Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-37511
Sunrun Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 26-2841711 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
595 Market Street, 29th Floor
San Francisco, California 94105
(Address of principal executive offices and Zip Code)
(415) 580-6900
(Registrant’s telephone number, including area code)
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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | | Accelerated filer | ☒ |
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Non-accelerated filer | ☐ | | | Smaller reporting company | ☐ |
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| | | | 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 Exchange Act). YES ☐ NO ☒
As of November 2, 2018, the number of shares of the registrant’s common stock outstanding was 111,852,426.
Table of Contents
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Item 1 | | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
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Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 5. | | | |
Item 6. | | | |
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Sunrun Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
(Unaudited)
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| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Assets | | | | |
Current assets: | | | | |
Cash | | $ | 242,936 |
| | $ | 202,525 |
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Restricted cash | | 32,049 |
| | 39,265 |
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Accounts receivable (net of allowances for doubtful accounts of $2,369 and $1,665 as of September 30, 2018 and December 31, 2017, respectively) | | 65,354 |
| | 60,359 |
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State tax credits receivable | | — |
| | 11,085 |
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Inventories | | 95,978 |
| | 94,427 |
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Prepaid expenses and other current assets | | 9,699 |
| | 9,202 |
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Total current assets | | 446,016 |
| | 416,863 |
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Restricted cash | | 148 |
| | — |
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Solar energy systems, net | | 3,618,125 |
| | 3,161,570 |
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Property and equipment, net | | 33,522 |
| | 36,402 |
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Intangible assets, net | | 11,140 |
| | 14,294 |
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Goodwill | | 87,543 |
| | 87,543 |
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Other assets | | 336,705 |
| | 246,464 |
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Total assets (1) | | $ | 4,533,199 |
| | $ | 3,963,136 |
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Liabilities and total equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 136,064 |
| | $ | 115,193 |
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Distributions payable to noncontrolling interests and redeemable noncontrolling interests | | 15,387 |
| | 13,583 |
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Accrued expenses and other liabilities | | 85,897 |
| | 97,230 |
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Deferred revenue, current portion | | 46,571 |
| | 42,609 |
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Deferred grants, current portion | | 8,719 |
| | 8,193 |
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Finance lease obligations, current portion | | 8,372 |
| | 7,421 |
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Non-recourse debt, current portion | | 27,496 |
| | 21,529 |
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Pass-through financing obligation, current portion | | 55,355 |
| | 5,387 |
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Total current liabilities | | 383,861 |
| | 311,145 |
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Deferred revenue, net of current portion | | 539,863 |
| | 522,243 |
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Deferred grants, net of current portion | | 220,274 |
| | 227,519 |
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Finance lease obligations, net of current portion | | 7,301 |
| | 5,811 |
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Recourse debt | | 247,000 |
| | 247,000 |
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Non-recourse debt, net of current portion | | 1,290,102 |
| | 1,026,416 |
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Pass-through financing obligation, net of current portion | | 306,642 |
| | 132,823 |
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Other liabilities | | 37,717 |
| | 42,743 |
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Deferred tax liabilities | | 98,954 |
| | 83,119 |
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Total liabilities (1) | | 3,131,714 |
| | 2,598,819 |
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Commitments and contingencies (Note 15) | |
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Redeemable noncontrolling interests | | 117,468 |
| | 123,801 |
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Stockholders’ equity: | | | | |
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of September 30, 2018 and December 31, 2017; no shares issued and outstanding as of September 30, 2018 and December 31, 2017 | | — |
| | — |
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Common stock, $0.0001 par value—authorized, 2,000,000 shares as of September 30, 2018 and December 31, 2017; issued and outstanding, 111,652 and 107,350 shares as of September 30, 2018 and December 31, 2017, respectively | | 11 |
| | 11 |
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Additional paid-in capital | | 712,646 |
| | 682,950 |
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Accumulated other comprehensive income | | 18,856 |
| | (4,113 | ) |
Retained earnings | | 235,279 |
| | 202,734 |
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Total stockholders’ equity | | 966,792 |
| | 881,582 |
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Noncontrolling interests | | 317,225 |
| | 358,934 |
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Total equity | | 1,284,017 |
| | 1,240,516 |
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Total liabilities, redeemable noncontrolling interests and total equity | | $ | 4,533,199 |
| | $ | 3,963,136 |
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1) | The Company’s consolidated assets as of September 30, 2018 and December 31, 2017 include $2,783,397 and $2,568,378, respectively, in assets of variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, as of September 30, 2018 and December 31, 2017 of $2,587,296 and $2,385,329, respectively; cash as of September 30, 2018 and December 31, 2017 of $106,492 and $118,352, respectively; restricted cash as of September 30, 2018 and December 31, 2017 of $4,944 and $2,699, respectively; accounts receivable, net as of September 30, 2018 and December 31, 2017 of $19,123 and $18,786, respectively; prepaid expenses and other current assets as of September 30, 2018 and December 31, 2017 of $387 and $917, respectively; and other assets as of September 30, 2018 and December 31, 2017 of $65,155 and $42,295, respectively. The Company’s consolidated liabilities as of September 30, 2018 and December 31, 2017 include $652,906 and $677,955, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of September 30, 2018 and December 31, 2017 of $8,442 and $15,929, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of September 30, 2018 and December 31, 2017 of $15,337 and $13,526, respectively; accrued expenses and other current liabilities as of September 30, 2018 and December 31, 2017 of $6,568 and $5,200, respectively; deferred revenue as of September 30, 2018 and December 31, 2017 of $388,970 and $409,761, respectively; deferred grants as of September 30, 2018 and December 31, 2017 of $29,505 and $30,406, respectively; non-recourse debt as of September 30, 2018 and December 31, 2017 of $195,294 and $201,285, respectively; and other liabilities as of September 30, 2018 and December 31, 2017 of $8,790 and $1,848, respectively. |
The accompanying notes are an integral part of these consolidated financial statements.
Sunrun Inc.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
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| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Revenue: | | | | | | | | |
Customer agreements and incentives | | $ | 114,572 |
| | $ | 61,717 |
| | $ | 273,167 |
| | $ | 168,918 |
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Solar energy systems and product sales | | 90,388 |
| | 82,829 |
| | 246,694 |
| | 211,359 |
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Total revenue | | 204,960 |
| | 144,546 |
| | 519,861 |
| | 380,277 |
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Operating expenses: | | | | | | | | |
Cost of customer agreements and incentives | | 63,195 |
| | 47,299 |
| | 175,540 |
| | 135,201 |
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Cost of solar energy systems and product sales | | 76,179 |
| | 69,588 |
| | 205,026 |
| | 179,957 |
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Sales and marketing | | 56,758 |
| | 39,921 |
| | 150,074 |
| | 108,109 |
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Research and development | | 4,604 |
| | 3,936 |
| | 13,552 |
| | 10,642 |
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General and administrative | | 26,720 |
| | 27,925 |
| | 87,743 |
| | 77,761 |
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Amortization of intangible assets | | 1,051 |
| | 1,052 |
| | 3,153 |
| | 3,154 |
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Total operating expenses | | 228,507 |
| | 189,721 |
| | 635,088 |
| | 514,824 |
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Loss from operations | | (23,547 | ) | | (45,175 | ) | | (115,227 | ) | | (134,547 | ) |
Interest expense, net | | 34,482 |
| | 23,217 |
| | 94,552 |
| | 65,746 |
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Other expenses (income), net | | (4,517 | ) | | (94 | ) | | (5,701 | ) | | 589 |
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Loss before income taxes | | (53,512 | ) | | (68,298 | ) | | (204,078 | ) | | (200,882 | ) |
Income tax expense (benefit) | | (5,988 | ) | | 14,517 |
| | 6,593 |
| | 30,698 |
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Net loss | | (47,524 | ) | | (82,815 | ) | | (210,671 | ) | | (231,580 | ) |
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (44,628 | ) | | (110,822 | ) | | (243,216 | ) | | (287,815 | ) |
Net income (loss) available to common stockholders | | $ | (2,896 | ) | | $ | 28,007 |
| | $ | 32,545 |
| | $ | 56,235 |
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Net income (loss) per share available to common stockholders | | | | | | | | |
Basic | | $ | (0.03 | ) | | $ | 0.26 |
| | $ | 0.30 |
| | $ | 0.54 |
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Diluted | | $ | (0.02 | ) | | $ | 0.26 |
| | $ | 0.28 |
| | $ | 0.52 |
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Weighted average shares used to compute net income per share available to common stockholders | | | | | | | | |
Basic | | 111,134 |
| | 105,783 |
| | 109,351 |
| | 105,060 |
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Diluted | | 120,396 |
| | 109,598 |
| | 116,052 |
| | 107,893 |
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The accompanying notes are an integral part of these consolidated financial statements.
Sunrun Inc.
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Net income (loss) available to common stockholders | | $ | (2,896 | ) | | $ | 28,007 |
| | $ | 32,545 |
| | $ | 56,235 |
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Other comprehensive income: | | | | | | | | |
Unrealized gain (loss) on derivatives, net of income taxes | | 8,495 |
| | (543 | ) | | 30,328 |
| | (5,016 | ) |
Less interest income (expense) on derivatives recognized into earnings, net of income taxes | | 697 |
| | (138 | ) | | 2,352 |
| | (1,042 | ) |
Comprehensive income | | $ | 4,902 |
| | $ | 27,602 |
| | $ | 60,521 |
| | $ | 52,261 |
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Sunrun Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
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| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
Operating activities: | | | | |
Net loss | | $ | (210,671 | ) | | $ | (231,580 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization, net of amortization of deferred grants | | 113,711 |
| | 94,077 |
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Deferred income taxes | | 6,590 |
| | 30,697 |
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Stock-based compensation expense | | 21,983 |
| | 16,494 |
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Interest on pass-through financing obligations | | 12,464 |
| | 9,457 |
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Reduction in pass-through financing obligations | | (69,842 | ) | | (13,799 | ) |
Other noncash losses and expenses | | 20,636 |
| | 15,341 |
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Changes in operating assets and liabilities: | | | | |
Accounts receivable | | (6,063 | ) | | (8,783 | ) |
Inventories | | (1,551 | ) | | 4,003 |
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Prepaid and other assets | | (54,157 | ) | | (37,152 | ) |
Accounts payable | | 18,289 |
| | 31,669 |
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Accrued expenses and other liabilities | | (16,727 | ) | | (5,288 | ) |
Deferred revenue | | 21,582 |
| | 30,834 |
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Net cash used in operating activities | | (143,756 | ) | | (64,030 | ) |
Investing activities: | | | | |
Payments for the costs of solar energy systems | | (571,181 | ) | | (558,393 | ) |
Purchases of property and equipment | | (3,079 | ) | | (5,956 | ) |
Net cash used in investing activities | | (574,260 | ) | | (564,349 | ) |
Financing activities: | | | | |
Proceeds from state tax credits, net of recapture | | 10,949 |
| | 12,785 |
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Proceeds from issuance of recourse debt | | 17,000 |
| | 125,400 |
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Repayment of recourse debt | | (17,000 | ) | | (122,400 | ) |
Proceeds from issuance of non-recourse debt | | 488,376 |
| | 294,086 |
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Repayment of non-recourse debt | | (224,033 | ) | | (92,801 | ) |
Payment of debt fees | | (9,839 | ) | | (6,332 | ) |
Proceeds from pass-through financing and other obligations | | 286,642 |
| | 4,639 |
|
Payment of finance lease obligations | | (6,390 | ) | | (7,585 | ) |
Contributions received from noncontrolling interests and redeemable noncontrolling interests | | 247,704 |
| | 471,322 |
|
Distributions paid to noncontrolling interests and redeemable noncontrolling interests | | (50,726 | ) | | (38,761 | ) |
Proceeds from exercises of stock options, net of withholding taxes paid on restricted stock units | | 8,676 |
| | (207 | ) |
Net cash provided by financing activities | | 751,359 |
| | 640,146 |
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Net change in cash and restricted cash | | 33,343 |
| | 11,767 |
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Cash and restricted cash, beginning of period | | 241,790 |
| | 224,363 |
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Cash and restricted cash, end of period | | $ | 275,133 |
| | $ | 236,130 |
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Supplemental disclosures of cash flow information | | | | |
Cash paid for interest | | $ | 55,601 |
| | $ | 29,383 |
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Cash paid for taxes | | $ | — |
| | $ | — |
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Supplemental disclosures of noncash investing and financing activities | | | | |
Purchases of solar energy systems and property and equipment included in accounts payable and accrued expenses | | $ | 23,445 |
| | $ | 29,206 |
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Purchases of solar energy systems included in non-recourse debt | | $ | — |
| | $ | 12,873 |
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Right-of-use assets obtained in exchange for new finance lease liabilities | | $ | 9,001 |
| | $ | 166 |
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The accompanying notes are an integral part of these consolidated financial statements.
Sunrun Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Organization
Sunrun Inc. (“Sunrun” or the “Company”) was originally formed in 2007 as a California limited liability company and was converted into a Delaware corporation in 2008. The Company is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems (“Projects”) in the United States.
Sunrun acquires customers directly and through relationships with various solar and strategic partners (“Partners”). The Projects are constructed either by Sunrun or by Sunrun’s Partners and are owned by the Company. Sunrun’s customers enter into an agreement to utilize the solar system (“Customer Agreement”) which typically has an initial term of 20 years. Sunrun monitors, maintains and insures the Projects. The Company also sells solar energy systems and products, such as panels and racking and solar leads generated to customers.
The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes three legal structures in its investment Funds, which are referred to as: (i) pass-through financing obligations, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2017. The Company has restated certain prior period amounts to conform to the current period presentation as described in the Recently Issued and Adopted Accounting Standards section below. The results of the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2018 or other future periods.
The consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries, including Funds, in which the Company has a controlling financial interest. 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 variable interest entities (“VIEs”), through arrangements that do not involve controlling voting interests. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification Topic 810 (“Topic 810”) Consolidation, the Company consolidates any VIE of which it is the primary beneficiary. The primary beneficiary, as defined in Topic 810, is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it continues to be the primary beneficiary. The consolidated financial statements reflect the assets and liabilities of VIEs that are consolidated. All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company regularly makes significant estimates and assumptions, including, but not limited to, for revenue recognition, constraints which result in variable consideration, the discount rate used to adjust the promised amount of consideration for the effects of a significant financing component, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the effective interest rate used to amortize pass-through financing obligations, the discount rate used for operating and finance leases, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results may differ from such estimates.
Segment Information
The Company has one operating segment with one business activity, providing solar energy services and products to customers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis.
Revenue from external customers (including, but not limited to homeowners) for each group of similar products and services is as follows (in thousands):
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Customer agreements | | $ | 70,864 |
| | $ | 55,134 |
| | $ | 199,171 |
| | $ | 152,679 |
|
Incentives | | 43,708 |
| | 6,583 |
| | 73,996 |
| | 16,239 |
|
Customer agreements and incentives | | 114,572 |
| | 61,717 |
| | 273,167 |
| | 168,918 |
|
| | | | | | | | |
Solar energy systems | | 47,771 |
| | 30,734 |
| | 122,503 |
| | 79,431 |
|
Products | | 42,617 |
| | 52,095 |
| | 124,191 |
| | 131,928 |
|
Solar energy systems and product sales | | 90,388 |
| | 82,829 |
| | 246,694 |
| | 211,359 |
|
Total revenue | | $ | 204,960 |
| | $ | 144,546 |
| | $ | 519,861 |
| | $ | 380,277 |
|
Revenue from Customer Agreements includes payments by customers for the use of the system as well as utility and other rebates assigned by the customer in the Customer Agreement. Revenue from incentives includes revenue from the sale of investment tax credits ("ITCs") and renewable energy credits (“SRECs”). The increase relates primarily to the sale of ITCs related to a financing obligation fund opened in 2018.
Cash and Restricted Cash
The following table provides a reconciliation of cash, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows. Cash and restricted cash consists of the following (in thousands):
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| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Cash | | $ | 242,936 |
| | $ | 202,525 |
|
Restricted cash, current and long-term | | 32,197 |
| | 39,265 |
|
Total | | $ | 275,133 |
| | $ | 241,790 |
|
Restricted cash represents amounts related to replacement of solar energy system components and obligations under certain financing transactions.
Accounts Receivable
Accounts receivable consist of amounts due from customers as well as rebates due from government agencies and utility companies. Under Customer Agreements, the customers typically assign incentive rebates to the Company.
Accounts receivable, net consists of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Customer receivables | | $ | 63,150 |
| | $ | 59,263 |
|
Other receivables | | 1,128 |
| | 1,319 |
|
Rebates receivable | | 3,445 |
| | 1,442 |
|
Allowance for doubtful accounts | | (2,369 | ) | | (1,665 | ) |
Total | | $ | 65,354 |
| | $ | 60,359 |
|
Deferred Revenue
When the Company receives consideration, or when such consideration is unconditionally due, from a customer prior to delivering goods or services to the customer under the terms of a Customer Agreement, the Company records deferred revenue. Such deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes amounts that are collected or assigned from customers, including upfront deposits and prepayments, and rebates. Deferred revenue relating to financing components represents the cumulative excess of interest expense recorded on financing component elements over the related revenue recognized to date and will eventually net to zero by the end of the initial term. Amounts received related to the sales of SRECs which have not yet been delivered to the counterparty are recorded as deferred revenue.
The opening balance of deferred revenue was $525.4 million as of December 31, 2016. Deferred revenue consists of the following (in thousands):
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| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Under Customer Agreements: | | | | |
Payments received | | $ | 535,045 |
| | $ | 517,544 |
|
Financing component balance | | 35,979 |
| | 30,736 |
|
| | 571,024 |
| | 548,280 |
|
| | | | |
Under SREC contracts: | | | | |
Payments received | | 13,494 |
| | 14,805 |
|
Financing component balance | | 1,916 |
| | 1,767 |
|
| | 15,410 |
| | 16,572 |
|
| | | | |
Total | | $ | 586,434 |
| | $ | 564,852 |
|
In the three months ended September 30, 2018 and 2017, the Company recognized revenue of $13.3 million and $12.1 million, respectively, and in the nine months ended September 30, 2018 and 2017, the Company recognized revenue of $39.1 million and $35.1 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $5.1 billion as of September 30, 2018, of which the Company expects to recognize approximately 6% over the next 12 months. The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing Customer Agreements have at least 10 years remaining, given that the average age of our fleet of residential solar energy systems under Customer Agreements is less than three years due to the Company being formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the following 10 years as the typically 20 year initial term expires on individual Customer Agreements.
Fair Value of Financial Instruments
The Company defines fair value as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation approaches to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. The FASB establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
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• | Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; |
| |
• | Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and |
| |
• | Level 3—Inputs that are unobservable, significant to the measurement of the fair value of the assets or liabilities and are supported by little or no market data. |
Revenue Recognition
The Company recognizes revenue when control of goods or services is transferred to its customers, in an amount that reflects the consideration it expected to be entitled to in exchange for those goods or services.
Customer agreements and incentives
Customer agreements and incentives revenue is primarily comprised of revenue from Customer Agreements in which the Company provides continuous access to a functioning solar system and revenue from the sales of SRECs generated by the Company’s solar energy systems to third parties.
The Company begins to recognize revenue on Customer Agreements when permission to operate ("PTO") is given by the local utility company or on the date daily operation commences if utility approval is not required. Revenue recognition does not necessarily follow the receipt of cash. The Company recognizes revenue evenly over the time that it satisfies its performance obligations over the initial term of the Customer Agreements. Customer Agreements typically have an initial term of 20 years. After the initial contract term, our Customer Agreements typically automatically renew on an annual basis and the rate is initially set at up to a 10% discount to then-prevailing power prices.
SREC revenue arises from the sale of environmental credits generated by solar energy systems and is generally recognized upon delivery of the SRECs to the counterparty. For pass-through financing obligation Funds, the value attributable to the ITCs are recognized in the period a solar system is granted PTO - see Note 10, Pass-through Financing Obligations.
In determining the transaction price, the Company adjusts the promised amount of consideration for the effects of the time value of money when the timing of payments provides it with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing
component. When adjusting the promised amount of consideration for a significant financing component, the Company uses the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception and recognizes the revenue amount on a straight-line basis over the term of the Customer Agreement, and interest expense using the effective interest rate method.
Consideration from customers is considered variable due to the performance guarantee under Customer Agreements and liquidating provisions under SREC contracts. Performance guarantees provide a credit to the customer if the system's cumulative production, as measured on various PTO anniversary dates, is below the Company's guarantee of a specified minimum. Revenue is recognized to the extent it is probable that a significant reversal of such revenue will not occur.
The Company capitalizes incremental costs incurred to obtain a contract in Other Assets in the consolidated balance sheets. These amounts are amortized on a straight-line basis over the term of the Customer Agreements, and are included in sales and marketing in the consolidated statements of operations.
Solar energy systems and product sales
For solar energy systems sold to customers, the Company recognizes revenue when the solar energy system passes inspection by the authority having jurisdiction. The Company’s installation projects are typically completed in a short period of time.
Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers and customer leads. Product sales revenue is recognized at the time when control is transferred, generally upon shipment. Consideration from customers is considered variable when volume discounts are given to customers, and are recorded as a reduction of revenue. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.
Taxes assessed by government authorities that are directly imposed on revenue producing transactions are excluded from solar energy systems and product sales.
Cost of Revenue
Customer agreements and incentives
Cost of revenue for customer agreements and incentives is primarily comprised of (1) the depreciation of the cost of the solar energy systems, as reduced by amortization of deferred grants, (2) solar energy system operations, monitoring and maintenance costs including associated personnel costs, and (3) allocated corporate overhead costs. Upon adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), the Company no longer records initial direct costs from the origination of Customer Agreements. Instead, the Company records costs to obtain a contract as described in Revenue Recognition above.
Solar energy systems and product sales
Cost of revenue for solar energy systems and non-lead generation product sales consists of direct and indirect material and labor costs for solar energy systems installations and product sales. Also included are engineering and design costs specific to an individual customer project, estimated warranty costs, freight costs, allocated corporate overhead costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control. Cost of revenue for lead generation consists of costs related to direct-response advertising activities associated with generating customer leads.
Recently Issued and Adopted Accounting Standards
Accounting standards adopted January 1, 2018 causing restatement of prior periods:
In May 2014, the FASB issued Topic 606. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements, and expands disclosure requirements. The Company adopted Topic 606 effective January 1, 2018, using the full retrospective method, which required the Company to restate each prior reporting period presented. The Company has elected to use the practical expedient under Topic 606 and has excluded disclosures of transaction prices allocated to remaining performance
obligations and when the Company expects to recognize such revenue for all periods prior to the date of initial application.
In February 2016, the FASB issued ASU No. 2016-02, Leases, to replace existing lease guidance with Accounting Standards Codification Topic 842 ("Topic 842"). Topic 842 changes how the definition of a lease is applied and judgment may be required in applying the definition of a lease to certain arrangements. The Company elected to early adopt the standard effective January 1, 2018 concurrent with the adoption of Topic 606 related to revenue recognition, using the modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements, which required the Company to restate each prior reporting period presented. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. These amendments have the same effective date and transition requirements as the new leases standard, as such the Company adopted the new ASU and the impact of adopting this standard was not material to its financial statements.
Upon the adoption of Topic 842, the Company's Customer Agreements are accounted for under Topic 606 due to changes in the definition of a lease under Topic 842 when the Company was considered a lessor. For operating leases in which the Company is the lessee, the Company concluded that all existing operating leases under Accounting Standards Codification Topic 840 ("Topic 840"), Leases, continue to be classified as operating leases under Topic 842, and all existing capital leases under Topic 840 are classified as finance leases under Topic 842. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. The Company accounts for short-term leases on a straight-line basis over the lease term.
Under Topic 606, total consideration for Customer Agreements, including price escalators and performance guarantees, is estimated and recognized over the term of the Customer Agreement. This accounting for price escalators creates an unbilled receivable balance for the first half of the Customer Agreement, which is then reduced over the second half. Customer Agreements and SRECs with a prepaid element are deemed to include a significant financing component, as defined under Topic 606, which increases both revenue and interest expense. For pass-through financing obligation funds that report investment tax credit revenue, the ITC revenue is now recognized in full at PTO. SREC revenue is estimated net of any variable consideration related to possible liquidated damages, and recognized upon delivery of SRECs to the counterparty. The accounting did not materially differ for revenue currently recognized as solar energy systems and product sales. The adoption of Topic 606 also resulted in an adjustment to the Company's deferred tax liabilities, and impacted the analysis of the realizability of deferred tax assets, resulting in the release of valuation allowance related to state deferred tax assets.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows ("Topic 230"), Restricted Cash, which requires a statement of cash flows to present the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The Company adopted Topic 230 effective January 1, 2018, using the retrospective transition method, which required the Company to restate each prior reporting period presented. As a result, the Company no longer presents transfers between cash and restricted cash in the consolidated cash flow statements.
Adjustments to Previously Reported Financial Statements from the Adoption of Accounting Standards
The primary impact of adopting Topic 606 and Topic 842 includes the recognition of revenue from Customer Agreements, and certain incentives revenue, namely SRECs and ITCs. Previously, under Topic 840, the Company recognized revenue related to certain Customer Agreements as contingent revenue when earned. Under Topic 606, because the Company has a continuous obligation to provide fully functional systems that provide electricity over the term of the Customer Agreement, it recognizes revenue evenly over the term of the Customer Agreements taking into account price escalators and performance guarantees when estimating variable consideration. Previously, the Company recognized revenue related to the sale of SRECs to the extent the cumulative value of delivered SRECs per contract exceeded any possible liquidated damages for non-delivery, if any. Under Topic 606, the Company estimates revenue net of any variable consideration related to possible liquidated damages, and recognizes revenue upon delivery of SRECs to the counterparty. Under Topic 605 and Topic 840, the Company previously reported ITC revenue over five years: following when the related solar system was granted PTO, with one-fifth of the monetized ITCs recognized on each anniversary of the solar energy systems' PTO date. Under
Topic 606, the Company recognizes ITC revenue in full at PTO. Previously, under Topic 840, the Company capitalized direct and incremental costs as a component of Solar energy systems, net on the consolidated balance sheets. Under Topic 606, the Company capitalizes incremental costs incurred to obtain a contract in Other Assets in the consolidated balance sheets. These amounts are amortized on a straight-line basis over the term of the Customer Agreements, and are included in Sales and marketing in the consolidated statements of operations.
In addition to the impact of revenue recognition related to Customer Agreements, the impact of adopting Topic 842 includes a change in accounting for leases when the Company is the lessee, primarily the inclusion of right-of use ("ROU") assets included in other assets on the consolidated balance sheets, and operating lease liabilities included in accrued expenses and other liabilities and other liabilities on the consolidated balance sheets. The income tax impact as a result of the adoption of Topic 842 was immaterial.
The following table presents the effect of the adoption of Topic 606 and Topic 842 on the Company's condensed consolidated balance sheet as of December 31, 2017 (in thousands):
|
| | | | | | | | | | | | |
| | December 31, 2017 |
| | Previously Reported | | Adoption Impact | | Restated |
| | | | | | |
Accounts receivable, net of allowances for doubtful accounts | | $ | 76,198 |
| | $ | (15,839 | ) | | $ | 60,359 |
|
Solar energy systems, net | | 3,319,708 |
| | (158,138 | ) | | 3,161,570 |
|
Other assets | | 37,225 |
| | 209,239 |
| | 246,464 |
|
Accrued expenses and other liabilities | | 85,639 |
| | 11,591 |
| | 97,230 |
|
Deferred revenue, current portion | | 77,310 |
| | (34,701 | ) | | 42,609 |
|
Deferred grants, current portion | | 8,269 |
| | (76 | ) | | 8,193 |
|
Pass-through financing obligation, current portion | | 6,087 |
| | (700 | ) | | 5,387 |
|
Deferred revenue, net of current portion | | 584,427 |
| | (62,184 | ) | | 522,243 |
|
Deferred grants, net of current portion | | 228,603 |
| | (1,084 | ) | | 227,519 |
|
Pass-through financing obligation, net of current portion | | 138,124 |
| | (5,301 | ) | | 132,823 |
|
Other liabilities | | 13,520 |
| | 29,223 |
| | 42,743 |
|
Deferred tax liabilities | | 59,131 |
| | 23,988 |
| | 83,119 |
|
Redeemable noncontrolling interests | | 123,737 |
| | 64 |
| | 123,801 |
|
Additional paid-in capital | | 684,141 |
| | (1,191 | ) | | 682,950 |
|
Retained earnings | | 131,959 |
| | 70,775 |
| | 202,734 |
|
Noncontrolling interests | | 354,076 |
| | 4,858 |
| | 358,934 |
|
The following table presents the effect of the adoption of Topic 606 and Topic 842 on the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2017 (in thousands except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| | Previously Reported | | Adoption Impact | | Restated | | Previously Reported | | Adoption Impact | | Restated |
| | | | | | | | | | | | |
Revenue: Customer agreements and incentives | | $ | 58,462 |
| | $ | 3,255 |
| | $ | 61,717 |
| | $ | 171,897 |
| | $ | (2,979 | ) | | $ | 168,918 |
|
Cost of customer agreements and incentives | | 49,232 |
| | (1,933 | ) | | 47,299 |
| | 140,682 |
| | (5,481 | ) | | 135,201 |
|
Sales and marketing | | 37,298 |
| | 2,623 |
| | 39,921 |
| | 101,758 |
| | 6,351 |
| | 108,109 |
|
General and administrative | | 27,925 |
| | — |
| | 27,925 |
| | 77,776 |
| | (15 | ) | | 77,761 |
|
Interest expense, net | | 17,707 |
| | 5,510 |
| | 23,217 |
| | 49,586 |
| | 16,160 |
| | 65,746 |
|
Income tax expense | | 14,834 |
| | (317 | ) | | 14,517 |
| | 37,625 |
| | (6,927 | ) | | 30,698 |
|
Net loss | | (80,187 | ) | | (2,628 | ) | | (82,815 | ) | | (218,513 | ) | | (13,067 | ) | | (231,580 | ) |
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (107,969 | ) | | (2,853 | ) | | (110,822 | ) | | (284,144 | ) | | (3,671 | ) | | (287,815 | ) |
Net income available to common stockholders | | 27,782 |
| | 225 |
| | 28,007 |
| | 65,631 |
| | (9,396 | ) | | 56,235 |
|
Basic net income per share available to common stockholders | | 0.26 |
| | — |
| | 0.26 |
| | 0.62 |
| | (0.08 | ) | | 0.54 |
|
Diluted net income per share available to common stockholders | | 0.25 |
| | 0.01 |
| | 0.26 |
| | 0.61 |
| | (0.09 | ) | | 0.52 |
|
The following table presents the effect of the adoption of Topic 230, Topic 606 and Topic 842 on the Company's condensed consolidated statement of cash flows for the nine months ended September 30, 2017 (in thousands):
|
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Previously Reported | | Adoption Impact | | Restated |
| | | | | | |
Net loss | | $ | (218,513 | ) | | $ | (13,067 | ) | | $ | (231,580 | ) |
Net cash used in operating activities | | (39,166 | ) | | (24,864 | ) | | (64,030 | ) |
Net cash used in investing activities | | (589,144 | ) | | 24,795 |
| | (564,349 | ) |
Net cash provided by financing activities | | 638,088 |
| | 2,058 |
| | 640,146 |
|
Net change in cash and restricted cash(1) | | 9,778 |
| | 1,989 |
| | 11,767 |
|
Cash and restricted cash, beginning of period(1) | | 206,364 |
| | 17,999 |
| | 224,363 |
|
Cash and restricted cash, end of period(1) | | 216,142 |
| | 19,988 |
| | 236,130 |
|
(1)Pursuant to Topic 230, restricted cash is included in the restated balances in the statement of cash flows, as described above. The amounts in the previously reported column include only cash.
Accounting standards to be adopted:
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a current expected credit losses model. The
amendment applies to entities which hold financial assets and net investment in leases that are not accounted for at fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is applied using a modified retrospective approach, with certain aspects requiring a prospective approach. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.
In August 2017, the FASB issued 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities, which expands an entity's ability to hedge nonfinancial and financial risk components, eliminates the requirement to separately measure and report hedge ineffectiveness, and aligned the recognition and presentation of the effects of hedging instruments in the financial statements. The ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is applied using a modified retrospective approach. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which is intended to align the accounting for share-based payment awards issued to employees and nonemployees, however, this amendment does not apply to instruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the scope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met. Under this new amendment, equity-classified nonemployee share-based payments will be measured at the grant-date fair value and will be recognized based on the probable outcome of the performance conditions. This ASU is effective for fiscal periods beginning after December 15, 2018. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The majority of the amendments in ASU 2018-09 are effective for periods beginning after December 15, 2018. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements as part of its disclosure framework project. Under this amendment, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, for Level 3 fair value measurements, disclosures around the range and weighted average used to develop significant unobservable inputs will be required. This ASU is effective for fiscal periods beginning after December 15, 2019. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, Intangibles- Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.
In August 2018, the Securities and Exchange Commission adopted a Disclosure Update and Simplification release, which outlines Regulation S-X amendments to eliminate outdated or duplicative disclosure requirements. The final rule also amends the interim financial statement requirements to require a reconciliation of changes in stockholders’ equity in the notes or as a separate statement. These amendments are effective for all filings made 30 days after the amendments are published in the Federal Register, which was on October 4, 2018. The SEC announced that it would not object if the first presentation of the changes in stockholders’ equity for a calendar year
end filer were made in the Company’s March 31, 2019 Form 10-Q. The Company plans to use the new presentation beginning in 2019.
Note 3. Fair Value Measurement
At September 30, 2018 and December 31, 2017, the carrying value of receivables, accounts payable, accrued expenses and distributions payable to noncontrolling interests approximates fair value due to their short-term nature and falls under the Level 2 hierarchy. The carrying values and fair values of debt instruments are as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Bank line of credit | | $ | 247,000 |
| | $ | 247,000 |
| | $ | 247,000 |
| | $ | 247,000 |
|
Senior debt | | 1,067,947 |
| | 1,067,529 |
| | 808,455 |
| | 807,698 |
|
Subordinated debt | | 157,943 |
| | 156,257 |
| | 111,488 |
| | 111,095 |
|
Securitization debt | | 91,708 |
| | 89,005 |
| | 95,821 |
| | 96,999 |
|
SREC Loans | | — |
| | — |
| | 32,181 |
| | 32,181 |
|
Total | | $ | 1,564,598 |
| | $ | 1,559,791 |
| | $ | 1,294,945 |
| | $ | 1,294,973 |
|
At September 30, 2018 and December 31, 2017, the fair value of the Company’s lines of credit, and certain senior, subordinated and SREC loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At September 30, 2018 and December 31, 2017, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 3 hierarchy. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.
The Company determines the fair value of its interest rate swaps using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.
At September 30, 2018 and December 31, 2017, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy are as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | September 30, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Derivative assets: | | | | | | | | |
Interest rate swaps | | $ | — |
| | $ | 27,567 |
| | $ | — |
| | $ | 27,567 |
|
Total | | $ | — |
| | $ | 27,567 |
| | $ | — |
| | $ | 27,567 |
|
Derivative liabilities: | | | | | | | | |
Interest rate swaps | | $ | — |
| | $ | 55 |
| | $ | — |
| | $ | 55 |
|
Total | | $ | — |
| | $ | 55 |
| | $ | — |
| | $ | 55 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Derivative assets: | | | | | | | | |
Interest rate swaps | | $ | — |
| | $ | 1,917 |
| | $ | — |
| | $ | 1,917 |
|
Total | | $ | — |
| | $ | 1,917 |
| | $ | — |
| | $ | 1,917 |
|
Derivative liabilities: | | | | | | | | |
Interest rate swaps | | $ | — |
| | $ | 8,568 |
| | $ | — |
| | $ | 8,568 |
|
Total | | $ | — |
| | $ | 8,568 |
| | $ | — |
| | $ | 8,568 |
|
Note 4. Inventories
Inventories consist of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Raw materials | | $ | 84,726 |
| | $ | 87,927 |
|
Work-in-process | | 11,252 |
| | 6,500 |
|
Total | | $ | 95,978 |
| | $ | 94,427 |
|
Note 5. Solar Energy Systems, net
Solar energy systems, net consists of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Solar energy system equipment costs | | $ | 3,622,735 |
| | $ | 3,124,407 |
|
Inverters | | 374,035 |
| | 317,390 |
|
Total solar energy systems | | 3,996,770 |
| | 3,441,797 |
|
Less: accumulated depreciation and amortization | | (498,797 | ) | | (399,280 | ) |
Add: construction-in-progress | | 120,152 |
| | 119,053 |
|
Total solar energy systems, net | | $ | 3,618,125 |
| | $ | 3,161,570 |
|
All solar energy systems, construction-in-progress and inverters have been leased to or are subject to signed Customer Agreements with customers. The Company recorded depreciation expense related to solar energy systems of $35.6 million and $28.9 million for the three months ended September 30, 2018 and 2017, respectively, and $101.8 million and $82.1 million for the nine months ended September 30, 2018 and 2017, respectively. The depreciation expense was reduced by the amortization of deferred grants of $2.0 million and $1.9 million for the three months ended September 30, 2018 and 2017, respectively, and $5.8 million and $5.7 million for the nine months ended September 30, 2018 and 2017, respectively.
Note 6. Other Assets
Other assets consist of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Costs to obtain contracts | | $ | 200,758 |
| | $ | 157,970 |
|
Accumulated amortization of costs to obtain contracts | | (22,571 | ) | | (16,485 | ) |
Unbilled receivables | | 72,290 |
| | 51,710 |
|
Operating lease right-of-use assets | | 20,577 |
| | 25,465 |
|
Other assets | | 65,651 |
| | 27,804 |
|
Total | | $ | 336,705 |
| | $ | 246,464 |
|
The Company recorded amortization of costs to obtain contracts of $2.2 million and $1.7 million for the three months ended September 30, 2018 and 2017, respectively, and $6.2 million and $4.7 million for the nine months ended September 30, 2018 and 2017, respectively, in the sales and marketing expense.
The majority of unbilled receivables arise from fixed price escalators included in our long-term Customer Agreements. The escalator is included in calculating the total estimated transaction value for an individual Customer Agreement. The average rate is then determined from the transaction value and consistently applied over the term of such Customer Agreement to recognize revenue. The amount of unbilled receivables increases while the actual billing rate in an individual Customer Agreement is less than the average rate for that Customer Agreement. Conversely, the amount of unbilled receivables decreases when the actual billing rate escalates and becomes higher than the average rate. At the end of the initial term of a Customer Agreement, the cumulative amounts recognized as revenue and billed to date are the same, therefore the unbilled receivable balance for an individual Customer Agreement will be zero.
Note 7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Accrued employee compensation | | $ | 30,623 |
| | $ | 30,298 |
|
Operating lease obligations | | 8,288 |
| | 9,202 |
|
Accrued interest | | 7,889 |
| | 6,054 |
|
Accrued professional fees | | 9,643 |
| | 5,837 |
|
Other accrued expenses | | 29,454 |
| | 45,839 |
|
Total | | $ | 85,897 |
| | $ | 97,230 |
|
Note 8. Indebtedness
As of September 30, 2018, debt consisted of the following (in thousands, except percentages):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Carrying Values, net of debt discount | | Unused Borrowing Capacity | | Interest Rate (1) | | Maturity Date |
| | Current | | Long Term | | Total | | | | | | |
Recourse debt: | | | | | | | | | | | | |
Bank line of credit | | $ | — |
| | $ | 247,000 |
| | $ | 247,000 |
| | $ | 406 |
| | 5.33% - 5.54% |
| | April 2020 |
Total recourse debt | | $ | — |
| | $ | 247,000 |
| | $ | 247,000 |
| | $ | 406 |
| | | | |
| | | | | | | | | | | | |
Non-recourse debt: | | | | | | | | | | | | |
Senior | | 18,693 |
| | 1,049,254 |
| | 1,067,947 |
| | — |
| | 4.33% - 5.39% |
| | September 2020 - October 2024 |
Subordinated | | 4,641 |
| | 153,302 |
| | 157,943 |
| | — |
| | 7.03% - 7.84% |
| | September 2020 - October 2024 |
Securitization Class A | | 3,703 |
| | 78,241 |
| | 81,944 |
| | — |
| | 4.40 | % | | July 2024 |
Securitization Class B | | 459 |
| | 9,305 |
| | 9,764 |
| | — |
| | 5.38 | % | | July 2024 |
Total non-recourse debt | | $ | 27,496 |
| | $ | 1,290,102 |
| | $ | 1,317,598 |
| | $ | — |
| | | | |
Total debt | | $ | 27,496 |
| | $ | 1,537,102 |
| | $ | 1,564,598 |
| | $ | 406 |
| | | | |
| |
(1) | Reflects contractual, unhedged rates. See Note 9, Derivatives for hedge rates. |
As of December 31, 2017, debt consisted of the following (in thousands, except percentages):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Carrying Values, net of debt discount | | Unused Borrowing Capacity | | Interest Rate | | Maturity Date |
| | Current | | Long Term | | Total | | | | | | |
Recourse debt: | | | | | | | | | | | | |
Bank line of credit | | $ | — |
| | $ | 247,000 |
| | $ | 247,000 |
| | $ | 406 |
| | 4.58% - 4.87% |
| | April 2018 |
Total recourse debt | | $ | — |
| | $ | 247,000 |
| | $ | 247,000 |
| | $ | 406 |
| | | | |
| | | | | | | | | | | | |
Non-recourse debt: | | | | | | | | | | | | |
Senior | | 3,561 |
| | 804,894 |
| | 808,455 |
| | 12,758 |
| | 3.63% - 4.69% |
| | September 2020 - October 2024 |
Subordinated | | 4,301 |
| | 107,187 |
| | 111,488 |
| | 27 |
| | 6.36% - 7.13% |
| | September 2020 - October 2024 |
Securitization Class A | | 3,534 |
| | 82,203 |
| | 85,737 |
| | — |
| | 4.40 | % | | July 2024 |
Securitization Class B | | 440 |
| | 9,644 |
| | 10,084 |
| | — |
| | 5.38 | % | | July 2024 |
SREC Loans | | 9,693 |
| | 22,488 |
| | 32,181 |
| | — |
| | 7.28 | % | | July 2021 |
Total non-recourse debt | | $ | 21,529 |
| | $ | 1,026,416 |
| | $ | 1,047,945 |
| | $ | 12,785 |
| | | | |
Total debt | | $ | 21,529 |
| | $ | 1,273,416 |
| | $ | 1,294,945 |
| | $ | 13,191 |
| | | | |
Bank Line of Credit
The Company has outstanding borrowings under a syndicated working capital facility with banks for a total commitment of up to $250.0 million. The working capital facility is secured by substantially all of the unencumbered assets of the Company, as well as ownership interests in certain subsidiaries of the Company. Loans under the facility bear interest at LIBOR +3.25% per annum or the Base Rate +2.25% per annum. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%.
Under the terms of the working capital facility, the Company is required to meet various restrictive covenants, such as the completion and presentation of audited consolidated financial statements, maintaining a minimum unencumbered liquidity of at least $30 million at the end of each calendar month and maintaining a minimum interest coverage ratio of 3.00 or greater, measured quarterly as of the last day of each quarter. The Company was in compliance with all debt covenants as of September 30, 2018. As of September 30, 2018, the balance under this facility was $247.0 million with a maturity date in April 2020.
Syndicated Credit Facilities
Each of the Company's syndicated credit facilities contain customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. Each of the syndicated credit facilities also contain certain provisions in the event of default which entitle lenders to take certain actions including acceleration of amounts due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the credit facilities. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors. The Company was in compliance with all debt covenants as of September 30, 2018.
As of September 30, 2018, certain subsidiaries of the Company have an outstanding balance of $285.7 million on secured credit facilities that were syndicated with various lenders due in October 2024. The credit facilities totaled $303.0 million and consisted of $293.0 million in term loans, and a $10.0 million revolving debt service reserve letter of credit facility. Term Loan A ("TLA") is a senior delayed draw term loan that bears interest at LIBOR +2.75% per annum for LIBOR loans or the Base Rate +1.75% per annum on Base Rate loans. Term Loan B ("TLB") is subordinated debt and consists of a Class A portion which accrues interest at a fixed interest rate of 7.03% per annum and a Class B portion which accrues interest at LIBOR +5.00% per annum or the Base Rate +4.00% per annum. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. Under TLA, prepayments are permitted with no penalties. Under TLB, prepayments are permitted with associated penalties ranging from 0% - 5% depending on the timing of prepayments.
As of September 30, 2018, certain subsidiaries of the Company have an outstanding balance of $188.3 million on senior secured credit facilities that were syndicated with various lenders due in April 2024. These facilities are subject to the National Grid project equity transaction. The credit facilities totaled $202.0 million and consisted of a $195.0 million senior delayed draw term loan facility and a $7.0 million revolving debt service reserve letter of credit facility. Loans under the facility bear interest at LIBOR +2.25% per annum, as amended in March 2018, for the remainder of the initial four-year period for LIBOR loans or the Base Rate +1.25% per annum for Base Rate Loans. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements and SRECs, less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors. Prepayments are permitted under the delayed draw term loan facility.
As of September 30, 2018, certain subsidiaries of the Company have an outstanding balance of $511.9 million on secured credit facilities agreements, as amended, with a syndicate of banks due in March 2023. The facilities totaled $595.0 million and consisted of a revolving aggregation facility (“Aggregation Facility”), a term loan ("Term Loan") and a revolving debt service reserve letter of credit facility. Senior loans under the Aggregation Facility bear interest at LIBOR +2.50% per annum for the initial three-year revolving availability period, stepping up to LIBOR +2.75% per annum in the following two-year period. The subordinated Term Loan bears interest at LIBOR +5.00% per annum for the first three-year period, stepping up to LIBOR +6.50% per annum thereafter. Term Loan prepayment penalties range from 0% - 1% depending on the timing of prepayments.
Senior Debt
As of September 30, 2018, a subsidiary of the Company has an outstanding balance of $189.6 million on a revolving loan facility due in September 2020. The facility is non-recourse to the Company and is secured by the assets of such subsidiary and its net cash flows, including the net cash flows from the generation of contracted SRECs by certain subsidiaries of the Company. Loans under the facility bear interest at LIBOR +2.75% per annum for the senior secured loan, and LIBOR +5.50% per annum for the subordinated loan. The Company was in compliance with all debt covenants under this loan facility as of September 30, 2018.
As of September 30, 2018, a subsidiary of the Company has an outstanding balance of $21.8 million on a term loan due in April 2022. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. The Company was in compliance with all debt covenants under this loan as of September 30, 2018.
As of September 30, 2018, a subsidiary of the Company has an outstanding balance of $11.1 million on a non-recourse loan due in September 2022. The loan is secured by substantially all of the assets of the subsidiary including this subsidiary’s membership interests and assets in its investment funds. The loan contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. Loans under this facility bear interest at LIBOR +3.00% per annum. The financing agreement requires the Company to maintain certain financial covenants. The Company was in compliance with all debt covenants under this loan as of September 30, 2018.
As of September 30, 2018, a subsidiary of the Company has an outstanding balance of $17.5 million on a secured, non-recourse loan agreement due in September 2022. The loan will be repaid through cash flows from a pass-through financing obligation arrangement previously entered into by the Company. The loan agreement contains customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. Loans under this facility bear interest at LIBOR +2.25% per annum. The Company was in compliance with all debt covenants under this loan as of September 30, 2018.
Securitization Loans
As of September 30, 2018, a subsidiary of the Company has an outstanding balance of $91.7 million on solar asset-backed notes ("Notes") secured by associated customer contracts (“Solar Assets”) held by a special purpose entity (“Issuer”). As of September 30, 2018 and December 31, 2017, these Solar Assets had a carrying value of $166.5 million and $172.8 million, respectively, and are included under solar energy systems, net, in the consolidated balance sheets. The Company was in compliance with all debt covenants as of September 30, 2018.
Note 9. Derivatives
Interest Rate Swaps
The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.
The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the nine months ended September 30, 2018, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affects earnings.
The Company recorded an unrealized gain of $8.5 million and $30.3 million for the three and nine months ended September 30, 2018 respectively, net of applicable tax expense of $(3.1) million and $(10.7) million, respectively. The Company recorded an unrealized loss of $0.5 million and $5.0 million for the three and nine months ended September 30, 2017 respectively, net of applicable tax benefit of $0.3 million and $3.2 million, respectively. The Company recognized interest expense on derivatives of $0.7 million and $2.4 million for the three and nine months ended September 30, 2018, respectively, net of tax benefit of $0.3 million and $0.8 million, respectively. The Company recognized interest expense on derivatives of $0.1 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, net of tax expense of $0.1 million and $0.7 million, respectively.
During the three months ended September 30, 2018, the Company accelerated the reclassification of an amount in other comprehensive income to earnings as a result of a hedged forecasted transaction becoming probable to not occur due to a refinancing which repaid the hedged debt. The related interest rate swap was also terminated. The accelerated amount resulted in a gain of $6.9 million recognized as Other expenses (income), net in the Consolidated Statement of Operations.
During the next 12 months, the Company expects to reclassify $1.8 million of net gains on derivative instruments from accumulated other comprehensive income to earnings. There were no undesignated derivative instruments recorded by the Company as of September 30, 2018.
At September 30, 2018, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $27.6 million and derivative liabilities as reported in other liabilities of $0.1 million in the Company’s balance sheet. At December 31, 2017, the Company had designated derivative instruments classified as hedges of variable interest payments as derivative assets that are reported in other assets of $1.9 million and derivative liabilities as reported in other liabilities of $8.6 million in the Company’s balance sheet. At September 30, 2018, the Company had the following derivative instruments (dollars in thousands):
|
| | | | | | | | | | | | | | | | | |
Type | | Quantity | | Effective Dates | | Maturity Dates | | Hedge Interest Rates | | Notional Amount | | Adjusted Net Fair Market Value |
Interest rate swap | | 1 |
| | 5/21/2018 | | 9/20/2020 | | 2.69% | | $ | 109,305 |
| | $ | 228 |
|
Interest rate swaps | | 2 |
| | 4/29/2016 - 12/30/2016 | | 8/31/2022 - 9/30/2022 | | 1.27%- 2.37% | | $ | 24,952 |
| | $ | 897 |
|
Interest rate swaps | | 10 |
| | 7/31/2017 - 1/31/2019 | | 4/30/2024 - 10/31/2024 | | 2.16%- 2.69% | | $ | 347,687 |
| | $ | 11,797 |
|
Interest rate swaps | | 3 |
| | 4/30/2021 | | 10/30/2026 - 10/31/2026 | | 2.89% - 3.08% | | $ | 102,720 |
| | $ | 383 |
|
Interest rate swap | | 1 |
| | 9/20/2020 | | 6/20/2030 | | 2.57% | | $ | 67,013 |
| | $ | 1,374 |
|
Interest rate swap | | 1 |
| | 9/30/2022 | | 9/30/2031 | | 3.23% | | $ | 8,642 |
| | $ | (44 | ) |
Interest rate swap | | 1 |
| | 9/20/2020 | | 4/20/2032 | | 2.60% | | $ | 33,409 |
| | $ | 775 |
|
Interest rate swaps | | 5 |
| | 1/31/2019 - 10/31/2024 | | 7/31/2034 | | 2.48% - 3.04% | | $ | 144,379 |
| | $ | 4,562 |
|
Interest rate swaps | | 5 |
| | 7/31/2017 - 4/30/2024 | | 7/31/2035 | | 2.56% - 2.95% | | $ | 151,869 |
| | $ | 3,330 |
|
Interest rate swaps | | 5 |
| | 1/31/2018 - 10/18/2024 | | 10/31/2036 | | 2.62% - 2.95% | | $ | 183,671 |
| | $ | 3,802 |
|
Interest rate swaps | | 3 |
| | 10/30/2026 - 10/31/2026 | | 1/31/2038 | | 3.01% - 3.16% | | $ | 101,135 |
| | $ | 408 |
|
Note 10. Pass-through Financing Obligations
The Company's pass-through financing obligations ("financing obligations") arise when the Company leases solar energy systems to Fund investors who are considered commercial customers under a master lease agreement, and these investors in turn are assigned the Customer Agreements with customers. The Company receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. Given the assignment of operating cash flows, these arrangements are accounted for as financing obligations. The Company also sells the rights and related value attributable to the ITC to these investors.
Under these financing obligation arrangements, wholly owned subsidiaries of the Company finance the cost of solar energy systems with investors for an initial term of typically 20 years. The solar energy systems are subject to Customer Agreements with an initial term of typically 20 years that automatically renew on an annual basis. These solar energy systems are reported under the line item solar energy systems, net in the consolidated balance sheets. As of September 30, 2018 and December 31, 2017, the cost of the solar energy systems placed in service under the financing obligations was $565.3 million and $464.2 million, respectively. The accumulated depreciation related to these assets as of September 30, 2018 and December 31, 2017 was $76.5 million and $63.7 million, respectively.
The investors make a series of large up-front payments and, in certain cases, subsequent smaller quarterly payments (lease payments) to the subsidiaries of the Company. The Company accounts for the payments received from the investors under the arrangements as borrowings by recording the proceeds received as financing obligations. These financing obligations are reduced over a period of approximately 20 years by customer payments under the Customer Agreements, U.S. Treasury grants (where applicable), incentive rebates (where applicable), the fair value of the ITCs monetized (where applicable) and proceeds from the contracted resale of SRECs as they are received by the investor. Under this approach, the Company accounts for the Customer Agreements and any related U.S. Treasury grants or incentive rebates as well the resale of SRECs consistent with the Company’s revenue recognition accounting policies as described in Note 2, Summary of Significant Accounting Policies.
Interest is calculated on the financing obligations using the effective interest rate method. The effective interest rate, which is adjusted on a prospective basis, is the interest rate that equates the present value of the estimated cash amounts, including ITCs, to be received by the investor over the lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for amounts received by the investor. The financing obligations are nonrecourse once the associated assets have been placed in service and all the contractual arrangements have been assigned to the investor.
Under the majority of the financing obligations, the investor has a right to extend its right to receive cash flows from the customers beyond the initial term in certain circumstances. Depending on the arrangement, the Company has the option to settle the outstanding financing obligation on the ninth or eleventh anniversary of the Fund inception at a price equal to the higher of (a) the fair value of future remaining cash flows or (b) the amount that would result in the investor earning their targeted return. In several of these financing obligations, the investor has an option to require repayment of the entire outstanding balance on the tenth anniversary of the Fund inception at a price equal to the fair value of the future remaining cash flows.
In one arrangement the investor has a right, on June 30, 2019, to purchase all of the systems leased at a price equal to the higher of (a) the sum of the present value of the expected remaining lease payments due by the investor, discounted at 5%, and the fair market value of the Company’s residual interest in the systems as determined through independent valuation or (b) a set value per kilowatt applied to the aggregate size of all leased systems.
Under all financing obligations, the Company is responsible for services such as warranty support, accounting, lease servicing and performance reporting to customers. As part of the warranty and performance guarantee with customers, the Company guarantees certain specified minimum annual solar energy production output for the solar energy systems leased to the customers, which the Company accounts for as disclosed in Note 2, Summary of Significant Accounting Policies.
Note 11. VIE Arrangements
The Company consolidated various VIEs at September 30, 2018 and December 31, 2017. The carrying amounts and classification of the VIEs’ assets and liabilities included in the consolidated balance sheets are as follows (in thousands):
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Assets | | | | |
Current assets | | | | |
Cash | | $ | 106,492 |
| | $ | 118,352 |
|
Restricted cash | | 4,944 |
| | 2,699 |
|
Accounts receivable, net | | 19,123 |
| | 18,786 |
|
Prepaid expenses and other current assets | | 387 |
| | 917 |
|
Total current assets | | 130,946 |
| | 140,754 |
|
Solar energy systems, net | | 2,587,296 |
| | 2,385,329 |
|
Other assets | | 65,155 |
| | 42,295 |
|
Total assets | | $ | 2,783,397 |
| | $ | 2,568,378 |
|
Liabilities | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 8,442 |
| | $ | 15,929 |
|
Distributions payable to noncontrolling interests and redeemable noncontrolling interests | | 15,337 |
| | 13,526 |
|
Accrued expenses and other liabilities | | 6,568 |
| | 5,200 |
|
Deferred revenue, current portion | | 28,034 |
| | 28,695 |
|
Deferred grants, current portion | | 1,016 |
| | 1,021 |
|
Non-recourse debt, current portion | | 2,755 |
| | 11,179 |
|
Total current liabilities | | 62,152 |
| | 75,550 |
|
Deferred revenue, net of current portion | | 360,936 |
| | 381,066 |
|
Deferred grants, net of current portion | | 28,489 |
| | 29,385 |
|
Non-recourse debt, net of current portion | | 192,539 |
| | 190,106 |
|
Other liabilities | | 8,790 |
| | 1,848 |
|
Total liabilities | | $ | 652,906 |
| | $ | 677,955 |
|
The Company holds a variable interest in an entity that provides the noncontrolling interest with a right to terminate the leasehold interests in all of the leased projects on the tenth anniversary of the effective date of the master lease. In this circumstance, the Company would be required to pay the noncontrolling interest an amount equal to the fair market value, as defined in the governing agreement of all leased projects as of that date.
The Company holds certain variable interests in nonconsolidated VIEs established as a result of five pass-through financing obligation Fund arrangements as further explained in Note 10, Pass-through Financing Obligations. The Company does not have material exposure to losses as a result of its involvement with the VIEs in excess of the amount of the pass-through financing obligation recorded in the Company’s consolidated financial statements. The Company is not considered the primary beneficiary of these VIEs.
Note 12. Redeemable Noncontrolling Interests and Equity
As of September 30, 2018, the changes in redeemable noncontrolling interests, total stockholders’ equity and noncontrolling interests were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Redeemable Noncontrolling Interests | | Total Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
Balance — December 31, 2017 | | $ | 123,801 |
| | $ | 881,582 |
| | $ | 358,934 |
| | $ | 1,240,516 |
|
Exercise of stock options | | — |
| | 13,860 |
| | — |
| | 13,860 |
|
Issuance of restricted stock units, net of tax withholdings | | — |
| | (7,910 | ) | | — |
| | (7,910 | ) |
Shares issued in connection with the Employee Stock Purchase Plan | | — |
| | 1,755 |
| | — |
| | 1,755 |
|
Stock based compensation | | — |
| | 21,991 |
| | — |
| | 21,991 |
|
Contributions from noncontrolling interests and redeemable noncontrolling interests | | 60,683 |
| | — |
| | 187,021 |
| | 187,021 |
|
Distributions to noncontrolling interests and redeemable noncontrolling interests | | (8,168 | ) | | — |
| | (44,362 | ) | | (44,362 | ) |
Net income (loss) | | (58,848 | ) | | 32,545 |
| | (184,368 | ) | | (151,823 | ) |
Other comprehensive loss, net of taxes | | — |
| | 22,969 |
| | — |
| | 22,969 |
|
Balance — September 30, 2018 | | $ | 117,468 |
| | $ | 966,792 |
| | $ | 317,225 |
| | $ | 1,284,017 |
|
The carrying value of redeemable noncontrolling interests was greater than the redemption value except for five Funds at September 30, 2018 and December 31, 2017 where the carrying value has been adjusted to the redemption value.
As of September 30, 2017, the changes in redeemable noncontrolling interests, total stockholders’ equity and noncontrolling interests were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Redeemable Noncontrolling Interests | | Total Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
Balance — December 31, 2016 | | $ | 140,996 |
| | $ | 742,771 |
| | $ | 252,957 |
| | $ | 995,728 |
|
Cumulative effect of adoption of ASU 2016-16 and ASU 2016-09 | | — |
| | 2,996 |
| | — |
| | 2,996 |
|
Exercise of stock options | | — |
| | 1,573 |
| | — |
| | 1,573 |
|
Issuance of restricted stock units, net of tax withholdings | | — |
| | (2,925 | ) | | — |
| | (2,925 | ) |
Shares issued in connection with the Employee Stock Purchase Plan | | — |
| | 1,145 |
| | — |
| | 1,145 |
|
Stock based compensation | | — |
| | 16,530 |
| | — |
| | 16,530 |
|
Contributions from noncontrolling interests and redeemable noncontrolling interests | | 105,167 |
| | — |
| | 368,902 |
| | 368,902 |
|
Distributions to noncontrolling interests and redeemable noncontrolling interests | | (11,794 | ) | | — |
| | (31,098 | ) | | (31,098 | ) |
Net income (loss) | | (57,942 | ) | | 56,235 |
| | (229,873 | ) | | (173,638 | ) |
Other comprehensive loss, net of taxes | | — |
| | (3,974 | ) | | — |
| | (3,974 | ) |
Balance — September 30, 2017 | | $ | 176,427 |
| | $ | 814,351 |
| | $ | 360,888 |
| | $ | 1,175,239 |
|
Note 13. Stock-Based Compensation
Stock Options
The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the nine months ended September 30, 2018 (shares and aggregate intrinsic value in thousands):
|
| | | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at December 31, 2017 | | 16,268 |
| | $ | 5.70 |
| | 7.41 | | $ | 14,832 |
|
Granted | | 1,469 |
| | 8.48 |
| |
| |
|
Exercised | | (2,555 | ) | | 5.40 |
| |
| |
|
Cancelled / forfeited | | (834 | ) | | 6.56 |
| |
| |
|
Outstanding at September 30, 2018 | | 14,348 |
| | $ | 5.98 |
| | 6.81 | | $ | 93,159 |
|
| | | | | | | | |
Options vested and exercisable at September 30, 2018 | | 8,093 |
| | $ | 5.53 |
| | 5.56 | | $ | 56,270 |
|
Restricted Stock Units
The following table summarizes the activity for all restricted stock units (“RSUs”) under all of the Company’s equity incentive plans for the nine months ended September 30, 2018 (shares in thousands):
|
| | | | | | | |
| | Number of Awards | | Weighted Average Grant Date Fair Value |
Unvested balance at December 31, 2017 | | 5,330 |
| | $ | 5.82 |
|
Granted | | 1,909 |
| | 8.54 |
|
Issued | | (1,451 | ) | | 6.45 |
|
Cancelled / forfeited | | (1,170 | ) | | 5.62 |
|
Unvested balance at September 30, 2018 | | 4,618 |
| | $ | 6.80 |
|
Employee Stock Purchase Plan
Under the Company's amended 2015 Employee Stock Purchase Plan ("ESPP"), eligible employees are offered shares bi-annually through a 24-month offering period which encompasses four six month purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of each year. Employees may purchase a limited number of shares of the Company’s common stock via regular payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll, with a cap of $25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per purchase period.
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense, including ESPP expenses, in the consolidated statements of operations as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | |