run-10q_20150630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o

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)

 

 

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  o    NO  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  x    NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

 

Accelerated filer

¨

 

 

 

 

 

Non-accelerated filer

x

(Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x

As of September 11, 2015, the number of shares of the registrant’s common stock outstanding was 100,814,572.

 

 

 

 


TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Consolidated Balance Sheets

 

3

 

 

Consolidated Statements of Operations

 

5

 

 

Consolidated Statements of Comprehensive Loss

 

6

 

 

Consolidated Statements of Cash Flows

 

7

 

 

Notes to Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4.

 

Controls and Procedures

 

36

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

Item 6.

 

Exhibits

 

61

 

 

Signatures

 

62

 

 

 

2


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SUNRUN INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share values)

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,610

 

 

$

152,154

 

Restricted cash

 

 

5,764

 

 

 

2,534

 

Accounts receivable (net of allowances for doubtful accounts of $1,045 and $703 as of June 30, 2015

   and December 31, 2014, respectively)

 

 

49,619

 

 

 

43,189

 

Grants receivable

 

 

 

 

 

5,183

 

Inventories

 

 

37,804

 

 

 

23,914

 

Prepaid expenses and other current assets

 

 

16,698

 

 

 

9,560

 

Deferred tax assets, current

 

 

2,559

 

 

 

3,048

 

Total current assets

 

 

229,054

 

 

 

239,582

 

Restricted cash

 

 

7,390

 

 

 

6,012

 

Solar energy systems, net

 

 

1,695,728

 

 

 

1,480,223

 

Property and equipment, net

 

 

27,229

 

 

 

22,195

 

Intangible assets, net

 

 

24,808

 

 

 

13,111

 

Goodwill

 

 

87,555

 

 

 

51,786

 

Prepaid tax asset

 

 

142,785

 

 

 

109,381

 

Other assets

 

 

26,201

 

 

 

13,342

 

Total assets(1)

 

$

2,240,750

 

 

$

1,935,632

 

Liabilities and total equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

69,566

 

 

$

51,166

 

Distributions payable to noncontrolling interests and redeemable noncontrolling interests

 

 

6,463

 

 

 

6,764

 

Accrued expenses and other liabilities

 

 

42,833

 

 

 

25,445

 

Deferred revenue, current portion

 

 

51,929

 

 

 

44,398

 

Deferred grants, current portion

 

 

14,002

 

 

 

13,754

 

Capital lease obligation, current portion

 

 

3,928

 

 

 

1,593

 

Long-term debt, current portion

 

 

1,824

 

 

 

2,602

 

Lease pass-through financing obligation, current portion

 

 

3,321

 

 

 

5,161

 

Total current liabilities

 

 

193,866

 

 

 

150,883

 

Deferred revenue, net of current portion

 

 

510,346

 

 

 

467,726

 

Deferred grants, net of current portion

 

 

219,380

 

 

 

226,801

 

Capital lease obligation, net of current portion

 

 

7,210

 

 

 

5,761

 

Line of credit

 

 

140,024

 

 

 

48,597

 

Long-term debt, net of current portion

 

 

195,874

 

 

 

188,052

 

Lease pass-through financing obligation, net of current portion

 

 

203,392

 

 

 

180,224

 

Other liabilities

 

 

3,431

 

 

 

2,424

 

Deferred tax liabilities

 

 

145,344

 

 

 

112,597

 

Total liabilities(1)

 

 

1,618,867

 

 

 

1,383,065

 

Redeemable noncontrolling interests

 

 

151,288

 

 

 

135,948

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value—authorized, 57,028 shares as of June 30, 2015 and

   December 31, 2014, respectively; issued and outstanding, 54,841 and 54,841 shares as of June 30,

   2015 and December 31, 2014, respectively; aggregate liquidation value of   $305,883 as of June 30,

   2015 and December 31, 2014, respectively

 

 

5

 

 

5

 

Common stock, $0.0001 par value—authorized, 125,047 and 119,547 shares as of June 30,

   2015 and December 31, 2014, respectively; issued and outstanding, 26,503 and 24,429

   shares as of June 30, 2015 and December 31, 2014, respectively

 

 

2

 

 

2

 

Additional paid-in capital

 

 

411,890

 

 

 

383,860

 

Accumulated other comprehensive loss

 

 

1,425

 

 

 

Accumulated deficit

 

 

(69,458

)

 

 

(59,003

)

Total stockholders’ equity

 

 

343,864

 

 

 

324,864

 

Noncontrolling interests

 

 

126,731

 

 

 

91,755

 

Total equity

 

 

470,595

 

 

 

416,619

 

Total liabilities, redeemable noncontrolling interests and total equity

 

$

2,240,750

 

 

$

1,935,632

 

 

3


(1)

The Company’s consolidated assets as of June 30, 2015 and December 31, 2014 include $1,202,608 (unaudited) and $986,878, respectively, in assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of June 30, 2015 and  December 31, 2014 were $1,113,088 (unaudited) and $942,655, respectively; cash and cash equivalents as of June 30, 2015 and  December 31, 2014 were $72,983 (unaudited) and $29,099, respectively; restricted cash as of June 30, 2015 and  December 31, 2014 were $729 (unaudited) and $593, respectively; accounts receivable, net as of  June 30, 2015 and December 31, 2014 were $15,609 (unaudited) and $14,351. respectively; prepaid expenses and other current assets as of June 30, 2015 and December 31, 2014 were $199 (unaudited) and $180, respectively. The Company’s consolidated liabilities as of June 30, 2015 and December 31, 2014 include $504,377 (unaudited) and $474,348, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of June 30, 2015 and December 31, 2014 of $16,765 (unaudited) and $9,057, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of June 30, 2015 and December 31, 2014 of $6,413 (unaudited) and $6,426, respectively; accrued expenses and other liabilities as of June 30, 2015 and December 31, 2014 of $162 (unaudited) and $340, respectively; deferred revenue as of June 30, 2015 and December 31, 2014 of $329,114 (unaudited) and $301,792, respectively; deferred grants as of June 30, 2015 and  December 31, 2014 of $119,704 (unaudited) and $123,351, respectively; and long-term debt as of June 30, 2015 and December 31, 2014 of $32,219 (unaudited) and $33,382, respectively.

 

 

4


SUNRUN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share values)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases and incentives

 

$

34,458

 

 

$

22,987

 

 

$

56,766

 

 

$

41,428

 

Solar energy systems and product sales

 

 

38,232

 

 

 

28,952

 

 

 

65,601

 

 

 

40,914

 

Total revenue

 

 

72,690

 

 

 

51,939

 

 

 

122,367

 

 

 

82,342

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operating leases and incentives

 

 

27,067

 

 

 

17,359

 

 

 

48,444

 

 

 

32,255

 

Cost of solar energy systems and product sales

 

 

34,624

 

 

 

25,333

 

 

 

59,954

 

 

 

35,808

 

Sales and marketing

 

 

33,976

 

 

 

17,173

 

 

 

58,902

 

 

 

29,762

 

Research and development

 

 

2,492

 

 

 

1,999

 

 

 

4,779

 

 

 

3,926

 

General and administrative

 

 

19,677

 

 

 

20,037

 

 

 

39,983

 

 

 

32,687

 

Amortization of intangible assets

 

 

1,051

 

 

 

655

 

 

 

1,593

 

 

 

1,118

 

Total operating expenses

 

 

118,887

 

 

 

82,556

 

 

 

213,655

 

 

 

135,556

 

Loss from operations

 

 

(46,197

)

 

 

(30,617

)

 

 

(91,288

)

 

 

(53,214

)

Interest expense, net

 

 

8,433

 

 

 

6,662

 

 

 

15,563

 

 

 

12,324

 

Loss on early extinguishment of debt

 

 

431

 

 

 

 

 

 

431

 

 

 

 

Other expenses

 

 

1,019

 

 

 

1,386

 

 

 

1,318

 

 

 

1,846

 

Loss before income taxes

 

 

(56,080

)

 

 

(38,665

)

 

 

(108,600

)

 

 

(67,384

)

Income tax benefit

 

 

(6,215

)

 

 

(5,917

)

 

 

(6,215

)

 

 

(10,043

)

Net loss

 

 

(49,865

)

 

 

(32,748

)

 

 

(102,385

)

 

 

(57,341

)

Net loss attributable to noncontrolling interests

   and redeemable noncontrolling interests

 

 

(57,405

)

 

 

(15,517

)

 

 

(91,930

)

 

 

(28,389

)

Net income (loss) attributable to common

   stockholders

 

$

7,540

 

 

$

(17,231

)

 

$

(10,455

)

 

$

(28,952

)

Less: Net income allocated to participating

   securities

 

 

(7,540

)

 

 

 

 

 

 

 

 

 

Net income (loss) available to common stockholders

 

$

 

 

$

(17,231

)

 

$

(10,455

)

 

$

(28,952

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share available to

   common shareholders—basic and diluted

 

$

 

 

$

(0.72

)

 

$

(0.41

)

 

$

(1.35

)

Weighted average shares used to compute net

   loss per share available to common

   stockholders—basic and diluted

 

 

26,215

 

 

 

23,827

 

 

 

25,322

 

 

 

21,437

 

 

 

5


SUNRUN INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income (loss) attributable to common

   stockholders

 

$

7,540

 

 

$

(17,231

)

 

$

(10,455

)

 

$

(28,952

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on derivatives, net of tax

   expense of $904 for the three months and

   six months ended June 30, 2015

 

 

2,861

 

 

 

 

 

 

1,069

 

 

 

 

Less reclassification of net loss on

   derivatives to earnings

 

 

(356)

 

 

 

 

 

 

(356)

 

 

 

 

Comprehensive loss

 

$

10,757

 

 

$

(17,231

)

 

$

(9,030

)

 

$

(28,952

)

 

 

6


SUNRUN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six months Ended  June 30,

 

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(102,385

)

 

$

(57,341

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

431

 

 

 

 

Depreciation and amortization, net of amortization of deferred grants

 

 

32,673

 

 

 

22,493

 

Bad debt expense

 

 

739

 

 

 

124

 

Interest on lease pass-through financing

 

 

7,177

 

 

 

4,006

 

Noncash tax benefit

 

 

(6,215

)

 

 

(10,043

)

Noncash interest expense

 

 

4,443

 

 

 

1,185

 

Stock—based compensation expense

 

 

6,421

 

 

 

4,310

 

Reduction in lease pass—through financing obligations

 

 

(10,379

)

 

 

(4,890

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,216

)

 

 

(740

)

Inventories

 

 

(13,890

)

 

 

2,993

 

Prepaid and other assets

 

 

(8,615

)

 

 

52

 

Accounts payable

 

 

22,751

 

 

 

6,895

 

Accrued expenses and other liabilities

 

 

6,209

 

 

 

710

 

Deferred revenue

 

 

20,254

 

 

 

40,305

 

Net cash provided by (used in) operating activities

 

 

(44,602

)

 

 

10,059

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Payments for the costs of solar energy systems, leased and to be leased

 

 

(257,806

)

 

 

(178,741

)

Purchases of property and equipment

 

 

(4,688

)

 

 

(3,712

)

Acquisitions of businesses, net of cash acquired

 

 

(14,575

)

 

 

(36,384

)

Net cash used in investing activities

 

 

(277,069

)

 

 

(218,837

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from grants and state tax credits

 

 

5,120

 

 

 

107

 

Proceeds from issuance of debt

 

 

153,200

 

 

 

13,546

 

Repayment of debt

 

 

(54,956

)

 

 

(2,017

)

Payment of debt fees

 

 

(2,801

)

 

 

(225

)

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

143,393

 

Proceeds from lease pass-through financing obligations

 

 

52,034

 

 

 

90,387

 

Contributions received from noncontrolling interests and redeemable noncontrolling interests

 

 

155,662

 

 

 

88,000

 

Distributions paid to noncontrolling interests and redeemable noncontrolling interests

 

 

(13,717

)

 

 

(20,908

)

Proceeds from exercises of stock options

 

 

2,387

 

 

 

1,116

 

Payment of capital lease obligation

 

 

(1,472

)

 

 

(502

)

Payments for deferred offering costs

 

 

(4,722

)

 

 

 

Change in restricted cash

 

 

(4,608

)

 

 

84

 

Net cash provided by financing activities

 

 

286,127

 

 

 

312,981

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(35,544

)

 

 

104,203

 

Cash and cash equivalents, beginning of period

 

 

152,154

 

 

 

99,699

 

Cash and cash equivalents, end of period

 

$

116,610

 

 

$

203,902

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,118

 

 

$

6,460

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

 

 

Costs of solar energy systems included in accounts payable

 

$

4,777

 

 

$

191

 

Distributions payable to noncontrolling interests and redeemable noncontrolling interests

 

$

6,463

 

 

$

5,281

 

Vehicles acquired under capital leases

 

$

5,255

 

 

$

1,051

 

Noncash purchase consideration on acquisition of business

 

$

18,718

 

 

$

76,964

 

 

 

7


SUNRUN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

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 a power purchase agreement (“PPA”) or a lease (each, a “Customer Agreement”) which typically has a term of 20 years. Sunrun monitors, maintains and insures the Projects. As a result of the acquisition of Mainstream Energy Corporation, its fulfillment business AEE Solar and its racking business SnapNrack (collectively, “MEC”) completed in February 2014, the Company also sells solar energy systems and products 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) lease pass-throughs, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.

The Company completed its initial public offering in August 2015 and its common stock is listed on the NASDAQ under the symbol “RUN”.

 

 

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 (the “SEC”) regarding interim financial reporting and, in the opinion of management, include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. As such, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the prospectus dated August 4, 2015 filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended. The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results expected for the year ending December 31, 2015 or for any other interim periods or any other period.

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 financial interests. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, the Company consolidates any VIE of which it is the primary beneficiary. The primary beneficiary, as defined in ASC 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 that could potentially be significant to 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.

8


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, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives and estimated residual values of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the fair value of assets acquired and liabilities assumed in business combinations, the effective interest rate used to amortize lease pass-through financing obligations, the valuation of stock-based compensation, the valuation of the Company’s common stock, the determination of valuation allowances associated with deferred tax assets, 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.

Revenues from external customers for each group of similar products and services are as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Operating leases

 

$

22,915

 

 

$

16,788

 

 

$

40,047

 

 

$

29,417

 

Incentives

 

 

11,543

 

 

 

6,199

 

 

 

16,719

 

 

 

12,011

 

Operating leases and incentives

 

 

34,458

 

 

 

22,987

 

 

 

56,766

 

 

 

41,428

 

Solar energy systems

 

 

7,028

 

 

 

5,741

 

 

 

12,834

 

 

 

8,093

 

Products

 

 

31,204

 

 

 

23,211

 

 

 

52,767

 

 

 

32,821

 

Solar energy systems and product sales

 

 

38,232

 

 

 

28,952

 

 

 

65,601

 

 

 

40,914

 

Total revenue

 

$

72,690

 

 

$

51,939

 

 

$

122,367

 

 

$

82,342

 

 

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 techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. FASB establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

 

·

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.

The Company’s financial instruments include cash and cash equivalents, receivables, accounts payable, accrued expenses, distributions payable to noncontrolling interests, derivatives, borrowings on the line of credit, and long term debt.

9


Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 Revenue from Contracts with Customers (Topic 606), to replace the existing revenue recognition criteria for contracts with customers and to establish the disclosure requirements for revenue from contracts with customers. The core principle of this standard is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This ASU is effective for the Company for annual reporting periods beginning after December 15, 2017 including the interim reporting periods within that fiscal year, and early adoption is permitted. Adoption of the ASU is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently assessing the impact of this guidance on its consolidated financial statements.

In November 2014, the FASB issued ASU 2014-16 Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. This guidance requires issuers and investors to consider all of a hybrid instrument’s stated and implied substantive terms and features, including any embedded derivative features being evaluated for bifurcation. The guidance eliminates the “chameleon approach”, under which all embedded features except the feature being analyzed are considered. The guidance is effective for the year beginning after December 15, 2015 and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.

In November 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements and provide certain disclosures when there is substantial doubt about the entity’s ability to continue as a going concern. This guidance applies to all entities and is effective for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02 Amendments to the Consolidation Analysis, which provides consolidation guidance and changes the way reporting enterprises evaluate consolidation for limited partnerships, investment companies and similar entities, as well as variable interest entities. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2015. The Company is currently evaluating this guidance and the impact it may have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, to simplify the presentation of debt issuance costs. Prior to ASU 2015-03, issuance costs were presented as an asset on the balance sheet. Under ASU 2015-03, debt issuance costs related to a recognized debt liability are required to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact it may have on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. The ASU is effective for interim and annual periods beginning after December 15, 2016. Adoption of the ASU is prospective. The Company is currently evaluating this guidance and the impact it may have on its consolidated financial statements.

 

 

3.

Acquisitions

Clean Energy Experts, LLC

In April 2015, the Company acquired Clean Energy Experts, LLC (“CEE”), a consumer demand and solar lead generation company, for $25.0 million in cash and 1.9 million shares of common stock. Of this amount, $15.0 million in cash was paid and 1.4 million shares were issued in April 2015. The remaining $10.0 million in cash and 500,000 shares are due in two equal installments: $5.0 million will be paid and 250,000 shares will be issued in October 2015 and again in April 2016. The fair value of assets acquired and liabilities assumed was based upon a preliminary valuation and our

10


estimates and assumptions are subject to change within the measurement period. The primary area of the purchase price that is contingent upon future events relate to indemnification for potential tax liability.

An additional $9.1 million in cash and 600,000 shares of common stock may be issued on April 1, 2017, subject to the achievement of certain sales targets as well as continued employment of certain key employees acquired in the transaction, which will be recorded as compensation expense over a two-year period unless and until the Company assesses the sales targets are not considered probable of achievement. The acquisition is expected to enhance the Company’s efficient and consistent access to high-quality leads in existing and new markets.

The Company has included the results of operations of the acquired business in the consolidated statements of operations from the acquisition date. The assets acquired and liabilities assumed in the CEE acquisition have been recorded based on their fair value at the acquisition date. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes. Goodwill recorded is primarily attributable to the acquired assembled workforce and the synergies expected to arise after the CEE acquisition. Transaction costs related to the acquisition were expensed as incurred.

The following table summarizes the fair value of assets acquired and liabilities assumed (in thousands):

 

Cash and cash equivalents

 

$

424

 

Accounts receivable

 

 

639

 

Intangible assets

 

 

13,290

 

Accounts payable and accrued liabilities

 

 

(1,247

)

Deferred tax liability

 

 

(5,158

)

Indentifiable assets and liabilities assumed

 

 

7,948

 

Goodwill

 

 

35,769

 

Total

 

$

43,717

 

 

The fair value of acquired intangible assets and their estimated useful life are as follows (in thousands, except estimated useful life):

 

 

 

Fair Value

 

 

Estimated Useful Life

Developed technology

 

$

5,910

 

 

5

Customer relationships

 

 

4,390

 

 

8

Trade names

 

 

2,990

 

 

8

Total

 

$

13,290

 

 

 

 

For the three and six months ended June 30, 2015, the contribution of the acquired business to the Company’s total revenues was $4.1 million as measured from the date of the acquisition. The portion of total expenses and net income associated with the acquired business was not separately identifiable due to the integration with the Company’s operations.

 

 

4.

Fair Value Measurements

At June 30, 2015 and December 31, 2014, the carrying value of receivables, accounts payable, accrued expenses, and distributions payable to noncontrolling interests approximates fair value due to their short-term nature. The carrying values and fair values of debt instruments are as follows (in thousands):

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Line of credit

 

$

140,024

 

 

$

140,024

 

 

$

48,597

 

 

$

48,597

 

Non-bank term loans

 

 

 

 

 

 

 

 

3,138

 

 

 

3,853

 

Bank term loan

 

 

32,219

 

 

 

34,248

 

 

 

33,382

 

 

 

35,653

 

Note payable

 

 

31,346

 

 

 

30,827

 

 

 

29,563

 

 

 

28,900

 

Syndicated term loans

 

 

134,133

 

 

 

134,133

 

 

 

124,571

 

 

 

124,571

 

Total

 

$

337,722

 

 

$

339,231

 

 

$

239,251

 

 

$

241,574

 

11


 

At June 30, 2015 and December 31, 2014, the fair value of the Company’s lines of credit and the syndicated term loans approximates their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At June 30, 2015, the fair value of the Company’s bank term loan and note payable are based on rates currently offered for debt with similar maturities and terms.  At December 31, 2014, the fair value of the Company’s non-bank term loan, bank term loan, and note payable 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 techniques 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 derivative instruments using a discounted cash flow model which 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 June 30, 2015 and December 31, 2014, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy are as follows (in thousands):

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative assets

 

$

 

 

$

2,329

 

 

$

 

 

$

2,329

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

5.

Inventories

Inventories consist of the following (in thousands):

 

 

 

June 30,

2015

 

 

December 31,

2014

 

Raw materials

 

$

35,336

 

 

$

21,531

 

Work-in-process

 

 

2,468

 

 

 

2,383

 

Total

 

$

37,804

 

 

$

23,914

 

 

 

6.

Solar Energy Systems, net

Solar energy systems, net consists of the following (in thousands):

 

 

 

June 30,

2015

 

 

December 31,

2014

 

Solar energy system equipment costs

 

$

1,610,120

 

 

$

1,406,478

 

Inverters

 

 

148,714

 

 

 

123,910

 

Initial direct costs

 

 

48,809

 

 

 

36,279

 

Total solar energy systems

 

 

1,807,643

 

 

 

1,566,667

 

Less: accumulated depreciation and amortization

 

 

(176,161

)

 

 

(143,028

)

Add: construction-in-progress

 

 

64,246

 

 

 

56,584

 

Total solar energy systems, net

 

$

1,695,728

 

 

$

1,480,223

 

 

All solar energy systems, construction-in-progress, and inverters have been leased to or are subject to a signed Customer Agreement with customers. The Company recorded depreciation expense related to solar energy systems of $16.5 million and $32.0 million for the three and six months ended June 30, 2015, respectively, and $12.9 million and $24.9 million for the three and six months ended June 30, 2014, respectively. The depreciation expense was reduced by the amortization of deferred grants of $3.5 million and $7.1 million for the three and six months ended June 30, 2015, respectively, and $3.5 million and $6.9 million for the three and six months ended June 30, 2014, respectively.

 

 

12


7.

Goodwill and Intangible Assets, net

The change in the carrying value of goodwill is as follows (in thousands):

 

Balance—December 31, 2014

 

$

51,786

 

Acquisition of CEE (Note 3)

 

 

35,769

 

Balance—June 30, 2015

 

$

87,555

 

 

Intangible assets, net as of June 30, 2015 consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

Accumulated

 

 

Carrying

 

 

remaining life

 

 

 

Cost

 

 

amortization

 

 

value

 

 

(in years)

 

Backlog

 

$

200

 

 

$

(200

)

 

$

 

 

 

 

Customer relationships

 

 

14,660

 

 

 

(1,768

)

 

 

12,892

 

 

 

7.8

 

Developed technology

 

 

6,820

 

 

 

(553

)

 

 

6,267

 

 

 

4.6

 

Trade names

 

 

6,990

 

 

 

(1,341

)

 

 

5,649

 

 

 

5.7

 

Total

 

$

28,670

 

 

$

(3,862

)

 

$

24,808

 

 

 

 

 

 

Intangible assets, net as of December 31, 2014 consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

Accumulated

 

 

Carrying

 

 

remaining life

 

 

 

Cost

 

 

amortization

 

 

value

 

 

(in years)

 

Backlog

 

$

200

 

 

$

(183

)

 

$

17

 

 

 

0.1

 

Customer relationships

 

 

10,270

 

 

 

(1,055

)

 

 

9,215

 

 

 

8.4

 

Developed technology

 

 

910

 

 

 

(167

)

 

 

743

 

 

 

4.1

 

Trade names

 

 

4,000

 

 

 

(864

)

 

 

3,136

 

 

 

4.1

 

Total

 

$

15,380

 

 

$

(2,269

)

 

$

13,111

 

 

 

 

 

 

The Company recorded amortization of intangible assets expense of $1.1 million and $1.6 million for the three and six months ended June 30, 2015, respectively, and $0.7 million and $1.1 million for the three and six months ended June 30, 2014, respectively.

 

 

13


8.

Debt

As of June 30, 2015, debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unused

 

 

Annual

 

 

 

 

 

 

 

 

Carrying Values, net of

 

 

Borrowing

 

 

Contractual

 

Interest

 

 

Maturity

 

 

debt discount

 

 

Capacity

 

 

Interest Rate

 

Rate

 

 

Date

 

 

Current

 

 

Long Term

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank line of credit

 

$

 

 

$

140,024

 

 

$

140,024

 

 

$

44,630

 

 

LIBOR + 3.25%

 

 

3.69

%

 

April 2018

Total recourse debt

 

$

 

 

$

140,024

 

 

$

140,024

 

 

$

44,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse debt: