VIVINT SOLAR, INC., 10-Q filed on 5/8/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 01, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
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 Common Stock, Shares Outstanding   115,328,684
v3.8.0.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 78,466 $ 108,452
Accounts receivable, net 18,236 19,665
Inventories 15,790 22,597
Prepaid expenses and other current assets 22,234 34,049
Total current assets 134,726 184,763
Restricted cash and cash equivalents 47,773 46,486
Solar energy systems, net 1,727,479 1,673,532
Property and equipment, net 13,315 15,078
Intangible assets, net 725 862
Prepaid tax asset, net   505,883
Other non-current assets, net 41,763 37,325
TOTAL ASSETS [1] 1,965,781 2,463,929
Current liabilities:    
Accounts payable 40,751 40,736
Accounts payable—related party 529 163
Distributions payable to non-controlling interests and redeemable non-controlling interests 7,501 16,437
Accrued compensation 19,890 20,992
Current portion of long-term debt 13,566 13,585
Current portion of deferred revenue 24,255 41,846
Current portion of capital lease obligation 3,439 4,166
Accrued and other current liabilities 25,989 29,675
Total current liabilities 135,920 167,600
Long-term debt, net of current portion 959,187 925,964
Deferred revenue, net of current portion 11,311 29,200
Capital lease obligation, net of current portion 1,226 1,599
Deferred tax liability, net 356,984 342,382
Other non-current liabilities 12,623 13,674
Total liabilities [1] 1,477,251 1,480,419
Commitments and contingencies (Note 17)
Redeemable non-controlling interests 130,107 122,444
Stockholders’ equity:    
Common stock, $0.01 par value—1,000,000 authorized, 115,329 shares issued and outstanding as of March 31, 2018; 1,000,000 authorized, 115,099 shares issued and outstanding as of December 31, 2017 1,153 1,151
Additional paid-in capital 562,962 559,788
Accumulated other comprehensive income 13,694 6,905
(Accumulated deficit) retained earnings (277,015) 213,107
Total stockholders’ equity 300,794 780,951
Non-controlling interests 57,629 80,115
Total equity 358,423 861,066
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY $ 1,965,781 $ 2,463,929
[1] The Company’s assets as of March 31, 2018 and December 31, 2017 include $1,563.5 million and $1,516.2 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 $1,532.9 million and $1,486.0 million as of March 31, 2018 and December 31, 2017; cash and cash equivalents of $12.9 million and $17.3 million as of March 31, 2018 and December 31, 2017; accounts receivable, net, of $9.4 million and $5.1 million as of March 31, 2018 and December 31, 2017; other non-current assets, net of $7.6 million and $6.8 million as of March 31, 2018 and December 31, 2017; and prepaid expenses and other current assets of $0.8 million and $1.0 million as of March 31, 2018 and December 31, 2017. The Company’s liabilities as of March 31, 2018 and December 31, 2017 included $23.9 million and $58.4 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 $7.5 million and $16.4 million as of March 31, 2018 and December 31, 2017; deferred revenue of $10.5 million and $36.0 million as of March 31, 2018 and December 31, 2017; accrued and other current liabilities of $4.5 million as of March 31, 2018 and December 31, 2017; and other non-current liabilities of $1.5 million and $1.4 million as of March 31, 2018 and December 31, 2017. For further information see Note 12—Investment Funds.
v3.8.0.1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common stock, shares issued 115,329,000 115,099,000
Common stock, shares outstanding 115,329,000 115,099,000
Total assets [1] $ 1,965,781 $ 2,463,929
Solar energy systems, net 1,727,479 1,673,532
Cash and cash equivalents 78,466 108,452
Accounts receivable, net 18,236 19,665
Other non-current assets, net 41,763 37,325
Prepaid expenses and other current assets 22,234 34,049
Total liabilities [1] 1,477,251 1,480,419
Distributions payable to non-controlling interests and redeemable non-controlling interests 7,501 16,437
Accrued and other current liabilities 25,989 29,675
Other non-current liabilities 12,623 13,674
Variable Interest Entities    
Total assets 1,563,518 1,516,190
Solar energy systems, net 1,532,897 1,486,023
Cash and cash equivalents 12,937 17,280
Accounts receivable, net 9,350 5,143
Other non-current assets, net 7,560 6,792
Prepaid expenses and other current assets 774 952
Total liabilities 23,893 58,382
Distributions payable to non-controlling interests and redeemable non-controlling interests 7,501 16,437
Deferred revenue 10,500 36,000
Accrued and other current liabilities 4,457 4,478
Other non-current liabilities $ 1,458 $ 1,444
[1] The Company’s assets as of March 31, 2018 and December 31, 2017 include $1,563.5 million and $1,516.2 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 $1,532.9 million and $1,486.0 million as of March 31, 2018 and December 31, 2017; cash and cash equivalents of $12.9 million and $17.3 million as of March 31, 2018 and December 31, 2017; accounts receivable, net, of $9.4 million and $5.1 million as of March 31, 2018 and December 31, 2017; other non-current assets, net of $7.6 million and $6.8 million as of March 31, 2018 and December 31, 2017; and prepaid expenses and other current assets of $0.8 million and $1.0 million as of March 31, 2018 and December 31, 2017. The Company’s liabilities as of March 31, 2018 and December 31, 2017 included $23.9 million and $58.4 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 $7.5 million and $16.4 million as of March 31, 2018 and December 31, 2017; deferred revenue of $10.5 million and $36.0 million as of March 31, 2018 and December 31, 2017; accrued and other current liabilities of $4.5 million as of March 31, 2018 and December 31, 2017; and other non-current liabilities of $1.5 million and $1.4 million as of March 31, 2018 and December 31, 2017. For further information see Note 12—Investment Funds.
v3.8.0.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Revenue:    
Operating leases and incentives $ 31,114 $ 30,389
Solar energy system and product sales 37,136 22,725
Total revenue 68,250 53,114
Cost of revenue:    
Cost of revenue—operating leases and incentives 38,687 35,070
Cost of revenue—solar energy system and product sales 26,045 18,665
Total cost of revenue 64,732 53,735
Gross profit (loss) 3,518 (621)
Operating expenses:    
Sales and marketing 11,125 8,818
Research and development 486 896
General and administrative 19,851 20,579
Amortization of intangible assets 136 140
Total operating expenses 31,598 30,433
Loss from operations (28,080) (31,054)
Interest expense 16,922 14,721
Other (income) expense, net (2,261) 276
Loss before income taxes (42,741) (46,051)
Income tax expense 18,643 9,401
Net loss (61,384) (55,452)
Net loss attributable to non-controlling interests and redeemable non-controlling interests (48,408) (68,744)
Net (loss attributable) income available to common stockholders $ (12,976) $ 13,292
Net (loss attributable) income available per share to common stockholders:    
Basic $ (0.11) $ 0.12
Diluted $ (0.11) $ 0.11
Weighted-average shares used in computing net (loss attributable) income available per share to common stockholders:    
Basic 115,155 110,765
Diluted 115,155 116,398
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]    
Net (loss attributable) income available to common stockholders $ (12,976) $ 13,292
Other comprehensive income (loss):    
Unrealized gains (losses) on cash flow hedging instruments (net of tax effect of $1,394 and $(18)) 3,749 (28)
Less: Interest income (expense) on derivatives recognized into earnings (net of tax effect of $103 and $(60)) 278 (90)
Total other comprehensive income (loss) 3,471 (118)
Comprehensive (loss) income $ (9,505) $ 13,174
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]    
Unrealized losses on cash flow hedging instruments, tax $ 1,394 $ (18)
Interest expense on derivatives recognized into earnings, tax $ 103 $ (60)
v3.8.0.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (61,384) $ (55,452)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Depreciation and amortization 16,307 14,162
Amortization of intangible assets 136 140
Deferred income taxes 18,969 36,125
Stock-based compensation 2,969 3,922
Loss on solar energy systems and property and equipment 570 2,025
Non-cash interest and other expense 2,007 2,126
Reduction in lease pass-through financing obligation (687) (649)
(Gains) losses on interest rate swaps (2,262) 276
Changes in operating assets and liabilities:    
Accounts receivable, net 1,429 (4,481)
Inventories 6,807 (2,115)
Prepaid expenses and other current assets 11,746 27,901
Prepaid tax asset, net   (24,181)
Other non-current assets, net 385 (3,861)
Accounts payable 374 641
Accrued compensation (2,351) (1,763)
Deferred revenue (9,083) 2,109
Accrued and other liabilities (103) 6,473
Net cash (used in) provided by operating activities (14,171) 3,398
CASH FLOWS FROM INVESTING ACTIVITIES:    
Payments for the cost of solar energy systems (72,208) (75,140)
Payments for property and equipment (40) (278)
Proceeds from disposals of solar energy systems and property and equipment 775 171
Net cash used in investing activities (71,473) (75,247)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from investment by non-controlling interests and redeemable non-controlling interests 42,771 58,560
Distributions paid to non-controlling interests and redeemable non-controlling interests (18,122) (15,027)
Proceeds from long-term debt 40,000 253,750
Payments on long-term debt (7,748) (141,159)
Payments for debt issuance and deferred offering costs   (10,430)
Proceeds from lease pass-through financing obligation 852 852
Principal payments on capital lease obligations (1,015) (1,196)
Proceeds from issuance of common stock 207 147
Net cash provided by financing activities 56,945 145,497
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS (28,699) 73,648
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—Beginning of period 154,938 123,439
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—End of period 126,239 197,087
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Accrued distributions to non-controlling interests and redeemable non-controlling interests (8,936) (10,228)
Change in fair value of interest rate swaps 7,024 (473)
Costs of solar energy systems included in changes in accounts payable, accounts payable—related party, accrued compensation and accrued and other liabilities (2,518) (5,266)
Vehicles acquired under capital leases 199 98
Solar energy system sales    
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Receivable for state tax credits recorded as a reduction to solar energy system costs $ 4 $ 52
v3.8.0.1
Organization
3 Months Ended
Mar. 31, 2018
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 the investment tax credits, 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.

v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
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 regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K dated as of March 7, 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 three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2018 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 variable interest entities (“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 12—Investment Funds.

Certain prior period amounts have been reclassified to conform to current year presentation. These reclassifications did not have a significant impact on the consolidated financial statements.

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, investment tax credits (“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.

Revenue from Contracts with Customers

The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”) effective January 1, 2018 using the modified retrospective method with a cumulative adjustment to retained earnings as of January 1, 2018. As such, only the current period presented in the Company’s condensed consolidated statements of operations has been reported using the new revenue standard. The Company has applied Topic 606 to all customer contracts not completed by the initial date of application.

The Company currently accounts for PPAs, Solar Leases, and associated rebates and incentives as minimum lease payments from operating leases under ASC 840, Leases. However, the Company has determined that these agreements do not meet the definition of a lease under ASC 842, Leases, and these agreements will be accounted for in accordance with Topic 606 after the adoption of ASC 842. The revenue associated with these contracts with customers is currently shown together on the condensed consolidated statement of operations as revenue from operating leases and incentives. The Company will adopt ASC 842 effective January 1, 2019. The Company has determined that under Topic 606 there will be no change from current revenue recognition practices for its PPA revenue stream. For the Company’s Solar Leases, the Company has concluded that the impact of adopting Topic 606 will be immaterial. Revenue from all of the Company’s Solar Leases will be recognized on a straight-line basis over the contractual term; currently a significant majority of Solar Leases are already recognized on a straight-line basis. The Company has also concluded that there will be no material change related to the timing of revenue recognition for rebates and incentives.

The Company has analyzed the impact of Topic 606 on System Sales and other product sales and has concluded that the revenue recognition associated with these product sales did not change in the condensed consolidated financial statements. The Company will continue to show this revenue stream as solar energy system and product sales in the condensed consolidated statement of operations. 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 to the customer. 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 March 31, 2018 and December 31, 2017, the Company had allocated deferred revenue of $2.5 million and $2.1 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.

The Company has assessed the impact of Topic 606 as it relates to the sales of ITCs through its lease pass-through fund arrangement. The Company has concluded that revenue related to the sale of ITCs through its lease pass-through arrangement is recognized when the related solar energy systems are placed in service as the Company has completed its performance obligation to transfer ITCs to the fund investors at that time. The fund investors contributed cash to the investment fund during the installation process as payment for the ITCs. The transaction price for the ITCs was estimated using the tax credit rate of 30% multiplied by the fair market value of the solar energy systems that were placed into service in the lease pass-through fund. All of the related solar energy systems were placed in service and all related revenue would have been recognized prior to September 30, 2016 under Topic 606. Prior to the adoption of Topic 606, the Company recognized this revenue evenly over the five-year ITC recapture period. This earlier recognition of the ITC lease pass-through revenue decreased revenue for the three months ended March 31, 2018 by $2.4 million and would have decreased revenue for the three months ended March 31, 2017 by $2.4 million. As all ITC sales revenue would have been recognized prior to September 30, 2016 under Topic 606, there is no deferred revenue related to ITC sales as of March 31, 2018, and there would have been no deferred revenue as of December 31, 2017. As shown below, the cumulative adjustment related to ITC revenue recognized into retained earnings, net of tax, as of January 1, 2018 was $19.2 million.

As noted above, the Company adopted Topic 606 on a modified retrospective basis. However, if the Company adjusted the comparative period to reflect the adoption of Topic 606, the following adjustments would have been made to the condensed consolidated statement of operations for the three months ended March 31, 2017 (in thousands, except per share data):

 

As Previously

 

 

Revenue

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Adjusted

 

Revenue

$

53,114

 

 

$

(2,364

)

 

$

50,750

 

Income tax expense

 

9,401

 

 

 

(946

)

 

 

8,455

 

Net income available to common shareholders

 

13,292

 

 

 

(1,418

)

 

 

11,874

 

Diluted earnings per share

 

0.11

 

 

 

(0.01

)

 

 

0.10

 

Additionally, the following adjustments would have been made to the condensed consolidated balance sheet as of December 31, 2017 (in thousands):

 

As Previously

 

 

Revenue

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Adjusted

 

Current portion of deferred revenue

$

41,846

 

 

$

(7,707

)

 

$

34,139

 

Deferred revenue, net of current portion

 

29,200

 

 

 

(18,690

)

 

 

10,510

 

Deferred tax liability, net

 

342,382

 

 

 

7,160

 

 

 

349,542

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

213,107

 

 

 

(19,237

)

 

 

193,870

 

Income Taxes

The Company adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), effective January 1, 2018 using the modified retrospective method by removing the prepaid tax asset, net and recording a cumulative adjustment to retained earnings of $493.1 million and to deferred tax liability, net of $12.8 million as of January 1, 2018. As such, only the current period presented in the Company’s condensed consolidated statements of operations has been reported using the new accounting standard. The Company now 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 adoption of ASU 2016-16 had the following effect on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2018 (in thousands, except per share data):

 

Pre-Adoption

 

 

Effect of

 

 

 

 

 

 

Accounting

 

 

Adoption

 

 

As Reported

 

Income tax expense

$

5,781

 

 

$

12,862

 

 

$

18,643

 

Net loss

 

(48,522

)

 

 

(12,862

)

 

 

(61,384

)

Net loss attributable to common shareholders

 

(114

)

 

 

(12,862

)

 

 

(12,976

)

Basic earnings per share

 

(0.00

)

 

 

(0.11

)

 

 

(0.11

)

Diluted earnings per share

 

(0.00

)

 

 

(0.11

)

 

 

(0.11

)

The Company adopted ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), effective January 1, 2018. As permitted by ASU 2018-02, the Company has elected to reclassify the income tax effects of the Tax Cuts and Jobs Act (the “TCJA”) on items within accumulated other comprehensive income (“AOCI”) to retained earnings. The Company applied the amendments in this update in the period of adoption. The total amount the Company reclassified to retained earnings as a result of adopting ASU 2018-02 was approximately $1.5 million. After applying this update, the Company had no stranded tax effects remaining in AOCI.

Derivative Financial Instruments

The Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), effective January 1, 2018. This update made targeted improvements to accounting for hedging activities by simplifying certain documentation and assessment requirements and eliminating the requirement to separately measure and report hedge ineffectiveness. The Company applied this update using a modified retrospective method to eliminate the separate measurement of hedge ineffectiveness by recording a cumulative-effect adjustment to retained earnings as of January 1, 2018. The net amount the Company recorded to retained earnings as a result of adopting ASU 2017-12 was approximately $1.8 million.


Restricted Cash

The Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”), effective January 1, 2018. This update clarified that transfers between cash and restricted cash are not reported as cash flow activities in the statements of cash flows. As such, restricted cash amounts are included with cash and cash equivalents in the beginning-of-period and end-of-period total amounts on the statements of cash flows. The Company applied this update retrospectively, which resulted in an adjustment to the beginning-of-period and end-of-period total amounts on the condensed consolidated statement of cash flows for the three months ended March 31, 2017 to include restricted cash balances from those periods.

Recent Accounting Pronouncements

New Lease Guidance

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842). The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update primarily changes the recognition by lessees of lease assets and liabilities for leases currently classified as operating leases. Lessor accounting remains largely unchanged. This update is effective in fiscal years beginning after December 15, 2018 for public business entities and early adoption is permitted. The amendments are required to be applied using a modified retrospective approach. The Company will adopt this ASU effective January 1, 2019. The Company has operating leases that will be affected by this update and the Company is still evaluating the full impact on its condensed consolidated financial statements and related disclosures. The impact is not expected to be significant to the Company’s condensed consolidated financial statements.

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2018
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 measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

March 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

19,772

 

 

$

 

 

$

19,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

14,028

 

 

$

 

 

$

14,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

1,280

 

 

$

 

 

$

1,280

 

 

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. The Company did not realize gains or losses related to financial assets for any of the periods presented.

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

 

March 31, 2018

 

 

December 31, 2017

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Floating-rate long-term debt

$

792,191

 

 

$

792,191

 

 

$

757,044

 

 

$

757,044

 

Fixed-rate long-term debt

 

196,168

 

 

 

225,629

 

 

 

199,063

 

 

 

238,618

 

Total

$

988,359

 

 

$

1,017,820

 

 

$

956,107

 

 

$

995,662

 

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 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 corporate debt with similar terms.


v3.8.0.1
Inventories
3 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Inventories

4.

Inventories

Inventories consisted of the following (in thousands):

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Solar energy systems held for sale

$

14,982

 

 

$

21,971

 

Photovoltaic installation products

 

808

 

 

 

626

 

Total inventories

$

15,790

 

 

$

22,597

 

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.

v3.8.0.1
Solar Energy Systems
3 Months Ended
Mar. 31, 2018
Solar Energy Systems Disclosure [Abstract]  
Solar Energy Systems

5.

Solar Energy Systems

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

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

System equipment costs

$

1,484,019

 

 

$

1,437,419

 

Initial direct costs related to solar energy systems

 

355,164

 

 

 

336,136

 

 

 

1,839,183

 

 

 

1,773,555

 

Less: Accumulated depreciation and amortization

 

(145,016

)

 

 

(129,640

)

 

 

1,694,167

 

 

 

1,643,915

 

Solar energy system inventory

 

33,312

 

 

 

29,617

 

Solar energy systems, net

$

1,727,479

 

 

$

1,673,532

 

 

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 and amortization expense related to solar energy systems of $15.4 million and $12.8 million for the three months ended March 31, 2018 and 2017.

v3.8.0.1
Property and Equipment
3 Months Ended
Mar. 31, 2018
Property Plant And Equipment [Abstract]  
Property and Equipment

6.

Property and Equipment

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

 

 

 

Estimated

 

March 31,

 

 

December 31,

 

 

 

Useful Lives

 

2018

 

 

2017

 

Vehicles acquired under capital leases

 

3-5 years

 

$

13,729

 

 

$

15,113

 

Leasehold improvements

 

1-12 years

 

 

12,284

 

 

 

15,071

 

Furniture and computer and other equipment

 

3 years

 

 

4,166

 

 

 

6,492

 

 

 

 

 

 

30,179

 

 

 

36,676

 

Less: Accumulated depreciation and amortization

 

 

 

 

(16,864

)

 

 

(21,598

)

Property and equipment, net

 

 

 

$

13,315

 

 

$

15,078

 

 

The Company recorded depreciation and amortization related to property and equipment of $1.7 million and $2.4 million for the three months ended March 31, 2018 and 2017.

The Company leases fleet vehicles that are accounted for as capital leases and are included in property and equipment, net. Of total property and equipment depreciation and amortization, depreciation on vehicles under capital leases of $0.7 million and $1.1 million was capitalized in solar energy systems, net for the three months ended March 31, 2018 and 2017.

v3.8.0.1
Intangible Assets
3 Months Ended
Mar. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

7.

Intangible Assets

Intangible assets, net consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Cost:

 

 

 

 

 

 

 

Internal-use software

$

1,199

 

 

$

1,314

 

Developed technology

 

522

 

 

 

522

 

Trademarks/trade names

 

201

 

 

 

201

 

Customer relationships

 

164

 

 

 

164

 

Total carrying value

 

2,086

 

 

 

2,201

 

Accumulated amortization:

 

 

 

 

 

 

 

Internal-use software

 

(863

)

 

 

(872

)

Developed technology

 

(274

)

 

 

(258

)

Trademarks/trade names

 

(85

)

 

 

(79

)

Customer relationships

 

(139

)

 

 

(130

)

Total accumulated amortization

 

(1,361

)

 

 

(1,339

)

Total intangible assets, net

$

725

 

 

$

862

 

 

The Company recorded amortization expense of $0.1 million for the three months ended March 31, 2018 and 2017, which was included in amortization of intangible assets.

v3.8.0.1
Accrued Compensation
3 Months Ended
Mar. 31, 2018
Accrued Compensation Disclosure [Abstract]  
Accrued Compensation

8.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued payroll

$

10,985

 

 

$

13,064

 

Accrued commissions

 

8,905

 

 

 

7,928

 

Total accrued compensation

$

19,890

 

 

$

20,992

 

 

v3.8.0.1
Accrued and Other Current Liabilities
3 Months Ended
Mar. 31, 2018
Payables And Accruals [Abstract]  
Accrued and Other Current Liabilities

9.

Accrued and Other Current Liabilities

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

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued unused commitment fees and interest

$

7,816

 

 

$

7,445

 

Current portion of lease pass-through financing obligation

 

4,953

 

 

 

4,931

 

Accrued professional fees

 

4,012

 

 

 

3,977

 

Sales, use and property taxes payable

 

2,732

 

 

 

3,046

 

Accrued workers' compensation

 

1,887

 

 

 

1,446

 

Workmanship accrual

 

1,404

 

 

 

1,359

 

Current portion of deferred rent

 

934

 

 

 

937

 

Accrued inventory

 

496

 

 

 

4,122

 

Other accrued expenses

 

1,755

 

 

 

2,412

 

Total accrued and other current liabilities

$

25,989

 

 

$

29,675

 

 

v3.8.0.1
Debt Obligations
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Debt Obligations

10.

Debt Obligations

Debt obligations consisted of the following as of March 31, 2018 (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

2017 Term loan facility

$

194,873

 

 

$

(172

)

 

$

(4,901

)

 

$

6,733

 

 

$

183,067

 

 

$

 

 

 

6.0

%

 

January 2035

2016 Term loan facility(1)

 

283,566

 

 

 

(125

)

 

 

(7,149

)

 

 

4,850

 

 

 

271,442

 

 

 

 

 

 

4.6

 

 

August 2021

Subordinated HoldCo facility

 

197,125

 

 

 

(32

)

 

 

(3,090

)

 

 

1,968

 

 

 

192,035

 

 

 

 

 

 

9.7

 

 

March 2020

Credit agreement

 

1,295

 

 

 

(2

)

 

 

(135

)

 

 

15

 

 

 

1,143

 

 

 

 

 

 

6.5

 

 

February 2023

Revolving lines of credit(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregation facility

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

175,000

 

 

 

200,000

 

 

 

4.8

 

 

September 2020

Working capital facility(3)

 

136,500

 

 

 

 

 

 

 

 

 

 

 

 

136,500

 

 

 

 

 

 

5.1

 

 

March 2020

Total debt

$

988,359

 

 

$

(331

)

 

$

(15,275

)

 

$

13,566

 

 

$

959,187

 

 

$

200,000

 

 

 

 

 

 

 

Debt obligations consisted of the following as of December 31, 2017 (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

2017 Term loan facility

$

197,764

 

 

$

(176

)

 

$

(4,990

)

 

$

6,644

 

 

$

185,954

 

 

$

 

 

 

6.0

%

 

January 2035

2016 Term loan facility(1)

 

287,919

 

 

 

(141

)

 

 

(7,623

)

 

 

4,962

 

 

 

275,193

 

 

 

 

 

 

4.3

 

 

August 2021

Subordinated HoldCo facility

 

197,625

 

 

 

(35

)

 

 

(3,451

)

 

 

1,965

 

 

 

192,174

 

 

 

 

 

 

9.3

 

 

March 2020

Credit agreement

 

1,299

 

 

 

(2

)

 

 

(140

)

 

 

14

 

 

 

1,143

 

 

 

 

 

 

6.5

 

 

February 2023

Revolving lines of credit(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregation facility

 

135,000

 

 

 

 

 

 

 

 

 

 

 

 

135,000

 

 

 

240,000

 

 

 

4.7

 

 

September 2020

Working capital facility(3)

 

136,500

 

 

 

 

 

 

 

 

 

 

 

 

136,500

 

 

 

 

 

 

4.8

 

 

March 2020

Total debt

$

956,107

 

 

$

(354

)

 

$

(16,204

)

 

$

13,585

 

 

$

925,964

 

 

$

240,000