy Own Agreement, the customer purchases the solar energy
system from a dealer using financing provided by us. The customer repays the amount financed plus a
finance charge through monthly payments for a typical term of 10 or 25 years. We purchase the Easy
Own Agreement from the dealer and agree to operate and maintain the solar energy system. We operate
and maintain the solar energy system through our network of dealers. In most cases, Easy Own
Agreements include a production guarantee under which we will refund payments or credit the
customer if the solar energy system fails to meet a guaranteed minimum level of power production for
specified time periods. Customers under our Easy Own Agreements have the option to prepay
outstanding principal amounts, in part or in full, without penalty.
• Energy Storage Systems. Our Sunnova SunSafe program offers customers the option of a solar energy
system integrated with a solar storage system. Our Sunnova SunSafe Easy Save Agreement and
Sunnova SunSafe Easy Own Agreement are similar to our Easy Save Agreement and Easy Own
Agreement, respectively, but include energy storage systems with the solar energy systems. The
customer may select a term of 10 or 25 years for the SunSafe Easy Own Agreement. These agreements
have a production guarantee, similar to the Easy Own Agreements and Easy Save Agreements, except
in Guam, Saipan, Hawaii, Puerto Rico and Florida. Additionally, we introduced the Sunnova +SunSafe
Agreement to existing customers in several states and territories, under which the customer purchases
the energy storage system from a dealer using financing provided by us. Under the Sunnova +SunSafe
Agreement, the customer repays the amount financed plus a finance charge through monthly payments
for a term of 10 or 15 years. We intend to roll-out these energy storage system offerings to additional
geographic regions in the coming years.
•
Sunnova Protect Service. For solar energy systems not owned or sold by us, our Sunnova Protect
Agreements provide customers maintenance and repairs as well as system monitoring and diagnostics.
We provide three levels of service: (a) Basic, which is monitoring only; (b) Premium, which is
monitoring plus repair and/or replacement of all equipment under a manufacturer's warranty; and (c)
Platinum, which is monitoring, repair and/or replacement of all equipment under and outside the
manufacturer's warranty and a production guarantee. The customer may select the level of service and
a term of 1, 5, 10 or 20 years. Prior to commencing coverage, we will run a diagnostic evaluation on
the customer's solar energy system and will identify any underperforming equipment and estimate
production. The customer may elect to repair underperforming equipment, on a time and materials
basis, so that it may be included in the coverage going forward. Should the underperforming
equipment not be repaired, it will not be covered under the Sunnova Protect Agreement.
As of December 31, 2019, approximately 32% of our customers had lease agreements, approximately 54%
had PPAs, and approximately 14% had loan agreements. Less than 1% of our customers have our Sunnova
SunSafe and Sunnova Protect agreements.
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We have developed a standardized protocol and set of policies to qualify potential customers. During the
solar energy system origination phase, we review the customer's credit application for compliance with our
credit standards. Solar service agreements that are accepted must comply with our underwriting standards,
which emphasize the prospective customer's ability to pay and the value of the customer's estimated savings
under the solar energy service agreement compared to traditional utility rates.
We maintain reporting and controls in place to monitor the timeliness of customer payments. As of
December 31, 2019, approximately 94% of all payments received pursuant to our solar service agreements are
collected via Automated Clearing House payments (i.e., the funds are deducted automatically on a monthly
basis from the customer's bank account), approximately 3% are collected via automatic recurring credit card
payments and approximately 3% are collected through non-recurring means. If a customer becomes delinquent
on one or more monthly installment payments, we typically begin a collection process with respect to the
customer.
In the event that a customer elects to sell his or her home, the customer's solar service agreement may be
transferred to the prospective purchaser through prescribed reassignment procedures, subject to certain
conditions related to the prospective purchaser's creditworthiness. To initiate the reassignment process, the
customer must notify us of the pending sale, after which we will provide a copy of the solar service agreement,
including any amendments, to the prospective purchaser. The prospective purchaser will then be required to
complete a customer profile and a credit application. Each prospective purchaser's FICO® Score and Experian
TEC Score (Telecommunications, Energy and Cable) will be evaluated on the same basis as a customer in a new
origination and will be evaluated by our computer auto-decisioning system.
In the event that a prospective purchaser does not meet our credit criteria or elects not to be subject to such
credit inquiry, the current customer will be required to prepay the solar service agreement in full or the
prospective purchaser will be required to provide a security deposit in cash in accordance with such customer's
solar service agreement or our transfer policy prior to the approval of the reassignment. Each such security
deposit is held in a separate account until the earlier of (a) the time at which the prospective purchaser satisfies
our established credit criteria or (b) upon 12 consecutive months of on-time payments following the date of
reassignment.
On a case-by-case basis, we may remove a solar energy system and, if applicable, energy storage system
from the property on which it is installed if, among other reasons, the solar service agreement is canceled or
otherwise terminated, the customer or solar energy system and energy storage system is relocated, any of the
component parts are damaged or the new homeowner rejects the reassignment of the solar service agreement
upon home transfer, if applicable.
Monitoring and Maintenance Service and Warranties
Our residential solar service agreements typically are accompanied by a warranty and/or monitoring and
service agreement. The warranty and monitoring services provided with each type of solar service agreement
vary but can include operations and maintenance, equipment repairs, monitoring or site power controls and
management for both supply and demand. Additionally, our Sunnova Protect program offers monitoring, service
and production guarantees across three tiers of service for solar energy systems owned by the homeowner and
installed by an unaffiliated third party.
Regardless of the type of our solar service agreement, we provide ongoing service during the entire term of
the customer relationship, including monitoring, maintenance and warranty services of the solar energy system
and energy storage system, if applicable. We have an operations and maintenance administration organization
consisting of administration staff and a dedicated residential monitoring and production team that evaluates the
solar energy systems' and energy storage systems' performance daily. When a performance or operation issue is
detected via our monitoring system, we provide or arrange for troubleshooting or field services as necessary. We
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rely on our dealer network and our own personnel to complete the field services required to maintain the solar
energy systems. After completion of the resolution steps, the maintenance administration organization verifies
remotely the issue has been resolved and the system or energy service is performing as expected.
Additionally, customers under our solar service agreements receive a range of warranties on the related
solar energy systems and energy storage systems, including warranties for module production and against
defects in workmanship and against component or materials breakdown. We also provide the customers with a
warranty on roof penetrations of up to 10 years in compliance with applicable state, territorial or local law.
Through our agreements with our dealers, the dealer is obligated, at its sole cost and expense, to correct defects
in its installation work for a period of 10 years and provide a roof warranty on roof penetrations of five years.
Furthermore, we provide a pass-through of the solar photovoltaic panel manufacturers' warranty coverage to our
customers, generally of 25 years, and of the inverter and energy storage system manufacturers' warranty
coverage, typically of 10 to 25 years. We typically exercise our rights under the manufacturer's equipment
warranties or dealer installation warranties before incurring direct charges or costs. Many service expenses are
borne by our dealers and not us directly because of the workmanship warranty provided by the dealers to us.
Additionally, many component costs are covered by manufacturer warranties.
Seasonality
The amount of electricity our solar energy systems produce is dependent in part on the amount of sunlight,
or irradiation, where the assets are located. Because shorter daylight hours in winter months and poor weather
conditions due to rain or snow results in less irradiation, the output of solar energy systems will vary depending
on the season or the year. While we expect seasonal variability to occur, the geographic diversity in our assets
helps to mitigate our aggregate seasonal variability.
Our Easy Save Monthly PPAs are subject to seasonality because we sell all the solar energy system's energy
output to the customer at a fixed price per kWh. Our Easy Save Simple PPAs are not subject to seasonality
(from a cash flow perspective or the customer's perspective) within a given year because the customer's
payments are levelized on an annualized basis so we insulate the customer from monthly fluctuations in
production. However, our Easy Save Simple PPAs are subject to seasonality from a revenue perspective
because, similar to the Easy Save Monthly PPAs, we sell all the solar energy system's energy output to the
customer. Our lease agreements are not subject to seasonality within a given year because we lease the solar
energy system to the customer at a fixed monthly rate and the reference period for any production guarantee
payments is a full year. Finally, our loan agreements are not subject to seasonality within a given year because
the monthly installment payments for the financing of the customers' purchase of the solar energy system are
fixed and the reference period for any production guarantee is a full year.
In addition, weather may impact our dealers' ability to install solar energy systems and energy storage
systems. For example, the ability to install solar energy systems and energy storage systems during the winter
months in the Northeastern U.S. is limited. This can impact the timing of when solar energy systems and energy
storage systems can be installed and when we can acquire and begin to generate revenue from solar energy
systems and energy storage systems.
Intellectual Property
We rely on intellectual property laws, primarily a combination of copyright and trade secret laws in the
U.S., as well as license agreements and other contractual provisions, to protect our proprietary technology. We
also rely on several registered and unregistered trademarks to protect our brand. In addition, we generally
require our employees and independent contractors involved in the development of intellectual property on our
behalf to enter into agreements to limit access to, and disclosure and use of, our confidential information and
proprietary technology. We also continue to expand our technological capabilities through licensing technology
and intellectual property from third parties.
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Government Regulations
While we are not regulated as extensively as a public utility where our business is conducted in the U.S.,
we are subject to various national, state, territorial and other local regulatory regimes. For example, in
California and New York, we are subject to regulations concerning marketing and contracting promulgated by
state public utility commissions. In some states such as Arizona and Florida, we are limited to offering only a
lease agreement or a loan agreement to homeowners and are prohibited from offering a PPA, which is deemed a
retail sale of electricity in such states and can only be made by a regulated utility. In Puerto Rico, we are subject
to regulation as an electric power company by the Puerto Rico Energy Bureau and are required to comply with
certain filing, certification, reporting and annual fee requirements. Regulation by the Puerto Rico Energy
Bureau as an electric power company does not currently subject us to centralized utility-like regulation or
require the Puerto Rico Energy Bureau's approval of charges to customers.
To operate the solar energy systems and energy storage systems, our dealers work with customers to obtain
interconnection permission from the applicable local electric distribution utility. In many states and territories,
by statute, regulations or administrative order, there are standardized procedures for interconnecting distributed
residential solar energy and related energy storage systems to the electric utility's local distribution system. In
some states, such as New Jersey and Massachusetts, certain utilities such as municipal utilities or electric
cooperatives are exempt from some interconnection requirements. Provided that the system and energy, if
applicable, qualify for the standardized procedures based upon size, use of industry-standard components,
location on a suitable local network and other applicable requirements, utilities in some states or territories are
required to interconnect qualifying solar energy systems and energy storage systems on an expedited basis
relative to non-qualifying systems. Expedited procedures, when available, streamline the installation and
interconnection process for solar energy systems and energy storage systems to begin operating. In the U.S.
states and territories in which we operate, our dealers typically obtain interconnection permission on behalf of
us and our customers using standardized interconnection procedures.
In certain states, such as California, independent solar energy producers who enter into solar service
agreements with homeowners for residential solar energy systems are required to make certain disclosures to the
homeowner regarding the solar energy system and the terms of the agreement and record a notice against the
title to the real property on which the electricity is generated and against the title to any adjacent real property
on which the electricity will be used. The notice does not constitute a title defect, lien or encumbrance against
the real property.
In June 2019, the U.S. Environmental Protection Agency ("EPA") issued the final Affordable Clean Energy
("ACE") rule replacing the previous Clean Power Plan, which established standards to limit carbon dioxide
emissions from existing power generation facilities and was expected to increase the cost of certain forms of
fossil fuel-derived energy. We estimate the power generated by our solar energy systems has displaced more
than 1.2 million metric tons of carbon emissions based on approximately 1.7 billion kWh of electricity produced
since our inception and applying the EPA's online greenhouse gas equivalencies calculator (https://
www.epa.gov/energy/greenhouse-gas-equivalencies-calculator). The ACE rule would establish emission
guidelines for states to develop plans to limit greenhouse gas emissions from existing coal-fired power plants
but does not have the expected increase in cost for fossil fuel-derived energy. We cannot predict what effects, if
any, the ACE rule may have on photovoltaic solar markets.
Our operations, as well as the operation of our dealers, are subject to stringent and complex federal, state,
territorial and local laws, including regulations governing the occupational health and safety of employees,
wage regulations and environmental protection. For example, we and our dealers are subject to the regulations
of the U.S. Department of Labor, Occupational Safety and Health Administration ("OSHA"), the U.S.
Department of Transportation ("DOT"), the EPA and comparable state and territorial entities that protect and
regulate employee health and safety and the environment. These include, for example, regulations regarding the
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disposal of solid and hazardous wastes from the solar energy systems we own. In addition, environmental laws
can result in the imposition of liability in connection with end-of-life system disposal, such as in connection
with disposal and recycling of batteries.
We and our dealers are also subject to laws and regulations relating to interactions with residential
consumers, including those pertaining to sales and trade practices, privacy and data security, equal protection,
consumer financial and credit transactions, consumer collections, mortgages and re-financings, home
improvements, trade and professional licensing, warranties and various means of customer solicitation, as well
as specific regulations pertaining to solar installations.
For a discussion of these and other regulatory requirements, see "Risk Factors—Risks Related to
Regulations".
Government Incentives
U.S. federal, state, territorial and local governments have established various incentives and financial
mechanisms to reduce the cost of solar energy and to accelerate the adoption of solar energy. These incentives
come in various forms, including rebates, tax credits and other financial incentives such as payments for
renewable energy credits associated with renewable energy generation, exclusion of solar energy systems and
energy storage systems from property tax assessments, system performance payments, accelerated depreciation
and net energy metering, or net metering, programs. These incentives make solar energy system and energy
storage system ownership more attractive to some homeowners and enable us to charge our customers lower
prices to purchase energy generated by our solar energy systems and energy storage systems or to lease or
purchase our solar energy systems and energy storage systems than they would normally be expected to pay for
utility-provided energy. These incentives also help catalyze private sector investments in solar energy and
efficiency measures, including the installation and operation of residential and commercial solar energy systems
and energy storage systems.
Net metering is one of several key policies that have enabled the growth of distributed solar in the U.S.,
providing significant value to certain customers with solar energy systems for the electricity generated by their
systems but not directly consumed on site. Net metering allows a customer to pay the local electric utility only
for power usage net of production from the customer's solar energy system. Customers receive a credit for the
energy an interconnected solar energy system generates in excess of that needed by the home and that is
provided to the electrical grid. The credit offsets energy usage incurred by the customer at times when the
customer requires more electricity than is generated by the solar energy system. In many markets, this credit is
equal to the residential retail rate for electricity and in other markets the rate is less than the retail rate and may
be based, for example, in whole or in part on the centralized electric utility's "avoided cost" for electricity that it
would have had to generate or purchase at wholesale to meet the customer's demand. Furthermore, when
coupled with a time of use rate program in certain electric utility territories, a homeowner may offset usage
billed at lower rates with net metering credits provided at a higher rate.
For these reasons, net metering credits incentivize consumers to use distributed solar in certain
jurisdictions, including some of those in which we operate. In some electric utility territories, any excess credits
are rolled over to the next billing period and may also be cashed out later at a rate lower than the retail rate.
Most states, the District of Columbia, Puerto Rico and Guam have adopted some form of net metering by
statute, regulation, administrative order or a combination thereof, although some of these jurisdictions provide
for a credit at less than the retail rate. In some jurisdictions, centralized electric utilities have also adopted net
metering on a voluntary basis. Some of the states in which we operate, including New Jersey, Maryland,
Massachusetts, Rhode Island, Delaware, Illinois and Hawaii, have in place policies that limit or permit utilities
to limit the amount of total electricity generated through net metering and/or solar energy systems, and some of
these states as well as other states or territories, including Pennsylvania, Nevada, New Mexico and Guam, have
policies that limit or place conditions on the size of individual solar energy systems.
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Net metering and other incentive programs are subject to legislative and regulatory review in many states
and territories in which we operate and the availability and value of these programs could be limited, reduced or
phased out. Some states such as Arizona, Nevada and Kentucky have reduced their net metering credits. Further
reviews by these states and others are anticipated and the subsequent amount of net metering credits will
continue to be assessed over the next few years in states that have net metering policies. For example, net
metering rates in California, Connecticut, Puerto Rico and South Carolina are up for consideration over the next
few years. New York is working on developing an alternative to net metering through a Value of Distributed
Energy Resources credit that would allow certain customers to receive direct monetary compensation as
opposed to a net metering credit. This program is expected to be implemented in 2021. Other states such as
California have implemented non-bypassable fees for customers enrolled in a net metering program, which
requires customers to pay certain fees regardless of whether they are drawing energy from the electrical grid. As
a result of the Definitive Restructuring Support Agreement ("DRSA") between the Puerto Rico Electric Power
Authority ("PREPA") and its creditors submitted on May 3, 2019, which is currently pending before the U.S.
District Court for the District of Puerto Rico, net metering customers in Puerto Rico may be impacted by
transition charges and other requirements.
Many states and territories have adopted renewable portfolio energy production requirements. The majority
of states, the District of Columbia and Puerto Rico have adopted a renewable portfolio standard ("RPS") that
requires regulated electric utilities to generate or procure a specified percentage of total electricity delivered to
customers in the state or territory from eligible renewable energy sources, such as solar energy systems, by a
series of specified dates. In addition, several other states have set voluntary goals for renewable generation.
Roughly one-third of states with RPS policies require a minimum portion of the RPS be met by electric
generation from solar energy systems, with substantial penalties for non-compliance. To demonstrate
compliance with such RPS mandates, electric generation providers must submit state renewable energy
certificates ("SRECs") to the applicable authority. One SREC is generated for a specified amount of energy
generated for an eligible solar energy system. The specified amount of energy is dependent on system size and
when the solar energy system receives a "permission to operate" order. Electric generation providers can either
generate their own SRECs through solar energy systems they own or they can purchase SRECs owned by other
parties.
SRECs are a distinct product, separate from the electricity generated by solar energy systems. We and our
customers apply for and receive SRECs in certain jurisdictions for power generated by the solar energy systems
we own. As a distinct product from the electricity generated by solar energy systems, SRECs represent a
separate source of cash flow from the sale of electricity. SRECs can be sold with or without the actual electricity
associated with the renewable-based generation. Solar energy system owners are typically able to sell SRECs to
electric generation providers, such as electric utilities, or in the SREC commodity market. We have hedged a
portion of our expected SREC production under fixed price forward contracts. The forward contracts require us
to physically deliver the SRECs upon settlement.
Several states have an energy storage mandate or policies designed to encourage the adoption of storage.
For example, California offers a cash rebate for storage installations through the Self Generation Incentive
Program and Massachusetts and New York offer performance-based financial incentives for storage. Storage
installations also are supported in certain states by state public utility commission policies that require utilities
to consider alternatives such as storage before they can build new generation. In February 2018, the Federal
Energy Regulatory Commission ("FERC") issued Order 841 directing regional transmission operators and
independent system operators to remove barriers to the participation of storage in wholesale electricity markets
and to establish rules to help ensure storage resources are compensated for the services they provide.
Some state and territorial governments, centralized electric utilities, municipal utilities and co-operative
utilities offer a cash rebate or other payment incentive for the installation and operation of a solar energy or
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energy storage system or to customers undertaking other energy efficiency measures. Capital cost or "up-front"
rebates provide funds to solar customers or developers or solar energy system owners such as us based on the
cost, size or expected production of a customer's solar energy system. Performance-based incentives and tariff-
based incentives provide payments to solar customers or a solar energy system owner based on the energy
generated by the solar energy system during a pre-determined period. These rebates and payment incentives,
when available, improve the economics of distributed solar to both us and our customers.
The economics of purchasing a solar energy system and energy storage system are also improved by
eligibility for accelerated depreciation, which allows for the depreciation of equipment according to an
accelerated schedule set forth by the Internal Revenue Service ("IRS"). This accelerated schedule allows a
taxpayer to recognize the depreciation of tangible solar property on a five-year basis even though the useful life
of such property is greater than five years. The acceleration of depreciation creates a valuable tax benefit that
increases the return on investment from a solar energy system and energy storage systems. We benefit from
accelerated depreciation on the solar energy systems and energy storage systems we own, which account for
substantially all of our solar energy systems and energy storage systems.
The federal government currently provides business investment tax credits under Section 48(a) (the
"Section 48(a) ITC") and residential energy credits under Section 25D (the "Section 25D Credit") of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"). The Section 48(a) ITC allows taxpayers to claim a
federal tax credit equal to 30% of qualified expenditures for certain commercially owned solar energy systems
that began construction before 2020. The Section 48(a) ITC percentage decreases to 26% of the basis of a solar
energy system that begins construction during 2020, 22% for 2021 and 10% if construction begins after 2021 or
if the solar energy system is placed into service after 2023. In June 2018, the IRS provided guidance as to when
construction is considered to begin for such purposes, including a safe harbor that may apply when a taxpayer
pays or incurs (or in certain cases, a contractor of the taxpayer pays or incurs) 5% or more of the costs of a
system before the end of the applicable year (the "5% ITC Safe Harbor"). We are also able to claim the Section
48(a) ITC for energy storage systems installed in conjunction with solar energy systems as long as they are only
charged by on-site solar. A reduced Section 48(a) ITC may be available for energy storage systems charged in
part from sources other than on-site solar as long as the solar energy systems are charged at least 75% by on-site
solar.
The Section 25D Credit allows an individual to claim a federal tax credit equal to 26% of qualified
expenditures with respect to a residential solar energy system that is owned by the homeowner. This 26% rate
was reduced from 30% for solar energy systems placed in service prior to 2020 and is scheduled to be reduced
to 22% for solar energy systems placed in service during 2021. The Section 25D Credit is scheduled to expire
effective January 1, 2022. The Section 25D Credit reduces the cost of consumer ownership of solar energy
systems, such as under loan agreements.
Certain states and territories in which we operate offer a personal and/or corporate investment or
production tax credit for solar energy. Further, most of the states and local jurisdictions have established sales
and/or property tax incentives for renewable energy systems that include exemptions, exclusions, abatements
and credits. For a discussion of these and other governmental incentives, see "Risk Factors—Risks Related to
Regulations".
Competition
We believe our primary competitors are centralized electric utilities that supply electricity to our potential
customers. We compete with these centralized electric utilities primarily based on price (cents per kWh),
predictability of future prices (by providing pre-determined annual price escalations), reliability and the ease by
which customers can switch to electricity generated by solar energy systems. We believe we compete favorably
with centralized electric utilities based on these factors in the states and territories where our solar service
agreements are offered.
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We also compete with retail electric providers and independent power producers that are not regulated like
centralized electric utilities but have access to the centralized utilities' electricity transmission and distribution
infrastructure pursuant to state, territorial and local pro-competitive and consumer choice policies. Furthermore,
we compete with solar companies with vertically integrated business models, such as Vivint Solar, Inc. and
Sunrun Inc. In addition, we compete with other solar companies who sell or finance products directly to
consumers, inclusive of programs like Property-Assessed Clean Energy. For example, we face competition from
solar installation businesses that seek financing from external parties or utilize competitive loan products or
state and local programs. In the future, we may also compete with solar companies that have business models
similar to our own, some of which are marketed to potential customers by our dealers. We compete with these
companies based on the competitiveness of the products, the overall customer relationship and the commissions
we are willing to pay dealers for the origination of new end customers.
Suppliers
The major components of the solar energy systems include solar photovoltaic panels that turn sunlight into
direct current ("DC") electricity, inverters that convert solar-generated DC electricity into alternating current
("AC") electricity, the form of energy used by most standard household appliances, racking systems that attach
the solar photovoltaic panels to the roof or ground, a remote monitoring system that measures and monitors all
energy generated by the solar energy system and provides alerts about system performance and in some cases,
an energy storage system (battery) that stores excess energy generated by the photovoltaic panels to supplement
energy supply during hours when energy consumption exceeds energy produced by the photovoltaic panels. The
solar energy system may also be connected to the electrical grid or other supplemental energy sources, such as
fuel cells and generators, with additional wiring and electrical hardware.
We require our dealers to choose all major components of the solar energy system or energy storage system
from a pre-approved list of manufacturers and models. By allowing dealers to choose from several
manufacturers and models without direct supplier obligations, we have greater flexibility to satisfy customer
demand, ensure competitive pricing and adequate supply of components and reduce the concentration of
warranty risks. We have entered into master contractual arrangements with each vendor on our pre-approved list
of vendors that defines the general terms and conditions of our purchases and those of our dealers, including
warranties, product specifications, indemnities, delivery and certain other terms. Our dealers typically purchase
solar panels and inverters on an as-needed basis from our pre-approved suppliers at then-prevailing prices
pursuant to purchase orders having the benefit of our master contractual arrangements. At times, we will also
procure equipment directly and sell it to our dealers. For 2020, we have purchased substantially all the inverters
that will be deployed under our lease and PPA agreements that we expect will allow the related solar energy
systems to qualify for the 30% Section 48(a) ITC by satisfying the 5% ITC Safe Harbor.
We evaluate and qualify our manufacturers and their product offerings based on total cost of ownership,
reliability, warranty coverage, credit quality and other factors. All equipment must be listed on the California
Energy Commission's SB1 List of Eligible Equipment. All approved solar photovoltaic panels must have a
minimum 25-year power warranty and 10-year workmanship warranty. We also require approved solar
photovoltaic panels to undergo extended reliability testing as an indication of a 25-year or greater lifetime.
Beginning in April 2016, we required all our manufacturers carry a 25-year warranty, or offer a warranty
extension to 25 years, on all product offerings to be eligible for inclusion on our approved vendor list. Prior to
April 2016, we sourced inverter manufacturers offering a warranty of no less than 10 years. All approved
racking systems are required to be solar energy system Fire Class Rated "A" with a Type 1 module per recent
California Fire requirements. Additionally, the racking system must have a Professional Engineers stamp as
proof of structural analysis and wind speed certification and the racking system must be certified as conforming
to the integrated grounding and bonding requirements of UL Subject 2703. All replacement parts and
components must meet or exceed the same standards as those of the original installation.
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In September 2018, the Office of the United States Trade Representative ("USTR") determined to modify
its prior actions in its investigation into certain acts, policies and practices of the government of China related to
technology transfer, intellectual property and innovation pursuant to Section 301 of the Trade Act of 1974 by
imposing an additional 10% duty on $200 billion worth of products from China, including inverters. In May
2019, the tariffs were increased from 10% to 25% and may be raised by the USTR in the future. If inverter
production is not shifted to other countries before any tariff rate increase on these products, the price of
inverters could increase. However, the cost of solar photovoltaic panels and inverters generally do not comprise
a meaningful portion of our operating expenses. In addition, many of the solar photovoltaic panel and inverter
manufacturers on our approved vendor list are from countries other than China, including Canada, the United
States, Vietnam and Malaysia. See "Risk Factors—Increases in the cost of our solar energy systems due to
tariffs imposed by the U.S. government could have a material adverse effect on our business, financial condition
and results of operations". These tariffs have not had a material impact on our business or our operations.
For the year ended December 31, 2019, Hanwha Q-Cells and Yingli Green Energy supplied approximately
50% and 17%, respectively, of our solar photovoltaic panels installed and no other supplier represented more
than 10% of our solar photovoltaic panels installed. In 2018, Hanwha Q-Cells and Trina Solar Limited supplied
approximately 52% and 22%, respectively, of our solar photovoltaic panels installed and no other supplier
represented more than 10% of our solar photovoltaic panels installed. For the year ended December 31, 2019,
Enphase Energy, Inc. and SolarEdge Technologies Inc. accounted for approximately 58% and 42%,
respectively, of the inverters used in our solar energy system installations. In 2018, Enphase Energy, Inc. and
SolarEdge Technologies Inc. accounted for approximately 55% and 43%, respectively, of the inverters used in
our solar energy system installations. For the year ended December 31, 2019, Tesla, Inc. accounted for 100% of
our energy storage systems purchases. In 2018, Tesla, Inc. and LG Chem Ltd. accounted for approximately 86%
and 13%, respectively, of our energy storage system purchases. Our dealers generally source the additional
equipment and parts needed for installation of the solar energy systems, such as fasteners, wiring and electrical
fittings, through distributors or direct purchase procurement from manufacturers.
Employees and Contractors
As of December 31, 2019, we had 324 full-time employees and 328 total employees. We also engage
independent contractors and consultants. We are not party to any collective bargaining agreements and have not
experienced any strikes or work stoppages.
Insurance
We maintain the types and amounts of insurance coverage we believe are consistent with customary
industry practices. Our insurance policies cover employee and contractor-related accidents and injuries,
property damage, business interruption, storm damage, fixed assets, facilities, cyber, crime and liability deriving
from our activities. Our insurance policies also cover directors', employee and fiduciary liability and officers'
liability. We may also be covered for certain liabilities by insurance policies issued to third parties, including,
but not limited to, our dealers and vendors.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act. The
Securities and Exchange Commission ("SEC") maintains a website at www.sec.gov that contains reports, proxy
and information statements and other information we file with the SEC electronically. Copies of our reports on
Form 10-K, Form 10-Q, Form 8-K and amendments to those reports may also be obtained, free of charge,
electronically on the investor relations page on our website located at investors.sunnova.com as soon as
reasonably practical after we file such material with, or furnish it to, the SEC.
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We also use the investor relations page on our website as a channel of distribution for important company
information. Important information, including press releases, analyst presentations and financial information
regarding us, as well as corporate governance information, is routinely posted and accessible on the investor
relations page on our website. Information on or that can be accessed through our website is not part of this
Annual Report on Form 10-K and the inclusion of our website address is an inactive textual reference only.
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Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks
described below together with all of the other information included in this Annual Report on Form 10-K,
including the section titled "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes, before deciding to invest in our
common stock. We may experience additional risks and uncertainties not currently known to us; or, as a result
of developments occurring in the future, conditions that we currently deem to be immaterial may also materially
and adversely affect our business, financial condition, cash flows and results of operations. If any of the risks
actually occur, they may materially and adversely affect our business, financial condition, cash flows and results
of operations. In this event, the trading price of our common stock could decline and you could lose all or part
of your investment in us.
Risks Related to Our Business
Historically, we have incurred operating and net losses and we may be unable to achieve or sustain
profitability in the future.
We incurred operating losses of $22.3 million, $13.7 million and $10.4 million and net losses of $133.4
million, $68.4 million and $90.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
These historical operating and net losses were due to a number of factors, including increased expenses to fund
our growth and related financing needs. We expect to incur significant expenses as we finance the expansion of
our operations and implement additional internal systems and infrastructure to support our growth. In addition,
as a public company, we incur significant additional legal, accounting and other expenses we did not incur as a
private company. We do not know whether our revenue will grow rapidly enough to absorb these costs. Our
ability to achieve profitability depends on a number of factors, including:
growing our customer base and originating new solar service agreements on economic terms;
reducing operating costs by optimizing our operations and maintenance processes;
•
• maintaining or lowering our cost of capital;
•
• maximizing the benefits of our dealer network;
•
•
finding additional tax equity investors and other sources of institutional capital; and
the continued availability of various governmental incentives for the solar industry.
Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.
Certain of our key operational metrics, including estimated gross contracted customer value, are based on
various assumptions and estimates we make over an extended period of time. Actual experience may vary
materially from these estimates and assumptions and therefore undue reliance should not be placed on these
metrics.
Our key operational metrics include a number of assumptions and estimates we make over an extended
period of time (up to 35 years) and may not prove accurate. In calculating estimated gross contracted customer
value, we estimate projected monthly customer payments over the remaining life of our solar service
agreements, which are typically 25 years in length with an opportunity for customers to renew for up to an
additional 10 years, and from the future sale of related SRECs. These estimated future cash flows depend on
various factors including but not limited to solar service agreement type, contracted rates, customer loss rates,
expected sun hours and the projected production capacity of the solar equipment installed. Additionally, in
calculating estimated gross contracted customer value we also estimate cash distributions to tax equity fund
investors and operating, maintenance and administrative expenses associated with the solar service agreements,
including expenses related to accounting, reporting, audit, insurance, maintenance and repairs over the
remaining life of our solar service agreements.
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Furthermore, in calculating estimated gross contracted customer value, we discount our future net cash
flows at 6% based on industry practice and the interest rate on certain recent securitizations. This discount rate
might not be the most appropriate discount rate based on interest rates in effect from time to time and industry
or company-specific risks associated with these cash flows and the appropriate discount rate for these estimates
may change in the future due to the level of inflation, rising interest rates, our cost of capital, customer default
rates and consumer demand for solar energy systems, among other things. We also assume customer losses of
0% in calculating these metrics even though we expect to have some minimal level of customer losses over the
life of our contracts. To illustrate the way in which actual results may change, we present sensitivities around
the discount rate and the rate of customer losses, although these sensitivities may not capture the most
appropriate discount rate or the rate of customer losses we will experience. For a discussion of estimated gross
contracted customer value and the related discount rate, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Key Financial and Operational Metrics—Estimated Gross
Contracted Customer Value".
PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon
procedures with respect to these operational metrics or their components. The estimates discussed above are
based on a combination of assumptions that may prove to be inaccurate over time. Such inaccuracies could be
material, particularly given the estimates relate to cash flows up to 35 years in the future.
Our growth strategy depends on the continued origination of solar service agreements by us and our dealers.
Our growth strategy depends on the continued origination of solar service agreements by us and our
dealers. We may be unable to originate additional solar service agreements and related solar energy systems and
energy storage systems in the numbers or at the pace we currently expect for a variety of reasons, including,
among other things, the following:
•
•
•
•
•
•
•
•
demand for solar energy systems and energy storage systems failing to develop sufficiently or taking
longer than expected to develop;
residential solar energy technology being available at economically attractive prices as a result of
factors outside of our control, including utility prices not rising as quickly as anticipated;
issues related to identifying, engaging, contracting, compensating and maintaining relationships with
dealers and the negotiation of dealer agreements;
issues related to financing, construction, permitting, the environment, governmental approvals and the
negotiation of solar service agreements;
a reduction in government incentives or adverse changes in policy and laws for the development or use
of solar energy, including net metering, SRECs and tax credits;
other government or regulatory actions that could impact our business model;
negative developments in public perception of the solar energy industry; and
competition from other solar companies and energy technologies, including the emergence of
alternative renewable energy technologies.
If the challenges of originating solar service agreements and related solar energy systems and energy
storage systems increase, our pool of available opportunities may be limited, which could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
If sufficient additional demand for residential solar energy systems does not develop or takes longer to
develop than we anticipate, our ability to originate solar service agreements may decrease.
The distributed residential solar energy market is at a relatively early stage of development in comparison
to fossil fuel-based electricity generation. If additional demand for distributed residential solar energy systems
fails to develop sufficiently or takes longer to develop than we anticipate, we may be unable to originate
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additional solar service agreements and related solar energy systems and energy storage systems to grow our
business. In addition, demand for solar energy systems and energy storage systems in our targeted markets may
not develop to the extent we anticipate. As a result, we may be unsuccessful in broadening our customer base
through origination of solar service agreements and related solar energy systems and energy storage systems
within our current markets or in new markets we may enter.
Many factors may affect the demand for solar energy systems, including the following:
•
•
•
•
•
availability, substance and magnitude of solar support programs including government targets,
subsidies, incentives, renewable portfolio standards and residential net metering rules;
the relative pricing of other conventional and non-renewable energy sources, such as natural gas, coal,
oil and other fossil fuels, wind, utility-scale solar, nuclear, geothermal and biomass;
performance, reliability and availability of energy generated by solar energy systems compared to
conventional and other non-solar renewable energy sources;
availability and performance of energy storage technology, the ability to implement such technology
for use in conjunction with solar energy systems and the cost competitiveness such technology
provides to customers as compared to costs for those customers reliant on the conventional electrical
grid; and
general economic conditions and the level of interest rates.
The residential solar energy industry is constantly evolving, which makes it difficult to evaluate our
prospects. We cannot be certain if historical growth rates reflect future opportunities or whether growth
anticipated by us will be realized. The failure of distributed residential solar energy to achieve, or its being
significantly delayed in achieving, widespread adoption could have a material adverse effect on our business,
financial condition and results of operations.
If we fail to manage our operations and growth effectively, we may be unable to execute our business plan,
maintain high levels of customer service or adequately address competitive challenges.
We have experienced significant growth in recent periods measured by our number of customers and we
intend to continue our efforts to expand our business within existing and new markets. This growth has placed,
and any future growth may place, a strain on our management, operational and financial infrastructure. Our
growth requires our management to devote a significant amount of time and effort to maintain and expand our
relationships with customers, dealers and other third parties, attract new customers and dealers, arrange
financing for our growth and manage our expansion into additional markets.
In addition, our current and planned operations, personnel, information technology and other systems and
procedures might be inadequate to support our future growth and may require us to make additional
unanticipated investments in our infrastructure. Our success and ability to further scale our business will
depend, in part, on our ability to manage these changes in a cost-effective and efficient manner.
If we cannot manage our operations and growth, we may be unable to meet our expectations regarding
growth, opportunity and financial targets, take advantage of market opportunities, execute our business
strategies, meet our tax equity financing commitments or respond to competitive pressures. This could also
result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new offerings or
other operational difficulties. Any failure to effectively manage our operations and growth could adversely
impact our reputation, business, financial condition, cash flows and results of operations.
22
A material reduction in the retail price of electricity charged by electric utilities or other retail electricity
providers would harm our business, financial condition and results of operations.
Decreases in the retail price of electricity from electric utilities or from other retail electric providers,
including other renewable energy sources such as larger-scale solar energy systems, could make our offerings
less economically attractive. The price of electricity from utilities could decrease as a result of:
•
•
•
•
•
the construction of a significant number of new power generation plants, whether generated by natural
gas, nuclear power, coal or renewable energy;
the construction of additional electric transmission and distribution lines;
a reduction in the price of natural gas or other natural resources as a result of increased supply due to
new drilling techniques or other technological developments, a relaxation of associated regulatory
standards or broader economic or policy developments;
less demand for electricity due to energy conservation technologies and public initiatives to reduce
electricity consumption or to recessionary economic conditions; and
development of competing energy technologies that provide less expensive energy.
A reduction in electric utilities' rates or changes to peak hour pricing policies or rate design (such as the
adoption of a fixed or flat rate) could also make our offerings less competitive with the price of electricity from
the electrical grid. If the cost of energy available from electric utilities or other providers were to decrease
relative to solar energy generated from residential solar energy systems or if similar events impacting the
economics of our offerings were to occur, we may have difficulty attracting new customers or existing
customers may default or seek to terminate, cancel or otherwise avoid the obligations under their solar service
agreements. For example, large utilities in California have started transitioning customers to time-of-use rates
and also have adopted a shift in the peak period for time-of-use rates to later in the day. Unless grandfathered
under a different rate, residential customers with solar energy systems are required to take service under time-
of-use rates with the later peak period. Moving utility customers to time-of-use rates or the shift in the timing of
peak rates for utility-generated electricity to include times of day when solar energy generation is less efficient
or non-operable could also make our offerings less competitive. Time-of-use rates could also result in higher
costs for our customers whose electricity requirements are not fully met by our offerings during peak periods.
Additionally, the price of electricity from utilities may grow less quickly than the escalator feature in
certain of our solar service agreements, which could also make our solar energy systems less competitive with
the price of electricity from the electrical grid and result in a material adverse effect on our business, financial
condition and results of operations.
Our growth is dependent on our dealer network and our failure to retain or replace existing dealers or to
grow our dealer network could adversely impact our business. In addition, one of our dealers currently
accounts for approximately half of our recently added customers.
Our dealer network is an integral component of our business strategy and serves as the means by which we
are able to originate solar service agreements and related solar energy systems and energy storage systems in
existing and prospective markets. Poor performance by our dealers in originating solar service agreements could
have a material adverse effect on our business, financial condition and results of operations. We have in the past
had disputes and litigation with certain of our dealers over their performance.
As we grow, particularly in new jurisdictions, we will need to expand our dealer network. We are subject to
significant competition for the recruitment and retention of dealers from our competitors and we may not be
able to recruit new or replacement dealers in the future. We compete for our dealers with other solar service
providers primarily based on the amount and timing of payments for originating solar service agreements,
financial ability and our suite of technology tools.
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Most of our dealers are not restricted in their ability to work with our competitors and are not obligated to
continue working with us. In the past, some of our dealers have chosen to work with competitors of ours or
terminated their relationships with us and dealers may reduce or terminate their work with us in the future. The
departure of a significant number of our dealers for any reason, or the failure to replace departing dealers in the
event of such departures, could reduce our potential origination opportunities and could have a material adverse
effect on our business, financial condition and results of operations. As we develop and expand our Sunnova
Protect services, dealers may view us as a competitor and choose to end their relationship with us.
Additionally, dependence on any one dealer or small group of dealers further concentrates our exposure to
risks related to termination of the dealer arrangement, poor service provided by such dealer, the deterioration in
financial condition of the dealer and other risks inherent in such a relationship. For the years ended
December 31, 2019, 2018 and 2017, Trinity accounted for approximately 41%, 52% and 29% of our
originations for such periods, respectively. Although we have entered into a four year exclusivity agreement
with Trinity, pursuant to which Trinity may only originate solar service agreements for us, there are various
exceptions to this obligation. For a discussion of exclusivity arrangements with certain of our dealers, see
"Business—Our Relationships with Our Dealers".
If we or our dealers fail to hire and retain a sufficient number of employees and service providers in key
functions, our growth and our ability to timely complete customer projects and successfully manage
customer accounts would be constrained.
To support our growth, we and our dealers need to hire, train, deploy, manage and retain a substantial
number of skilled employees, engineers, installers, electricians and sales and project finance specialists.
Competition for qualified personnel in our industry has increased substantially, particularly for skilled personnel
involved in the installation of solar energy systems. We and our dealers also compete with the homebuilding and
construction industries for skilled labor. These industries are cyclical and when participants in these industries
seek to hire additional workers, it puts upward pressure on our and our dealers' labor costs. Companies with
whom our dealers compete to hire installers may offer compensation or incentive plans that certain installers
may view as more favorable. As a result, our dealers may be unable to attract or retain qualified and skilled
installation personnel. The further unionization of our industry's labor force or the homebuilding and
construction industries' labor forces could also increase our dealers' labor costs. Shortages of skilled labor could
significantly delay a project or otherwise increase our dealers' costs. Further, we need to continue to increase the
training of our customer service team to provide high-end account management and service to homeowners
before, during and following the point of installation of our solar energy systems. Identifying and recruiting
qualified personnel and training them requires significant time, expense and attention. It can take several
months before a new customer service team member is fully trained and productive at the standards we have
established. If we are unable to hire, develop and retain talented customer service or other personnel, we may
not be able to grow our business.
We need to obtain substantial additional financing arrangements to provide working capital and growth
capital and if financing is not available to us on acceptable terms when needed, our ability to continue to
grow our business would be materially adversely impacted.
Distributed residential solar power is a capital-intensive business that relies heavily on the availability of
debt and equity financing sources to fund solar energy system purchase, design, engineering and other capital
expenditures. From our inception through December 31, 2019, we have raised more than $4.7 billion in total
capital commitments from equity, debt and tax equity investors.
Our future success depends on our ability to raise capital from third-party investors and commercial
sources, such as banks and other lenders, on competitive terms to help finance the deployment of our solar
energy systems. We seek to minimize our cost of capital in order to improve profitability and maintain the price
competitiveness of the electricity produced by, the payments for and the cost of our solar energy systems. We
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rely on access to capital, including through tax equity financing and indebtedness in the form of debt facilities
and asset-backed securities, to cover the costs related to bringing our solar energy systems and energy storage
systems in service, although our customers ultimately bear responsibility for those costs pursuant to our solar
service agreements.
To meet the capital needs of our growing business, we will need to obtain additional debt or equity
financing from current and new investors. If any of our current debt or equity investors decide not to invest in
us in the future for any reason, or decide to invest at levels inadequate to support our anticipated needs or
materially change the terms under which they are willing to provide future financing, we will need to identify
new investors and financial institutions to provide financing and negotiate new financing terms. In addition, our
ability to obtain additional financing through the asset-backed securities market or other secured debt markets is
subject to our having sufficient assets eligible for securitization as well as our ability to obtain appropriate credit
ratings. If we are unable to raise additional capital in a timely manner, our ability to meet our capital needs and
fund future growth may be limited.
Delays in obtaining financing could cause delays in expansion in existing markets or entering into new
markets and hiring additional personnel. Any future delays in capital raising could similarly cause us to delay
deployment of a substantial number of solar energy systems for which we have signed solar service agreements
with customers. Our future ability to obtain additional financing depends on banks' and other financing sources'
continued confidence in our business model and the renewable energy industry as a whole. It could also be
impacted by the liquidity needs of such financing sources themselves. We face intense competition from a
variety of other companies, technologies and financing structures for such limited investment capital. If we are
unable to continue to offer a competitive investment profile, we may lose access to these funds or they may only
be available to us on terms less favorable than those received by our competitors. For example, if we experience
higher customer default rates than we currently experience, it could be more difficult or costly to attract future
financing. Any inability to secure financing could lead us to cancel planned installations, impair our ability to
accept new customers or increase our borrowing costs, any of which would have a material adverse effect on
our business, financial condition and results of operations.
Our ability to provide our solar service offerings to homeowners on an economically viable basis depends in
part on our ability to finance these solar energy systems with tax equity investors that depend on particular
tax and other benefits.
Historically, there have been a limited number of investors that generate sufficient profits and possess the
requisite financial sophistication to benefit from the tax benefits our tax equity vehicles provide, and a lack of
depth in this market may limit our ability to complete such tax equity financing. Potential investors seeking tax-
advantaged financing must remain satisfied the structures we offer qualify for the tax benefits associated with
solar energy systems available to these investors, which depends both on the investors' assessment of tax law
and the absence of any unfavorable interpretations of that law. Changes in existing law and interpretations by
the IRS and the courts could reduce the willingness of tax equity investors to invest in tax equity vehicles
associated with these solar energy system investments or cause these investors to require a larger allocation of
customer payments. We are not certain this type of financing will continue to be available to us as the legal and
regulatory landscape may shift in a manner that reduces or eliminates the attractiveness of such financing
opportunities. For example, a step down of Section 48(a) ITCs is scheduled to occur from 2020 to 2023.
Additionally, we may be unable to identify investors interested in engaging in this type of financing with us. As
of December 31, 2019, we have raised six tax equity vehicles to which investors such as banks and other large
financial investors have committed to invest approximately $374.5 million. The undrawn committed capital for
these tax equity vehicles as of December 31, 2019 is approximately $50.7 million. We plan to continue to form
new tax equity vehicles as long as existing tax law and regulations make such financing attractive. See "—Risks
Related to Regulations—Our business currently depends in part on the availability of rebates, tax credits and
other financial incentives. The expiration, elimination or reduction of these rebates, credits or incentives or our
ability to monetize them could adversely impact our business".
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The contractual terms in certain of our tax equity vehicle documents impose conditions on our ability to
draw on financing commitments from the tax equity investors, including if an event occurs that could
reasonably be expected to have a material adverse effect on the tax equity vehicle or on us. The terms and
conditions of our tax equity vehicles can vary and may require us to alter our products, services or product mix.
If we do not satisfy such conditions due to events related to our business or a specific tax equity vehicle or
developments in our industry or otherwise, and as a result we are unable to draw on existing commitments, it
could have a material adverse effect on our business, financial condition, results of operations and liquidity. In
addition to our inability to draw on the investors' commitments, we may incur financial penalties for non-
performance, including delays in the installation process and interconnection to the power grid of solar energy
systems and other factors. Based on the terms of the tax equity vehicle agreements, we will either reimburse a
portion of the tax equity investor's capital or pay the tax equity investor a non-performance fee.
Under the terms of certain of our tax equity vehicles, we may be required to make payments to the tax equity
investors if certain tax benefits allocated to such tax equity investors are not realized as expected. Our
financial condition may be adversely impacted if a tax equity vehicle is required to make any tax-related
payments.
Our tax equity vehicles require that, prior to a date which is at least five years after the last project was
placed in service, the tax equity investor receives substantially all the non-cash value attributable to the solar
energy systems; however, we receive a majority of the cash distributions. In the event the tax equity investor has
tax liability as a result of its investment and the cash distributions payable to the tax equity investor are not
sufficient to pay such tax liability, the amount of distributions payable to us will be reduced. The amounts of
potential tax liability (and the potential for a reduced distribution to us) depend on the tax benefits that accrue to
such investors from the tax equity vehicles' activities and may be impacted by changes in tax law.
Additionally, we may have payment obligations to our tax equity investors under indemnity obligations
contained in those financings. See "—Risks Related to Taxation—If the IRS makes a determination that the fair
market value of our solar energy systems is materially lower than what we have reported in our tax equity
vehicles' tax returns, we may have to pay significant amounts to our tax equity vehicles, our tax equity investors
and/or the U.S. government. Such determinations could have a material adverse effect on our business and
financial condition" and "—Risks Related to Taxation—If our solar energy systems either cease to be qualifying
property or undergo certain changes in ownership within five years of the applicable placed in service date, we
may have to pay significant amounts to our tax equity vehicles, our tax equity investors and/or the U.S.
government. Such recapture could have a material adverse effect on our business and financial condition".
Due to uncertainties associated with estimating the timing and amounts of cash distributions and allocations
of tax benefits to such investors, we cannot determine the potential impact on our cash flows under current or
future arrangements. Any significant reductions in the cash we expect to receive from these structures could
adversely affect our financial condition.
We enter into securitization structures, warehouse financings and other debt financings that may limit our
ability to access the cash of our subsidiaries and include acceleration events that, if triggered, could
adversely impact our financial condition.
Since April 2017, we have pooled and transferred eligible solar energy systems and the related asset
receivables into five special purpose entities, which sold solar asset-backed notes and solar loan-backed notes to
institutional investors, the net proceeds of which were distributed to us. We intend to monetize additional solar
energy systems in the future through contributions to new special purposes entities for cash. There is a risk the
institutional investors that have purchased the notes issued by these special purpose entities will be unwilling to
make further investments in our solar energy systems at attractive prices. Although the creditors of these special
purpose entities have no recourse to our other assets except as expressly set forth in the terms of the notes, the
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special purpose entities are typically required to maintain a liquidity reserve account, a reserve account for
inverter replacements as well as, in certain cases, reserve accounts to finance purchase option/withdrawal right
exercises, storage system replacement or payment of liquidated damages for the benefit of the lenders under the
applicable series of notes, each of which are funded from initial deposits or cash flows to the levels specified
therein.
The securitization structures, warehouse financings and other debt financings often include certain other
features designed to protect investors. The primary feature relates to the availability and adequacy of cash flows
in the pool of assets to meet contractual requirements, the insufficiency of which triggers an early repayment of
the indebtedness. We refer to this as "early amortization" which may be based on, among other things, a debt
service coverage ratio falling or remaining below certain levels. In the event of an early amortization, the notes
issuer would be required to repay the affected indebtedness using available collections received from the asset
pool. An early amortization event would impair our liquidity and may require us to utilize other available
contingent liquidity or rely on alternative funding sources, which may not be available at the time. Certain of
the securitizations, warehouse financings and other debt financings also contain a "cash trap" feature, which
requires excess cash flow to be held in an account based on, among other things, a debt service coverage ratio
falling or remaining below certain levels. If the cash trap conditions are not cured within a specified period, then
the cash in the cash trap account must be applied to repay the indebtedness. If the cash trap conditions are
timely cured, the cash is either released back to the borrower or used to repay the indebtedness at the borrower's
option. The indentures of our securitizations also typically contain customary events of default for solar
securitizations that may entitle the noteholders to take various actions, including the acceleration of amounts
due and foreclosure on the issuer's assets. Any significant payments we may be required to make as a result of
these arrangements could adversely affect our financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing
Arrangements".
Servicing our existing debt requires a significant amount of cash. We may not have sufficient cash flow from
our business to timely pay our interest and principal obligations and may be forced to take other actions to
satisfy our payment obligations.
As of December 31, 2019, our total indebtedness was approximately $1.4 billion and the available
borrowing capacity under our credit facilities was approximately $88.3 million. Our ability to make scheduled
payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future
performance, which is subject to economic, financial, competitive and other factors beyond our control. Our
business may not generate cash flow from operations sufficient to service our debt and make necessary capital
expenditures to operate our business. If we are unable to generate such cash flow, we may be required to adopt
one or more alternatives, such as slowing or ceasing the origination of new solar service agreements, selling
assets, restructuring debt or obtaining additional debt and equity capital on terms that may be onerous or highly
dilutive. Our ability to timely repay or otherwise refinance our indebtedness will depend on the capital markets
and our financial condition at such time. We may not be able to engage in any of these activities or engage in
these activities on desirable terms, which could result in a default on our debt obligations.
Furthermore, we and our subsidiaries expect to incur additional debt in the future, subject to the restrictions
contained in our debt instruments. Increases in our existing debt obligations would further heighten the debt
related risk discussed above. In addition, we may not be able to enter into new debt instruments on acceptable
terms or at all. If we were unable to satisfy financial covenants and other terms under existing or new
instruments, or obtain waivers or forbearance from our lenders, or if we were unable to obtain refinancing or
new financings for our working capital, equipment and other needs on acceptable terms if and when needed, our
business would be adversely affected.
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We are exposed to the credit risk of our customers.
Our customers purchase solar energy or lease solar energy systems from us pursuant to one of two types of
long-term contracts: a PPA or a lease. The PPA and lease terms are typically for 25 years. In addition, under our
loan agreements the customer finances the purchase of a solar energy system and we agree to operate and
maintain the solar energy system throughout the 25-year term of the agreement. Our solar service agreements
require the customer to make monthly payments to us throughout the term of the contract, unless prepaid.
Because we have long-term, contractual relationships with our customers, we are subject to the credit risk of our
customers and screen our customers based upon their credit rating in an attempt to mitigate the risk of customer
default. As of December 31, 2019, the average FICO® score of our customers was 739 at the time of signing the
solar service agreement. The accuracy of independent third-party information provided to the credit reporting
agency cannot be verified. A FICO® score purports only to be a measurement of the relative degree of risk a
borrower represents to a lender, i.e., a borrower with a higher score may be less likely to default in payment
than a borrower with a lower score.
As of December 31, 2019, approximately 0.8% of our customers were in default under their solar service
agreements. However, as we grow our business, the risk of customer defaults may increase as credit scores are
dynamic and may deteriorate over a 25-year period. During an economic downturn, the risk of customer
defaults may increase. In addition, our customers may assign their solar service agreements to other customers
who have lower credit scores or we may enter into new solar service agreements in the future with customers
who have lower credit scores than our current customers. In addition, future developments, including
competition from other renewables, could decrease the attractiveness of our current contracts. Although our
solar service agreements grant us the ability to terminate the agreement with the customer and repossess the
defaulting customers' solar energy system in certain circumstances, enforcement of these rights under the solar
service agreement may be difficult, expensive and time-consuming.
Restrictive covenants in certain of our debt agreements could limit our growth and our ability to finance our
operations, fund our capital needs, respond to changing conditions and engage in other business activities
that may be in our best interests.
Our debt agreements impose operating and financial restrictions on us. These restrictions limit our ability
and that of our subsidiaries to, among other things:
incur additional indebtedness;
create liens;
consummate mergers and similar fundamental changes;
•
• make investments or loans;
•
•
• make restricted payments;
• make investments in unrestricted subsidiaries;
enter into transactions with affiliates; and
•
use the proceeds of asset sales.
•
We may be prevented from taking advantage of business opportunities that arise because of the limitations
imposed on us by the restrictive covenants under certain of our debt agreements. The restrictions contained in
the covenants could:
•
•
limit our ability to plan for or react to market conditions, to meet capital needs or otherwise to restrict
our activities or business plan; and
adversely affect our ability to finance our operations, enter into acquisitions or divestitures to engage in
other business activities that would be in our interest.
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A breach of any of these covenants or our inability to comply with the required financial ratios or financial
condition tests could result in a default under our debt agreements that, if not cured or waived, could result in
acceleration of all indebtedness outstanding thereunder and cross-default rights under our other debt. In
addition, in the event of an event of default under one of the credit facilities, the affected lenders could foreclose
on the collateral securing such credit facility and require repayment of all borrowings outstanding thereunder. If
the amounts outstanding under the credit facilities or any of our other indebtedness were to be accelerated, our
assets may not be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.
Rising interest rates may adversely impact our business.
Rising interest rates will increase our cost of capital. Our future success depends on our ability to raise
capital from investors and obtain secured lending to help finance the deployment of our solar service
agreements. As a result, rising interest rates may have an adverse impact on our ability to offer attractive pricing
on our solar service agreements to our customers.
The majority of our cash flows to date have been from solar service agreements monetized under various
tax equity fund structures and secured lending arrangements. One of the components of this monetization is the
present value of the payment streams from customers who enter into these long-term solar service agreements.
If the rate of return required by capital providers, including debt providers, rises as a result of a rise in interest
rates, it will reduce the present value of the customer payment stream and consequently reduce the total value
derived from this type of monetization. Any measures we could take to mitigate the impact of rising interest
rates on our ability to secure third-party financing could ultimately have an adverse impact on the value
proposition we offer our customers or our profitability.
The phase-out of the London Interbank Offered Rate ("LIBOR") may adversely affect a portion of our
outstanding debt.
LIBOR is scheduled to be phased out by the end of 2021. It is unclear whether new methods of determining
LIBOR will be established such that it continues to exist after 2021, or if alternative floating borrowing rates
will be adopted. Changes in the method of determining LIBOR, or the replacement of LIBOR with an
alternative floating borrowing rate, may adversely affect our borrowing costs. Certain of our debt instruments
have interest rates that are LIBOR based and will not have matured prior to the phase-out of LIBOR. We cannot
predict the effect of the potential changes to LIBOR or the establishment and use of alternative floating
borrowing rates on the portion of our outstanding debt that is LIBOR based. Challenges in changing to a
different borrowing rate may result in less favorable pricing on certain of our debt instruments and could have
an adverse effect on our financial results and cash flows.
Our business has benefited from the declining cost of solar energy system components and our business may
be harmed to the extent the cost of such components stabilize or increase in the future.
Our business has benefited from the declining cost of solar energy system components and to the extent
such costs stabilize, decline at a slower rate or increase, our future growth rate may be negatively impacted. The
declining cost of solar energy system components and the raw materials necessary to manufacture them has
been a key driver in the price of solar energy systems we own, the prices charged for electricity and customer
adoption of solar energy. Solar energy system component and raw material prices may not continue to decline at
the same rate as they have over the past several years or at all. In addition, growth in the solar industry and the
resulting increase in demand for solar energy system components and the raw materials necessary to
manufacture them may also put upward pressure on prices. An increase of solar energy system components and
raw materials prices could slow our growth and cause our business and results of operations to suffer. Further,
the cost of solar energy system components and raw materials has increased and could increase in the future due
to tariff penalties, duties, the loss of or changes in economic governmental incentives or other factors. See "—
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Increases in the cost of our solar energy systems due to tariffs imposed by the U.S. government could have a
material adverse effect on our business, financial condition and results of operations".
We do not directly control certain costs related to our business, which could put us at a disadvantage relative
to companies who have a vertically integrated business model.
We do not have direct control over the costs our suppliers charge for the components of our solar energy
systems and energy storage systems or the costs to our dealers of installing and marketing such products. This
may lead us to charge higher prices for our solar energy systems and energy storage systems than our
competitors with a vertically integrated business model, causing us to be unable to maintain or increase market
share.
We may be unsuccessful in introducing new service and product offerings, including our distributed energy
storage services and energy storage management systems.
We intend to introduce new offerings of services and products to both new and existing customers in the
future, including battery-based distributed energy storage services and energy storage management systems,
home automation products and additional home technology solutions. We may be unsuccessful in significantly
broadening our customer base through the addition of these services and products within our current markets or
in new markets we may enter. Additionally, we may not be successful in generating substantial revenue from
any additional services and products we may introduce in the future and may decline to initiate new product and
service offerings.
We face competition from centralized electric utilities, retail electric providers, independent power producers
and renewable energy companies.
The solar energy and renewable energy industries are both highly competitive and continually evolving as
participants strive to distinguish themselves within their markets and compete with large centralized electric
utilities. We believe our primary competitors are the centralized electric utilities that supply electricity to our
potential customers. We compete with these centralized electric utilities primarily based on price (cents per
kWh), predictability of future prices (by providing pre-determined annual price escalations) and the ease by
which customers can switch to electricity generated by our solar energy systems. If we cannot offer compelling
value to our customers based on these factors, our business may not grow.
Centralized electric utilities generally have substantially greater financial, technical, operational and other
resources than we do. As a result, these competitors may be able to devote more resources to the research,
development, promotion and sale of their products or services or respond more quickly to evolving industry
standards and changes in market conditions than we can. Centralized electric utilities could also offer other
value-added products or services that could help them to compete with us even if the cost of electricity they
offer is higher than ours. In addition, a majority of utilities' sources of electricity is non-solar, which may allow
utilities to sell electricity more cheaply than electricity generated by our solar energy systems. Centralized
electric utilities could also offer customers the option of purchasing electricity obtained from renewable energy
resources, including solar, which would compete with our offerings.
We also compete with retail electric providers and independent power producers not regulated like
centralized electric utilities but which have access to the centralized utilities' electricity transmission and
distribution infrastructure pursuant to state, territorial and local pro-competition and consumer choice policies.
These retail electric providers and independent power producers are able to offer customers electricity supply-
only solutions that are competitive with our solar energy system options on both price and usage of renewable
energy technology while avoiding the long-term agreements and physical installations our current business
model requires. This may limit our ability to acquire new customers, particularly those who wish to avoid long-
term agreements or have an aesthetic or other objection to putting solar panels on their roofs.
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We also compete with solar companies with vertically integrated business models, including sales,
financing, engineering, manufacturing, installation, maintenance and monitoring services. If the integrated
approach of our competitors is successful, it may limit our ability to originate solar energy systems. Many of
our vertically integrated competitors are larger than we are. As a result, these competitors may be able to devote
more resources to the research, development, promotion and sale of their products or services or respond more
quickly to evolving industry standards and changes in market conditions than we can. Solar companies with
vertically integrated business models could also offer other value-added products or services that could help
them to compete with us.
In addition, we compete with other solar companies who sell or finance products directly to consumers,
inclusive of programs like Property-Assessed Clean Energy financing programs established by local
governments. For example, we face competition from solar installation businesses that seek financing from
external parties or utilize competitive loan products or state and local programs.
We also compete with solar companies with business models similar to our own, some of which are
marketed to potential customers by our dealers. Some of these competitors specialize in the distributed
residential solar energy market and some may provide energy at lower costs than we do. Some of our
competitors offer or may offer similar services and products as we do, such as leases, PPAs and direct outright
sales of and consumer loan products for solar energy systems. Many of our competitors also have significant
brand name recognition and have extensive knowledge of our target markets.
We also compete with solar companies that offer community solar products and utility companies that
provide renewable power purchase programs. Some customers might choose to subscribe to a community solar
project or renewable subscriber programs instead of installing a solar energy system on their home, which could
affect our sales. Additionally, some utility companies (and some utility-like entities, such as community choice
aggregators in California) have generation portfolios that are increasingly renewable in nature. In California, for
example, due to recent legislation, utility companies and community choice aggregators in that state are
required to have generation portfolios comprised of 60% renewable energy by 2030 and state regulators are
planning for utility companies and community choice aggregators to sell 100% greenhouse gas free electricity
to retail customers by 2045. As utility companies offer increasingly renewable portfolios to retail customers,
those customers might be less inclined to install a solar energy system at their home, which could adversely
affect our growth.
We have historically provided our services only to residential customers and do not currently intend to
expand to commercial, industrial or governmental customers. We compete with companies who sell solar
energy systems and services in the commercial, industrial and government markets, in addition to the residential
market, in the U.S. and foreign markets. There is intense competition in the residential solar energy sector in the
markets in which we operate. As new entrants continue to enter into these markets, we may be unable to grow
or maintain our operations and we may be unable to compete with companies that earn revenue in both the
residential market and non-residential markets. Further, because we provide our services exclusively to
residential customers, we have a less diverse market presence and are more exposed to potential adverse
changes in the residential market than our competitors that sell solar energy systems and services in the
commercial, industrial, government and utility markets.
As the solar industry grows and evolves, we will also face new competitors and technologies who are not
currently in the market. Our industry is characterized by low technological barriers to entry and well-capitalized
companies, including utilities and integrated energy companies, could choose to enter the market and compete
with us. Our failure to adapt to changing market conditions and to compete successfully with existing or new
competitors will limit our growth and will have a material adverse effect on our business, financial condition
and results of operations.
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Developments in technology or improvements in distributed solar energy generation and related technologies
or components may materially adversely affect demand for our offerings.
Significant developments in technology, such as advances in distributed solar power generation, energy
storage solutions such as batteries, energy storage management systems, the widespread use or adoption of fuel
cells for residential or commercial properties or improvements in other forms of distributed or centralized
power production may materially and adversely affect demand for our offerings and otherwise affect our
business. Future technological advancements may result in reduced prices to consumers or more efficient solar
energy systems than those available today, either of which may result in current customer dissatisfaction. We
may not be able to adopt these new technologies as quickly as our competitors or on a cost-effective basis.
Due to the length of our solar service agreements, the solar energy system deployed on a customer's
residence may be outdated prior to the expiration of the term of the related solar service agreement, reducing the
likelihood of renewal of our solar service agreement at the end of the applicable term and possibly increasing
the occurrence of customers seeking to terminate or cancel their solar service agreements or defaults. If current
customers become dissatisfied with the price they pay for their solar energy system under our solar service
agreements relative to prices that may be available in the future or if customers become dissatisfied by the
output generated by their solar energy systems relative to future solar energy system production capabilities, or
both, this may lead to customers seeking to terminate or cancel their solar service agreements or higher rates of
customer default and have an adverse effect on our business, financial condition and results of operations.
Additionally, recent technological advancements may impact our business in ways we do not currently
anticipate. Any failure by us to adopt or have access to new or enhanced technologies or processes, or to react to
changes in existing technologies, could result in product obsolescence or the loss of competitiveness of and
decreased consumer interest in our solar energy services, which could have a material adverse effect on our
business, financial condition and results of operations.
The value of our solar energy systems at the end of the associated term of the lease or PPA may be lower than
projected, which may adversely affect our financial performance and valuation.
We depreciate the costs of our solar energy systems over their estimated useful life of 35 years. At the end
of the initial term (typically 25 years) of the lease or PPA, customers may choose to purchase their solar energy
systems, ask us to remove the solar energy system at our cost or renew their lease or PPA. Homeowners may
choose to not renew or purchase for any reason, such as pricing, decreased energy consumption, relocation of
residence, switching to a competitor product or technological obsolescence of the solar energy system. We are
also contractually obligated to remove, store and reinstall the solar energy systems, typically for a nominal fee,
if customers need to replace or repair their roofs. Furthermore, it is difficult to predict how future environmental
regulations may affect the costs associated with the removal, disposal or recycling of our solar energy systems.
If the residual value of the solar energy systems is less than we expect at the end of the customer contract, after
giving effect to any associated removal and redeployment costs, we may be required to accelerate the
recognition of all or some of the remaining unamortized costs. This could materially impair our future results of
operations.
We and our dealers depend on a limited number of suppliers of solar energy system components and
technologies to adequately meet demand for our solar energy systems. Due to the limited number of suppliers
in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, price change,
imposition of tariffs or duties or other limitation in our or our dealers' ability to obtain components or
technologies we use could result in sales and installation delays, cancelations and loss of customers.
We rely on our dealers to install solar energy systems and energy storage systems, each of whom has direct
supplier arrangements. Our dealers purchase solar panels, inverters, energy storage systems and other system
components and instruments from a limited number of suppliers, approved by us, making us susceptible to
quality issues, shortages and price changes. For the year ended December 31, 2019, Hanwha Q-Cells and Yingli
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Green Energy supplied approximately 50% and 17%, respectively, of our solar photovoltaic panels installed and
no other supplier represented more than 10% of our solar photovoltaic panels installed. Yingli Green Energy is
currently undergoing a restructuring of its debt. There is no guarantee Yingli Green Energy will honor its
existing warranty coverage or will continue to supply us with solar photovoltaic panels in the future following
the completion of this restructuring. In 2018, Hanwha Q-Cells and Trina Solar Limited supplied approximately
52% and 22%, respectively, of our solar photovoltaic panels installed and no other supplier represented more
than 10% of our solar photovoltaic panels installed. For the year ended December 31, 2019, Enphase Energy,
Inc. and SolarEdge Technologies Inc. accounted for approximately 58% and 42%, respectively, of the inverters
used in our solar energy system installations. In 2018, Enphase Energy, Inc. and SolarEdge Technologies Inc.
accounted for approximately 55% and 43%, respectively, of the inverters used in our solar energy system
installations. For the year ended December 31, 2019, Tesla, Inc. accounted for 100% of our energy storage
system purchases. In 2018, Tesla, Inc. and LG Chem Ltd. accounted for approximately 86% and 13%,
respectively, of our energy storage system purchases. If one or more of the suppliers we and our dealers rely
upon to meet anticipated demand ceases or reduces production due to its financial condition, acquisition by a
competitor or otherwise, is unable to increase production as industry demand increases or is otherwise unable to
allocate sufficient production to us and our dealers, it may be difficult to quickly identify alternative suppliers or
to qualify alternative products on commercially reasonable terms and our ability and the ability of our dealers to
satisfy this demand may be adversely affected. There are a limited number of suppliers of solar energy system
components, instruments and technologies. While we believe there are other sources of supply for these
products available, a dealer's need to transition to a new supplier may result in additional costs and delays in
originating solar service agreements and deploying our related solar energy systems or energy storage systems,
which in turn may result in additional costs and delays in our acquisition of such solar service agreements and
related solar energy systems and energy storage systems. These issues could have a material adverse effect on
our business, financial condition and results of operations.
There have also been periods of industry-wide shortages of key components and instruments, including
batteries and inverters, in times of rapid industry growth. The manufacturing infrastructure for some of these
components has a long lead-time, requires significant capital investment and relies on the continued availability
of key commodity materials, potentially resulting in an inability to meet demand for these components. The
solar industry is currently experiencing rapid growth and, as a result, shortages of key components or
instruments, including solar panels, may be more likely to occur, which in turn may result in price increases for
such components. Even if industry-wide shortages do not occur, suppliers may decide to allocate key
components or instruments with high demand or insufficient production capacity to more profitable customers,
customers with long-term supply agreements or customers other than us, our dealers or other third parties from
whom we may originate solar energy systems and our ability to originate solar service agreements and related
solar energy systems and energy storage systems may be reduced as a result.
During January 2020, a strain of coronavirus surfaced in Wuhan, China. In an effort to halt the outbreak,
the Chinese government has placed significant restrictions on travel within China and closed certain businesses,
including solar manufacturers, in numerous provinces, and governments and other parties outside of China have
halted or sharply curtailed the movement of people, goods and services to and from China. The substantial
majority of our inverters, as well as other goods used in our business, are sourced from China. If the impacts of
the coronavirus outbreak, including the accompanying travel restrictions and business closures, continue for an
extended period of time or worsen, the supply and pricing of our inverters and other goods and therefore the
ability of our dealers to install new solar energy systems could be adversely affected. The extent of the impact
of the coronavirus on our business and operations will depend on, among other factors, the ultimate geographic
spread of the virus, the duration and severity of the outbreak, travel restrictions and business closures imposed
in China or other countries, the ability of our suppliers to increase their production of goods in jurisdictions
other than China, our ability to contract for supply from other sources on acceptable terms and the willingness
of our lenders to permit us to switch suppliers.
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Increases in the cost of our solar energy systems due to tariffs imposed by the U.S. government could have a
material adverse effect on our business, financial condition and results of operations.
China is a major producer of solar cells and other solar products. Certain solar cells, modules, laminates
and panels from China are subject to various U.S. antidumping and countervailing duty rates, depending on the
exporter supplying the product, imposed by the U.S. government as a result of determinations that the U.S. was
materially injured as a result of such imports being sold at less than fair value and subsidized by the Chinese
government. While historically our dealers have purchased a number of these products from manufacturers in
China, currently such purchases are immaterial and sourced from manufacturers in other jurisdictions. If these
alternative sources are no longer available on competitive terms in the future, we and our dealers may seek to
purchase these products from manufacturers in China. In addition, tariffs on solar cells, modules and inverters in
China may put upwards pressure on prices of these products in other jurisdictions from which our dealers
currently purchase equipment, which could reduce our ability to offer competitive pricing to potential
customers.
The antidumping and countervailing duties discussed above are subject to annual review and may be
increased or decreased. Furthermore, under Section 301 of the Trade Act of 1974, the U.S. Trade Representative
imposed tariffs on $200 billion worth of imports from China, including inverters and certain AC modules and
non-lithium-ion batteries, effective September 24, 2018. In May 2019, the tariffs were increased from 10% to
25% and may be raised by the U.S. Trade Representative in the future. Since these tariffs impact the purchase
price of the solar products, these tariffs raise the cost associated with purchasing these solar products from
China and reduce the competitive pressure on providers of solar cells not subject to these tariffs.
In addition, on January 22, 2018, the President of the U.S. announced, effective February 7, 2018, the
imposition of a global 30% ad valorem tariff, with certain qualifications and exceptions, on certain imported
solar cells and modules, which steps down by five percentage points each year over the next three years and
then phases out in 2022. Since such actions increase the cost of imported solar products, to the extent we or our
dealers use imported solar products or domestic producers are able to raise their prices for their solar products,
the overall cost of the solar energy systems will increase, which could reduce our ability to offer competitive
pricing in certain markets.
We cannot predict what additional actions the U.S. may adopt with respect to tariffs or other trade
regulations or what actions may be taken by other countries in retaliation for such measures. If additional
measures are imposed or other negotiated outcomes occur, our ability or the ability of our dealers to purchase
these products on competitive terms or to access specialized technologies from other countries could be further
limited, which could adversely affect our business, financial condition and results of operations.
Warranties provided by the manufacturers of equipment for our assets and maintenance obligations of our
dealers may be limited by the ability of a supplier and/or dealer to satisfy its warranty or performance
obligations or by the expiration of applicable time or liability limits, which could reduce or void the warranty
protections or may be limited in scope or magnitude of liabilities and thus, the warranties and maintenance
obligations may be inadequate to protect us.
We agree to maintain the solar energy systems and energy storage systems installed on our customers'
homes during the length of the term of our solar service agreements, which is typically 25 years. We are
exposed to any liabilities arising from the solar energy systems' failure to operate properly and are generally
under an obligation to ensure each solar energy system remains in good condition during the term of the
agreement. We are the beneficiary of the panel manufacturers' warranty coverage, typically of 10 years for
material and workmanship and 25 years for performance, the inverter manufacturers' warranty coverage,
typically from 10 to 25 years and the energy storage manufacturers' warranty coverage, typically of 10 years.
Furthermore, our dealers provide warranties as to their workmanship. In the event that such warranty providers
or dealers file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty
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or maintenance obligations, we may not be adequately protected by such warranties or maintenance obligations.
Even if such warranty or maintenance providers or dealers fulfill their obligations, the warranty or maintenance
obligations may not be sufficient to protect us against all of our losses. In addition, our warranties are of limited
duration, ranging from one year, in the case of certain solar energy system and transformer warranties, to 25
years, in the case of certain panel performance warranties, after the date each equipment item is delivered or
commissioned, although the useful life of our solar energy systems is 35 years. These warranties are subject to
liability and other limits. If we seek warranty protection and a warranty provider is unable or unwilling to
perform its warranty obligations, or if a dealer is unable or unwilling to perform its maintenance obligations,
whether as a result of its financial condition or otherwise, or if the term of the warranty or maintenance
obligation has expired or a liability limit has been reached, there may be a reduction or loss of protection for the
affected assets, which could have a material adverse effect on our business, financial condition and results of
operations.
Our failure to accurately predict future liabilities related to material quality or performance expenses could
result in unexpected volatility in our financial condition. Because of the long estimated useful life of our solar
energy systems, we have been required to make assumptions and apply judgments regarding a number of
factors, including our anticipated rate of warranty claims and the durability, performance and reliability of our
solar energy systems. We made these assumptions based on the historic performance of similar solar energy
systems or on accelerated life cycle testing. Our assumptions could prove to be materially different from the
actual performance of our solar energy systems, causing us to incur substantial expense to repair or replace
defective solar energy systems in the future or to compensate customers for solar energy systems that do not
meet their performance guarantees. Equipment defects, serial defects or operational deficiencies also would
reduce our revenue from solar service agreements because the customer payments under such agreements are
dependent on solar energy system production or would require us to make refunds under performance
guarantees. Any widespread product failures or operating deficiencies may damage our market reputation and
adversely impact our financial results. For further discussion of these potential charges and related proposals,
see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Components of
Results of Operations".
Our operating results and our ability to grow may fluctuate from quarter to quarter and year to year, which
could make our future performance difficult to predict and could cause our operating results for a particular
period to fall below expectations.
Our quarterly and annual operating results and our ability to grow are difficult to predict and may fluctuate
significantly in the future. We have experienced seasonal and quarterly fluctuations in the past and expect to
experience such fluctuations in the future. In addition to the other risks described in this "Risk Factors" section,
the following factors could cause our operating results to fluctuate:
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expiration or initiation of any governmental rebates or incentives;
significant fluctuations in customer demand for our solar energy services, solar energy systems and
energy storage systems;
our dealers' ability to complete installations in a timely manner;
our and our dealers' ability to gain interconnection permission for an installed solar energy system
from the relevant utility;
the availability and costs of suitable financing;
the amount, timing of sales and potential decreases in value of SRECs;
our ability to continue to expand our operations and the amount and timing of expenditures related to
this expansion;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital-raising activities or commitments;
changes in our pricing policies or terms or those of our competitors, including centralized electric
utilities;
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•
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actual or anticipated developments in our competitors' businesses, technology or the competitive
landscape; and
natural disasters or other weather or meteorological conditions.
For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as
indications of our future performance.
If we are unable to make acquisitions on economically acceptable terms, our future growth would be limited,
and any acquisitions we may make may reduce, rather than increase, our cash flows.
We may make acquisitions of solar energy systems, energy storage systems and related businesses and joint
ventures. The consummation and timing of any future acquisitions will depend upon, among other things,
whether we are able to:
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identify attractive acquisition candidates;
negotiate acceptable purchase agreements;
obtain any required governmental or third party consents;
obtain financing for these acquisitions on economically acceptable terms, which may be more difficult
at times when the capital markets are less accessible; and
outbid any competing bidders.
Additionally, any acquisition involves potential risks, including, among other things:
• mistaken assumptions about assets, revenues and costs of the acquired company, including synergies
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and potential growth;
an inability to secure adequate customer commitments to use the acquired systems or facilities;
an inability to successfully integrate the assets or businesses we acquire;
coordinating geographically disparate organizations, systems and facilities;
the assumption of unknown liabilities for which we are not indemnified or for which our indemnity is
inadequate;
• mistaken assumptions about the acquired company's suppliers or dealers or other vendors;
the diversion of management's and employees' attention from other business concerns;
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unforeseen difficulties operating in new geographic areas and business lines;
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customer or key employee losses at the acquired business; and
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poor quality assets or installation.
•
If we consummate any future acquisitions, our capitalization, results of operations and future growth may
change significantly and our stockholders will not have the opportunity to evaluate the economic, financial and
other relevant information we will consider in deciding to engage in these future acquisitions, which may not
improve our results of operations or cash flow to the extent we projected.
The solar energy systems we own or may originate have a limited operating history and may not perform as
we expect.
Many of the solar energy systems we currently own or may originate in the future have not commenced
operations, have recently commenced operations or otherwise have a limited operating history. Of the solar
energy systems we owned as of December 31, 2019, 23%, 19% and 16% were placed into service in 2019, 2018
and 2017, respectively. The ability of our solar energy systems to perform as we expect will also be subject to
risks inherent in newly constructed renewable energy assets, including breakdowns and outages, latent defects,
equipment that performs below our expectations, system failures and outages. As a result, our assumptions and
estimates regarding the performance of these solar energy systems are, and will be, made without the benefit of
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a meaningful operating history, which may impair our ability to accurately assess the potential profitability of
the solar energy systems and, in turn, our results of operations, financial condition and cash flows.
The cost of maintenance or repair of solar energy systems or energy storage systems throughout the term of
the associated solar service agreement or the removal of solar energy systems at the end of the term of the
associated solar service agreement may be higher than projected today and adversely affect our financial
performance and valuation.
If we incur repair and maintenance costs on our solar energy systems or energy storage systems after the
individual component warranties have expired and if they then fail or malfunction, we will be liable for the
expense of repairing these solar energy systems or energy storage systems without a chance of recovery from
our suppliers. In addition, we typically bear the cost of removing the solar energy systems at the end of the term
of the lease or PPA if the customer does not renew his or her agreement or elect to purchase the solar energy
system at the end of its term. Furthermore, it is difficult to predict how future environmental regulations may
affect the costs associated with the repair, removal, disposal or recycling of our solar energy systems. This could
materially impair our future operating results.
Problems with performance of our solar energy systems may cause us to incur expenses, may lower the value
of our solar energy systems and may damage our market reputation and adversely affect our business.
Our long-term leases and loan agreements contain a performance guarantee in favor of the customer. Solar
service agreements with performance guarantees require us to provide a bill credit (or in limited cases, refund
money) to the customer if the solar energy system fails to generate the minimum amount of electricity, as
specified in the solar service agreement, in a given term, beginning with the first three year period after
execution of the solar service agreement and annually thereafter. We may also suffer financial losses associated
with such credit and refunds if significant performance guarantee payments are triggered. For a description of
our performance guarantee obligations, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Components of Results of Operations—Revenue".
We and our dealers are subject to risks associated with installation and other contingencies.
Our dealers design and install solar energy systems and energy storage systems on our behalf. Because the
solar service agreement is entered into between us and the customer, we may be liable to our customers for any
damage our dealers cause to our customers' homes, belongings or property during the installation of our solar
energy systems and energy storage systems or otherwise.
For example, dealers may penetrate our customers' roofs during the installation process and we may incur
liability for the failure to adequately weatherproof such penetrations following the completion of installation of
solar energy systems. In addition, because our solar energy systems and energy storage systems are high-voltage
energy systems, we may incur liability for a dealer's failure to comply with electrical standards and
manufacturer recommendations. Furthermore, prior to obtaining permission to operate our solar energy systems
and energy storage systems, the solar energy systems and energy storage systems must pass various inspections.
Any delay in passing, or inability to pass, such inspections, would adversely affect our results of operations.
Because our profit on a particular solar service agreement and related solar energy system and energy storage
system, if applicable, is based in part on assumptions as to the ongoing cost of the related solar energy system
and energy storage system, if applicable, cost overruns, delays or other execution issues may cause us to not
achieve our expected results or cover our costs for that solar service agreement and related solar energy system
and energy storage systems, if applicable.
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Product liability claims against us or accidents could result in adverse publicity and potentially significant
monetary damages.
It is possible our solar energy systems or energy storage systems could injure our customers or other third
parties or our solar energy systems or energy storage systems could cause property damage as a result of
product malfunctions, defects, improper installation, fire or other causes. Any product liability claim we face
could be expensive to defend and may divert management's attention. The successful assertion of product
liability claims against us could result in potentially significant monetary damages, potential increases in
insurance expenses, penalties or fines, subject us to adverse publicity, damage our reputation and competitive
position and adversely affect sales of solar energy systems or energy storage systems. In addition, product
liability claims, injuries, defects or other problems experienced by other companies in the residential solar
industry could lead to unfavorable market conditions to the industry as a whole and may have an adverse effect
on our ability to expand our portfolio of solar service agreements and related solar energy systems and energy
storage systems, thus affecting our business, financial condition and results of operations.
Inflation could result in decreased value from future contractual payments and higher expenses for labor
and equipment, which, in turn, could adversely impact our reputation, business, financial condition, cash
flows and results of operations.
Any future increase in inflation may adversely affect our costs, including our dealers' cost of labor and
equipment, and may result in a decrease in value in our future contractual payments. Many of our solar service
agreements, which generally have a term of 25 years, do not contain any pricing escalators. The pricing
escalators we do have may not keep pace with inflation, which would result in the agreement yielding decreased
value over time. These factors could adversely impact our reputation, business, financial condition, cash flows
and results of operations.
We are not able to insure against all potential risks and we may become subject to higher insurance
premiums.
We are exposed to numerous risks inherent in the operation of solar energy systems and energy storage
systems, including equipment failure, manufacturing defects, natural disasters such as hurricanes, fires and
earthquakes, terrorist attacks, sabotage, vandalism and environmental risks. Furthermore, components of our
solar energy systems and energy storage systems, such as panels, inverters and batteries, could be damaged by
severe weather, such as tsunamis, hurricanes, tornadoes, hailstorms or lightning. If our solar energy systems or
energy storage systems are damaged in the event of a natural disaster beyond our control, losses could be
outside the scope of insurance policies or exceed insurance policy limits and we could incur unforeseen costs
that could harm our business and financial condition. We may also incur significant additional costs in taking
actions in preparation for, or in reaction to, such events.
Our insurance policies also cover legal and contractual liabilities arising out of bodily injury, personal
injury or property damage to third parties and are subject to policy limits. We also maintain coverage for
physical damage to our solar energy assets.
However, such policies do not cover all potential losses and coverage is not always available in the
insurance market on commercially reasonable terms. In addition, we may have disagreements with our insurers
on the amount of our recoverable damages and the insurance proceeds received for any loss of, or any damage
to, any of our assets may be claimed by lenders under our financing arrangements or otherwise may not be
sufficient to restore the loss or damage without a negative impact on our results of operations. Furthermore, the
receipt of insurance proceeds may be delayed, requiring us to use cash or incur financing costs in the interim. To
the extent we experience covered losses under our insurance policies, the limit of our coverage for potential
losses may be decreased or the insurance rates we have to pay increased. Furthermore, the losses insured
through commercial insurance are subject to the credit risk of those insurance companies. While we believe our
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commercial insurance providers are currently creditworthy, we cannot assure you such insurance companies
will remain so in the future.
We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates.
The insurance coverage we do obtain may contain large deductibles or fail to cover certain risks or all potential
losses. In addition, our insurance policies are subject to annual review by our insurers and may not be renewed
on similar or favorable terms, including coverage, deductibles or premiums, or at all. If a significant accident or
event occurs for which we are not fully insured or we suffer losses due to one or more of our insurance carriers
defaulting on their obligations or contesting their coverage obligations, it could have a material adverse effect
on our business, financial condition and results of operations.
We typically bear the risk of loss and the cost of maintenance, repair and removal on solar energy systems
that are owned by our subsidiaries and included in securitization and tax equity vehicles.
We typically bear the risk of loss and are generally obligated to cover the cost of maintenance, repair and
removal for any solar energy system we sell to subsidiaries and include in securitization and tax equity vehicles.
At the time we enter into a tax equity or securitization transaction, we enter into a maintenance services
agreement where we agree to operate and maintain the solar energy system for a fixed fee calculated to cover
our future expected maintenance costs. If our solar energy systems require an above-average amount of repairs
or if the cost of repairing the solar energy systems were higher than our estimate, we would need to perform
such repairs without additional compensation. If our solar energy systems are damaged as the result of a natural
disaster beyond our control, losses could exceed or be excluded from our insurance policy limits and we could
incur unforeseen costs that could harm our business and financial condition. We may also incur significant costs
for taking other actions in preparation for, or in reaction to, such events. We purchase property insurance with
industry standard coverage and limits approved by an investor's third-party insurance advisors to hedge against
such risk, but such coverage may not cover our losses.
Certain of our solar energy systems are located in, and we conduct business in, Puerto Rico and weakness in
the fiscal health of the government and PREPA, the damage caused by Hurricane Maria, a series of
earthquakes which affected the island in December 2019 and early 2020 and potential tax increases that may
increase our cost of conducting business in Puerto Rico, create uncertainty that may adversely impact us. In
addition, we are subject to administrative proceedings instituted by the Puerto Rico Energy Bureau.
Puerto Rico is a significant market for our business, representing 12% and 14% of our solar energy systems
as of December 31, 2019 and 2018, respectively, and has suffered from economic difficulties in recent years. As
a result of the continued weakness of the Puerto Rico economy, liquidity constraints and a lack of market
access, the credit ratings of the Puerto Rico government's general obligation bonds and guaranteed bonds, as
well as the ratings of most of the Puerto Rico public corporations, including PREPA, have been lowered to non-
investment grade by Moody's, S&P and Fitch Ratings.
Puerto Rico has also enacted certain measures that could increase the cost of solar energy systems. In 2015,
the Puerto Rico government increased the sales and use tax on repair and maintenance services on tangible
personal property that are not capital expenditures, such as the repair and maintenance of solar energy systems,
from 7% to 11.5%. As of October 1, 2015, most services became subject to a 4% or 11.5% sales and use tax, as
applicable, except for limited exceptions such as certain leases of solar energy generating equipment which
became exempt during 2019. Although leases are currently exempt from such sales and use tax, should that
exemption expire or additional taxes be imposed, the tax increase may impose greater costs on our future and
current customers, which may hinder our future origination efforts and adversely impact our business, financial
condition, results of operations and future growth. Future changes in Puerto Rico tax law could affect our tax
position and adversely impact our business.
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In September 2017, Hurricanes Irma and Maria made landfall in Puerto Rico, causing catastrophic damage
to Puerto Rico's infrastructure, homes and businesses, including its communication systems and transportation
networks, and disrupting the markets in which we operate. Following Hurricane Maria, all of Puerto Rico was
left without electrical power and other basic utility and infrastructure services (such as water, communications,
ports and other transportation networks) were severely curtailed. Many of our solar energy systems located in
Puerto Rico were damaged in the hurricanes. Further, Puerto Rico's electrical grid, which is necessary to operate
solar energy systems that were not paired with energy storage systems, was damaged. There was intermittent or
reduced electrical grid operation during the fourth quarter of 2017 and the first quarter of 2018. During this
period, many of our solar energy systems produced reduced levels or no power and therefore generated reduced
or no revenue and cash receipts, even where solar energy systems remained functional. Although power has
been restored, many residents left Puerto Rico following the storm. In many cases, Puerto Rico residents who
abandoned their properties suspended payments to us under their solar service agreements.
In addition, a series of earthquakes in the southern and southwest parts of the island in December 2019 and
early 2020 caused widespread power outages and damaged numerous structures in the affected areas, including
the Costa Sur power facility which provides close to 25% of the electricity distributed in Puerto Rico and could
remain offline for an extended period of time. PREPA has stated that with the absence of the Costa Sur power
facility, it does not have enough reserve capacity to supply demand, which may lead to blackouts and brownouts
during that period. Solar energy systems installed in areas affected by the earthquakes that are not paired with
an energy storage system are likely to generate lower levels of power or no power at all. In addition, structures
with installed solar energy systems that were damaged by the earthquakes may be demolished or abandoned if
such structures are not repairable. Moreover, Puerto Rico could also experience additional emigration of people,
many of whom might cease payments under their solar service agreements. We cannot predict whether or not
these events will have a material adverse impact on our operations at this time.
Although Puerto Rico had already suffered from economic difficulties in recent years, the hurricanes and
earthquakes caused a significant disruption to the island's economic activity. The continued weakness of the
Puerto Rico economy has strained the fiscal health of the government, which may create uncertainty that may
adversely impact us. Furthermore, the future financial condition and prospects of PREPA are uncertain, which
could negatively impact the availability and the reliability of Puerto Rico's electrical grid and adversely impact
our operations on the island.
While we do not currently contract directly with the Puerto Rico government or PREPA, continued
weakness in the Puerto Rico economy or the failure of the Puerto Rico government to manage its fiscal
challenges in an orderly manner could result in policy decisions we do not anticipate and may directly or
indirectly adversely impact our business, financial condition and results of operations.
The Puerto Rico Energy Bureau has instituted administrative proceedings regarding customer complaints
about our Puerto Rican operations, the operations of some of our dealers in Puerto Rico and certain Sunnova
policies and procedures relating to contract disclosures and invoice disputes in Puerto Rico. At this time, we are
unable to determine whether the Puerto Rico Energy Bureau will seek penalties against us in the future in
connection with these proceedings or require a change in our practices and procedures. Based on this matter, the
U.S. Better Business Bureau listed Sunnova as not accredited. We have not experienced a material impact as a
result of the listing.
Our business is concentrated in certain markets, putting us at risk of region-specific disruptions.
As of December 31, 2019, approximately 26%, 25% and 12% of our solar energy systems were located in
New Jersey, California and Puerto Rico, respectively. In addition, we expect much of our near-term future
growth to occur in these same markets, further concentrating our customer base and operational infrastructure.
Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory,
political, weather and other conditions in such markets and in other markets that may become similarly
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concentrated. See " —We are not able to insure against all potential risks and we may become subject to higher
insurance premiums" and "—Certain of our solar energy systems are located in, and we conduct business in,
Puerto Rico and weakness in the fiscal health of the government and PREPA, the damage caused by Hurricane
Maria, a series of earthquakes which affected the island in December 2019 and early 2020 and potential tax
increases that may increase our cost of conducting business in Puerto Rico, create uncertainty that may
adversely impact us. In addition, we are subject to administrative proceedings instituted by the Puerto Rico
Energy Bureau". Any of these conditions, even if only in one such market, could have a material adverse effect
on our business, financial condition and results of operations. In addition, all of our current solar energy systems
are located in the U.S. and its territories, which makes us particularly susceptible to adverse changes in U.S. tax
laws. See "—Risks Related to Taxation—Recent tax legislation and future changes in law could adversely affect
our business". For a discussion of expenses related to Hurricane Maria and the California wildfires in October
2017 and November 2018, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Components of Results of Operations—Operations and Maintenance Expense".
Dealer and marketplace confidence in our liquidity and long-term business prospects is important for
building and maintaining our business.
Our financial condition, operating results and business prospects may suffer materially if we are unable to
establish and maintain confidence about our liquidity and business prospects among dealers, consumers and
within our industry. Our dealer network is an integral component of our business strategy and serves as the
means by which we are able to rapidly and successfully expand within existing and prospective markets.
Dealers and other third parties will be less likely to enter into dealer agreements with us or originate new solar
service agreements if they are uncertain we will be able to make payments on time, our business will succeed or
our operations will continue for many years.
Our solar energy systems and energy storage systems require ongoing maintenance and support. If we were
to reduce operations, even years from now, buyers of our solar energy systems and energy storage systems from
years earlier might have difficulty having us provide or arrange repairs or other services to our and their solar
energy systems and energy storage systems, which remain our responsibility under the terms of our solar service
agreements. As a result, consumers may be less likely to enter into solar service agreements with us if they are
uncertain our business will succeed or our operations will continue for many years.
Accordingly, in order to build and maintain our business, we must maintain confidence among dealers,
customers and other parties in our liquidity and long-term business prospects. We may not succeed in our efforts
to build this confidence.
Damage to our brand and reputation or change or loss of use of our brand could harm our business and
results of operations.
We depend significantly on our reputation for high-quality products, excellent customer service and the
brand name "Sunnova" to attract new customers and grow our business. If we fail to continue to deliver our
solar energy systems or energy storage systems within the planned timelines, if our offerings do not perform as
anticipated or if we damage any of our customers' properties or delay or cancel projects, our brand and
reputation could be significantly impaired. Future technological improvements may allow us to offer lower
prices or offer new technology to new customers; however, technical limitations in our current solar energy
systems and energy storage systems may prevent us from offering such lower prices or new technology to our
existing customers. The inability of our current customers to benefit from technological improvements could
cause our existing customers to lower the value they perceive our existing products offer and impair our brand
and reputation.
In addition, given the sheer number of interactions our personnel or dealers operating on our behalf have
with customers and potential customers, it is inevitable that some customers' and potential customers'
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interactions with our company or dealers operating on our behalf will be perceived as less than satisfactory. This
has led to instances of customer complaints, some of which have affected our digital footprint on rating
websites and social media platforms. If we cannot manage our hiring and training processes to avoid or
minimize these issues to the extent possible, our reputation may be harmed and our ability to attract new
customers would suffer.
In addition, if we were to no longer use, lose the right to continue to use or if others use the "Sunnova"
brand, we could lose recognition in the marketplace among customers, suppliers and dealers, which could affect
our business, financial condition, results of operations and would require financial and other investment and
management attention in new branding, which may not be as successful.
The installation and operation of solar energy systems and energy storage systems depends heavily on
suitable solar and meteorological conditions. If meteorological conditions are unexpectedly unfavorable, the
electricity production from our solar energy systems may be substantially below our expectations and our
ability to timely deploy new solar energy systems and energy storage systems may be adversely impacted.
The energy produced and the revenue and cash receipts generated by a solar energy system depend on
suitable solar, atmospheric and weather conditions, all of which are beyond our control. Our economic model
and projected returns on our solar energy systems require achievement of certain production results from our
systems and, in some cases, we guarantee these results to our consumers. If the solar energy systems
underperform for any reason, our business could suffer. For example, the amount of revenue we recognize in a
given period from our PPAs and the amount of our obligations under the performance guarantees of our solar
service agreements are dependent in part on the amount of energy generated by solar energy systems under such
solar service agreements. As a result, revenue derived from our standard PPAs is impacted by seasonally shorter
daylight hours in winter months. In addition, the ability of our dealers to install solar energy systems and energy
storage systems is impacted by weather. For example, the ability to install solar energy systems and energy
storage systems during the winter months in the Northeastern U.S. is limited. Such solar, atmospheric and
weather conditions can delay the timing of when solar energy systems and energy storage systems can be
installed and when we can originate and begin to generate revenue from solar energy systems. This may
increase our expenses and decrease revenue and cash receipts in the relevant periods. Furthermore, prevailing
weather patterns could materially change in the future, making it harder to predict the average annual amount of
sunlight striking each location where we install a solar energy system and energy storage system. This could
make our solar energy systems less economical overall or make individual solar energy systems less
economical. Any of these events or conditions could harm our business, financial condition and results of
operations.
The loss of one or more members of our senior management or key employees may adversely affect our
ability to implement our strategy.
We depend on our experienced management team and the loss of one or more key executives could have a
negative impact on our business. In particular, we are dependent on the services of our founder and CEO,
William J. Berger. We also depend on our ability to retain and motivate key employees and attract qualified new
employees. None of our key executives are bound by employment agreements for any specific term. We may be
unable to replace key members of our management team and key employees if we lose their services.
Integrating new employees into our team could prove disruptive to our operations, require substantial resources
and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient
managerial personnel who have critical industry experience and relationships could limit or delay our strategic
efforts, which could have a material adverse effect on our business, financial condition and results of operations.
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The requirements of being a public company may strain our resources, divert management's attention and
affect our ability to attract and retain qualified board members and officers.
As a public company, we are subject to the reporting requirements of the Exchange Act, the listing
requirements of the New York Stock Exchange ("NYSE") and other applicable securities rules and regulations.
Complying with these rules and regulations has increased and will continue to increase our legal and financial
compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our
systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and
current reports with respect to our business and operating results and maintain effective disclosure controls and
procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure
controls and procedures and internal control over financial reporting to meet this standard, significant resources
and management oversight may be required. As a result, management's attention may be diverted from other
business concerns which could harm our business and operating results. Although we have already hired
additional employees to comply with these requirements, we may need to hire more employees in the future
which will increase our costs and expenses.
As a public company, our director and officer liability insurance expense increased significantly and we
may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. These
factors could also make it more difficult for us to attract and retain qualified executive officers and members of
our board of directors (our "Board"), particularly to serve on our audit committee.
Our inability to protect our intellectual property could adversely affect our business. We may also be subject
to intellectual property rights claims by third parties, which are extremely costly to defend, could require us
to pay significant damages and could limit our ability to use certain technologies.
Any failure to protect our proprietary rights adequately could result in our competitors offering similar
residential solar technology or energy storage services more quickly than anticipated, potentially resulting in the
loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our
business prospects, financial condition and operating results. Our success depends, at least in part, on our ability
to protect our core technology and intellectual property. We rely on intellectual property laws, primarily a
combination of copyright and trade secret laws in the U.S., as well as license agreements and other contractual
provisions, to protect our proprietary technology and brand. We cannot be certain our agreements and other
contractual provisions will not be breached, including a breach involving the use or disclosure of our trade
secrets or know-how, or that adequate remedies will be available in the event of any breach. In addition, our
trade secrets may otherwise become known or lose trade secret protection.
We cannot be certain our products and our business do not or will not violate the intellectual property rights
of a third party. Third parties, including our competitors, may own patents or other intellectual property rights
that cover aspects of our technology or business methods. Such parties may claim we have misappropriated,
misused, violated or infringed third-party intellectual property rights and if we gain greater recognition in the
market, we face a higher risk of being the subject of claims we have violated others' intellectual property rights.
Any claim we violated a third party's intellectual property rights, whether with or without merit, could be time-
consuming, expensive to settle or litigate and could divert our management's attention and other resources, all
of which could adversely affect our business, results of operations, financial condition and cash flows. If we do
not successfully settle or defend an intellectual property claim, we could be liable for significant monetary
damages and could be prohibited from continuing to use certain technology, business methods, content or
brands. To avoid a prohibition, we could seek a license from third parties, which could require us to pay
significant royalties, increasing our operating expenses. If a license is not available at all or not available on
commercially reasonable terms, we may be required to develop or license a non-violating alternative, either of
which could adversely affect our business, results of operations, financial condition and cash flows.
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We currently use or plan to use software that is licensed under "open source", "free" or other similar
licenses that may subject us to liability or require us to release the source code of our proprietary software to
the public.
We currently use open source software that is licensed under "open source", "free" or other similar licenses.
Open source software is made available to the general public on an "as-is" basis under the terms of a non-
negotiable license. If we fail to comply with these licenses, we may be subject to certain conditions, including
requirements that we offer our services that incorporate the open source software for no cost, we make available
source code for modifications or derivative works we create based upon incorporating or using the open source
software and we license such modifications or alterations under the terms of the particular open source license.
We do not plan to integrate our proprietary software with this open source software in ways that would require
the release of the source code of our proprietary software to the public. However, our use and distribution of
open source software may entail greater risks than use of third-party commercial software. Our authorized
developers may contribute to this open source software community but they will be prohibited from providing
any proprietary process or proprietarily developed source code of ours. Open source licensors generally do not
provide warranties or other contractual protections regarding infringement claims or the quality of the code. In
addition, if we combine our proprietary software with open source software in a certain manner, we could,
under certain open source licenses, be required to release the source code of our proprietary software to the
public. This would allow our competitors to create similar offerings with lower development effort and time.
We may also face claims alleging noncompliance with open source license terms or infringement or
misappropriation of proprietary software.
These claims could result in litigation, require us to purchase a costly license or require us to devote
additional research and development resources to change our software, any of which would have a negative
effect on our business and operating results. In addition, if the license terms for open source software that we
use change, we may be forced to re-engineer our technology platform or incur additional costs.
Although we monitor our use of open source software to avoid subjecting our technology platform to
unintended conditions, few courts have interpreted open source licenses and there is a risk these licenses could
be construed in a way that could impose unanticipated conditions or restrictions on our business. We cannot
guarantee we have incorporated open source software in our software in a manner that will not subject us to
liability or in a manner consistent with our current policies and procedures.
We may be subject to interruptions or failures in our information technology systems.
We rely on information technology systems and infrastructure to support our business. Any of these
systems may be susceptible to damage or interruption due to fire, floods, power loss, telecommunication
failures, usage errors by employees, computer viruses, cyberattacks or other security breaches or similar events.
A compromise of our information technology systems or those with which we interact could harm our
reputation and expose us to regulatory actions and claims from customers and other persons, any of which could
adversely affect our business, financial condition, cash flows and results of operations. If our information
systems are damaged, fail to work properly or otherwise become unavailable, we may incur substantial costs to
repair or replace them and we may experience a loss of critical information, customer disruption and
interruptions or delays in our ability to perform essential functions.
Disruptions to our solar monitoring systems could negatively impact our revenues and increase our
expenses.
Our ability to accurately charge our customers for the energy produced by our solar energy systems primarily
depends on the cellular connection for the related monitoring system, which we are responsible for maintaining
in a functional state so that we may receive data regarding the solar energy systems' production from their
residences. We could incur significant expenses or disruptions of our operations in connection with failures of
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our solar monitoring systems, including failures of such connections, that would prevent us from accurately
monitoring solar energy production. In addition, sophisticated hardware and operating system software and
applications we procure from third parties may contain defects in design or manufacture, including "bugs" and
other problems that could unexpectedly interfere with the operation of our solar energy systems or energy
storage systems. The costs to us to eliminate or alleviate viruses and bugs, or any problems associated with
failures of our cellular connections could be significant. We have in the past experienced periods where some of
our cellular connections have been unavailable and, as a result, we have been forced to estimate the production
of their solar energy systems. Such estimates may prove inaccurate and could cause us to underestimate the
power being generated by our solar energy systems and undercharge our customers, thereby harming our results
of operations.
Any unauthorized access to or disclosure or theft of personal information we gather, store or use could harm
our reputation and subject us to claims or litigation.
We receive, store and use personal information of our customers, including names, addresses, e-mail
addresses, credit information, credit card and financial account information and other housing and energy use
information. We also store information of our dealers, including employee, financial and operational
information. We rely on the availability of data collected from our customers and our dealers in order to manage
our business and market our offerings. We take certain steps in an effort to protect the security, integrity and
confidentiality of the personal information we collect, store or transmit, but there is no guarantee inadvertent or
unauthorized use or disclosure will not occur or third parties will not gain unauthorized access to this
information despite our efforts. We also rely on third-party suppliers or vendors to host certain of the systems
we use. Although we take precautions to provide for disaster recovery, our ability to recover systems or data
may be expensive and may interfere with our normal operations. Also, although we obtain assurances from such
third parties they will use reasonable safeguards to secure their systems, we may be adversely affected by
unavailability of their systems or unauthorized use or disclosure or our data maintained in such systems.
Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are
not identified until they are launched against a target, we, our suppliers or vendors and our dealers may be
unable to anticipate these techniques or to implement adequate preventative or mitigation measures.
Cyberattacks in particular are becoming more sophisticated and include, but are not limited to, malicious
software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to
disruptions in critical systems, disruption of our customers' operations, loss or damage to our data delivery
systems, unauthorized release of confidential or otherwise protected information, corruption of data and
increased costs to prevent, respond to or mitigate cybersecurity events. In addition, certain cyber incidents, such
as advanced persistent threats, may remain undetected for an extended period.
Unauthorized use, disclosure of or access to any personal information maintained by us or on our behalf,
whether through breach of our systems, breach of the systems of our suppliers, vendors or dealers by an
unauthorized party or through employee or contractor error, theft or misuse or otherwise, could harm our
business. If any such unauthorized use, disclosure of or access to such personal information were to occur, our
operations could be seriously disrupted and we could be subject to demands, claims and litigation by private
parties and investigations, related actions and penalties by regulatory authorities.
In addition, we could incur significant costs in notifying affected persons and entities and otherwise
complying with the multitude of federal, state and local laws and regulations relating to the unauthorized access
to, use of or disclosure of personal information. Finally, any perceived or actual unauthorized access to, use of
or disclosure of such information could harm our reputation, substantially impair our ability to expand our
portfolio of solar service agreements and related solar energy systems and energy storage systems and have an
adverse impact on our business, financial condition and results of operations.
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Our business is subject to complex and evolving U.S. laws and regulations regarding privacy and data
protection ("data protection laws"). Many of these laws and regulations are subject to change and uncertain
interpretation and could result in claims, increased cost of operations or otherwise harm our business.
The regulatory environment surrounding data privacy and protection is constantly evolving and can be
subject to significant change. New data protection laws, including recent California legislation which affords
California consumers an array of new rights, including the right to be informed about what kinds of personal
data companies have collected and why it was collected, pose increasingly complex compliance challenges and
potentially elevate our costs. Complying with varying jurisdictional requirements could increase the costs and
complexity of compliance and violations of applicable data protection laws can result in significant penalties.
Any failure, or perceived failure, by us to comply with applicable data protection laws could result in
proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties,
judgments and negative publicity, require us to change our business practices, increase the costs and complexity
of compliance and adversely affect our business. As noted above, we are also subject to the possibility of
security and privacy breaches, which themselves may result in a violation of these laws.
We may become involved in the future in legal proceedings that could adversely affect our business.
We may, from time to time, be involved in litigation and claims, such as those relating to employees,
customers, our dealers or other third parties with whom we contract, including consumer claims and class action
lawsuits. In the ordinary course of business, we have disputes with dealers and customers. In general, litigation
claims or regulatory proceedings can be expensive and time consuming to bring or defend against, may result in
the diversion of management attention and resources from our business and business goals and could result in
injunctions or other equitable relief, settlements, penalties, fines or damages that could significantly affect our
results of operations and the conduct of our business. It is impossible to predict with certainty whether any
resulting liability would have a material adverse effect on our financial position, results of operations or cash
flows.
We intend to expand our operations to include international activities, which will subject us to a number of
risks.
Our long-term strategic plans include international expansion, including expansion into jurisdictions that
have characteristics similar to those in which we currently operate. Risks inherent to international operations
include the following:
•
the inability to work successfully with dealers with local expertise to originate international solar
service agreements;
•
•
•
• multiple, conflicting and changing laws and regulations, including export and import laws and
regulations, economic sanctions laws and regulations, tax laws and regulations, environmental
regulations, labor laws and other government requirements, approvals, permits and licenses;
laws and legal systems less developed or less predictable than those in the U.S.;
changes in general economic and political conditions in the jurisdictions where we operate, including
changes in government incentives relating to power generation and solar electricity;
political and economic instability, including wars, acts of terrorism, political unrest, boycotts,
curtailments of trade and other business restrictions;
difficulties and costs in recruiting and retaining individuals skilled in international business operations;
international business practices may conflict with U.S. customs or legal requirements, including
anti bribery and corruption regulations;
financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts
receivable or executing self-help remedies, if necessary;
deficient or unreliable records relating to real property ownership;
potentially lower margins due to a lower average income level;
•
•
•
•
•
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•
•
fluctuations in currency exchange rates relative to the U.S. dollar; and
the inability to obtain, maintain or enforce intellectual property rights, including inability to apply for
or register material trademarks in foreign countries, which could make it easier for competitors to
capture increased market position.
Doing business in foreign markets requires us to be able to respond to rapid changes in market, legal and
political conditions in these countries. The success of our business will depend, in part, on our ability to succeed
in differing legal, regulatory, economic, social and political environments. We may not be able to develop and
implement policies and strategies that will be effective in each location where we do business.
Our future operations may subject us to risks associated with currency fluctuations.
Our future international operations may subject us to risks relating to currency fluctuations. Foreign
currencies periodically experience rapid and/or large fluctuations in value against the U.S. dollar. A weakened
U.S. dollar could increase the cost of procurement of raw materials, by our suppliers, from foreign jurisdictions
and operating expenses in foreign locations, which could have a material adverse effect on our business and
results of operations. Our planned international expansion further subjects us to currency risk.
Since the price at which we originate solar energy systems from our dealers is generated in U.S. dollars, we
are mostly insulated from currency fluctuations. However, since suppliers of our dealers often incur a
significant amount of their costs by purchasing raw materials and generating operating expenses in foreign
currencies, if the value of the U.S. dollar depreciates significantly or for a prolonged period of time against
these other currencies, this may cause those suppliers to raise the prices they charge us and our dealers, which in
turn could harm our business and results of operations. Although the value of the U.S. dollar has been high
relative to other currencies in recent periods, there is no guarantee this trend will continue.
Our actual financial results may differ materially from any guidance we may publish from time to time.
We may, from time to time, provide guidance regarding our future performance that represents our
management's estimates as of the date such guidance is provided. Any such guidance would be based upon a
number of assumptions with respect to future business decisions (some of which may change) and estimates,
while presented with numerical specificity, are inherently subject to significant business, economic and
competitive uncertainties and contingencies (many of which are beyond our control). Guidance is necessarily
speculative in nature and it can be expected some or all the assumptions that inform such guidance will not
materialize or will vary significantly from actual results. Our ability to meet any forward-looking guidance is
impacted by a number of factors including, but not limited to, the number of our solar energy systems sold
versus leased, changes in installation costs, the availability of additional financing on acceptable terms, changes
in the retail prices of traditional utility-generated electricity, the availability of rebates, tax credits and other
incentives, changes in policies and regulations including net metering and interconnection limits or caps, the
availability of solar panels, inverters, batteries and other raw materials, as well as the other risks to our business
described in this "Risk Factors" section. Accordingly, our guidance is only an estimate of what management
believes is realizable as of the date such guidance is provided. Actual results may vary from such guidance and
the variations may be material. Investors should also recognize the reliability of any forecasted financial data
diminishes the farther into the future the data is forecast. In light of the foregoing, investors should not place
undue reliance on our financial guidance and should carefully consider any guidance we may publish in context.
Terrorist or cyberattacks against centralized utilities could adversely affect our business.
Assets owned by utilities such as substations and related infrastructure have been physically attacked in the
past and will likely be attacked in the future. These facilities are often protected by limited security measures,
such as perimeter fencing. Any such attacks may result in interruption to electricity flowing on the grid and
consequently interrupt service to our solar energy systems not combined with an energy storage system, which
47
could adversely affect our operations. Furthermore, cyberattacks, whether by individuals or nation states,
against utility companies could severely disrupt their business operations and result in loss of service to
customers, which would adversely affect our operations.
Risks Related to Regulations
We are not currently regulated as an electric public utility under applicable law but may be subject to
regulation as an electric utility in the future.
We are not currently regulated as an electric public utility in the U.S. under applicable national, state or
other local regulatory regimes where we conduct business. As a result, we are not currently subject to the
various federal, state and local standards, restrictions and regulatory requirements applicable to centralized
public utilities. Any federal, state or local regulations that cause us to be treated as an electric utility or to
otherwise be subject to a similar regulatory regime of commission-approved operating tariffs, rate limitations
and related mandatory provisions, could place significant restrictions on our ability to operate our business and
execute our business plan by prohibiting, restricting or otherwise regulating our sale of electricity. If we were
subject to the same state or federal regulatory authorities as centralized electric utilities in the U.S. and its
territories or if new regulatory bodies were established to oversee our business in the U.S. and its territories or
in foreign markets we enter, our operating costs would materially increase or we might have to change our
business in ways that could have a material adverse effect on our business, financial condition and results of
operations.
While we are not regulated as extensively as an electric public utility, we are subject to certain utility-like
regulations in California, New York and Puerto Rico. In New York, distributed energy providers are subject to
regulation by the New York Public Service Commission (the "NYPSC") with respect to customer interactions
(including contracting and marketing) and are required to comply with the NYPSC's Uniform Business
Practices. In connection with approving the Uniform Business Practices, the NYPSC also established an
oversight framework under which it could impose other regulatory requirements on distributed energy
providers. In Puerto Rico, we are regulated as an electric power company under applicable Puerto Rico Energy
Bureau regulations in connection with the sale and invoicing of energy generated by distributed generation
systems having an aggregate capacity of more than 1 megawatt. Among other requirements, these regulations
impose certain filing, certification, reporting and annual fee requirements upon us but do not currently subject
the companies to centralized utility-like regulation or require the Puerto Rico Energy Bureau's approval of their
charges. In California, the California Public Utilities Commission ("CPUC") issued an order approving several
consumer protection measures for solar customers, including a requirement for solar providers to provide
customers with the California Solar Consumer Protection Guide, which provides customers with information
regarding the selection of a contractor, solar financing, bill savings estimates, net energy metering and electric
rates, low-income options and related matters. The CPUC order also requires the investor-owned utilities in
California to adopt procedures to verify during the interconnection process that the customer received the
California Solar Consumer Protection Guide and that the solar provider is licensed, and to collect and report on
complaints regarding solar providers. If we become subject to new, additional regulatory requirements in
California, New York or Puerto Rico or other jurisdictions adopt regulatory requirements similar to California,
New York or Puerto Rico, our operating costs would materially increase or we might have to change our
business in ways that could have a material adverse effect on our business, financial condition and results of
operations.
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Electric utility policies and regulations, including those affecting electric rates, may present regulatory and
economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for
electricity from our solar energy systems and adversely impact our ability to originate new solar service
agreements.
Federal, state and local government regulations and policies concerning the electric utility industry, utility
rates and rate structures and internal policies and regulations promulgated by electric utilities, heavily influence
the market for electricity generation products and services. These regulations and policies often relate to
electricity pricing. Policies and regulations that promote renewable energy and distributed energy generation
have been challenged by centralized electric utilities and questioned by those in government and others arguing
for less governmental spending and involvement in the energy market. To the extent such views are reflected in
government policies and regulations, the changes in such policies and regulations could adversely affect our
business, financial condition and results of operations.
Furthermore, the current administration has made public statements regarding overturning or modifying
policies of, or regulations enacted by, the prior administration that placed limitations on coal and gas electric
generation, mining and/or exploration. Any effort to overturn federal and state laws, regulations or policies that
are supportive of solar energy generation or that remove costs or other limitations on other types of energy
generation that compete with solar energy projects could materially and adversely affect our business.
In the U.S., governmental authorities and state public service commissions that determine utility rates, rate
structures and the terms and conditions of electric service continuously modify these regulations and policies.
These regulations and policies could result in a significant reduction in the potential demand for electricity from
our solar energy systems and could deter customers from entering into solar service agreements with us.
With regard to rates, customers with residential solar energy systems may currently pay or be subject in the
future to increased charges due to increased rates or changes in rate design and structures. Utilities in certain
jurisdictions may assess fees which apply only to customers with distributed generation systems, including
residential solar energy systems or impose charges on solar customers which are significantly higher than
comparable charges billed to non-solar customers.
These fees may include demand, stand-by or departing load charges or monthly minimum charges. Certain
jurisdictions may permit utilities to change their rate design and structures which could result in charges that
would disproportionately impact customers with solar energy systems. For example, a reduction in the number
of tiers of residential rates could result in increased charges for lower-demand customers, including many solar
customers, by moving them to a new rate tier with higher rates. It could also result in lower charges for higher-
demand customers, who may then become less incentivized to consider solar energy to meet their electricity
needs. Similarly, a change in rate design to recover more costs from fixed charges as opposed to variable
charges (i.e. "decoupled" rates, by which the utility's revenue requirement is "decoupled" from its level of
electricity sales in designing rates) may have the same effect. Additionally, depending on the region, electricity
generated by solar energy systems competes most effectively with the most expensive retail rates for electricity
from the electrical grid, rather than the less expensive average price of electricity. Modifications to the
centralized electric utilities' peak hour pricing policies or rate design could make our current product offerings
less competitive with the price of electricity from the electrical grid. A shift in the timing of peak rates for
utility-generated electricity to include times of day when solar energy generation is less efficient or non-
operable could make our solar energy systems less competitive and reduce demand for our product offerings.
Time-of-use rates could also result in higher costs for solar customers whose electricity requirements are not
fully met by the solar energy system during peak periods.
Utilities in California, New Jersey and Puerto Rico, among other states and jurisdictions, have proposed or
received approval by state regulators for such rate measures as described in this risk factor. Any such changes
affecting rates could increase our customers' cost to use our solar energy systems and make our service and
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product offerings less desirable, thereby harming our business, financial condition and results of operations. The
imposition of any such rate measures could limit the ability of distributed residential solar power companies to
compete with the price of electricity generated by centralized electric utilities, which may reduce the number of
solar energy systems installed in those jurisdictions. Additionally, any such unaccounted for increases in the fees
or charges applicable to existing customer agreements may increase the cost of energy to those customers and
result in an increased rate of defaults, terminations or cancelations under our solar service agreements. In
addition, changes to government or internal utility regulations and policies that favor centralized electric
utilities could reduce our competitiveness and cause a significant reduction in demand for our product offerings.
Any of the foregoing results could limit our ability to expand our portfolio of solar service agreements and
related solar energy systems and energy storage systems or harm our business, financial condition and results of
operations.
We rely on net metering and related policies to offer competitive pricing to our customers in most of our
current markets and changes to net metering policies may significantly reduce demand for electricity from
residential solar energy systems.
Net metering is one of several key policies that have enabled the growth of distributed generation solar
energy systems in the U.S., providing significant value to customers for electricity generated by their residential
solar energy systems but not directly consumed on-site. Net metering allows a homeowner to pay his or her
local electric utility for power usage net of production from the solar energy system or other distributed
generation source. Homeowners receive a credit for the energy an interconnected solar energy system generates
in excess of that needed by the home to offset energy purchases from the centralized utility made at times when
the solar energy system is not generating sufficient energy to meet the customer's demand. In many markets,
this credit is equal to the residential retail rate for electricity and in other markets, such as Hawaii and Nevada,
the rate is less than the retail rate and may be set, for example, as a percentage of the retail rate or based upon a
valuation of the excess electricity. In some states and utility territories, customers are also reimbursed by the
centralized electric utility for net excess generation on a periodic basis.
Net metering programs have been subject to legislative and regulatory scrutiny in some states and
territories including, but not limited to, New Jersey, California, Arizona, Nevada, Connecticut, Maine,
Kentucky, Puerto Rico and Guam. These jurisdictions, by statute, regulation, administrative order or a
combination thereof, have recently adopted or are considering new restrictions and additional changes to net
metering programs either on a state-wide basis or within specific utility territories. Many of these measures
were introduced and supported by centralized electric utilities. These measures vary by jurisdiction and may
include a reduction in the rates or value of the credits customers are paid or receive for the power they deliver
back to the electrical grid, caps or limits on the aggregate installed capacity of generation in a state or utility
territory eligible for net metering, expiration dates for and phasing out of net metering programs, replacement of
net metering programs with alternative programs that may provide less compensation and limits on the capacity
size of individual distributed generation systems which can qualify for net metering. Net metering and related
policies concerning distributed generation also received attention from federal legislators and regulators.
In New Jersey, the Board of Public Utilities ("BPU") has the option under state law of limiting participation
in the retail rate net metering program if the aggregate capacity of owned and operating systems reaches 5.8%
of total annual kWh sold in the state. As of December 31, 2019, that threshold had not yet been reached. On
September 22, 2017, the BPU opened a generic proceeding to review the state of the solar market in New Jersey
and solicit input from stakeholders in the industry and convene public hearings across the state. The BPU held
hearings and received public comments, but no rule or policy changes have been proposed by the BPU to date.
In California, the CPUC issued an order in 2016 retaining retail-based net metering credits for residential
customers of California's major utilities as part of Net Energy Metering 2.0 ("NEM 2.0"). Under NEM 2.0, new
distributed generation customers receive the retail rate for electricity exported to the grid, less certain non-
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bypassable fees. Customers under NEM 2.0 also are subject to interconnection charges and time of-use rates.
Existing customers who receive service under the prior net metering program, as well as new customers under
the NEM 2.0 program, are grandfathered for a period of 20 years. It is expected the CPUC will begin review of
its net metering policies in 2020 to develop Net Energy Metering 3.0 ("NEM 3.0") with the goal of
implementing NEM 3.0 in 2021. Proceedings on distributed energy policy and utility rates before the CPUC
could also result in changes that affect customers with distributed generation systems.
In Puerto Rico, legislation enacted in April 2019 would require the Public Service Regulatory Board's
Energy Bureau to undertake a study of net metering to be completed within five years and may result in
revisions to the net metering rules based on the study's findings. However, no changes can be made to retail net
metering for two years after the date the legislation was enacted. Meanwhile, "true" net metering will continue
to apply, meaning the credit for energy exported by net metering clients will equal the value of such energy
under the rate applicable to those clients and accordingly, their charges will be based on their net consumption.
Customers subject to this regime would be grandfathered for a period of 20 years from the date of their net
metering agreements.
Net metering customers in Puerto Rico may be impacted by transition charges and other requirements
contemplated in the DRSA. If approved by the court and implemented as proposed, these transition charges will
be assessed on all customers at a rate of 2.768 c/kWh, which is set to increase periodically until eventually
reaching 4.552 c/kWh in fiscal year 2044. For customers grandfathered prior to the DRSA's implementation
date, the transition charge will equal the transition charge rate multiplied by the customer's average net
consumption over the previous 24 months, after accounting for a three month lag time. For non-grandfathered
customers, the monthly transition charge will equal the greater of either (a) the transition charge rate multiplied
by the monthly average of the customer's gross consumption over the past 24 months or (b) the transition charge
rate multiplied by the customer's net consumption in the given month. Non-grandfathered customers also will
be required to comply with certain notice requirements and will also be responsible for the costs associated with
installing a revenue grade meter to measure "behind the meter" generation.
In Guam, the Consolidated Commission on Utilities ("CCU") adopted a resolution in 2018 recommending
retail rate net metering for customers of the Guam Power Authority ("GPA") be replaced with a "buy all/sell all"
or similar program that provides for compensation to homeowners at a lower, avoided cost rate. The GPA is a
public corporation that provides electricity in Guam and is overseen by the CCU and regulated by the Guam
Public Utilities Commission ("GPUC"). In 2019, the GPUC, who has the authority to approve or reject the
CCU's recommendations, rejected the resolution and instead voted to cap participation in the net metering
program from 1,000 customers to 261 megawatts, which represents 10% of the GPA system's peak power
demand. The GPA has also proposed to eliminate the option for customers to roll over any excess net metering
credits to the next year or receive a payment for excess credits remaining at the end of the year. Instead, the
GPA proposes that any unused credits would be surrendered to the utility. The GPA also proposes that new
customers be required to install a battery in order to qualify for net metering credits from solar generation.
These proposals have not been acted upon by the GPUC.
In other jurisdictions, replacing net metering with a "value of distributed energy", "feed-in", or "sell-all/
buy-all" tariff is also being considered or has been adopted. Under a "value of distributed energy" tariff, the
customer would be compensated at a rate that accounts for the electricity, capacity, environmental and other
attributes provided by distributed generation to the grid and the electricity market. Under a "feed-in" or "sell-all/
buy-all" tariff, all the solar energy system's generation is exported to the grid and purchased by the utility at an
established rate and the customer is required to purchase all of its electricity requirements from the utility at the
retail rate. In New York, the NYPSC adopted a "value of distributed energy" policy but grandfathered existing
net metering customers and continuing net metering for new residential customers interconnected before
January 1, 2021 for a period of 20 years. Residential customers otherwise still eligible for net metering may also
elect to be compensated under a "value of distributed energy" tariff. New solar customers interconnecting after
January 1, 2021 will be subject to a "value of distributed energy" tariff and potentially a monthly fixed fee.
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Compensation for those customers covered by a "value of solar" tariff varies and may not favorably compare to
that provided by net metering.
Net metering and related policies concerning distributed generation also received attention from federal
legislators and regulators. Changes in federal law, including those made by statute, regulation, rule or order,
could negatively affect net metering or other related policies which otherwise promote and support solar energy
and enhance the economic viability of distributed residential solar.
If net metering caps in certain jurisdictions are reached while they are still in effect, if the value of the
credit that customers receive for net metering is significantly reduced, if net metering is discontinued or
replaced by a different regime which values solar energy at a lower rate or if other limits or restrictions on net
metering are imposed, current and future customers may be unable to recognize the same level of cost savings
associated with net metering. The absence of favorable net metering policies or of net metering entirely, or the
imposition of new charges that only or disproportionately impact customers that use net metering would likely
significantly limit customer demand for distributed residential solar energy systems and the electricity they
generate and result in an increased rate of defaults, terminations or cancelations under customer agreements.
Our ability to lease, finance and sell our solar energy systems and services or sell the electricity generated from
our solar energy systems may be adversely impacted by the failure to expand existing limits on the amount of
net metering in states that have implemented it, the failure to adopt a net metering policy where it currently is
not in place or reductions in the amount or value of credit customers receive through net metering. This could
adversely impact our ability to expand our portfolio of solar service agreements and related solar energy
systems and energy storage systems, our business, financial condition and results of operations.
Additionally, distributed residential solar customers in certain jurisdictions may be subject to higher
charges from centralized electric utilities than non-solar customers and such charges should be evaluated
together with the net metering policies in place. If such charges are imposed, the cost savings associated with
switching to solar energy may be significantly reduced and our ability to expand our portfolio of solar service
agreements and related solar energy systems and energy storage systems and compete with centralized electric
utilities could be impacted.
For further discussion of these potential charges and related proposals, see "—Electric utility policies and
regulations, including those affecting electric rates, may present regulatory and economic barriers to the
purchase and use of solar energy systems that may significantly reduce demand for electricity from our solar
energy systems and adversely impact our ability to originate new solar service agreements".
Our business currently depends in part on the availability of rebates, tax credits and other financial
incentives. The expiration, elimination or reduction of these rebates, credits or incentives or our ability to
monetize them could adversely impact our business.
Our business depends in part on current government policies that promote and support solar energy and
enhance the economic viability of distributed residential solar. Revenues from SRECs constituted
approximately 29%, 29% and 32% of our revenues for the years ended December 31, 2019, 2018 and 2017,
respectively. U.S. federal, state and local governments established various incentives and financial mechanisms
to reduce the cost of solar energy and to accelerate the adoption of solar energy. These incentives come in
various forms, including rebates, tax credits and other financial incentives such as payments for renewable
energy credits associated with renewable energy generation, exclusion of solar energy systems from property
tax assessments or other taxes and system performance payments. However, these programs may expire on a
particular date, end when the allocated funding is exhausted or be reduced or terminated as solar energy
adoption rates increase. For example, in New Jersey, legislation requires the SREC program be closed by the
earlier of the share of electricity sold by the state's utilities supplied by solar reaching 5.1% or June 2021.
Following the close of the program, customers may be eligible for Transitional Renewable Energy Credits
("TRECS") under an interim transitional program replacing SRECs that will be in place until New Jersey adopts
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a long-term successor program. It is expected the TREC program will provide a lower level of revenue than the
SREC program. The financial value of certain incentives decreases over time. The value of SRECs in a market
tends to decrease over time as the supply of SREC producing solar energy systems installed in that market
increases. If we overestimate the future value of these incentives, it could adversely impact our business, results
of operations and financial results. See "Business—Governmental Incentives".
A loss or reduction in such incentives could decrease the attractiveness of new solar energy systems to
customers, which could adversely impact our business and our access to capital. We also enter into hedges
related to expected production of SRECs through forward contracts that require us to physically deliver the
SRECs upon settlement. These arrangements may, depending on the instruments used and the level of additional
hedges involved, limit any potential upside from SREC production increases. We may be exposed to potential
economic loss should a counterparty be unable or unwilling to perform their obligations under the terms of a
hedging agreement. In addition, we are exposed to risks related to changes in interest rates and may engage in
hedging activities to mitigate related volatility. We may fail to properly hedge these SRECs or may fail to do so
economically, which may also adversely affect our results of operations.
The economics of purchasing a solar energy system and energy storage system are also improved by
eligibility for accelerated depreciation, also known as the modified accelerated cost recovery system
("MACRS"), which allows for the depreciation of equipment according to an accelerated schedule set forth by
the IRS. This accelerated schedule allows a taxpayer, such as us and investors in tax equity financing
arrangements, to recognize the depreciation of tangible solar property on a five-year basis even though the
useful life of such property is generally greater than five years. We benefit from accelerated depreciation on the
solar energy systems and energy storage systems we own. To the extent these policies are changed in a manner
that reduces the incentives that benefit our business, we may experience reduced revenues and reduced
economic returns, experience increased financing costs and encounter difficulty obtaining financing.
The federal government currently provides business investment tax credits under Section 48 and residential
energy credits under Section 25D of the Code. Section 48(a) of the Code allows taxpayers to claim an
investment tax credit equal to 30% of the qualified expenditures for certain commercially owned solar energy
systems that began construction before 2020. The Section 48(a) ITC percentage decreases to 26% of the basis of
a solar energy system that begins construction during 2020, 22% for 2021 and 10% if construction begins after
2021 or if the solar energy system is placed into service after 2023. In June 2018, the IRS provided guidance as
to when construction is considered to begin for such purposes, including the 5% ITC Safe Harbor that may
apply when a taxpayer pays or incurs (or in certain cases, a contractor of the taxpayer pays or incurs) 5% or
more of the costs of a solar energy system before the end of the applicable year. For 2020, we have purchased
substantially all the inverters that will be deployed under our lease and PPA agreements that we expect will
allow the related solar energy systems to qualify for the 30% Section 48(a) ITC by satisfying the 5% ITC Safe
Harbor. There can be no assurances our solar energy systems that incorporate such inventory will be successful
in claiming the 5% ITC Safe Harbor and therefore qualify for a higher Section 48(a) ITC.
We would be able to claim the Section 48(a) ITC when available for solar energy systems we originate
under lease agreements or PPAs based on our ownership of the solar energy system at the time it is placed in
service. We are also able to claim the Section 48(a) ITC for energy storage systems installed in conjunction with
solar energy systems as long as they are only charged by on-site solar. A reduced Section 48(a) ITC may be
available for energy storage systems charged in part from sources other than on-site solar as long as the energy
storage systems are charged at least 75% by on-site solar.
Section 25D of the Code allows an individual to claim a 26% federal tax credit with respect to a residential
solar energy system that is owned by the homeowner. As a result, the Section 25D Credit is claimed by
customers who purchase solar energy systems. This 26% rate is scheduled to be reduced to 22% for solar energy
systems placed in service during 2021. This credit is scheduled to expire effective January 1, 2022. The Section
25D Credit reduces the cost of consumer ownership of solar energy systems, such as under the loan program.
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The Section 48(a) ITC has been a significant driver of the financing supporting the adoption of residential
solar energy systems in the U.S. and the Section 25D Credit has been a significant driver of consumer demand
for ownership of solar energy systems. The reduction in, or expiration of, these tax credits will likely impact the
attractiveness of residential solar and could harm our business. For example, we expect the expiration of the
Section 25D Credit will increase the cost of consumer ownership of solar energy systems, such as under the
loan program.
The scheduled reductions in the Section 48(a) ITC could adversely impact our financing structures that
monetize a substantial portion of such Section 48(a) ITC and provide financing for our solar energy systems,
including if solar energy systems that incorporate our inventory are unsuccessful in claiming the 5% ITC Safe
Harbor and therefore fail to qualify for a higher Section 48(a) ITC. To the extent we have a reduced ability to
raise tax equity as a result of this reduction or an inability to continue to monetize such benefits in our financing
arrangements, the rate of growth of installations of our residential solar energy systems and our ability to
maintain such solar energy systems could be negatively impacted. In addition, future changes in existing law
and interpretations by the IRS or the courts with respect to certain matters, including but not limited to,
treatment of the Section 48(a) ITC, the 5% ITC Safe Harbor and our financing arrangements and the taxation of
business entities including the deductibility of interest expense could affect the amount tax equity investors are
willing to invest, which could reduce our access to capital. See "Business—Governmental Incentives".
In addition, the tax legislation signed into law on December 22, 2017, commonly known as the "Tax Cuts
and Jobs Act" (the "2017 Tax Act") contains several provisions that may significantly impact the attractiveness
of tax benefits to tax equity investors. See "—Risks Related to Taxation—Recent tax legislation and future
changes in law could adversely affect our business". The 2017 Tax Act reduced the highest marginal corporate
tax rate from 35% to 21%, which caused MACRS to have less value to investors and may result in investors
having less interest in Section 48(a) ITCs. The 2017 Tax Act also added a base erosion and anti-abuse tax
("BEAT") provision that imposes a minimum tax on certain multinational corporations and only 80% of the
value of such corporation's Section 48(a) ITCs can be applied to reduce such corporation's BEAT liability.
Beginning in 2026, no amount of Section 48(a) ITCs can be applied to offset BEAT liability. The BEAT
provision generally applies to corporations that are part of a group with at least $500 million of applicable
annual gross receipts and that make certain payments to related foreign persons. Accordingly, the BEAT
provision could reduce the incentive for certain investors to invest in tax equity financing arrangements and
could materially impact financing sources in the solar industry. Any such impact could materially and adversely
affect our business.
Applicable authorities may adjust or decrease incentives from time to time or include provisions for
minimum domestic content requirements or other requirements to qualify for these incentives. Reductions in,
eliminations or expirations of or additional application requirements for governmental incentives could
adversely impact our results of operations and ability to compete in our industry by increasing our cost of
capital, causing distributed residential solar power companies to increase the prices of their energy and solar
energy systems and reducing the size of our addressable market. In addition, this would adversely impact our
ability to attract investment partners and lenders and our ability to expand our portfolio of solar service
agreements and related solar energy systems and energy storage systems.
Our business depends in part on the regulatory treatment of third-party owned solar energy systems.
Our lease and PPA agreements are third-party ownership arrangements. Retail sales of electricity by third
parties such as us face regulatory challenges in some states and jurisdictions, including states and jurisdictions
we intend to enter where the laws and regulatory policies have not historically embraced competition to the
service provided by the vertically integrated centralized electric utility. Some of the principal challenges pertain
to whether third-party owned solar energy systems qualify for the same levels of rebates or other non-tax
incentives available for customer owned solar energy systems, whether third-party owned solar energy systems
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are eligible at all for these incentives and whether third-party owned solar energy systems are eligible for net
metering and the associated significant cost savings. Furthermore, in some states and utility territories third
parties are limited in the way they may deliver solar to their customers. In jurisdictions such as Arizona,
Kentucky, North Carolina, Utah and Los Angeles, California, laws have been interpreted to prohibit the sale of
electricity pursuant to PPAs, leading distributed residential solar energy system providers to use leases in lieu of
PPAs, in addition to customer ownership. These regulatory constraints may, for example, give rise to various
property tax issues. See "Risks Related to Taxation". Changes in law and reductions in, eliminations of or
additional requirements for, benefits such as rebates, tax incentives and favorable net metering policies decrease
the attractiveness of new solar energy systems to distributed residential solar power companies and the
attractiveness of solar energy systems to customers, which could reduce our acquisition opportunities. Such a
loss or reduction could also adversely impact our access to capital and reduce our willingness to pursue solar
energy systems due to higher operating costs or lower revenues from leases and PPAs.
Technical and regulatory limitations regarding the interconnection of solar energy systems to the electrical
grid may significantly reduce our ability to sell electricity from our solar energy systems in certain markets or
delay interconnections and customer in-service dates, harming our growth rate and customer satisfaction.
Technical and regulatory limitations regarding the interconnection of solar energy systems to the electrical
grid may curb or slow our growth in key markets. Utilities throughout the country follow different rules and
regulations regarding interconnection and regulators or utilities have or could cap or limit the amount of solar
energy that can be interconnected to the grid. Our solar energy systems do not provide power to homeowners
until they are interconnected to the grid.
With regard to interconnection limits, the FERC, in promulgating the first form of small generator
interconnection procedures, recommended limiting customer-sited intermittent generation resources, such as our
solar energy systems, to a certain percentage of peak load on a given electrical feeder circuit. Similar limits
have been adopted by many states as a de facto standard and could constrain our ability to market to customers
in certain geographic areas where the concentration of solar installations exceeds this limit.
Furthermore, in certain areas, we benefit from policies that allow for expedited or simplified procedures
related to connecting solar energy systems and energy storage systems to the electrical grid. We also are
required to obtain interconnection permission for each solar energy system from the local utility. In many states
and territories, by statute, regulations or administrative order, there are standardized procedures for
interconnecting distributed residential solar energy systems and related energy storage systems to the electric
utility's local distribution system. However, approval from the local utility could be delayed as a result of a
backlog of requests for interconnection or the local utility could seek to limit the number of customer
interconnections or the amount of solar energy on the grid. In some states, such as New Jersey and
Massachusetts, certain utilities such as municipal utilities or electric cooperatives are exempt from certain
interconnection requirements. If expedited or simplified interconnection procedures are changed or cease to be
available, if interconnection approvals from the local utility are delayed or if the local utility seeks to limit
interconnections, this could decrease the attractiveness of new solar energy systems and energy storage systems
to distributed residential solar power companies, including us, and the attractiveness of solar energy systems
and energy storage systems to customers. Delays in interconnections could also harm our growth rate and
customer satisfaction scores. Such limitations or delays could also adversely impact our access to capital and
reduce our willingness to pursue solar energy systems and energy storage systems due to higher operating costs
or lower revenues from solar service agreements. Such limitations would negatively impact our business, results
of operations, future growth and cash flows.
As adoption of solar distributed generation rises, along with the increased operation of utility-scale solar
generation (such as in key markets including California), the amount of solar energy being contributed to the
electrical grid may surpass the capacity anticipated to be needed to meet aggregate demand. Some centralized
public utilities claim in less than five years, solar generation resources may reach a level capable of producing
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an over-generation situation, which may require some existing solar generation resources to be curtailed to
maintain operation of the electrical grid. In the event such an over-generation situation were to occur, this could
also result in a prohibition on the addition of new solar generation resources. The adverse effects of such a
curtailment or prohibition without compensation could adversely impact our business, results of operations,
future growth and cash flows.
We and our dealers are subject to risks associated with construction, regulatory compliance and other
contingencies.
We utilize our growing dealer network to market, design, construct and install solar energy systems and
energy storage systems in each of the markets in which we operate. The marketing and installation of solar
energy systems and energy storage systems is subject to oversight and regulation in accordance with national,
state and local laws and ordinances relating to consumer protection, building, fire and electrical codes,
professional codes, safety, environmental protection, utility interconnection, metering and related matters. We
also rely on certain of our dealers and third-party contractors to obtain and maintain permits and professional
licenses, including as contractors, and other authorizations from various regulatory authorities and abide by
their respective conditions and requirements in many of the jurisdictions in which we operate. A failure by us to
obtain necessary permits or encounter delays in obtaining or renewing such permits or to use properly licensed
dealers and third-party contractors could adversely affect our operations in those jurisdictions. Furthermore, we
may become subject to similar regulatory requirements in some jurisdictions in which we operate. It is difficult
and costly to track the requirements of every authority with jurisdiction over our operations and our solar energy
systems. Separately, we are subject to regulations and potential liability under the Resource Conservation and
Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act related to the
disposal of wastes generated in connection with our operations. Regulatory authorities may impose new
government regulations or utility policies, change existing government regulations or utility policies, may seek
expansive interpretations of existing regulations or policies pertaining to our services or solar energy systems
and energy storage systems or may initiate associated investigations or enforcement actions or impose penalties
or reject solar energy systems and energy storage systems. Any of these factors may result in regulatory and/or
civil litigation, significant additional expenses to us or our customers, cause delays in our or our dealers' ability
to originate solar service agreement or install or interconnect solar energy systems and energy storage systems
or cause other harm to our business. As a result, this could cause a significant reduction in demand for our
services and solar energy systems and energy storage systems or otherwise adversely affect our business,
financial condition and results of operations.
Compliance with occupational safety and health requirements and best practices can be costly and
noncompliance with such requirements may result in potentially significant monetary penalties, operational
delays and adverse publicity.
The installation and ongoing operations and maintenance of solar energy systems and energy storage
systems requires individuals hired by us, our dealers or third-party contractors, potentially including our
employees, to work at heights with complicated and potentially dangerous electrical systems. The evaluation
and modification of buildings as part of the installation process requires these individuals to work in locations
that may contain potentially dangerous levels of asbestos, lead, mold or other materials known or believed to be
hazardous to human health. There is substantial risk of serious injury or death if proper safety procedures are
not followed. Our operations are subject to regulation under OSHA, DOT regulations and equivalent state and
local laws. Changes to OSHA or DOT requirements, or stricter interpretation or enforcement of existing laws or
regulations, could result in increased costs. If we fail to comply with applicable OSHA or DOT regulations,
even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and
be required to pay substantial penalties, incur significant capital expenditures or suspend or limit operations.
Because individuals hired by us or on our behalf to perform installation and ongoing operations and
maintenance of our solar energy systems and energy storage systems, including our dealers and third-party
contractors, are compensated on a per project basis, they are incentivized to work more quickly than installers
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compensated on an hourly basis. While we have not experienced a high level of injuries to date, this incentive
structure may result in higher injury rates than others in the industry and could accordingly expose us to
increased liability. Individuals hired by or on behalf of us may have workplace accidents and receive citations
from OSHA regulators for alleged safety violations, resulting in fines. Any such accidents, citations, violations,
injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our
reputation and competitive position and adversely affect our business.
A failure to comply with laws and regulations relating to interactions by us or our dealers with current or
prospective residential customers could result in negative publicity, claims, investigations and litigation and
adversely affect our financial performance.
Our business substantially focuses on solar service agreements and transactions with residential customers.
We and our dealers must comply with numerous federal, state and local laws and regulations that govern
matters relating to interactions with residential consumers, including those pertaining to consumer protection,
marketing and sales, privacy and data security, consumer financial and credit transactions, mortgages and
refinancings, home improvement contracts, warranties and various means of customer solicitation. These laws
and regulations are dynamic and subject to potentially differing interpretations and various federal, state and
local legislative and regulatory bodies may initiate investigations, expand current laws or regulations, or enact
new laws and regulations regarding these matters. Changes in these laws or regulations or their interpretation
could dramatically affect how we and our dealers do business, acquire customers and manage and use
information collected from and about current and prospective customers and the costs associated therewith. We
and our dealers strive to comply with all applicable laws and regulations relating to interactions with residential
customers. It is possible, however, these requirements may be interpreted and applied in a manner inconsistent
from one jurisdiction to another and may conflict with other rules or the practices of us or our dealers.
Although we require our dealers to meet our consumer compliance requirements and provide regular
training to help them do so, we do not control our dealers and their suppliers or their business practices.
Accordingly, we cannot guarantee they follow ethical business practices such as fair wage practices and
compliance with environmental, safety and other local laws. A lack of demonstrated compliance could lead us to
seek alternative dealers or suppliers, which could increase our costs and have a negative effect on our business
and prospects for growth. Violation of labor or other laws by our dealers or suppliers or the divergence of a
dealer or supplier's labor or other practices from those generally accepted as ethical in the U.S. or other markets
in which we do or intend to do business could also attract negative publicity for us and harm our business.
Violations of anti-bribery, anti-corruption and/or international trade laws to which we are subject could have
a material adverse effect on our business operations, financial position and results of operations.
We are subject to laws concerning our business operations and marketing activities in the U.S. and its
territories where we conduct business. Further, we are subject to the U.S. Foreign Corrupt Practices Act, which
generally prohibits companies and their intermediaries from making improper payments to non-U.S.
government officials for the purpose of obtaining or retaining business. We currently only operate in the U.S.
and its territories. However, in the future we may conduct business outside of the U.S. and operate in parts of
the world that experienced governmental corruption to some degree and, in certain circumstances, strict
compliance with anti-bribery laws may conflict with local customs and practices. In addition, due to the level of
regulation in our industry, our entry into new jurisdictions through internal growth or acquisitions requires
substantial government contact where norms can differ from U.S. standards. Additionally, we regularly interact
with domestic municipalities and municipal-owned centralized electric utilities. We will consider our
interactions with these domestic governmental bodies when designing our policies and procedures and
conducting training designed to facilitate compliance with domestic and international anti-bribery laws.
Although we believe these policies and procedures will mitigate the risk of violations of such laws, our
employees, dealers and agents may take actions in violation of our policies and anti-bribery laws. Any such
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violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions,
which could have a material adverse effect on our business, financial condition, cash flows and reputation.
Violations of export control and/or economic sanctions laws and regulations to which we are subject could
have a material adverse effect on our business operations, financial position and results of operations.
Our products may be subject to export control regulations, including the Export Administration Regulations
administered by the U.S. Department of Commerce's Bureau of Industry and Security. We are also subject to
foreign assets control and economic sanctions regulations administered by the U.S. Department of the
Treasury's Office of Foreign Assets Control, which restrict or prohibit our ability to transact with certain foreign
countries, individuals and entities. We currently only operate in the U.S. and its territories. However, export
control regulations may restrict our ability to exchange technical information with foreign manufacturers and
suppliers and economic sanctions regulations may restrict our ability to source from certain suppliers. In
addition, in the future we may conduct business outside of the U.S. We will consider these scenarios when
designing our policies and procedures and conducting training designed to facilitate compliance with U.S.
export control and economic sanctions laws and regulations. Although we believe these policies and procedures
will mitigate the risk of violations of such laws, our employees, dealers and agents may take actions in violation
of our policies or these laws. Any such violation, even if prohibited by our policies, could subject us to criminal
or civil penalties or other sanctions, which could have a material adverse effect on our business, financial
condition, cash flows and reputation.
Risks Related to Our Common Stock
We do not intend to pay, and our credit facilities currently prohibit us from paying, cash dividends on our
common stock and, consequently, your only opportunity to achieve a return on your investment is if the price
of our common stock appreciates.
We do not plan to declare dividends on shares of our common stock in the foreseeable future. Additionally,
we are currently prohibited from making any cash dividends pursuant to the terms of certain of our credit
facilities. Consequently, your only opportunity to achieve a return on your investment in us will be if you sell
your common stock at a price greater than you paid for it. There is no guarantee the price of our common stock
that will prevail in the market will ever exceed the price you paid for it.
The market price of our common stock could be materially adversely affected by sales of substantial amounts
of our common stock in the public markets, including sales by Energy Capital Partners ("ECP").
As of December 31, 2019, ECP owned approximately 46% of our common stock. Sales by ECP or other
large stockholders or the perception that such sales might occur could have a material adverse effect on the
price of our common stock or could impair our ability to obtain capital through an offering of equity securities.
An active, liquid and orderly trading market for our common stock may not develop and the price of our
common stock is volatile and may decline in value.
An active, liquid and orderly trading market for our common stock may not develop. Active, liquid and
orderly trading markets usually result in less price volatility and more efficiency in carrying out investors'
purchase and sale orders. The market price for our common stock has experienced substantial price volatility in
the past and may remain volatile in the future.
The market price of our common stock may also be influenced by many factors, some of which are beyond
our control, including:
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public reaction to our press releases, announcements and filings with the SEC;
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our operating and financial performance;
fluctuations in broader securities market prices and volumes, particularly among securities of
technology and solar companies;
changes in market valuations of similar companies;
departures of key personnel;
commencement of or involvement in litigation;
variations in our quarterly results of operations or those of other technology and solar companies;
changes in general economic conditions, financial markets or the technology and solar industries;
announcements by us or our competitors of significant acquisitions or other transactions;
changes in accounting standards, policies, guidance, interpretations or principles;
speculation in the press or investment community;
actions by our stockholders;
the failure of securities analysts to cover our common stock or changes in their recommendations and
estimates of our financial performance;
future sales of our common stock; and
the other factors described in these "Risk Factors".
If securities or industry analysts do not publish research or reports about our business, or if they issue an
adverse or misleading opinion regarding our common stock, our common stock price and trading volume
could decline.
The trading market for our common stock is influenced by the research and reports that industry or
securities analysts publish about us or our business. If one or more of the analysts currently covering our
common stock ceases coverage of us, the trading price for our common stock would be negatively impacted. If
any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our
intellectual property or our common stock performance, or if our operating results fail to meet the expectations
of analysts, our common stock price would likely decline. If one or more of these analysts cease coverage of us
or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could
cause our common stock price or trading volume to decline.
If we fail to comply with the reporting requirements under the Exchange Act or maintain adequate internal
control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, it could result in
late or non-compliant filings or inaccurate financial reporting and have a negative impact on the price of
our common stock or our business.
Effective internal controls are necessary for us to provide timely, reliable financial reporting and prevent
fraud. Our accounting predecessor was not a public company and was not required to comply with the reporting
requirements of the Exchange Act, or with the standards adopted by the Public Company Accounting Oversight
Board in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal
controls over financial reporting. As a public company, we are required to report our financial results on the
timeline and in the form prescribed by the Exchange Act and to evaluate and report on our internal control over
financial reporting. This requires management to certify financial and other information in our quarterly and
annual reports and provide an annual management report on the effectiveness of internal control over financial
reporting.
Though we will be required to disclose material changes made in our internal controls and procedures on a
quarterly basis, we will not be required to make our first annual assessment of our internal control over financial
reporting pursuant to Section 404 until the year following our first annual report required to be filed with the
SEC. Pursuant to the Jumpstart Our Business Startups Act ("JOBS Act"), our independent registered public
accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting
until the year following our first annual report required to be filed with the SEC. We cannot assure you we will
not in the future have material weaknesses or significant deficiencies. Material weaknesses and significant
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deficiencies may exist when we report on the effectiveness of our internal control over financial reporting as
required by reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-
Oxley Act.
The process of documenting and further developing our internal controls to become compliant with Section
404 will take a significant amount of time and effort to complete and will require significant attention of
management. Completing implementation of new controls, documentation of our internal control system and
financial processes, remediation of control deficiencies and management testing of internal controls will require
substantial effort by us. We may experience higher than anticipated operating expenses, as well as increased
independent auditor and other fees and expenses during the implementation of these changes and thereafter.
Certain of our directors have significant duties with, and spend significant time serving, entities that may
compete with us in seeking business opportunities and, accordingly, may have conflicts of interest in
allocating time or pursuing business opportunities.
Certain of our directors, who are responsible for managing the direction of our operations and acquisition
activities, hold positions of responsibility with other entities whose businesses are similar to our business. The
existing positions held by these directors may give rise to fiduciary or other duties in conflict with the duties
they owe to us. These directors may become aware of business opportunities that may be appropriate for
presentation to us as well as to the other entities with which they are or may become affiliated. Due to these
existing and potential future affiliations, they may present potential business opportunities to other entities prior
to presenting them to us, which could cause additional conflicts of interest. They may also decide certain
opportunities are more appropriate for other entities with which they are affiliated and as a result, they may elect
not to present those opportunities to us. These conflicts may not be resolved in our favor.
Conflicts of interest could arise in the future between us, on the one hand, and any of our stockholders and
its affiliates and affiliated funds and its and their current and future portfolio companies on the other hand,
concerning, among other things, potential competitive business activities or business opportunities.
Conflicts of interest could arise in the future between us, on the one hand, and any of our stockholders and
its affiliates and affiliated funds and its and their current and future portfolio companies, on the other hand,
concerning, among other things, potential competitive business activities or business opportunities. For
example, certain of our existing investors and their affiliated funds may invest in companies that operate in the
traditional energy industry and solar and other renewable industries. As a result, our existing investors and their
affiliates' and affiliated funds' current and future portfolio companies which they control may now, or in the
future, directly or indirectly, compete with us for investment or business opportunities.
Our governing documents provide that our stockholders and their affiliates and affiliated funds are not
restricted from owning assets or engaging in businesses that compete directly or indirectly with us and will not
have any duty to refrain from engaging, directly or indirectly, in the same or similar business activities or lines
of business as us, including those business activities or lines of business deemed to be competing with us, or
doing business with any of our clients, customers or vendors. In particular, subject to the limitations of
applicable law, our certificate of incorporation, among other things:
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permits stockholders or their affiliates and affiliated funds and our non-employee directors to conduct
business that competes with us and to make investments in any kind of property in which we may
make investments; and
provides that if any of our stockholders or any of its affiliates who is also one of our non-employee
directors becomes aware of a potential business opportunity, transaction or other matter, they will have
no duty to communicate or offer that opportunity to us.
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Our stockholders or their affiliates or affiliated funds may become aware, from time to time, of certain
business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses
in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue
such opportunity. Further, such businesses may choose to compete with us for these opportunities, possibly
causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. In
addition, our stockholders or their affiliates and affiliated funds may dispose of their interests in energy
infrastructure or other renewable companies or other assets in the future, without any obligation to offer us the
opportunity to purchase any of those assets. As a result, our renouncing our interest and expectancy in any
business opportunity that may be from time to time presented to any of our stockholders or their affiliates and
affiliated funds could adversely impact our business or prospects if attractive business opportunities are
procured by such parties for their own benefit rather than for ours.
In any of these matters, the interests of our existing stockholders and their affiliates and affiliated funds
may differ or conflict with the interests of our other shareholders. Any actual or perceived conflicts of interest
with respect to the foregoing could have an adverse impact on the trading price of our common stock.
Control of our common stock by current stockholders is expected to remain significant.
Currently, our key stockholders directly and indirectly beneficially own a majority of our outstanding
common stock. As a result, these affiliates have the ability to exercise significant influence over matters
submitted to our stockholders for approval, including the election and removal of directors, amendments to our
certificate of incorporation and bylaws and the approval of any business combination. This concentration of
ownership may also have the effect of delaying or preventing a change of control of our company or
discouraging others from making tender offers for our shares, which could prevent our stockholders from
receiving an offer premium for their shares.
So long as the key stockholders continue to control a significant amount of our common stock, they will
continue to be able to strongly influence all matters requiring stockholder approval, regardless of whether or not
other stockholders believe a potential transaction is in their own best interests. In any of these matters, the
interests of the key stockholders may differ or conflict with the interests of our other stockholders. In addition,
certain of the keys stockholders may, from time to time, acquire interests in businesses that directly or indirectly
compete with our business, as well as businesses that are significant existing or potential customers. Certain of
the key stockholders may acquire or seek to acquire assets we seek to acquire and, as a result, those acquisition
opportunities may not be available to us or may be more expensive for us to pursue. Moreover, this
concentration of stock ownership may also adversely affect the trading price of our common stock to the extent
investors perceive a disadvantage in owning stock of a company with controlling stockholders.
Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the price
investors might be willing to pay in the future for our common stock.
Our charter documents authorize our board of directors to issue preferred stock without stockholder
approval and, relatedly, may have the effect of delaying or preventing an acquisition of us or a merger in which
we are not the surviving company and may otherwise prevent or slow changes in our board of directors and
management. In addition, some provisions of our certificate of incorporation, amended and restated bylaws and
stockholders' agreement could make it more difficult for a third party to acquire control of us, even if the change
of control would be beneficial to our stockholders, including:
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limitations on changes of control and business combinations;
limitations on the removal of directors;
limitations on the ability of our stockholders to call special meetings;
establishing advance notice provisions for stockholder proposals and nominations for elections to
the board of directors to be acted upon at meetings of stockholders;
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providing that the board of directors is expressly authorized to adopt, or to alter or repeal our
bylaws; and
establishing advance notice and certain information requirements for nominations for election to
our board of directors or for proposing matters that can be acted upon by stockholders at
stockholder meetings.
These provisions could discourage an acquisition of us or other change in control transactions and thereby
negatively affect the price that investors might be willing to pay in the future for our common stock.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of
Delaware and, to the extent enforceable, the federal district courts of the United States of America as the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders,
which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our
directors, officers, employees or agents.
Our amended and restated certificate of organization provides that, unless we consent in writing to the
selection of an alternative forum, the sole and exclusive forum for (a) any derivative action or proceeding
brought on our or our stockholders' behalf, (b) any action asserting a claim of breach of a fiduciary duty owed
by any of our current or former directors, officers, employees, agents and stockholders to us or our stockholders,
(c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our
amended and restated certificate of incorporation or our amended and restated bylaws, (d) any action as to
which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of
Delaware, or (e) any other action asserting a claim that is governed by the internal affairs doctrine shall be the
Court of Chancery of the State of Delaware. Our amended and restated certificate of incorporation also provides
that, to the fullest extent permitted by applicable law, the federal district courts of the United States are the
exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject
to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive
forum provision.
Notwithstanding the foregoing, the exclusive forum provision does not apply to suits brought to enforce
any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive
jurisdiction. Any person or entity purchasing or otherwise acquiring an interest in any shares of our capital stock
shall be deemed to have notice of and to have consented to the forum provisions in our amended and restated
certificate of incorporation. These choice-of-forum provisions may limit a stockholder's ability to bring a claim
in a judicial forum that he, she or it believes to be favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits. Alternatively, if a court were to find these provisions of
our amended and restated certificate of incorporation inapplicable or unenforceable with respect to one or more
of the specified types of actions or proceedings, we may incur additional costs associated with resolving such
matters in other jurisdictions, which could materially adversely affect our business, financial condition and
results of operations and result in a diversion of the time and resources of our management and board of
directors. For example, the Court of Chancery of the State of Delaware recently determined a provision stating
that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action
arising under the Securities Act is not enforceable.
Future sales of our common stock in the public market, or the perception that such sales may occur, could
reduce our stock price, and any additional capital raised by us through the sale of equity or convertible
securities may dilute your ownership in us.
We may raise additional capital through the issuance of equity or debt in the future. In that event, the
ownership of our existing stockholders would be diluted and the value of the stockholders' equity in common
stock could be reduced. If we raise more equity capital from the sale of common stock, institutional or other
investors may negotiate terms more favorable than the current prices of our common stock. If we issue debt
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securities, the holders of the debt would have a claim to our assets that would be prior to the rights of
stockholders until the debt is paid. Interest on these debt securities would increase costs and could negatively
impact operating results.
In accordance with Delaware law and the provisions of our charter documents, we may issue preferred
stock that ranks senior in right of dividends, liquidation or voting to our common stock. The issuance by us of
such preferred stock may (a) reduce or eliminate the amount of cash available for payment of dividends to our
holders of common stock, (b) diminish the relative voting strength of the total shares of common stock
outstanding as a class, or (c) subordinate the claims of our holders of common stock to our assets in the event of
our liquidation. Our amended and restated Certificate of Incorporation does not provide stockholders the pre-
emptive right to buy shares from us. As a result, stockholders will not have the automatic ability to avoid
dilution in their percentage ownership of us.
We cannot predict the size of future issuances of our common stock or securities convertible into common
stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market
price of our common stock. Sales of substantial amounts of our common stock (including shares issued in
connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing
market prices of our common stock.
Risks Related to Taxation
Our ability to use net operating loss carryforwards ("NOLs") and tax credit carryforwards to offset future
income taxes is subject to limitation and the amount of such carryforwards may be subject to challenge or
reduction.
As of December 31, 2019, we had approximately $806.6 million of U.S. federal NOLs, a portion of which
will begin to expire in 2032 and approximately $246.8 million of U.S. federal tax credit carryforwards, which
begin to expire in 2033. Utilization of our NOLs and tax credit carryforwards depends on many factors,
including having current or future taxable income, which cannot be assured. In addition, Section 382 of the
Code generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income
by a corporation that has undergone an "ownership change" (as determined under Section 382). An ownership
change generally occurs if one or more stockholders (or groups of stockholders, including one or more groups
of public stockholders) that are each deemed to own at least 5% of our stock increase their ownership
percentage by more than 50 percentage points over their lowest ownership percentage during a rolling three-
year period. Similar rules under Section 383 of the Code impose an annual limitation on the amount of tax
credit carryforwards, including carryforwards of Section 48(a) ITCs, that may be used to offset U.S. federal
income taxes.
We experienced an ownership change under Sections 382 and 383 of the Code prior to our initial public
offering on July 29, 2019 (our "IPO") that subjected our NOLs and tax credit carryforwards existing at that time
to limitations under those sections. Another ownership change could occur as a result of transactions that
increase the ownership percentage of any of our 5% stockholders during a rolling three-year period, including
redemptions of our stock, sales of our stock by other deemed 5% stockholders or issuances of stock by us,
whether in our IPO, additional public offerings or otherwise. If such another ownership change occurs with
respect to our stock, our ability to utilize NOLs and tax credit carryforwards may be subject to further limitation
under Sections 382 and 383 of the Code. The application of the aforementioned limitations may cause U.S.
federal income taxes to be paid by us earlier than they otherwise would be paid if such limitations were not in
effect and could cause such NOLs and tax credit carryforwards to expire unused, in each case reducing or
eliminating the benefit of such NOLs and tax credit carryforwards. To the extent we are not able to offset our
future taxable income with our NOLs or offset future taxes with our tax credit carryforwards, this would
adversely affect our operating results and cash flows if we have taxable income in the future. These same risks
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can arise in the context of state income and franchise tax given many states conform to federal law and rely on
federal authority for determining state NOLs.
Furthermore, the IRS or other tax authorities could successfully challenge one or more tax positions we
take, such as the classification of assets under the income tax depreciation rules or the characterization of
expenses for income tax purposes, which could reduce the NOLs we generate and/or are able to use.
Our tax positions are subject to challenge by the relevant tax authority.
Our federal and state tax positions may be challenged by the relevant tax authority. The process and costs,
including potential penalties for nonpayment of disputed amounts, of contesting such challenges,
administratively or judicially, regardless of the merits, could be material. Future tax audits or challenges by tax
authorities to our tax positions may result in a material increase in our estimated future income tax or other tax
liabilities, which would negatively impact our financial condition.
For example, many of our solar energy systems are located in states or territories that exempt such assets
from state, territorial and local sales and property taxes. We believe these solar energy systems are and should
continue to be exempt from certain state, territorial and local sales and property taxes; however, some of our
solar energy systems are located in certain jurisdictions where the applicability of these exemptions to solar
energy systems is the subject of ongoing litigation and possible legislative change or else the jurisdiction's law
is uncertain regarding the effect on property and sales tax exemptions of certain complex business
reorganizations undergone by us and our subsidiaries. As such, some tax authorities could challenge the
availability of these exemptions. If our solar energy systems are determined to be subject to state, territorial or
local sales or property taxes, it could negatively impact our financial condition.
Recent tax legislation and future changes in law could adversely affect our business.
The 2017 Tax Act significantly changed the Code, including the taxation of U.S. corporations, by, among
other things, reducing the U.S. corporate income tax rate, accelerating the expensing of certain capital
expenditures, adopting elements of a territorial tax system and introducing certain anti-base erosion provisions.
Further, the 2017 Tax Act generally (a) limits our annual deductions for interest expense to no more than 30% of
our "adjusted taxable income" (plus 100% of our business interest income) for the year and (b) permits us to
offset only 80% (rather than 100%) of our taxable income with any NOLs we generate after 2017 with an
indefinite carryforward.
The 2017 Tax Act is unclear in certain respects and will require interpretations and implementing
regulations by the IRS and the legislation could be subject to potential amendments and technical corrections,
any of which could lessen or increase certain adverse impacts of the legislation. As states elect to conform (or
else have rolling conformity) to the Code, such interpretations, regulations, amendments and corrections
(including those promulgated by state authorities) could likewise affect our state income and franchise tax
obligations. Any of the foregoing changes arising from the 2017 Tax Act, as well as other changes in law not
mentioned herein, could adversely impact our business. Furthermore, any future changes in law could affect our
tax position and adversely impact our business.
If the IRS or the U.S. Treasury Department makes a determination that the fair market value of our solar
energy systems is materially lower than what we have reported in our tax equity vehicles' tax returns, we may
have to pay significant amounts to our tax equity vehicles, our tax equity investors and/or the U.S.
government. Such determinations could have a material adverse effect on our business and financial
condition.
The basis of our solar energy systems we report in our tax equity vehicles' tax returns to claim the Section
48(a) ITC is based on the appraised fair market value of our solar energy systems. The IRS continues to
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scrutinize fair market value determinations industry-wide. We are not aware of any IRS audits or results of
audits related to our appraisals or fair market value determinations of any of our tax equity vehicles. If as part of
an examination the IRS were to review the fair market value we used to establish our basis for claiming Section
48(a) ITCs and successfully assert the Section 48(a) ITCs previously claimed should be reduced, we would owe
certain of our tax equity vehicles or our tax equity investors an amount equal to 30% of each investor's share of
the difference between the fair market value used to establish our basis for claiming Section 48(a) ITCs and the
adjusted fair market value determined by the IRS, plus any costs and expenses associated with a challenge to
that fair market value, plus a gross up to pay for additional taxes. We could also be subject to tax liabilities,
including interest and penalties, based on our share of claimed Section 48(a) ITCs. To date, we have not been
required to make such payments under any of our tax equity vehicles. We have obtained insurance coverage
with respect to certain losses that may be incurred should the Section 48(a) ITCs previously claimed with
respect to our tax equity vehicles be reduced. Any such losses could be outside the scope of these insurance
policies or exceed insurance policy limits and we could incur unforeseen costs that could harm our business and
financial condition.
If our solar energy systems either cease to be qualifying property or undergo certain changes in ownership
within five years of the applicable placed in service date, we may have to pay significant amounts to our tax
equity vehicles, our tax equity investors and/or the U.S. government. Such recapture could have a material
adverse effect on our business and financial condition.
The Section 48(a) ITCs are subject to recapture under the Code if a solar energy system either ceases to be
qualifying property or undergoes certain changes in ownership within five years of its placed in service date.
The amount of Section 48(a) ITCs subject to recapture decreases by 20% of the claimed amount on each
anniversary of a solar energy system's placed in service date. If such a recapture event were to occur, we could
owe certain of our tax equity vehicles or our tax equity investors an amount equal to such vehicles' or investors'
share of the Section 48(a) ITCs that were recaptured. We could also be subject to tax liabilities, including
interest and penalties, based on our share of recaptured Section 48(a) ITCs. To date, none of the Section 48(a)
ITCs claimed with respect to our solar energy systems have been recaptured. Any such recapture could have a
material adverse effect on our business and financial condition.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our corporate headquarters is in Houston, Texas, where we occupy approximately 71,700 square feet of
office space pursuant to an operating lease that expires in July 2029. We lease additional offices in Guam, New
York and Puerto Rico but do not own any real property. We intend to procure additional space in the future as
we continue to add employees and expand geographically. We believe our facilities are adequate and suitable
for our current needs and, should it be needed, suitable additional or alternative space will be available to
accommodate our operations.
Item 3. Legal Proceedings.
Although we may, from time to time, be involved in litigation, claims and government proceedings arising
in the ordinary course of business, we are not a party to any litigation or governmental or other proceeding we
believe will have a material adverse impact on our financial position, results of operations or liquidity. In the
ordinary course of business, we have disputes with dealers and customers. In general, litigation claims or
regulatory proceedings can be expensive and time consuming to bring or defend against, may result in the
diversion of management attention and resources from our business and business goals and could result in
settlement or damages that could significantly affect financial results and the conduct of our business.
65
Item 4. Mine Safety Disclosures.
Not applicable.
66
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of
Equity Securities
Market Information
Our common stock began trading on the NYSE under the symbol "NOVA" on July 25, 2019.
Holders
As of February 21, 2020, there were approximately 84 holders of record of common stock. Certain shares
are held in "street" name and, accordingly, the number of beneficial owners of such shares is not known or
included in the foregoing number.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all
available funds and any future earnings for use in the operation of our business and do not expect to pay any
dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be
made at the discretion of our Board, subject to applicable laws, and will depend on a number of factors,
including our financial condition, results of operations, capital requirements, contractual restrictions, general
business conditions and other factors our Board may deem relevant. In addition, the terms of our credit
agreements and indentures contain restrictions on the payment of dividends and we may also enter into other
credit agreements, indentures or other borrowing arrangements in the future that will restrict our ability to
declare or pay cash dividends on our capital stock.
67
Performance Graph
The following stock performance graph compares our total stock return with the total return for (a) the
NYSE Composite Index and the (b) the Invesco Solar ETF, which represents a peer group of solar companies,
for the period from July 25, 2019 (the date our common stock commenced trading on the NYSE) through
December 31, 2019. The figures represented below assume an investment of $100 in our common stock at the
closing price of $11.25 on July 25, 2019 and in the NYSE Composite Index and the Invesco Solar ETF on
July 25, 2019 including the reinvestment of dividends into shares of common stock. The comparisons in the
table are required by the SEC and are not intended to forecast or be indicative of possible future performance of
our common stock. This graph shall not be deemed "soliciting material" or be deemed "filed" for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be
deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing.
Use of Proceeds from Public Offering of Common Stock
On July 29, 2019, we sold 14,000,000 shares of our common stock in our IPO at a public offering price of
$12.00 per share. On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at
a public offering price of $12.00 per share pursuant to the underwriters' exercise of their option to purchase
additional shares, resulting in aggregate net proceeds from our IPO of approximately $162.3 million, after
deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses of
approximately $5.4 million. The offer and sale of the shares in our IPO were registered under the Securities Act
pursuant to a registration statement on Form S-1 (File No. 333-232393), which was declared effective by the
SEC on July 24, 2019. We used $57.1 million of the net proceeds from our IPO to redeem our senior secured
notes. We used the remaining net proceeds from our IPO for general corporate purposes, including working
capital, operating expenses, capital expenditures and repayment of indebtedness. The representatives of the
underwriters of our IPO were BofA Securities, Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co.
LLC. No payments were made by us to directors, officers or persons owning ten percent or more of our
common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business
to officers for salaries and to non-employee directors pursuant to our director compensation policy.
68
Item 6. Selected Financial Data.
The following selected consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial
statements, related notes and other information included elsewhere in this Annual Report on Form 10-K. The
selected consolidated statements of operations data for the years ended December 31, 2019, 2018 and 2017, and
the selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected
consolidated balance sheet data as of December 31, 2017 is derived from audited consolidated financial
statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily
indicative of our future results. The selected consolidated financial data in this section are not intended to
replace, and are qualified in their entirety, by the consolidated financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K.
Consolidated Statement of Operations Data:
Revenue
Net loss
Net loss attributable to common stockholders—basic and
diluted
Net loss per share attributable to common stockholders—basic
and diluted
Weighted average common shares outstanding—basic and
diluted
Consolidated Balance Sheet Data:
Cash and restricted cash
Property and equipment, net
Total assets
Current portion of long-term debt
Current portion of long-term debt—affiliates
Long-term debt, net
Long-term debt, net—affiliates
Total stockholders' equity
Year Ended
December 31,
2019
2018
2017
(in thousands, except per share amounts)
$
131,556
(133,434) $
$
104,382
(68,409) $
76,856
(90,182)
(169,076) $
(135,872) $
(121,288)
(4.14) $
(15.74) $
(14.05)
40,797,976
8,634,477
8,632,936
As of December 31,
2019
2018
2017
(in thousands)
150,291
$
87,046
1,745,060
$ 1,328,457
2,487,067
$ 1,665,085
97,464
$
— $
26,965
16,500
1,346,419
$
872,249
— $
44,181
645,935
$
501,118
$
$
$
$
$
$
$
$
81,778
1,113,073
1,328,788
25,837
81,791
723,697
—
371,183
$
$
$
$
$
$
$
$
$
$
$
$
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis contain forward-looking statements that are subject to risks,
uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those
anticipated in these forward-looking statements as a result of many factors, including but not limited to those
discussed under "Special Note Regarding Forward-Looking Statements", "Risk Factors" and elsewhere in this
69
Annual Report on Form 10-K. 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 Annual Report on Form 10-K may not occur and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking statements. Unless the context otherwise requires, the
terms "Sunnova," "the Company," "we," "us" and "our" refer to Sunnova Energy International Inc. ("SEI") and
its consolidated subsidiaries.
Company Overview
We are a leading residential solar and energy storage service provider, serving more than 80,000 customers
in more than 20 U.S. states and territories. Our goal is to be the leading provider of clean, affordable and
reliable energy for consumers, and we operate with a simple mission: to power energy independence. We were
founded to deliver customers a better energy service at a better price; and, through our solar and solar plus
energy storage service offerings, we are disrupting the traditional energy landscape and the way the 21st century
customer generates and consumes electricity.
We have a differentiated residential solar dealer model in which we partner with local dealers who
originate, design and install our customers' solar energy systems and energy storage systems on our behalf. Our
focus on our dealer model enables us to leverage our dealers' specialized knowledge, connections and
experience in local markets to drive customer origination while providing our dealers with access to high
quality products at competitive prices and technical oversight and expertise. We believe this structure provides
operational flexibility, reduced exposure to labor shortages and lower fixed costs relative to our peers,
furthering our competitive advantage.
We offer customers products to power their homes with affordable solar energy. We are able to offer
savings and storage opportunities to most customers compared to utility-based retail rates with little to no up-
front expense to the customer, and we are able to provide energy resiliency and reliability to our solar plus
energy storage customers. Our solar service agreements take the form of a lease, PPA or loan. The initial term of
our solar service agreements is typically either 10 or 25 years. Service is an integral part of our agreements and
includes operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power
optimization for the customer (for both supply and demand), the ability to efficiently switch power sources
among the solar panel, grid and energy storage system, as appropriate, and diagnostics. During the life of the
contract we have the opportunity to integrate related and evolving home servicing and monitoring technologies
to upgrade the flexibility and reduce the cost of our customers' energy supply.
In the case of leases and PPAs, we also currently receive tax benefits and other incentives from federal,
state and local governments, a portion of which we finance through tax equity, non-recourse debt structures and
hedging arrangements in order to fund our upfront costs, overhead and growth investments. We have an
established track record of attracting capital from diverse sources. From our inception through December 31,
2019, we have raised more than $4.7 billion in total capital commitments from equity, debt and tax equity
investors.
In addition to providing ongoing service as a standard component of our solar service agreements, we also
offer ongoing energy services to customers who purchased their solar energy system through unaffiliated third
parties. Under these arrangements, we agree to provide such monitoring, maintenance and repair services to
these customers for the life of the service contract they sign with us. We believe the quality and scope of our
comprehensive energy service offerings, whether to customers that obtained their solar energy system through
us or through another party, is a key differentiator between us and our competitors.
70
We commenced operations in January 2013 and began providing solar energy services under our first solar
energy system in April 2013. Since then, we have experienced rapid growth in our market share and in the
number of customers on our platform. We operate one of the largest fleets of residential solar energy systems in
the U.S., comprising more than 572 megawatts of generation capacity and serving more than 80,000 customers.
Recent Developments
In December 2019, we issued and sold an aggregate principal amount of $55.0 million of our 7.75%
convertible senior notes (the "convertible senior notes") in a private placement to a total of seven institutional
accredited investors at an issue price of 95%, for an aggregate purchase price of $52.3 million. See "—Liquidity
and Capital Resources—Financing Arrangements—Convertible Notes" below.
In December 2019, one of our subsidiaries entered into a credit facility with Credit Suisse AG, New York
Branch, as administrative agent, and the lenders party thereto. Under the credit facility, the subsidiary may
borrow up to an aggregate principal amount of $95.2 million in revolving loans subject to compliance with a
borrowing base. The aggregate commitments may be increased up to $137.6 million, subject to lender consent
and certain other conditions. See "—Liquidity and Capital Resources—Financing Arrangements—TEPINV
Financing" below.
In February 2020, one of our subsidiaries issued $337.1 million in aggregate principal amount of Series
2020-1 Class A solar asset-backed notes and $75.4 million in aggregate principal amount of Series 2020-1 Class
B solar asset-backed notes with a maturity date of January 2055. The notes bear interest at an annual rate of
3.35% and 5.54% for the Class A and Class B notes, respectively. See "—Liquidity and Capital Resources—
Financing Arrangements—Rule 144A Securitization Financing" below and Note 18, Subsequent Events, to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Initial Public Offering and Recapitalization Transactions
On July 29, 2019, we completed our IPO in which we sold 14,000,000 shares of our common stock at a
public offering price of $12.00 per share. On August 19, 2019, we issued and sold an additional 865,267 shares
of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' exercise of their
option to purchase additional shares. We received aggregate net proceeds from our IPO of approximately $162.3
million, after deducting underwriting discounts and commissions of approximately $10.7 million and offering
expenses of approximately $5.4 million.
In connection with our IPO, we completed a series of recapitalization transactions as follows:
• we decreased the total number of outstanding shares with a 1 for 2.333 reverse stock split effective
July 29, 2019 (the "Reverse Stock Split"). All current and past period amounts stated herein have
given effect to the Reverse Stock Split;
• we converted 108,138,971 shares (or 46,351,877 shares as adjusted for the Reverse Stock Split) of
our Series A convertible preferred stock and 32,958,645 shares (or 14,127,140 shares as adjusted
for the Reverse Stock Split) of our Series C convertible preferred stock, which represented all the
outstanding shares of our Series A convertible preferred stock and Series C convertible preferred
stock, into 60,479,017 shares of our common stock;
• we converted 23,870 shares of our non-voting Series B common stock, which represented all the
outstanding shares of our Series B common stock, into 23,870 shares of our voting Series A
common stock.
•
our Series A common stock was redesignated as common stock;
71
• we exercised our right to redeem all the senior secured notes for an aggregate principal plus unpaid
cash and paid-in-kind interest amount of $57.1 million for cash;
•
holders of the convertible note issued in March 2018 for $15.0 million (the "2018 Note") converted
the principal amount plus any accrued and unpaid interest as of the date of conversion into
3,319,312 shares (or 1,422,767 shares as adjusted for the Reverse Stock Split) of Series A
convertible preferred stock, which in turn converted into 1,422,767 shares of common stock. In
addition, holders of the convertible note issued in June 2019 for $15.0 million (the "2019 Note")
converted the principal amount plus any accrued and unpaid interest as of the date of conversion
into 2,613,818 shares (or 1,120,360 shares as adjusted for the Reverse Stock Split) of Series C
convertible preferred stock, which in turn converted into 1,120,360 shares of common stock;
• we implemented an internal reorganization that resulted in SEI owning all the outstanding capital
stock of Sunnova Energy Corporation (the "Reorganization"). In connection with the
Reorganization, a direct, wholly-owned subsidiary of SEI merged with and into Sunnova Energy
Corporation, with Sunnova Energy Corporation surviving as a direct, wholly owned subsidiary of
SEI. Each share of each class of Sunnova Energy Corporation stock issued and outstanding
immediately prior to the Reorganization, by virtue of the Reorganization and without any action on
the part of the holders thereof, automatically converted into an equivalent corresponding share of
stock of SEI, having the same designations, rights, powers and preferences and the qualifications,
limitations and restrictions with respect to SEI as each such corresponding share of Sunnova
Energy Corporation stock being converted with respect to Sunnova Energy Corporation.
Accordingly, upon consummation of the Reorganization, each of Sunnova Energy Corporation's
stockholders immediately prior to the consummation of the Reorganization became a stockholder of
SEI;
•
•
approximately 50% of the non-vested stock options outstanding at that time, or 995,517 stock
options, became exercisable and the vesting terms for all remaining stock options were amended so
all stock options will be fully vested on the first anniversary of the closing date of our IPO. We
recorded an additional $3.2 million of expense in July 2019 related to the accelerated vesting
periods; and
our Board adopted the 2019 Long-Term Incentive Plan (the "LTIP") to incentivize employees,
officers, directors and other service providers of SEI and its affiliates. The LTIP provides for the
grant, from time to time, at the discretion of our Board or a committee thereof, of stock options,
stock appreciation rights, stock awards, including restricted stock and restricted stock units,
performance awards and cash awards. The LTIP provides the aggregate number of shares of
common stock that may be issued pursuant to awards shall not exceed 5,229,318 shares. The
awards vest over a period of either one year, three years or seven years.
Securitizations
As a source of long-term financing, we securitize qualifying solar energy systems and related solar service
agreements into special purpose entities who issue solar asset-backed and solar loan-backed notes to
institutional investors. We also securitize the cash flows generated by the membership interests in certain of our
indirect, wholly-owned subsidiaries that are the managing member of a tax equity fund that owns a pool of solar
energy systems and related solar service agreements that were originated by one of our wholly-owned
subsidiaries. We do not securitize the Section 48(a) ITC incentives associated with the solar energy systems as
part of these arrangements. We use the cash flows these solar energy systems generate to service the quarterly or
semi-annual principal and interest payments on the notes and satisfy the expenses and reserve requirements of
the special purpose entities, with any remaining cash distributed to their sole members, who are typically our
72
indirect wholly-owned subsidiaries. In connection with these securitizations, certain of our affiliates receive a
fee for managing and servicing the solar energy systems pursuant to management, servicing, facility
administration and asset management agreements. The special purpose entities are also typically required to
maintain a liquidity reserve account and a reserve account for inverter replacements and, in certain cases,
reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement
for the benefit of the lenders under the applicable series of notes, each of which are funded from initial deposits
or cash flows to the levels specified therein. The creditors of these special purpose entities have no recourse to
our other assets except as expressly set forth in the terms of the notes. From our inception through
December 31, 2019, we have issued $824.6 million in solar asset-backed and solar loan-backed notes.
Tax Equity Funds
Our ability to offer long-term solar service agreements depends in part on our ability to finance the
installation of the solar energy systems by co-investing with tax equity investors such as large banks who value
the resulting customer receivables and Section 48(a) 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 "tax equity funds". In the
context of distributed generation solar energy, tax equity investors make contributions upfront or in stages based
on milestones in exchange for a share of the tax attributes and cash flows emanating from an underlying
portfolio of solar energy systems. In these tax equity 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 tax
equity fund vary significantly by investor and by fund. We continue to negotiate with potential investors to
create additional tax equity funds.
In general, our tax equity funds are structured using the "partnership flip" structure. Under partnership flip
structures, we and our tax equity investors contribute cash into a partnership. The partnership uses this cash to
acquire long-term solar service agreements and solar energy systems developed by us and sells energy from
such solar energy systems to customers or directly leases the solar energy systems to customers. We assign these
solar service agreements, solar energy systems and related incentives to our tax equity funds in accordance with
the criteria of the specific funds. Upon such assignment and the satisfaction of certain conditions precedent, we
are able to draw down on the tax equity fund commitments. The conditions precedent to funding vary across our
tax equity funds but generally require that we have entered into a solar service agreement with the customer, the
customer meets certain credit criteria, the solar energy system is expected to be eligible for the Section 48(a)
ITC, we have a recent appraisal from an independent appraiser establishing the fair market value of the solar
energy system and the property is in an approved state or territory. All the capital contributed by our tax equity
investors into the tax equity funds is, depending on the tax equity fund structure, either paid to us to acquire
solar energy systems or distributed to us following our contribution of solar energy systems to the tax equity
fund. Some tax equity investors have additional criteria that are specific to those tax equity funds. Once
received by us, these proceeds are generally used for working capital or capital expenditures to develop and
deliver solar energy systems. Each tax equity investor agrees to receive a minimum target rate of return,
typically on an after-tax basis, which varies by tax equity fund. Prior to receiving a contractual rate of return or
a date specified in the contractual arrangements, the tax equity investor receives substantially all of the non-cash
value attributable to the solar energy systems, which includes accelerated depreciation and Section 48(a) ITCs,
and a significant portion of the value attributable to customer payments; however, we receive a majority of the
cash distributions, which are typically paid quarterly. After the tax equity investor receives its contractual rate of
return or after the specified date, we receive substantially all of the cash. Under the partnership flip structure, in
part owing to the allocation of depreciation benefits to the investor, the investor's pre-tax return is much lower
than the investor's after-tax return.
We have determined we are the primary beneficiary in these partnership flip 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 tax equity investors' share of the net assets of the tax equity
73
funds as redeemable noncontrolling interests in our consolidated balance sheets. These income or loss
allocations, reflected in our consolidated statements of operations, may create significant volatility in our
reported results of operations, including potentially changing net loss attributable to stockholders to net income
attributable to stockholders, or vice versa, from quarter to quarter.
We typically have an option to acquire, and our tax equity investors may have an option to withdraw and
require us to purchase, all the equity interests our tax equity investor holds in the tax equity funds
approximately six years after the last solar energy system in each tax equity fund is operational. If we or our tax
equity investors exercise this option, we are typically required to pay at least the fair market value of the tax
equity investor's equity interest. Following such exercise, we would receive 100% of the customer payments for
the remainder of the term of the solar service agreements. From our inception through December 31, 2019, we
have received commitments of $374.5 million through the use of tax equity funds, of which an aggregate of
$308.4 million has been funded.
Key Financial and Operational Metrics
We regularly review a number of metrics, including the following key operational and financial metrics,
to evaluate our business, measure our performance and liquidity, identify trends affecting our business,
formulate our financial projections and make strategic decisions.
Number of Customers. We define number of customers to include each customer that is party to an in-
service solar service agreement. For our leases, PPAs and loan agreements, in-service means the related solar
energy system and, if applicable, energy storage system, must have met all the requirements to begin operation
and be interconnected to the electrical grid. For our Sunnova Protect services, in-service means the customer's
solar energy system must have met the requirements to have the service activated. We do not include in our
number of customers any customer under a lease, PPA or loan agreement that has reached mechanical
completion but has not received permission to operate from the local utility or for whom we have terminated the
contract and removed the solar energy system. We also do not include in our number of customers any customer
of our Sunnova Protect services that has been in default under his or her solar service agreement in excess of six
months. We track the total number of customers as an indicator of our historical growth and our rate of growth
from period to period.
Number of customers
As of December 31,
2019
2018
Change
78,600
60,300
18,300
Weighted Average Number of Customers. We calculate the weighted average number of customers based on
the number of months a given customer is in-service during a given measurement period. The weighted average
customer count reflects the number of customers at the beginning of a period, plus the total number of new
customers added in the period adjusted by a factor that accounts for the partial period nature of those new
customers. For purposes of this calculation, we assume all new customers added during a month were added in
the middle of that month. We track the weighted average customer count in order to accurately reflect the
contribution of the appropriate number of customers to key financial metrics over the measurement period.
Weighted average number of customers (excluding loan
agreements)
Weighted average number of customers with loan agreements
Weighted average number of customers
74
Year Ended
December 31,
2019
2018
2017
60,100
8,400
68,500
49,200
4,200
53,400
37,000
1,800
38,800
Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus net interest expense,
depreciation and amortization expense, income tax expense, financing deal costs, natural disaster losses and
related charges, net, amortization of payments to dealers for exclusivity and other bonus arrangements, legal
settlements and excluding the effect of certain non-recurring items we do not consider to be indicative of our
ongoing operating performance such as, but not limited to, costs of our IPO, losses on unenforceable contracts,
losses on extinguishment of long-term debt, realized and unrealized gains and losses on fair value option
instruments and other non-cash items such as non-cash compensation expense and asset retirement obligation
("ARO") accretion expense.
Adjusted EBITDA is a non-GAAP financial measure we use as a performance measure. We believe
investors and securities analysts also use Adjusted EBITDA in evaluating our operating performance. This
measurement is not recognized in accordance with accounting principles generally accepted in the United States
of America ("GAAP") and should not be viewed as an alternative to GAAP measures of performance. The
GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). The presentation of
Adjusted EBITDA should not be construed to suggest our future results will be unaffected by non-cash or non-
recurring items. In addition, our calculation of Adjusted EBITDA is not necessarily comparable to Adjusted
EBITDA as calculated by other companies.
We believe Adjusted EBITDA is useful to management, investors and analysts in providing a measure of
core financial performance adjusted to allow for comparisons of results of operations across reporting periods
on a consistent basis. These adjustments are intended to exclude items that are not indicative of the ongoing
operating performance of the business. Adjusted EBITDA is also used by our management for internal planning
purposes, including our consolidated operating budget, and by our Board in setting performance-based
compensation targets. Adjusted EBITDA should not be considered an alternative to but viewed in conjunction
with GAAP results, as we believe it provides a more complete understanding of ongoing business performance
and trends than GAAP measures alone. Adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
We use per customer metrics, including Adjusted Operating Expense per weighted average customer (as
described below), as an additional way to evaluate our performance. Specifically, we consider the change in
these metrics from period to period as a way to evaluate our performance in the context of changes we
experience in the overall customer base. While the Adjusted Operating Expense figure provides a valuable
indicator of our overall performance, evaluating this metric on a per unit basis allows for further nuanced
understanding by management, investors and analysts of the financial impact of each additional customer.
75
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss
Interest expense, net
Interest expense, net—affiliates
Interest income
Depreciation expense
Amortization expense
EBITDA
Non-cash compensation expense (1)
ARO accretion expense
Financing deal costs
Natural disaster losses and related charges, net
IPO costs
Loss on unenforceable contracts
Loss on extinguishment of long-term debt, net—affiliates
Unrealized loss on fair value option instruments
Realized loss on fair value option instruments
Amortization of payments to dealers for exclusivity and other
bonus arrangements
Legal settlements
Adjusted EBITDA
Year Ended
December 31,
2019
2018
2017
(in thousands)
$ (133,434) $
108,024
(68,409) $
51,582
(90,182)
59,847
4,098
(12,483)
49,340
29
15,574
10,512
1,443
1,161
54
3,804
2,381
10,645
150
730
583
1,260
9,548
(6,450)
39,290
133
25,694
3,410
1,183
1,902
8,217
563
—
—
—
—
—
150
23,177
(3,197)
29,482
133
19,260
1,495
704
336
1,034
—
—
—
—
—
—
575
$
48,297
$
41,119
$
23,404
(1) Amount includes non-cash effect of equity-based compensation plans of $9.2 million, $3.0 million and
$1.5 million for the years ended December 31, 2019, 2018 and 2017, respectively, and partial
forgiveness of a loan to an executive officer used to purchase our capital stock of $1.3 million and $0.4
million for the years ended December 31, 2019 and 2018, respectively.
Interest Income and Principal Payments from Customer Notes Receivable. Under our loan agreements, the
customer obtains financing for the purchase of a solar energy system from us and we agree to operate and
maintain the solar energy system throughout the duration of the agreement. Pursuant to the terms of the loan
agreement, the customer makes scheduled principal and interest payments to us and has the option to prepay
principal at any time in part or in full. Whereas we typically recognize payments from customers under our
leases and PPAs as revenue, we recognize payments received from customers under our loan agreements (a) as
interest income, to the extent attributable to earned interest on the contract that financed the customer's purchase
of the solar energy system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable
to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of
the solar energy system; and (c) as revenue, to the extent attributable to payments for operations and
maintenance services provided by us.
While Adjusted EBITDA effectively captures the operating performance of our leases and PPAs, it only
reflects the service portion of the operating performance under our loan agreements. We do not consider our
types of solar service agreements differently when evaluating our operating performance. In order to present a
measure of operating performance that provides comparability without regard to the different accounting
76
treatment among our three types of solar service agreements, we consider interest income from customer notes
receivable and principal proceeds from customer notes receivable, net of related revenue, as key performance
metrics. We believe these two metrics provide a more meaningful and uniform method of analyzing our
operating performance when viewed in light of our other key performance metrics across the three primary
types of solar service agreements.
Year Ended
December 31,
2019
2018
2017
Interest income from customer notes receivable
$ 11,588
(in thousands)
$
6,147
Principal proceeds from customer notes receivable, net of related revenue
$ 20,044
$
6,812
$
$
3,003
2,360
Adjusted Operating Cash Flow. We define Adjusted Operating Cash Flow as net cash used in operating
activities plus principal proceeds from customer notes receivable and distributions to redeemable noncontrolling
interests less payments to dealers for exclusivity and other bonus arrangements, inventory and prepaid inventory
purchases and payments of non-capitalized costs related to our IPO. Adjusted Operating Cash Flow is a non-
GAAP financial measure we use as a liquidity measure. This measurement is not recognized in accordance with
GAAP and should not be viewed as an alternative to GAAP measures of liquidity. The GAAP measure most
directly comparable to Adjusted Operating Cash Flow is net cash used in operating activities. We believe
Adjusted Operating Cash Flow is a supplemental financial measure useful to management, analysts, investors,
lenders and rating agencies as an indicator of our ability to internally fund origination activities, service or incur
additional debt and service our contractual obligations. We believe investors and analysts will use Adjusted
Operating Cash Flow to evaluate our liquidity and ability to service our contractual obligations. However,
Adjusted Operating Cash Flow has limitations as an analytical tool because it does not account for all future
expenditures and financial obligations of the business or reflect unforeseen circumstances that may impact our
future cash flows, all of which could have a material effect on our financial condition and results from
operations. In addition, our calculations of Adjusted Operating Cash Flow are not necessarily comparable to
liquidity measures presented by other companies. Investors should not rely on these measures as a substitute for
any GAAP measure, including net cash used in operating activities.
Year Ended
December 31,
2019
2018
2017
(in thousands)
Reconciliation of Net Cash Used in Operating Activities to Adjusted
Operating Cash Flow:
Net cash used in operating activities
Principal proceeds from customer notes receivable
Distributions to redeemable noncontrolling interests
Payments to dealers for exclusivity and other bonus arrangements
$ (170,262) $(11,570) $ (48,967)
2,816
(294)
—
21,604
(7,559)
31,733
7,715
(2,017)
—
Inventory and prepaid inventory purchases
Payments of non-capitalized costs related to IPO
Adjusted Operating Cash Flow
127,818
14,288
1,902
4,944
—
$
8,278
$ 8,416
—
$ (44,543)
Adjusted Operating Expense. We define Adjusted Operating Expense as total operating expense less
depreciation and amortization expense, financing deal costs, natural disaster losses and related charges, net,
amortization of payments to dealers for exclusivity and other bonus arrangements, legal settlements and
excluding the effect of certain non-recurring items we do not consider to be indicative of our ongoing operating
performance such as, but not limited to, costs of our IPO, losses on unenforceable contracts and other non-cash
items such as non-cash compensation expense and ARO accretion expense. Adjusted Operating Expense is a
77
non-GAAP financial measure we use as a performance measure. We believe investors and securities analysts
will also use Adjusted Operating Expense in evaluating our performance. This measurement is not recognized in
accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The
GAAP measure most directly comparable to Adjusted Operating Expense is total operating expense. We believe
Adjusted Operating Expense is a supplemental financial measure useful to management, analysts, investors,
lenders and rating agencies as an indicator of the efficiency of our operations between reporting periods.
Adjusted Operating Expense should not be considered an alternative to but viewed in conjunction with GAAP
total operating expense, as we believe it provides a more complete understanding of our performance than
GAAP measures alone. Adjusted Operating Expense has limitations as an analytical tool and you should not
consider it in isolation or as a substitute for analysis of our results as reported under GAAP, including total
operating expense.
We use Adjusted Operating Expense per weighted average customer as an additional way to evaluate our
performance. Specifically, we consider the change in this metric from period to period as a way to evaluate our
performance in the context of changes we experience in the overall customer base. While the Adjusted
Operating Expense figure provides a valuable indicator of our overall performance, evaluating this metric on a
per customer basis provides a more contextualized understanding of our performance to us, investors and
analysts of the financial impact of each additional customer.
Reconciliation of Total Operating Expense, Net to Adjusted
Operating Expense:
Total operating expense, net
Depreciation expense
Amortization expense
Non-cash compensation expense
ARO accretion expense
Financing deal costs
Natural disaster losses and related charges, net
IPO costs
Loss on unenforceable contracts
Amortization of payments to dealers for exclusivity and other bonus
arrangements
Legal settlements
Adjusted Operating Expense
Year Ended
December 31,
2019
2018
2017
(in thousands, except per customer data)
$ 153,826
(49,340)
(29)
(10,512)
(1,443)
(1,161)
(54)
(3,804)
(2,381)
$ 118,112
(39,290)
(133)
(3,410)
(1,183)
(1,902)
(8,217)
(563)
—
$ 87,211
(29,482)
(133)
(1,495)
(704)
(336)
(1,034)
—
—
(583)
(1,260)
$ 83,259
—
(150)
$ 63,264
—
(575)
$ 53,452
Adjusted Operating Expense per weighted average customer
$
1,215
$
1,185
$
1,378
Estimated Gross Contracted Customer Value. We calculate estimated gross contracted customer value as
defined below. We believe estimated gross contracted customer value can serve as a useful tool for investors and
analysts in comparing the remaining value of our customer contracts to that of our peers.
Estimated gross contracted customer value as of a specific measurement date represents the sum of the
present value of the remaining estimated future net cash flows we expect to receive from existing customers
during the initial contract term of our leases and PPAs, which are typically 25 years in length, plus the present
value of future net cash flows we expect to receive from the sale of related SRECs, either under existing
contracts or in future sales, plus the carrying value of outstanding customer loans on our balance sheet. From
78
these aggregate estimated initial cash flows, we subtract the present value of estimated net cash distributions to
redeemable noncontrolling interests and estimated operating, maintenance and administrative expenses
associated with the solar service agreements. These estimated future cash flows reflect the projected monthly
customer payments over the life of our solar service agreements and depend on various factors including but not
limited to solar service agreement type, contracted rates, expected sun hours and the projected production
capacity of the solar equipment installed. For the purpose of calculating this metric, we discount all future cash
flows at 6%.
The anticipated operating, maintenance and administrative expenses included in the calculation of
estimated gross contracted customer value include, among other things, expenses related to accounting,
reporting, audit, insurance, maintenance and repairs. In the aggregate, we estimate these expenses are $20 per
kilowatt per year initially, with 2% annual increases for inflation. We do not include maintenance and repair
costs for inverters and similar equipment as those are largely covered by the applicable product and dealer
warranties for the life of the product, but we do include additional cost for energy storage systems, which are
only covered by a 10-year warranty. Expected distributions to tax equity investors vary among the different tax
equity funds and are based on individual tax equity fund contract provisions.
Estimated gross contracted customer value 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 estimated gross
contracted customer value 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. The following table
presents the calculation of estimated gross contracted customer value as of December 31, 2019 and 2018,
calculated using a 6% discount rate.
Estimated gross contracted customer value
As of December 31,
2019
2018
$
(in millions)
1,879
$
1,476
Sensitivity Analysis. The calculation of estimated gross contracted customer value and associated
operational metrics requires us to make a number of assumptions regarding future revenues and costs which
may not prove accurate. Accordingly, we present below a sensitivity analysis with a range of assumptions. We
consider a discount rate of 6% to be appropriate based on industry practice and recent transactions that
demonstrate a portfolio of residential solar service agreements is an asset class that can be securitized
successfully on a long-term basis, with a coupon of less than 6%. The appropriate discount rate for these
estimates may change in the future due to the level of inflation, rising interest rates, our cost of capital and
consumer demand for solar energy systems. In addition, the table below provides a range of estimated gross
contracted customer value amounts if different cumulative customer loss rate assumptions were used. We are
presenting this information for illustrative purposes only and as a comparison to information published by our
peers.
Estimated Gross Contracted Customer Value
Cumulative customer loss rate
5%
0%
As of December 31, 2019
Discount rate
4%
6%
8%
$ 2,138
(in millions)
$ 1,850
$ 1,629
$ 2,175
$ 1,879
$ 1,652
79
Significant Factors and Trends Affecting Our Business
Our results of operations and our ability to grow our business over time could be impacted by a number of
factors and trends that affect our industry generally, as well as new offerings of services and products we may
acquire or seek to acquire in the future. Additionally, our business is concentrated in certain markets, putting us
at risk of region-specific disruptions such as adverse economic, regulatory, political, weather and other
conditions. See "Item 1A. Risk Factors" for further discussion of risks affecting our business.
Financing Availability. Our future growth depends, in significant part, on our ability to raise capital from
third-party investors on competitive terms to help finance the origination of our solar energy systems under our
solar service agreements. We have historically used debt, such as asset-backed and loan-backed securitizations
and warehouse facilities, tax equity, preferred equity and other financing strategies to help fund our operations.
From our inception through December 31, 2019, we have raised more than $4.7 billion in total capital
commitments from equity, debt and tax equity investors. With respect to tax equity, there are a limited number
of potential tax equity investors and the competition for this investment capital is intense. The principal tax
credit on which tax equity investors in our industry rely is the Section 48(a) ITC. The amount for the Section
48(a) ITC is equal to 30% of the basis of eligible solar property that began construction before 2020. By statute,
the Section 48(a) ITC percentage decreases to 26% for eligible solar property that begins construction during
2020, 22% for 2021 and 10% if construction begins after 2021 or if the property is placed into service after
2023. This reduction in the Section 48(a) ITC will likely reduce our use of tax equity financing in the future
unless the Section 48(a) ITC is increased or replaced. IRS guidance includes a 5% ITC Safe Harbor that may
apply when a taxpayer (or in certain cases, a contractor) pays or incurs 5% or more of the costs of a solar energy
system before the end of the applicable year, even though the solar energy system is not placed in service until
after the end of that year. For 2020, we have purchased substantially all the inverters that will be deployed under
our lease and PPA agreements that we expect will allow the related solar energy systems to qualify for the 30%
Section 48(a) ITC by satisfying the 5% ITC Safe Harbor. We may make further inventory purchases in future
periods to extend the availability of each period's Section 48(a) ITC. Our ability to raise capital from third-party
investors is affected by general economic conditions, the state of the capital markets, inflation levels and
concerns about our industry or business.
Cost of Solar Energy Systems. Although the solar panel market has seen an increase in supply, upward
pressure on prices may occur due to growth in the solar industry, regulatory policy changes, tariffs and duties
and an increase in demand. As a result of these developments, we may pay higher prices on imported solar
modules, which may make it less economical for us to serve certain markets. Attachment rates for energy
storage systems have trended higher while the price to acquire has trended downward making the addition of
energy storage systems a potential area of growth for us.
Energy Storage Systems. Our energy storage systems increase our customers' independence from the
centralized utility and provide on-site backup power when there is a grid outage due to storms, wildfires, other
natural disasters and general power failures caused by supply or transmission issues. In addition, at times it can
be more economic to consume less energy from the grid or, alternatively, to export solar energy back to the grid.
Recent technological advancements for energy storage systems allow the energy storage system to adapt to
pricing and utility rate shifts by controlling the inflows and outflows of power, allowing customers to increase
the value of their solar energy system plus energy storage system. The energy storage system charges during the
day, making the energy it stores available to the home when needed. It also features software that can customize
power usage for the individual customer, providing backup power, optimizing solar energy consumption versus
grid consumption or preventing export to the grid as appropriate. The software is tailored based on utility
regulation, economic indicators and grid conditions. The combination of energy control, increased energy
resilience and independence from the grid is strong incentive for customers to adopt solar and energy storage.
As energy storage systems and their related software features become more advanced, we expect to see
increased adoption of energy storage systems.
80
Government Regulations, Policies and Incentives. Our growth strategy depends in significant part on
government policies and incentives that promote and support solar energy and enhance the economic viability
of distributed residential solar. These incentives come in various forms, including net metering, eligibility for
accelerated depreciation such as MACRS, SRECs, tax abatements, rebates, renewable targets, incentive
programs and tax credits, particularly the Section 48(a) ITC and the Section 25D Credit. Policies requiring solar
on new homes or new roofs, such as those enacted in California and New York City, also support the growth of
distributed solar. The sale of SRECs has constituted a significant portion of our revenue historically. A change in
the value of SRECs or changes in other policies or a loss or reduction in such incentives could decrease the
attractiveness of distributed residential solar to us, our dealers and our customers in applicable markets, which
could reduce our customer acquisition opportunities. Such a loss or reduction could also reduce our willingness
to pursue certain customer acquisitions due to decreased revenue or income under our solar service agreements.
Additionally, such a loss or reduction may also impact the terms of and availability of third-party financing. If
any of these government regulations, policies or incentives are adversely amended, delayed, eliminated,
reduced, retroactively changed or not extended beyond their current expiration dates or there is a negative
impact from the recent federal law changes or proposals, our operating results and the demand for, and the
economics of, distributed residential solar energy may decline, which could harm our business.
Components of Results of Operations
Revenue. We recognize revenue from contracts with customers as we satisfy our performance obligations
at a transaction price reflecting an amount of consideration based upon an estimated rate of return. We express
this rate of return as the solar rate per kWh in the customer contract. The amount of revenue we recognize does
not equal customer cash payments because we satisfy performance obligations ahead of cash receipt or evenly
as we provide continuous access on a stand-ready basis to the solar energy system. We reflect the differences
between revenue recognition and cash payments received in accounts receivable, other assets or deferred
revenue, as appropriate.
PPAs. We have determined solar service agreements under which customers purchase electricity from us
should be accounted for as revenue from contracts with customers. We recognize revenue based upon the
amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the
contracts. The PPAs generally have a term of 25 years with an opportunity for customers to renew for up to an
additional 10 years, via two five-year renewal options.
Lease Agreements. We are the lessor under lease agreements for solar energy systems and energy storage
systems, which we account for as revenue from contracts with customers. We recognize revenue on a straight-
line basis over the contract term as we satisfy our obligation to provide continuous access to the solar energy
system. The lease agreements generally have a term of 25 years with an opportunity for customers to renew for
up to an additional 10 years, via two five-year renewal options.
We provide customers under our lease agreements a performance guarantee that each solar energy system
will achieve a certain specified minimum solar energy production output. The specified minimum solar energy
production output may not be achieved due to natural fluctuations in the weather or equipment failures from
exposure and wear and tear outside of our control, among other factors. We determine the amount of guaranteed
output based on a number of different factors, including (a) the specific site information relating to the tilt of the
panels, azimuth (a horizontal angle measured clockwise in degrees from a reference direction) of the panels,
size of the solar energy system and shading on site; (b) the calculated amount of available irradiance (amount of
energy for a given flat surface facing a specific direction) based on historical average weather data and (c) the
calculated amount of energy output of the solar energy system.
If the solar energy system does not produce the guaranteed production amount, we are required to provide
a bill credit or refund a portion of the previously remitted customer payments, where the bill credit or
repayment is calculated as the product of (a) the shortfall production amount and (b) the dollar amount
81
(guaranteed rate) per kWh that is fixed throughout the term of the contract. These bill credits or remittances of a
customer's payments, if needed, are payable in January following the end of the first three years of the solar
energy system's placed in service date and then every annual period thereafter. See Note 17, Commitments and
Contingencies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-
K.
Loan Agreements. We recognize payments received from customers under loan agreements (a) as interest
income, to the extent attributable to earned interest on the contract that financed the customer's purchase of the
solar energy system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a
return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of the
solar energy system; and (c) as revenue, to the extent attributable to payments for operations and maintenance
services provided by us. Similar to our lease agreements, we provide customers under our loan agreements a
performance guarantee that each solar energy system will achieve a certain specified minimum solar energy
production output, which is a significant proportion of its expected output.
Solar Renewable Energy Certificates. Each SREC represents one megawatt hour (1,000 kWh) generated
by a solar energy system. We measure and issue SRECs to the owner of the solar energy system based on meter
readings of actual production. We sell SRECs to utilities and other third parties who use the SRECs to meet
renewable portfolio standards and can do so with or without the actual electricity associated with the renewable-
based generation source. We account for SRECs generated from solar energy systems owned by us, as opposed
to those owned by our customers, as governmental incentives with no costs incurred to obtain them and do not
consider those SRECs output of the underlying solar energy systems. We classify SRECs as inventory held until
sold and delivered to third parties. We enter into economic hedges with major financial institutions related to
expected production of SRECs through forward contracts to partially mitigate the risk of decreases in SREC
market rates. The contracts require us to physically deliver the SRECs upon settlement. We recognize the
related revenue upon the transfer of the SRECs to the counterparty. The costs related to the sales of SRECs are
limited to fees for brokered transactions. Accordingly, the sale of SRECs in a period favorably impacts our
operating results for that period.
Other Revenue. Other revenue includes certain state incentives, revenue from the direct sale of energy
storage systems to customers and sales of service plans. We recognize revenue from state incentives in the
periods in which they are incurred. We recognize revenue from the direct sale of energy storage systems in the
period in which the storage components are placed in service. Service plans are available to customers whose
solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts over
the life of the contract, which is typically five years.
Cost of Revenue—Depreciation. Cost of revenue—depreciation represents depreciation on solar energy
systems under lease agreements and PPAs that have been placed in service.
Cost of Revenue—Other. Cost of revenue—other represents other items deemed to be a cost of providing
the service of selling power to customers or potential customers, such as certain costs to service loan
agreements, and costs for filing under the Uniform Commercial Code to maintain title, title searches, credit
checks on potential customers at the time of initial contract and other similar costs, typically directly related to
the volume of customers and potential customers.
Operations and Maintenance Expense. Operations and maintenance expense represents costs paid to third
parties for maintaining and servicing the solar energy systems, property insurance and property taxes. In
addition, operations and maintenance expense includes impairments due to natural disaster losses, losses on
disposals and other impairments net of insurance proceeds recovered under our business interruption and
property damage insurance coverage for natural disasters, such as Hurricane Maria, which occurred in Puerto
Rico in September 2017 and for which we incurred charges through the fourth quarter of 2018.
82
General and Administrative Expense. General and administrative expense represents costs for our
employees, such as salaries, bonuses, benefits and all other employee-related costs, including stock-based
compensation, professional fees related to legal, accounting, human resources, finance and training, information
technology and software services, marketing and communications, travel and rent and other office-related
expenses. General and administrative expense also includes depreciation on assets not classified as solar energy
systems, including vehicles, furniture, fixtures, computer equipment and leasehold improvements and accretion
expense on AROs. We capitalize a portion of general and administrative expense, such as payroll-related costs,
that is related to employees who are directly involved in the design, construction, installation and testing of the
solar energy systems but not directly associated with a particular asset. We also capitalize a portion of general
and administrative expense, such as payroll-related costs, that is related to employees who are directly
associated with and devote time to internal information technology software projects, to the extent of the time
spent directly on the application and development stage of such software project.
Interest Expense, Net. Interest expense, net represents interest, net of capitalized interest, on our
borrowings under our various debt facilities and amortization of debt discounts and deferred financing costs.
Interest Expense, Net—Affiliates. Interest expense, net—affiliates represents interest expense on our debt
facilities, including the amortization of the debt discounts, held by our affiliates.
Interest Income. Interest income represents interest income from the notes receivable under our loan
program and income on short term investments with financial institutions.
Loss on Extinguishment of Long-Term Debt, Net—Affiliates. Loss on extinguishment of long-term debt,
net—affiliates resulted from the GAAP treatment of the amendment to the senior secured notes in April 2019
and represents the difference between the net carrying value of the senior secured notes prior to the amendment
and the fair value of the notes after the amendment as discussed in Note 8, Long-Term Debt, to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
Other (Income) Expense. Other (income) expense primarily represents changes in the fair value of certain
financial instruments, including the senior secured notes that were redeemed in July 2019.
Income Tax. We account for income taxes under Accounting Standards Codification 740, Income Taxes.
As such, we determine deferred tax assets and liabilities based on temporary differences resulting from the
different treatment of items for tax and financial reporting purposes. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. Additionally, we must assess the likelihood that deferred tax assets will be
recovered as deductions from future taxable income. We have a full valuation allowance on our deferred tax
assets because we believe it is more likely than not that our deferred tax assets will not be realized. We evaluate
the recoverability of our deferred tax assets on a quarterly basis. Currently, there is no provision or benefit for
income taxes as we have incurred losses to date.
Net Income Attributable to Redeemable Noncontrolling Interests. Net income attributable to redeemable
noncontrolling interests represents third-party interests in the net assets of certain consolidated subsidiaries.
83
Results of Operations—Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table sets forth our consolidated statements of operations data for the periods indicated.
Revenue
Operating expense:
Cost of revenue—depreciation
Cost of revenue—other
Operations and maintenance
General and administrative
Other operating income
Total operating expense, net
Year Ended
December 31,
2019
2018
Change
$ 131,556
(in thousands)
104,382
$
$
27,174
43,536
3,877
8,588
97,986
(161)
153,826
34,710
2,007
14,035
67,430
(70)
118,112
8,826
1,870
(5,447)
30,556
(91)
35,714
Operating loss
(22,270)
(13,730)
(8,540)
Interest expense, net
Interest expense, net—affiliates
Interest income
Loss on extinguishment of long-term debt, net—affiliates
Other (income) expense
Loss before income tax
Income tax
Net loss
Net income attributable to redeemable noncontrolling interests
Net loss attributable to stockholders
Revenue
PPA revenue
Lease revenue
SREC revenue
Loan revenue
Other revenue
Total
84
108,024
4,098
(12,483)
10,645
880
(133,434)
51,582
9,548
(6,450)
—
(1)
(68,409)
56,442
(5,450)
(6,033)
10,645
881
(65,025)
—
(133,434)
10,917
$ (144,351) $
—
(68,409)
5,837
—
(65,025)
5,080
(74,246) $ (70,105)
Year Ended
December 31,
2019
2018
Change
$
48,041
40,191
38,453
1,645
(in thousands)
38,950
$
$
33,079
30,630
933
9,091
7,112
7,823
712
3,226
$ 131,556
$
790
104,382
$
2,436
27,174
Revenue increased by $27.2 million in the year ended December 31, 2019 compared to the year ended
December 31, 2018 primarily as a result of an increased number of solar energy systems in service. The
weighted average number of customers (excluding customers with loan agreements) increased from
approximately 49,200 for the year ended December 31, 2018 to approximately 60,100 for the year ended
December 31, 2019. Excluding SREC revenue and revenue under our loan agreements, on a weighted average
number of customers basis, revenue increased from $1,480 per customer for the year ended December 31, 2018
to $1,522 per customer for the same period in 2019 (3% increase). The year over year difference in revenue per
customer was affected by (a) the market mix of portfolio and relative yields in those markets, (b) weather
variability and (c) the impact of Hurricane Maria on Puerto Rico revenues (for which billing was largely
curtailed for approximately two months beginning in September 2017 and then gradually increased over time
until billing was materially resumed by August 2018). SREC revenue increased by $7.8 million in the year
ended December 31, 2019 compared to the year ended December 31, 2018 primarily as a result of an increase in
the number of solar energy systems in service, which resulted in additional SREC production, and $3.0 million
related to certain forward sales of SRECs. The fluctuations in SREC revenue from period to period are affected
by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the
timing of the sale of SRECs. On a weighted average number of customers basis, revenues under our loan
agreements decreased from $222 per customer for the year ended December 31, 2018 to $196 per customer for
the same period in 2019 (12% decrease) primarily due to market changes.
Cost of Revenue—Depreciation
Cost of revenue—depreciation
Year Ended
December 31,
2019
2018
Change
$
43,536
(in thousands)
34,710
$
$
8,826
Cost of revenue—depreciation increased by $8.8 million in the year ended December 31, 2019 compared
to the year ended December 31, 2018. This increase was primarily driven by an increase in the weighted
average number of customers (excluding customers with loan agreements) from approximately 49,200 for the
year ended December 31, 2018 to approximately 60,100 for the year ended December 31, 2019. On a weighted
average number of customers basis, cost of revenue—depreciation remained relatively flat at $705 per customer
for the year ended December 31, 2018 compared to $724 per customer for the same period in 2019.
Cost of Revenue—Other
Cost of revenue—other
Year Ended
December 31,
2019
2018
Change
$
3,877
(in thousands)
2,007
$
$
1,870
Cost of revenue—other increased by $1.9 million in the year ended December 31, 2019 compared to the
year ended December 31, 2018. This increase was primarily driven by increases in costs related to energy
storage systems of $1.2 million as a result of the introduction of energy storage systems as a new product
offering in late 2018.
85
Operations and Maintenance Expense
Operations and maintenance
Year Ended
December 31,
2019
2018
Change
$
8,588
(in thousands)
14,035
$
$
(5,447)
Operations and maintenance expense decreased by $5.4 million for the year ended December 31, 2019
compared to the year ended December 31, 2018. The decrease was primarily due to a decrease in impairments
and other related charges due to natural disaster losses of $4.7 million related primarily to Hurricane Maria,
which occurred in September 2017 and for which $2.7 million of business interruptions proceeds were received
in October 2018. A significant portion of Hurricane Maria charges occurred during the fourth quarter of 2018 as
the completion of the repairs for solar energy systems damaged by the hurricane and the completion of the
analysis regarding whether a solar energy system damaged by the hurricane was recoverable took an extensive
amount of time for many of the assets and customers. Operations and maintenance expense per customer,
excluding net natural disaster losses, decreased to $142 per customer for the year ended December 31, 2019
compared to $188 per customer for the year ended December 31, 2018 as a result of operational efficiencies.
General and Administrative Expense
General and administrative
Year Ended
December 31,
2019
2018
Change
$
97,986
(in thousands)
67,430
$
$
30,556
General and administrative expense increased by $30.6 million in the year ended December 31, 2019
compared to the year ended December 31, 2018 primarily due to increases in payroll and employee related
expenses of $14.0 million due to the hiring of personnel to support growth and additional non-cash
compensation expense in connection with our IPO, consultants, contractors and professional fees of $4.0
million, insurance expenses of $3.2 million, IPO costs of $3.2 million, loss on unenforceable contracts of $2.4
million relating to certain loans originated in 2019 that did not meet certain applicable regulatory requirements,
marketing and communications expenses of $1.6 million, depreciation expense not related to solar energy
systems of $1.2 million, travel and related business expenses of $0.9 million and bad debt expense of $0.7
million.
Interest Expense, Net
Interest expense, net
Year Ended
December 31,
2019
2018
Change
$ 108,024
(in thousands)
51,582
$
$
56,442
Interest expense, net increased by $56.4 million in the year ended December 31, 2019 compared to the year
ended December 31, 2018. This increase was primarily driven by increases in realized loss on interest rate
swaps of $30.2 million, unrealized loss on interest rate swaps of $13.1 million and interest expense of $10.8
million due to an increase in the principal debt balance after entering into new financing arrangements.
86
Interest Expense, Net—Affiliates
Interest expense, net—affiliates
Year Ended
December 31,
2019
2018
Change
$
4,098
(in thousands)
9,548
$
$
(5,450)
Interest expense, net—affiliates decreased by $5.5 million in the year ended December 31, 2019 compared
to the year ended December 31, 2018 primarily due to a decrease in interest expense due to a decrease in the
principal debt balance between the periods and due to the redemption of the senior secured notes and
conversion of the convertible notes in July 2019.
Interest Income
Interest income
Year Ended
December 31,
2019
2018
Change
$
12,483
(in thousands)
6,450
$
$
6,033
Interest income increased by $6.0 million in the year ended December 31, 2019 compared to the year ended
December 31, 2018. This increase was primarily driven by the increase in the weighted average number of
customers with loan agreements from approximately 4,200 for the year ended December 31, 2018 to
approximately 8,400 for the year ended December 31, 2019. On a weighted average number of customers basis,
loan interest income decreased from $1,464 per customer for the year ended December 31, 2018 to $1,380 per
customer for the year ended December 31, 2019 (6% decrease) due to the fact that interest for the first 18
months on solar energy systems placed in service starting in July 2017 are based on 70% of the total amount
financed under the loan, as the other 30% is interest free prior to the due date of the 30% prepayment typically
due on the 18th month; while interest on solar energy systems placed in service in prior periods was based on the
entire financed amount.
Loss on Extinguishment of Long-Term Debt, Net—Affiliates
Loss on extinguishment of long-term debt, net—affiliates increased by $10.6 million in the year ended
December 31, 2019 compared to the year ended December 31, 2018 due to the amendment of the senior secured
notes in April 2019 that met the criteria for extinguishment accounting under GAAP.
Income Tax
We do not have income tax expense or benefit due to pre-tax losses and a full valuation allowance recorded
for the years ended December 31, 2019 and 2018. See "—Components of Results of Operations—Income Tax".
Net Income Attributable to Redeemable Noncontrolling Interests
Net income attributable to redeemable noncontrolling interests increased by $5.1 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase in income
attributable to redeemable noncontrolling interests due to tax equity funds added in 2018 and 2019.
87
Results of Operations—Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
The following table sets forth our consolidated statements of operations data for the periods indicated.
Revenue
Operating expense:
Cost of revenue—depreciation
Cost of revenue—other
Operations and maintenance
General and administrative
Other operating expense (income)
Total operating expense, net
Year Ended
December 31,
2018
2017
Change
$ 104,382
(in thousands)
76,856
$
$
27,526
34,710
2,007
14,035
67,430
(70)
118,112
25,896
1,444
4,994
54,863
14
87,211
8,814
563
9,041
12,567
(84)
30,901
Operating loss
(13,730)
(10,355)
(3,375)
Interest expense, net
Interest expense, net—affiliates
Interest income
Other (income) expense
Loss before income tax
Income tax
Net loss
Net income attributable to redeemable noncontrolling interests
Net loss attributable to stockholders
Revenue
PPA revenue
Lease revenue
SREC revenue
Loan revenue
Other revenue
Total
51,582
9,548
(6,450)
(1)
(68,409)
59,847
23,177
(3,197)
—
(90,182)
(8,265)
(13,629)
(3,253)
(1)
21,773
—
(68,409)
5,837
(74,246) $
—
(90,182)
903
(91,085) $
—
21,773
4,934
16,839
Year Ended
December 31,
2018
2017
Change
(in thousands)
29,171
$
$
9,779
38,950
33,079
30,630
933
790
$ 104,382
$
21,866
24,833
479
507
76,856
$
11,213
5,797
454
283
27,526
$
$
Revenue increased by $27.5 million in the year ended December 31, 2018 compared to the year ended
December 31, 2017 primarily as a result of an increased number of solar energy systems in service. The
88
weighted average number of customers (excluding customers with loan agreements) increased from
approximately 37,000 for the year ended December 31, 2017 to approximately 49,200 for the year ended
December 31, 2018. Excluding SREC revenue and revenue under our loan agreements, on a weighted average
number of customers basis, revenue increased from $1,393 per customer for the year ended December 31, 2017
to $1,480 per customer for the same period in 2018 (6% increase). The year over year difference in revenue per
customer was affected by (a) the market mix of portfolio and relative yields in those markets, (b) weather
variability and (c) the impact of Hurricane Maria on Puerto Rico revenues (for which billing was largely
curtailed for approximately two months beginning in September 2017 and then gradually increased over time
until billing was materially resumed by August 2018). SREC revenue increased by $5.8 million in the year
ended December 31, 2018 compared to the year ended December 31, 2017 primarily as a result of an increase in
the number of solar energy systems in service, which resulted in additional SREC production. The fluctuations
in SREC revenue from period to period are affected by the total number of solar energy systems, weather
seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average
number of customers basis, revenues under our loan agreements decreased from $266 per customer for the year
ended December 31, 2017 to $222 per customer for the same period in 2018 (17% decrease) primarily due to
market changes.
Cost of Revenue—Depreciation
Cost of revenue—depreciation
Year Ended
December 31,
2018
2017
Change
$
34,710
(in thousands)
25,896
$
$
8,814
Cost of revenue—depreciation increased by $8.8 million in the year ended December 31, 2018 compared
to the year ended December 31, 2017. This increase was primarily driven by an increase in the weighted
average number of customers (excluding customers with loan agreements) from approximately 37,000 for the
year ended December 31, 2017 to approximately 49,200 for the year ended December 31, 2018. On a weighted
average number of customers basis, cost of revenue—depreciation remained relatively flat at $700 per customer
for the year ended December 31, 2017 compared to $705 per customer for the same period in 2018.
Cost of Revenue—Other
Cost of revenue—other
Year Ended
December 31,
2018
2017
Change
$
2,007
(in thousands)
1,444
$
$
563
Cost of revenue—other increased by $0.6 million in the year ended December 31, 2018 compared to the
year ended December 31, 2017. This increase was primarily driven by an increase in costs related to repairs and
maintenance, production guarantees and parts and supplies as a result of the increase in the weighted average
number of customers with loan agreements from approximately 1,800 for the year ended December 31, 2017 to
approximately 4,200 for the year ended December 31, 2018.
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Operations and Maintenance Expense
Operations and maintenance
Year Ended
December 31,
2018
2017
Change
$
14,035
(in thousands)
4,994
$
$
9,041
Operations and maintenance expense increased by $9.0 million for the year ended December 31, 2018
compared to the year ended December 31, 2017. The increase was primarily driven by an increase in the
monthly average cost per customer for operations and maintenance expense, excluding net natural disaster
losses, from $146 per customer for the year ended December 31, 2017 to $188 per customer for the same period
in 2018 (29% increase). The increase in operations and maintenance expense was also due to an increase in the
weighted average number of customers (excluding customers with loan agreements) from approximately 37,000
for the year ended December 31, 2017 to approximately 49,200 for the year ended December 31, 2018,
resulting in more service orders in 2018. The operations and maintenance expense per customer increased
primarily due to higher repairs and maintenance expense, impairments and loss on disposals, meter replacement
costs, higher equipment costs and higher percentage of cases completed with third-party labor in 2018 (thus
increasing the average cost per closed case). In addition, operations and maintenance expense includes
impairments of $5.8 million and $0.8 million for the years ended December 31, 2018 and 2017, respectively,
due to natural disaster losses related primarily to Hurricane Maria, which occurred in September 2017, and
other natural disasters, such as California wildfires in October 2017 and November 2018 and a typhoon in
Saipan in October 2018. Operations and maintenance expense is net of both the insurance proceeds related to
property damage, as estimated or completed in the periods, and the insurance proceeds related to business
interruption. A significant portion of Hurricane Maria charges occurred during the fourth quarter of 2018 as the
completion of the repairs for solar energy systems damaged by the hurricane and the completion of the analysis
regarding whether a solar energy system damaged by the hurricane was recoverable and not recoverable took an
extensive amount of time for many of the assets and customers. For further discussion of operations and
maintenance expense related to natural disasters, see Note 4, Natural Disaster Losses, to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
General and Administrative Expense
General and administrative
Year Ended
December 31,
2018
2017
Change
$
67,430
(in thousands)
54,863
$
$
12,567
General and administrative expense increased by $12.6 million in the year ended December 31, 2018
compared to the year ended December 31, 2017 primarily due to increases in payroll and employee related
expenses of $3.5 million due to the hiring of personnel to support growth, legal and settlements expense of $1.3
million due to dealer litigation and various other general legal matters, financing deal costs of $1.6 million
primarily related to $1.5 million of costs written off in March 2018 for a financing facility as it did not
materialize, depreciation expense not related to solar energy systems of $1.0 million, IPO costs of $0.6 million
and natural disaster losses and related charges of $0.6 million due to Hurricane Maria in Puerto Rico in
September 2017.
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Interest Expense, Net
Interest expense, net
Year Ended
December 31,
2018
2017
Change
$
51,582
(in thousands)
59,847
$
$
(8,265)
Interest expense, net decreased by $8.3 million in the year ended December 31, 2018 compared to the year
ended December 31, 2017. This decrease was primarily driven by an increase in realized gain on interest rate
swaps of $20.3 million primarily due to the settlement of interest rate swaps related to repayments on subsidiary
debt in November 2018 and a decrease in amortization of deferred financing costs of $5.5 million due to
accelerated amortization from early pay-offs and retirement of debt in April 2017. This decrease was offset by
an increase in interest expense of $17.5 million due to higher levels of outstanding debt in 2018.
Interest Expense, Net—Affiliates
Interest expense, net—affiliates
Year Ended
December 31,
2018
2017
Change
$
9,548
(in thousands)
23,177
$
$
(13,629)
Interest expense, net—affiliates decreased by $13.6 million in the year ended December 31, 2018
compared to the year ended December 31, 2017 primarily due to a decrease of $9.0 million in amortization of
debt discounts as Sunnova Asset Portfolio 5 Holdings, LLC's debt was paid down in April 2017 and a decrease
in interest expense of $4.8 million due to a decrease in the principal debt balance between the periods.
Interest Income
Interest income
Year Ended
December 31,
2018
2017
Change
$
6,450
(in thousands)
3,197
$
$
3,253
Interest income increased by $3.3 million in the year ended December 31, 2018 compared to the year ended
December 31, 2017. This increase was primarily driven by the increase in the weighted average number of
customers with loan agreements from approximately 1,800 for the year ended December 31, 2017 to
approximately 4,200 for the year ended December 31, 2018. On a weighted average number of customers basis,
loan interest income decreased from $1,668 per customer for the year ended December 31, 2017 to $1,464 per
customer for the year ended December 31, 2018 (12% decrease) due to the fact that interest for the first 18
months on solar energy systems placed in service starting in July 2017 are based on 70% of the total amount
financed under the loan, as the other 30% is interest free prior to the due date of the 30% prepayment typically
due on the 18th month; while interest on solar energy systems placed in service in prior periods was based on the
entire financed amount.
Income Tax
We do not have income tax expense or benefit due to pre-tax losses and a full valuation allowance recorded
for the years ended December 31, 2018 and 2017. See "—Components of Results of Operations—Income Tax".
91
Net Income Attributable to Redeemable Noncontrolling Interests
Net income attributable to redeemable noncontrolling interests increased by $4.9 million for the year ended
December 31, 2018 compared to the year ended December 31, 2017 primarily due to the addition of two tax
equity funds in December 2017 and a full year of income on assets placed in service in 2017.
Liquidity and Capital Resources
As of December 31, 2019, we had total cash of $150.3 million, of which $83.5 million was unrestricted,
and $88.3 million of available borrowing capacity under our various financing arrangements. On July 29, 2019,
we completed our IPO in which we sold 14,000,000 shares of our common stock at a public offering price of
$12.00 per share. On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at
a public offering price of $12.00 per share pursuant to the underwriters' exercise of their option to purchase
additional shares. We received aggregate net proceeds from our IPO of approximately $162.3 million, after
deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses of
approximately $5.4 million. We used a portion of the net proceeds from our IPO to redeem our senior secured
notes due March 2021, of which $56.2 million aggregate principal amount was outstanding. The aggregate
redemption price for all our senior secured notes was approximately $57.1 million, which included accrued and
unpaid cash interest and pay-in-kind interest to the date of redemption. We used the remaining net proceeds
from our IPO for general corporate purposes, including working capital, operating expenses, capital
expenditures and repayment of indebtedness. We seek to maintain diversified and cost-effective funding sources
to finance and maintain our operations, fund capital expenditures, including customer acquisitions, and satisfy
obligations arising from our indebtedness. Historically, our primary sources of liquidity included non-recourse
and recourse debt, investor asset-backed and loan-backed securitizations and cash generated from operations.
Our business model requires substantial outside financing arrangements to grow the business and facilitate the
deployment of additional solar energy systems. We will seek to raise additional required capital, including from
new and existing tax equity investors, additional borrowings, securitizations and other potential debt and equity
financing sources. As of December 31, 2019, we were in compliance with all debt covenants under our
financing arrangements.
Additionally, from time-to-time we evaluate the potential acquisition of solar energy systems, energy
storage systems and related businesses and joint ventures. As a part of these efforts, we may engage in
discussions with potential sellers or other parties regarding the possible purchase of or investment in assets and
operations that are strategic and complementary to our existing operations. In addition, we have in the past
evaluated and pursued, and may in the future evaluate and pursue, the acquisition of or investment in other
energy-related assets that have characteristics and opportunities similar to our existing business lines and enable
us to leverage our assets, knowledge and skill sets. Such efforts may involve participation by us in processes
that have been made public and involve a number of potential buyers or investors, commonly referred to as
"auction" processes, as well as situations in which we believe we are the only party or one of a limited number
of parties who are in negotiations with the potential seller or other party. These acquisition and investment
efforts may involve assets which, if acquired or constructed, could have a material effect on our financial
condition and results of operations.
We expect our solar energy systems in service to generate a positive return rate over the customer
agreement, typically 25 years. Typically, once residential solar energy systems commence operations, they do
not require significant additional capital expenditures to maintain operating performance. However, in order to
grow, we are currently dependent on financing from outside parties. We believe we will have sufficient cash,
investment fund commitments and securitization commitments described below and cash flows from operations
to meet our working capital, debt service obligations, contingencies and anticipated required capital
expenditures, including customer acquisitions, for at least the next 12 months. However, we are subject to
business and operational risks that could adversely affect our ability to raise additional financing. If financing is
not available to us on acceptable terms if and when needed, we may be unable to finance installation of our new
92
customers' solar energy 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
tax equity 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 tax equity
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.
Financing Arrangements
The following is a description of our various financing arrangements. For a complete description of the
facilities in place as of December 31, 2019 see Note 8, Long-Term Debt, to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
Tax Equity Fund Commitments
As of December 31, 2019, we had undrawn committed capital of approximately $50.7 million under our
tax equity funds, which may only be used to purchase and install solar energy systems. We intend to establish
new tax equity funds in the future depending on their attractiveness, including the availability and size of
Section 48(a) ITCs and related safe harbors, and on the investor demand for such funding. The terms of the tax
equity funds' operating agreements contain allocations of income (loss) and Section 48(a) ITCs that vary over
time and adjust between the members after either the tax equity investor receives its contractual rate of return or
after a specified date. For additional information regarding our tax equity fund commitments see Note 13,
Redeemable Noncontrolling Interests, to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
Warehouse and Other Debt Financings
We from time to time enter into warehouse credit facilities as a source of funding. Under the warehouse
credit facilities, revolving or term financing is provided to special purpose entities, which are typically our
wholly-owned subsidiaries, and secured by qualifying solar energy systems and related solar service
agreements. The cash flows generated by these solar energy systems are used to cover required debt service
payments under the related credit facility and satisfy the expenses and reserve requirements of the special
purpose entities. The warehouse credit facilities allow for the pooling and transfer of eligible solar energy
systems and related solar service agreements on a non-recourse basis to the subsidiary or us, subject to certain
limited exceptions. In connection with these warehouse credit facilities, certain of our affiliates receive a fee for
managing and servicing the solar energy systems pursuant to management and servicing agreements. The
special purpose entities are also typically required to maintain reserve accounts, including a liquidity reserve
account and a reserve account for equipment replacements, each of which are funded from initial deposits or
cash flows to the levels specified therein.
The warehouse credit facility structures include certain features designed to protect lenders. One of the
common primary features relates to certain events, such as the insufficiency of cash flows in the collateral pool
of assets to meet contractual requirements, the occurrence of which triggers an early repayment of the loans and
limits the relevant borrower's ability to obtain additional advances or distribute funds to us. We refer to this as
an "amortization event", which may be based on, among other things, a debt service coverage ratio falling or
remaining below certain levels, default levels of solar assets exceeding certain thresholds or excess spread
falling below certain levels over a multiple month period. In the event of an amortization event, the availability
period under a revolving warehouse credit facility may terminate and the borrower may be required to repay the
affected outstanding borrowings using available collections received from the asset pool. However, the period
of ultimate repayment would be determined by the amount and timing of collections received. An amortization
93
event would impair our liquidity and may require us to utilize our other available contingent liquidity or rely on
alternative funding sources, which may or may not be available at the time. The debt agreements of our
warehouse credit facilities also typically contain customary events of default for solar warehouse financings that
entitle the lenders to take various actions, including the acceleration of amounts due under the related debt
agreement and foreclosure on the borrower's assets.
In April 2017, one of our subsidiaries entered into a secured revolving credit facility with Credit Suisse
AG, New York Branch, as administrative agent, and the lenders party thereto. The credit facility was amended
and restated in March 2019 and further amended in September 2019 and December 2019. Under the amended
credit facility, the subsidiary may borrow up to $200.0 million, subject to a borrowing base calculated based on
a specified advance rate applied to the net outstanding principal balance of the solar loans securing the credit
facility. The proceeds of the loans under the credit facility are available for funding the purchase of solar loans,
making deposits in the subsidiary's reserve accounts and paying fees in connection with the credit facility. The
credit facility bears interest at an annual rate of adjusted LIBOR plus an applicable margin. The credit facility
has a maturity date occurring in November 2022. As of December 31, 2019, we had $78.6 million of available
borrowing capacity under the credit facility. Sunnova Energy Corporation guarantees the performance
obligations of certain affiliates under agreements entered into in connection with the credit facility as well as
certain indemnity and refund obligations.
In April 2017, three of our subsidiaries entered into a secured term loan credit facility with Credit Suisse
AG, New York Branch, as administrative agent, and the lenders party thereto. The credit facility was amended
and restated in November 2018. Outstanding advances under the credit facility bear interest at LIBOR plus an
applicable margin. The credit facility has a maturity date occurring in November 2022. As of December 31,
2019, we had no available borrowing capacity under the credit facility. Sunnova Energy Corporation guarantees
the performance obligations of certain affiliates under agreements entered into in connection with the credit
facility as well as certain indemnity obligations.
In July 2014, one of our subsidiaries entered into a collateral-based financing agreement with Texas Capital
Bank, N.A., as administrative agent, and the lenders party thereto. In April 2019, we contributed approximately
$0.1 million to our subsidiary as an equity cure of an event of default under the credit facility caused by a
failure of the subsidiary to comply with a debt covenant regarding the ratio of consolidated EBITDA to debt
service for the four quarters ending on March 31, 2019. We were only permitted to exercise our equity cure
right for the credit facility three times over the course of the credit facility and once in any rolling four-quarter
period. Outstanding advances under the credit facility bore interest at LIBOR plus an applicable margin. The
credit facility had a maturity date occurring in January 2021. As of December 31, 2019, there was no available
borrowing capacity under the credit facility. In February 2020, we fully repaid the aggregate outstanding
principal amount of $92.0 million and terminated the credit facility.
In August 2018, one of our subsidiaries entered into a secured revolving credit facility with Credit Suisse
AG, New York Branch, as administrative agent, and the lenders party thereto. The credit facility was amended
and restated in March 2019 and further amended in September 2019. Under the credit facility, the subsidiary
could borrow up to an initial $150.0 million with a maximum commitment amount of $250.0 million based on
the aggregate value of solar assets owned by the borrower's subsidiaries, which are primarily tax equity funds,
subject to certain concentration limitations. The proceeds of the loan after fees and expenses were available for
funding certain reserve accounts required by the credit facility, making distributions to us and paying fees
incurred in connection with closing the credit facility. The credit facility bore interest at an annual rate of
adjusted LIBOR or, if such rate was not available, a base rate, plus an applicable margin. The credit facility had
a maturity date occurring in November 2022. Sunnova Energy Corporation had guaranteed the performance
obligations of certain affiliates under agreements entered into in connection with the credit facility as well as
certain indemnity and repurchase obligations. As of December 31, 2019, we had no available borrowing
capacity under the credit facility. In February 2020, we fully repaid the aggregate outstanding principal amount
of $226.6 million and terminated the credit facility.
94
In September 2019, one of our subsidiaries entered into a secured revolving credit facility with Credit
Suisse AG, New York Branch, as administrative agent, and the lenders party thereto. The credit facility was
amended in December 2019. Under the credit facility, the subsidiary may borrow up to an initial $100.0 million
with a maximum commitment amount of $150.0 million based on the aggregate value of solar assets owned by
the borrower's subsidiaries, which are primarily tax equity funds, subject to certain concentration limitations.
The proceeds from the credit facility are available for funding certain reserve accounts required by the credit
facility, making distributions to us and paying fees incurred in connection with closing the credit facility. The
credit facility bears interest at an annual rate of either LIBOR divided by a percentage equal to 100% minus a
reserve percentage or a base rate, plus an applicable margin. The credit facility has a maturity date occurring in
November 2022. Sunnova Energy Corporation guarantees the performance obligations of certain affiliates under
agreements entered into in connection with the credit facility as well as certain indemnity and repurchase
obligations. As of December 31, 2019, we had $9.7 million of available borrowing capacity under the credit
facility.
In December 2019, one of our subsidiaries entered into a secured revolving credit facility with Credit
Suisse AG, New York Branch, as administrative agent, and the lenders party thereto. Under the credit facility,
the subsidiary may borrow up to an initial $95.2 million with a maximum commitment amount of $137.6
million, subject to lender consent and certain other conditions. The proceeds from the credit facility are
available for purchasing certain eligible equipment the borrower intends will allow the related solar energy
systems to qualify for the 30% Section 48(a) ITC by satisfying the 5% ITC Safe Harbor outlined in IRS Notice
2018-59, funding a reserve account required by the credit facility and paying fees incurred in connection with
closing the credit facility. The credit facility bears interest at an annual rate of either LIBOR divided by a
percentage equal to 100% minus a reserve percentage or a base rate, plus an applicable margin. The credit
facility has a maturity date occurring in December 2022. Sunnova Energy Corporation guarantees the
performance obligations of certain affiliates under agreements entered into in connection with the credit facility
and also provides a limited payment guarantee in respect of the borrower's obligations under the credit facility
that is subject to a cap of $9.5 million, which equates to 10% of the initial commitments. As of December 31,
2019, we had no available borrowing capacity under the credit facility.
Rule 144A Securitization Financing
We from time to time securitize some solar service agreements and related assets as a source of funding.
We access the Rule 144A asset-backed securitization market using wholly-owned special purpose entities to
securitize pools of assets, which historically have been solar energy systems and the related lease agreements
and PPAs and ancillary rights and agreements both directly or indirectly through interests in the managing
member of our tax equity funds. We also securitize our loan agreements and ancillary rights and agreements.
In April 2017, one of our subsidiaries issued $191.8 million in aggregate principal amount of Series 2017-1
Class A solar asset-backed notes, $18.0 million in aggregate principal amount of Series 2017-1 Class B solar
asset-backed notes, and $45.0 million in aggregate principal amount of 2017-1 Class C solar asset-backed notes
with a maturity date of September 2049. The notes bear interest at an annual rate of 4.94%, 6.00% and 8.00%
for the Class A, Class B and Class C notes, respectively.
In November 2018, one of our subsidiaries issued $202.0 million in aggregate principal amount of Series
2018-1 Class A solar asset-backed notes and $60.7 million in aggregate principal amount of Series 2018-1 Class
B solar asset-backed notes with a maturity date of July 2048. The notes bear interest at an annual rate of 4.87%
and 7.71% for the Class A and Class B notes, respectively.
In June 2019, one of our subsidiaries issued $139.7 million in aggregate principal amount of Series 2019-A
Class A solar loan-backed notes, $14.9 million in aggregate principal amount of Series 2019-A Class B solar
loan-backed notes and $13.0 million in aggregate principal amount of Series 2019-A Class C solar loan-backed
95
notes with a maturity date of June 2046. The notes bear interest at an annual rate of 3.75%, 4.49% and 5.32%
for the Class A, Class B and Class C notes, respectively.
In February 2020, one of our subsidiaries issued $337.1 million in aggregate principal amount of Series
2020-1 Class A solar asset-backed notes and $75.4 million in aggregate principal amount of Series 2020-1 Class
B solar asset-backed notes with a maturity date of January 2055. The notes bear interest at an annual rate of
3.35% and 5.54% for the Class A and Class B notes, respectively.
The securitization structures include certain features designed to protect investors. The primary feature
relates to the availability and adequacy of cash flows in the securitized pool of assets to meet contractual
requirements, the insufficiency of which triggers an early repayment of the asset-backed notes. We refer to this
as "early amortization", which may be based on, among other things, a debt service coverage ratio falling or
remaining below certain levels. As of December 31, 2019, we have not had any early amortizations under any
of our securitizations. In the event of an early amortization, the notes issuer would be required to repay the
affected outstanding securitized borrowings using available collections received from the asset pool. However,
the period of ultimate repayment would be determined by cause of the early amortization and the amount and
timing of collections received. An early amortization event would impair our liquidity and may require us to
utilize our available non-securitization related contingent liquidity or rely on alternative funding sources, which
may or may not be available at the time. The indentures of our securitizations also typically contain customary
events of default for solar securitizations that may entitle the noteholders to take various actions, including the
acceleration of amounts due under the related indenture and foreclosure on the issuer's assets.
Private Placement Securitization Financing
We have access to additional debt issuance capacity through a privately-placed asset-backed securitization.
In March 2019, one of our subsidiaries entered into a note purchase agreement pursuant to which certain
institutional investors committed to purchase up to $358.0 million principal amount of notes ("RAYSI Notes")
in one or more asset-backed private placement securitizations. In March 2019, our subsidiary, the RAYSI Notes
issuer, issued an aggregate $133.1 million principal amount of RAYSI Notes pursuant to this note purchase
agreement. In June 2019, the RAYSI Notes issuer issued an aggregate $6.4 million in principal amount of
RAYSI Notes pursuant to a supplemental note purchase agreement. The remaining commitments to purchase
RAYSI Notes expire in March 2020 and are subject to a variety of closing conditions set forth in the related
purchase agreement and indenture, including a collateral test. We may elect to add assets to the securitized pool,
subject to certain requirements.
The RAYSI Notes issuer owns a pool of solar energy systems and related lease agreements and PPAs and
ancillary rights and agreements both directly and through its interests in the managing member of one of our
existing tax equity funds. The managing member of the tax equity fund guarantees the RAYSI Notes issuer's
obligations under the RAYSI Notes. In addition, the RAYSI Notes issuer has pledged its interests in the
managing member and the managing member has pledged its interests in the tax equity fund as security for the
issuer's obligations under the RAYSI Notes and for the guarantee, respectively. We expect the engineering,
procurement and construction cost related to the securitized pool of assets would be financed approximately
evenly between tax equity and non-recourse debt in the form of asset-backed notes, assuming a 30% Section
48(a) ITC.
Convertible Notes
In April 2017, we issued and sold an aggregate principal amount of $80.0 million of our 12.00% senior
secured notes in a private placement to a total of three institutional accredited investors at an issue price of 98%,
for an aggregate purchase price of $78.4 million. In January 2019, the terms of these senior secured notes were
amended to extend the maturity date from January 2019 to July 2019. In connection with our IPO, we redeemed
96
all the senior secured notes for an aggregate redemption price of $57.1 million in cash, which includes accrued
and unpaid cash interest and pay-in-kind interest to the date of redemption.
In March 2018, we issued the 2018 Note for $15.0 million to certain of our existing investors, which was
subordinated to the senior secured notes. In connection with our IPO, holders of the 2018 Note converted the
principal amount plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares (or
1,422,767 shares as adjusted for the Reverse Stock Split) of Series A convertible preferred stock, which in turn
converted into 1,422,767 shares of common stock. See "Preferred Stock Conversion" below.
In June 2019, we issued the 2019 Note for $15.0 million to certain of our existing investors with a maturity
date of September 2021. In connection with our IPO, holders of the 2019 Note converted the principal amount
plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares (or 1,120,360 shares as
adjusted for the Reverse Stock Split) of Series C convertible preferred stock, which in turn converted into
1,120,360 shares of common stock. See "Preferred Stock Conversion" below.
In December 2019, we issued and sold an aggregate principal amount of $55.0 million of our 7.75%
convertible senior notes in a private placement to a total of seven institutional accredited investors at an issue
price of 95%, for an aggregate purchase price of $52.3 million. The convertible senior notes mature in January
2027 unless earlier redeemed, repurchased or converted. We granted the investors of the convertible senior
notes an option, subject to our consent, to purchase up to an additional $20.0 million aggregate principal amount
of convertible senior notes on the same terms and conditions, which such option will expire in March 2020. The
convertible senior notes bear interest at a rate of 7.75% per annum.
The convertible senior notes are convertible into our common stock at the option of the holders at any time
prior to the close of business on the business day immediately preceding December 23, 2021 upon a change of
control event. On or after December 23, 2021 until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may, at their option, convert all or any portion of their
convertible senior notes, in multiples of $1,000 principal amount. Upon conversion, we may satisfy our
conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock, or a
combination of cash and shares of common stock, at our option, subject to certain terms and conditions. The
conversion rate for the convertible senior notes is 76.9231 shares of common stock per $1,000 principal amount
of convertible senior notes, plus accrued and unpaid interest, which is equivalent to an initial conversion price
(excluding interest) of approximately $13.00 per share of common stock. The conversion rate is subject to
adjustment under certain circumstances in accordance with the terms of the convertible senior notes. On and
after December 23, 2022, we have the right to cause the conversion of the convertible senior notes if certain
specified common stock price and volume conditions are met. If we fail to use commercially reasonable efforts
to prepare and file a shelf registration statement registering the offer and sale of the number of shares of
common stock issuable upon conversion of the convertible senior notes and to cause such shelf registration
statement to become effective on or prior to December 23, 2021, the convertible senior notes will bear
additional interest at a rate of 0.25% per annum for each 90-day period such requirements are not met, up to a
maximum of 2.00% per annum.
We may, at our option, redeem for cash all or any portion of the convertible senior notes plus any accrued
and unpaid interest to, but excluding, the redemption date at a redemption price equal to the following
percentage of aggregate principal amount of convertible senior notes so redeemed:
Period
At any time prior to December 23, 2021
At any time on and after December 23, 2021 but prior to December 23, 2023
At any time on and after December 23, 2023
Percentage
120%
115%
110%
On and after September 23, 2024, the holders of the convertible senior notes have the option to require us
97
to repurchase their convertible senior notes for cash at a purchase price of 110% of the aggregate principal
amount repurchased, plus accrued and unpaid interest to the date of repurchase. The convertible senior notes
include customary covenants and set forth certain events of default after which the convertible senior notes may
be declared immediately due and payable.
Preferred Stock Conversion
In connection with our IPO, 108,138,971 shares (or 46,351,877 shares as adjusted for the Reverse Stock
Split) of our Series A convertible preferred stock and 32,958,645 shares (or 14,127,140 shares as adjusted for
the Reverse Stock Split) of our Series C convertible preferred stock, which represent all the outstanding shares
of our Series A convertible preferred stock and Series C convertible preferred stock, were converted into
60,479,017 shares of our common stock.
Contractual Obligations
The following unaudited table summarizes our contractual obligations as of December 31, 2019:
Debt obligations (including future
interest) (2)
AROs
Operating lease payments (3)
Guaranteed performance obligations
Inventory purchase obligations
Other obligations (4)
Total
Payments Due by Period (1)
Total
2020
2021-2022
2023-2024
Beyond 2024
(in thousands)
$ 1,913,596
$ 170,280
$ 806,763
$ 185,476
$ 751,077
31,053
12,548
6,468
124,509
10,153
—
(1,374)
4,067
22,702
6,873
—
3,095
2,286
54,602
3,280
—
3,210
115
47,205
—
31,053
7,617
—
—
—
$ 2,098,327
$ 202,548
$ 870,026
$ 236,006
$ 789,747
(1) Does not include amounts related to the contingent obligation to purchase all of a tax equity investor's
units upon exercise of their right to withdraw rights. The withdrawal price for the tax equity investors'
interest in the respective fund is equal to the sum of: (a) any unpaid, accrued priority return and (b) the
greater of: (i) a fixed price and (ii) 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 withdrawal
price, we cannot determine the potential future payments that we could have to make under these
withdrawal rights. For additional information regarding the withdrawal rights see Note 13, Redeemable
Noncontrolling Interests, to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
(2) Interest payments related to long-term debt and interest rate swaps 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) Negative amount relates to reimbursements of $2.4 million for leasehold improvements.
(4) Other obligations relate to information technology services and licenses and distributions payable to
redeemable noncontrolling interests.
98
Historical Cash Flows—Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table summarizes our cash flows for the periods indicated:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash and restricted cash
Operating Activities
Year Ended
December 31,
2019
2018
Change
(in thousands)
$ (170,262) $
(568,316)
801,823
(11,570) $ (158,692)
(219,467)
(348,849)
436,136
365,687
$
63,245
$
5,268
$
57,977
Net cash used in operating activities increased by $158.7 million in the year ended December 31, 2019
compared to the year ended December 31, 2018. The increase is primarily a result of increased payments made
to dealers for exclusivity and other bonus arrangements and increased purchases of inventory and prepaid
inventory with net outflows of $31.7 million and $127.8 million, respectively, in 2019 compared to an
insignificant amount and $14.3 million, respectively, in 2018. The increase is also due to net outflows of $19.1
million in 2019 compared to net inflows of $8.0 million in 2018 based on: (a) our net loss of $133.4 million in
2019 excluding non-cash operating items of $114.4 million, primarily from depreciation, impairments and
losses on disposals, amortization of deferred financing costs and debt discounts, unrealized net losses on
derivatives, payment-in-kind interest on debt, unrealized net losses on fair value option instruments, loss on
extinguishment of debt and equity-based compensation charges, results in net outflows of $19.1 million and (b)
our net loss of $68.4 million in 2018 excluding non-cash operating items of $76.4 million, primarily from
depreciation, impairments and losses on disposals, amortization of deferred financing costs and debt discounts,
unrealized net losses on derivatives, payment-in-kind interest on debt and equity-based compensation charges,
results in net inflows of $8.0 million. These net differences between the two periods result in a net change in
operating cash flows of $27.1 million in 2019 compared to 2018.
Investing Activities
Net cash used in investing activities increased by $219.5 million in the year ended December 31, 2019
compared to the year ended December 31, 2018. The increase is largely due to an increase in purchases of
property and equipment, primarily solar energy systems, of $430.8 million in 2019 compared to $252.6 million
in 2018 and payments for investments and customer notes receivable of $159.3 million in 2019 compared to
$108.4 million in 2018. The increase is partially offset by proceeds from customer notes receivable of $21.6
million (of which $18.2 million was prepaid) in 2019 compared to $7.7 million (of which $6.4 million was
prepaid) in 2018.
Financing Activities
Net cash provided by financing activities increased by $436.1 million in the year ended December 31,
2019 compared to the year ended December 31, 2018. The increase is primarily a result of net borrowings under
our debt facilities of $494.9 million in 2019 compared to $128.5 million in 2018, net proceeds related to the
issuance of common stock of $164.5 million in 2019 compared to an insignificant amount in 2018, net
contributions from our redeemable noncontrolling interests of $149.6 million in 2019 compared to $77.0 million
in 2018 and net proceeds from the equity component of a debt instrument of $14.0 million in 2019 compared to
an insignificant amount in 2018. This increase is partially offset by net payments related to the issuance of
convertible preferred stock of $2.5 million in 2019 compared to net proceeds of $172.8 million in 2018 and
99
payments of deferred financing costs and debt discounts of $13.2 million in 2019 compared to $11.1 million in
2018.
Historical Cash Flows—Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
The following table summarizes our cash flows for the periods indicated:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash and restricted cash
Operating Activities
Year Ended
December 31,
2018
2017
Change
(in thousands)
$
$
(11,570) $
(348,849)
365,687
(48,967) $
(289,133)
369,893
5,268
$
31,793
$
37,397
(59,716)
(4,206)
(26,525)
Net cash used in operating activities decreased by $37.4 million in the year ended December 31, 2018 compared to the
year ended December 31, 2017. The decrease is primarily a result of a decrease in payments to certain dealers for advances on
work to be performed relating to solar energy systems in the amount of $10.4 million. The decrease is also due to net inflows of
$8.0 million in 2018 compared to net outflows of $20.5 million in 2017 based on: (a) our net loss of $68.4 million in 2018
excluding non-cash operating items of $76.4 million, primarily from depreciation, impairments and losses on disposals,
amortization of deferred financing costs and debt discounts, unrealized net losses on derivatives, payment-in-kind interest on
debt and equity-based compensation charges, results in net inflows of $8.0 million and (b) our net loss of $90.2 million in 2017
excluding non-cash operating items of $69.7 million, primarily from depreciation, impairments and losses on disposals,
amortization of deferred financing costs and debt discounts, unrealized net losses on derivatives, payment-in-kind interest on
debt and equity-based compensation charges, results in net outflows of $20.5 million. These net differences between the two
periods result in a net change in operating cash flows of $28.5 million in 2018 compared to 2017.
Investing Activities
Net cash used in investing activities increased by $59.7 million in the year ended December 31, 2018 compared to the
year ended December 31, 2017. The increase is largely due to an increase in purchases of property and equipment, primarily
solar energy systems, of $252.6 million in 2018 compared to $240.6 million in 2017 and payments for investments and
customer notes receivable of $108.4 million in 2018 compared to $52.4 million in 2017. The increase is partially offset by
proceeds from customer notes receivable of $7.7 million (of which $6.4 million was prepaid) in 2018 compared to $2.8 million
(of which $2.3 million was prepaid) in 2017.
Financing Activities
Net cash provided by financing activities decreased by $4.2 million in the year ended December 31, 2018 compared to
the year ended December 31, 2017. The decrease is primarily a result of net borrowings under our debt facilities of $128.5
million in 2018 compared to $238.9 million in 2017. The decrease is partially offset by net proceeds related to the issuance of
convertible preferred stock of $172.8 million in 2018 compared to $89.9 million in 2017, payments of deferred financing costs
and debt discounts of $11.1 million in 2018 compared to $28.0 million in 2017 and net contributions from our redeemable
noncontrolling interests of $77.0 million in 2018 compared to $71.9 million in 2017.
Seasonality
See "Business—Seasonality".
100
Off-Balance Sheet Arrangements
As of December 31, 2019 and 2018, we did not have any off-balance-sheet arrangements. We consolidate
all our securitization vehicles and tax equity funds.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated annual financial statements, which have been prepared in accordance with GAAP which requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses,
cash flows and related disclosures. We base our estimates on historical experience and on various other
assumptions 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 may differ from these estimates. Our future consolidated
financial statements will be affected to the extent our actual results materially differ from these estimates.
We identify our most critical accounting policies as those that are the most pervasive and important to the
portrayal of our financial position and results of operations, and that require the most difficult, subjective, and/
or complex judgments by management regarding estimates about matters that are inherently uncertain. We
believe the assumptions and estimates associated with the estimated useful life of our solar energy systems, the
valuation of the assumptions regarding AROs and the valuation of redeemable noncontrolling interests have the
greatest subjectivity and impact on our consolidated financial statements. Therefore, we consider these to be our
critical accounting policies and estimates and these items are discussed below. See Note 2, Significant
Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form
10-K for further discussion of our accounting policies.
Useful Life of Solar Energy Systems
Our solar energy systems have an estimated useful life of 35 years. We considered both (a) available
information related to the technology currently being employed in the solar energy systems and (b) the terms of
the solar leases that have a 25 year term with two five-year renewal options to conclude a 35 year useful life is
appropriate. In addition, we reviewed numerous published and online sources from academia, government
institutions and private industry and held discussions with certain manufacturers of our solar energy systems to
support our estimated useful life of 35 years for the crystalline silicone solar modules we use. We define the
useful life of a solar module as the duration for which a solar module operates at or above 80% of its initial
power output, which we understand to be the generally accepted standard used by government, academia and
the solar industry.
Depreciation and amortization of solar energy systems are calculated using the straight-line method over
the estimated useful lives of the solar energy systems and are included in cost of revenue—depreciation.
Depreciation begins when a solar energy system is placed in service. Costs associated with improvements to a
solar energy system, which extend the life, increase the capacity or improve the efficiency of the solar energy
systems, are capitalized and depreciated over the remaining life of the asset.
AROs
We have AROs arising from contractual or regulatory requirements to perform certain asset retirement
activities at the time the solar energy systems are disposed. We recognize an ARO at the point an obligating
event takes place, typically when the solar energy system is placed in service. An asset is considered retired
when it is permanently taken out of service, such as through a sale or disposal.
The liability is initially measured at fair value based on the present value of estimated removal costs and
101
subsequently adjusted for changes in the underlying assumptions and for accretion expense. We estimate
approximately half of our solar energy systems will require removal at our expense in the future. The
corresponding asset retirement costs are capitalized as part of the carrying amount of the solar energy system
and depreciated over the solar energy system's remaining useful life. We may revise our estimated future
liabilities based on recent actual experiences, changes in certain customer-specific estimates and other cost
estimate changes. If there are changes in estimated future costs, those changes will be recorded as either a
reduction or addition in the carrying amount of the remaining unamortized asset and the ARO and either
decrease or increase depreciation and accretion expense amounts prospectively. Inherent in the calculation of
the fair value of our AROs are numerous assumptions and judgments, including the ultimate settlement
amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal,
regulatory, environmental and political environments. Due to the intrinsic uncertainties present when estimating
asset retirement costs as well as asset retirement dates, our ARO estimates are subject to ongoing volatility.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests represent third-party interests in the net assets of certain consolidated
subsidiaries, which were created to finance the cost of solar energy systems under long-term solar service
agreements. The contractual provisions of the financing arrangements represent substantive profit sharing
arrangements. We determined the appropriate methodology for attributing income and loss to the redeemable
noncontrolling interests is a balance sheet approach referred to as the hypothetical liquidation at book value
("HLBV") method. We, therefore, determine the amount of the redeemable noncontrolling interests in the net
assets of the subsidiaries at each balance sheet date using the HLBV method, which is presented in the
consolidated balance sheets as redeemable noncontrolling interests. Under the HLBV method, the amounts
reported as redeemable noncontrolling interests in the consolidated balance sheets represent the amounts the
third parties would hypothetically receive at each balance sheet date under the liquidation provisions of the
financing arrangements, assuming the net assets of the subsidiaries were liquidated at the recorded amounts
determined in accordance with GAAP and distributed to the third parties. The third parties' interests in the
results of operations of the subsidiaries are determined as the difference in the redeemable noncontrolling
interests balances in the consolidated balance sheets between the start and end of each reporting period, after
taking into account any capital transactions, such as contributions and distributions, between the subsidiaries
and the third parties. However, the redeemable noncontrolling interests balance is at least equal to the
redemption amount. The estimated redemption value is calculated using the discounted cash flows attributable
to the third parties subsequent to the reporting date. We classify redeemable noncontrolling interests with
redemption features that are not solely within our control outside of permanent equity in our consolidated
balance sheets.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to various market risks in the ordinary course of our business. Market risk is the potential
loss that may result from market changes associated with our business or with an existing or forecasted financial
or commodity transaction. Our primary exposure includes changes in interest rates because certain borrowings
bear interest at floating rates based on LIBOR plus a specified margin. We sometimes manage our interest rate
exposure on floating-rate debt by entering into derivative instruments to hedge all or a portion of our interest
rate exposure on certain debt facilities. We do not enter into any derivative instruments for trading or
speculative purposes. Changes in economic conditions could result in higher interest rates, thereby increasing
our interest expense and operating expenses and reducing funds available to capital investments, operations and
other purposes. A hypothetical 10% increase in our interest rates on our variable debt facilities would have
102
increased our interest expense by $2.7 million and $3.7 million for the years ended December 31, 2019 and
2018, respectively.
103
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Redeemable Noncontrolling Interests and Stockholders' Equity
Notes to Consolidated Financial Statements
Schedule I Parent Company Condensed Financial Statements
105
106
109
110
112
114
165
104
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Sunnova Energy International Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunnova Energy International Inc. and its
subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of
operations, of redeemable noncontrolling interests and stockholders' equity, and of cash flows for each of the
three years in the period ended December 31, 2019, including the related notes and schedule of parent company
condensed financial statements as of December 31, 2019 and 2018 and for each of the three years in the period
ended December 31, 2019 appearing on page 134 (collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on the Company's consolidated financial statements based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 25, 2020
We have served as the Company's auditor since 2014, which includes periods before the Company became
subject to SEC reporting requirements.
105
SUNNOVA ENERGY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts and share par values)
106
Assets
Current assets:
Cash
Accounts receivable—trade, net
Accounts receivable—other
Other current assets
Total current assets
Property and equipment, net
Customer notes receivable, net
Other assets
Total assets (1)
Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses
Current portion of long-term debt
Current portion of long-term debt—affiliates
Other current liabilities
Total current liabilities
Long-term debt, net
Long-term debt, net—affiliates
Other long-term liabilities
Total liabilities (1)
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests
Stockholders' equity:
Series A convertible preferred stock, 0 and 44,942,594 shares issued as of December 31, 2019 and 2018,
respectively, at $0.01 par value
Series C convertible preferred stock, 0 and 13,006,780 shares issued as of December 31, 2019 and 2018,
respectively, at $0.01 par value
Series A common stock, 0 and 8,612,728 shares issued as of December 31, 2019 and 2018, respectively, at
$0.01 par value
Series B common stock, 0 and 21,727 shares issued as of December 31, 2019 and 2018, respectively, at
$0.01 par value
Common stock, 83,980,885 and 0 shares issued as of December 31, 2019 and 2018, respectively, at $0.0001
par value
Additional paid-in capital—convertible preferred stock
Additional paid-in capital—common stock
Accumulated deficit
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
As of December 31,
2019
2018
$
83,485
$
52,706
10,672
6,147
174,016
274,320
6,312
3,721
26,794
89,533
1,745,060
1,328,457
297,975
169,712
172,031
75,064
$2,487,067
$1,665,085
$
36,190
$
20,075
39,544
97,464
—
21,804
195,002
18,650
26,965
16,500
13,214
95,404
1,346,419
872,249
—
127,406
44,181
66,453
1,668,827
1,078,287
172,305
85,680
—
—
—
—
8
—
1,007,751
449
130
86
—
—
701,326
85,439
(361,824)
(286,312)
645,935
501,118
$2,487,067
$1,665,085
(1) The consolidated assets as of December 31, 2019 and 2018 include $790,211 and $411,325, respectively, of assets of variable interest
entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of $7,347 and $3,674 as of December 31,
107
2019 and 2018, respectively; accounts receivable—trade, net of $1,460 and $884 as of December 31, 2019 and 2018, respectively; accounts
receivable—other of $4 and $109 as of December 31, 2019 and 2018, respectively; other current assets of $47,606 and $4,821 as of
December 31, 2019 and 2018, respectively; property and equipment, net of $726,415 and $398,693 as of December 31, 2019 and 2018,
respectively; and other assets of $7,379 and $3,144 as of December 31, 2019 and 2018, respectively. The consolidated liabilities as of
December 31, 2019 and 2018 include $13,440 and $9,260, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova
Energy International Inc. These liabilities include accounts payable of $1,926 and $4,278 as of December 31, 2019 and 2018, respectively;
accrued expenses of $35 and $14 as of December 31, 2019 and 2018, respectively; other current liabilities of $612 and $296 as of December
31, 2019 and 2018, respectively; and other long-term liabilities of $10,867 and $4,672 as of December 31, 2019 and 2018, respectively.
See accompanying notes to Sunnova Energy International Inc. consolidated financial statements.
108
SUNNOVA ENERGY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Revenue
Operating expense:
Cost of revenue—depreciation
Cost of revenue—other
Operations and maintenance
General and administrative
Other operating expense (income)
Total operating expense, net
Year Ended
December 31,
2019
131,556
$
2018
104,382
$
2017
76,856
$
43,536
3,877
8,588
97,986
(161)
153,826
34,710
2,007
14,035
67,430
(70)
118,112
25,896
1,444
4,994
54,863
14
87,211
Operating loss
(22,270)
(13,730)
(10,355)
Interest expense, net
Interest expense, net—affiliates
Interest income
Loss on extinguishment of long-term debt, net—affiliates
Other (income) expense
Loss before income tax
Income tax
Net loss
Net income attributable to redeemable noncontrolling interests
Net loss attributable to stockholders
Dividends earned on Series A convertible preferred stock
Dividends earned on Series B convertible preferred stock
Dividends earned on Series C convertible preferred stock
Deemed dividends on convertible preferred stock exchange
Net loss attributable to common stockholders—basic and
diluted
108,024
4,098
(12,483)
10,645
880
(133,434)
—
(133,434)
10,917
(144,351)
(19,271)
—
(5,454)
—
51,582
9,548
(6,450)
—
(1)
(68,409)
—
(68,409)
5,837
(74,246)
(36,346)
—
(5,948)
(19,332)
59,847
23,177
(3,197)
—
—
(90,182)
—
(90,182)
903
(91,085)
(29,623)
(580)
—
—
$ (169,076) $ (135,872) $ (121,288)
Net loss per share attributable to common stockholders—basic and
diluted
$
(4.14) $
(15.74) $
Weighted average common shares outstanding—basic and diluted
40,797,976
8,634,477
(14.05)
8,632,936
See accompanying notes to Sunnova Energy International Inc. consolidated financial statements.
109
SUNNOVA ENERGY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Impairment and loss on disposals, net
Amortization of deferred financing costs
Amortization of debt discount
Amortization of debt discount—affiliates
Non-cash effect of equity-based compensation plans
Non-cash payment-in-kind interest on loan—affiliates
Unrealized loss on derivatives
Unrealized loss on fair value option instruments
Loss on extinguishment of long-term debt, net—affiliates
Other non-cash items
Changes in components of operating assets and liabilities:
Accounts receivable
Dealer advances
Other current assets
Other assets
Accounts payable
Accrued expenses
Other current liabilities
Long-term debt—paid-in-kind—affiliates
Other long-term liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Payments for investments and customer notes receivable
Proceeds from customer notes receivable
State utility rebates and tax credits
Other, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Payments of long-term debt
Proceeds of long-term debt from affiliates
Payments of long-term debt to affiliates
Payments on notes payable
Payments of deferred financing costs
Payments of debt discounts
Proceeds from issuance of common stock, net
Proceeds from equity component of debt instrument, net
Proceeds from issuance of convertible preferred stock, net
Contributions from redeemable noncontrolling interests
Distributions to redeemable noncontrolling interests
Payments of costs related to redeemable noncontrolling interests
Other, net
Net cash provided by financing activities
Net increase in cash and restricted cash
Cash and restricted cash at beginning of period
Cash and restricted cash at end of period
Restricted cash included in other current assets
Restricted cash included in other assets
Cash at end of period
Year Ended
December 31,
2019
2018
2017
$
(133,434)
$
(68,409)
$
(90,182)
49,340
1,772
9,822
3,018
—
9,235
2,716
19,237
150
10,645
8,442
(9,349)
—
(131,741)
(40,118)
5,292
15,099
8,452
(719)
1,879
(170,262)
(430,822)
(159,303)
21,604
668
(463)
(568,316)
883,360
(342,540)
15,000
(56,236)
(4,672)
(12,110)
(1,084)
164,452
13,984
(2,510)
157,149
(7,559)
(5,395)
(16)
801,823
63,245
87,046
150,291
(10,474)
(56,332)
83,485
$
39,290
7,565
9,074
1,083
—
2,984
5,524
6,100
—
—
4,818
(4,983)
(237)
(11,331)
(8,529)
(996)
4,234
4,938
(3,184)
489
(11,570)
(252,618)
(108,354)
7,715
853
3,555
(348,849)
445,586
(292,091)
15,000
(40,000)
—
(8,598)
(2,465)
—
—
172,771
79,017
(2,017)
(1,510)
(6)
365,687
5,268
81,778
87,046
(5,190)
(29,150)
52,706
$
29,482
1,780
14,568
759
9,002
1,495
3,569
5,944
—
—
3,080
(841)
(10,678)
(2,992)
(4,473)
(1,220)
1,381
5,876
(17,277)
1,760
(48,967)
(240,578)
(52,405)
2,816
621
413
(289,133)
734,494
(374,550)
95,000
(215,840)
(247)
(27,627)
(375)
23
—
89,890
72,223
(294)
(2,714)
(90)
369,893
31,793
49,985
81,778
(4,555)
(20,905)
56,318
110
$
Year Ended
December 31,
2019
2018
2017
Non-cash investing and financing activities:
Change in accounts payable and accrued expenses related to purchases of property and
equipment
$
26,952
$
3,191
$
23,156
Change in accounts payable and accrued expenses related to payments for investments and
customer notes receivable
$ (10,557) $ (10,461) $
(6,178)
Non-cash issuance of convertible preferred stock relating to the reduction of debt
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes
$
$
$
— $
— $
15,190
58,060
$
57,887
$
59,896
— $
— $
—
See accompanying notes to Sunnova Energy International Inc. consolidated financial statements.
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3
1
1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Basis of Presentation
We are a leading residential solar and energy storage service provider, serving more than 80,000
customers in more than 20 United States ("U.S.") states and territories. Sunnova Energy Corporation was
incorporated in Delaware on October 22, 2012 and formed Sunnova Energy International Inc. ("SEI") as a
Delaware corporation on April 1, 2019. We completed our initial public offering on July 29, 2019 (our "IPO");
and in connection with our IPO, all of Sunnova Energy Corporation's ownership interests were contributed to
SEI. Unless the context otherwise requires, references in this report to "Sunnova," the "Company," "we," "our,"
"us," or like terms, refer to SEI and its subsidiaries.
We have a differentiated residential solar dealer model in which we partner with local dealers who
originate, design and install our customers' solar energy systems and energy storage systems on our behalf. Our
focus on our dealer model enables us to leverage our dealers' specialized knowledge, connections and
experience in local markets to drive customer origination while providing our dealers with access to high
quality products at competitive prices and technical oversight and expertise. We believe this structure provides
operational flexibility, reduced exposure to labor shortages and lower fixed costs relative to our peers,
furthering our competitive advantage.
We provide our services through long-term residential solar service agreements with a diversified pool of
high credit quality customers. Our solar service agreements typically are structured as either a legal-form lease
(a "lease") of a solar energy system to the customer, the sale of the solar energy system's output to the customer
under a power purchase agreement ("PPA") or the purchase of a solar energy system with financing provided by
us (a "loan"). The initial term of our solar service agreements is typically either 10 or 25 years, during which
time we provide or arrange for ongoing services to customers, including monitoring, maintenance and warranty
services. Our lease and PPA agreements typically include an opportunity for customers to renew for up to an
additional 10 years, via two five-year renewal options. Customer payments and rates can be fixed for the
duration of the solar service agreement or escalated at a pre-determined percentage annually. We also receive
tax benefits and other incentives from leases and PPAs, a portion of which we finance through tax equity, non-
recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth
investments.
Basis of Presentation
The accompanying annual audited consolidated financial statements ("consolidated financial statements")
include our consolidated balance sheets, statements of operations, statements of redeemable noncontrolling
interests and stockholders' equity and statements of cash flows and have been prepared in accordance with
accounting principles generally accepted in the United States of America ("GAAP") from records maintained by
us. Our consolidated financial statements reflect our accounts and operations and those of our subsidiaries in
which we have a controlling financial interest. In accordance with the provisions of the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation, we consolidate any
VIE of which we are the primary beneficiary. We form VIEs with our investors in the ordinary course of
business to facilitate the funding and monetization of certain attributes associated with our solar energy systems.
The typical condition for a controlling financial interest ownership is holding a majority of the voting interests
of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through
arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to
consolidate a VIE if that party has (a) the power to direct the activities of the VIE that most significantly impact
the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits from the
VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority
ownership interest when we are not considered the primary beneficiary. We have considered the provisions
within the contractual arrangements that grant us power to manage and make decisions that affect the operation
of our VIEs, including determining the solar energy systems contributed to the VIEs, and the installation,
operation and maintenance of the solar energy systems. We consider the rights granted to the other investors
114
under the contractual arrangements to be more protective in nature rather than participating rights. As such, we
have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an
ongoing basis to ensure we continue to be the primary beneficiary. We have eliminated all intercompany
accounts and transactions in consolidation.
Corporate Reorganization
In connection with our IPO, we implemented an internal reorganization that resulted in SEI owning all the
outstanding capital stock of Sunnova Energy Corporation (the "Reorganization"). In connection with the
Reorganization, a direct, wholly-owned subsidiary of SEI merged with and into Sunnova Energy Corporation,
with Sunnova Energy Corporation surviving as a direct, wholly owned subsidiary of SEI. Each share of each
class of Sunnova Energy Corporation stock issued and outstanding immediately prior to the Reorganization, by
virtue of the Reorganization and without any action on the part of the holders thereof, automatically converted
into an equivalent corresponding share of stock of SEI, having the same designations, rights, powers and
preferences and the qualifications, limitations and restrictions with respect to SEI as each such corresponding
share of Sunnova Energy Corporation stock being converted had with respect to Sunnova Energy Corporation.
Accordingly, upon consummation of the Reorganization, each of Sunnova Energy Corporation's stockholders
immediately prior to the consummation of the Reorganization became a stockholder of SEI.
Reverse Stock Split
In connection with our IPO, we decreased the total number of outstanding shares with a 1 for 2.333
reverse stock split effective July 29, 2019 (the "Reverse Stock Split"). All current and past period amounts
stated herein have given effect to the Reverse Stock Split.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These
reclassifications did not have a significant impact on our consolidated financial statements.
(2) Significant Accounting Policies
Use of Estimates
The application of GAAP in the preparation of the consolidated financial statements requires us to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. We base our estimates on historical experience and on various other assumptions believed
to be reasonable, the results of which form the basis for making judgments about the carrying values of assets
and liabilities. Actual results could differ materially from those estimates.
Cash
We maintain cash, which consists principally of demand deposits, with investment-grade financial
institutions. We are exposed to credit risk to the extent cash balances exceed amounts covered by the Federal
Deposit Insurance Corporation ("FDIC"). As of December 31, 2019 and 2018, we had cash deposits of $72.4
million and $46.3 million, respectively, in excess of the FDIC's current insured limit of $250,000. We have not
experienced any losses on our deposits of cash.
Restricted Cash
We record cash that is restricted as to withdrawal or use under the terms of certain contractual agreements
as restricted cash. Our restricted cash primarily represents cash held to service certain payments under the
115
Sunnova AP 6 Warehouse II, LLC ("AP6WII"), Helios Issuer, LLC ("HELI"), Sunnova LAP Holdings, LLC
("LAPH"), Sunnova EZ-Own Portfolio, LLC ("EZOP"), Sunnova TEP I, LLC ("TEPI"), Sunnova TEP I
Holdings, LLC ("TEPIH"), Sunnova TEP II, LLC ("TEPII"), Sunnova TEP II-B, LLC ("TEPIIB"), Sunnova
TEP III, LLC ("TEPIII"), Sunnova TEP IV-A, LLC ("TEPIVA"), Sunnova TEP IV-B, LLC ("TEPIVB"),
Sunnova TEP Holdings, LLC ("TEPH"), Sunnova TEP II Holdings, LLC ("TEPIIH"), Helios II Issuer, LLC
("HELII"), Helios III Issuer, LLC ("HELIII"), Sunnova RAYS I Issuer, LLC ("RAYSI") and Sunnova TEP
Inventory, LLC ("TEPINV") financing arrangements (see Note 8, Long-Term Debt and Note 13, Redeemable
Noncontrolling Interests) and balances collateralizing outstanding letters of credit related to one of our
operating leases for office space (see Note 17, Commitments and Contingencies). The following table presents
the detail of restricted cash as recorded in other current assets and other assets in the consolidated balance
sheets:
Debt and inverter reserves
Tax equity reserves
Letters of credit for office lease
Other
Total (1)
As of December 31,
2019
2018
(in thousands)
55,407
$
9,904
725
770
28,225
4,796
725
594
66,806
$
34,340
$
$
(1) Of this amount, $10.5 million and $5.2 million is recorded in other current assets as of December 31,
2019 and 2018, respectively.
We are exposed to credit risk to the extent restricted cash balances exceed amounts covered by the FDIC.
As of December 31, 2019 and 2018, we had restricted cash deposits of $63.6 million and $31.8 million,
respectively, in excess of the FDIC's current insured limit of $250,000. We have not experienced any losses on
our deposits of restricted cash.
Accounts Receivable
Accounts Receivable—Trade. Accounts receivable—trade primarily represents trade receivables from
residential customers under PPAs and leases that are generally collected in the subsequent month and recorded
at net realizable value. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible
accounts receivable. We review our accounts receivable by aging category to identify customers with known
disputes or collection issues. We write off accounts receivable when we deem them uncollectible. The following
table presents the changes in the allowance for doubtful accounts recorded against accounts receivable—trade,
net in the consolidated balance sheets:
Balance at beginning of period
Bad debt expense
Write off of uncollectible accounts
Recoveries
Other, net
Balance at end of period
116
As of December 31,
2019
2018
(in thousands)
723
$
$
1,645
(1,498)
90
—
$
960
$
427
1,119
(861)
50
(12)
723
Accounts Receivable—Other. Accounts receivable—other primarily represents amounts owed from
dealers in a net receivable position primarily as a result of customer contract cancelations or settlement
agreements and receivables related to the sale of inventory.
Inventory
Inventory primarily represents energy storage systems, photovoltaic modules, inverters, meters and other
associated equipment purchased and held for use as original parts on new solar energy systems or replacement
parts on existing solar energy systems. We record inventory in other current assets in the consolidated balance
sheets at the lower of cost and net realizable value. We remove these items from inventory using the weighted-
average method and (a) expense to operations and maintenance expense when installed as a replacement part for
a solar energy system or (b) capitalize to property and equipment when installed as an original part on a solar
energy system. We evaluate our inventory reserves and write down the estimated value of excess and obsolete
inventory based upon assumptions about future demand and market conditions. The following table presents the
detail of inventory as recorded in other current assets in the consolidated balance sheets:
Energy storage systems and components
Modules and inverters
Meters
Total
As of December 31,
2019
2018
(in thousands)
33,443
$
10,137
169
43,749
$
8,394
433
360
9,187
$
$
As of December 31, 2019, we recorded accrued expenses of $15.2 million for inventory purchases.
Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash,
restricted cash, accounts receivable and notes receivable. The concentrated risk associated with cash and
restricted cash is mitigated by our policy of banking with creditworthy institutions. Typically, amounts on
deposit with certain banking institutions exceed FDIC insurance limits. We do not generally require collateral or
other security to support accounts receivable. To reduce credit risk related to our relationship with our dealers,
management performs periodic credit evaluations and ongoing assessments of our dealers' financial condition.
Concentration of Services and Equipment from Dealers
We utilize a network of approximately 100 dealers as of December 31, 2019. During the year ended
December 31, 2019, two dealers accounted for approximately 49% and 10% of our total expenditures to dealers
relating to costs incurred for solar energy systems. During the year ended December 31, 2018, one dealer
accounted for approximately 58% of our total expenditures to dealers. During the year ended December 31,
2017, three dealers accounted for approximately 32%, 27% and 13%, respectively, of our total expenditures to
dealers. No other dealer accounted for more than 10% of our expenditures for solar energy systems during the
years ended December 31, 2019, 2018 and 2017.
Dealer Commitments
Throughout 2019, we entered into exclusivity and other similar agreements with certain key dealers
pursuant to which we have agreed to pay an incentive if such dealers install a certain minimum number of solar
energy systems within specified periods. These incentives are recorded in other assets in the consolidated
balance sheets and are amortized to general and administrative expense in the consolidated statements of
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operations generally over the term of the customer agreements, which is estimated at an average of 23 years.
See Note 17, Commitments and Contingencies.
Fair Value of Financial Instruments
Fair value is an exit price representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair
value is a market-based measurement that should be determined based on assumptions market participants
would use in pricing an asset or a liability. Valuation techniques used to measure fair value must maximize the
use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair
value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
• Level 1—Observable inputs that reflect unadjusted quoted market prices in active markets for identical
assets or liabilities that are accessible at the measurement date.
• Level 2—Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or
liabilities in active markets, quoted market prices in markets that are not active or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input
that is significant to the fair value measurement. An assessment of the significance of a particular input to the
fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or
liability. Our financial instruments include accounts receivable, notes receivable, accounts payable, accrued
expenses, long-term debt and interest rate swaps and swaptions. The carrying values of accounts receivable,
accounts payable and accrued expenses approximate the fair values due to the fact that they are short-term in
nature (Level 1). We estimate the fair value of our customer notes receivable based on interest rates currently
offered under the loan program with similar maturities and terms (Level 3). We estimate the fair value of our
fixed-rate long-term debt, excluding the senior secured notes for which we selected the fair value option and the
convertible senior notes, based on interest rates currently offered for debt with similar maturities and terms
(Level 3). We estimate the fair value of the senior secured notes and convertible senior notes based on a market
approach model using Level 3 inputs that incorporates a binomial tree model and a discounted future cash flow
model. We determine the fair values of the interest rate derivative transactions based on a discounted cash flow
method using contractual terms of the transactions. The floating interest rate is based on observable rates
consistent with the frequency of the interest cash flows (Level 2). See Note 7, Customer Notes Receivable, Note
8, Long-Term Debt and Note 9, Derivative Instruments.
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Changes in fair value of the senior secured notes are included in other (income) expense in the
consolidated statements of operations. The following table summarizes the change in fair value of our financial
liabilities accounted for at fair value on a recurring basis using Level 3 inputs as recorded in long-term debt, net
—affiliates in the consolidated balance sheets:
Balance at beginning of period
Additions
Change in fair value
Extinguishment
Balance at end of period
Derivative Instruments
As of December 31,
2019
2018
(in thousands)
— $
55,506
730
(56,236)
— $
—
—
—
—
—
$
$
Our derivative instruments consist of interest rate swaps and swaptions that are not designated as cash
flow hedges or fair value hedges under accounting guidance. We use interest rate swaps and swaptions to
manage our net exposure to interest rate changes. We record the derivatives in other current assets, other assets,
other current liabilities and other long-term liabilities, as appropriate, in the consolidated balance sheets and the
changes in fair value are recorded in interest expense, net in the consolidated statements of operations. We
include unrealized gains and losses on derivatives as a non-cash reconciling item in operating activities in the
consolidated statements of cash flows. We include realized gains and losses on derivatives as a change in
components of operating assets and liabilities in operating activities in the consolidated statements of cash
flows. See Note 9, Derivative Instruments.
Revenue
The following table presents the detail of revenue as recorded in the consolidated statements of
operations:
PPA revenue
Lease revenue
Solar renewable energy certificate revenue
Loan revenue
Other revenue
Total
Year Ended
December 31,
2019
2018
2017
$
48,041
(in thousands)
38,950
$
$
29,171
40,191
38,453
1,645
3,226
33,079
30,630
933
790
21,866
24,833
479
507
$ 131,556
$ 104,382
$
76,856
We recognize revenue from contracts with customers as we satisfy our performance obligations at a
transaction price reflecting an amount of consideration based upon an estimated rate of return. We express this
rate of return as the solar rate per kilowatt hour ("kWh") in the customer contract. The amount of revenue we
recognize does not equal customer cash payments because we satisfy performance obligations ahead of cash
receipt or evenly as we provide continuous access on a stand-ready basis to the solar energy system. We reflect
the differences between revenue recognition and cash payments received in accounts receivable, other assets or
deferred revenue, as appropriate. Revenue allocated to remaining performance obligations represents contracted
revenue we have not yet recognized and includes deferred revenue as well as amounts that will be invoiced and
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recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $1.1
billion as of December 31, 2019, of which we expect to recognize approximately 4% over the next 12 months.
We do not expect the annual recognition to vary significantly over approximately the next 20 years as the vast
majority of existing solar service agreements have at least 20 years remaining, given the average age of the fleet
of solar energy systems under contract is less than three years.
PPAs. Customers purchase electricity from us under PPAs. Pursuant to ASC 606, we recognize revenue
based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates
specified under the PPAs. All customers must pass our credit evaluation process. The PPAs generally have a
term of 25 years with an opportunity for customers to renew for up to an additional 10 years, via two five-year
renewal options.
Leases. We are the lessor under lease agreements for solar energy systems and energy storage systems,
which do not meet the definition of a lease under ASC 842 and are accounted for as contracts with customers
under ASC 606. We recognize revenue on a straight-line basis over the contract term as we satisfy our
obligation to provide continuous access to the solar energy system. All customers must pass our credit
evaluation process. The lease agreements generally have a term of 25 years with an opportunity for customers to
renew for up to an additional 10 years, via two five-year renewal options.
We provide customers under our lease agreements a performance guarantee that each solar energy system
will achieve a certain specified minimum solar energy production output, which is a significant proportion of its
expected output. The specified minimum solar energy production output may not be achieved due to natural
fluctuations in the weather or equipment failures from exposure and wear and tear outside of our control, among
other factors. We determine the amount of the guaranteed output based on a number of different factors,
including: (a) the specific site information relating to the tilt of the panels, azimuth (a horizontal angle measured
clockwise in degrees from a reference direction) of the panels, size of the system, and shading on site; (b) the
calculated amount of available irradiance (amount of energy for a given flat surface facing a specific direction)
based on historical average weather data and (c) the calculated amount of energy output of the solar energy
system. While actual irradiance levels can significantly change year over year due to natural fluctuations in the
weather, we expect the levels to average out over the term of a 25-year lease and to approximate the levels used
in determining the amount of the performance guarantee. Generally, weather fluctuations are the most likely
reason a solar energy system may not achieve a certain specified minimum solar energy production output.
If the solar energy system does not produce the guaranteed production amount, we are required to refund
a portion of the previously remitted customer payments, where the repayment is calculated as the product of (a)
the shortfall production amount and (b) the dollar amount (guaranteed rate) per kWh that is fixed throughout the
term of the contract. These remittances of a customer's payments, if needed, are payable in January following
the end of the first three years of the solar energy system's placed in service date and then every annual period
thereafter. See Note 17, Commitments and Contingencies.
Solar Renewable Energy Certificates. Each solar renewable energy certificate ("SREC") represents one
megawatt hour (1,000 kWh) generated by a solar energy system. SRECs can be sold with or without the actual
electricity associated with the renewable-based generation source. We account for the SRECs we generate from
our solar energy systems as governmental incentives with no costs incurred to obtain them and do not consider
those SRECs output of the underlying solar energy systems. We classify these SRECs as inventory held until
sold and delivered to third parties. As we did not incur costs to obtain these governmental incentives, the
inventory carrying value for the SRECs was $0 as of December 31, 2019 and 2018. We enter into economic
hedges related to expected production of SRECs through forward contracts. The contracts require us to
physically deliver the SRECs upon settlement. We recognize the related revenue under ASC 606 upon
satisfaction of the performance obligation to transfer the SRECs to the stated counterparty. Payments are
typically received within one month of transferring the SREC to the counterparty. The costs related to the sales
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of SRECs are limited to broker fees (included in cost of revenue—other), which are only paid in connection
with certain transactions.
Loans. See discussion of loan revenue in the "Loans" section below.
Other Revenue. Other revenue includes certain state incentives, revenue from the direct sale of energy
storage systems to customers and sales of service plans. We recognize revenue from state incentives in the
periods in which they are incurred. We recognize revenue from the direct sale of energy storage systems in the
period in which the storage components are placed in service. Service plans are available to customers whose
solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts over
the life of the contract, which is typically five years.
Loans
We offer a loan program, under which the customer finances the purchase of a solar energy system or
energy storage system through a solar service agreement, typically for a term of 10 or 25 years. We recognize
cash payments received from customers on a monthly basis under our loan program (a) as interest income, to
the extent attributable to earned interest on the contract that financed the customer's purchase of the solar energy
system or energy storage system; (b) as a reduction of a note receivable on the balance sheet, to the extent
attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's
purchase of the solar energy system or energy storage system; and (c) as revenue, to the extent attributable to
payments for operations and maintenance services provided by us.
To qualify for the loan program, a customer must pass our credit evaluation process, which requires the
customer to have a minimum FICO® score of 650 to 720 depending on certain circumstances, and we secure the
loans with the solar energy systems or energy storage systems financed. In determining the allowance for
uncollectible notes receivable, we identify customers with known disputes or collection issues and consider our
historical level of credit losses and current economic trends that might impact the level of future credit losses.
We write off customer notes receivable when they are deemed uncollectible. In addition, there were no customer
notes receivable not accruing interest and $151,000 and $81,000 of past due customer notes receivable as of
December 31, 2019 and 2018, respectively. See Note 7, Customer Notes Receivable.
The following table presents the changes in the allowance for losses recorded against customer notes
receivable in the consolidated balance sheets:
Balance at beginning of period
Bad debt expense
Write off of uncollectible accounts
Balance at end of period
Deferred Revenue
As of December 31,
2019
2018
(in thousands)
710
$
419
(38)
1,091
$
602
238
(130)
710
$
$
Deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met
and includes (a) down payments and partial or full prepayments from customers, (b) differences due to the
timing of energy production versus billing for certain types of PPAs and (c) payments for unfulfilled
performance obligations from the loan program which will be recognized over the remaining term of the
respective solar service agreements. Deferred revenue was $19.0 million as of December 31, 2017. The
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following table presents the detail of deferred revenue as recorded in other current liabilities and other long-
term liabilities in the consolidated balance sheets:
Loans
PPAs and leases
SRECs
Total (1)
As of December 31,
2019
2018
(in thousands)
46,958
$
8,895
3,000
58,853
$
27,793
6,255
—
34,048
$
$
(1) Of this amount, $2.1 million and $1.6 million is recorded in other current liabilities as of December 31,
2019 and 2018, respectively.
During the years ended December 31, 2019 and 2018, we recognized revenue of $3.0 million and $2.0
million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.
Performance Guarantee Obligations
We guarantee certain specified minimum solar energy production output under our leases and loan
agreements, generally over a term of 25 years. The amounts are generally measured and credited to the
customer's account in January following the end of the first three years of the solar energy system's placed in
service date and then every annual period thereafter. We monitor the solar energy systems to ensure these
outputs are achieved. We evaluate if any amounts are due to our customers based upon not meeting the
guaranteed solar energy production outputs at each reporting period end. For leases, these estimated amounts
are recorded as a reduction to revenues from customers and a current or long-term liability, as applicable. For
loans, these estimated amounts are recorded as an increase to cost of revenue—other and a current or long-term
liability, as applicable. See Note 17, Commitments and Contingencies.
Property and Equipment
Solar Energy Systems. Depreciation and amortization of solar energy systems are calculated using the
straight-line method over the estimated useful lives of the solar energy systems and are included in cost of
revenue—depreciation.
While solar energy systems are in the design, construction and installation stages prior to being placed in
service, the development of the systems is accounted for through construction in progress. The components of
the design, construction and installation of the solar energy systems, which are installed on or near residential
rooftops, are as follows:
• Dealer's costs (engineering, procurement and construction)
• Direct costs (costs directly related to a solar energy system)
• Indirect costs (costs incurred in the design, construction and installation of the solar energy system but
not directly
associated with a particular asset)
Solar energy systems are carried at the cost of acquisition or construction (including design and
installation) less certain utility rebates and federal and state tax incentives (including federal investment tax
credits, known as "Section 48(a) ITCs") and are depreciated over the useful lives of the assets. We account for
the Section 48(a) ITCs in accordance with the deferral gross up method, thus reducing the cost basis of the
qualifying solar energy systems by the rate applicable to Section 48(a) ITCs, currently 30% for qualifying solar
energy systems that began construction before 2020. However, as discussed in Note 10, Income Taxes, we have
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a full valuation allowance, which is recorded against deferred income taxes and requires the gross up of the
basis of the qualifying solar energy systems back to the full value. Depreciation begins when a solar energy
system is placed in service. Costs associated with repair and maintenance of a solar energy system are expensed
as incurred. Costs associated with improvements to a solar energy system, which extend the life, increase the
capacity or improve the efficiency of the systems, are capitalized and depreciated over the remaining life of the
asset.
Property and Equipment, Excluding Solar Energy Systems. Property and equipment, including
information technology system projects, computers and equipment, leasehold improvements, furniture and
fixtures, vehicles and other property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the straight-line method over the estimated
useful lives of the respective assets and are included in general and administrative expense. Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful lives. Upon disposition,
the cost and related accumulated depreciation of the assets are removed from property and equipment and the
resulting gain or loss is reflected in the consolidated statements of operations. Repair and maintenance costs are
expensed as incurred.
Capitalization of Interest Costs. We capitalize interest on solar energy systems during the development,
design, installation and test phase (construction), generally over a period of four months. We determine which
debt instruments represent a reasonable measure of the cost of financing construction in terms of interest costs
incurred that otherwise could have been avoided. Interest can only be capitalized for debt instruments related to
financing the construction of solar energy systems; interest cannot be capitalized for debt instruments related to
the acquisition of solar energy systems already constructed and/or in service. These debt instruments and
associated interest costs are included in the calculation of the weighted average interest rate used for
determining the capitalization rate. Once a solar energy system is placed in service, capitalized interest, as a
component of the total cost of the construction, is depreciated over the estimated useful life of the solar energy
system.
Intangibles
Our intangible assets primarily consist of a software license and a trademark related to the design process
of solar energy systems and are stated at cost less accumulated amortization. We amortize intangible assets to
general and administrative expense over a useful life of three years using the straight-line method. The
following table presents the detail of intangible assets as recorded in other assets in the consolidated balance
sheets:
Software license
Trademark
Other
Intangibles, gross
Less: accumulated amortization
Intangibles, net
As of December 31,
2019
2018
(in thousands)
331
$
68
88
487
(420)
67
$
331
68
—
399
(399)
—
$
$
As of December 31, 2019, amortization expense related to intangible assets to be recognized is $29,000
per year for 2020 and 2021, $9,000 for 2022 and $0 thereafter.
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Deferred Financing Costs
Deferred financing costs are capitalized and amortized to interest expense, net over the term of the related
debt using the effective interest method for term loans or the straight-line method for revolving credit facilities.
The unamortized balance of deferred financing costs is included in current portion of long-term debt, current
portion of long-term debt—affiliates, long-term debt, net and long-term debt, net—affiliates (see Note 8, Long-
Term Debt) for term loans or in other current assets and other assets for revolving credit facilities and debt and
equity transactions not yet completed, in the consolidated balance sheets. The following table presents the
changes in net deferred financing costs:
Balance at beginning of period
Capitalized
Amortized
Balance at end of period
AROs
As of December 31,
2019
2018
(in thousands)
$
22,712
$
25,188
12,731
(9,822)
25,621
$
6,598
(9,074)
22,712
$
We have AROs arising from contractual requirements to perform certain asset retirement activities at the
time the solar energy systems are disposed. We recognize an ARO at the point an obligating event takes place,
typically when the solar energy system is placed in service. An asset is considered retired when it is
permanently taken out of service, such as through a sale or disposal.
The liability is initially measured at fair value (as a Level 3 measurement) based on the present value of
estimated removal and restoration costs and subsequently adjusted for changes in the underlying assumptions
and for accretion expense. The accretion expense is recognized in general and administrative expense in the
consolidated statements of operations. The corresponding asset retirement costs are capitalized as part of the
carrying amount of the solar energy system and depreciated (for which the expense is included in cost of
revenue—depreciation) over the solar energy system's remaining useful life. See Note 6, AROs.
Warranty Obligations
In connection with our solar service agreements, we warrant the solar energy systems against defects in
workmanship, against component or materials breakdowns and against any damages to rooftops during the
installation process. The dealers' warranties on the workmanship, including work during the installation process,
and the manufacturers' warranties over component parts have a range of warranty periods which are generally
10 to 25 years. As of December 31, 2019 and 2018, we recorded a warranty reserve of an insignificant amount.
Advertising Costs
We expense advertising costs as they are incurred to general and administrative expense in the
consolidated statements of operations. We recognized advertising expense of $1.0 million, $191,000 and
$52,000 during the years ended December 31, 2019, 2018 and 2017, respectively.
Defined Contribution Plan
In April 2015, we established the Sunnova Energy Corporation 401(k) Profit Sharing Plan ("401(k) plan")
available to employees who meet the 401(k) plan's eligibility requirements. The 401(k) plan allows participants
to contribute a percentage of their compensation to the 401(k) plan up to the limits set forth in the Internal
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Revenue Code. We may make additional discretionary contributions to the 401(k) plan as a percentage of total
participant contributions, subject to established limits. Participants are fully vested in their contributions and
any safe harbor matching contributions we make. We made safe harbor matching contributions of $736,000,
$551,000 and $458,000 during the years ended December 31, 2019, 2018 and 2017, respectively, which are
included in general and administrative expense in the consolidated statements of operations.
Income Taxes
We account for income taxes under an asset and liability approach. Deferred income taxes 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.
We determine whether a tax position taken in a filed tax return, planned to be taken in a future tax return
or claim, or otherwise subject to interpretation, 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,
or prospectively approved when such approval may be sought in advance. 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 available evidence indicates it is more likely than not 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 or obligation as the largest amount that is more than 50% likely of being realized
upon ultimate settlement. See Note 10, Income Taxes.
Comprehensive Income (Loss)
We are required to report comprehensive income (loss), which includes net income (loss) as well as other
comprehensive income (loss). There were no differences between comprehensive loss and net loss as reported
in the consolidated statements of operations for the periods presented.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances
require a long-lived asset be tested for possible impairment, we first compare undiscounted cash flows expected
to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or
asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the
carrying value exceeds its fair value. Fair value is determined through various valuation techniques including
discounted cash flow models, quoted market values and third-party independent appraisals as considered
necessary. Impairment charges are included in operations and maintenance expense for solar energy systems
that relate to revenue from contracts with customers and general and administrative expense for all other
property and equipment and other long-lived assets. During the years ended December 31, 2019, 2018 and
2017, we recognized net losses on disposals and impairment expense of $1.8 million, $7.6 million and $1.8
million, respectively, of which $1.8 million, $7.4 million and $1.8 million, respectively, is recorded in
operations and maintenance expense and an insignificant amount is recorded in general and administrative
expense. Of the total amount of net losses on disposals and impairment expense for the years ended
December 31, 2019, 2018 and 2017, $54,000, $5.8 million and $823,000, respectively, is related to natural
disaster losses. See Note 4, Natural Disaster Losses.
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Segment Information
Operating segments are defined as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in
deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the
chief executive officer. Based on the financial information presented to and reviewed by our chief operating
decision maker in deciding how to allocate resources and in assessing performance, we have determined we
have a single reportable segment: solar energy products and services. Our principal operations, revenue and
decision-making functions are located in the U.S.
Basic and Diluted Net Income (Loss) Per Share
Our basic net income (loss) per share attributable to common stockholders is calculated by dividing the
net income (loss) attributable to the common stockholders by the weighted-average number of shares of
common stock outstanding for the period. Cumulative dividends owed to convertible preferred stockholders (as
defined in Note 14, Stockholders' Equity) decrease (increase) the income (loss) available to common
stockholders.
The diluted net income (loss) per share attributable to common stockholders is computed by giving effect
to all potential common stock equivalents outstanding for the period determined using the treasury stock
method or the if-converted method, as applicable. During periods in which we incur a net loss attributable to
common stockholders, stock options are considered to be common stock equivalents but are excluded from the
calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive. See
Note 16, Basic and Diluted Net Loss Per Share.
Equity-Based Compensation
We account for equity-based compensation, which requires the measurement and recognition of
compensation expense related to the fair value of equity-based compensation awards. Equity-based
compensation expense includes the compensation cost for all share-based awards granted to employees,
consultants and members of our board of directors (our "Board") based on the grant date fair value estimate.
This also applies to awards modified, repurchased or canceled during the periods reported. We use the Black-
Scholes option-pricing model to measure the fair value of stock options at the measurement date. We use the
closing price of our common stock on the grant date to measure the fair value of restricted stock units at the
measurement date. We account for forfeitures as they occur. Equity-based compensation expense is included in
general and administrative expense in the consolidated statements of operations. See Note 15, Equity-Based
Compensation.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests represent third-party interests in the net assets of certain consolidated
subsidiaries (the "tax equity entities"), which were created to finance the cost of solar energy systems under
long-term solar service agreements. The contractual provisions of the financing arrangements represent
substantive profit sharing arrangements. We determined the appropriate methodology for attributing income and
loss to the redeemable noncontrolling interests is a balance sheet approach referred to as the hypothetical
liquidation at book value ("HLBV") method. We, therefore, determine the amount of the redeemable
noncontrolling interests in the net assets of the subsidiaries at each balance sheet date using the HLBV method,
which is presented in the consolidated balance sheets as redeemable noncontrolling interests. Under the HLBV
method, the amounts reported as redeemable noncontrolling interests in the consolidated balance sheets
represent the amounts the third parties would hypothetically receive at each balance sheet date under the
liquidation provisions of the financing arrangements, assuming the net assets of the subsidiaries were liquidated
at the recorded amounts determined in accordance with GAAP and distributed to the third parties. The third
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parties' interests in the results of operations of the subsidiaries are determined as the difference in the
redeemable noncontrolling interests balances in the consolidated balance sheets between the start and end of
each reporting period, after taking into account any capital transactions, such as contributions and distributions,
between the subsidiaries and the third parties. However, the redeemable noncontrolling interests balance is at
least equal to the redemption amount. The estimated redemption value is calculated using the discounted cash
flows attributable to the third parties subsequent to the reporting date. We classify redeemable noncontrolling
interests with redemption features that are not solely within our control outside of permanent equity in our
consolidated balance sheets.
New Accounting Guidance
New accounting pronouncements are issued by the FASB or other standard setting bodies and are adopted
as of the specified effective date.
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial
Instruments—Credit Losses, which will require entities to use a forward-looking expected loss approach instead
of the incurred loss approach in effect today when estimating the allowance for credit losses. This ASU is
effective for annual and interim reporting periods in 2020. In 2018 and 2019, the FASB issued the following
ASUs related to ASU 2016-13: ASU No. 2018-19, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, ASU 2019-05, Financial Instruments—Credit Losses: Targeted Transition Relief
and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The
supplemental ASUs must be adopted simultaneously with ASU 2016-13. We are currently evaluating the impact
of this ASU on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework—
Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure
requirements on fair value measurements. This ASU is effective for annual and interim reporting periods in
2020. We adopted this ASU in January 2020 and determined it did not have a significant impact on our
consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use
Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is
a Service Contract, which requires certain implementation costs to be capitalized. This ASU is effective for
annual and interim reporting periods in 2020. We adopted this ASU in January 2020 and determined it did not
have a significant impact on our consolidated financial statements and related disclosures.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to
clarify and address implementation issues around the new standards related to credit losses, hedging and
recognizing and measuring financial instruments. Amendments in this ASU related to credit losses and hedging
have the same effective dates as the respective standards unless an entity has already adopted the standards, in
which case the amendments are effective for annual and interim reporting periods in 2020. Amendments in this
ASU related to recognizing and measuring financial instruments are effective for annual and interim reporting
periods in 2020 (see ASU No. 2016-13 above). We adopted this ASU in January 2020 and determined it did not
have a significant impact on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for
Income Taxes, to remove certain exceptions and clarify and amend the existing guidance. This ASU is effective
for annual and interim reporting periods in 2021. We have not yet determined the potential impact of this ASU
on our consolidated financial statements and related disclosures.
127
(3) Property and Equipment
The following table presents the detail of property and equipment, net as recorded in the consolidated
balance sheets:
Solar energy systems
Construction in progress
AROs
Information technology systems
Computers and equipment
Leasehold improvements
Furniture and fixtures
Vehicles
Other
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
As of December 31,
Useful Lives
2019
2018
(in years)
35
(in thousands)
$
1,689,457
$
1,311,458
30
3
3-5
3-6
7
4
5-6
143,449
26,967
28,320
1,499
1,014
735
1,632
146
77,847
17,381
17,380
1,251
883
735
548
52
1,893,219
(148,159)
1,745,060
$
1,427,535
(99,078)
1,328,457
$
Solar Energy Systems. The amounts included in the above table for solar energy systems and
substantially all the construction in progress relate to our customer contracts (including PPAs and leases). These
assets had accumulated depreciation of $130.9 million and $87.6 million as of December 31, 2019 and 2018,
respectively.
Capitalization of Interest Costs. We capitalized interest costs of $216,000 during the year ended
December 31, 2017, which were included in property and equipment. Due to the structure of our financing
arrangements, interest no longer qualified for capitalization after March 2017.
(4) Natural Disaster Losses
We have insurance coverage related to property damage and business interruption. When a solar energy
system is damaged by a natural disaster, we impair all or a portion of the net book value to operations and
maintenance expense in the period for which the amount is probable and can be reasonably estimated. Insurance
proceeds for property damage, up to the amount of impairment expense recorded for property damage, are
estimated and recorded as a receivable (included in accounts receivable—other in the consolidated balance
sheet) and a reduction to operations and maintenance expense when the receipt of the proceeds is deemed
probable. Insurance proceeds for property damage that exceed the amount of impairment expense recorded and
insurance proceeds related to business interruption are recorded when received, as a reduction to operations and
maintenance expense. Costs incurred to repair or replace a solar energy system are capitalized (included in
property and equipment, net in the consolidated balance sheet) and are classified as an investing cash outflow in
the consolidated statement of cash flows. Insurance proceeds received for property damage are classified as an
investing cash inflow in the consolidated statement of cash flows. Insurance proceeds received for business
interruption are classified as an operating cash inflow in the consolidated statement of cash flows.
Hurricane Harvey in Texas. In August 2017, Hurricane Harvey made landfall on the coast of Texas
causing unprecedented flooding and significant damage to residences and businesses. During 2017, we incurred
an insignificant amount of costs for Hurricane Harvey related to maintaining business continuity and assisting
128
employees displaced from their homes. These costs were included in general and administrative expense in the
consolidated statement of operations.
Hurricane Maria in Puerto Rico. In September 2017, Hurricane Maria made landfall in Puerto Rico
causing catastrophic wind and water damage to the island's infrastructure, residences and businesses. A majority
of Puerto Rico was left without electrical power. In addition, other basic utility and infrastructure services (such
as water, communications, ports and other transportation networks) were severely curtailed and the government
imposed a mandatory curfew. Prior to the hurricane, we implemented certain business continuity measures.
Although our critical business systems experienced minimal outages from the hurricane, our physical operations
in Puerto Rico were significantly disrupted primarily due to the lack of electricity and communications and
limited accessibility.
Throughout 2017 and 2018, we completed assessments of solar energy systems in Puerto Rico and
submitted requests to the insurance company for recoveries for damage to solar energy systems and business
interruption. However, we did not complete all reasonable estimates until December 2018 due to the overall
impact of the hurricane on Puerto Rico. Although our solar energy systems are distributed energy sources, most
are dependent upon complementary grid power to operate and all are dependent upon cellular communication
services for operations and monitoring and evaluation. The outage was the largest and longest in U.S. history.
As such, many repairs and estimates of damages and lost customers lagged the restoration of these services.
Given the loss of grid power and cellular communication and the fact that much of Puerto Rico was not
navigable, assessment of our solar energy systems and status of our customers continued through the fourth
quarter of 2018. We recorded adjustments based on the estimated amount of property damage as of December
31, 2017. The final settlement with the insurance company was completed and those funds were received in the
fourth quarter of 2018.
As of December 31, 2018, we received $9.8 million of insurance proceeds, of which $5.8 million
represented recoveries for damage to solar energy systems and $4.0 million represented recoveries for business
interruption. During 2017 and 2018, we reassessed the collectability of the receivables related to the solar
energy systems in Puerto Rico and determined there were no significant write-offs or allowances needed.
Wildfires in California. In October 2017 and November 2018, major wildfires burned throughout
California and damaged several customers' homes and solar energy systems. These wildfires did not have a
significant impact on our results of operations or financial position. The related impairments and insurance
recoveries are included in the table below.
Typhoon Yutu in Saipan. In October 2018, typhoon Yutu impacted Saipan causing massive wind and
water damage to the island's infrastructure, residences and businesses. Several customer homes and solar energy
systems were damaged; however, typhoon Yutu did not have a significant impact on our results of operations or
financial position. The related impairments and insurance recoveries are included in the table below.
129
As of December 31, 2019, substantially all solar energy systems damaged by a natural disaster that were
deemed economical to repair have been repaired. The impact of the natural disaster losses as recorded in the
consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 is as follows:
Year Ended
December 31,
2019
2018
2017
(in thousands)
Operations and maintenance expense:
Impairment of solar energy systems due to natural disaster losses
$
— $
5,840
$
6,745
Insurance proceeds received/expected to be received—property
damage
Insurance proceeds received—business interruption
Other natural disaster-related charges
General and administrative expense:
Other natural disaster-related charges
Total
(5) Detail of Certain Balance Sheet Captions
54
—
—
—
54
$
(53)
(2,693)
1,679
(5,922)
(1,307)
65
750
5,523
$
$
146
(273)
The following table presents the detail of other current assets as recorded in the consolidated balance
sheets:
Prepaid inventory
Inventory
Current portion of customer notes receivable
Other prepaid assets
Current portion of other notes receivable
Deferred receivables
Restricted cash
Total
As of December 31,
2019
2018
(in thousands)
$
96,167
$
43,749
13,758
7,380
982
1,506
10,474
$
174,016
$
—
9,187
7,601
2,739
1,522
555
5,190
26,794
The following table presents the detail of other current liabilities as recorded in the consolidated balance
sheets:
Interest payable
Current portion of performance guarantee obligations
Current portion of lease liability
Deferred revenue
Other
Total
130
As of December 31,
2019
2018
(in thousands)
14,680
$
4,067
561
2,086
410
8,150
2,580
871
1,593
20
21,804
$
13,214
$
$
(6) AROs
AROs consist primarily of costs to remove solar energy system assets and costs to restore the solar energy
system sites to the original condition, which we estimate based on current market rates. For each solar energy
system, we recognize the fair value of the ARO as a liability and capitalize that cost as part of the cost basis of
the related solar energy system. The related assets are depreciated on a straight-line basis over 30 years, which
is the estimated average time a solar energy system will be installed in a location before being removed, and the
related liabilities are accreted to the full value over the same period of time. We revise our estimated future
liabilities based on recent actual experiences, including third party cost estimates, average size of solar energy
systems and inflation rates, which we evaluate at least annually. Changes in our estimated future liabilities are
recorded as either a reduction or addition in the carrying amount of the remaining unamortized asset and the
ARO and either decrease or increase our depreciation and accretion expense amounts prospectively. The
following table presents the changes in AROs as recorded in other long-term liabilities in the consolidated
balance sheets:
Balance at beginning of period
Additional obligations incurred
Accretion expense
Change in estimate
Other
Balance at end of period
(7) Customer Notes Receivable
As of December 31,
2019
2018
(in thousands)
$
20,033
$
15,347
4,641
1,443
4,983
(47)
31,053
$
3,607
1,183
—
(104)
20,033
$
We offer a loan program, under which the customer finances the purchase of a solar energy system or
energy storage system through a solar service agreement, typically for a term of 10 or 25 years. As of December
31, 2019, we recorded $311.7 million of notes receivable under the loan program, of which $13.8 million is
included in other current assets and $298.0 million is included in customer notes receivable, net in the
consolidated balance sheet. As of December 31, 2018, we recorded $179.6 million of notes receivable under the
loan program, of which $7.6 million is included in other current assets and $172.0 million is included in
customer notes receivable, net in the consolidated balance sheet. As of December 31, 2019 and 2018, we
invested $37.1 million and $20.4 million, respectively, in loan solar energy systems and energy storage systems
not yet placed in service, which is included in other assets in the consolidated balance sheets. The fair values of
our customer notes receivable and the corresponding carrying amounts are as follows:
As of December 31, 2019
As of December 31, 2018
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(in thousands)
Customer notes receivable
$
311,732
$
314,222
$ 179,632
$
179,990
Interest income from customer notes receivable is recorded in interest income in the consolidated
statements of operations. For the years ended December 31, 2019, 2018 and 2017, interest income related to our
customer notes receivable was $11.6 million, $6.1 million and $3.0 million, respectively.
131
(8) Long-Term Debt
Our subsidiaries with long-term debt include SEI, Sunnova Energy Corporation, Sunnova Asset Portfolio
4, LLC ("AP4"), AP6WII, HELI, LAPH, EZOP, TEPIH, TEPIIH, HELII, RAYSI, HELIII, TEPH and TEPINV.
The following table presents the detail of long-term debt, net and long-term debt, net—affiliates as recorded in
the consolidated balance sheets:
Year Ended
December 31, 2019
Weighted Average
Effective Interest
Rates
As of December 31, 2019
Long-term
Current
Year Ended
December 31, 2018
Weighted Average
Effective Interest
Rates
As of December 31, 2018
Long-term
Current
(in thousands, except interest rates)
SEI
Convertible
senior notes
Debt discount,
net
Deferred
financing costs,
net
Sunnova Energy
Corporation
Senior secured
notes
Convertible
notes
Notes payable
Paid-in-kind
Deferred
financing costs,
net
AP4
Secured term
loan
Debt discount,
net
Deferred
financing costs,
net
AP6WII
Warehouse
credit facility
Deferred
financing costs,
net
HELI
Solar asset-
backed notes
Debt discount,
net
7.75% $
55,000
$
(16,913)
(480)
—
—
—
—
—
10.02%
13.34%
3.22%
—
—
—
—
—
2,428
—
—
$
— $
—
—
14.89%
40,000
—
—
—
—
12.20%
—
—
4,219
15,000
—
1,500
(38)
—
5.61%
86,369
6,109
5.25% 101,026
3,036
(452)
(196)
—
—
—
—
—
—
(202)
(418)
8.47%
54,603
(309)
—
—
—
—
10.01%
6.56%
213,632
8,673
6.47% 224,835
10,522
(3,169)
—
(4,124)
—
132
Deferred
financing costs,
net
LAPH
Secured term
loan
Debt discount,
net
Deferred
financing costs,
net
EZOP
Warehouse
credit facility
Debt discount,
net
TEPIH
Secured term
loan
Debt discount,
net
Deferred
financing costs,
net
TEPIIH
Revolving
credit facility
Debt discount,
net
Deferred
financing costs,
net
HELII
Solar asset-
backed notes
Debt discount,
net
Deferred
financing costs,
net
RAYSI
Solar asset-
backed notes
Debt discount,
net
Deferred
financing costs,
net
HELIII
(5,586)
—
(7,217)
—
7.71%
41,484
1,392
8.36%
43,167
1,038
(401)
(356)
6.60%
121,400
(2,178)
25.17%
—
—
—
6.36%
234,650
(2,219)
—
—
—
—
—
—
—
—
—
—
—
(552)
(482)
9.68%
58,200
—
—
—
—
—
6.55% 107,239
3,356
(62)
(4,892)
8.41%
57,552
(1,710)
(1,612)
—
—
—
—
—
5.77%
241,309
13,005
5.60% 253,687
9,013
(49)
(5,873)
—
—
5.47%
126,828
6,327
(1,547)
(4,759)
—
—
133
(55)
(6,425)
—
—
—
—
—
—
—
—
Solar loan-
backed notes
Debt discount,
net
Deferred
financing costs,
net
TEPH
Revolving
credit facility
Debt discount,
net
TEPINV
Revolving
credit facility
Debt discount,
net
Deferred
financing costs,
net
Total
4.03%
135,543
19,030
(2,532)
(2,410)
6.70%
90,325
(645)
—
—
—
—
7.95%
54,707
40,500
(2,856)
(2,207)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$1,346,419
$ 97,464
$ 916,430
$ 43,465
Availability. As of December 31, 2019, we had $88.3 million of available borrowing capacity under our
various financing arrangements, consisting of $78.6 million under the EZOP warehouse credit facility and $9.7
million under the TEPH revolving credit facility. There was no available borrowing capacity under any of our
other financing arrangements. As of December 31, 2019, we were in compliance with all debt covenants under
our financing arrangements.
Weighted Average Effective Interest Rates. The weighted average effective interest rates disclosed in the
table above are the weighted average stated interest rates for each debt instrument plus the effect on interest
expense for other items classified as interest expense, such as the amortization of deferred financing costs,
amortization of debt discounts and commitment fees on unused balances for the period of time the debt was
outstanding during the indicated periods.
SEI Convertible Senior Notes. In December 2019, we issued convertible senior notes due January 2027
in an aggregate principal amount of $55.0 million to certain existing investors in a private placement. In
addition, we granted the investors of the convertible senior notes an option, subject to our consent, to purchase
up to an additional $20.0 million aggregate principal amount of convertible senior notes on the same terms and
conditions, which such option will expire in March 2020. The convertible senior notes bear interest at a rate of
7.75% per annum and is due quarterly. If we fail to satisfy certain registration requirements the convertible
senior notes will bear additional interest at a rate of 0.25% per annum for each 90-day period such requirements
are not met, up to a maximum of 2.00% per annum.
The convertible senior notes are convertible into our common stock at the option of the holders at any
time prior to the close of business on the business day immediately preceding December 23, 2021 upon a
change of control event. On or after December 23, 2021 until the close of business on the second scheduled
trading day immediately preceding the maturity date, holders may, at their option, convert all or any portion of
their convertible senior notes, in multiples of $1,000 principal amount. Upon conversion, we may satisfy our
conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock, or a
combination of cash and shares of common stock, at our option, subject to certain terms and conditions. The
conversion rate for the convertible senior notes is 76.9231 shares of common stock per $1,000 principal amount
134
of convertible senior notes, plus accrued and unpaid interest, which is equivalent to an initial conversion price
(excluding interest) of approximately $13.00 per share of common stock. The conversion rate is subject to
adjustment under certain circumstances in accordance with the terms of the convertible senior notes. On and
after December 23, 2022, we have the right to cause the conversion of the convertible senior notes if certain
specified common stock price and volume conditions are met.
We may, at our option, redeem for cash all or any portion of the convertible senior notes plus any accrued
and unpaid interest to, but excluding, the redemption date at a redemption price equal to the following
percentage of aggregate principal amount of convertible senior notes so redeemed:
Period
At any time prior to December 23, 2021
At any time on and after December 23, 2021 but prior to December 23, 2023
At any time on and after December 23, 2023
Percentage
120%
115%
110%
On and after September 23, 2024, the holders of the convertible senior notes have the option to require us
to repurchase their convertible senior notes for cash at a purchase price of 110% of the aggregate principal
amount repurchased, plus accrued and unpaid interest to the date of repurchase. The convertible senior notes
include customary covenants and set forth certain events of default after which the convertible senior notes may
be declared immediately due and payable.
For accounting purposes we separated the convertible senior notes into liability and equity components.
As of December 31, 2019, the carrying amount of the liability component for the convertible senior notes of
approximately $37.6 million (net of an unamortized debt discount of $16.9 million and unamortized issuance
costs of $480,000) was determined based on a discounted cash flow analysis and a binomial lattice model. The
valuation required the use of Level 3 unobservable inputs and subjective assumptions, including but not limited
to, the stock price volatility and bond yield. The use of alternative market assumptions and estimation
methodologies could have had an effect on these estimates of fair value. As of December 31, 2019, the carrying
amount of the equity component for the convertible senior notes of approximately $14.0 million (net of
unamortized issuance costs of $179,000), representing the conversion option, was determined by deducting the
carrying amount of the liability components from the principal amount of the convertible senior notes. This
difference between the principal amount of the convertible senior notes and the liability component represents
the debt discount, presented as a reduction to the convertible senior notes in the consolidated balance sheet and
is amortized to interest expense, net using the effective interest method over the remaining term of the
convertible senior notes. The equity component of the convertible senior notes is included in additional paid-in-
capital in the consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for
equity classification.
Sunnova Energy Corporation Senior Secured Notes. In April 2017, we issued senior secured notes due
October 2018 in an aggregate principal amount of $80.0 million to certain existing investors. As part of the
transaction, certain existing investors were required to commit to fund an additional $40.0 million to us by
December 2017 in exchange for shares of Series A convertible preferred stock ("Preferred Stock Commitment").
As discussed below, we received funding for the Preferred Stock Commitment in October 2017. In addition, we
were required to evidence the funding of additional subscriptions from existing or new investors for equity
interests totaling $80.0 million, including the Preferred Stock Commitment that was already funded, by October
2018. The senior secured notes bore interest at an annual rate of 12.00%, of which 6.00% was payable in cash
quarterly and the remaining 6.00% was payable in additional debt securities having the same terms, including
maturity dates and interest rates, as the original debt securities, subject to certain conditions. This feature is
commonly known as payment-in-kind and utilizing it effectively increases the principal note balance. The
lenders of the senior secured notes were related parties and the related transactions have been classified as such
in the consolidated balance sheets as of December 31, 2019 and 2018 and in the consolidated statements of
135
operations and consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017
(see Note 12, Related-Party Transactions).
The terms under the senior secured notes contained certain covenants and restrictions, including the
requirement that we maintain a minimum liquidity of $8.0 million at the end of each month and on a 30-day
average for each month prior to the date certain affiliates of Energy Capital Partners ("ECP") had funded its
portion of the Preferred Stock Commitment of $28.2 million, which ECP funded. In November 2017, the terms
of the senior secured notes were amended to, among other things, allow for the issuance of Series B convertible
preferred stock to certain of Sunnova Energy Corporation's affiliates. In May 2018, the terms of the senior
secured notes were amended to extend the maturity date from October 2018 to January 2019. In January 2019,
we amended the terms of the senior secured notes to, among other things, extend the maturity date from January
2019 to July 2019. In April 2019, we further amended the terms of the senior secured notes to, among other
things, (a) further extend the maturity date from July 2019 to March 2021, (b) decrease the interest rate from
12.00% per annum to 9.50% per annum, of which 4.75% was payable in cash quarterly and the remaining
4.75% was payable in additional debt securities (i.e. payment-in-kind) and (c) include a conversion feature. The
April 2019 amendment resulted in a loss on extinguishment under GAAP of $10.6 million related to the
difference between the net carrying value of the senior secured notes prior to the amendment and the fair value
of the notes after the amendment. In connection with our IPO, we exercised our right to redeem all the senior
secured notes for an aggregate amount of $57.1 million for cash. The aggregate redemption price included the
principal amount outstanding of $56.2 million plus accrued and unpaid cash interest and pay-in-kind interest to
the date of redemption.
For accounting purposes, only the conversion feature was required to be bifurcated and measured at fair
value; however, we elected to make a one-time, irrevocable election to utilize the fair value option allowed
under ASC 825, Financial Instruments. Under the fair value option election, we recorded the entire hybrid
instrument at fair value with changes in fair value recognized in other (income) expense in the consolidated
statements of operations. The fair value election resulted in an additional loss of $730,000 due to the change in
fair value from April 2019 to July 2019.
Sunnova Energy Corporation Convertible Notes. In March 2018, we issued a convertible note for $15.0
million to certain of our existing investors, which was subordinated to the senior secured notes, with a maturity
date of the earlier of (a) the repayment of the Sunnova senior secured notes or (b) May 2019 (the "2018 Note").
In January 2019, we amended the terms of the 2018 Note to, among other things, extend the maturity date to the
earlier of (a) the repayment of the senior secured notes or (b) December 2019. The 2018 Note bore interest at an
annual rate of 12.00%, which was only payable by increasing the outstanding principal balance of the 2018
Note quarterly until maturity. Under the terms of the 2018 Note, we could not make cash payments for interest
or principal on the 2018 Note until the senior secured notes had been repaid in full. The 2018 Note allowed for
the holders to convert the outstanding principal balance (including accrued paid-in-kind interest) into Series A
convertible preferred stock at a rate equal to the lesser of $5.3246735 per share (adjusted for subsequent stock
splits, combinations, recapitalizations or the like affecting the Series A convertible preferred stock) or the lowest
purchase price per share of Series A convertible preferred stock issued after the date of the 2018 Note.
In June 2019, we issued a convertible note for $15.0 million to certain of our existing investors, which
was subordinated to the senior secured notes, with a maturity date of the earlier of (a) the repayment of our
senior secured notes or (b) September 2021 (the "2019 Note"). The 2019 Note bore interest at an annual rate of
12.00%, which was only payable by increasing the outstanding principal balance of the 2019 Note quarterly
until maturity. Under the terms of the 2019 Note, we were not permitted to make cash payments for interest or
principal on the 2019 Note until the senior secured notes had been repaid in full. The 2019 Note allowed, if a
majority of holders had elected, the conversion of the outstanding principal balance (including accrued paid-in-
kind interest) into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted
for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or
the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019
136
Note. In connection with our IPO, holders of the 2018 Note converted the principal amount of the 2018 Note
plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares (or 1,422,767 shares as
adjusted for the Reverse Stock Split) of Series A convertible preferred stock, which in turn converted into
1,422,767 shares of common stock. In addition, holders of the 2019 Note converted the principal amount of the
2019 Note plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares (or 1,120,360
shares as adjusted for the Reverse Stock Split) of Series C convertible preferred stock, which in turn converted
into 1,120,360 shares of common stock.
Sunnova Energy Corporation Notes Payable. In May 2019, we entered into an arrangement to finance
$1.9 million in property insurance premiums at an annual interest rate of 5.50% over ten months. In July 2019,
we entered into an arrangement to finance $4.7 million in directors and officers insurance premiums at an
annual interest rate of 4.94% over eight months.
AP4 Debt. In July 2014, we entered into a collateral-based financing agreement with Texas Capital
Bank, as administrative agent, and the lenders party thereto, to obtain funding for solar energy systems, working
capital and general and administrative expenses of Sunnova Energy Corporation and AP4. The initial aggregate
principal amount of the commitments under the AP4 financing agreement was $90.0 million, which was
increased to $110.0 million in October 2015 and then reduced to $107.1 million in December 2017. Borrowings
under the AP4 financing agreement are secured by the assets of AP4, which include certain solar energy systems
and the related solar service agreements, accounts receivable and note receivable.
The loans under the AP4 financing agreement bear interest at an annual rate of either LIBOR plus 3.00%
or a base rate (defined as, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for
such day; (b) the sum of the federal funds rate for such day plus 0.50%; and (c) adjusted LIBOR for such day
plus 1.00%) plus 2.00%. In addition, through December 2016, the AP4 debt accrued a commitment fee at a rate
equal to 0.50% per year of the daily unused amount of the commitment. In December 2016, the loans converted
to an amortizing term loan and began amortizing quarterly based on a modified mortgage style amortization
schedule. The terms under the AP4 financing agreement contain certain covenants and restrictions, including a
ratio of consolidated EBITDA (as defined in the AP4 financing agreement) to debt service (as defined in the
AP4 financing agreement) that may not be less than 1.25 to 1.00 for any four-quarter period ending as of the
end of any fiscal quarter. Furthermore, the borrowers are permitted to pay distributions so long as after giving
effect thereto, the debt service coverage ratio is at least 1.0 to 1.0.
In March 2017, the AP4 financing agreement was amended to, among other things, extend the maturity
date from July 2019 to July 2020. In December 2017, the AP4 financing agreement was amended to, among
other things, admit into the collateral pool and borrow against certain assets previously financed under another
subsidiary's financing agreement, the proceeds of which were used to repay a substantial portion of the
aggregate outstanding principal amount under the subsidiary's financing agreement. In December 2018, the AP4
financing agreement was amended to, among other things, extend the start date of required excess cash flow
payments from January 2019 to June 2019 and add a minimum net worth requirement.
As of March 31, 2019, AP4 was not in compliance with the debt covenant regarding the ratio of
consolidated EBITDA to debt service, which is an event of default. In April 2019, AP4 exercised its right to an
equity cure, which allowed Sunnova Energy Corporation to contribute approximately $106,000 to AP4 and
allowed AP4 to add such amount to consolidated EBITDA for purposes of recalculating the ratio as of March
31, 2019. Subsequent to the equity cure, AP4 is in compliance with the debt covenants under the AP4 financing
agreement. In June 2019, we amended the AP4 financing agreement to, among other things, (a) extend the
maturity date from July 2020 to January 2021, (b) decrease the applicable margin for LIBOR loans to 2.50%
and (c) change the debt covenant regarding the ratio of consolidated EBITDA to debt service to be calculated
based on collections from customers and other cash receipts and disbursements (instead of consolidated
EBITDA). In connection with this amendment we repaid $5.0 million of outstanding borrowings under this
facility. In August 2019, AP4 conveyed its ownership interest in Sunnova Lease Vehicle 3-HI, LLC to Sunnova
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Energy Corporation and the security interest on the assets of Sunnova Lease Vehicle 3-HI, LLC that were
previously collateral securing the borrowings under the AP4 financing agreement was released. See Note 18,
Subsequent Events.
AP6WII Debt. In April 2016, AP6WII, a special purpose entity, entered into a secured revolving
warehouse credit facility with Goldman Sachs Bank USA. The warehouse credit facility allowed for the pooling
and transfer of eligible solar energy systems and related asset receivables on a non-recourse basis subject to
certain limited exceptions. The assets and cash flows of AP6WII were not available to satisfy our obligations or
any other affiliate of AP6WII and AP6WII was not liable for any of our obligations or any other affiliate of
AP6WII. The creditors of AP6WII had no recourse to our other assets except as expressly set forth in the credit
agreement.
The aggregate principal amount of commitments under the AP6WII warehouse credit facility was $175.0
million, which could be increased at AP6WII's request and the committed lender's discretion. The proceeds of
the loans under the warehouse credit facility were available to purchase or otherwise acquire solar energy
systems and certain related solar energy system assets (which we originated) directly from Sunnova Asset
Portfolio 6, LLC ("AP6"), a wholly-owned subsidiary of Sunnova Asset Portfolio 6 Holdings, LLC ("AP6H")
and sole member of AP6WII, pursuant to a sale and contribution agreement, fund certain reserve accounts that
were required to be maintained by AP6WII in accordance with the credit agreement governing the warehouse
credit facility, purchase interest rate swaps and swaptions in connection with borrowings and pay fees and
expenses incurred in connection with the warehouse credit facility. The amount available for borrowings at any
one time under the warehouse credit facility was limited to a borrowing base amount determined at each
borrowing and calculated based on the aggregate discounted present value of remaining payments owed to
AP6WII in respect of the solar energy systems transferred to AP6WII. The AP6WII credit facility had a
maturity date of April 2020.
Interest on the borrowings under the warehouse credit facility was due monthly. During the commitment
availability period, borrowings under the AP6WII warehouse credit facility bore interest at an annual rate equal
to LIBOR or, if such rate was unavailable, a base rate, plus (a) the ratio of discounted cash flows for all eligible
solar energy systems other than those subject to the loan program to the discounted cash flows for all eligible
solar energy systems multiplied by 5.00% per year plus (b) the ratio of discounted cash flows for eligible solar
energy systems subject to the loan program to the discounted cash flows for all eligible solar energy systems
multiplied by 4.25% per year. After the availability period, interest accrued at an annual rate equal to LIBOR or,
if such rate was unavailable, a base rate, plus (a) the ratio of discounted cash flows for all eligible solar energy
systems other than those subject to the loan program to the discounted cash flows for all eligible solar energy
systems multiplied by 5.50% per year plus (b) the ratio of discounted cash flows for eligible solar energy
systems subject to the loan program to the discounted cash flows for all eligible solar energy systems multiplied
by 4.75% per year. The warehouse credit facility required AP6WII to pay a fee based on the daily unused
portion of the commitments under the warehouse credit facility. Since May 2018, the warehouse credit facility
required AP6WII to pay an underutilization fee based on the prior twelve month's commitments meeting certain
thresholds under the warehouse credit facility. The credit agreement was secured by a first priority security
interest in all of AP6WII's assets. Revenues from the solar energy systems were deposited into accounts
established pursuant to the warehouse credit facility and applied in accordance with a cash waterfall in the
manner specified in the warehouse credit facility. AP6WII was also required to maintain a liquidity reserve
account and an inverter replacement reserve account for the benefit of the lenders under the warehouse credit
facility, each of which must remain funded at all times to the levels specified in the credit agreement (see Note
2, Significant Accounting Policies).
In connection with the AP6WII warehouse credit facility, certain of our affiliates received a fee for
managing and servicing the solar energy systems pursuant to management and servicing agreements. In
addition, Sunnova Energy Corporation had guaranteed (a) the manager's obligations to manage the solar energy
systems pursuant to the management agreement, (b) the servicer's obligations to service the solar energy
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systems pursuant to the servicing agreement, (c) Sunnova Intermediate Holdings, LLC's, AP6H's and AP6's
obligations to repurchase or substitute certain ineligible solar energy systems eventually sold to AP6WII
pursuant to the sale and contribution agreement and (d) certain indemnification obligations related to our
affiliates in connection with the AP6WII warehouse credit facility, but did not provide a general guarantee of
the creditworthiness of the assets of AP6WII pledged as the collateral for the warehouse credit facility. Under
the limited guarantee, Sunnova Energy Corporation was subject to certain financial covenants regarding
tangible net worth and unrestricted liquidity (including unrestricted cash and availability under other debt and
equity financing arrangements).
In April 2017, the AP6WII warehouse credit facility was amended to, among other things, extend the
availability period from April 2017 to April 2019, extend the maturity date from April 2018 to April 2020 and
change the borrowing base and interest amounts to be calculated separately for PPAs and leases versus solar
energy systems subject to the loan program. In June 2019, we fully repaid the aggregate outstanding principal
amount and terminated the AP6WII warehouse credit facility.
HELI Debt and Securitization. In April 2017, we pooled and transferred eligible solar energy systems
and the related asset receivables into HELI, a special purpose entity, that issued $191.8 million in aggregate
principal amount of Series 2017-1 Class A solar asset-backed notes, $18.0 million in aggregate principal amount
of Series 2017-1 Class B solar asset-backed notes and $45.0 million in aggregate principal amount of Series
2017-1 Class C solar asset-backed notes (collectively, the "Notes") with a maturity date of September 2049. The
Notes were issued at a discount of 0.05% for Class A, 9.28% for Class B and 8.65% for Class C and bear
interest at an annual rate equal to 4.94%, 6.00% and 8.00%, respectively. As of December 31, 2019, these solar
energy systems had a carrying value of $296.8 million and are included in property and equipment, net in the
consolidated balance sheet. The cash flows generated by these solar energy systems are used to service the
semi-annual principal and interest payments on the Notes and satisfy HELI's expenses, and any remaining cash
can be distributed to Helios Depositor, LLC, HELI's sole member. In connection with the Notes, certain of our
affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and
servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the manager's obligations to
manage the solar energy systems pursuant to the management agreement, (b) the servicer's obligations to
service the solar energy systems pursuant to the servicing agreement and (c) Sunnova Asset Portfolio 5, LLC's
obligations to repurchase or substitute certain ineligible solar energy systems eventually sold to HELI pursuant
to the sale and contribution agreement. HELI is also required to maintain a liquidity reserve account and an
inverter replacement reserve account for the benefit of the lenders under the Notes, each of which must remain
funded at all times to the levels specified in the Notes (see Note 2, Significant Accounting Policies). The
creditors of HELI have no recourse to our other assets except as expressly set forth in the Notes.
LAPH Debt and Securitization. In April 2017, LAPH and its wholly-owned subsidiaries Sunnova LAP I,
LLC and Sunnova LAP II, LLC, entered into a term loan agreement with Credit Suisse AG, New York Branch,
as administrative agent, and the lenders party thereto, for an initial aggregate committed principal amount of
$260.0 million with a maturity date of December 2018, which was amended (see below). The proceeds of the
loans were available to purchase or otherwise acquire solar energy systems (which we originated) directly from
Sunnova Asset Portfolio 7 Holdings, LLC ("AP7H"), the sole member of LAPH, pursuant to a sale and
contribution agreement, fund certain reserve accounts that are required to be maintained by the borrowers in
accordance with the loan agreement and pay fees and expenses incurred in connection with the loan agreement.
The amount available for borrowings at any one time under the loan agreement was limited to a borrowing base
amount determined at each borrowing and calculated based on the aggregate discounted present value of
remaining payments owed to LAPH and its wholly-owned subsidiaries in respect of the solar energy systems
transferred to LAPH and its wholly-owned subsidiaries.
Interest on the borrowings under the LAPH loan agreement was due monthly; however, it was amended to
be due quarterly in November 2018 (see below). Class A advances under the LAPH loan agreement initially
bore interest at an annual rate equal to the weighted-average cost to the lender of any commercial paper (to the
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extent the lender funds an advance by issuing commercial paper) plus 3.30%. Class B advances bore interest at
an annual rate equal to 11.00%. The loan agreement requires the borrowers to pay a fee based on the daily
unused portion of the commitments under the loan agreement. Revenues from the solar energy systems will be
deposited into accounts established pursuant to the loan agreement and applied in accordance with a cash
waterfall in the manner specified in the loan agreement. The borrowers are also required to maintain a liquidity
reserve account and an inverter replacement reserve account for the benefit of the lenders under the loan
agreement, each of which must remain funded at all times to the levels specified in the loan agreement (see
Note 2, Significant Accounting Policies).
In connection with the LAPH loan agreement, certain of our affiliates receive a fee for managing and
servicing the solar energy systems pursuant to management and servicing agreements. In addition, Sunnova
Energy Corporation has guaranteed (a) the manager's obligations to manage the solar energy systems pursuant
to the management agreement, (b) the servicer's obligations to service the solar energy systems pursuant to the
servicing agreement, (c) AP7H's obligations to repurchase or substitute certain ineligible solar energy systems
sold to LAPH and its wholly-owned subsidiaries pursuant to certain sale and contribution agreements and (d)
certain indemnification obligations related to its affiliates in connection with the LAPH loan agreement, but
does not provide a general guarantee of the creditworthiness of the assets of LAPH and its wholly-owned
subsidiaries pledged as the collateral for the loan agreement. Under the limited guarantee, Sunnova Energy
Corporation is subject to certain financial covenants regarding tangible net worth, working capital and
restrictions on the use of proceeds from the loan agreement.
In April 2018, the LAPH loan agreement was amended to, among other things, extend the maturity date
from December 2018 to May 2019. In November 2018, the LAPH loan agreement was amended to, among
other things, decrease the maximum commitment amount of Class A advances to $44.2 million and of Class B
advances to $0, extend the maturity date to November 2022, change the interest on Class A advances to an
annual rate equal to LIBOR plus 4.50% and change the interest collection period from monthly to quarterly.
EZOP Debt and Securitization. In April 2017, EZOP, a special purpose entity, entered into a secured
revolving warehouse credit facility with Credit Suisse AG, New York Branch, as administrative agent, and the
lenders party thereto, for an aggregate committed amount of $100.0 million with a maturity date of April 2019.
The aggregate committed amount was reduced to $70.0 million in August 2017 and in March 2019 we further
amended the EZOP warehouse credit facility to, among other things, extend the maturity date from April 2019
to November 2022 and increase the aggregate committed amount to $200.0 million. The warehouse credit
facility allows for the pooling and transfer of eligible loans on a non-recourse basis subject to certain limited
exceptions. The proceeds of the loans under the warehouse credit facility are available to purchase or otherwise
acquire loans (which we originated) directly from AP7H pursuant to a sale and contribution agreement, fund
certain reserve accounts that are required to be maintained by EZOP in accordance with the credit agreement
and pay fees and expenses incurred in connection with the warehouse credit facility. The amount available for
borrowings at any one time under the warehouse credit facility is limited to a borrowing base amount
determined at each borrowing and calculated based on the aggregate discounted present value of remaining
payments owed to EZOP in respect of the loans transferred to EZOP.
Interest on the borrowings under the warehouse credit facility is due monthly. Borrowings under the EZOP
warehouse credit facility bear interest at an annual rate equal to the weighted-average cost to the lender of any
commercial paper (to the extent the lender funds an advance by issuing commercial paper) plus 3.50% during
the commitment availability period and 4.50% after the commitment availability period. In March 2019, we
amended the EZOP warehouse credit facility to, among other things, adjust the interest rate on borrowings to an
annual rate of adjusted LIBOR plus either 2.15% or 3.15% per annum depending on the date of the most recent
takeout transaction in respect of assets securing the credit facility. In December 2019, we further amended the
EZOP warehouse credit facility to, among other things, adjust the interest rate on borrowings to an annual rate
of adjusted LIBOR plus either 2.35% or 3.35% per annum depending on the date of the most recent takeout
transaction in respect of assets securing the credit facility. The warehouse credit facility requires EZOP to pay a
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fee based on the daily unused portion of the commitments under the warehouse credit facility. Revenues from
the solar energy systems will be deposited into accounts established pursuant to the warehouse credit facility
and applied in accordance with a cash waterfall in the manner specified in the warehouse credit facility. EZOP
is also required to maintain a liquidity reserve account and an inverter replacement reserve account for the
benefit of the lenders under the warehouse credit facility, each of which must remain funded at all times to the
levels specified in the credit agreement (see Note 2, Significant Accounting Policies).
In connection with the EZOP warehouse credit facility, certain of our affiliates receive a fee for managing
and servicing the solar energy systems pursuant to management and servicing agreements. In addition, Sunnova
Energy Corporation has guaranteed (a) the manager's obligations to manage the solar energy systems pursuant
to the management agreement, (b) the servicer's obligations to service the solar energy systems pursuant to the
servicing agreement, (c) AP7H's obligations to repurchase or substitute certain ineligible solar energy systems
sold to EZOP pursuant to certain sale and contribution agreements and (d) certain indemnification obligations
related to its affiliates in connection with the EZOP warehouse credit facility, but does not provide a general
guarantee of the creditworthiness of the assets of EZOP pledged as the collateral for the warehouse credit
facility. Under the limited guarantee, Sunnova Energy Corporation is subject to certain financial covenants
regarding tangible net worth, working capital and restrictions on the use of proceeds from the warehouse credit
facility.
TEPIH Debt. In June 2017, TEPIH entered into a loan agreement with CIT Bank, N.A., as
administrative agent, and the lenders party thereto. The TEPIH loan agreement allowed for borrowings based on
the present value of certain estimated cash flows from subsidiaries of TEPIH. Under the TEPIH loan agreement,
TEPIH could borrow up to an aggregate committed amount of $140.0 million with a required initial borrowing
of $15.0 million. The proceeds of the loans under the TEPIH loan agreement were available to purchase or
reimburse Sunnova TEP I Developer, LLC ("TEPID"), the sole member of TEPIH, for a portion of the financing
of acquired solar energy systems (which we originated) directly from TEPID pursuant to a contribution
agreement or purchase and sale agreement, fund certain reserve accounts that were required to be maintained by
TEPIH in accordance with the loan agreement and pay fees and expenses incurred in connection with the
TEPIH loan agreement. The amount available for borrowings at any one time under the TEPIH loan agreement
was limited to a borrowing base amount determined at each borrowing and calculated based on the aggregate
discounted present value of remaining payments owed to TEPIH in respect of the solar energy systems owned
by certain subsidiaries of TEPIH. The TEPIH loan agreement had a maturity date of five years from the last day
of the availability period, which was defined as the earlier of (a) June 2018, (b) the date the aggregate
committed amount had been fully utilized or (c) the date an event of default had occurred. In June 2018, the
TEPIH loan agreement was amended to extend the availability period from June 2018 to December 2018. In
March 2019, we fully repaid the aggregate outstanding principal amount under the TEPIH loan agreement,
which was terminated at that time.
Interest on the borrowings under the TEPIH loan agreement was due quarterly. Borrowings under the
TEPIH loan agreement bore interest at an annual rate of either LIBOR plus the applicable margin or a base rate
(defined as, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day, (b)
the sum of the federal funds effective rate for such day plus 0.50% and (c) LIBOR for one month plus 1.00%)
plus the applicable margin. The applicable margin increased during the life of the facility and was (a) 3.00% for
LIBOR loans and 2.00% for base rate loans from loan inception through the last day of the availability period,
(b) 3.25% for LIBOR loans and 2.25% for base rate loans from the last day of the availability period through
the three year anniversary of the last day of the availability period and (c) 3.50% for LIBOR loans and 2.50%
for base rate loans from the three year anniversary of the last day of the availability period through the maturity
date.
TEPIIH Debt. In August 2018, TEPIIH entered into a revolving credit facility with Credit Suisse AG,
New York Branch, as administrative agent, and the lenders party thereto. The TEPIIH revolving credit facility
allows for borrowings based on the aggregate value of solar assets owned by subsidiaries of TEPIIH subject to
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certain excess concentration limitations. Under the TEPIIH revolving credit facility, TEPIIH may borrow up to
an initial aggregate committed amount of $125.0 million with a maximum commitment amount of $175.0
million. The proceeds from the revolving credit facility are available for funding certain reserve accounts
required by the revolving credit facility, making distributions to the parent of TEPIIH and paying fees incurred
in connection with closing the revolving credit facility. The TEPIIH revolving credit facility had a maturity date
of August 2022. In March 2019, we amended the TEPIIH revolving credit facility to, among other things,
extend the maturity date from August 2022 to November 2022, increase the aggregate committed amount to
$150.0 million and increase the maximum commitment amount to $250.0 million. In September 2019, we
further amended the TEPIIH revolving credit facility to, among other things, cross-collateralize the TEPIIH
revolving credit facility with the TEPH revolving credit facility and implement corresponding cross-default
provisions.
Interest on the borrowings under the TEPIIH revolving credit facility is due quarterly. Borrowings under
the TEPIIH revolving credit facility bear interest at an annual rate of either LIBOR divided by a percentage
equal to 100% minus a reserve percentage or a base rate (defined as, for any day, a rate of interest per annum
equal to the highest of (a) the prime rate for such day and (b) the sum of the weighted average of the rates on
overnight federal funds transactions with members of the federal reserve system arranged by federal funds
brokers as published for such day plus 0.50%) plus an applicable margin. See Note 18, Subsequent Events.
HELII Debt and Securitization. In November 2018, we pooled and transferred eligible solar energy
systems and the related asset receivables into HELII, a special purpose entity, that issued $202.0 million in
aggregate principal amount of Series 2018-1 Class A solar asset-backed notes and $60.7 million in aggregate
principal amount of Series 2018-1 Class B solar asset-backed notes (collectively, the "Notes II") with a maturity
date of July 2048. The Notes II were issued at a discount of 0.02% for Class A and 0.02% for Class B and bear
interest at an annual rate equal to 4.87% and 7.71%, respectively. As of December 31, 2019, these solar energy
systems had a carrying value of $330.9 million and are included in property and equipment, net in the
consolidated balance sheet. The cash flows generated by these solar energy systems are used to service the
semi-annual principal and interest payments on the Notes II and satisfy HELII's expenses, and any remaining
cash can be distributed to Helios Depositor II, LLC, HELII's sole member. In connection with the Notes II,
certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to
management and servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the
manager's obligations to manage the solar energy systems pursuant to the management agreement, (b) the
servicer's obligations to service the solar energy systems pursuant to the servicing agreement and (c) Sunnova
ABS Holdings, LLC's obligations to repurchase or substitute certain ineligible solar energy systems eventually
sold to HELII pursuant to the sale and contribution agreement. HELII is also required to maintain a liquidity
reserve account, an inverter replacement reserve account and a cash trap reserve account for the benefit of the
lenders under the Notes II, each of which must remain funded at all times to the levels specified in the Notes II
(see Note 2, Significant Accounting Policies). The creditors of HELII have no recourse to our other assets
except as expressly set forth in the Notes II.
RAYSI Debt and Securitization. In March 2019, we pooled and transferred eligible solar energy systems
and the related asset receivables into RAYSI, a special purpose entity, that issued $118.1 million in aggregate
principal amount of Series 2019-1 Class A solar asset-backed notes with a maturity date of April 2044 and $15.0
million in aggregate principal amount of Series 2019-1 Class B solar asset-backed notes with a maturity date of
April 2034. The notes were issued with no discount for Class A and at a discount of 6.50% for Class B and bear
interest at an annual rate equal to 4.95% and 6.35%, respectively. In June 2019, RAYSI issued $6.4 million in
aggregate principal amount of 2019-2 Class B solar asset-backed notes with a maturity date of April 2034
pursuant to a supplemental note purchase agreement at a discount rate of 10.50% and bear interest at an annual
rate equal to 6.35%. The notes issued by RAYSI are referred to as the "RAYSI Notes". The cash flows
generated by these solar energy systems are used to service the semi-annual principal and interest payments on
the RAYSI Notes and satisfy RAYSI's expenses, and any remaining cash can be distributed to Sunnova RAYS
Depositor II, LLC, RAYSI's sole member. In connection with the RAYSI Notes, certain of our affiliates receive
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a fee for managing and servicing the solar energy systems pursuant to management, servicing, facility
administration and asset management agreements. In addition, Sunnova Energy Corporation has guaranteed,
among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy
systems pursuant to management, servicing, facility administration and asset management agreements, (b) the
managing member's obligations, in such capacity, under the related financing fund's limited liability company
agreement and (c) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar
energy systems eventually sold to RAYSI pursuant to the related sale and contribution agreement. RAYSI is
also required to maintain a liquidity reserve account, a supplemental reserve account for inverter replacement
and financing fund purchase option exercises, a storage system reserve account and a cash trap reserve account
for the benefit of the lenders under the RAYSI Notes, each of which must remain funded at all times to the
levels specified in the RAYSI Notes. The creditors of RAYSI have no recourse to our other assets except as
expressly set forth in the RAYSI Notes.
HELIII Debt. In June 2019, we pooled and transferred eligible solar loans and the related receivables
into HELIII, a special purpose entity, that issued $139.7 million in aggregate principal amount of Series 2019-A
Class A solar loan-backed notes, $14.9 million in aggregate principal amount of Series 2019-A Class B solar
loan-backed notes and $13.0 million in aggregate principal amount of Series 2019-A Class C solar loan-backed
notes (collectively, the "HELIII Notes") with a maturity date of June 2046. The HELIII Notes were issued at a
discount of 0.03% for Class A, 0.01% for Class B and 0.03% for Class C and bear interest at an annual rate of
3.75%, 4.49% and 5.32%, respectively. The cash flows generated by these solar loans are used to service the
semi-annual principal and interest payments on the HELIII Notes and satisfy HELIII's expenses, and any
remaining cash can be distributed to Sunnova Helios III Depositor, LLC, HELIII's sole member. In connection
with the HELIII Notes, certain of our affiliates receive a fee for managing and servicing the solar energy
systems pursuant to management and servicing agreements. In addition, Sunnova Energy Corporation has
guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar
energy systems pursuant to management and servicing agreements, (b) the managing member's obligations, in
such capacity, under the related financing fund's limited liability company agreement and (c) certain of our
subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELIII
pursuant to the related sale and contribution agreement. HELIII is also required to maintain a reserve account, a
supplemental reserve account for inverter replacement and a capitalized interest reserve account for the benefit
of the holders of the HELIII Notes, each of which must remain funded at all times to the levels specified in the
HELIII Notes. The creditors of HELIII have no recourse to our other assets except as expressly set forth in the
HELIII Notes.
TEPH Debt. In September 2019, TEPH, a wholly owned subsidiary of SEI, entered into a revolving
credit facility with Credit Suisse AG, New York Branch, as administrative agent, and the lenders party thereto.
The TEPH revolving credit facility allows for borrowings based on the aggregate value of solar assets owned by
subsidiaries of TEPH subject to certain excess concentration limitations. Under the TEPH revolving credit
facility, TEPH may borrow up to an initial aggregate committed amount of $100.0 million with a maximum
commitment amount of $150.0 million and a maturity date of November 2022. The proceeds from the revolving
credit facility are available for funding certain reserve accounts required by the revolving credit facility, making
distributions to the parent of TEPH and paying fees incurred in connection with closing the revolving credit
facility. The revolving credit facility is non-recourse to SEI and is secured by net cash flows from PPAs and
leases available to the borrower after distributions to tax equity investors and payment of certain operating,
maintenance and other expenses. This facility is cross-collateralized with the TEPIIH revolving credit facility
and contains corresponding cross-default provisions. Sunnova Energy Corporation guarantees the performance
of certain affiliates who manage the collateral related to the credit facility as well as certain indemnity and
repurchase obligations. Under the limited guarantee, Sunnova Energy Corporation is subject to certain financial
covenants regarding tangible net worth, working capital and restrictions on the use of proceeds from the facility.
In December 2019, we amended the TEPH revolving credit facility to, among other things, (a) modify the
borrowing base eligibility criteria for certain solar assets relating to the timing of the expected first payments
from such solar assets, (b) modify the calculation of the amount required to be deposited into the liquidity
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reserve account, (c) delay the application of concentration limits for an additional 90 days, (d) temporarily
increase the borrowing base applied to certain solar assets and (e) include additional provisions regarding
qualified financial contract rules.
Borrowings under the TEPH revolving credit facility are made in Class A loans and Class B loans. The
TEPH revolving credit facility has an advance rate equal to approximately 60% of the value of the solar projects
in the portfolio that have not yet begun construction and 80% of the value of the solar projects that have reached
substantial completion. Interest on the borrowings under the TEPH revolving credit facility is due quarterly.
Borrowings under the TEPH revolving credit facility bear interest at an annual rate of either LIBOR divided by
a percentage equal to 100% minus a reserve percentage or a base rate (defined as, for any day, a rate of interest
per annum equal to the highest of (a) the prime rate for such day and (b) the sum of the weighted average of the
rates on overnight federal funds transactions with members of the federal reserve system arranged by federal
funds brokers as published for such day plus 0.50%), plus a margin of between 2.90% and 4.30%, which varies
based on criteria including (a) whether the availability period has expired (which is expected to occur in May
2022), (b) whether a takeout transaction has occurred in the last 18 months and (c) the ratio of Class A loans to
Class B loans outstanding at such time.
TEPINV Debt. In December 2019, TEPINV, a special purpose wholly owned subsidiary of SEI, entered
into a secured revolving credit facility with Credit Suisse AG, New York Branch, as administrative agent, and
the lenders party thereto. Under the TEPINV revolving credit facility, TEPINV may borrow up to an initial
aggregate committed amount of $95.2 million with a maximum commitment amount of $137.6 million and a
maturity date of the earlier of (a) 27 months from the initial purchase date of eligible equipment, (b) December
2022, (c) the date on which there is no eligible equipment in the facility and (d) such earlier date as when the
obligations under the TEPINV revolving credit facility become due and payable, upon an acceleration or
otherwise. The proceeds from the TEPINV revolving credit facility are available for purchasing certain eligible
equipment the borrower intends will allow the related solar energy systems to qualify for the 30% Section 48(a)
ITC by satisfying the 5% ITC Safe Harbor outlined in Internal Revenue Service ("IRS") notice 2018-59 (the
"5% ITC Safe Harbor"), funding a reserve account required by the TEPINV revolving credit facility and paying
fees incurred in connection with closing the TEPINV revolving credit facility.
Borrowings under the TEPINV revolving credit facility are made in Class A loans and Class B loans. The
TEPINV revolving credit facility has an advance rate equal to approximately 85% of the value of certain
eligible equipment. Interest on the borrowings under the TEPINV revolving credit facility is due monthly.
Borrowings under the TEPINV revolving credit facility bear interest at an annual rate of either LIBOR divided
by a percentage equal to 100% minus a reserve percentage or a base rate (defined as, for any day, a rate of
interest per annum equal to the highest of (a) the prime rate for such day, (b) the sum of the weighted average of
the rates on overnight federal funds transactions with members of the federal reserve system arranged by federal
funds brokers as published for such day plus 0.50% and (c) 0%), plus a margin equal to 5.99% on a blended
basis. In connection with the TEPINV revolving credit facility, certain of our affiliates receive a fee for
managing the equipment pursuant to a management services agreement. In addition, Sunnova Energy
Corporation has guaranteed (a) the performance obligations of certain affiliates to perform under affiliate
transaction documents entered into in connection with the TEPINV revolving credit facility, (b) certain
indemnification obligations related to our affiliates in connection with the TEPINV revolving credit facility, (c)
the borrower's obligations under the TEPINV revolving credit facility, subject to a cap of $9.5 million, which
equates to 10% of the initial commitments and (d) expenses incurred by the borrower or the administrative
agent in enforcing rights under certain affiliate transaction documents or the guarantee. Under the limited
guarantee, Sunnova Energy Corporation is subject to certain financial covenants regarding tangible net worth,
working capital and restrictions on the use of proceeds from the TEPINV revolving credit facility.
144
Fair Values of Long-Term Debt. The fair values of our long-term debt and the corresponding carrying
amounts are as follows:
As of December 31,
2019
2018
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(in thousands)
SEI convertible senior notes
$
55,000
$
37,964
$
— $
Sunnova Energy Corporation senior secured notes
Sunnova Energy Corporation convertible notes
Sunnova Energy Corporation notes payable
AP4 secured term loan
AP6WII warehouse credit facility
HELI solar asset-backed notes
LAPH secured term loan
EZOP warehouse credit facility
TEPIH secured term loan
TEPIIH revolving credit facility
HELII solar asset-backed notes
RAYSI solar asset-backed notes
HELIII solar loan-backed notes
TEPH revolving credit facility
TEPINV revolving credit facility
Total (1)
—
—
2,428
92,478
—
222,305
42,876
121,400
—
234,650
254,314
133,155
154,573
90,325
95,207
—
—
2,428
92,478
—
223,895
42,876
121,400
—
234,650
281,850
139,004
155,701
90,325
95,207
44,219
16,500
—
104,062
54,603
235,357
44,205
58,200
110,595
57,552
262,700
—
—
—
—
—
43,781
16,442
—
104,062
54,603
229,766
44,205
58,200
110,595
57,552
274,857
—
—
—
—
$ 1,498,711
$ 1,517,778
$ 987,993
$
994,063
(1) Amounts exclude the net deferred financing costs and net debt discounts of $54.8 million and $28.1
million as of December 31, 2019 and 2018, respectively.
For the AP4, AP6WII, LAPH, EZOP, TEPIH, TEPIIH, TEPH and TEPINV debt, the estimated fair values
as of December 31, 2019 and 2018 approximate the carrying amounts due primarily to the variable nature of the
interest rates of the underlying instruments. For the notes payable, the estimated fair value as of December 31,
2019 approximates the carrying amount due primarily to the short-term nature of the instruments. For the
convertible senior notes as of December 31, 2019, the senior secured notes and convertible notes as of
December 31, 2018 and for the HELI, HELII, RAYSI and HELIII debt as of December 31, 2019 and 2018, we
determined the estimated fair values based on a yield analysis of similar type debt.
145
Principal Maturities of Long-Term Debt. As of December 31, 2019, the principal maturities of our long-
term debt were as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
(9) Derivative Instruments
Principal Maturities
of Long-Term Debt
(in thousands)
$
$
97,464
154,285
504,434
74,649
32,949
634,930
1,498,711
Interest Rate Swaps on AP4 Debt. During the year ended December 31, 2018, AP4 unwound all
outstanding interest rate swaps with an aggregate notional amount of $105.2 million and received cash of
$666,000. AP4 subsequently entered into an interest rate swap with a notional amount of $105.2 million. In
April 2018, the notional amount of the interest rate swap began decreasing to match AP4's estimated quarterly
principal payments on the debt. See Note 18, Subsequent Events.
Interest Rate Swaps on AP6WII Debt. During the years ended December 31, 2019 and 2018, AP6WII
entered into interest rate swaps for an aggregate notional amount of $103.5 million and $63.6 million,
respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding
AP6WII debt. During the year ended December 31, 2019, the aggregate outstanding principal amount under the
AP6WII warehouse credit facility was fully repaid, AP6WII unwound interest rate swaps with an aggregate
notional amount of $84.1 million and recorded a realized loss of $8.7 million. During the year ended
December 31, 2018, AP6WII unwound interest rate swaps with an aggregate notional amount of $101.4 million
and recorded a realized gain of $5.7 million. No collateral was posted for the interest rate swaps as they are
secured under the AP6WII warehouse credit facility.
Interest Rate Swaps on LAPH Debt. During the year ended December 31, 2018, LAPH entered into
interest rate swaps for an aggregate notional amount of $44.2 million to economically hedge its exposure to the
variable interest rates on a portion of the outstanding LAPH debt. In January 2019, the notional amount of the
interest rate swaps began decreasing to match LAPH's estimated quarterly principal payments on the debt.
During the year ended December 31, 2018, LAPH unwound an interest rate swap with a notional amount of
$224.2 million and recorded a realized gain of $11.5 million. No collateral was posted for the interest rate swap
as it is secured under the LAPH loan agreement.
Interest Rate Swaps on EZOP Debt. During the years ended December 31, 2019 and 2018, EZOP
entered into interest rate swaps for an aggregate notional amount of $255.8 million and $102.6 million,
respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding
EZOP debt. In March 2018, the notional amount of the interest rate swaps began decreasing to match EZOP's
estimated monthly principal payments on the debt. During the year ended December 31, 2019, EZOP unwound
interest rate swaps with a notional amount of $264.6 million and recorded a realized gain of $81,000. No
collateral was posted for the interest rate swap as it is secured under the EZOP warehouse credit facility.
Interest Rate Swaps on TEPIH Debt. During the year ended December 31, 2018, TEPIH entered into
interest rate swaps for an aggregate notional amount of $41.7 million to economically hedge its exposure to the
variable interest rates on a portion of the outstanding TEPIH debt. In January 2018, the notional amount of the
146
interest rate swaps began decreasing to match TEPIH's estimated quarterly principal payments on the debt. No
collateral was posted for the interest rate swaps as they are secured under the TEPIH loan agreement. During the
year ended December 31, 2019, the aggregate outstanding principal amount under the TEPIH loan agreement
was fully repaid, TEPIH unwound interest rate swaps with an aggregate notional amount of $102.9 million and
recorded a realized loss of $3.5 million.
Interest Rate Swaps on TEPIIH Debt. During the years ended December 31, 2019 and 2018, TEPIIH
entered into interest rate swaps for an aggregate notional amount of $171.2 million and $54.7 million,
respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding
TEPIIH debt. Beginning in October 2020, the notional amount of the interest rate swaps decreases to match
TEPIIH's estimated quarterly principal payments on the debt. No collateral was posted for the interest rate
swaps as they are secured under the TEPIIH revolving credit facility. See Note 18, Subsequent Events.
Interest Rate Swaps on TEPH Debt. During the year ended December 31, 2019, TEPH entered into
interest rate swaps for an aggregate notional amount of $103.1 million to economically hedge its exposure to the
variable interest rates on a portion of the outstanding TEPH debt. Beginning in July 2022, the notional amount
of the interest rate swap decreases to match TEPH's estimated quarterly principal payments on the debt. No
collateral was posted for the interest rate swaps as they are secured under the TEPH revolving credit facility.
The following table presents a summary of the outstanding derivative instruments:
As of December 31,
2019
2018
Effective
Date
Termination
Date
Fixed
Interest
Rate
Aggregate
Notional
Amount
Effective
Date
Termination
Date
Fixed
Interest
Rate
Aggregate
Notional
Amount
(in thousands, except interest rates)
AP4
March 2018
July 2020
2.338% $ 99,762
March
2018
July 2020
2.338%
$ 102,921
AP6WII
LAPH
EZOP
TEPIH
November
2018
June 2019 -
November
2019
TEPIIH September
2018
- November
2019
September
2019
- January
2023
TEPH
Total
—%
— April 2019 April 2019 -
April 2029
October
2036
3.409%
43,298 November
October
2036
2.402% -
3.254%
3.409%
July 2029 -
March 2030
1.631% -
2.620%
100,083
2018
March
2018
- April
2019
April 2019 -
March 2027
1.900% -
3.014%
April 2033 -
January
2035
2.350% -
3.104%
72,025
44,205
55,290
99,536
—%
— June 2017
-
December
2018
September
2018 -
December
2018
July 2031 -
October
2041
January
2023
- July 2034
1.909% -
3.383%
225,845
1.620% -
1.928%
55,115
July 2031 -
October
2041
2.995% -
3.383%
54,675
—%
—
$ 524,103
$ 428,652
147
The following table presents the fair value of the interest rate swaps as recorded in the consolidated
balance sheets:
Other assets
Other current liabilities
Other long-term liabilities
Total, net
As of December 31,
2019
2018
$
(in thousands)
360
(397)
(27,092)
(27,129) $
270
—
(8,161)
(7,891)
$
$
We did not designate the interest rate swaps and swaptions as hedging instruments for accounting
purposes. As a result, we recognize changes in fair value immediately in interest expense, net. The following
table presents the impact of the interest rate swaps and swaptions as recorded in the consolidated statements of
operations:
Realized (gain) loss
Unrealized loss
Total
(10) Income Taxes
Year Ended
December 31,
2019
2018
2017
$
$
13,195
19,237
32,432
(in thousands)
$ (17,004) $
6,100
$ (10,904) $
3,295
5,944
9,239
Our effective income tax rate is 0% for the years ended December 31, 2019, 2018 and 2017. Total income
tax differs from the amounts computed by applying the statutory income tax rate to loss before income tax
primarily as a result of our valuation allowance. The sources of these differences are as follows:
Loss before income tax
Statutory federal tax rate
Tax benefit computed at statutory rate
Year Ended
December 31,
2019
2018
2017
$(133,434)
21%
(28,021)
(in thousands)
$ (68,409)
21%
(14,366)
$ (90,182)
35%
(31,564)
State income tax, net of federal benefit
(8,344)
(4,308)
(3,406)
Adjustments from permanent differences:
Enactment of the Tax Cuts and Jobs Act
Redeemable noncontrolling interests
ITC recapture
Other
Increase in valuation allowance, net
Total income tax
—
(2,293)
296
852
37,510
—
(1,226)
989
234
18,677
6,118
—
—
1,185
27,667
$
— $
— $
—
148
State, federal and foreign income taxes are $0 for the years ended December 31, 2019, 2018 and 2017.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
(liabilities) are as follows:
Federal net operating loss carryforward
State net operating loss carryforward
ITC carryforward
Federal unused interest deduction carryforward
Investment in certain financing arrangements
Other deferred tax assets
Deferred tax assets
Fixed asset basis difference
Investment in certain financing arrangements
Other deferred tax liabilities
Deferred tax liabilities
Valuation allowance
Net deferred tax asset
As of December 31,
2019
2018
(tax effected, in thousands)
$
169,379
$
49,565
246,828
22,559
36,999
20,801
546,131
(235,510)
(22,826)
(2,819)
(261,155)
(284,976)
$
— $
137,810
38,659
226,378
10,202
16,374
11,531
440,954
(188,087)
(5,391)
(874)
(194,352)
(246,602)
—
Enactment of the Tax Cuts and Jobs Act. In December 2017, the U.S. enacted tax legislation commonly
known as the Tax Cuts and Jobs Act. This law significantly changed U.S. corporate income tax laws by, among
other things, reducing the U.S. federal corporate income tax rate from a highest marginal rate of 35% to a flat
rate of 21% beginning in 2018. During the year ended December 31, 2017, we recognized income tax expense
of $6.1 million for the revaluation of the net deferred tax asset based on a U.S. federal corporate income tax rate
of 21%, which was fully offset by a reduction in the net deferred tax asset valuation allowance.
A full valuation allowance of $285.0 million and $246.6 million was recorded against our net deferred tax
assets as of December 31, 2019 and 2018, respectively. We believe it is not more likely than not that future
taxable income and the reversal of deferred tax liabilities will be sufficient to realize our net deferred tax assets.
Our estimated federal tax net operating loss carryforward as of December 31, 2019 is approximately $806.6
million, which will begin to expire in 2032 if not utilized. We also generated $20.5 million of Section 48(a)
ITCs in 2019 for a net $246.8 million through December 31, 2019, which will begin to expire in 2033 if not
utilized.
We assessed whether we had any significant uncertain tax positions taken in a filed tax return, planned to
be taken in a future tax return or claim, or otherwise subject to interpretation and determined there were none
not 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, or prospectively approved when such
approval may be sought in advance. Accordingly, we recorded no reserve for uncertain tax positions. Should a
provision for any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to
accrue for such in our income tax accounts. There were no such accruals as of December 31, 2019 and 2018 and
we do not expect a significant change in gross unrecognized tax benefits in the next twelve months. Our tax
years 2012 through 2018 remain subject to examination by the IRS and the states and territories in which we
operate.
149
(11) Detail of Certain Subsidiary Assets and Liabilities
As discussed in Note 8, Long-Term Debt, in April 2017, LAPH and EZOP entered into a loan agreement
and warehouse credit facility, respectively, that allows for the pooling and transfer of eligible solar energy
systems and related asset receivables on a basis that is generally non-recourse. Under the agreements, the loan
proceeds of LAPH and EZOP are available to purchase or otherwise acquire solar energy systems and certain
related assets directly from AP7H pursuant to a sale and contribution agreement. In September 2019, TEPH
entered into a loan agreement that allows TEPH to borrow on the aggregate value of solar assets owned by
subsidiaries of TEPH pursuant to a pledge agreement. The following table presents the detail of assets and
liabilities of certain subsidiaries as recorded in the consolidated balance sheet:
Assets
Current assets:
Cash
Accounts receivable—trade, net
Accounts receivable, net—affiliates
Accounts receivable—other
Other current assets
Total current assets
Property and equipment, net
Customer notes receivable, net
Other assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accounts payable, net—affiliates
Accrued expenses
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, net
Other long-term liabilities
Total liabilities
Sunnova
Energy
Corporation
Consolidated
As of December 31, 2019
LAPH
Consolidated
EZOP
TEPH
Consolidated
(in thousands)
$
82,788
$
1,323
$
2,143
$
14,672
10,672
—
6,147
174,016
273,623
1,745,060
297,975
169,712
497
—
—
172
1,992
54,558
—
1,815
367
78
—
5,314
7,902
295
—
4
47,388
62,359
—
168,348
125,950
6,629
—
5,564
$
2,486,370
$
58,365
$
140,481
$
236,271
$
36,190
$
14
$
—
39,544
97,464
21,720
194,918
1,308,812
127,406
1,220
87
1,392
818
3,531
40,727
7,606
$
16
—
44
—
165
225
119,222
27,796
247
80,298
282
—
697
81,524
89,680
1,442
$
1,631,136
$
51,864
$
147,243
$
172,646
150
(12) Related-Party Transactions
Sunnova Debt. Certain of our affiliates who have representatives on our Board were holders of the
senior secured notes and the convertible notes. In connection with our IPO, we redeemed the senior secured
notes for cash and the holders of the convertible notes converted the principal amount plus accrued and unpaid
interest into shares of common stock. See Note 8, Long-Term Debt. We have classified these related
transactions as such in the consolidated balance sheet as of December 31, 2018 and in the consolidated
statements of operations and consolidated statements of cash flows for the years ended December 31, 2019,
2018 and 2017.
Promissory Notes. In March 2018, we entered into a bonus agreement with an executive officer
providing that each year beginning in January 2019, one-fourth of the outstanding loan balance (and related
accrued and unpaid interest) under the promissory notes executed by that officer and an entity controlled by that
officer, in favor of Sunnova Energy Corporation, in combined aggregate principal amounts totaling $1.7 million
(the "Officer Notes"), was to be forgiven provided that officer remained employed through the applicable
forgiveness date, such that the full amount of the Officer Notes would be forgiven as of January 2022. In
January 2019, one-fourth of the balance of the Officer Notes was forgiven. In June 2019, as additional bonus
compensation, the remaining principal and interest in the amount of $1.4 million associated with the Officer
Notes was forgiven and Sunnova Energy Corporation agreed to pay the officer a bonus to reimburse the officer
for the expected tax liability associated with such forgiveness of $892,000, which was paid in August 2019.
(13) Redeemable Noncontrolling Interests
In February 2017, we formed TEPI, a subsidiary of Sunnova TEP I Manager, LLC, which is the Class B
member of TEPI. In March 2017, we admitted a tax equity investor as the Class A member of TEPI. The Class
A member of TEPI made an initial capital commitment of $80.0 million and increased this commitment to $91.1
million in November 2017 and to $97.5 million in December 2017. In October 2017, we formed TEPII and in
December 2017, we formed TEPIIB, each a subsidiary of Sunnova TEP II Manager, LLC, which is the Class B
member of TEPII and TEPIIB. In December 2017, we admitted a tax equity investor as the Class A member of
TEPII and TEPIIB. The Class A member of TEPII and TEPIIB made an initial capital commitment of $30.0
million and $40.0 million to TEPII and TEPIIB, respectively, and increased this commitment to $57.0 million
for TEPIIB in May 2018. In January 2019, we admitted tax equity investors as the Class A members of TEPIII,
a subsidiary of Sunnova TEP III Manager, LLC which is the Class B member of TEPIII. The Class A members
of TEPIII made a total capital commitment of $50.0 million. In June 2019, the Class A member of TEPII
increased its commitment from $30.0 million to $45.0 million. In August 2019, we admitted a tax equity
investor as the Class A member of TEPIVA, a subsidiary of Sunnova TEP IV-A Manager, LLC, which is the
Class B member of TEPIVA. The Class A member of TEPIVA made a total capital commitment of $75.0
million. In December 2019, we admitted a tax equity investor as the Class A member of TEPIVB, a subsidiary
of Sunnova TEP IV-B Manager, LLC, which is the Class B member of TEPIVB. The Class A member of
TEPIVB made a total capital commitment of $50.0 million.
The purpose of the tax equity entities is to own and operate a portfolio of residential solar energy systems
and energy storage systems. The terms of the tax equity entities' operating agreements contain allocations of
income (loss), Section 48(a) ITCs and cash distributions that vary over time and adjust between the members on
an agreed date (referred to as the flip date). The operating agreements specify either a calendar flip date or an
internal rate of return ("IRR") flip date. The calendar flip date is based on the passage of a fixed period of time
that generally corresponds to the expiration of the recapture period associated with Section 48(a) ITCs or a year
thereafter. The IRR flip date is the date on which the tax equity investor has achieved a contractual rate of
return. From inception through the flip date, the Class A members' allocation of income (loss) and Section 48(a)
ITCs is generally 93% to 99% and the Class B members' allocation of income (loss) and Section 48(a) ITCs is
generally 1% to 7%. After the related flip date, the Class A members' allocation of income (loss) will decrease
151
to a range of 1% to 7% and the Class B members' allocation of income (loss) will increase to a range of 93% to
99%.
The redeemable noncontrolling interests are comprised of Class A units, which represent the tax equity
investors' interest in the tax equity entities, and are classified between liabilities and equity in the consolidated
balance sheets. Both the Class A members and Class B members have written call options to allow either
member to redeem the other member's interest in the tax equity entities upon the occurrence of certain
contingent events, such as bankruptcy, dissolution/liquidation and forced divestitures of the tax equity entities.
Additionally, the Class B members have the option to purchase all Class A units, which is typically exercisable
at any time during the nine-month period commencing upon the applicable flip date, and also have the
contingent obligation to purchase all Class A units if the Class A members exercise their right to withdraw,
which is typically exercisable at any time during the nine-month period commencing upon the applicable flip
date. The carrying values of the redeemable noncontrolling interests were equal to the redemption values as of
December 31, 2019 and 2018, with the exception of TEPIVA and TEPIVB, for which we are not required to
carry a redemption value.
Guarantees. We are contractually obligated to make certain Class A members whole for losses they may
suffer in certain limited circumstances resulting from the disallowance or recapture of Section 48(a) ITCs. We
have concluded the likelihood of a significant recapture event is remote and consequently have not recorded a
liability for any potential recapture exposure. The maximum potential future payments we could be required to
make under this obligation would depend on the IRS successfully asserting upon audit the fair market values of
the solar energy systems sold or transferred to the tax equity entities as determined by us exceed the allowable
basis for the systems for purposes of claiming Section 48(a) ITCs. The fair market values of the solar energy
systems and related Section 48(a) ITCs are determined and the Section 48(a) ITCs are allocated to the Class A
members in accordance with the tax equity entities' operating agreements. Due to uncertainties associated with
estimating the timing and amounts of distributions, the likelihood of an event that may trigger repayment,
forfeiture or recapture of Section 48(a) ITCs to such Class A members, and the fact that we cannot determine
how the IRS will evaluate system values used in claiming Section 48(a) ITCs, we cannot determine the potential
maximum future payments that are required under these guarantees.
From time to time, we incur non-performance fees, which may include, but is not limited to, delays in the
installation process and interconnection to the power grid of solar energy systems and other factors. The non-
performance fees are settled by either a reimbursement of a portion of the Class A members' capital or an
additional payment to the Class A members. During the year ended December 31, 2019, we paid $1.3 million
related to non-performance fees. During the years ended December 31, 2018 and 2017, we did not make any
reimbursements or payments related to non-performance fees. As of December 31, 2019 and 2018, we recorded
a liability of $566,000 and $1.3 million, respectively, related to non-performance fees.
152
(14) Stockholders' Equity
Series A and Series C Convertible Preferred Stock
The Series A and Series C convertible preferred stock was convertible into our Series A common stock at
an initial conversion ratio of 1:1, subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to any of our common stock and to broad-based
weighted average anti-dilution protection. The Series A and Series C convertible preferred stock was
mandatorily convertible into our Series A common stock upon either (a) the closing of a public offering of
shares of our common stock with aggregate gross proceeds, net of underwriting discounts and commissions, of
not less than $175.0 million at a per share offering price of at least 1.25 times the original purchase price of our
Series A convertible preferred stock or (b) the affirmative vote of at least 80% of the shares of Series A and
Series C convertible preferred stock voting as a single class and on an "as converted basis". The holders of
Series A and Series C convertible preferred stock were entitled to cast the number of votes equal to the number
of whole shares of Series A common stock into which the Series A and Series C convertible preferred stock held
by such holders is convertible as of the record date for determining stockholders entitled to vote on such matter.
In April 2017, we increased the number of authorized voting shares of our Series A convertible preferred
stock from 90,000,000 shares (or 38,576,939 shares as adjusted for the Reverse Stock Split) to 105,000,000
shares (or 45,006,429 shares as adjusted for the Reverse Stock Split). During the year ended December 31,
2017, we issued 9,409,174 shares (or 4,033,061 shares as adjusted for the Reverse Stock Split) of our Series A
convertible preferred stock at $5.3246735 per share in exchange for $50.1 million in cash. Additionally, in
October 2017, we retired approximately $15.2 million principal and related paid-in-kind amounts of convertible
notes in exchange for 2,852,790 shares (or 1,222,799 shares as adjusted for the Reverse Stock Split) of our
Series A convertible preferred stock (see Note 8, Long-Term Debt).
In March 2018, we further increased the number of authorized voting shares of our convertible preferred
stock to 150,000,000 shares (or 64,294,899 shares as adjusted for the Reverse Stock Split), of which
110,000,000 shares (or 47,149,592 shares as adjusted for the Reverse Stock Split) were designated as Series A
convertible preferred stock and 40,000,000 shares (or 17,145,306 shares as adjusted for the Reverse Stock Split)
were designated as Series C convertible preferred stock. During the year ended December 31, 2018, we issued
30,344,827 shares (or 13,006,780 shares as adjusted for the Reverse Stock Split) of Series C convertible
preferred stock at $5.80 per share in exchange for $176.0 million in cash. See below for non-cash issuance of
our Series A convertible preferred stock.
In connection with our IPO, we converted 108,138,971 shares (or 46,351,877 shares as adjusted for the
Reverse Stock Split) of our Series A convertible preferred stock and 32,958,645 shares (or 14,127,140 shares as
adjusted for the Reverse Stock Split) of our Series C convertible preferred stock, which represented all the
outstanding shares of our Series A convertible preferred stock and Series C convertible preferred stock, into
60,479,017 shares of our common stock.
Series B Convertible Preferred Stock
The Series B convertible preferred stock was convertible into our Series A common stock at a rate
determined by dividing the original issue price by the conversion price of $3.73 at or after the earlier of (a)
November 9, 2018 or (b) immediately prior to the consummation of a sale of Sunnova, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with
respect to any of our common stock and to broad-based weighted average anti-dilution protection. The Series B
convertible preferred stock was mandatorily convertible into our Series A common stock upon either (a) the
closing of the sale of shares of any of our common stock to the public at a price of at least approximately
$6.6558 per share (subject to appropriate adjustments) or (b) the affirmative vote of at least 75% of the shares of
Series A and Series B convertible preferred stock. Each holder of Series B convertible preferred stock was
153
entitled to cast the number of votes equal to the number of whole shares of Series A common stock into which
the Series B convertible preferred stock held by such holder were convertible as of the record date for
determining stockholders entitled to vote on such matter.
In November 2017, we authorized 11,000,000 voting shares (or 4,714,959 shares as adjusted for the
Reverse Stock Split) of Series B convertible preferred stock. During the year ended December 31, 2017, we
issued 10,693,501 shares (or 4,583,576 shares as adjusted for the Reverse Stock Split) at $3.73 per share in
exchange for $39.9 million in cash. In January 2018, we issued 30,360 shares (or 13,013 shares as adjusted for
the Reverse Stock Split) of Series B convertible preferred stock at $3.73 per share in exchange for $113,000 in
cash. In March 2018, we exchanged all outstanding shares of Series B convertible preferred stock, plus accrued
paid-in-kind interest thereon, for 11,112,285 shares (or 4,763,086 shares as adjusted for the Reverse Stock Split)
of Series A convertible preferred stock. Immediately following the exchange, we canceled all shares of Series B
convertible preferred stock. As of December 31, 2018, there was no Series B convertible preferred stock
outstanding.
Series A Common Stock
In November 2017, we increased the number of authorized voting shares of Series A common stock from
150,000,000 shares (or 64,294,899 shares as adjusted for the Reverse Stock Split) to 160,000,000 shares (or
68,581,225 shares as adjusted for the Reverse Stock Split). In March 2018, we increased the number of
authorized voting shares of Series A common stock to 180,000,000 shares (or 77,153,879 shares as adjusted for
the Reverse Stock Split), of which 150,000,000 shares (or 64,294,899 shares as adjusted for the Reverse Stock
Split) have been reserved for the issuance of Series A common stock upon the conversion of Series A or Series
C convertible preferred stock. In connection with our IPO, our Series A common stock was redesignated as
common stock.
Series B Common Stock
Our Series B non-voting common stock related to our equity-based compensation plans (see Note 15,
Equity-Based Compensation). As of December 31, 2018, the number of shares of common stock authorized was
20,000,000 shares (or 9,544,300 shares as adjusted for the Reverse Stock Split). In connection with our IPO, we
converted 23,870 shares of our non-voting Series B common stock, which represented all the outstanding shares
of our Series B common stock, into 23,870 shares of our voting Series A common stock, which was
subsequently redesignated as common stock.
Common Stock
On July 24, 2019, we priced 14,000,000 shares of common stock in our IPO at a public offering price of
$12.00 per share and on July 25, 2019 our common stock began trading on the New York Stock Exchange under
the symbol "NOVA". On August 19, 2019, we issued and sold an additional 865,267 shares of our common
stock at a public offering price of $12.00 per share pursuant to the underwriters' exercise of their option to
purchase additional shares. We received aggregate net proceeds from our IPO of approximately $162.3 million,
after deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses
of approximately $5.4 million. We recorded the offering costs in other assets in our consolidated balance sheets
until closing, at which time the costs were reclassified to additional paid-in capital—common stock.
We used a portion of the net proceeds from our IPO to redeem our senior secured notes. See Note 8, Long-
Term Debt. We plan to use the remaining net proceeds from our IPO for general corporate purposes, including
working capital, operating expenses, capital expenditures and repayment of indebtedness.
154
(15) Equity-Based Compensation
Effective December 2013 and January 2015, we established and adopted two stock option plans
(collectively, the "Prior Plans") after approval by our Board. The Prior Plans provided the aggregate number of
shares of common stock that may be issued pursuant to stock options shall not exceed 26,032 shares. No further
awards may be made under the Prior Plans.
Effective March 2016, we established and adopted a new stock option plan (the "2016 Plan") after
approval by our Board. The 2016 Plan allowed for the issuance of non-qualified and incentive stock options.
The 2016 Plan provided the aggregate number of shares of common stock that may be issued pursuant to stock
options shall not exceed 4,288,950 shares. No further awards may be made under the 2016 Plan.
In connection with our IPO, approximately 50% of the non-vested stock options outstanding at that time,
or 995,517 stock options, became exercisable and the vesting terms for all remaining stock options were
amended so all stock options will be fully vested on the first anniversary of the closing date of our IPO. We
recorded an additional $3.2 million of expense in July 2019 related to the accelerated vesting periods. In
addition, the stock options awarded under the Prior Plans and the 2016 Plan were adjusted for the
Reorganization. The adjusted awards are subject to the same vesting conditions applicable to the awards
immediately prior to the Reorganization.
In connection with our IPO, our Board adopted the 2019 Long-Term Incentive Plan (the "LTIP") to
incentivize employees, officers, directors and other service providers of SEI and its affiliates. The LTIP provides
for the grant, from time to time, at the discretion of our Board or a committee thereof, of stock options, stock
appreciation rights, stock awards, including restricted stock and restricted stock units, performance awards and
cash awards. The LTIP provides the aggregate number of shares of common stock that may be issued pursuant
to awards shall not exceed 5,229,318 shares. The number of shares available for issuance under the LTIP will be
increased on the first day of each fiscal year beginning in 2020, in an amount equal to the lesser of (a) a number
of shares such that the total number of shares that remain available for additional grants under the LTIP equals
five percent of the outstanding shares of our common stock on the last day of the immediately preceding fiscal
year or (b) such number of shares determined by our Board. Awards granted under the LTIP contain a service
condition and cease vesting for employees, consultants and directors upon termination of employment or
service. During the year ended December 31, 2019, we granted 1,431,555 restricted stock units to certain
employees and a director with a grant date fair value of $17.1 million, which will be recognized ratably over the
applicable vesting period of each award (either one year, three years or seven years).
The Prior Plans and the 2016 Plan will only allow for settlement of stock options by the issuance of
common stock and restricted stock units issued under the LTIP can generally only be settled by the issuance of
common stock. Therefore, we classify the stock options and restricted stock units as equity awards. We
recognize the fair value of equity-based compensation awards as compensation cost in the financial statements,
beginning on the grant date. We base compensation cost on the fair value of the awards we expect to vest,
recognized over the service period, and adjusted for actual forfeitures that occur before vesting. During the
years ended December 31, 2019, 2018 and 2017, we recognized $9.2 million, $3.0 million and $1.5 million,
respectively, of compensation expense relating to equity-based compensation awards.
Stock Options
During 2017, we, with approval of our Board, granted 950,047 stock options (or 407,204 stock options as
adjusted for the Reverse Stock Split) to employees. In April 2017, we, with approval of our Board, granted
20,000 stock options (or 8,572 stock options as adjusted for the Reverse Stock Split) to a non-employee
consultant. During 2017, 27,000 stock options (or 11,571 stock options as adjusted for the Reverse Stock Split)
were exercised resulting in the issuance of 27,000 shares (or 11,571 shares as adjusted for the Reverse Stock
Split) of common stock in exchange for an insignificant amount of cash and 4,750 stock options (or 2,034 stock
155
options as adjusted for the Reverse Stock Split) were net exercised (and thus, no cash was received) resulting in
the issuance of 2,663 shares (or 1,141 shares as adjusted for the Reverse Stock Split) of common stock. In May
2017, we modified a stock option agreement with a former employee to require a future expense of $653,000 to
be recognized at the earlier of (a) a company liquidity event, as defined, or (b) April 2026, which was
recognized in July 2019 in connection with our IPO.
During 2018, we, with approval of our Board, granted 4,222,850 stock options (or 1,810,016 stock
options as adjusted for the Reverse Stock Split) to employees. In April 2018, we, with approval of our Board,
granted 58,000 stock options (or 24,860 stock options as adjusted for the Reverse Stock Split) to non-employee
consultants. During 2018, 3,250 stock options (or 1,393 stock options as adjusted for the Reverse Stock Split)
were net exercised (and thus, no cash was received) resulting in the issuance of 1,505 shares (or 644 shares as
adjusted for the Reverse Stock Split) of common stock.
During 2019, we, with approval of our Board, granted 94,295 stock options to employees. During 2019,
2,143 stock options were exercised resulting in the issuance of 2,143 shares of common stock in exchange for
an insignificant amount of cash.
We used the following assumptions to apply the Black-Scholes option-pricing model to stock options
granted during the years ended December 31, 2019, 2018 and 2017:
Expected dividend yield
Risk-free interest rate
Expected term (in years)
Volatility
Year Ended
December 31,
2019
0.00%
2.62%
7.94
81%
2018
0.00%
2.62%
7.94
81%
2017
0.00%
2.11%
8.01
68%
156
The expected volatility was calculated based on the average historical volatilities of publicly traded peer
companies determined by us. The risk-free interest rate used was based on the U.S. treasury yield curve in effect
at the time of grant for the expected term of the stock options to be valued. The expected dividend yield is zero
as we do not anticipate paying common stock dividends within the relevant time frame. The expected term has
been estimated using the average of the contractual term and weighted average life of the stock options. The
following table summarizes stock option activity:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Weighted
Average
Grant Date
Fair Value
Number
of Stock
Options
Outstanding, December 31, 2017
Granted
Exercised
Forfeited
Outstanding, December 31, 2018
Granted
Exercised
Forfeited
Outstanding, December 31, 2019
Exercisable, December 31, 2019
Vested and expected to vest, December 31,
2019
Non-vested, December 31, 2018
Non-vested, December 31, 2019
3,166,008
$ 15.65
1,834,876
$ 16.26
(1,393) $
1.85
(191,101) $ 15.23
$ 15.90
4,808,390
94,295
$ 13.58
(2,143) $
1.85
(596,233) $ 15.85
4,304,309
$ 15.86
3,339,913
$ 15.86
4,304,309
$ 15.86
3,124,367
964,396
8.36
9.28
8.09
9.07
7.08
6.89
7.08
$
$
$
$
$
$
Aggregate
Intrinsic
Value
(in
thousands)
124
$
$
$
$
$
$
$
3.52
3.33
3.11
3.48
3.48
3.52
6
129
20
242
242
242
The number of stock options that vested during the years ended December 31, 2019 and 2018 was
1,765,410 and 577,594, respectively. The grant date fair value of stock options that vested during the years
ended December 31, 2019 and 2018 was $6.0 million and $1.8 million, respectively. As of December 31, 2019,
there was $1.5 million of total unrecognized compensation expense related to stock options, which is expected
to be recognized over the weighted average period of 0.28 years.
Restricted Stock Units
The following table summarizes restricted stock unit activity:
Outstanding, December 31, 2018
Granted
Forfeited
Outstanding, December 31, 2019
157
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
—
1,431,555
$
(5,416) $
$
1,426,139
11.93
12.00
11.93
No restricted stock units vested during the year ended December 31, 2019. As of December 31, 2019,
there was $14.3 million of total unrecognized compensation expense related to restricted stock units, which is
expected to be recognized over the weighted average period of 2.50 years.
(16) Basic and Diluted Net Loss Per Share
The following table sets forth the computation of our basic and diluted net loss per share:
Net loss attributable to stockholders
Dividends earned on Series A convertible preferred stock
Dividends earned on Series B convertible preferred stock
Dividends earned on Series C convertible preferred stock
Deemed dividends on convertible preferred stock exchange
Net loss attributable to common stockholders—basic and
diluted
Year Ended
December 31,
2019
2018
2017
(in thousands, except share and per share amounts)
$
(144,351) $
(19,271)
—
(5,454)
—
(74,246) $
(36,346)
—
(5,948)
(19,332)
(91,085)
(29,623)
(580)
—
—
$
(169,076) $
(135,872) $
(121,288)
Net loss per share attributable to common stockholders—
basic and diluted
Weighted average common shares outstanding—basic and
diluted
$
(4.14) $
(15.74) $
(14.05)
40,797,976
8,634,477
8,632,936
The following table presents the weighted average shares of common stock equivalents that were
excluded from the computation of diluted net loss per share for the periods presented because including them
would have been anti-dilutive:
Equity-based compensation awards
Convertible preferred stock
Convertible senior notes
(17) Commitments and Contingencies
Year Ended
December 31,
2019
2018
2017
4,954,286
4,307,614
3,408,202
33,960,624
53,112,246
37,977,786
104,320
—
—
Legal. We are a party to a number of lawsuits, claims and governmental proceedings which are ordinary,
routine matters incidental to our business. In addition, in the ordinary course of business, we periodically have
disputes with dealers and customers. We do not expect the outcomes of these matters to have, either individually
or in the aggregate, a material adverse effect on our financial position or results of operations.
Performance Guarantee Obligations. As of December 31, 2019, we recorded $6.5 million relating to
our guarantee of certain specified minimum solar energy production output under our leases and loans, of which
we include $4.1 million in other current liabilities and $2.4 million in other long-term liabilities in the
consolidated balance sheet. As of December 31, 2018, we recorded $6.0 million relating to these guarantees, of
which $2.6 million is included in other current liabilities and $3.5 million is included in other long-term
liabilities in the consolidated balance sheet. The changes in our aggregate performance guarantee obligations are
as follows:
158
Balance at beginning of period
Accruals for obligations issued
Settlements made in cash
Balance at end of period
As of December 31,
2019
2018
(in thousands)
6,044
$
3,101
(2,677)
6,468
$
4,173
3,033
(1,162)
6,044
$
$
Operating and Finance Leases. We lease real estate and certain office equipment under operating leases
and certain other office equipment under finance leases. The following table presents the detail of lease expense
and lease income as recorded in general and administrative expense and other operating expense (income),
respectively, in the consolidated statements of operations:
Operating lease expense
Finance lease amortization expense
Short-term lease expense
Variable lease expense
Sublease income
Total
Year Ended
December 31,
2019
2018
2017
(in thousands)
$ 1,248
$
972
$
972
8
48
—
50
—
21
1,037
(73)
$ 2,268
704
(70)
$ 1,656
$
661
(41)
1,613
The following table presents the detail of right-of-use assets and lease liabilities as recorded in other
assets and other current liabilities/other long-term liabilities, respectively, in the consolidated balance sheets:
Right-of-use assets:
Operating leases
Finance leases
Total right-of-use assets
Current lease liabilities:
Operating leases
Finance leases
Long-term leases liabilities
Operating leases
Total lease liabilities
As of December 31,
2019
2018
(in thousands)
$
$
$
$
9,668
5
9,673
$
$
556
$
5
9,389
9,950
$
2,586
—
2,586
871
—
2,083
2,954
159
Other information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Weighted average remaining lease term (years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
Year Ended
December 31,
2019
2018
2017
(in thousands)
$
1,254
$
875
$
8
8,087
13
—
—
—
As of December 31,
2019
2018
9.41
0.68
3.94%
4.26%
814
—
4,175
—
3.42
—
4.63%
—%
Future minimum lease payments under our non-cancelable leases as of December 31, 2019 were as
follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
Amount representing interest
Amount representing leasehold incentives
Present value of future payments
Current portion of lease liability
Long-term portion of lease liability
160
Operating
Leases
Finance
Leases
(in thousands)
1,037
$
$
1,536
1,559
1,594
1,616
7,617
14,959
(2,603)
(2,411)
9,945
(556)
9,389
$
$
5
—
—
—
—
—
5
—
—
5
(5)
—
Future minimum lease payments under our non-cancelable leases as of December 31, 2018 were as
follows:
2019
2020
2021
2022
2023
2024 and thereafter
Total
Amount representing interest
Present value of future payments
Current portion of lease liability
Long-term portion of lease liability
Operating
Leases
(in thousands)
$
$
989
842
863
512
—
—
3,206
(252)
2,954
(871)
2,083
Letters of Credit. In connection with various security arrangements for an office lease and merchant
banking activities, we have letters of credit outstanding of $725,000 as of December 31, 2019 and 2018. The
letters of credit are cash collateralized for the same amount or a lesser amount and this cash is classified as
restricted cash.
Guarantees or Indemnifications. We enter into contracts that include indemnifications and guarantee
provisions. In general, we enter into contracts with indemnities for matters such as breaches of representations
and warranties and covenants contained in the contract and/or against certain specified liabilities. Examples of
these contracts include dealer agreements, debt agreements, asset purchases and sales agreements, service
agreements and procurement agreements. We are unable to estimate our maximum potential exposure under
these agreements until an event triggering payment occurs. We do not expect to make any material payments
under these agreements.
Dealer Commitments. As of December 31, 2019, the net unamortized balance of payments to dealers for
exclusivity and other similar arrangements was $32.8 million. Under these agreements, we paid $31.7 million
during the year ended December 31, 2019 and could be obligated to make maximum payments, excluding
additional amounts payable on a per watt basis if even higher thresholds are met, as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
161
$
Dealer
Commitments
(in thousands)
24,184
24,200
25,240
1,000
—
—
$
74,624
Purchase Commitments. In August 2019, we amended an agreement with a supplier in which we agreed
to purchase a minimum amount of energy storage systems for five years. These purchases are recorded to
inventory within other current assets in the consolidated balance sheets. Under this agreement, we could be
obligated to make minimum purchases as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
$
Purchase
Commitments
(in thousands)
22,702
27,359
27,243
27,053
20,152
—
$
124,509
Information Technology Commitments. We have certain long-term contractual commitments related to
information technology software services and licenses. Future commitments as of December 31, 2019 were as
follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
Information
Technology
Commitments
(in thousands)
$
4,962
3,269
10
—
—
—
$
8,241
Restricted Net Assets. Our various financing agreements contain provisions that restrict the ability of
certain of our consolidated subsidiaries to transfer their net assets to SEI. Such restricted net assets amounted to
approximately $548.1 million as of December 31, 2019.
(18) Subsequent Events
SOLI Debt. In February 2020, we pooled and transferred eligible solar energy systems and the related
asset receivables into Sunnova Sol Issuer, LLC ("SOLI"), a special purpose entity, that issued $337.1 million in
aggregate principal amount of Series 2020-1 Class A solar asset-backed notes and $75.4 million in aggregate
principal amount of Series 2020-1 Class B solar asset-backed notes (collectively, the "SOLI Notes") with a
maturity date of January 2055. The SOLI Notes were issued at a discount of 0.89% for Class A and 0.85% for
Class B and bear interest at an annual rate equal to 3.35% and 5.54%, respectively. The cash flows generated by
these solar energy systems are used to service the quarterly principal and interest payments on the SOLI Notes
and satisfy SOLI's expenses, and any remaining cash can be distributed to Sunnova Sol Depositor, LLC, SOLI's
sole member. In connection with the SOLI Notes, certain of our affiliates receive a fee for managing and
servicing the solar energy systems pursuant to a transaction management agreement and managing and
servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the obligations of certain of
our subsidiaries to manage and service the solar energy systems pursuant to management, servicing and
162
transaction management agreements, (b) the managing members' obligations, in such capacity, under the related
financing fund's limited liability company agreement and (c) certain of our subsidiaries' obligations to
repurchase or substitute certain ineligible solar energy systems eventually sold to SOLI pursuant to the sale and
contribution agreement. SOLI is also required to maintain a liquidity reserve account, a tax loss insurance
proceeds account and a supplemental reserve account for the benefit of the lenders under the SOLI Notes, each
of which must remain funded at all times to the levels specified in the SOLI Notes. The creditors of SOLI have
no recourse to our other assets except as expressly set forth in the SOLI Notes.
AP4 Debt, TEPIIH Debt and LAPH Debt. In February 2020, the aggregate outstanding principal
amounts under the AP4 financing agreement and TEPIIH revolving credit facility of $92.0 million and $226.6
million, respectively, were fully repaid using proceeds from the SOLI Notes, all related interest rate swaps were
unwound and the debt facilities were terminated. In addition, proceeds from the SOLI Notes were used to repay
$32.0 million of LAPH debt.
163
(19) Selected Quarterly Financial Data (Unaudited)
The following tables present the selected quarterly financial data for the years ended December 31, 2019
and 2018.
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
Three Months Ended
Revenue (1)
Total operating expenses, net (1)
Operating loss (1)
Net loss (1)(2)
Net loss attributable to common
stockholders—basic and diluted
(1)(2)
Net loss per share attributable to
common stockholders—basic and
diluted (1)(2)
$
$
$
$
$
$
(in thousands, except per share amounts)
34,612
$
36,615
$
$
33,614
42,769
$
(9,155) $
(13,762) $
42,513
$
(5,898) $
(34,369) $
37,322
$
(2,710) $
(49,807) $
26,715
31,222
(4,507)
(35,496)
(17,509) $
(37,590) $
(63,260) $
(50,717)
(0.21) $
(0.62) $
(7.32) $
(5.87)
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
Three Months Ended
Revenue (1)
Total operating expenses, net (1)
(3)
Operating income (loss) (1)(3)
Net loss (1)(2)
Net loss attributable to common
stockholders—basic and diluted
(1)(2)
Net loss per share attributable to
common stockholders—basic and
diluted (1)(2)
$
$
$
$
$
$
(in thousands, except per share amounts)
28,963
$
30,429
$
25,206
37,623
$
(12,417) $
(39,102) $
27,025
$
3,404
$
(6,647) $
$
$
26,528
2,435
$
(9,224) $
19,784
26,936
(7,152)
(13,436)
(53,017) $
(17,865) $
(23,269) $
(41,721)
(6.14) $
(2.07) $
(2.69) $
(4.83)
(1)
(2)
(3)
Fluctuations are primarily due to seasonality.
Fluctuations are primarily due to unrealized gains and losses on derivative instruments.
Fluctuations are primarily due to timing of estimates of losses from natural disasters and recoveries of
business interruption insurance proceeds related to 2018.
164
SCHEDULE I PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
SUNNOVA ENERGY INTERNATIONAL INC.
CONDENSED BALANCE SHEETS
(in thousands, except share amounts and share par values)
Assets
Current assets:
Cash
Total current assets
Investments in subsidiaries
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses
Total current liabilities
Long-term debt, net
Total liabilities
Stockholders' equity:
Common stock, 83,980,885 and 0 shares issued as of December 31, 2019
and 2018, respectively, at $0.0001 par value
Additional paid-in capital—common stock
Accumulated deficit
Total stockholders' equity
As of December 31,
2019
2018
$
$
696
696
891,330
$
892,026
$
$
$
83
83
37,607
37,690
8
987,760
(133,432)
854,336
Total liabilities and stockholders' equity
$
892,026
$
See accompanying notes to parent company condensed financial statements.
—
—
—
—
—
—
—
—
—
—
—
—
—
165
SCHEDULE I PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
SUNNOVA ENERGY INTERNATIONAL INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Revenue
General and administrative expense
Operating loss
Interest expense
Equity in losses of subsidiaries
Loss before income tax
Income tax
Net loss
Year Ended
December 31,
2019
2018
2017
$
— $
— $
418
(418)
83
132,933
(133,434)
—
—
—
—
—
—
—
$
(133,434) $
— $
—
—
—
—
—
—
—
—
See accompanying notes to parent company condensed financial statements.
166
SCHEDULE I PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
SUNNOVA ENERGY INTERNATIONAL INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
2019
2018
2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities
$
— $
— $
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in subsidiaries
Distributions from subsidiaries
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Payments of deferred financing costs
Proceeds from issuance of common stock, net
Proceeds from equity component of debt instrument, net
Other, net
Net cash provided by financing activities
Net increase (decrease) in cash and restricted cash
Cash at beginning of period
Cash at end of period
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes
(219,206)
2
(219,204)
38,087
(377)
168,204
13,984
2
219,900
696
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
696
$
— $
— $
— $
— $
— $
See accompanying notes to parent company condensed financial statements.
—
—
—
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167
SCHEDULE I NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
On July 24, 2019 Sunnova Energy International Inc. ("SEI") priced 14,000,000 shares of its common
stock at a public offering price of $12.00 per share and on July 25, 2019 SEI's common stock began trading on
the New York Stock Exchange under the symbol "NOVA". Upon the closing of our initial public offering on
July 29, 2019 (our "IPO"), Sunnova Energy Corporation was contributed to SEI and SEI became the holding
company of Sunnova Energy Corporation through a reverse merger. In addition, the historical financial
statements of Sunnova Energy Corporation became the historical financial statements of SEI. These condensed
financial statements include the condensed balance sheets, condensed statements of operations and condensed
statements of cash flows and have been prepared on a parent-only basis. These parent-only financial statements
do not include all of the information and notes required by accounting principles generally accepted in the
United States of America for annual financial statements and therefore, these parent-only financial statements
and other information included should be read in conjunction with SEI's consolidated financial statements and
related notes contained within this Annual Report on Form 10-K.
(2) Guarantees
As of December 31, 2019 and 2018, our parent company has not issued any guarantees on behalf of its
wholly-owned subsidiaries.
168
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Internal Control Over Financial Reporting
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management,
including our CEO and our Chief Financial Officer ("CFO"), of the effectiveness of our "disclosure controls and
procedures" as of the end of the period covered by this Annual Report on Form 10-K, pursuant to
Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In connection with that evaluation, our CEO and our
CFO concluded our disclosure controls and procedures were effective and designed to provide reasonable
assurance the information required to be disclosed is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms as of December 31, 2019. The term "disclosure controls and
procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure information required to be disclosed by a company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure information required to be disclosed by a company in the
reports it files or submits under the Exchange Act is accumulated and communicated to the company's
management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth
quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their
objectives as specified above. However, our management, including our principal executive and principal
financial officers, does not expect that our disclosure controls and procedures will prevent or detect all error and
fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and
can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within our company have been detected.
Management's Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of our independent registered public accounting
firm due to a transition period established by the rules of the SEC for newly public companies.
169
Item 9B. Other Information.
None.
170
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item 10 of Form 10-K will be set forth in our proxy statement to be filed
with the SEC in connection with the solicitation of proxies for our 2019 Annual Meeting of Stockholders
("Proxy Statement") or an amendment to this Form 10-K and is incorporated herein by reference. The Proxy
Statement will be filed with the SEC within 120 days after the year-end of the fiscal year which this report
relates.
Item 11. Executive Compensation.
The information required by this Item 11 will be set forth in the Proxy Statement or an amendment to this
Form 10-K and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item 12 will be set forth in the Proxy Statement or an amendment to this
Form 10-K and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 will be set forth in the Proxy Statement or an amendment to this
Form 10-K and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 will be set forth in the Proxy Statement or an amendment to this
Form 10-K and is incorporated herein by reference.
171
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Documents filed as part of this report are as follows:
(1) Consolidated Financial Statements
Our consolidated financial statements are listed in the "Index to Consolidated Financial
Statements" under Item 8 of Part II of this Annual Report.
(2) Financial Statement Schedules
The required information is included elsewhere in the Annual Report, not applicable or not
material.
(3) Exhibits
The exhibits listed in the accompanying "Exhibit Index" are filed or incorporated by reference
as part of this Annual Report.
Exhibit No.
2.1
3.1
3.2
4.1
4.6
4.7
4.8
4.9
Description
EXHIBIT INDEX
Merger Agreement, dated as of July 29, 2019, by and among Sunnova Energy International Inc., Sunnova
Energy Corporation and Sunnova Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed
on July 29, 2019).
Second Amended and Restated Certificate of Incorporation of Sunnova Energy International Inc. (incorporated
by reference to Exhibit 3.3 to Form 8-K filed on July 29, 2019).
Second Amended and Restated Bylaws of Sunnova Energy International Inc. (incorporated by reference to
Exhibit 3.5 to Form 8-K filed on July 29, 2019).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
Indenture, among Sunnova RAYS I Issuer, LLC and Wilmington Trust, National Association, dated March 28,
2019 (incorporated by reference to Exhibit 4.12 to Form S-1 filed on June 27, 2019).
Indenture Supplement No. 1, among Sunnova RAYS I Issuer, LLC and Wilmington Trust, National
Association, dated March 28, 2019 (incorporated by reference to Exhibit 4.13 to Form S-1 filed on June 27,
2019).
Indenture Supplement No. 2, among Sunnova RAYS I Issuer, LLC and Wilmington Trust, National
Association, dated June 7, 2019 (incorporated by reference to Exhibit 4.14 to Form S-1 filed on June 27,
2019).
Indenture, among Sunnova Helios III Issuer, LLC and Wells Fargo Bank, National Association, dated June 27,
2019 (incorporated by reference to Exhibit 4.15 to Form S-1 filed on June 27, 2019).
Stockholders Agreement, dated July 29, 2019, by and among Sunnova Energy International Inc. and certain
holders of its capital stock (incorporated by reference to Exhibit 4.1 to Form 8-K filed on July 29, 2019).
Second Amended and Restated Registration Rights Agreement, dated July 29, 2019, by and among Sunnova
Energy International Inc. and certain stockholders party thereto (incorporated by reference to Exhibit 4.2 to
Form 8-K filed on July 29, 2019).
Amended and Restated Piggyback Registration Rights Agreement, dated July 29, 2019, by and among
Sunnova Energy International Inc. and certain stockholders party thereto (incorporated by reference to Exhibit
4.3 to Form 8-K filed on July 29, 2019).
Registration Rights Agreement among Sunnova Energy International Inc. and each of the parties listed therein,
dated as of December 23, 2019.
172
Exhibit No.
4.10
10.3
10.4
10.5
10.10
10.11
10.12
10.13
Description
Indenture, among Sunnova Energy International Inc. and Wilmington Trust, National Association, as trustee,
dated December 23, 2019.
Amended and Restated Credit Agreement, among Sunnova EZ-Own Portfolio, LLC, Sunnova SLA
Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, Credit Suisse AG, New York Branch, Wells
Fargo Bank, National Association, U.S. Bank National Association, the Funding Agents from time to time
party thereto, and the Lenders from time to time party thereto, dated March 27, 2019 (incorporated by
reference to Exhibit 10.4 to Form S-1 filed on June 27, 2019).
Credit Agreement among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG,
New York Branch, the Funding Agents from time to time party thereto, and the Lenders from time to time
party thereto, dated September 6, 2019 (incorporated by reference to Exhibit 10.16 to Form 10-Q filed on
October 31, 2019).
Amendment No. 2 to Amended and Restated Credit Agreement, among Sunnova EZ-Own Portfolio, LLC,
Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, Credit Suisse AG, New York
Branch, Wells Fargo Bank, National Association, U.S. Bank National Association, the Funding Agents from
time to time party thereto, and the Lenders from time to time party thereto, dated September 30, 2019
(incorporated by reference to Exhibit 10.18 to Form 10-Q filed on October 31, 2019).
Amendment No. 3 to the Amended and Restated Credit Agreement, among Sunnova EZ-Own Portfolio, LLC,
Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, the Lenders party thereto, the
Funding Agents party thereto and Credit Suisse AG, New York Branch, dated as of December 4, 2019.
Third Amended and Restated Limited Performance Guaranty among Sunnova Energy Corporation, Sunnova
EZ-Own Portfolio, LLC, and Credit Suisse AG, New York Branch, dated June 27, 2019. (incorporated by
reference to Exhibit 10.8 to Form S-1/A filed on July 3, 2019).
Note Purchase Agreement, among Sunnova RAYS I Issuer, LLC, Sunnova RAYS I Depositor, LLC, Sunnova
RAYS I Management, LLC, and the Purchasers named therein, dated March 28, 2019 (incorporated by
reference to Exhibit 10.1 to Form S-1/A filed on July 3, 2019).
Note Purchase Agreement Supplement No. 1, among Sunnova RAYS I Issuer, LLC, Sunnova RAYS I
Depositor, LLC, Sunnova RAYS I Management LLC, and the Purchasers named therein, dated March 28,
2019 (incorporated by reference to Exhibit 10.2 to Form S-1/A filed on July 3, 2019).
Note Purchase Agreement Supplement No. 2 and Amendment among Sunnova RAYS I Issuer, LLC, Sunnova
RAYS I Depositor, LLC, Sunnova RAYS I Management LLC, and the Purchasers named therein, dated June
7, 2019 (incorporated by reference to Exhibit 10.2 to Form S-1 filed on June 27, 2019).
Amended and Restated Credit Agreement, among Sunnova TEP II Holdings, LLC, Sunnova TE Management
II, LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, and the
Lenders from time to time party thereto, dated March 29, 2019 (incorporated by reference to Exhibit 10.8 to
Form S-1 filed on June 27, 2019).
Amended and Restated Parent Guaranty among Sunnova Energy Corporation, Sunnova TEP II Holdings,
LLC, and Credit Suisse AG, New York Branch, dated June 27, 2019 (incorporated by reference to Exhibit
10.10 to Form S-1/A filed on July 3, 2019).
Amendment No. 4 to Office Building Lease Agreement, between Sunnova Energy Corporation and 20
Greenway Plaza LLC, dated May 7, 2019 (incorporated by reference to Exhibit 10.15 to Form S-1 filed on
June 27, 2019).
Amendment No. 5 to Office Building Lease Agreement by and between Sunnova Energy Corporation and SCP
20 Greenway, LLC dated September 12, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on
September 13, 2019).
Amended and Restated Limited Performance Guaranty, among Sunnova Energy Corporation, Sunnova LAP
Holdings, LLC, Sunnova LAP I, LLC, Sunnova LAP II, LLC, and Credit Suisse AG, New York Branch, dated
June 27, 2019 (incorporated by reference to Exhibit 10.6 to Form S-1/A filed on July 3, 2019).
Amended and Restated Credit Agreement, among Sunnova Asset Portfolio 4, LLC, Texas Capital Bank,
Viewpoint Bank, National Association, and the Lenders from time to time party thereto, dated June 28, 2019
(incorporated by reference to Exhibit 10.4 to Form S-1/A filed on July 3, 2019).
10.15+
Sunnova Energy International Inc. 2019 Long-Term Incentive Plan and Form of Award Letters (incorporated
by reference to Exhibit 10.16 to Form 8-K filed on July 29, 2019).
173
Exhibit No.
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
10.30
10.31
10.36
10.37
Description
Form of Executive Severance Agreements (incorporated by reference to Exhibit 10.26 to Form S-1/A filed on
July 17, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Stuart D. Allen (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Walter A. Baker (incorporated by reference to Exhibit 10.2 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
William J. Berger (incorporated by reference to Exhibit 10.3 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Rahman D'Argenio (incorporated by reference to Exhibit 10.4 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Matthew DeNichilo (incorporated by reference to Exhibit 10.5 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Michael P. Grasso (incorporated by reference to Exhibit 10.6 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Kris
W. Hillstrand (incorporated by reference to Exhibit 10.7 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Doug
Kimmelman (incorporated by reference to Exhibit 10.8 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Robert L. Lane (incorporated by reference to Exhibit 10.9 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Mark
Longstreth (incorporated by reference to Exhibit 10.10 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Michael C. Morgan (incorporated by reference to Exhibit 10.11 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and
Meghan Nutting (incorporated by reference to Exhibit 10.12 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and John
T. Santo Salvo (incorporated by reference to Exhibit 10.13 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and C.
Park Shaper (incorporated by reference to Exhibit 10.14 to Form 8-K filed on July 29, 2019).
Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Scott
D. Steimer (incorporated by reference to Exhibit 10.15 to Form 8-K filed on July 29, 2019).
First Amendment to the Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management,
LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, and the
Lenders from time to time party thereto, dated December 2, 2019.
Third Amendment to the Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management,
LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, and the
Lenders from time to time party thereto, dated January 31, 2020.
Convertible Notes Purchase Agreement among Sunnova Energy International Inc. and the Investors, as
defined therein, dated as of December 20, 2019.
Credit Agreement among Sunnova TEP Inventory, LLC, Credit Suisse AG, New York Branch, the Funding
Agents from time to time party thereto, and the Lenders from time to time party thereto, dated December 30,
2019.
Parent Guaranty, dated December 30, 2019, by and among Sunnova Energy Corporation, Sunnova TEP
Inventory, LLC and Credit Suisse AG, New York Branch.
Fifth Amendment to Office Building Lease Agreement by and between Sunnova Energy Corporation and SCP
20 Greenway, LLC dated September 12, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on
September 13, 2019).
174
Exhibit No.
Description
Note Purchase Agreement, by and among Sunnova Sol Issuer, LLC, Sunnova Sol Depositor, LLC, Sunnova
Energy Corporation and Credit Suisse Securities (USA) LLC, dated February 5, 2020 (incorporated by
reference to Exhibit 10.1 to Form 8-K filed on February 11, 2020).
List of subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
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__________________
+
Indicates management contract or compensatory plan.
Portions of this exhibit have been omitted.
175
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SUNNOVA ENERGY INTERNATIONAL INC.
Date: February 25, 2020 By:
/s/ William J. Berger
William J. Berger
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ William J. Berger
William J. Berger
/s/ Robert L. Lane
Robert L. Lane
/s/ Anne Slaughter Andrew
Anne Slaughter Andrew
/s/ Rahman D'Argenio
Rahman D'Argenio
/s/ Matt DeNichilo
Matt DeNichilo
/s/ Doug Kimmelman
Doug Kimmelman
/s/ Michael C. Morgan
Michael C. Morgan
/s/ C. Park Shaper
C. Park Shaper
/s/ Mark Longstreth
Mark Longstreth
/s/ Scott Steimer
Scott Steimer
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
176
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020