VIVINT SOLAR, INC., 10-K filed on 3/10/2020
Annual Report
v3.20.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Mar. 31, 2020
Jun. 28, 2019
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Trading Symbol VSLR    
Entity Registrant Name VIVINT SOLAR, INC.    
Entity Central Index Key 0001607716    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Filer Category Accelerated Filer    
Entity Common Stock, Shares Outstanding   124,158,478  
Entity Public Float     $ 331.9
Entity File Number 001-36642    
Entity Tax Identification Number 45-5605880    
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 Incorporation, State or Country Code DE    
Title of 12(b) Security Common Stock, par value $0.01 per share    
Security Exchange Name NYSE    
Entity Interactive Data Current Yes    
Document Annual Report true    
Document Transition Report false    
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 166,048 $ 219,591
Accounts receivable, net 24,314 14,207
Inventories 20,576 13,257
Prepaid expenses and other current assets 41,137 31,201
Total current assets 252,075 278,256
Restricted cash and cash equivalents 89,892 71,305
Solar energy systems, net 1,759,861 1,938,874
Property and equipment, net 17,500 10,730
Other non-current assets, net 680,062 28,090
TOTAL ASSETS [1] 2,799,390 2,327,255
Current liabilities:    
Accounts payable 59,007 45,929
Distributions payable to non-controlling interests and redeemable non-controlling interests 10,253 7,846
Accrued compensation 34,149 25,520
Current portion of long-term debt 16,405 12,155
Current portion of deferred revenue 40,715 30,199
Current portion of finance lease obligation 2,274 1,921
Accrued and other current liabilities 78,539 42,860
Total current liabilities 241,342 166,430
Long-term debt, net of current portion 1,483,256 1,203,282
Deferred revenue, net of current portion 17,631 13,524
Finance lease obligation, net of current portion 6,443 505
Deferred tax liability, net 583,695 437,120
Other non-current liabilities 74,423 24,610
Total liabilities [1] 2,406,790 1,845,471
Commitments and contingencies (Note 19)
Redeemable non-controlling interests 115,384 119,572
Stockholders' equity:    
Common stock, $0.01 par value—1,000,000 shares authorized, 123,056 shares issued and outstanding as of December 31, 2019; 1,000,000 shares authorized, 120,114 shares issued and outstanding as of December 31, 2018 1,231 1,201
Additional paid-in capital 591,639 574,248
Accumulated other comprehensive loss (20,436) (7,223)
Accumulated deficit (381,961) (279,631)
Total stockholders' equity 190,473 288,595
Non-controlling interests 86,743 73,617
Total equity 277,216 362,212
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $ 2,799,390 $ 2,327,255
[1] The Company’s consolidated assets as of December 31, 2019 and 2018 include $2,194.3 million and $1,835.8 million consisting of assets of variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. These assets include cash and cash equivalents of $82.8 million and $62.4 million as of December 31, 2019 and 2018; accounts receivable, net, of $8.9 million and $6.6 million as of December 31, 2019 and 2018; prepaid expenses and other current assets of $1.7 million and $1.3 million as of December 31, 2019 and 2018; restricted cash and cash equivalents of $8.9 million and $2.4 million as of December 31, 2019 and 2018; solar energy systems, net, of $1,587.4 million and $1,752.3 million as of December 31, 2019 and 2018; and other non-current assets, net of $504.7 million and $10.9 million as of December 31, 2019 and 2018. The Company’s consolidated liabilities as of December 31, 2019 and 2018 included $233.4 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 $10.3 million and $7.8 million as of December 31, 2019 and 2018; accrued and other current liabilities of $6.4 million and $4.9 million as of December 31, 2019 and 2018; long-term debt of $201.6 million and $55.0 million as of December 31, 2019 and 2018; deferred revenue of $14.8 million and $12.0 million as of December 31, 2019 and 2018; and other non-current liabilities of $0.3 million and $1.0 million as of December 31, 2019 and 2018. For further information see Note 14—Investment Funds.
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 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 123,056,000 120,114,000
Common stock, shares outstanding 123,056,000 120,114,000
Total assets [1] $ 2,799,390 $ 2,327,255
Cash and cash equivalents 166,048 219,591
Accounts receivable, net 24,314 14,207
Prepaid expenses and other current assets 41,137 31,201
Restricted cash and cash equivalents 89,892 71,305
Solar energy systems, net 1,759,861 1,938,874
Other non-current assets, net 680,062 28,090
Total liabilities [1] 2,406,790 1,845,471
Distributions payable to non-controlling interests and redeemable non-controlling interests 10,253 7,846
Accrued and other current liabilities 78,539 42,860
Long-term debt 1,499,661 1,215,437
Other non-current liabilities 74,423 24,610
Variable Interest Entities    
Total assets 2,194,274 1,835,834
Cash and cash equivalents 82,764 62,350
Accounts receivable, net 8,922 6,593
Prepaid expenses and other current assets 1,676 1,289
Restricted cash and cash equivalents 8,890 2,443
Solar energy systems, net 1,587,400 1,752,300
Other non-current assets, net 504,668 10,888
Total liabilities 233,354 80,760
Distributions payable to non-controlling interests and redeemable non-controlling interests 10,253 7,846
Accrued and other current liabilities 6,394 4,860
Long-term debt 201,600 55,000
Deferred revenue 14,800 12,000
Other non-current liabilities $ 301 $ 1,023
[1] The Company’s consolidated assets as of December 31, 2019 and 2018 include $2,194.3 million and $1,835.8 million consisting of assets of variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. These assets include cash and cash equivalents of $82.8 million and $62.4 million as of December 31, 2019 and 2018; accounts receivable, net, of $8.9 million and $6.6 million as of December 31, 2019 and 2018; prepaid expenses and other current assets of $1.7 million and $1.3 million as of December 31, 2019 and 2018; restricted cash and cash equivalents of $8.9 million and $2.4 million as of December 31, 2019 and 2018; solar energy systems, net, of $1,587.4 million and $1,752.3 million as of December 31, 2019 and 2018; and other non-current assets, net of $504.7 million and $10.9 million as of December 31, 2019 and 2018. The Company’s consolidated liabilities as of December 31, 2019 and 2018 included $233.4 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 $10.3 million and $7.8 million as of December 31, 2019 and 2018; accrued and other current liabilities of $6.4 million and $4.9 million as of December 31, 2019 and 2018; long-term debt of $201.6 million and $55.0 million as of December 31, 2019 and 2018; deferred revenue of $14.8 million and $12.0 million as of December 31, 2019 and 2018; and other non-current liabilities of $0.3 million and $1.0 million as of December 31, 2019 and 2018. For further information see Note 14—Investment Funds.
v3.20.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Revenue:    
Total revenue $ 341,041 $ 290,321
Cost of revenue:    
Total cost of revenue 258,546 248,295
Gross profit 82,495 42,026
Operating expenses:    
Sales and marketing 151,194 58,950
Research and development 2,043 1,867
General and administrative 117,822 93,703
Total operating expenses 271,059 154,520
Loss from operations (188,564) (112,494)
Interest expense, net 82,323 65,308
Other expense (income), net 1,434 (4,538)
Loss before income taxes (272,321) (173,264)
Income tax expense 150,999 106,299
Net loss (423,320) (279,563)
Net loss attributable to non-controlling interests and redeemable non-controlling interests (321,145) (263,971)
Net loss attributable to common stockholders $ (102,175) $ (15,592)
Net loss attributable per share to common stockholders:    
Basic and diluted $ (0.84) $ (0.13)
Weighted-average shares used in computing net loss attributable per share to common stockholders:    
Basic and diluted 121,310 117,565
Customer Agreements and Incentives    
Revenue:    
Total revenue $ 217,331 $ 174,066
Cost of revenue:    
Total cost of revenue 186,325 164,920
Solar Energy System and Product Sales    
Revenue:    
Total revenue 123,710 116,255
Cost of revenue:    
Total cost of revenue $ 72,221 $ 83,375
v3.20.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]    
Net loss attributable to common stockholders $ (102,175) $ (15,592)
Other comprehensive loss:    
Unrealized losses on cash flow hedging instruments (net of tax effect of $(5,358) and $(606) in 2019 and 2018) (14,295) (1,705)
Less: Interest (expense) income on derivatives recognized into earnings (net of tax effect of $(385) and $5,860 in 2019 and 2018) (1,082) 15,741
Total other comprehensive loss (13,213) (17,446)
Comprehensive loss $ (115,388) $ (33,038)
v3.20.1
Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]    
Unrealized losses on cash flow hedging instruments, tax $ (5,358) $ (606)
Interest expense on derivatives recognized into earnings, tax $ (385) $ 5,860
v3.20.1
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 Income (Loss)
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 13,163     13,163     13,163  
Issuance of common stock, net 1,347   $ 50 1,297     1,347  
Issuance of common stock, net (in shares)     5,015          
Contributions from non-controlling interests and redeemable non-controlling interests 221,388 79,354           221,388
Distributions to non-controlling interests and redeemable non-controlling interests (36,328) (9,813)           (36,328)
Total other comprehensive loss (17,446)       (17,446)   (17,446)  
Net loss (207,150) (72,413)       (15,592) (15,592) (191,558)
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 16,418     16,418     16,418  
Issuance of common stock, net 1,003   $ 30 973     1,003  
Issuance of common stock, net (in shares)     2,942          
Contributions from non-controlling interests and redeemable non-controlling interests 363,397 20,974           363,397
Distributions to non-controlling interests and redeemable non-controlling interests (43,821) (10,467)           (43,821)
Total other comprehensive loss (13,213)       (13,213)   (13,213)  
Net loss (408,625) (14,695)       (102,175) (102,175) (306,450)
Balance at Dec. 31, 2019 $ 277,216 $ 115,384 $ 1,231 $ 591,639 $ (20,436) $ (381,961) $ 190,473 $ 86,743
Balance (in Shares) at Dec. 31, 2019 123,056   123,056          
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (423,320) $ (279,563)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 81,930 69,634
Deferred income taxes 151,548 106,862
Stock-based compensation 16,418 13,163
Loss on solar energy systems and property and equipment 17,493 7,400
Noncash interest and other expense 8,841 17,006
Reduction in lease pass-through financing obligation (4,654) (4,433)
Gains on interest rate swaps (4,377) (148)
Changes in operating assets and liabilities:    
Accounts receivable, net (10,107) 5,458
Inventories (7,319) 9,340
Prepaid expenses and other current assets (5,998) 2,805
Other non-current assets, net (182,108) (7,828)
Accounts payable (1) 1,898
Accrued compensation 8,349 4,762
Deferred revenue 14,623 (926)
Accrued and other liabilities 15,515 8,915
Net cash used in operating activities (323,167) (45,655)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Payments for the cost of solar energy systems (314,932) (331,716)
Payments for property and equipment (1,984) (543)
Proceeds from disposals of solar energy systems and property and equipment 3,453 3,379
Purchase of intangible assets (2,373) (223)
Net cash used in investing activities (315,836) (329,103)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from investment by non-controlling interests and redeemable non-controlling interests 384,371 300,742
Distributions paid to non-controlling interests and redeemable non-controlling interests (51,881) (54,732)
Proceeds from long-term debt 563,480 984,425
Payments on long-term debt (279,054) (700,143)
Payments for debt issuance and deferred offering costs (16,053) (21,209)
Proceeds from lease pass-through financing obligation 3,661 3,609
Principal payments on finance lease obligations (1,480) (3,323)
Proceeds from issuance of common stock 1,003 1,347
Net cash provided by financing activities 604,047 510,716
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS (34,956) 135,958
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—Beginning of period 290,896 154,938
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—End of period 255,940 290,896
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest, net 74,534 42,928
Cash recovered from income taxes, net (2,118) (11,194)
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Costs of solar energy systems included in changes in accounts payable, accrued compensation and accrued and other liabilities 60,178 8,503
Right-of-use assets obtained in exchange for new operating lease liabilities 12,217  
Right-of-use assets obtained in exchange for new finance lease liabilities $ 9,482 $ 1,622
v3.20.1
Organization
12 Months Ended
Dec. 31, 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.

v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying 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”) and reflect the accounts and operations of the Company, its subsidiaries in which the Company has a controlling financial interest and the investment funds formed to fund the purchase of solar energy systems under long-term customer contracts, which are consolidated as variable interest entities (“VIEs”). 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. 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 regarding these VIEs, see Note 14—Investment Funds.

Beginning with the first quarter of 2019, the 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 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 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, 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Cash equivalents consist principally of time deposits and money market accounts with high quality financial institutions.

Restricted Cash

The Company’s guaranty agreements with certain of its fund investors require the maintenance of minimum cash balances of $10.0 million. For additional information, see Note 14—Investment Funds. As of December 31, 2019, the Company also had $79.9 million in required reserves outstanding in separate collateral accounts in accordance with the terms of its various debt obligations. For additional information, see Note 11—Debt Obligations. These minimum cash balances are classified as restricted cash.

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 the 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.

Accounts Receivable, Net

Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. Accounts receivable also include unbilled accounts receivable, which is composed of the monthly PPA power generation not yet invoiced and the monthly bill rate of Solar Leases as of the end of the reporting period. The Company estimates its allowance for doubtful accounts based upon the collectability of the receivables in light of historical trends and adverse situations that may affect customers’ ability to pay. Revisions to the allowance are recorded as an adjustment to bad debt expense or as a reduction to revenue when collectability is not reasonably assured. After appropriate collection efforts are exhausted, specific accounts receivable deemed to be uncollectible would be charged against the allowance in the period they are deemed uncollectible. Recoveries of accounts receivable previously written-off are recorded as credits to bad debt expense. The Company had an allowance for doubtful accounts of $9.4 million and $5.2 million as of December 31, 2019 and 2018.

Inventories

Inventories include solar energy systems under construction that have yet to be interconnected to the power grid and that will be sold to customers. Inventory is stated at the lower of cost, on a first-in, first-out (“FIFO”) basis, or net realizable value. Upon interconnection to the power grid, solar energy system inventory is removed using the specific identification method. Inventories also include components related to photovoltaic installation products and are stated at the lower of cost, on an average cost basis, or net realizable value. The Company evaluates its inventory reserves on a quarterly basis and writes down the value of inventories for estimated excess and obsolete inventories based on assumptions about future demand and market conditions. See Note 4—Inventories.

Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The associated concentration risk for cash and cash equivalents is mitigated by banking with creditworthy institutions. At certain times, amounts on deposit exceed Federal Deposit Insurance Corporation insurance limits. Approximately $11.6 million, or 48% of accounts receivable, net as of December 31, 2019 was due from three third-party loan providers that offer financing to System Sales customers. The Company does not require collateral or other security to support accounts receivable. The Company is not dependent on any single customer outside of the third-party loan providers.

The Company purchases solar panels, inverters and other system components from a limited number of suppliers. Two suppliers accounted for approximately 91% of the Company’s solar photovoltaic module purchases for the year ended December 31, 2019. Two suppliers accounted for substantially all of the Company’s inverter purchases for the year ended December 31, 2019. If these suppliers fail to satisfy the Company’s requirements on a timely basis or if the Company fails to develop, maintain and expand its relationship with these suppliers, the Company could suffer delays in being able to deliver or install its solar energy systems, experience a possible loss of revenue, or incur higher costs, any of which could adversely affect its operating results. Additionally, certain of the subcomponents of the Company’s equipment are sourced from Asia, including China and other countries in Southeast Asia that have been, or may be, significantly impacted by the coronavirus outbreak. To date, the Company has not seen widespread impacts to its supply but is closely monitoring the situation. Supply chain disruptions could reduce the availability of key components, increase prices or both. If the Company fails to identify or to qualify alternative products on commercially reasonable terms the Company’s  operating results and growth prospects would be adversely affected. In addition, the macroeconomic effects of the coronavirus outbreak in China and other markets could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and likely impact its operating results.

Megawatts installed in California accounted for approximately 46% and 38% of total megawatts installed for the years ended December 31, 2019 and 2018. Megawatts installed in the Northeastern United States accounted for approximately 26% and 32% of total megawatts installed for the years ended December 31, 2019 and 2018. Future operations could be affected by changes in the economic conditions in these and other geographic areas, by changes in materials costs, by changes in the demand for renewable energy generated by solar energy systems or by changes or eliminations of solar energy related government incentives.

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

 

Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

Level II—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 III—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s financial instruments measured on a recurring basis consist of Level II assets. See Note 3—Fair Value Measurements.

Investment Tax Credits (ITCs)

The Company receives ITCs under Section 48(a) of the Internal Revenue Code. The amount of the ITC is equal to 30% of the basis of eligible solar property as long as construction of the solar energy system began by December 31, 2019. The Company receives minimal allocations of ITCs for solar energy systems placed in its investment funds as the majority of such credits are allocated to the fund investors. Some of the Company’s investment funds obligate it to make certain fund investors whole for losses that the investors may suffer in certain limited circumstances resulting from the disallowance or recapture of ITCs as a result of the Internal Revenue Service’s (the “IRS”) assessment of the fair value of such systems. The Company has concluded that the likelihood of a recapture event related to these assessments is remote and consequently has not recorded any liability in the consolidated financial statements for any potential recapture exposure. However, several recent investment funds and debt obligations have required the Company to prepay insurance premiums to cover the risk of ITC recapture. The Company amortizes this prepaid insurance expense over the ITC recapture period. The Company receives all ITCs for solar energy systems that are not sold to customers or placed in its investment funds. The Company accounts for its ITCs as a reduction of income tax expense in the year in which the credits arise.

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 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 consolidated balance sheets as of January 1, 2019. Corresponding lease liabilities of $43.8 million related to operating leases were recognized on the 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 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 year ended December 31, 2018 would have changed if the effects of adopting Topic 842 had been applied to those balances (in thousands):

 

December 31, 2018

 

 

December 31, 2019

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

As Reported

 

Solar energy systems, net

$

1,938,874

 

 

$

(388,087

)

 

$

1,550,787

 

 

$

1,759,861

 

Other non-current assets, net

 

28,090

 

 

 

388,087

 

 

 

416,177

 

 

 

680,062

 

 

 

Year Ended December 31,

 

 

2018

 

 

2019

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

As Reported

 

Cost of revenue—customer agreements and incentives

$

164,920

 

 

$

(18,164

)

 

$

146,756

 

 

$

186,325

 

Cost of revenue—solar energy system and product sales

 

83,375

 

 

 

(19,060

)

 

 

64,315

 

 

 

72,221

 

Total cost of revenue

 

248,295

 

 

 

(37,224

)

 

 

211,071

 

 

 

258,546

 

Gross profit

 

42,026

 

 

 

37,224

 

 

 

79,250

 

 

 

82,495

 

Sales and marketing

 

58,950

 

 

 

37,224

 

 

 

96,174

 

 

 

151,194

 

Total operating expenses

 

154,520

 

 

 

37,224

 

 

 

191,744

 

 

 

271,059

 

Solar Energy Systems, Net

The Company sells energy to customers through PPAs or leases solar energy systems to customers through Solar Leases. The solar energy systems installed at customers’ homes are stated at cost, less accumulated depreciation and amortization. The Company also sells solar energy systems to customers through System Sales. Systems that are sold to customers are not part of solar energy systems, net.

Solar energy systems, net is composed of system equipment costs related to solar energy systems subject to PPAs or Solar Leases. Prior to the implementation of Topic 842 on January 1, 2019, solar energy systems, net also included capitalized initial direct costs. Subsequent to the adoption of Topic 842, previously capitalized initial direct costs and related accumulated amortization were removed from solar energy systems, net and recorded in other non-current assets, net as incremental costs of obtaining contracts. See “—Leases” above for additional information on the effects of adopting Topic 842. System equipment costs include components such as solar panels, inverters, racking systems and other electrical equipment, as well as costs for design and installation activities once a long-term customer contract has been executed. System equipment costs are capitalized and recorded within solar energy systems, net. System equipment costs are depreciated using the straight-line method over 30 years, which is the estimated useful life of the equipment.

System equipment costs are depreciated once the respective systems have been installed, interconnected to the power grid and received permission to operate. The determination of the useful lives of assets included within solar energy systems involves significant management judgment. As of December 31, 2019 and 2018, the Company had recorded costs of $1,965.2 million and $2,134.8 million in solar energy systems, of which $1,873.2 million and $1,999.3 million related to systems that had been interconnected to the power grid, with accumulated depreciation and amortization of $205.3 million and $195.9 million.

Property and Equipment, Net

The Company’s property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. The right-of-use assets for vehicles leased under finance leases are amortized over the life of the lease term, which is typically three to four years. The estimated useful lives of computer equipment, furniture, fixtures and purchased software are three years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. The estimated useful lives of leasehold improvements currently range from one to 12 years. Repairs and maintenance costs are expensed as incurred. Major renewals and improvements that extend the useful lives of existing assets would be capitalized and depreciated over their estimated useful lives.

Intangible Assets

The Company capitalizes costs incurred in the development of internal-use software during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is typically three to five years. The Company tests these assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The Company recorded amortization for internal-use software of $0.1 million and $0.4 million for the years ended December 31, 2019 and 2018.

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 now records as an intangible asset 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 applied 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.

Other finite-lived intangible assets, which consist of developed technology acquired in business combinations and trademarks/trade names are initially recorded at fair value and presented net of accumulated amortization. These intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company amortizes trademarks/trade names over 10 years and developed technology over eight years. See Note 8—Intangible Assets.

Impairment of Long-Lived Assets

The carrying amounts of the Company’s long-lived assets, including solar energy systems, property and equipment and finite-lived intangible assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. Factors that the Company considers in deciding when to perform an impairment review include significant negative industry or economic trends, and significant changes or planned changes in the Company’s use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. As part of the Company’s annual impairment test for long-lived assets for the year ended December 31, 2019, the Company determined that certain solar energy systems were impaired and required any remaining net asset value and net costs to obtain the contract to be written off, resulting in charges of approximately $3.4 million to cost of revenue—customer agreements and incentives and $0.6 million to sales and marketing.

Other Non-Current Assets

See Note 7—Other Non-Current Assets for the components of other non-current assets. Capitalized costs to obtain contracts were previously considered initial direct costs and recorded within solar energy systems, net prior to the adoption of Topic 842. See “—Leases” above. Capitalized costs to obtain contracts consist of sales commissions and other customer acquisition expenses and are amortized to sales and marketing expense over the period of benefit, which is most commonly 20 years. Prepaid inventory represents payments for solar energy system components that were not delivered until the subsequent year. Operating lease right-of-use assets represent contractual rights to use assets such as offices, warehouses and related equipment in lease arrangements classified as operating leases. See Note 12—Leases. Sales incentives represent cash payments made by the Company to customers in order to finalize long-term customer contracts. Debt issuance costs represent costs incurred in connection with obtaining revolving debt financings and are deferred and amortized utilizing the straight-line method, which approximates the effective-interest method, over the term of the related financing. The Company has acquired insurance policies to mitigate the risk of ITC recapture. The insurance premiums are being amortized on a straight-line basis over the policy period. The Company provides advance payments of compensation to direct-sales personnel under certain circumstances. The advance is repaid as a reduction of the direct-sales personnel’s future compensation. The Company has established an allowance related to advances to direct-sales personnel who have terminated their employment agreement with the Company. These are non-interest-bearing advances. For Solar Lease agreements, the Company recognizes revenue on a straight-line basis over the lease term and records an asset that represents future customer payments expected to be received.

Distributions Payable to Non-Controlling Interests and Redeemable Non-Controlling Interests

As discussed in Note 14—Investment Funds, the Company and fund investors have formed various investment funds that the Company consolidates as the Company has determined that it is the primary beneficiary in the operational VIEs in which it has an equity interest. These VIEs are required to pay cumulative cash distributions to their respective fund investors. The Company accrues amounts payable to fund investors in distributions payable to non-controlling interests and redeemable non-controlling interests.

Deferred Revenue

Deferred revenue primarily includes cash received in advance of revenue recognition related to System Sales and rebate incentives. A portion of the cash received for System Sales is attributable to administrative services and is deferred over the period that the administrative services are provided. The majority of the cash received for System Sales is deferred until the solar energy systems are interconnected to the local power grids and receive permission to operate. Rebate incentives are received from utility companies and various government agencies and are recognized as revenue over the related customer contract term, which is most commonly 20 years. See “Revenue Recognition” for additional information regarding revenue.

Workmanship Accruals and Warranties

The Company typically warrants solar energy systems sold to customers for periods of one to ten years against defects in design and workmanship, and for periods of one to ten years that installations will remain watertight. The manufacturers’ warranties on the solar energy system components, which are typically passed through to the customers, have typical product warranty periods of 10 to 20 years and a limited performance warranty period of 25 years. The Company warrants its photovoltaic installation devices for six months to one year against defects in materials or installation workmanship.

The Company generally assesses a loss contingency accrual for installation workmanship and provides for the estimated cost at the time that installation is completed. The Company assesses the workmanship accruals regularly and adjusts the amounts as necessary based on actual experience and changes in future estimates. The current portion of this accrual is recorded as a component of accrued and other current liabilities and was $4.2 million and $2.6 million as of December 31, 2019 and 2018. The non-current portion of this accrual is recorded as a component of other non-current liabilities and was $6.1 million and $3.9 million as of December 31, 2019 and 2018.

Derivative Financial Instruments

The Company maintains interest rate swaps as required by the terms of its debt agreements. See Note 11—Debt Obligations. The interest rate swaps related to the Solar Asset Backed Notes, Series 2018-2 are designated as cash flow hedges. Changes in the fair value of these cash flow hedges are recorded in other comprehensive loss (“OCI”) and will subsequently be reclassified to interest expense over the life of the related debt facility as interest payments are made. As interest payments for the associated debt agreement and derivatives are recognized, the Company includes the effect of these payments in cash flows from operating activities within the consolidated statements of cash flows. The interest rate swaps related to the Warehouse Facility are not designated as hedge instruments and any changes in fair value are accounted for in other expense (income), net. Derivative instruments may be offset under their master netting arrangements. See Note 13—Derivative Financial Instruments.

Comprehensive Loss

Comprehensive loss includes unrealized losses on the Company’s cash flow hedges and interest on derivatives recognized into earnings for the years ended December 31, 2019 and 2018.

Revenue Recognition

In accordance with Topic 606, the Company recognizes revenue according to the following steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue when, or as, the Company satisfies a performance obligation. The Company’s revenue is composed of customer agreements and incentives, and solar energy system and product sales as captioned in the consolidated statements of operations. Customer agreements and incentives revenue includes PPA and Solar Lease revenue, solar renewable energy certificates (“SRECs”) sales and rebate incentives. Solar energy system and product sales revenue includes System Sales, which may include structural upgrades in sales contracts and SREC sales related to sold systems, and the sale of photovoltaic installation products. Revenue is recorded net of any sales tax collected.

Customer Agreements and Incentives Revenue

The Company enters into PPAs with residential customers, under which the customer agrees to purchase all of the power generated by the solar energy system for the term of the contract, which is most commonly 20 years. The agreement includes a fixed price per kilowatt hour with a fixed annual price escalation percentage. Customers have not historically been charged for installation or activation of the solar energy system. For all PPAs, the Company assesses the probability of collectability on a customer-by-customer basis through a credit review process that evaluates their financial condition and ability to pay. PPA revenue is recognized based on the actual amount of power generated at rates specified under the contracts.

The Company also offers solar energy systems to customers pursuant to Solar Leases in certain markets. The customer agreements are structured as Solar Leases due to local regulations that can be read to prohibit the sale of electricity pursuant to the Company’s standard PPA. Pursuant to Solar Leases, the customers’ monthly payments are a pre-determined amount calculated based on the expected solar energy generation by the system and typically have included an annual fixed percentage price escalation over the period of the contracts, which is most commonly 20 years, though some markets offer Solar Leases with no annual price escalation. Revenue from Solar Leases is recognized on a straight-line basis over the contractual term. The Company records a straight-line Solar Lease asset in other non-current assets, net, which represents revenue recognized in advance of customer payments. The Company provides its Solar Lease customers a performance guarantee, under which the Company agrees to refund certain payments at the end of each year to the customer if the solar energy system does not meet a guaranteed production level in the prior 12-month period. The guaranteed production levels have varying terms. Solar energy performance guarantee liabilities were $0.5 million and $0.2 million as of December 31, 2019 and 2018. Solar energy performance guarantees are recognized as contra-revenue in the period in which the liabilities are recorded.

At times the Company makes nominal cash payments to customers in order to facilitate the finalization of long-term customer contracts and the installation of related solar energy systems. These sales incentives are deferred and recognized over the term of the contract as a reduction of revenue.

The Company applies for and receives SRECs in certain jurisdictions for power generated by solar energy systems it has installed. When SRECs are granted, the Company typically sells them to other companies directly, or to brokers, to assist them in meeting their own mandatory emission reduction or conservation requirements. The Company recognizes revenue related to the sale of these certificates upon delivery, assuming the other revenue recognition criteria discussed above are met. Total SREC revenue was $48.4 million and $44.1 million for the years ended December 31, 2019 and 2018.

Solar Energy System and Product Sales

The Company’s principal performance obligation for System Sales is to design and install a solar energy system that is interconnected to the local power grid and granted permission to operate. When the solar energy system has been granted permission to operate, the customer retains all of the significant risks and rewards of ownership of the solar energy system. 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 in service. The Company collects cash during the installation process and recognizes revenue for System Sales and other product sales at the placed in-service date or product delivery date less any revenue allocated to monitoring services. 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 December 31, 2019 and 2018, the Company had allocated deferred revenue of $4.7 million and $3.3 million to monitoring services that will be recognized over the term of the monitoring services. All costs to obtain and fulfill contracts associated with System Sales and other product sales are expensed as a cost of revenue when the Company has fulfilled its performance obligation and the products have been placed into service or delivered to the customer.

Cost of Revenue

Cost of Revenue—Customer Agreements and Incentives

Cost of revenue—customer agreements and incentives includes the depreciation of the cost of solar energy systems under long-term customer contracts. It also includes allocated indirect material and labor costs related to the processing; account creation; design; installation; interconnection and servicing of solar energy systems that are not capitalized, such as personnel costs not directly associated to a solar energy system installation; warehouse rent and utilities; and fleet vehicle executory costs. The cost of customer agreements and incentives also includes allocated facilities and information technology costs. The cost of revenue for the sales of SRECs is limited to broker fees which are paid in connection with certain SREC transactions.

Cost of Revenue—Solar Energy System and Product Sales

Cost of revenue—solar energy system and product sales consists of direct and allocated indirect material and labor costs for System Sales, photovoltaic installation products and structural upgrades. Indirect material and labor costs are ratably allocated to System Sales and include costs related to the processing; account creation; design; installation; interconnection and servicing of solar energy systems, such as personnel costs not directly associated to a solar energy system installation; warehouse rent and utilities; and fleet vehicle executory costs. The cost of solar energy system and product sales also includes allocated facilities and information technology costs. Costs of solar energy system sales are recognized in conjunction with the related revenue upon the solar energy system passing an inspection by the responsible governmental department after completion of system installation and interconnection to the local power grid.

Advertising Costs

Advertising costs are expensed when incurred and are included in sales and marketing expenses in the consolidated statements of operations. The Company’s advertising costs were $4.4 million and $3.6 million for the years ended December 31, 2019 and 2018.

Vivint Related Party Expenses

The Company has a sales dealer agreement with Vivint Smart Home, Inc. (“Vivint”), pursuant to which each company will act as a non-exclusive dealer for the other party to market. The fees under this agreement were allocated to the Company on a basis that was considered to reasonably reflect the utilization of the services provided to, or the benefit obtained by, the Company. For additional information, see Note 18—Related Party Transactions.

Other Expense (Income), Net

For the year ended December 31, 2019, other expense (income), net primarily includes changes in fair value for the Company’s interest rate swaps not designated as hedges. For the year ended December 31, 2018, other expense (income), net primarily includes changes in fair value for the Company’s interest rate swaps not designated as hedges and a payment received as an initial distribution on one of the Company’s legal proceedings. Changes in the fair value of the Company’s interest rate swaps are recorded in other expense (income), net each reporting period when the interest rate swaps are marked to market.

Provision for Income Taxes

The Company accounts for income taxes under an asset and liability approach. Deferred income taxes are classified as long-term and reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. As required by ASC 740, the Company recognizes the effect of tax rate and law changes on deferred taxes in the reporting period in which the legislation is enacted.

The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within income tax expense.

The Company sells solar energy systems to the investment funds for income tax purposes. As the investment funds are consolidated by the Company, the gain on the sale of the solar energy systems is eliminated in the consolidated financial statements. However, this gain is recognized for tax reporting purposes. The Company accounts for the income tax consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within income tax expense. The Company recognizes income tax effects directly to continuing operations and accumulated other comprehensive loss (“AOCI”) pursuant to applicable intraperiod allocation rules. The Company’s policy is to release income tax effects from AOCI using an item-by-item approach when the circumstances upon which they are premised cease to exist.

Stock-Based Compensation Expense

Stock-based compensation expense for equity instruments issued to employees is measured based on the grant-date fair value of the awards. The fair value of each restricted stock unit is determined as the closing price of the Company’s stock on the date of grant. The fair value of each time-based employee stock option is estimated on the date of grant using the Black-Scholes-Merton stock option pricing valuation model. The Company recognizes compensation costs using the accelerated attribution method for all time-based equity compensation awards over the requisite service period of the awards, which is generally the awards’ vesting period. For performance-based equity compensation awards, the Company generally recognizes compensation expense for each vesting tranche over the related performance period.

Post-Employment Benefits

The Company sponsors a 401(k) Plan that covers all of the Company’s eligible employees. In 2019, the Company matched 33% of each employee’s contributions up to a maximum of 6% of the employee’s eligible earnings. The Company recorded expense related to this match of $1.4 million for the year ended December 31, 2019. Prior to 2019, the Company did not provide a discretionary company match to employee contributions.

Non-Controlling Interests and Redeemable Non-Controlling Interests

Non-controlling interests and redeemable non-controlling interests represent fund investors’ interests in the net assets of certain consolidated investment funds, which have been entered into by the Company in order to finance the costs of solar energy systems under long-term customer contracts. The Company has determined that the provisions in the contractual arrangements represent substantive profit-sharing arrangements, which gives rise to the non-controlling interests and redeemable non-controlling interests. The Company has further determined that the appropriate methodology for attributing income and loss to the non-controlling interests and redeemable non-controlling interests each period is a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, the amounts of income and loss attributed to the non-controlling interests and redeemable non-controlling interests in the consolidated statements of operations reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements of these structures, assuming the net assets of these funding structures were liquidated at recorded amounts. The fund investors’ non-controlling interest in the results of operations of these funding structures is determined as the difference in the non-controlling interests’ and redeemable non-controlling interests’ claims under the HLBV method at the start and end of each reporting period, after considering any capital transactions, such as contributions or distributions, between the fund and the fund investors.

Attributing income and loss to the non-controlling interests and redeemable non-controlling interests under the HLBV method requires the use of significant assumptions and estimates to calculate the amounts that fund investors would receive upon a hypothetical liquidation. Changes in these assumptions and estimates can have a significant impact on the amount that fund investors would receive upon a hypothetical liquidation. The use of the HLBV methodology to allocate income to the non-controlling and redeemable non-controlling interest holders may create volatility in the Company’s consolidated statements of operations as the application of HLBV can drive changes in net income available and loss attributable to non-controlling interests and redeemable non-controlling interests from quarter to quarter.

The Company classifies certain non-controlling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets. Estimated redemption value is calculated as the discounted cash flows subsequent to the expected flip date of the respective investment funds. Redeemable non-controlling interests are reported using the greater of their carrying value at each reporting date as determined by the HLBV method or their estimated redemption value in each reporting period. Estimating the redemption value of the redeemable non-controlling interests requires the use of significant assumptions and estimates. Changes in these assumptions and estimates can have a significant impact on the calculation of the redemption value.

Loss Contingencies

The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset, or the incurrence of a liability, as well as the Company’s ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether an accrual is required, an accrual should be adjusted or a range of possible loss should be disclosed.

Segment Information

The Company’s chief operating decision maker is its chief executive officer. The chief executive officer reviews financial information for purposes of allocating resources and evaluating financial performance. The Company has one business activity, providing solar energy services and products to customers. Accordingly, the Company has a single operating and reporting segment.

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 currently anticipates that the impact of adopting this update on its consolidated financial statements will not be significant.

v3.20.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3.Fair Value Measurements

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

 

December 31, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

3,245

 

 

$

 

 

$

3,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

28,070

 

 

$

 

 

$

28,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 which 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 assets as of December 31, 2019 include interest rate swaps for the Warehouse Facility, which are not designated as hedges. Financial liabilities as of December 31, 2019 include interest rate swaps for the Solar Asset Backed Notes, Series 2018-2, which are designated as hedges. Financial assets as of December 31, 2018 primarily related to interest rate swaps for the Aggregation Facility, which were not designated as hedges. Financial liabilities as of December 31, 2018 included interest rate swaps for the Aggregation Facility, which were not designated as hedges, and interest rate swaps for the Solar Asset Backed Notes, Series 2018-2, which are designated as hedges. See Note 11—Debt Obligations for additional details about these debt instruments.

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

 

December 31, 2019

 

 

December 31, 2018

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Floating-rate long-term debt

$

894,907

 

 

$

894,907

 

 

$

587,358

 

 

$

587,358

 

Fixed-rate long-term debt

 

629,908

 

 

 

702,895

 

 

 

653,031

 

 

 

673,917

 

Subtotal long-term debt

 

1,524,815

 

 

$

1,597,802

 

 

 

1,240,389

 

 

$

1,261,275

 

Unamortized debt issuance costs

 

(25,154

)

 

 

 

 

 

 

(24,952

)

 

 

 

 

Total long-term debt

$

1,499,661

 

 

 

 

 

 

$

1,215,437

 

 

 

 

 

  

The Company’s outstanding balance of long-term debt is carried at cost net of unamortized debt issuance costs, where applicable. See Note 11—Debt Obligations. 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.

v3.20.1
Inventories
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Inventories

4.Inventories

Inventories consisted of the following (in thousands):

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Solar energy systems held for sale

$

19,892

 

 

$

12,321

 

Photovoltaic installation products

 

684

 

 

 

936

 

Total inventories

$

20,576

 

 

$

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 FIFO basis, or net realizable value. Photovoltaic installation products are stated at the lower of cost, on an average cost basis, or net realizable value.

v3.20.1
Solar Energy Systems
12 Months Ended
Dec. 31, 2019
Solar Energy Systems Disclosure [Abstract]  
Solar Energy Systems

5.Solar Energy Systems

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

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

System equipment costs

$

1,926,809

 

 

$

1,667,440

 

Initial direct costs related to solar energy systems

 

 

 

 

435,084

 

 

 

1,926,809

 

 

 

2,102,524

 

Less: Accumulated depreciation and amortization

 

(205,338

)

 

 

(195,890

)

 

 

1,721,471

 

 

 

1,906,634

 

Solar energy system inventory

 

38,390

 

 

 

32,240

 

Solar energy systems, net

$

1,759,861

 

 

$

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 $56.4 million for the year ended December 31, 2019 and depreciation and amortization expense related to solar energy systems of $66.3 million for the year ended December 31, 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.

v3.20.1
Property and Equipment
12 Months Ended
Dec. 31, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

6.Property and Equipment

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

 

 

Estimated

 

December 31,

 

 

December 31,

 

 

 

Useful Lives

 

2019

 

 

2018

 

Leasehold improvements

 

1-12 years

 

$

10,458

 

 

$

10,560

 

Vehicles acquired under finance leases

 

3-4 years

 

 

10,280

 

 

 

6,907

 

Furniture and computer and other equipment

 

3-5 years

 

 

5,021

 

 

 

3,816

 

 

 

 

 

 

25,759

 

 

 

21,283

 

Less: Accumulated depreciation and amortization

 

 

 

 

(8,259

)

 

 

(10,553

)

Property and equipment, net

 

 

 

$

17,500

 

 

$

10,730

 

The Company recorded depreciation and amortization expense related to property and equipment of $2.8 million and $4.8 million for the years ended December 31, 2019 and 2018.

v3.20.1
Other Non-Current Assets
12 Months Ended
Dec. 31, 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):

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Costs to obtain contracts

$

615,385

 

 

$

 

Accumulated amortization of costs to obtain contracts

 

(70,170

)

 

 

 

Prepaid inventory

 

50,104

 

 

 

 

Operating lease right-of-use assets

 

39,118

 

 

 

 

Sales incentives

 

10,008

 

 

 

8,588

 

Debt issuance costs

 

9,936

 

 

 

2,415

 

Prepaid insurance

 

6,541

 

 

 

6,890

 

Advances receivable from sales professionals

 

6,395

 

 

 

5,109

 

Solar Lease straight-line asset

 

5,722

 

 

 

3,402

 

Other non-current assets

 

7,023

 

 

 

1,686

 

Total other non-current assets

$

680,062

 

 

$

28,090

 

The Company recorded amortization of costs to obtain contracts of $23.2 million for the year ended December 31, 2019 due to the adoption of Topic 842. See Note 2—Summary of Significant Accounting Policies. Costs to obtain contracts are amortized over the period of benefit, which is typically 20 years.

v3.20.1
Intangible Assets
12 Months Ended
Dec. 31, 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):

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Cost:

 

 

 

 

 

 

 

Internal-use software

$

2,596

 

 

$

1,020

 

Developed technology

 

522

 

 

 

522

 

Trademarks/trade names

 

201

 

 

 

201

 

Total carrying value

 

3,319

 

 

 

1,743

 

Accumulated amortization:

 

 

 

 

 

 

 

Internal-use software

 

(105

)

 

 

(781

)

Developed technology

 

(393

)

 

 

(324

)

Trademarks/trade names

 

(119

)

 

 

(99

)

Total accumulated amortization

 

(617

)

 

 

(1,204

)

Total intangible assets, net

$

2,702

 

 

$

539

 

The Company recorded amortization expense of $0.2 million and $0.5 million for the years ended December 31, 2019 and 2018, which is included within general and administrative expense on the consolidated statements of operations. Internal-use software includes approximately $2.4 million related to capitalized implementation costs incurred during the implementation of the Company’s enterprise resource planning system, which is a cloud computing arrangement that is a service contract. The capitalized implementation costs are an intangible asset that is in process and not yet subject to amortization. The Company will begin to amortize this intangible asset over the length of the service contract, which is five years, when it is placed into service, which was January 2020.


As of December 31, 2019, expected amortization expense for the unamortized intangible assets was as follows (in thousands):

Years Ending December 31,

 

 

 

2020

$

635

 

2021

 

605

 

2022

 

495

 

2023

 

492

 

2024

 

475

 

Thereafter

 

 

Total

$

2,702

 

 

v3.20.1
Accrued Compensation
12 Months Ended
Dec. 31, 2019
Accrued Compensation Disclosure [Abstract]  
Accrued Compensation

9.Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued payroll

$

18,633

 

 

$

16,352

 

Accrued commissions

 

15,516

 

 

 

9,168

 

Total accrued compensation

$

34,149

 

 

$

25,520

 

 

v3.20.1
Accrued and Other Current Liabilities
12 Months Ended
Dec. 31, 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):

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued unused commitment fees and interest

$

16,995

 

 

$

14,102

 

Litigation settlement

 

12,780

 

 

 

100

 

Current portion of operating lease liabilities

 

8,436

 

 

 

 

Accrued workers' compensation

 

7,166

 

 

 

4,033

 

Accrued professional fees

 

5,546

 

 

 

6,150

 

Current portion of lease pass-through financing obligation

 

5,147

 

 

 

5,038

 

Accrued inventory

 

4,667

 

 

 

4,380

 

Sales, use and property taxes payable

 

4,321

 

 

 

3,132

 

Workmanship accrual

 

4,217

 

 

 

2,630

 

External customer experience services

 

1,984

 

 

 

 

Other accrued expenses

 

7,280

 

 

 

3,295

 

Total accrued and other current liabilities

$

78,539

 

 

$

42,860

 

 

v3.20.1
Debt Obligations
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Debt Obligations

11.Debt Obligations

Debt obligations consisted of the following as of December 31, 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)

$

448,277

 

 

$

(69

)

 

$

(8,414

)

 

$

3,639

 

 

$

436,155

 

 

$

 

 

 

5.1

%

 

October 2028

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

 

338,294

 

 

 

(5

)

 

 

(6,133

)

 

 

1,245

 

 

 

330,911

 

 

 

 

 

 

5.5

 

 

August 2023

2017 Term loan facility

 

180,365

 

 

 

(164

)

 

 

(4,235

)

 

 

7,882

 

 

 

168,084