VIVINT SOLAR, INC., 10-Q filed on 8/8/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 01, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol VSLR  
Entity Registrant Name Vivint Solar, Inc.  
Entity Central Index Key 0001607716  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity File Number 1-36642  
Entity Tax Identification Number 455605880  
Entity Address, Address Line One 1800 West Ashton Blvd.  
Entity Address, City or Town Lehi  
Entity Address, State or Province UT  
Entity Address, Postal Zip Code 84043  
City Area Code 877  
Local Phone Number 404-4129  
Entity Common Stock, Shares Outstanding   121,619,161
v3.19.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 198,951 $ 219,591
Accounts receivable, net 28,186 14,207
Inventories 13,071 13,257
Prepaid expenses and other current assets 30,783 31,201
Total current assets 270,991 278,256
Restricted cash and cash equivalents 78,567 71,305
Solar energy systems, net 1,637,905 1,938,874
Property and equipment, net 12,650 10,730
Other non-current assets, net 510,537 28,090
TOTAL ASSETS [1] 2,510,650 2,327,255
Current liabilities:    
Accounts payable 40,175 45,929
Distributions payable to non-controlling interests and redeemable non-controlling interests 11,221 7,846
Accrued compensation 24,545 25,520
Current portion of long-term debt 144,243 12,155
Current portion of deferred revenue 28,911 30,199
Current portion of finance lease obligation 1,089 1,921
Accrued and other current liabilities 53,557 42,860
Total current liabilities 303,741 166,430
Long-term debt, net of current portion 1,181,797 1,203,282
Deferred revenue, net of current portion 15,529 13,524
Finance lease obligation, net of current portion 2,807 505
Deferred tax liability, net 490,496 437,120
Other non-current liabilities 76,994 24,610
Total liabilities [1] 2,071,364 1,845,471
Commitments and contingencies (Note 19)
Redeemable non-controlling interests 118,900 119,572
Stockholders’ equity:    
Common stock, $0.01 par value—1,000,000 authorized, 121,606 shares issued and outstanding as of June 30, 2019; 1,000,000 authorized, 120,114 shares issued and outstanding as of December 31, 2018 1,216 1,201
Additional paid-in capital 582,338 574,248
Accumulated other comprehensive loss (18,988) (7,223)
Accumulated deficit (334,595) (279,631)
Total stockholders’ equity 229,971 288,595
Non-controlling interests 90,415 73,617
Total equity 320,386 362,212
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $ 2,510,650 $ 2,327,255
[1] The assets of Vivint Solar, Inc. (the “Company”) as of June 30, 2019 and December 31, 2018 include $2,020.8 million and $1,835.8 million consisting of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, of $1,478.5 million and $1,752.3 million as of June 30, 2019 and December 31, 2018; other non-current assets, net of $410.3 million and $10.9 million as of June 30, 2019 and December 31, 2018; cash and cash equivalents of $105.2 million and $62.4 million as of June 30, 2019 and December 31, 2018; accounts receivable, net, of $19.1 million and $6.6 million as of June 30, 2019 and December 31, 2018; restricted cash and cash equivalents of $5.4 million and $2.4 million as of June 30, 2019 and December 31, 2018; and prepaid expenses and other current assets of $2.3 million and $1.3 million as of June 30, 2019 and December 31, 2018. The Company’s liabilities as of June 30, 2019 and December 31, 2018 included $151.1 million and $80.8 million of liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include distributions payable to non-controlling interests and redeemable non-controlling interests of $11.2 million and $7.8 million as of June 30, 2019 and December 31, 2018; deferred revenue of $13.3 million and $12.0 million as of June 30, 2019 and December 31, 2018; long-term debt of $120.3 million and $55.0 million as of June 30, 2019 and December 31, 2018; accrued and other current liabilities of $5.5 million and $4.9 million as of June 30, 2019 and December 31, 2018; and other non-current liabilities of $0.7 million and $1.0 million as of June 30, 2019 and December 31, 2018. For further information see Note 14—Investment Funds.
v3.19.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common stock, shares issued 121,606,000 120,114,000
Common stock, shares outstanding 121,606,000 120,114,000
Total assets [1] $ 2,510,650 $ 2,327,255
Solar energy systems, net 1,637,905 1,938,874
Cash and cash equivalents 198,951 219,591
Accounts receivable, net 28,186 14,207
Other non-current assets, net 510,537 28,090
Restricted cash and cash equivalents 78,567 71,305
Prepaid expenses and other current assets 30,783 31,201
Total liabilities [1] 2,071,364 1,845,471
Distributions payable to non-controlling interests and redeemable non-controlling interests 11,221 7,846
Accrued and other current liabilities 53,557 42,860
Other non-current liabilities 76,994 24,610
Variable Interest Entities    
Total assets 2,020,805 1,835,834
Solar energy systems, net 1,478,530 1,752,271
Cash and cash equivalents 105,175 62,350
Accounts receivable, net 19,082 6,593
Other non-current assets, net 410,322 10,888
Restricted cash and cash equivalents 5,405 2,443
Prepaid expenses and other current assets 2,291 1,289
Total liabilities 151,148 80,760
Distributions payable to non-controlling interests and redeemable non-controlling interests 11,221 7,846
Deferred revenue 13,300 12,000
Long-term debt 120,300 55,000
Accrued and other current liabilities 5,529 4,860
Other non-current liabilities $ 745 $ 1,023
[1] The assets of Vivint Solar, Inc. (the “Company”) as of June 30, 2019 and December 31, 2018 include $2,020.8 million and $1,835.8 million consisting of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, of $1,478.5 million and $1,752.3 million as of June 30, 2019 and December 31, 2018; other non-current assets, net of $410.3 million and $10.9 million as of June 30, 2019 and December 31, 2018; cash and cash equivalents of $105.2 million and $62.4 million as of June 30, 2019 and December 31, 2018; accounts receivable, net, of $19.1 million and $6.6 million as of June 30, 2019 and December 31, 2018; restricted cash and cash equivalents of $5.4 million and $2.4 million as of June 30, 2019 and December 31, 2018; and prepaid expenses and other current assets of $2.3 million and $1.3 million as of June 30, 2019 and December 31, 2018. The Company’s liabilities as of June 30, 2019 and December 31, 2018 included $151.1 million and $80.8 million of liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include distributions payable to non-controlling interests and redeemable non-controlling interests of $11.2 million and $7.8 million as of June 30, 2019 and December 31, 2018; deferred revenue of $13.3 million and $12.0 million as of June 30, 2019 and December 31, 2018; long-term debt of $120.3 million and $55.0 million as of June 30, 2019 and December 31, 2018; accrued and other current liabilities of $5.5 million and $4.9 million as of June 30, 2019 and December 31, 2018; and other non-current liabilities of $0.7 million and $1.0 million as of June 30, 2019 and December 31, 2018. For further information see Note 14—Investment Funds.
v3.19.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenue:        
Total revenue $ 90,757 $ 80,798 $ 160,128 $ 149,048
Cost of revenue:        
Total cost of revenue 58,865 60,356 116,319 125,088
Gross profit 31,892 20,442 43,809 23,960
Operating expenses:        
Sales and marketing 37,037 14,033 66,671 25,158
Research and development 524 511 993 997
General and administrative 31,205 22,009 54,254 41,996
Total operating expenses 68,766 36,553 121,918 68,151
Loss from operations (36,874) (16,111) (78,109) (44,191)
Interest expense, net 19,472 11,336 38,599 28,258
Other expense (income), net 1,365 (4,109) 2,750 (6,370)
Loss before income taxes (57,711) (23,338) (119,458) (66,079)
Income tax expense 29,950 35,352 57,437 53,995
Net loss (87,661) (58,690) (176,895) (120,074)
Net loss attributable to non-controlling interests and redeemable non-controlling interests (59,094) (76,806) (122,086) (125,214)
Net (loss attributable) income available to common stockholders $ (28,567) $ 18,116 $ (54,809) $ 5,140
Net (loss attributable) income available per share to common stockholders:        
Basic $ (0.24) $ 0.16 $ (0.45) $ 0.04
Diluted $ (0.24) $ 0.15 $ (0.45) $ 0.04
Weighted-average shares used in computing net (loss attributable) income available per share to common stockholders:        
Basic 120,869 116,650 120,589 115,907
Diluted 120,869 121,753 120,589 120,969
Customer Agreements and Incentives        
Revenue:        
Total revenue $ 63,355 $ 54,765 $ 102,958 $ 85,879
Cost of revenue:        
Total cost of revenue 43,074 41,366 83,265 80,053
Solar Energy System and Product Sales        
Revenue:        
Total revenue 27,402 26,033 57,170 63,169
Cost of revenue:        
Total cost of revenue $ 15,791 $ 18,990 $ 33,054 $ 45,035
v3.19.2
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net (loss attributable) income available to common stockholders $ (28,567) $ 18,116 $ (54,809) $ 5,140
Other comprehensive loss:        
Unrealized (losses) gains on cash flow hedging instruments (net of tax effect of $(2,675), $(223), $(4,452) and $1,171) (7,292) (602) (12,175) 3,147
Less: Interest (expense) income on derivatives recognized into earnings (net of tax effect of $(64), $6,058, $(150) and $6,161) (174) 16,277 (410) 16,555
Total other comprehensive loss (7,118) (16,879) (11,765) (13,408)
Comprehensive (loss) income $ (35,685) $ 1,237 $ (66,574) $ (8,268)
v3.19.2
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Unrealized losses on cash flow hedging instruments, tax $ (2,675) $ (223) $ (4,452) $ 1,171
Interest expense on derivatives recognized into earnings, tax $ (64) $ 6,058 $ (150) $ 6,161
v3.19.2
Condensed Consolidated Statements of Redeemable Non-Controlling Interests and Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Redeemable Non-Controlling Interests
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive (Loss) Income
Retained Earnings (Accumulated Deficit)
Total Stockholders Equity
Non-Controlling Interests
Balance at Dec. 31, 2017 $ 861,066 $ 122,444 $ 1,151 $ 559,788 $ 6,905 $ 213,107 $ 780,951 $ 80,115
Balance (in Shares) at Dec. 31, 2017     115,099          
Cumulative-effect adjustment from adoption of new ASUs (473,828)       3,318 (477,146) (473,828)  
Stock-based compensation expense 6,781     6,781     6,781  
Issuance of common stock, net 837   $ 34 803     837  
Issuance of common stock, net (in shares)     3,378          
Contributions from non-controlling interests and redeemable non-controlling interests 43,288 64,999           43,288
Distributions to non-controlling interests and redeemable non-controlling interests (17,123) (5,112)           (17,123)
Total other comprehensive loss (13,408)       (13,408)   (13,408)  
Net (loss) income (60,390) (59,684)       5,140 5,140 (65,530)
Balance at Jun. 30, 2018 347,223 122,647 $ 1,185 567,372 (3,185) (258,899) 306,473 40,750
Balance (in Shares) at Jun. 30, 2018     118,477          
Balance at Mar. 31, 2018 358,423 130,107 $ 1,153 562,962 13,694 (277,015) 300,794 57,629
Balance (in Shares) at Mar. 31, 2018     115,329          
Stock-based compensation expense 3,812     3,812     3,812  
Issuance of common stock, net 630   $ 32 598     630  
Issuance of common stock, net (in shares)     3,148          
Contributions from non-controlling interests and redeemable non-controlling interests 43,288 22,228           43,288
Distributions to non-controlling interests and redeemable non-controlling interests (10,030) (3,019)           (10,030)
Total other comprehensive loss (16,879)       (16,879)   (16,879)  
Net (loss) income (32,021) (26,669)       18,116 18,116 (50,137)
Balance at Jun. 30, 2018 347,223 122,647 $ 1,185 567,372 (3,185) (258,899) 306,473 40,750
Balance (in Shares) at Jun. 30, 2018     118,477          
Balance at Dec. 31, 2018 $ 362,212 119,572 $ 1,201 574,248 (7,223) (279,631) 288,595 73,617
Balance (in Shares) at Dec. 31, 2018 120,114   120,114          
Cumulative-effect adjustment from adoption of new ASUs $ (155)         (155) (155)  
Stock-based compensation expense 7,835     7,835     7,835  
Issuance of common stock, net 270   $ 15 255     270  
Issuance of common stock, net (in shares)     1,492          
Contributions from non-controlling interests and redeemable non-controlling interests 141,632 18,006           141,632
Distributions to non-controlling interests and redeemable non-controlling interests (16,559) (4,867)           (16,559)
Total other comprehensive loss (11,765)       (11,765)   (11,765)  
Net (loss) income (163,084) (13,811)       (54,809) (54,809) (108,275)
Balance at Jun. 30, 2019 $ 320,386 118,900 $ 1,216 582,338 (18,988) (334,595) 229,971 90,415
Balance (in Shares) at Jun. 30, 2019 121,606   121,606          
Balance at Mar. 31, 2019 $ 349,409 118,667 $ 1,206 577,961 (11,870) (306,028) 261,269 88,140
Balance (in Shares) at Mar. 31, 2019     120,612          
Stock-based compensation expense 4,156     4,156     4,156  
Issuance of common stock, net 231   $ 10 221     231  
Issuance of common stock, net (in shares)     994          
Contributions from non-controlling interests and redeemable non-controlling interests 67,077 8,193           67,077
Distributions to non-controlling interests and redeemable non-controlling interests (10,992) (2,676)           (10,992)
Total other comprehensive loss (7,118)       (7,118)   (7,118)  
Net (loss) income (82,377) (5,284)       (28,567) (28,567) (53,810)
Balance at Jun. 30, 2019 $ 320,386 $ 118,900 $ 1,216 $ 582,338 $ (18,988) $ (334,595) $ 229,971 $ 90,415
Balance (in Shares) at Jun. 30, 2019 121,606   121,606          
v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (176,895) $ (120,074)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 39,317 33,440
Deferred income taxes 57,678 54,173
Stock-based compensation 7,835 6,781
Loss on solar energy systems and property and equipment 4,157 3,025
Non-cash interest and other expense 3,302 13,656
Reduction in lease pass-through financing obligation (2,032) (2,164)
Losses (gains) on interest rate swaps 2,750 (1,279)
Changes in operating assets and liabilities:    
Accounts receivable, net (13,979) (4,689)
Inventories 186 9,462
Prepaid expenses and other current assets 816 8,276
Other non-current assets, net (64,632) (6,613)
Accounts payable 516 1,898
Accrued compensation (999) (2,329)
Deferred revenue 717 (10,514)
Accrued and other liabilities 179 (1,915)
Net cash used in operating activities (141,084) (18,866)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Payments for the cost of solar energy systems (124,400) (146,247)
Payments for property and equipment (994) (65)
Proceeds from disposals of solar energy systems and property and equipment 1,128 1,843
Purchase of intangible assets (115)  
Net cash used in investing activities (124,381) (144,469)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from investment by non-controlling interests and redeemable non-controlling interests 159,638 108,287
Distributions paid to non-controlling interests and redeemable non-controlling interests (18,051) (28,558)
Proceeds from long-term debt 133,164 876,000
Payments on long-term debt (20,913) (689,320)
Payments for debt issuance and deferred offering costs (2,962) (17,715)
Proceeds from lease pass-through financing obligation 1,518 1,497
Principal payments on finance lease obligations (577) (1,931)
Proceeds from issuance of common stock 270 837
Net cash provided by financing activities 252,087 249,097
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS (13,378) 85,762
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—Beginning of period 290,896 154,938
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—End of period 277,518 240,700
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Costs of solar energy systems included in changes in accounts payable, accrued compensation and accrued and other liabilities 43,028 (119)
Right-of-use assets obtained in exchange for new operating lease liabilities 8,665  
Right-of-use assets obtained in exchange for new finance lease liabilities $ 3,756 619
Solar energy system sales    
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Receivable for state tax credits recorded as a reduction to solar energy system costs   $ 9
v3.19.2
Organization
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

1.

Organization

Vivint Solar, Inc. and its subsidiaries are collectively referred to as the “Company.” The Company most commonly offers solar energy to residential customers through long-term customer contracts, such as power purchase agreements (“PPAs”) and legal-form leases (“Solar Leases”). The Company also offers its customers the option to purchase solar energy systems (“System Sales”) through third-party loan offerings or a cash purchase. The Company enters into customer contracts through a sales organization that primarily uses a direct-to-home sales model. The long-term customer contracts under PPAs and Solar Leases are typically for 20 years and require the customer to make monthly payments to the Company.

The Company has formed various investment funds and entered into long-term debt facilities to monetize the recurring customer payments under its long-term customer contracts and investment tax credits (“ITCs”), accelerated tax depreciation and other incentives associated with residential solar energy systems. The Company uses the cash received from the investment funds, long-term debt facilities and cash generated from operations, including System Sales, to finance a portion of the Company’s variable and fixed costs associated with installing solar energy systems.

v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) 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 audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 or for any other interim period or other future year.

The unaudited condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for VIEs. This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. All of these determinations involve significant management judgments and estimates. The Company has determined that it is the primary beneficiary in the operational VIEs in which it has an equity interest. The Company evaluates its relationships with the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. For additional information, see Note 14—Investment Funds.

Beginning with the first quarter of 2019, the condensed consolidated statements of operations items formerly captioned “Operating leases and incentives” and “Cost of revenue—operating leases and incentives” are now captioned “Customer agreements and incentives” and “Cost of revenue—customer agreements and incentives.” Also beginning with the first quarter of 2019, the condensed consolidated balance sheet items formerly captioned “Current portion of capital lease obligation” and “Capital lease obligation, net of current portion” are now captioned “Current portion of finance lease obligation” and “Finance lease obligation, net of current portion.” Amounts in these balance sheet items were capital leases under Accounting Standards Codification 840: Leases (“Topic 840”) in periods ending prior to January 1, 2019, while amounts in these balance sheet items are finance leases under Accounting Standards Codification 842: Leases (“Topic 842”) in periods ending subsequent to January 1, 2019. See “—Leases” below for further explanation of these changes.

Use of Estimates

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company regularly makes significant estimates and assumptions including, but not limited to, ITCs; revenue recognition; solar energy systems, net; the impairment analysis of long-lived assets; stock-based compensation; the provision for income taxes; the valuation of derivative financial instruments; the recognition and measurement of loss contingencies; and non-controlling interests and redeemable non-controlling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Liquidity

In order to grow, the Company requires cash to finance the deployment of solar energy systems. As of the date of this filing, the Company will require additional sources of cash beyond current cash balances and currently available financing facilities to fund long-term planned growth. If the Company is unable to secure additional financing when needed, or upon desirable terms, the Company may be unable to finance installation of customers’ systems in a manner consistent with past performance, cost of capital could increase, or the Company may be required to significantly reduce the scope of operations, any of which would have a material adverse effect on its business, financial condition, results of operations and prospects. While the Company believes additional financing is available and will continue to be available to support current levels of operations, the Company believes it has the ability and intent to reduce operations to the level of available financial resources for at least the next 12 months from the date of this report, if necessary.

Performance Obligation—Solar Energy system and Product Sales

For certain System Sales, the Company provides limited post-sale services to monitor the productivity of the solar energy system for 20 years after it has been placed into service. The Company allocates a portion of the transaction price to the monitoring services by estimating the fair market price that the Company would charge for these services if offered separately from the sale of the solar energy system. As of June 30, 2019 and December 31, 2018, the Company had allocated deferred revenue of $4.0 million and $3.3 million to monitoring services that will be recognized over the term of the monitoring services.

Leases

The Company adopted Topic 842 and its subsequent updates effective January 1, 2019. These updates are intended to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the condensed consolidated balance sheets and disclosing key information about leasing arrangements. The Company utilized the additional transition method permitted by Accounting Standards Update (“ASU”) 2018-11 and adopted Topic 842 using a modified retrospective method with a cumulative-effect adjustment to its accumulated deficit as of January 1, 2019. As such, comparative periods ending prior to January 1, 2019 are presented in accordance with Topic 840 and periods ending after January 1, 2019 are presented in accordance with Topic 842. The impact to the accumulated deficit as a result of adopting ASU 2016-02 was a net reduction of approximately $0.2 million. The Company did not use the transitionary practical expedients allowed under Topic 842, and as such, the Company reassessed all contracts existing at the adoption date of January 1, 2019. The Company elected to treat leases with lease terms of 12 months or less as short-term leases. No right-of-use assets or lease liabilities are recognized for short-term leases. The Company has also elected not to separate lease components from non-lease components for all classes of leased assets except for building leases.

The adoption of this ASU resulted in right-of-use assets of $34.6 million related to operating leases being recognized in other non-current assets, net on the condensed consolidated balance sheets as of January 1, 2019. Corresponding lease liabilities of $43.8 million related to operating leases were recognized on the condensed consolidated balance sheets as of January 1, 2019, with the current portion recognized in accrued and other current liabilities and the long-term portion recognized in other non-current liabilities. In addition, at January 1, 2019, approximately $1.0 million of lease-related liabilities were removed from accrued and other current liabilities and approximately $8.2 million of lease-related liabilities were removed from other non-current liabilities and included as reductions to the initial operating lease right-of-use assets. As of January 1, 2019, finance lease right-of-use assets of $0.9 million continued to be recorded in property and equipment, net. Any changes in lease terms or estimates subsequent to adoption of the ASU 2016-02 are reflected in the right-of-use assets and lease liabilities.

The Company’s PPAs, Solar Leases, and associated rebates and incentives no longer meet the definition of a lease under Topic 842. Accordingly, they are accounted for in accordance with Accounting Standards Codification 606: Revenue from Contracts with Customers (“Topic 606”) beginning on January 1, 2019. The Company concluded that there was no change to its revenue recognition practices for its PPA revenue stream under Topic 606. For Solar Leases, the Company concluded that the impact of applying Topic 606 is immaterial. The Company also concluded that there was no material change related to the timing of revenue recognition for rebates and incentives under Topic 606. Upon the adoption of Topic 842, the Company no longer capitalizes initial direct costs and amortizes them to the respective cost of revenue line items. Instead, the Company now capitalizes costs of obtaining a contract which meet the “incremental” criteria defined in Accounting Standards Codification 340 to other non-current assets, net. These costs are now amortized over the period of benefit to sales and marketing expense on the condensed consolidated statements of operations. In accordance with the Company’s Topic 842 transition discussed above, no prior period amounts were changed.

For purposes of comparison, the following tables show how the balances as of December 31, 2018 and for the three and six months ended June 30, 2018 would have changed if the effects of adopting Topic 842 had been applied to those balances (in thousands):

 

December 31, 2018

 

 

June 30, 2019

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

As Reported

 

Solar energy systems, net

$

1,938,874

 

 

$

(388,087

)

 

$

1,550,787

 

 

$

1,637,905

 

Other non-current assets, net

 

28,090

 

 

 

388,087

 

 

 

416,177

 

 

 

510,537

 

 

 

Three Months Ended June 30,

 

 

2018

 

 

2019

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

As Reported

 

Cost of revenue—customer agreements and incentives

$

41,366

 

 

$

(4,510

)

 

$

36,856

 

 

$

43,074

 

Cost of revenue—solar energy system and product sales

 

18,990

 

 

 

(4,397

)

 

 

14,593

 

 

 

15,791

 

Total cost of revenue

 

60,356

 

 

 

(8,907

)

 

 

51,449

 

 

 

58,865

 

Gross profit

 

20,442

 

 

 

8,907

 

 

 

29,349

 

 

 

31,892

 

Sales and marketing

 

14,033

 

 

 

8,907

 

 

 

22,940

 

 

 

37,037

 

Total operating expenses

 

36,553

 

 

 

8,907

 

 

 

45,460

 

 

 

68,766

 

 

 

Six Months Ended June 30,

 

 

2018

 

 

2019

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

As Reported

 

Cost of revenue—customer agreements and incentives

$

80,053

 

 

$

(8,590

)

 

$

71,463

 

 

$

83,265

 

Cost of revenue—solar energy system and product sales

 

45,035

 

 

 

(10,254

)

 

 

34,781

 

 

 

33,054

 

Total cost of revenue

 

125,088

 

 

 

(18,844

)

 

 

106,244

 

 

 

116,319

 

Gross profit

 

23,960

 

 

 

18,844

 

 

 

42,804

 

 

 

43,809

 

Sales and marketing

 

25,158

 

 

 

18,844

 

 

 

44,002

 

 

 

66,671

 

Total operating expenses

 

68,151

 

 

 

18,844

 

 

 

86,995

 

 

 

121,918

 

Software Implementation Costs

The Company adopted ASU 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, effective January 1, 2019. This update clarifies that entities should capitalize implementation costs incurred in cloud computing arrangements that are service contracts, which the Company will now record within other non-current assets, net. The Company will expense the capitalized costs over the term of the hosting arrangement. The service element of a hosting arrangement that is a service contract is not affected by this update, meaning service costs will continue to be expensed as incurred. The Company is applying the amendments in this update on a prospective basis beginning January 1, 2019. No prior periods were impacted as a result of adopting this ASU.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of this update is to provide users of financial statements with more useful information by changing the incurred loss methodology for recognizing credit losses to a more forward-looking methodology that reflects expected credit losses. Under this ASU, the Company’s accounts receivable and certain contract assets are considered financial assets measured at an amortized cost basis and will need to be presented at the net amount expected to be collected. This ASU will be effective for the Company beginning on January 1, 2020 and will be applied through a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the first reporting period in which the guidance is effective. The Company is still evaluating the impact of this update on its condensed consolidated financial statements and related disclosures.

v3.19.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3.

Fair Value Measurements

The Company measures and reports its cash equivalents at fair value. The following tables set forth the fair value of the Company’s financial assets and liabilities included on the condensed consolidated balance sheets measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

June 30, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

29,833

 

 

$

 

 

$

29,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

130

 

 

$

 

 

$

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

11,146

 

 

$

 

 

$

11,146

 

 

The interest rate swaps (Level 2) were valued using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparties and the Company. The valuation model uses various observable inputs including contractual terms, interest rate curves, credit spreads and measures of volatility. Financial liabilities in the table above include interest rate swaps for the Aggregation Facility, which are not designated as hedges, and interest rate swaps for the Solar Asset Backed Notes, Series 2018-2, which are designated as hedges.

The carrying values and fair values of the Company’s long-term debt were as follows (in thousands):

 

June 30, 2019

 

 

December 31, 2018

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Floating-rate long-term debt

$

712,071

 

 

$

712,071

 

 

$

587,358

 

 

$

587,358

 

Fixed-rate long-term debt

 

640,569

 

 

 

684,695

 

 

 

653,031

 

 

 

673,917

 

Total

$

1,352,640

 

 

$

1,396,766

 

 

$

1,240,389

 

 

$

1,261,275

 

The Company’s outstanding principal balance of long-term debt is carried at cost. The Company estimated the fair values of its floating-rate debt facilities (Level 2) to approximate their carrying values as interest accrues at floating rates based on market rates. The Company’s fixed-rate debt facilities (Level 2) were valued using quoted prices for the fixed rate debt facilities that are publicly traded, or quoted prices for corporate debt with similar terms for debt facilities that are not publicly traded.

v3.19.2
Inventories
6 Months Ended
Jun. 30, 2019
Inventory Disclosure [Abstract]  
Inventories

4.

Inventories

Inventories consisted of the following (in thousands):

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Solar energy systems held for sale

$

12,202

 

 

$

12,321

 

Photovoltaic installation products

 

869

 

 

 

936

 

Total inventories

$

13,071

 

 

$

13,257

 

Solar energy systems held for sale are solar energy systems under construction that have yet to be interconnected to the power grid and that will be sold to customers. Solar energy systems held for sale are stated at the lower of cost, on a first-in, first-out basis, or net realizable value. Photovoltaic installation products are stated at the lower of cost, on an average cost basis, or net realizable value.

v3.19.2
Solar Energy Systems
6 Months Ended
Jun. 30, 2019
Solar Energy Systems Disclosure [Abstract]  
Solar Energy Systems

5.

Solar Energy Systems

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

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

System equipment costs

$

1,783,301

 

 

$

1,667,440

 

Initial direct costs related to solar energy systems

 

 

 

 

435,084

 

 

 

1,783,301

 

 

 

2,102,524

 

Less: Accumulated depreciation

 

(175,784

)

 

 

(195,890

)

 

 

1,607,517

 

 

 

1,906,634

 

Solar energy system inventory

 

30,388

 

 

 

32,240

 

Solar energy systems, net

$

1,637,905

 

 

$

1,938,874

 

 

Solar energy system inventory represents the solar components and materials used in the installation of solar energy systems prior to being installed on customers’ roofs. As such, no depreciation is recorded related to this line item. The Company recorded depreciation expense related to solar energy systems of $13.8 million and $16.1 million for the three months ended June 30, 2019 and 2018. The Company recorded depreciation expense related to solar energy systems of $26.9 million and $31.5 million for the six months ended June 30, 2019 and 2018. The Company did not record any initial direct costs or amortization of initial direct costs related to solar energy systems in 2019 due to the adoption of Topic 842. See Note 2—Summary of Significant Accounting Policies.

v3.19.2
Property and Equipment
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

6.

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

Estimated

 

June 30,

 

 

December 31,

 

 

 

Useful Lives

 

2019

 

 

2018

 

Leasehold improvements

 

1-12 years

 

$

10,645

 

 

$

10,560

 

Furniture and computer and other equipment

 

3 years

 

 

4,278

 

 

 

3,816

 

Vehicles acquired under finance leases

 

3-5 years

 

 

4,876

 

 

 

6,907

 

 

 

 

 

 

19,799

 

 

 

21,283

 

Less: Accumulated depreciation and amortization

 

 

 

 

(7,149

)

 

 

(10,553

)

Property and equipment, net

 

 

 

$

12,650

 

 

$

10,730

 

 

The Company recorded depreciation and amortization expense related to property and equipment of $0.9 million and $1.3 million for the three months ended June 30, 2019 and 2018. The Company recorded depreciation and amortization expense related to property and equipment of $1.0 million and $3.0 million for the six months ended June 30, 2019 and 2018.

Effective January 1, 2019, the Company adopted Topic 842. As part of the adoption, the Company reassessed all contracts existing at the adoption date. The Company determined that a number of vehicle leases that were previously classified as capital leases under Topic 840 were no longer classified as finance leases under Topic 842. This resulted in a reduction to the gross asset and accumulated depreciation and amortization balances related to vehicles and will result in lower depreciation and amortization expense related to property and equipment compared to prior periods.

v3.19.2
Other Non-Current Assets
6 Months Ended
Jun. 30, 2019
Other Assets Noncurrent Disclosure [Abstract]  
Other Non-Current Assets

7.

Other Non-Current Assets

Other non-current assets consisted of the following (in thousands):

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Costs to obtain contracts

$

500,969

 

 

$

 

Accumulated amortization of costs to obtain contracts

 

(58,273

)

 

 

 

Operating lease right-of-use assets

 

39,620

 

 

 

 

Sales incentives

 

9,963

 

 

 

8,588

 

Other non-current assets

 

18,258

 

 

 

19,502

 

Total other non-current assets

$

510,537

 

 

$

28,090

 

The Company recorded amortization of costs to obtain contracts of $7.4 million and $11.3 million for the three and six months ended June 30, 2019. Costs to obtain contracts are amortized over the initial terms of customer contracts, which are typically 20 years.

v3.19.2
Intangible Assets
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

8.

Intangible Assets

Net intangible assets are included in other non-current assets, net and consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Cost:

 

 

 

 

 

 

 

Internal-use software

$

635

 

 

$

1,020

 

Developed technology

 

522

 

 

 

522

 

Trademarks/trade names

 

201

 

 

 

201

 

Total carrying value

 

1,358

 

 

 

1,743

 

Accumulated amortization:

 

 

 

 

 

 

 

Internal-use software

 

(365

)

 

 

(781

)

Developed technology

 

(360

)

 

 

(324

)

Trademarks/trade names

 

(109

)

 

 

(99

)

Total accumulated amortization

 

(834

)

 

 

(1,204

)

Total intangible assets, net

$

524

 

 

$

539

 

 

The Company recorded a de minimis amount and $0.1 million of amortization expense for the three months ended June 30, 2019 and 2018, which is included within general and administrative expense on the condensed consolidated statements of operations. The Company recorded amortization expense of $0.1 million and $0.3 million for the six months ended June 30, 2019 and 2018.

v3.19.2
Accrued Compensation
6 Months Ended
Jun. 30, 2019
Accrued Compensation Disclosure [Abstract]  
Accrued Compensation

9.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued payroll

$

12,663

 

 

$

16,352

 

Accrued commissions

 

11,882

 

 

 

9,168

 

Total accrued compensation

$

24,545

 

 

$

25,520

 

 

v3.19.2
Accrued and Other Current Liabilities
6 Months Ended
Jun. 30, 2019
Payables And Accruals [Abstract]  
Accrued and Other Current Liabilities

10.

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued unused commitment fees and interest

$

14,517

 

 

$

14,102

 

Current portion of operating lease liabilities

 

7,398

 

 

 

 

Accrued professional fees

 

6,575

 

 

 

6,150

 

Current portion of lease pass-through financing obligation

 

5,094

 

 

 

5,038

 

Accrued workers' compensation

 

4,777

 

 

 

4,033

 

Workmanship accrual

 

3,596

 

 

 

2,630

 

Accrued inventory

 

3,286

 

 

 

4,380

 

Sales, use and property taxes payable

 

2,872

 

 

 

3,132

 

Other accrued expenses

 

5,442

 

 

 

3,395

 

Total accrued and other current liabilities

$

53,557

 

 

$

42,860

 

 

v3.19.2
Debt Obligations
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Debt Obligations

11.

Debt Obligations

Debt obligations consisted of the following as of June 30, 2019 (in thousands, except interest rates):

 

Principal

 

 

Unamortized Debt

 

 

 

 

 

 

 

 

 

 

Unused

 

 

 

 

 

 

 

 

Borrowings

 

 

Issuance Costs

 

 

Net Carrying Value

 

 

Borrowing

 

 

Interest

 

 

Maturity

 

Outstanding

 

 

Current

 

 

Long-term

 

 

Current

 

 

Long-term

 

 

Capacity

 

 

Rate

 

 

Date

Solar asset backed notes, Series 2018-1(1)

$

454,100

 

 

$

(76

)

 

$

(8,796

)

 

$

3,919

 

 

$

441,309

 

 

$

 

 

 

5.1

%

 

October 2028

Solar asset backed notes, Series 2018-2(2)(3)

 

339,383

 

 

 

(6

)

 

 

(6,775

)

 

 

294

 

 

 

332,308

 

 

 

 

 

 

5.5

 

 

August 2023

2017 Term loan facility

 

185,194

 

 

 

(167

)

 

 

(4,429

)

 

 

6,740

 

 

 

173,858

 

 

 

 

 

 

6.0

 

 

January 2035

2018 Forward flow loan facility

 

112,501

 

 

 

(66

)

 

 

(3,231

)

 

 

2,174

 

 

 

107,030

 

 

 

17,499

 

 

 

4.7

 

 

(4)

2019 Forward flow loan facility

 

14,087

 

 

 

 

 

 

(2,946

)

 

 

 

 

 

11,141

 

 

 

135,913

 

 

 

5.2

 

 

(5)

Credit agreement

 

1,275

 

 

 

(2

)

 

 

(106

)

 

 

16

 

 

 

1,151

 

 

 

 

 

 

6.5

 

 

February 2023

Revolving lines of credit(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregation facility

 

115,000

 

 

 

 

 

 

 

 

 

 

 

 

115,000

 

 

 

260,000